Ensurance Limited [No 2]
[2023] WASC 431
•10 NOVEMBER 2023
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: ENSURANCE LIMITED [No 2] [2023] WASC 431
CORAM: LUNDBERG J
HEARD: 7 NOVEMBER 2023
DELIVERED : 7 NOVEMBER 2023
PUBLISHED : 10 NOVEMBER 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 - Second court hearing - Whether orders should be made to approve scheme - No issue of principle arising - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 411, s 1319
Consolidated Practice Direction 9.5.2
Result:
Scheme approved
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr J M Healy |
| Interested Party | : | Mr A J Papamatheos |
Solicitors:
| Plaintiff | : | Steinepreis Paganin |
| Interested Party | : | Maddocks |
Case(s) referred to in decision(s):
Bombardier Transportation Australia Pty Ltd v Alstom Transport Australia Pty Limited (No 2)[2022] FCA 880
CSR Limited, in the matter of CSR Limited [2010] FCAFC 34; (2010) 183 FCR 358
Ensurance Limited [2023] WASC 371
Fowler v Lindholm, in the matter of Opes Prime Stockbroking Limited [2009] FCAFC 125 (2009); 178 FCR 563
In the matter of Foundation Healthcare Limited (No 2) [2002] FCA 973; (2002) 43 ACSR 680
NRMA Insurance Limited [2000] NSWSC 408; (2000) 34 ACSR 261
Permanent Trustee Company [2002] NSWSC 1177; (2002) 43 ACSR 601
Re International Goldfields Ltd [2004] WASC 112
Re Ozgrowth Ltd; Ex parte Ozgrowth Ltd [No 2] [2022] WASC 167
Re Ranger Minerals Ltd; Ex parte Ranger Minerals Ltd [2002] WASC 207; (2002) 42 ACSR 582
Re Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583
Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [2018] WASC 308
LUNDBERG J
(This judgment was delivered ex temporaneously on 7 November 2023 and has been edited from the transcript to correct matters of grammar, add headings, and include complete footnotes and references.)
A. Introduction
These reasons relate to the second hearing of the plaintiff's application brought under s 411(1) and s 1319 of the Corporations Act 2001 (Cth)[1] for approval in respect of a scheme of arrangement (which I will refer to as the Share Scheme).[2]
[1] References to statutory provisions in these reasons are to the Corporations Act 2001 (Cth) unless stated otherwise.
[2] Originating Process dated 25 August 2023, proposed orders 6 - 9.
The Share Scheme involves the acquisition of all of the fully paid ordinary shares in the plaintiff by PSC Insurance Group Limited (PSC).
These reasons should be read together with my earlier reasons delivered on 28 September 2023,[3] in which orders were made to convene a virtual scheme meeting. Associated orders were also made for the dispatch of the scheme booklet (Scheme Booklet).[4] The Share Scheme itself is conveniently found as Annexure B to the Scheme Booklet.[5]
[3] Ensurance Limited [2023] WASC 371.
[4] The Scheme Booklet is Attachment NL-1 to the Lewis Affidavit (pages 16 - 244).
[5] Lewis Affidavit (pages 209 - 228).
The court's earlier orders represented, in effect, the first of three stages of the scheme of arrangement approval process under s 411(1). The scheme meeting represented the second stage. That meeting was in fact held on 2 November 2023, with a single resolution being put to the meeting, as follows:
That pursuant to and in accordance with section 411 of the Corporations Act, the scheme of arrangement proposed between [the plaintiff] and [the plaintiff's members], as contained in and more particularly described in the Scheme Booklet of which the notice convening this meeting forms part, is approved (with or without modification as approved by the Supreme Court of Western Australia) and, subject to approval of the scheme of arrangement by the Court, the Board is authorised to agree to, and implement, the scheme of arrangement with any such modifications as are thought fit by the Court.[6]
[6] Annexure D to the Scheme Booklet, page 218 (Notice of Scheme Meeting).
