In the matter of AV Jennings Limited

[2025] NSWSC 500

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of AV Jennings Limited [2025] NSWSC 500

Hearing dates:

8 May 2025

Date of orders:

8 May 2025

Decision date:

20 May 2025

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Order convening scheme meeting and associated orders made.

Catchwords:

CORPORATIONS – Arrangements and reconstructions – Schemes of arrangement or compromise – Application under s 411 of the Corporations Act 2001 (Cth) for orders convening meeting of members to consider and, if thought fit, to agree to proposed scheme of arrangement – Whether requirements to order scheme meeting are satisfied.

Legislation Cited:

- Supreme Court Corporations Rules 1999 (NSW) r 3.4

- Corporations Act 2001 (Cth), ss 411, 1319

Cases Cited:

- Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15

- F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69

- Re Absolute Equity Performance Fund Ltd [2022] FCA 933

- Re Adelaide Bank Ltd [2007] FCA 1582

- Re APN News and Media Ltd (2007) 62 ACSR 400

- Re Ardent Leisure Ltd [2018] NSWSC 1665

- Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40

- Re Asaleo Care Ltd [2021] FCA 406

- Re Bolnisi Gold NL (No 2) (2007) 65 ACSR 510

- Re CSR Ltd (2010) 183 FCR 358; [2010] FCAFC 34

- Re DWS Ltd (2020) 148 ACSR 616; [2020] FCA 1590

- Re Ellerston Global Investments Ltd [2020] NSWSC 879

- Re ELMO Software Pty Ltd [2023] NSWSC 12

- Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742

- Re InvoCare Ltd [2023] NSWSC 1180

- Re Isentia Group Ltd [2021] NSWSC 910

- Re Kidman Resource Ltd (2019) 139 ACSR 112; [2019] FCA 1226

- Re McGrath Ltd [2024] NSWSC 555

- Re Orion Telecommunications Limited [2007] FCA 1389

- Re Staging Connections Group Ltd [2015] FCA 1012

- Re TPG Telecom Ltd [2020] NSWSC 772

- Re Villa World Ltd (2019) 139 ACSR 550; [2019] NSWSC 1207

- Re Vocus Group Ltd [2021] NSWSC 630

- Re Wridgways Australia Ltd [2010] FCA 1187

Category:

Principal judgment

Parties:

AV Jennings Limited (Plaintiff)
PM Nominees C Pty Ltd (Bidder)

Representation:

Counsel:
Mr S A Lawrance (Plaintiff)
Mr M Izzo and Mr A P F Ryan (Bidder)

Solicitors:
Allens (Plaintiff)
Clayton Utz (Bidder)

File Number(s):

2025/147065

Judgment

1. By Originating Process filed on 15 April 2025, the Plaintiff, AV Jennings Limited (“AVJ”) applies for orders under ss 411 and 1319 of the Corporations Act 2001 (Cth) (“Act”) relating to a proposed scheme of arrangement and associated orders.

2. By way of background, AVJ is an Australian company limited by shares and is admitted to the official list of the securities exchange conducted by the Australian Securities Exchange Limited (“ASX”). Shares in AVJ are also quoted for trading on the securities exchange conducted by Singapore Exchange Limited (“SGX”) through SGX GlobalQuote. The principal activity of AVJ is residential property development. On 1 April 2025, AVJ announced to the ASX that it had entered into a Scheme Implementation Deed (“SID”) with PM Nominees C Pty Ltd (“Bidder”), an investment vehicle of Proprium Capital Partners (Australia) Pty Ltd and AVID Property Group, dated 31 March 2025 (SID). The consideration to be provided by the Bidder to each AVJ shareholder for the transfer to the Bidder of each AVJ share is, subject to the terms of the scheme, cash consideration of $0.655 per share, less the cash amount of any Special Dividend on a per AVJ share basis. The total cash amount to be received by AVJ shareholders will therefore be $0.655 per AVJ share, either by way of cash consideration payable under the scheme or a combination of cash consideration and the special dividend. The effect of implementation of the scheme would be to make AVJ a wholly owned subsidiary of the Bidder and AVJ would then be removed from the official list of the ASX and quotation of its shares on SGX GlobalQuote would be terminated.

