Golden Circle Limited, Re

[2008] QSC 298

[2008] QSC 298

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

JUSTICE MCMURDO  

No 9981 of 2008

IN THE MATTER OF GOLDEN CIRCLE LIMITED (ACN 054 355 618) Applicant

BRISBANE

..DATE 24/10/2008

ORDER

HIS HONOUR:  This is the first Court hearing of an application

by Golden Circle Ltd for approval of a scheme of arrangement

under section 411 of the Corporations Act.

The applicant is a public company listed on the National Stock

Exchange.  The proposed scheme is for the acquisition of all

of its issued shares involving $126,733,567 fully paid

ordinary shares for a price of $1.65.

The shares are to be acquired by HJ Heinz Company Australia

Pty Ltd.  The price is to be paid immediately prior to the

transfer of the shares and it is proposed that that occur

before the end of this calendar year.

The board of the applicant has appointed Ernst & Young

Transaction Services Ltd to assess this proposal.  Ernst &

Young has valued the applicant's shares on a capitalisation

of earnings basis.  In its opinion the value of the shares is

in a range of $1.15 to $1.33 per share.  Further in its

opinion the Heinz offer is fair and reasonable and is in the

best interests of shareholders, absent, of course, a superior

offer.

It is the unanimous view of the board of the applicant, based

upon this advice from Ernst & Young, that the Heinz offer

should be accepted, again of course, subject to a superior

offer.

The company has recently undergone some structural change.  It

was for many years a cooperative conducted by fruit growers.

At present about 60 per cent of its shareholders are growers

supplying their product to the company.  Under the company's

constitution there is still a requirement that at least two

members of the board be growers.  At present the board of

seven includes three persons who are growers.  A further

35 per cent of the shares are held by an investor which is

Anchorage Golden Circle Pty Ltd, which I will call Anchorage.

The board of seven includes two persons, including the

chairman, who are non-executive directors and are associated

with Anchorage.  As I mentioned another three directors are

growers and the other directors are independent non-executive

directors, one with extensive experience in the food industry

and another a practising lawyer with experience as a company

director.  As I have said it is the unanimous view of the

board that shareholders should accept this proposal. 

I was assisted with submissions from, Mr McKenna SC and Mr

O'Sullivan appearing for the applicant, in several respects

including the question of whether there is relevantly one

class of shareholders which should consider the proposal or

whether the orders should provide for voting within separate

classes.  I accept their submission that there should be but

one class, that is, all of the holders of the shares, but I

should mention the matters to which my attention has been

drawn in that respect.

It was pointed out, as I have already mentioned, that some

60 per cent of the shareholders are growers.  As such, they

have a commercial interest in the conduct of this company's

business and under the constitution they have the benefit of a

provision whereby the board is to include at least two

growers:  However, there is no preferential treatment which is

provided to them as suppliers or potential suppliers to the

company from their status as shareholders.  In other words,

their commercial interests as suppliers does not derive from

their legal rights as shareholders and this provides no basis,

in my view, for requiring separate meetings of growers and of

other shareholders.

See UDL Argos Engineering & Heavy Industries Co LTD v.  Li Oi

Lin [2001] 3 HKLRD 634 at [15]-[17] and at [27] per Lord

Millett approved by Barrett J in HIH Casualty and General

Insurance Ltd (2006) 57 ACSR 791 at [67]-[70].

It was also pointed out by counsel that there were some

foreign shareholders.  The number of them is very small, but

there seems to be no circumstance which would warrant them

being treated as a separate class.  The proposed timing of the

meeting would accommodate the sending of the necessary

material to them in good time prior to the meeting.

Thirdly, I was referred to the fact that a number of employees

hold options to acquire shares in the company.  But as the

evidence before me and the material to be sent to the

shareholders indicates, none of these option holders would be

able to exercise his or her option within any time which is

relevant for this proposed scheme.  In particular, no option

would be exercisable, it seems, prior to the middle of 2010. 

The terms under which those options are held would entitle, or

might entitle the option holder to a cash payment by the

company in the event that its shares cease to be publicly

listed and it is likely that if this scheme is approved and

Heinz becomes the holder of all of the shares that event will

occur.  However, as I see it, the position of option holders

is not significant for present purposes.  As I have said,

there seems to be no prospect that they could become

shareholders at any time which is presently relevant.

Overall then the circumstances do not warrant orders which

provide for different classes. 

The applicant is clearly a part 5.1 body and this is clearly

an arrangement as those terms are used in section 411.

