In the matter of Webster Limited (No 2)

[2020] NSWSC 40

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

In the matter of Webster Limited (No 2) [2020] NSWSC 40

Hearing dates:

5 February 2020

Date of orders:

06 February 2020

Decision date:

06 February 2020

Jurisdiction:

Equity - Corporations List

Before:

Gleeson J

Decision:

(1) Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (the Act), the scheme of arrangement between the plaintiff and the holders of its ordinary shares, other than Excluded Ordinary Shareholders as defined therein (Ordinary Scheme), being in the form contained in Annexure C to the Scheme Booklet which is Exhibit P1 in this proceeding, be approved.

 

(2) Pursuant to s 411(12) of the Act, the plaintiff be exempted from compliance with s 411(11) of the Act in relation to the Ordinary Scheme.

 (3)   These orders be entered forthwith.

Catchwords:

CORPORATIONS – scheme of arrangement – transfer scheme – approval of scheme under Corporations Act 2001 (Cth) s 411(4)(b) – where ordinary scheme agreed to but preference scheme not agreed to – where ordinary scheme not conditional on court approval of preference scheme – whether court approval of ordinary scheme affects preference shareholders in general sense – scheme approved

Legislation Cited:

Australian Securities and Investments Commission, Regulatory Guide, par 60
Corporations Act 2001 (Cth), ss 9, 411(4), 411(11), 411(12), 411(17), 602, 664A,.667C, Ch 6
Supreme Court (Corporations) Rules 1999, r 2.13(1)

Cases Cited:

Capricorn Diamond’s Investments Pty Ltd v Catto (2002) 5 VR 61; [2002] VSC 105
Central Pacific Minerals NL (2002) FCA 239
Centro Properties Ltd v PricewaterhouseCoopers [2011] NSWSC 1465; (2011) 86 ACSR 584
Macquarie Private Capital A Limited [2008] NSWSC 323
Nicron Resources Ltd v Catto (1992) 8 ACSR 219
Re Boart Longyear Ltd [2017] NSWSC 567; (2017) 121 ACSR 328
Re Boart Longyear Ltd (No 2) [2017] NSWSC 1105; (2017) 122 ACSR 437
Re Bluebrook Ltd [2009] EWHC 2114 (Ch); [2010] 1 BCLC 338
Re Equinox Resources Ltd (2004) 49 ACSR 692
Re Mosaic Oil NL (No 2) [2010] FCA 1186
Re Permanent Trustee Co Ltd (2002) 43 ACSR 601
Re Seven Network Limited (No 3) (2010) 77 ACSR 701
W D & H O Wills Holdings Ltd Application [1999] NSWSC 866

Category:

Principal judgment

Parties:

Webster Limited (Plaintiff)
Henslow Acquisitionco Pty Ltd (Interested Party)

Representation:

Counsel:
Mr S Goodman SC / Mr J Williams (Plaintiff)
Mr I Jackman SC (Interested Party - Henslow Acquisitionco Pty Ltd)

 

Mr R Catto (Interested Party)
Mr G Elkington (Interested Party)

    Solicitors:
Clayton Utz (Plaintiff)
King & Wood Mallesons (Interested Party - Henslow Acquisitionco Pty Ltd)

File Number(s):

2019/365416

Judgment

1. GLEESON J: Application is made by Webster Limited (Webster) for an order under s 411(4)(b) of the Corporations Act 2001 (Cth) approving a scheme of arrangement between itself and its ordinary shareholders (the Ordinary Scheme). Webster did not press its application for approval of a scheme of arrangement between itself and its preference shareholders (the Preference Scheme) as the resolution agreeing to the Preference Scheme was not agreed to by the requisite majorities referred to in s 411(4)(a) of the Corporations Act. The Ordinary Scheme is not conditional upon approval of the Preference Scheme. The schemes were described by Black J in his judgment given in relation to the convening of the meetings at the first court hearing: In the matter of Webster Limited [2019] NSWSC 1097.