3. I made the orders sought by AVJ at the conclusion of the hearing on 8 May 2025. These are my reasons for doing so. I have drawn on the helpful submissions of Mr Lawrance, who appeared for AVJ, in this judgment.

Affidavit evidence

4. AVJ reads an affidavit dated 15 April 2025 of its solicitor, Ms Ruby Ford, which exhibits a company search for AVJ and an ASX release made by AVJ in respect of the proposed scheme. AVJ also reads the affidavit dated 7 May 2025 of Mr Carl Thompson, its General Counsel and Company Secretary, which (inter alia) summarises the proposed transaction and deals with the verification of information contained in the scheme booklet (other than information concerning the Bidder) and despatch of materials in relation to the scheme.

5. AVJ reads the affidavit dated 7 May 2025 of Mr Richard Amos, the Group General Counsel of the AVID Property Group, which deals with the verification of information concerning the Bidder in the scheme booklet, the funding arrangements of the Bidder in respect of the Scheme Consideration and entry into a Deed Poll by the Bidder.

6. AVJ also tendered a letter from the Australian Securities & Investments Commission (“ASIC”) which, in common form, reserved its position as to s 411(17)(b) of the Act to the second Court hearing, and indicated that it did not currently propose to appear to make submissions or intervene to oppose the scheme at the second Court hearing.

Applicable principles and general matters relevant to whether to convene the scheme meeting

7. The Court’s role at the first Court hearing in respect of a scheme is to determine, in the exercise of its discretion, whether to approve the convening of a scheme meeting and the explanatory statement if it is satisfied of several matters, namely that the plaintiff is a Pt 5.1 body; the proposed scheme is an “arrangement” within the meaning of s 411 of the Act; the scheme is bona fide and properly proposed; ASIC has had a reasonable opportunity to examine the proposed scheme and explanatory statement, to make submissions and has had 14 days’ notice of the proposed hearing date of the first Court hearing; the procedural requirements under the Supreme Court (Corporations) Rules 1999 (NSW) (“Rules”) have been met; and there is no apparent reason why the scheme should not, in due course, receive the Court’s approval if the necessary majority of votes is achieved: Re Orion Telecommunications Limited [2007] FCA 1389 at [5]; Re Staging Connections Group Ltd [2015] FCA 1012 at [19]; Re Wridgways Australia Ltd [2010] FCA 1187 at [30]; Re Ellerston Global Investments Ltd [2020] NSWSC 879 (“Ellerston”) at [25]; Re Vocus Group Ltd [2021] NSWSC 630 at [12].

8. The Court will not ordinarily summon a scheme meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the meeting, the Court would be likely to approve it. The Court will consider whether the proposed scheme is fit for consideration at the proposed scheme meeting, in the sense that it is of such a nature and cast in such terms that, if it achieves the statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed; and that members are to be properly informed as to the nature of the scheme before the scheme meeting: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, approved in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504; [1993] HCA 15; Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742 at [36] and [44], cited with apparent approval in Re CSR Ltd (2010) 183 FCR 358; [2010] FCAFC 34 at [58]; Re InvoCare Ltd [2023] NSWSC 1180 at [16]-[17]; Re Absolute Equity Performance Fund Ltd [2022] FCA 933 at [18]-[22].

9. Each of the preconditions to the exercise of the Court’s discretion in s 411 of the Act are satisfied here. AVJ is a company registered under the Act and a Pt 5.1 body. The proposed scheme is an “arrangement” within the scope of s 411 of the Act where it involves the acquisition of the shares in AVJ in return for consideration being paid to its shareholders. There is no reason to doubt that the scheme is bona fide and properly proposed, where it provides for the acquisition of shares in AVJ; the AVJ directors have unanimously recommended that AVJ shareholders vote in favour of the scheme, in the absence of a superior proposal, and subject to the independent expert continuing to conclude that the scheme is in the best interests of AVJ shareholders. The independent expert has expressed the opinion that the scheme is fair and reasonable and in the best interests of AVJ’s shareholders in the absence of a superior proposal on the basis of its assessed value of an AVJ share to be in the range of $0.54 to $0.61, which is below the scheme consideration of $0.655 per AVJ share. ASIC has here had a reasonable opportunity to examine the proposed scheme and scheme booklet and to make submissions; it has had the necessary notice of this hearing; and, as I noted above, it has indicated that it does not currently propose to appear to make submissions or intervene to oppose the scheme at this hearing. The relevant procedural requirements under the Rules have generally been met, and I will relieve AVJ from compliance with Rule 3.4 of the Rules on the basis that an announcement will be published on its website.