We are now at the third stage - whether the court's approval ought be given under s 411(4). The Share Scheme is relatively straightforward and is unopposed either by ASIC or by any other entity.[7] On the basis of the submissions advanced by the plaintiff and the evidence I have received at today's hearing, I am satisfied that the statutory and procedural requirements have been satisfied by the plaintiff, and that it is appropriate to exercise the power in s 411(4) to approve the scheme, and to make the orders sought by the plaintiff. My brief reasons to this effect are as follows.
[7] Fifth Ardon Affidavit at Attachment MSA-26 (the ASIC no objection letter); and Fourth Ardon Affidavit [7] (no other objections having been foreshadowed or received).
B. Background
The plaintiff and PSC are both public listed companies. The plaintiff operates an Australian-based underwriting agency, with a product suite that includes professional, casualty and environmental lines. PSC is a multi-national insurance services group. PSC operates a considerable undertaking, with net assets based on its most recently audited financial statements of approximately A$456 million.[8] The relative size of the two businesses is evident when it is appreciated the net asset position of the plaintiff, at the same point in time, was approximately A$10.8 million.[9]
[8] Annexure A to the Scheme Booklet, page 31 (Independent Expert's Report).
[9] Annexure A to the Scheme Booklet, page 19 (Independent Expert's Report).
The Share Scheme is essentially an acquisition scheme by which 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 will be 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 (referred to in the materials as the top up consideration), resulting in approximately 0.056 new PSC shares for each share held in the plaintiff.
C. Evidence and submissions
The plaintiff relies on several affidavits, including the affidavits which had been filed for the first hearing in September 2023. The further affidavits relied upon for today's hearing are:
(a)the affidavit of Nicole Brooke Lewis affirmed on 2 November 2023 (Lewis Affidavit) - Ms Lewis is a Project Coordinator of Computershare Investor Services, the company which maintains the register of the plaintiff's shareholders;
(b)the affidavit of Jonathan Heath Stuart Murray sworn on 2 November 2023 (Murray Affidavit) - Mr Murray is a solicitor who acted as the independent chair of the scheme meeting which was held on 2 November 2023; and
(c)the affidavits of Madeline Sky Ardon affirmed on 2 and 7 November 2023 (Fourth Ardon Affidavit and Fifth Ardon Affidavit) - Ms Ardon is one of the solicitors acting for the plaintiff.
Counsel for the plaintiff provided the court with a concise set of submissions dated 3 November 2023, which I have had the opportunity to review. Brief oral submissions were made at today's hearing by counsel for the plaintiff and counsel for PSC, who was given leave to appear, in order to amplify the written submissions and it is apparent to me from the submissions that there are no additional matters that need to be drawn to my attention in the circumstances.
D. Legislative framework and requirements
As already mentioned, the orders at the first hearing were made pursuant to the jurisdiction invested in the court by s 411(1). That is the jurisdiction to convene a scheme meeting and to approve an explanatory statement for dispatch to shareholders. The orders for approval of the Share Scheme itself are sought pursuant to s 411(4), which is in the following terms:
(4)A compromise or arrangement is binding on the creditors, or on a class of creditors, or on the members, or on a class of members, as the case may be, of the body and on the body or, if the body is in the course of being wound up, on the liquidator and contributories of the body, if, and only if:
(a)at a meeting convened in accordance with an order of the Court under subsection (1) or (1A):
(i)…
(ii)in the case of a compromise or arrangement between a body and its members or a class of members--a resolution in favour of the compromise or arrangement is:
(A)unless the Court orders otherwise -passed by a majority in number of the members, or members in that class, present and voting (either in person or by proxy); and
(B)if the body has a share capital - passed by 75% of the votes cast on the resolution; and
(b)it is approved by order of the Court.
A scheme of arrangement is thus binding upon the members of a company if it is approved by order of the court under s 411(4)(b), provided there has been satisfaction of the requirements expressed in s 411(4)(a)(ii) (being the applicable provision in the current circumstances) and compliance with certain other statutory and procedural matters. To summarise, these matters are:
(a)whether the scheme meeting was convened and held in accordance with the court's earlier orders;
(b)whether the resolution approving the Share Scheme was passed with the requisite statutory majorities in accordance with s 411(4)(a)(ii); and
(c)whether the plaintiff has otherwise complied with the court's earlier orders.[10]
[10] Re International Goldfields Ltd [2004] WASC 112 [7].