2. Two persons, Mr Gordon Elkington and Mr Robert Catto, who each claimed to be the holders of preference shares in Webster, sought and were given leave at the second court hearing to be heard in the proceeding as an interested person without becoming a party pursuant to Supreme Court (Corporations) Rules 1999, r 2.13(1). Their objections to the court approving the Ordinary Scheme are addressed below.

Ordinary Scheme

3. The Ordinary Scheme is a transfer scheme. The objective of the scheme is to cause all existing ordinary shares in Webster, other than ordinary shares held by Henslow Acquisitionco Pty Ltd (PSP), a wholly owned subsidiary of the Public Sector Pension Investment Board of Canada (PSP Investments), to become vested in PSP. By force of the scheme, Webster will become authorised by each of its members to transfer the member’s ordinary shares to PSP. That company, in turn, has agreed with Webster to make payment of the scheme consideration to the several transferors. This and related payment mechanisms and other necessary steps are provided for in an implementation agreement between the Webster, PSP and Sooke Investments Inc, a related body corporate of PSP.

4. The meeting was held on 3 February 2020. The resolution agreeing to the Ordinary Scheme was passed by the requisite majorities referred to in s 411(4)(a) of the Corporations Act. It is not necessary to set out the figures in detail; it is sufficient to record that the Ordinary Scheme was agreed to by 95.25 per cent of votes cast by ordinary shareholders representing 86.83 per cent in number of ordinary shareholders present, either in person or by proxy.

5. The votes which were cast at the meeting constituted a substantial percentage of the total number of issued shares of Webster. Belfort Investment Advisers Ltd (Belfort) and Verolot Ltd (Verolot), who held 12.64 per cent and 8.89 per cent respectively of the ordinary shares in Webster, did not vote those shares at the meeting for the Ordinary Scheme, consistently with an undertaking given by each of them to ASIC. Belfort and Verolot are respectively controlled by two of Webster’s directors, Mr Corrigan and Mr Fitzsimons, who are involved in a related transaction involving the right to subscribe for an aggregate 50.1 per cent interest in “KoobaCo”, a company to be incorporated as a wholly owned subsidiary of PSP Investments. KoobaCo proposes to acquire certain properties and assets currently held by Webster – comprising the KoobaCo aggregation and Hay properties and associated water entitlements and Webster’s apiary business – following implementation of the Ordinary Scheme.

6. As indicated, the Preference Scheme was not agreed to by the preference shareholders by the required statutory majorities. Approximately 37.92 per cent of the preference shares by value and approximately 70.45 per cent of preference shareholders by number present and voting, voted in favour of the Preference Scheme. Accordingly, the resolution to agree to the Preference Scheme was not carried.

7. The role of the court at the second hearing is supervisory. The Court is concerned to be satisfied that all procedural requirements have been met, that the majority of shareholders have acted in good faith and not for any illegitimate purpose, and that the scheme is fair and reasonable: Re Seven Network Limited (No 3) (2010) 77 ACSR 701 at [31]-[40]. As to the last matter, whilst the court must form a favourable view of the arrangement, the court will generally take the view that shareholders are the best judges of whether an arrangement is to their commercial advantage: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [9]-[10]; Central Pacific Minerals NL (2002) FCA 239 at [12], [14].

8. Affidavit evidence of Mr Cushing, Ms Liapis, Mr Webster and Mr Felizzi shows that all the procedural requirements have been complied with. The meeting in respect of the Ordinary Scheme was convened in accordance with the orders made on 12 December 2019 and, as indicated, the scheme was agreed to by an overwhelming majority of ordinary shareholders.

9. No ordinary shareholder has appeared to oppose the Ordinary Scheme. The court may thus be satisfied that no ordinary shareholder desires to raise any matter of objection so far as approval of the scheme is concerned. This, coupled with the expression of ordinary shareholders’ wishes through voting, is a powerful indicator of the ordinary shareholders’ own views as to where their interests lie.

