ENSURANCE LIMITED
[2023] WASC 371
•28 SEPTEMBER 2023
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: ENSURANCE LIMITED [2023] WASC 371
CORAM: LUNDBERG J
HEARD: 28 SEPTEMBER 2023
DELIVERED : 28 SEPTEMBER 2023
PUBLISHED : 28 SEPTEMBER 2023
FILE NO/S: COR 129 of 2023
MATTER: IN THE MATTER OF ENSURANCE LIMITED
EX PARTE
ENSURANCE LIMITED
Plaintiff
Catchwords:
Corporations Law - Scheme of arrangement under s 411 of the Corporations Act 2001 (Cth) - Plaintiff insurance company to be wholly acquired by another insurance company - First court hearing - Whether appropriate for orders to be made convening scheme meeting and for dispatch of scheme booklet - No issue of principle arising - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 411, s 1319
Corporations Regulations 2001 (Cth), sch 8
Rules of the Supreme Court 1971 (WA), O 37 r 6(2)(d)
Supreme Court (Corporations) (WA) Rules 2004, r 1.8, r 2.4, r 3.2, r 3.4
Result:
Orders made to convene scheme meeting and for dispatch of scheme booklet
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr J M Healy |
| PSC Insurance Group Limited | : | Mr A J Papamatheos |
Solicitors:
| Plaintiff | : | Steinepreis Paganin |
| PSC Insurance Group Limited | : | Maddocks |
Case(s) referred to in decision(s):
FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69
Re Anatolia Energy Limited [2015] FCA 1134
Re DDH1 Limited (No 2) [2023] FCA 1046
Re Essential Metals Ltd [2023] FCA 240
Re NRMA Insurance Ltd (No 1) [2000] NSWSC 82; (2000) 156 FLR 349
Re SRG Limited [2018] FCA 1092
Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308
Table of Contents
A. Introduction
B. Evidence and submissions
C. Scheme booklet
D. Disposition
E. Orders
ATTACHMENT A
LUNDBERG J:
A. Introduction
On 8 August 2023, the plaintiff insurance company (Ensurance Limited) entered into a scheme implementation deed (SID) with PSC Insurance Group Limited (PSC), which was announced to the market on the same day.[1] The SID concerns a scheme of arrangement which involves the acquisition of all of the fully paid ordinary shares in the plaintiff by PSC. I will refer to the scheme in these reasons as the Share Scheme.
[1] The SID was later varied by the parties.
On 25 August 2023, the plaintiff filed an originating process seeking orders under ss 411(1) and 1319 of the Corporations Act 2001 (Cth) (CA)[2] in relation to the Share Scheme. At today's hearing, the plaintiff sought orders to convene a virtual scheme meeting (to be held on 2 November 2023) and associated orders for the dispatch of a scheme booklet. These orders represent the first stage of the scheme of arrangement approval process under s 411(1).
[2] References to statutory provisions in these reasons are to the CA unless stated otherwise.
The plaintiff and PSC are both public companies listed on the ASX. Ensurance operates an Australian-based underwriting agency, with a product suite that incudes professional, casualty and environmental lines. PSC is a multi-national insurance services group.
The Share Scheme itself is relatively straightforward, being essentially an acquisition scheme. Subject to satisfaction or waiver of certain conditions and approval being given by the court, the Share Scheme will become binding on the plaintiff and all of its shareholders. By operation of the Share Scheme, PSC will acquire all the shares in the plaintiff in exchange for the consideration to be provided to the plaintiff's shareholders, such that the plaintiff will then become a wholly owned subsidiary of PSC (and will be de-listed from the ASX).
The consideration to be paid under the Share Scheme is the greater of $25.2 million and 5,000,000 PSC shares, to be satisfied by way of the issue of 5,000,000 new shares in PSC. Any difference between the value of those shares and the purchase price of $25.2 million is to be paid in cash (resulting in approximately 0.056 new PSC shares for each share held in the plaintiff).
B. Evidence and submissions
Ensurance relied on several affidavits for the purposes of the first hearing of the application.
Ms Madeline Sky Ardon affirmed three affidavits, on 25 August 2023, then on 22 September 2023, and then a final affidavit was sworn this morning (First Ardon Affidavit, Second Ardon Affidavit and Third Ardon Affidavit). Ms Ardon is a solicitor with the firm which acts for the plaintiff.
An affidavit was affirmed by Mr Vaughan (Tom) Thales Kent on 22 September 2023 (Kent Affidavit). Mr Kent is the CEO of, and an Executive Director with, the plaintiff. He has been the CEO since January 2022.