The court has a discretion to approve a scheme under, and its power is derived from, s 411(4)(b). Of course, the court is not bound to approve a scheme merely because the court has previously made orders for the convening of a meeting or because the statutory majorities have been achieved.[11]
[11] Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [2018] WASC 308 [13] (Vaughan J).
The factors that inform the court's discretion are well-understood and are conveniently set out in Re Seven Network Ltd (No 3).[12] In summary, the court considers whether:
[12] Re Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583 [35] - [40] (Jacobson J).
(a)the plaintiff's members have voted in good faith and not for an improper purpose;[13]
(b)the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it;[14]
(c)the plaintiff has brought to the attention of the court all matters that could be considered relevant to the exercise of the court's discretion;[15]
(d)all conditions to which the schemes are subject have been met or waived (other than any requirement for court approval and lodgement of the court's orders with ASIC);
(e)there has been full and fair disclosure of all information material to the members' decision to vote for or against the scheme;[16]
(f)minority shareholders would be oppressed by the scheme;[17]
(g)the scheme has not been proposed to avoid ch 6 of the Act;
(h)ASIC has no objection to the scheme; and
(i)the scheme offends public policy.[18]
[13] See also In the matter of Foundation Healthcare Limited (No 2) [2002] FCA 973; (2002) 43 ACSR 680 [27] (French J).
[14] See also Fowler v Lindholm, in the matter of Opes Prime Stockbroking Limited [2009] FCAFC 125 (2009); 178 FCR 563 [79] (Emmett, Gordon and Jagot JJ).
[15] See also Permanent Trustee Company [2002] NSWSC 1177; (2002) 43 ACSR 601 [7] (Barrett J).
[16] See also NRMA Insurance Limited [2000] NSWSC 408; (2000) 34 ACSR 261 [30] (Santow J).
[17] See also Re Ranger Minerals Ltd; Ex parte Ranger Minerals Ltd [2002] WASC 207; (2002) 42 ACSR 582 [39] (Parker J).
[18] See also CSR Limited, in the matter of CSR Limited [2010] FCAFC 34; (2010) 183 FCR 358 [51] ‑ [56] (Keane CJ and Jacobson J).
E. Disposition
Statutory and procedural requirements
I will first address the statutory and procedural requirements. On the basis of the affidavit evidence adduced by the plaintiff, I am satisfied of the following matters.
First, that the scheme meeting was convened and held in accordance with the court's orders made on 28 September 2023, including as to the procedures relating to the receipt and collation of proxy forms and the preparation of a proxy report, and the procedures relating to voting and the poll procedures at the meeting.[19]
[19] Plaintiff's submissions [15] ‑ [19]; Murray Affidavit [5] and [7]; Lewis Affidavit [48] ‑ [52] and Attachment NL‑22.
Second, that the resolution approving the Share Scheme was passed with the requisite statutory majorities in accordance with s 411(4)(a)(ii). That is, both as to the headcount test and the votes test, with 98.04% of the shareholders virtually present and voting (in person or proxy) voting in favour of the Share Scheme, and with 99.92% of the votes cast on the resolution at the meeting being in favour of the Share Scheme.[20] I will set out below the results of the scheme meeting, as prepared by Computershare Investor Services (which formed part of the evidence before me on this application, and I will incorporate the results table into these reasons):[21]
[20] Murray Affidavit [20] and Attachment JM-4; and Fourth Ardon Affidavit at Attachment MSA-20.
[21] Fourth Ardon Affidavit at Attachment MSA-20.
Third, that the plaintiff otherwise complied with the court's earlier orders, including as to the dispatch of the Scheme Booklet[22] and the advertising of the scheme approval application.[23]
[22] See orders 2 - 4 made on 28 September 2023 and Lewis Affidavit [10] - [47].
[23] See order 14 made on 28 September 2023 and Fourth Ardon Affidavit [13]. At the first hearing, I dispensed with the requirement for the plaintiff to give notice of the hearing by way of newspaper advertisements, instead requiring the hearing to be notified by way of an ASX announcement.