10. An independent expert’s report of KPMG Financial Advisory Services (Australia) Pty Ltd included in the Scheme Booklet, states that the Ordinary Scheme is fair and reasonable to ordinary shareholders and is in their best interests in the absence of a superior offer. Mr Richard Jedlin and Mr William Allen have each deposed that he holds that opinion, which is supported by the analysis contained in the report. ASIC had an opportunity to examine the report before the first court hearing. It did not appear at that hearing to argue that the report was unreliable or defective or flawed.

11. There has been tendered a letter dated 5 February 2020, from a delegate of ASIC stating that ASIC has no objection to the proposed scheme of arrangement between Webster and its members. That advice was given by ASIC having regard to its “criteria for providing a statement in writing that it has no objection, as set out in Regulatory Guide 60 Schemes of arrangement (RG 60)”. Having regard to the provisions of s 411(17), the Court need not pursue the question of avoidance of any of the provisions of chapter 6 of the Corporations Act: Macquarie Private Capital A Limited [2008] NSWSC 323 at [29]-[35]; Re Mosaic Oil NL (No 2) [2010] FCA 1186 at [30]-[33]. Importantly, the affidavit evidence of Mr Velez establishes that ASIC’s no objection letter was given in circumstances where the solicitors for Webster had provided to ASIC copies of correspondence covering the period 31 January 2020 and 3 February 2020 between Webster, its advisers and each of Winpar Holdings Ltd (Winpar) of which Mr Elkington is a director, and Mr Catto.

Objections to the Ordinary Scheme

12. Mr Elkington provided a written submission drawing the Court’s attention to “two particular matters that the Court may regard as relevant to deciding whether to approve a scheme of arrangement between Webster Limited and its ordinary shareholders”. Mr Catto addressed the Court orally. He raised three points. There was some overlap in their submissions.

13. Although the preference shareholders are not bound by the Ordinary Scheme, to the extent approval of the Ordinary Scheme may affect the preference shareholders in a more general sense, other than affecting their legal rights against the company, it is appropriate for the Court at the second hearing for approval of the Ordinary Scheme to take into account the position of affected parties and any objections raised by them: Centro Properties Ltd v PricewaterhouseCoopers [2011] NSWSC 1465; (2011) 86 ACSR 584 at [22]-[27] (Barrett J); Re Boart Longyear Ltd (No 2) [2017] NSWSC 1105; (2017) 122 ACSR 437 at [84] (Black J). As explained by Justice Mann in Re Bluebrook Ltd [2009] EWHC 2114 (Ch); [2010] 1 BCLC 338 at [26] with respect to objections by a lender not bound by a proposed creditors’ scheme of arrangement:

The schemes do not involve the Mezzanine Lenders in the sense of engaging them as parties. They will not bind them, and their legal rights are unaffected. The Mezzanine Lenders therefore cannot, and do not, complain as persons whose legal rights are being altered by the schemes in some unfair way. However, they are still entitled to object as creditors on grounds of unfairness if the schemes unfairly affect them in ways other than altering their strict rights. The court is exercising a discretion, and as a matter of principle can consider unfairness in that sense, if it is made out. That is the essence of the case of the Mezzanine Lenders.

14. Barrett J was of a similar view in Centro Properties Ltd v PricewaterhouseCoopers where his Honour remarked at [27]:

[T]he court's consideration is not confined to the direct results of the relevant schemes' operation. If a scheme is proposed and will take effect in a wider and inseparable context - particularly a contractual context - involving indirect consequences, it is appropriate for those consequences to be taken into account. …

Mr Elkington’s submissions

(1) Whether single scheme required

15. Mr Elkington’s first point raised a doubt about the appropriateness of Webster proposing two separate schemes, rather than a single scheme of all members with separate class meetings of ordinary and preference shareholders. Reference was made to ASIC’s view in RG 60.22 which states:

Equality between classes of securities

RG 60.22   We consider that when there is more than one class of security in a scheme, the resolution put before each of the classes should be conditional on each other class passing the resolution put before it. In this way all members will have an equal opportunity to participate in the benefits accruing from an acquisition, and the equality principles in s 602(c) will be met. (Emphasis added.)