Additional matters

10. Mr Lawrance addresses several additional matters in submissions. First, he addresses the question of funding of the scheme consideration and performance risk. He points out that, if the scheme becomes effective, the maximum cash consideration that will be payable by the Bidder (if no special dividend is declared) is approximately $370.1 million. He notes that the Bidder intends to fund the scheme consideration through a combination of debt funding and equity funding and points to section 6.5 of the scheme booklet, which sets out the arrangements for equity and debt funding of the scheme consideration, which are confirmed by Mr Amos’ evidence. This evidence is necessary to establish Bidder’s financial capacity to comply with its obligations under the scheme, as contemplated by paragraph 28(b) of Practice Note SC Eq 4, which recognises that:

“Where a special purpose vehicle with minimal assets is to acquire securities of substantial value under a scheme, a risk of a scheme not completing is likely to be material to securityholders, irrespective of the fact that their securities are not transferred to that special purpose vehicle until the consideration is paid. Disclosure of such a risk is also important to maintaining a fully informed market. Evidence should be led at the first Court hearing of the availability of the funding or other financial support on which the special purpose vehicle will rely to complete the scheme.”

11. I am satisfied that the evidence led by AVJ as to the Bidder’s funding arrangements sufficiently addresses the concerns which would otherwise arise where the Bidder is a special purpose company that could not pay the scheme consideration from its own resources.

12. Mr Lawrance also points out that the Bidder has executed a Deed Poll in favour of AVJ shareholders, by which it undertakes to perform its obligations in respect of the scheme, including the obligation to provide or procure the provision of the scheme consideration to the AVJ shareholders in accordance with the terms of the Scheme. Mr Lawrance submits, and I accept, that the Deed Poll together with the provision of the scheme consideration to a trust account maintained by the scheme company are well-established means of managing performance risk: Ellerston at [29]; Re ELMO Software Pty Ltd [2023] NSWSC 12 at [27]-[28].

13. Second, Mr Lawrance addresses the question of equity incentives in respect of AVJ. He points out that AVJ operates a Performance Rights and Retention Rights plan for key management personnel and the SID requires that, before the scheme record date, no AVJ equity incentives are on issue or will vest as at that date, and this requirement is also a condition precedent under cl 3.1 of the SID. Mr Lawrance also points out that section 9.11(b) of the scheme booklet sets out the proposed treatment of the Performance Rights and Retention Rights as part of the scheme. Mr Lawrance also notes that Mr Philip Kearns, AVJ’s Chief Executive Officer and Managing Director, has an interest in 3,541,648 unvested Performance Rights, and it is proposed that the large part of these will vest in connection with the scheme and the balance of the unvested Performance Rights currently held by Mr Kearns will lapse and be cancelled. It is also proposed that, immediately following the scheme meeting, AVJ will hold an extraordinary general meeting to approve, by way of an ordinary resolution, the issue of new AVJ shares to Mr Kearns in connection with the acceleration of his entitlement to Performance Rights that are proposed to vest in connection with the scheme. Mr Kearns’ interests will be appropriately disclosed in the scheme booklet and, on that basis, I accept that it is open to him to make a recommendation concerning the scheme: Re Kidman Resource Ltd (2019) 139 ACSR 112; [2019] FCA 1226 at [115]; Re DWS Ltd (2020) 148 ACSR 616; [2020] FCA 1590 at [41]-[49]; Re McGrath Ltd [2024] NSWSC 555 at [25].

14. Third, Mr Lawrance notes that clause 11 of the SID imposes a number of restrictions and obligations on AVJ in relation to negotiations with third parties such as “no shop”, “no talk”, “no due diligence” restrictions, a “notification of approaches” obligation and a “matching right”. The “no talk” and “no due diligence” restrictions are subject to a customer fiduciary exception. I accept that these exclusivity provisions are in common form and are prominently disclosed in section 9.9(b) of the scheme booklet. I also accept that exclusivity provisions in this form are now commonplace in schemes of arrangement and are not inconsistent with the Takeovers Panel’s guidance as to “deal protection”: Re Villa World Ltd (2019) 139 ACSR 550; [2019] NSWSC 1207 at [23] (“Villa World”).