PSC also filed an affidavit in support of the application, affirmed by Mr Joshua Reid on 26 September 2023 (Reid Affidavit). Mr Reid is the CFO at PSC and he has held that position since July 2015.
Counsel for the plaintiff provided the court with a detailed set of submissions dated 25 September 2023. Counsel for PSC, who appeared at the hearing with the leave of the court, similarly provided the court with an outline of submissions, dated 27 September 2023.
Additionally, I should mention that, following consultation with the Judge in Charge of the Corporations List, I caused an email to be sent by my Associate to the solicitors for the plaintiff to raise several matters in the interests of improving the efficiency and cost effectiveness of the scheme process from both the court's and the plaintiff's perspective.[3] The court considered this appropriate given the relatively low value of the transaction which underlies this present scheme application and given the steps which are presently being undertaken by the Harmonisation Committee, which have not yet concluded, to prepare a national Practice Note to advance such objectives in the context of scheme applications generally. The matters raised with the plaintiff were:[4]
(a)an indication that submissions may be brief unless any novel issues were raised by the proposed scheme;
(b)my view that the requirements of r 2.4(1) of the Supreme Court (Corporations) (WA) Rules 2004 (CorporationsRules) had been appropriately discharged in the First Ardon Affidavit;[5]
(c)an indication that the requirements of r 3.2 of the Corporations Rules may be dealt with by an affidavit sworn on information and belief;[6]
(d)an indication that a separate affidavit from the independent expert would not be required;
(e)an indication that, in the event ASIC gives a statement that it does not raise any objection to the proposed scheme, the court would not require the affidavits to annex copies of all email exchanges between the plaintiff's solicitors and ASIC. If there is any qualification to ASIC's position and the proponent wishes to make submissions on it, any submissions would need to be supported by appropriate evidence; and
(f)an invitation to counsel that he or she may wish to seek an order dispensing with the requirement in r 3.4(2) of the Corporations Rules for the advertisement of the second court hearing in a newspaper, provided some suitable alternative announcement process is proposed.
[3] Email to Ms Ardon sent on 30 August 2023.
[4] The communication from the court confirmed that these additional matters were naturally subject to any ex parte obligations of the parties.
[5] Rule 2.4(1) provides that: 'Unless the Court otherwise directs, an originating process, or interlocutory process, must be supported by an affidavit stating the facts in support of the process.'
[6] Rule 3.2 concerns the nomination of a chairperson and alternative chairperson for the purposes of a scheme meeting.
Further, and more generally, the court indicated that, in the event there were other aspects of the application which would benefit from a direction from the court, it would be receptive to such matters being addressed in a letter to the court setting out the matters in sufficient terms for the court to consider exercising the dispensation power in r 1.8 of the Corporations Rules.
As will be seen, the matters raised by the court were embraced by the plaintiff's legal advisors in preparing the materials for the purposes of today's first hearing.
C. Scheme booklet
On 11 September 2023, Ensurance lodged with ASIC a draft scheme booklet in respect of the proposed Share Scheme (Scheme Booklet). The draft Scheme Booklet is comprehensive and structured in a relatively orthodox fashion, explaining the relative advantages and disadvantages associated with the Share Scheme. The Scheme Booklet includes:
(a) the proposed Share Scheme to be put to Ensurance Shareholders;[7]
(b) the form of the deed poll to be executed by PSC before 5:00pm on the business day prior to the first hearing, pursuant to which PSC will undertake in favour of each shareholder of the plaintiff to fulfil its obligations under the SID and the proposed Share Scheme (Deed Poll);[8] and
(c) a draft independent expert's report (IER) prepared by RSM Corporate Australia Pty Ltd dated 11 September 2023 (Independent Expert) expressing the opinion that the proposed Share Scheme is fair and reasonable and therefore in the best interests of shareholders, in the absence of a superior proposal.[9]
[7] Scheme Booklet, Annexure B.
[8] Scheme Booklet, Annexure C. That Deed Poll has now been executed by PSC: Reid Affidavit [21] and Attachment JR-4.
[9] Scheme Booklet, Annexure A. The expert valued each of the shares in the plaintiff on a controlling basis prior to the implementation of the Share Scheme and compared that to the minimum scheme consideration for each share of the plaintiff.
This morning, the plaintiff provided the court with an updated Scheme Booklet and the updated IER, as attachments to the Third Ardon Affidavit. Counsel for the plaintiff drew my attention to certain changes to the Scheme Booklet which have been made through consultation with ASIC, none of which caused me any concern.