16. Alternatively, in the correspondence between Winpar and Webster prior to the second court hearing, Mr Elkington on behalf of Winpar went so far as to suggest that if separate schemes were proposed, the Ordinary Scheme should have been conditional on approval of the Preference Scheme.

17. The combined effect of this submission was that Webster should have propounded a scheme which provided preference shareholders a right of veto. That is in the context that preference shareholders represent approximately 0.01 per cent of Webster’s issued capital.

18. There are two answers to this point. First, Mr Elkington’s reliance on RG 60.22 is, with respect, misplaced. Given ASIC’s no objection letter under s 411(17), it may be inferred that ASIC does not consider that RG 60.22 is applicable to the Ordinary Scheme. That is plainly correct. The Ordinary Scheme did not involve “more than one class of security”; it only involved holders of ordinary shares. RG 60.22 is directed to a different circumstance, namely, where a company propounds a single scheme with more than one class of security. That is not this case.

19. Further and importantly, it should be accepted that in giving its no objection letter under s 411(17), ASIC is satisfied that there has been compliance with the matters stated in RG 60.104, in particular:

…

(c) the standard of disclosure to, and treatment of, all members is equivalent to the standard that would be required by the disclosure requirements and the principles in s 602 relating to the target securities in a takeover bid; and

(d)   there are no other reasons to oppose the scheme (e.g. public policy grounds) and the other matters referred to in this guide (including at RG 60.22-RG 60.29) have been complied with.

20. Second, it is well established that the Court’s role is not to consider whether a different or better scheme could have been proposed by the company. The Court’s function is to consider only the scheme put forward to it and not speculate what other compromises or arrangements might have been devised: Nicron Resources Ltd v Catto (1992) 8 ACSR 219 at 236; Centro Properties Ltd v PricewaterhouseCoopers at [28]-[31]; Re Boart Longyear Ltd [2017] NSWSC 567; (2017) 121 ACSR 328 at [28]. It is not for the Court to choose among the available means of achieving a particular economic objective or to seek to direct the company to use one such means by refusing other means on discretionary grounds.

21. The same point has been made in the English authorities, specifically in the context of creditors’ schemes of arrangement: Re Bluebrook Ltd at [24].

(2) Fairness of price offered by Preference Scheme

22. Mr Elkington’s second point was directed to the fairness of the price offered, not under the Ordinary Scheme, but under the Preference Scheme. Under each scheme, ordinary shareholders and preference shareholders were offered $2.00 per share. The complaint seemed to be that the price offered under the Preference Scheme was not fair because, according to the submission, the price was not determined by reference to fair value assessed under s 667C of the Corporations Act. Given that the preference shareholders did not agree to the Preference Scheme, the relevance of this complaint for present purposes is unclear.

23. Mr Elkington correctly accepted that s 667C of the Corporations Act only applied for the purposes of compulsory acquisitions under Ch 6A of the Corporations Act. Section 667C is contained in Pt 6A.4 within Ch 6A of the Corporations Act. Section 667C is only relevant to the determination of what is fair value of securities “for the purposes of this Chapter”, that is Ch 6A.

24. Nevertheless Mr Elkington submitted that fairness under a scheme of arrangement should be determined by reference to fair value assessed under s 667C. Mr Elkington drew attention to the following part of s 667C:

667C Valuation of securities

(1)   To determine what is fair value for securities for the purposes of this Chapter:

(a)   first, assess the value of the company as a whole; and

(b)   then allocate that value among the classes of issued securities in the company (taking into account the relative financial risk, and voting and distribution rights, of the classes); and

(c)   then allocate the value of each class pro rata among the securities in that class (without allowing a premium or applying a discount for particular securities in that class).