As to the evidence concerning the dispatch of the Scheme Booklet, I record that an order was made at the first hearing to permit such evidence to be given on information and belief. I refer to order 15 of the orders made on 28 September 2023. It is clear to me that the making of this order has assisted the plaintiff to reduce the evidentiary burden which ordinarily would fall on the plaintiff for the purposes of a hearing such as today's hearing. The reduction in this burden is consistent with the statement in this court's new Practice Direction[24] (published after the first hearing in this matter) that:
The Court encourages the simplification of affidavit evidence led in respect of scheme hearings, consistent with proof of compliance with the applicable statutory requirements. There is no mandated form for scheme affidavits.
[24] PD 9.5.2 - Schemes of Arrangement.
The court has today received four affidavits, the bodies of which run to less than 30 pages, with the vast bulk of the attachments to those affidavits represented by a single copy of the Scheme Booklet. This reduction in evidentiary material has not left the court any less well‑informed as to the matters in respect of which it is required to be informed for the purposes of exercising the jurisdiction vested by s 411.
I should mention at this point the submissions made by counsel for PSC regarding the voter turnout. Counsel indicated that, in the present case, in terms of voter turnout, the evidence reveals a turnout of approximately 12.8% in number. Evidence of this nature should be provided to the court at the second hearing, in accordance with the expectation identified in the Practice Directions.[25] I was helpfully referred to the decision of Hill J in Re Ozgrowth Ltd; Ex parte Ozgrowth Ltd [No 2],[26] in particular to the collation of voter turnout statistics in past scheme cases at footnote 28 of her Honour's decision. Having regard to those statistics, while the turnout in the present case may seem low in an absolute sense, relative to other scheme cases my assessment is that the turnout here is within acceptable limits.
Discretionary considerations
[25] PD 9.5.2 - Schemes of Arrangement [3(k)].
[26] Re Ozgrowth Ltd; Ex parte Ozgrowth Ltd [No 2] [2022] WASC 167.
As I have already noted, this is a straightforward scheme of arrangement and its evident commercial purpose is quite apparent. The effect of the scheme is to enable PSC to acquire the plaintiff, with the members of the plaintiff receiving shares in PSC in consideration for their shares in the plaintiff (and thus becoming members of PSC), together with top up consideration depending on the value of the PSC shares. The scheme does not involve any novel or exotic treatment of the rights of those members as was submitted in the written submissions filed by the plaintiff.
There was the potential for an adjustment to the number of PSC shares to which the plaintiff's members would be entitled, depending on the transaction costs.[27] However, the evidence before me includes an announcement was made by the plaintiff on 30 October 2023 to the effect that the transaction costs at that date had not exceeded $500,000 (and were not expected to do so going forward).[28] It is therefore the case that no adjustment is required.
[27] Scheme Booklet, page 1.
[28] Fourth Ardon Affidavit at Attachment MSA-19.
Thus, the court is being presented with a very orthodox scheme of arrangement for approval - one which has received a strong vote of approval from the members of the plaintiff who have voted, and one which delivers an 'immediate value realisation at an attractive premium' to the members of the plaintiff.[29] The Scheme Booklet provided to the members included an independent expert report prepared by RSM. The experts, Mr Andrew Clifford and Ms Nadine Marke of RSM, have opined that they consider the Share Scheme is fair and reasonable to the plaintiff's members and, as such, the Share Scheme is in the best interests of the members.[30]
[29] As stated in the Scheme Booklet, page 5.
[30] Annexure A to the Scheme Booklet, page 4 (Independent Expert's Report).
In particular, the experts have opined that the minimum scheme consideration for each share of the plaintiff is greater than the fair value of each share in the plaintiff prior to the Share Scheme. Accordingly, the experts have expressed the opinion the Share Scheme is fair to the plaintiff's members and, as such, in their best interests.[31]
[31] Annexure A to the Scheme Booklet, page 5 (Independent Expert's Report).
Further, in the absence of a superior proposal, having regard to the relative advantages and disadvantages of the Share Scheme, the experts are of the view that the scheme is reasonable.[32] One of the highlighted advantages of the scheme, of the several identified, is that the scheme will provide the plaintiff's members with exposure to a more diversified asset portfolio, as PSC provides diversified insurance services. I refer to the table which summarises the independent expert's opinions as to the advantages of the Share Scheme (which I will incorporate into these reasons):[33]
[32] Annexure A to the Scheme Booklet, page 8 (Independent Expert's Report).