It is necessary to comment on only one of the changes, being the inclusion within the Scheme Booklet of worked examples concerning the scheme consideration outcomes for shareholders (noting the scheme consideration is variable, being dependent on PSC's share price and the total transaction costs).[10] The additional explanation of these matters provides useful information for the shareholders of the plaintiff and enables a more ready assessment to be undertaken on their part as to the likely scheme consideration each shareholder will receive if the scheme is voted up and ultimately approved by the court.
[10] Third Ardon Affidavit, Attachment MSA-15, pg 11 ‑ 12.
D. Disposition
It is well settled that the Court should order the convening of a scheme meeting and approve the dispatch of an explanatory statement if satisfied of the following matters:
(a) the scheme is an arrangement in respect of which the Court may order a meeting of the members or creditors: s 411(1). That is, the scheme is an arrangement, the company is a Part 5.1 Body, the scheme participants are members of the scheme company, and the scheme meeting will be convened between members of the same class;
(b)ASIC has had a reasonable opportunity to: (i) examine the terms of the scheme and explanatory statement; and (ii) make submissions to the Court in relation thereto: s 411(2)(b);
(c) the explanatory statement provides adequate disclosure: s 412(1)(a)(i) and contains the prescribed information (as required by s 412(1)(a)(ii), reg 5.1.01 and Sch 8 cl. 8301-8310 of the Corporations Regulations 2001 (Cth) (Corporations Regulations));
(d) the procedural requirements of the Rules have been met and an independent person will chair the scheme meeting;
(e)the proposed scheme is bona fide and properly proposed; and
(f)that there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of members' votes is achieved.
I am satisfied the Share Scheme meets the statutory requirements set out in s 411(1), as identified in [17(a)] above.
I am also satisfied, given the letter received from ASIC, that ASIC has had the requisite opportunity to examine the terms of the Share Scheme and explanatory statement, and make submissions to the court, as identified in [17(b)] above. A letter from ASIC dated 28 September was provided to the court confirming these matters and indicating that ASIC did not propose to appear to make submissions or intervene to oppose the Share Scheme at today's hearing.[11]
[11] Third Ardon Affidavit, Attachment MSA-16.
As to the adequacy of disclosure and compliance with the regulatory requirements, as identified in [17(c)] above, I have reviewed the Scheme Booklet and I also had regard to the detailed checklist which has been provided to the court by the plaintiff's solicitors. That checklist confirms the Scheme Booklet meets the requirements of Sch 8 to the Corporations Regulations as well as the requirements set out in ASIC Regulatory Guide 60.[12] The Scheme Booklet is of course required to essentially set out 'all the main facts as will enable shareholders to exercise their judgement on the proposed scheme': Re NRMA Insurance Ltd (No 1).[13] At the first hearing stage, the court should be satisfied, prima facie, that there has been proper disclosure with nothing misleading or deceptive in any material sense.[14]
[12] Plaintiff's Submissions, Appendix B.
[13] Re NRMA Insurance Ltd (No 1) [2000] NSWSC 82; (2000) 156 FLR 349 [16].
[14] Re NRMA Insurance Ltd (No 1)[3].
The plaintiff and PSC adduced evidence as to the verification process undertaken in respect of the Scheme Booklet. I am satisfied as to the reasonableness of the steps which have been taken in this regard.[15]
[15] Second Ardon Affidavit [19] ‑ [24]; First Kent Affidavit [47] ‑ [59] and Attachments VK-7 and VK-8 (Board resolutions of PSC and the plaintiff as to verification steps); Reid Affidavit [14] ‑ [20].
I am therefore satisfied that the Scheme Booklet provides adequate disclosure, contains the prescribed information, and has been appropriately verified.
As to the requirements provided for in the Rules, consent has been obtained from the proposed chairperson (and alternate) and I am satisfied as to the identity and interest of the proposed chairperson (and alternate).[16] I am also prepared to dispense with the usual notification requirements in respect of the second hearing, on the basis the plaintiff will give notice of the hearing through an ASX announcement rather than publishing the notice in a daily newspaper circulating generally in Western Australia (see r 3.4 of the Corporations Rules). In my view, publishing notice of the hearing in a newspaper seems less likely to provide actual notice to interested parties, relative to an ASX announcement which will also be available on the plaintiff's website.
[16] Second Ardon Affidavit [11] ‑ [14]; Kent Affidavit [41] ‑ [43].