25. According to the submission, in the present case the expert did not “allocate” the value of the company as a whole among its various classes of shares, but instead looked at the preference shares and valued them as they trade in the market on a day-to-day basis and then opined, without explanation, that the rest of the value of the company belongs to the ordinary shareholders.

26. That is a gloss on the approach taken in the expert report. The report states that the expert assessed the value of a preference share “based on capitalising the 9 cent annual coupon at a yield in the range of 5.0 to 6.0%”: IER par 4.1, 10.9 (pp 97 and 195, Scheme Booklet). The expert then cross-checked this primary approach based on the prices at which the preference shares have traded.

27. Further, in stating their opinion as to whether or not the Preference Scheme was in the best interests of preference shareholders, and giving their reasons for that opinion, the expert complied with the requirements of RG 60.75. That opinion – that the Preference Scheme was in the best interests of preference shareholders – was based on the expert’s assessment that the price offered of $2.00 per preference was both “fair” and “reasonable”. Whether or not Mr Elkington (or Mr Catto) disagrees with the opinion in the expert report, the expert addressed the correct question, that is, whether or not the Preference Scheme was in the best interests of preference shareholders.

28. Mr Elkington accepted that the Ordinary Scheme is fair to the ordinary shareholders and that there is not any element of unfairness to the ordinary shareholders if that scheme is approved. His complaint is that there is an element of unfairness to the preference shareholders if the Ordinary Scheme is approved, because the preference shareholders will then be liable to compulsory acquisition under Ch 6A of the Corporations Act. The asserted unfairness of the compulsory acquisition process was said to be that it would occur at a price for the preference shares “which is not being balanced in the marketplace by a simultaneous offer for the ordinary shares”.

29. I reject the unfairness submission.

30. First, the holders of preference shares were offered the Preference Scheme, which afforded them the opportunity to have their shares acquired by PSP under an equivalent scheme, which provided a cash payment which, according to the independent expert, provided them an even greater premium to fair value than that offered under the Ordinary Scheme. The offer of a cash amount of $2.00 was well in excess of the range of values of the preference shares as determined by the expert of $1.50 to $1.80. Having rejected the Preference Scheme, it is not unfair that they remain minority shareholders whose rights are regulated by the Corporations Act.

31. Second, the exposure of the preference shareholders to the risk of compulsory acquisition arises from the terms of Pt 6A.2 of the Corporations Act, in particular, the threshold for general compulsory acquisition under s 664A(2). That reflects a legislative choice that a compulsory acquisition of minority shareholders in the circumstances provided for in Pt 6A.2 is desirable. So much is plain from the review of the background materials by Warren J in Capricorn Diamond’s Investments Pty Ltd v Catto (2002) 5 VR 61; [2002] VSC 105 at [21]-[28].

25. Third, if the court approves the Ordinary Scheme, and PSP subsequently exercises any rights of compulsory acquisition of the preference shares under Pt 6A.2, the rights afforded to preference shareholders include an expert determination of a fair value for such securities in the manner provided by s 667C. There is no unfairness to preference shareholders in receiving the statutory mandated fair value for their securities in the event of a compulsory acquisition.

26. One further matter raised by Mr Elkington should be mentioned. It concerns the voting rights attaching to the preference shares. A summary of the key terms of the preference shares is set out in Table 25 in the independent expert’s report (p 161, Scheme Booklet). The voting rights there set out include a right to vote when a dividend on preference shares has been in arrears for at least six months. They also include a right to vote on certain resolutions or proposals, namely on a winding-up, on a capital reduction, on a proposal affecting the rights of preference shares or on a proposal to dispose of all of the company’s property, business or undertaking.

27. Webster acknowledged in its written submissions that the terms of issue of the preference shares are not recorded in a single document, in particular, they are not recorded in Webster’s current constitution. The preference shares had been on issue since 1910 and the last occasion on which new preference shares were issued was in 1956. Affidavit evidence from Mr Peter Velez, solicitor, analysed the history of the issue of preference shares and the rights attaching to them. It is not necessary to summarise that evidence.