ASIC has been notified of the proposed scheme and of today's

hearing.  By letter dated yesterday to the solicitors for the

applicant, ASIC advised that it has had a reasonable

opportunity to examine the terms of the proposed scheme and

the final draft statement as required under s 411(20)(b)(i) of

the Act.  It has further advised that in accordance with

ASIC's policy in relation to statements under paragraph

411(17)(b)of the Act, ASIC would not provide such a

statement until the second Court hearing in relation to this

scheme.  The weight of authority is against proposition that

at this first Court hearing the Court must embark upon an

inquiry of the matters the subject of section 411(17) and, as

I recently said in Re Symbiosis Group Limited BS 7705/08, 12

September 2008, I respectfully disagree with the view

expressed by Fryberg J (in that respect) in Re Mincom No 1

[2007] QSC 37.

ASIC has further advised that it did not propose to appear

today to make submissions or to intervene to oppose the

proposed scheme at this hearing.

I am satisfied that the scheme is one which should be allowed

to go forward to a meeting, according to what was said, for

example, in F T Easement & Sons Pty Ltd v Metal Roofing,

Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 and by Hayne J

in Sonodyne International Limited (1994) 15 ACSR 494 at 499.

I am also satisfied that the explanatory statement in the

terms of the proposed explanatory booklet should be approved.

The facts within that statement, in so far as they relate to

Golden Circle Limited, are sworn to be true and correct.  It

is also the subject of sworn evidence that the opinions said

to be held, in particular those of the directors, are in fact

held.

I should mention some other elements of this scheme.  As I

have noted already, it is proposed that the consideration for

the shares be paid immediately before the transfer of the

shares.

There is a mechanism whereby Heinz will pay to a trust account

to be held by the company prior to, although on the same day

as the shares are transferred.  There is also a deed poll to

be executed by Heinz promising to pay the consideration.

In the circumstances there seems to be no particular

"performance risk" as that is discussed in the authorities.

There is, as is common, a so-called implementation agreement

between Golden Circle Limited and Heinz for the implementation

of this scheme.  That contains, as is also common, provisions

often referred to as no-talk and no-shop provisions.  The

exclusivity period in that respect is from the 6th of October

last until no later than the 31st of January next year; in

other words, a period of a little under four months.

The exclusivity period is susceptible to extension at the

election of Heinz by the further month, i.e., so that it would

expire on 27 February 2009.  Even so, the potential period is

less than five months.  The implementation agreement also

provides, in effect, for an extension beyond that with the

agreement of both parties, but the position remains, in my

view, that the exclusivity period is not inappropriately long

and, as I have said.

Those provisions are subject to certain exceptions which are

as follows: Golden Circle may act in response to an

unsolicited bona fide competing proposal and where the Board

has determined in good faith and acted reasonably that the

competing proposal is proposed in writing by or an behalf of

a person who is of reputable commercial standing and could

be reasonably be considered to be a superior proposal and the

Board has determined in good faith, after having received

written legal advice from external legal advisors, that not

responding to the proposal would be reasonably likely to

constitute a breach of the directors' fiduciary or statutory

duties.

There is a so-called break fee payable to Heinz in certain

circumstances.  There is no agreement, however, to pay this

fee simply because the proposal is not accepted by the

requisite majorities of shareholders, except that the fee

would be payable if Anchorage voted against the scheme in

circumstances where Golden Circle had not publicly recommended

a superior proposal and Golden Circle was not entitled to

terminate the implementation agreement.  In the circumstances

this is not a so-called "naked break fee" as is discussed in

some of the authorities.  The terms under which the fee would

be payable are not inappropriate.  The amount of the fee is

$2.1 million which is 1.004 percent of the total scheme

consideration.  The extent to which the fee exceeds that 1

percent is not material, in my view.  The 1 percent figure, of

course, is the threshold that derives from the Takeovers Panel

guidance note number 7 entitled "Lock-up Devices".

A further and not uncommon element of this scheme is a deemed

warranty to be provided by shareholders.  Again, it is

unnecessary for me to express any view as to the

enforceability of such a warranty.  Assuming it to be

enforceable, it is not unfair or unreasonable in the

circumstances that such a warranty be given.  The deemed

warranty is appropriately disclosed in the material which will

be sent to shareholders. 

There will be orders for the convening of the meeting of

shareholders on 1 December next and for the approval of the

explanatory statement in terms of the explanatory booklet and

otherwise in terms of the draft, which I will initial and

place with the papers.

In that respect, I am satisfied that regulations 5.6.12 to

5.6.36A of the Corporations Regulations should not apply to

the scheme meeting.

Again, according to that draft, the application will be

adjourned until 8 December 2008.

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