15. The Court is concerned to ensure that any exclusivity period should be for no more than a reasonable period, capable of precise ascertainment; an exclusivity clause directed at dealing with an unsolicited alternative proposal should be subject to a fiduciary carve out; and the provisions should be clearly disclosed in the explanatory statement sent to shareholders: Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 at [9]; Re TPG Telecom Ltd [2020] NSWSC 772 at [22]; Re Isentia Group Ltd [2021] NSWSC 910 at [23]; Re Asaleo Care Ltd [2021] FCA 406 at [55]. The specified Exclusivity Period, which commenced on the execution of the SID, ends on the earlier of the termination of the SID, the Effective Date and the End Date (as defined), which is 6 months from the date of the SID or such later date as AVJ and the Bidder agree in good faith in writing. I accept that an Exclusivity Period of this length is comparable with that accepted in comparable transactions and is not an unreasonable period.

16. Fourth, Mr Lawrance addresses the position as to break fees. A break fee of $3,703,600 payable by AVJ to the Bidder in the circumstances set out in cl 12 of the SID and a Reverse Break Fee of the same amount payable by the Bidder to AVJ in the circumstances set out in cl 13 of the SID each represent a little more than 1% of the implied equity value of the Scheme. I accept that break fees of this kind are common features in schemes of arrangement and will be permitted where the amount of the break fee is not such that it could influence voting at the meeting to be convened and there are no other unusual circumstances: Villa World at [24]. Although the break fees here marginally exceed the Takeover Panel’s 1% guideline, that excess is not material, and this matter now gives rise to no reason not to convene the scheme meeting. The circumstances in which the Break Fee or the Reverse Break Fee are payable do not include the failure of AVJ shareholders to approve the scheme or the failure of the Court to approve the scheme and it is not a disincentive to AVJ shareholders in their consideration of the proposed scheme: Re Adelaide Bank Ltd [2007] FCA 1582 at [31]; Re Bolnisi Gold NL (No 2) (2007) 65 ACSR 510 at 513.

17. Fifth, Mr Lawrance notes that the scheme provides for a deemed warranty by AVJ shareholders that their shares will be free from encumbrances. I accept that appropriate disclosure of the deemed warranty is provided at section 9.8 of the scheme booklet and this matter also provides no reason not to convene the scheme meeting: Re APN News and Media Ltd (2007) 62 ACSR 400 at [57]-[63]; Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26].

18. Sixth, Mr Lawrance points out that AVJ has engaged its share registry to operate an in-bound shareholder information line for AVJ shareholders to call if they have any questions in relation to the Scheme or the EGM. I accept that the inbound call script broadly reflects the “Frequently asked questions” section of the scheme booklet. The share registry will also arrange for “Reminder to Vote” email(s) to be sent to AVJ shareholders who have elected to receive communications from AVJ electronically and who have nominated an email address for that purpose. AVJ draws these proposed communications with AVJ shareholders to the Court’s attention although no orders are sought approving the form of the proposed communications. No issues arose from those communications which I considered it necessary to draw to AVJ’s attention.

19. These matters, separately and together, give rise to no reason not to convene the scheme meeting.

Exercise of the Court’s discretion whether to convene the scheme meeting

20. Turning now to the wider issues relevant to the exercise of the Court’s discretion whether to convene the scheme meeting, an independent expert expresses the opinion that the scheme is fair and reasonable and therefore in the best interests of AVJ shareholders, in the absence of a superior proposal. AVJ’s board has unanimously recommended the shareholders vote in favour of the scheme, in the absence of a superior proposal and provided that the independent expert does not withdraw its conclusion that the scheme is in the best interests of AVJ’s shareholders. No apparent difficulty arises with the disclosure in the scheme booklet and the verification process adopted in respect of the scheme booklet. I am satisfied that there is nothing in the terms of the scheme or in its effect on AVJ’s shareholders that would otherwise warrant the Court declining to approve the scheme at the second Court hearing, if it receives the statutory majorities required by s 411(4)(a)(ii) of the Act at the scheme meeting.

Orders

21. For these reasons, I made the orders sought by AVJ at the conclusion of the first Court hearing on 8 May 2025.

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Decision last updated: 23 May 2025