Further, I consider it appropriate to make the order sought by the plaintiff pursuant to O 37 r 6(2)(d) of the Rules of the Supreme Court 1971 (WA) (RSC), to permit evidence of the dispatch of the Scheme Booklet to be adduced on information and belief. Order 37 RSC applies to these proceedings by reason of r 1.3(2) of the Corporations Rules. Counsel for PSC drew my attention to the fact that similar dispensing orders have been made in scheme applications in the Federal Court of Australia.[17] In any event, I consider such an order is appropriate given the value of the transaction which underpins the present application (which might be said to be at the lower end of value for scheme transactions) and given the continuing obligation of the plaintiff and counsel to draw the court's attention to any material matters at the second hearing, including any concerns which arise in the dispatch process. As counsel submitted:
This does not relieve a proponent from the need to put on compliant evidence on information and belief that is sufficiently probative (or to raise any issue or problem as to dispatch as part of the candour obligation), but it should reduce the need for numerous affidavits from printing personnel, collators, managers, courier collection and the like to prove compliance in the ordinary course.[18]
[17] Re DDH1 Limited (No 2) [2023] FCA 1046 and Re Essential Metals Ltd [2023] FCA 240.
[18] PSC's Submissions [14].
It is unnecessary to require the plaintiff to file the usual voluminous evidence going to dispatch issues where those matters are likely to be uncontentious. This approach is also consistent with the court's desire to secure the objects in O 1 r 4B RSC, particularly the efficient disposal of the business of the court and ensuring the procedures applicable, and the costs of the procedures to the parties and the State, are proportionate to the value, importance and complexity of the subject matter in dispute.
Counsel for the plaintiff identified in his outline of submissions several aspects of the Share Scheme which he appropriately considered should be drawn to the court's attention. Those matters were as follows: the performance risk associated with the Share Scheme, the exclusivity provisions in the SID, the mutual break fee provisions in the SID, the terms of the directors' recommendation, and the proposed outbound communications with shareholders.[19] Counsel for PSC similarly identified in his submissions several matters of particular note.[20] Each of these matters is dealt with by the plaintiff in the Share Scheme, or through additional steps being taken, in a manner which is entirely within established principle. It is unnecessary to elaborate further on these matters in the circumstances.
[19] Plaintiff's Submissions [23] ‑ [33]. I note in particular it is not the plaintiff's intention to appoint independent parties to promote the Share Scheme and that other than discussions with individual professional and sophisticated shareholders, it is not the plaintiff's intention to promote the Share Scheme further.
[20] PSC's Submissions [3] ‑ [12].
As to the overall assessment of the Share Scheme, the relevant standard of review is as follows:
… the standard of review is whether the proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members. If the proposed arrangement is one that seems fit for consideration by a meeting of members and is a commercial proposition likely to gain the Court's approval if passed by the necessary majority, then leave should be given to convene the meeting.[21]
[21] Re SRG Limited [2018] FCA 1092 [12]; See also Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308 [72] - [76].
The following further propositions, which are uncontroversial, guide the court in its assessment of a scheme application at the first hearing. First, it is well accepted that the court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the members' meeting, the court would be likely to approve it on the hearing of the petition which is unopposed.[22] Second, the role of the court at the first stage of the process of a company propounding and implementing a scheme of arrangement is not to scrutinise the commercial merits (or demerits) of whether the scheme should be approved.[23] Finally, the approval decision must await the expression of the will of the members at the meeting and any argument that may be advanced on behalf of dissenting members or other interested parties at the time of the application for approval.[24]
[22] FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69, 72.
[23] Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd (No 2) [72] - [75].
[24] Re Anatolia Energy Limited [2015] FCA 1134 [28] and Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd (No 2) [73].
I am satisfied on the materials presented there is no apparent reason why the present Share Scheme should not, in due course, receive the court's approval if the necessary majority of votes is achieved. The proposed arrangement, by which the plaintiff will be wholly acquired by PSC, is one that seems fit for consideration by a meeting of members and is a commercial proposition likely to gain the court's approval if passed by the necessary majority. Among other things, the evidence indicates that the implied value of the scheme consideration represents a 40% premium to the closing price of shares in Ensurance.[25]
[25] Kent Affidavit [12].
Accordingly, I considered it appropriate to make the orders sought by the plaintiff to convene the meeting of its members and to approve the dispatch of the Scheme Booklet.
E. Orders
The orders I made at the hearing on 28 September 2023 are set out in Attachment A to these reasons.
ATTACHMENT A
ORDERS MADE AT THE HEARING ON 28 SEPTEMBER 2023
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
SAO
Associate to the Honourable Justice Lundberg
28 SEPTEMBER 2023
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