28. Webster accepted that given the state of the historical record of Webster, and doubt as to whether certain amendments in 1969 were approved by a separate class meeting of preference shareholders, which would have been required to amend the terms of existing preference shares then on issue, it is possible that the voting rights of preference shares were not expanded in 1969, but remain as set out in Article 55 of the pre-1969 Articles of Association, namely, a right to vote only when dividends are in arrears for at least six months. The disclosure of voting rights for preference shares in the Scheme Booklet therefore reflects a view of those rights most beneficial to preference shareholders.

29. Accepting the possibility that at least some preference shareholders may have fewer voting rights than as set out in the Scheme Booklet, Webster correctly submitted that the uncertainty relates only to the voting rights of preference shareholders in circumstances not presently relevant which do not impact upon the fairness of the Ordinary Scheme.

30. In addition, the independent expert has confirmed that even if the preference shareholders are entitled to vote only if dividends are in arrears for at least six months, the expert remains of the view, relevantly, that the Ordinary Scheme is in the best interests of ordinary shareholders and the more limited voting rights would not affect its valuation of the preference shares. I do not consider that this creates any impediment to approval of the Ordinary Scheme.

Mr Catto’s submissions

38. Mr Catto made three complaints.

(1)   Asserted non-disclosure of PSP’s intentions

39. The first complaint was that Webster had distracted the Court’s attention at the first court hearing from the interests of PSP in compulsorily acquiring the preference shares under Ch 6A of the Corporations Act in the event that the Preference Scheme was not agreed to by the preference shareholders, by directing the Court’s attention to class-creating issues relating to termination payments due under employment contracts with Mr Felizzi, a director and chief executive officer of Webster, and Mr Tyndall, Webster’s chief financial officer.

40. I reject this submission for three reasons. First, Webster’s written submissions at the first court hearing included (at par 10):

The Preference Scheme is conditional upon approval of the Ordinary Scheme, but the Ordinary Scheme is not conditional upon approval of the Preference Scheme. Accordingly, the Ordinary Scheme (if approved) may be implemented without the Preference Scheme being implemented. In that event, PSP intends to complete the acquisition of all outstanding preference shares by way of compulsory acquisition under Ch 6A of the Corporations Act 2001 (Cth) (the Act).

41. Second, the terms of Webster’s submission in par 10 were incorporated in the reasons of Black J at [3], when describing the proposed schemes. Plainly, the intentions of PSP were properly drawn to the attention of Black J.

42. Third, par 6.4 of the Scheme Booklet (at p 51) included disclosure of PSP’s intentions in this regard.

(2)   The scheme(s) is not fair

(3)   Criticisms of the independent expert report

43. Mr Catto’s second and third submissions are connected as they involve criticisms of the independent expert report.

44. Mr Catto submitted that schemes of arrangement should only be used to effect transactions that are “fair” and the scheme in this case was not fair. (It was not made clear in the submission whether this was a reference to the Ordinary Scheme or both schemes.) The asserted unfairness of the scheme(s) was not explained except by reference to Mr Catto’s third point. Mr Catto criticised the independent expert’s report asserting that it contained errors. He submitted that an inference should be drawn that the expert’s opinion that each scheme was in the best interests of the ordinary shareholders and preference shareholders respectively was flawed.

45. There are difficulties with this submission. One is that the fairness of the Preference Scheme is not presently in issue. As indicated, that scheme was not agreed to by preference shareholders and is not before the Court for approval.

46. Another difficulty is that none of the asserted errors in the expert’s report have been demonstrated.

47. The first asserted error was that a pie chart appearing in Figure 10 of the independent expert’s report depicting “2018 Australian Raw Cotton Exports” implied that there were 17 other countries who received 2.3 per cent each of Australia’s exports in 2018, and that the expert should have known that the data in the pie chart was distorted thus rendering the pie chart misleading. Mr Catto submitted that he had been told by a third party (an unidentified cotton farmer) that the data depicted in the pie was distorted. That was not evidence of the asserted error.