[33] Annexure A to the Scheme Booklet, page 7 (Independent Expert's Report).
Further, I refer to the table which summarises the independent expert's opinions as to the disadvantages of the Share Scheme (which I will also incorporate into these reasons):[34]
[34] Annexure A to the Scheme Booklet, page 8 (Independent Expert's Report).
In all of these circumstances, I can be satisfied (and am satisfied) that the members of the plaintiff have voted in good faith and not for an improper purpose in approving the Share Scheme.
I am also satisfied the Share Scheme is fair and reasonable, in the sense that an intelligent and honest shareholder, properly informed and acting alone, might approve the Scheme.[35] The court's role in this regard is not to assess the commerciality of the scheme overall or assess whether it is the best outcome, but to check whether it is one that sensible business people might consider will be of benefit to members. It is relevant to note in this regard that the plaintiff's board of directors unanimously recommended that members vote in favour of the Share Scheme in the absence of a superior proposal and provided the independent experts maintained their opinion. I record that no superior proposal has emerged since the announcement of the scheme on the ASX on 8 August 2023 and the independent experts have maintained their opinion.
[35] Re Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583 [36] (Jacobson J); Bombardier Transportation Australia Pty Ltd v Alstom Transport Australia Pty Limited (No 2)[2022] FCA 880 [22] (Jackson J)
I am also satisfied that the plaintiff's members received full and fair disclosure before voting on the proposed Share Scheme at the scheme meeting in early November. The Scheme Booklet was professionally drafted and had undergone an appropriately detailed verification process. The booklet had also been reviewed by ASIC in the usual way.
The court's approval of the Share Scheme is dependent upon fulfilment of one of two alternative conditions set out in s 411(17), which provides as follows:
(17)The court must not approve a compromise or arrangement under this section unless:
(a)it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or
(b) there is produced to the court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement.
The plaintiff has produced the usual 'no objection' letter from ASIC which has satisfied the second alternative in s 411(17), and there are no matters which ASIC has identified which were required to be brought to the attention of the court.[36] As the plaintiff has correctly submitted, the production of the ASIC 'no objection' letter usually brings an end to the issue, but the letter does not, of course, bring to an end the court's discretion regarding the approval of the scheme.[37] If the court were to find that the Share Scheme had been proposed for the purposes of avoiding the operation of provisions within ch 6 of the Act, that might be considered in the exercise of the discretion to approve the scheme. I am satisfied there are no matters apparent on the evidence which would justify withholding approval of the Share Scheme, having now received the ASIC 'no objection' letter.
[36] Fifth Ardon Affidavit at Attachment MSA-26 (ASIC no objection letter).
[37] Section 411(17) and Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No ] [18] (Vaughan J).
Finally, I am satisfied on the evidence the conditions precedent to the Share Scheme have either been satisfied or waived. The necessary certificates have been provided to the court through Ms Ardon's latest affidavit.[38]
[38] Fifth Ardon Affidavit [3] and [4], and Attachments MSA-22 and MSA-23.
F. Orders
The statutory and other procedural requirements being satisfied, the Share Scheme being within principle and practice, there being no discretionary grounds to withhold approval and being satisfied that all relevant matters have been brought to the court's attention, I will make the following orders in accordance with the plaintiff's minute of proposed orders as amended during the hearing (including the usual order as to the exemption from compliance with s 411(11)):
1.Pursuant to section 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the plaintiff and its members, in the form contained in Annexure B of the scheme booklet, which is set out in pages 210 ‑ 227 of the Affidavit of Nicole Brooke Lewis affirmed on 2 November 2023 in this proceeding (Scheme), is approved.
2.Pursuant to s 411(12) of the Act, the plaintiff is exempt from compliance with s 411(11) of the Act, in relation to the Scheme.
3.An office copy of these orders is to be lodged with the Australian Securities and Investments Commission on 8 November 2023.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
IHN
Associate to the Honourable Justice Lundberg
10 NOVEMBER 2023
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