48. For my part, I cannot detect the error which Mr Catto submitted appears in the pie chart. There is no evidence before the Court casting doubt on the information contained in Figure 10 in the independent expert’s report at p 126 of the Scheme Booklet. In any event, even assuming an error, no logical connection was shown between any such error and the expert’s opinion on the schemes, in particular, the Ordinary Scheme.

49. The second asserted error was that the independent expert did not refer to the size of Webster’s franking account, which Mr Catto said was in an amount of $4.7 million, and did not refer to the preference shares receiving unfranked dividends and the ordinary shareholders receiving franked dividends.

50. This submission ignores the material in the independent expert’s report. In Table 13, appearing in par 9.7 of the report (p 153, Scheme Booklet), there is disclosure that ordinary shareholders received fully franked dividends in the financial years ending 2017 and 2018, whereas the dividends paid on the preference shares for the financial years ending 2017, 2018 and 2019 were unfranked. Mr Catto is correct that the expert does not seem to have referred to the size of the franking account, whatever it may be. No evidence was drawn to the court’s attention that the franking account was in the amount of $4.7 million as suggested by Mr Catto. Even if that be the case, the important point is that the independent expert report stated that Webster does not have an explicit dividend policy in place, and it is not suggested that this statement was incorrect.

51. The third asserted error was that the expert’s assessment of the valuation of the preference shares in par 10.9 of the report (p 161, Scheme Booklet) by reference to yields on comparable, listed preference shares, some in Australia and some in the United States, wrongly implied that the preference shares issued by Whitefield Ltd contained some redemption rights. Nothing in Table 44 or par 10.9 of the report supports that proposition. Indeed, the first dot point under the second sub-paragraph in par 10.9 states, “Only preference shares that have a fixed coupon and are perpetual and non-redeemable have been considered”. I would add that, in any event, this asserted error has no relevance for the Ordinary Scheme.

52. Mr Catto further complained that the analysis by the independent expert did not mention yields on preference shares issued by Australian companies which have been previously been the subject of some form of acquisition or redemption. Oblique mention was made that there were at least 10 such securities of that description, but without identification or explanation of their present relevance for the Ordinary Scheme.

53. I reject Mr Catto’s general submission that an inference should be drawn that given the independent expert was incompetent in the matters referred to above, the independent expert was incompetent in other (unidentified) respects. I do not accept the premise of this submission. Nor has Mr Catto cast doubt on the competence of the independent expert, or established that the opinion given with respect to the Ordinary Scheme is unreliable or defective or flawed.

54. In summary, none of the matters raised by Mr Elkington and Mr Catto, either alone or in combination, give rise to a doubt that the Ordinary Scheme is fair and reasonable. That preference shareholders are liable to the compulsory acquisition process under Ch 6A.2 of the Corporations Act is not a reason to decline to approve the Ordinary Scheme.

Other matters

55. I record the following additional matters.

56. The first concerns the Kooba transaction which was disclosed in the Scheme Booklet. As foreshadowed in the Scheme Booklet, Belfort and Verolot have now entered into subscription arrangements with PSP and Kooba Pty Ltd to subscribe for an aggregate 50.1 per cent interest in Kooba Pty Ltd. That occurred on 4 February 2020. As Black J noted in his reasons, a condition precedent to Belfort’s and Verolot’s ability to subscribe for shares in “KoobaCo” is that the Ordinary Scheme is agreed to by the requisite majorities at the relevant Scheme meeting, excluding Belfort and Verolot and any votes cast in favour by Belfort and Verolot.

57. That meant that for Belfort and Verolot to benefit from the opportunity, the Scheme must first have been attractive to the majority of shareholders by number and by value, who do not share any interest in the KoobaCo opportunity. The independent expert’s report included in the Scheme Booklet concluded that the arrangement does not confer a “net benefit” on Belfort and Verolot, having regard to the benefit which Belfort and Verolot would acquire by subscribing for the shares in KoobaCo and the amount they will be required to pay for them.

58. Insofar as a collateral benefit might be obtained by Belfort and Verolot from the opportunity to subscribe for shares in Kooba Pty Ltd, I accept Webster’s submission that this is not a matter which ought to prevent approval of the Ordinary Scheme given that both Belfort and Verolot abstained from voting on the Ordinary Scheme, the scheme was agreed to by the statutory majorities without their votes and the independent expert opined that this opportunity did not represent a net benefit to Belfort and Verolot.

59. The second matter concerns Mr Felizzi, who made a recommendation as a director in relation to the Ordinary Scheme notwithstanding his interest in the Ordinary Scheme being approved. That interest arose from the vesting of his ELTIP shares and the payment due to him under his employment contract. At the first court hearing, Black J took the view that Mr Felizzi was not precluded from making a recommendation in relation to the Scheme as a member of the independent board committee, given the disclosure of Mr Felizzi’s interests and their value and their potential relevance to the directors’ recommendation in the Scheme Booklet. Black J took the same view in relation to the potential termination payment to Mr Felizzi which was also prominently disclosed in the Scheme Booklet.

60. It is not necessary to revisit that issue. The Scheme Booklet contained prominent disclosure of these matters and ordinary shareholders overwhelmingly voted in favour of the Ordinary Scheme. In addition, the potential termination payment and other benefits under the terms of Mr Felizzi’s employment contract was approved for the purposes of ss 200B, 200E and 208 of the Corporations Act as an ordinary resolution at the general meeting of Webster also held on 3 February 2020. This resolution was approved by 92.02 per cent of the votes cast on the poll.

Conclusion and orders

61. I am satisfied that the Ordinary Scheme is fair and reasonable, taking into account the director’s recommendation made by the independent board committee of Webster; the existence and content of the independent expert report which has been verified by its co-authors; that the ordinary shareholders, having received that report as part of the Scheme Booklet and explanatory statement, voted by overwhelming majority to agree to the schemes; that there is no evidence of oppression in the conduct of the scheme meeting; that no ordinary shareholder has come forward to oppose the scheme; the matters raised by Mr Elkington and Mr Catto as preference shareholders; and the direct consequences of the Ordinary Scheme for preference shareholders, given the general compulsory acquisition power in Ch 6A.2 of the Corporations Act.

62. I am satisfied that Webster has made out its case that the court should grant approval of the Ordinary Scheme as envisaged by s 411(4)(b) of the Corporations Act.

63. In addition, an order is sought exempting Webster from the requirements of s 411(11) of the Corporations Act which requires a copy of the Court’s order under s 411(4)(b) to be annexed to the company’s constitution issued after the order has been made, unless the Court exempts the company from compliance with that requirement.

64. An exemption order under s 411(12) is appropriate in the present circumstances where the scheme does not amend Webster’s constitution and, upon implementation, Webster will become a wholly owned subsidiary of PSP: Re Equinox Resources Ltd (2004) 49 ACSR 692 at [22]; Re Toll Holdings Ltd (No 2) [2005] VSC 236 at [18]-[19]. There is no utility in requiring compliance with s 411(11).

65. Accordingly, the Court makes the following orders:

1. Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (the Act), the scheme of arrangement between the plaintiff and the holders of its ordinary shares, other than Excluded Ordinary Shareholders as defined therein (Ordinary Scheme), being in the form contained in Annexure C to the Scheme Booklet which is Exhibit P1 in this proceeding, be approved.

2. Pursuant to s 411(12) of the Act, the plaintiff be exempted from compliance with s 411(11) of the Act in relation to the Ordinary Scheme.

3. These orders be entered forthwith.

**********

Amendments

17 March 2020 - Amendment to jurisdiction - not visible

Decision last updated: 17 March 2020