Lantern Hotel Group and Australian Securities and Investments Commission
[2015] AATA 428
•17 June 2015
[2015] AATA 428
Division GENERAL ADMINISTRATIVE DIVISION File Number
2014/4170
Re
Lantern Hotel Group
APPLICANT
And
Australian Securities and Investments Commission
RESPONDENT
Decision
Tribunal Senior Member P W Taylor SC
Date 17 June 2015 Place Sydney The decision under review is set aside. The Tribunal proposes to make a decision in substitution for the decision under review so as to exempt Lantern from compliance with those provisions of the Corporations Act 2001 that would otherwise preclude carrying out the proposed buy back transaction approved by the security holders on 31 July 2014. The parties are, within 7 days, to submit the formal terms of the substituted decision, and those terms are to be consistent with these reasons for decision.
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Senior Member P W Taylor SC
Catchwords
CORPORATIONS – buy back from security holders – ASIC refusal to grant exemption from buy back provision in Corporations Act – exemption only sought in relation to a particular transaction independently assessed as reasonable and fair – decision under review set aside – parties directed to draft proposed terms of substituted decision in accordance with these reasons
Legislation
Corporations Act 2001 (Cth) ss 249HA,257A, 257B-J, 257C(2),257D(2), 257D(3), 257E, 601EA, 601FC(1)(d), 601GA(4), 601GA(4)(a)(b), 601KB-KE, 601QA, 601QA(1)(b), 601QB, 601QA(2), 601QA9(1), , 601KA(1), 601KA(2), 601KB(2)(b), 601KD, 601KE(1)
CASES
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1981-2) CLR 337
Hneidi v Minister for Immigration and Citizenship (2010) 182 FCR 115
Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184
Mayne Nickless Ltd v Pegler (1976) 11 ALR 167
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
Re Wolstenholme and Minister for Immigration and Citizenship [2010] AATA 315Secondary Materials
ASIC Regulatory Guides
REASONS FOR DECISION
Senior Member P W Taylor SC
17 June 2015
The Lantern Real Estate Trust (LRE_T) is a managed investment scheme registered under Chapter 5C of the Corporations Act2001 (“CorpAct 2001”). Lantern RE Limited (“LRE_L”) is a subsidiary of Lantern Hotel Group Limited (“LHGL”), and the responsible entity for LRE_T. Units in LRE_T and ordinary shares in LHGL are stapled securities traded on the Australian Securities Exchange (ASX). “Lantern” (which is the name I will use to refer collectively to LHGL and LRE_L) operates hotels and entertainment venues.
In mid 2014 Lantern unsuccessfully sought ASIC‘s exemption from various CorpAct 2001 provisions which otherwise preclude Lantern from giving effect to a proposal to undertake a $16.1m buy-back from one of its significant security holders. ASIC’s 29 July 2014 decision refused Lantern’s application, despite the fact that it had obtained relevant ASX approvals and was characterised as fair and reasonable by an independent valuation expert. ASIC’s refusal decision is the subject of the present proceedings.
Lantern advances six reasons why its application should be granted:
(a)the buy back will increase net asset value per security and will have no adverse impact on its ability to pay its creditors
(b)the proposed buy-back price compares favourably with the on market price at which Lantern securities have been traded
(c)an independent expert has twice endorsed the proposal as fair and reasonable to the non-participating security holders
(d)the proposed transaction has been overwhelmingly approved by its security holders
(e)the security holders were provided with all material information
(f)there is no relevant, or at least no significant, “regulatory detriment” associated with granting relief in connection with a transaction that is otherwise beneficial to the remaining security holders.
The proposed Buy-Back transaction
Lantern began an on market buy-back program in late 2012. By November 2013 Lantern had purchased about 10% of its issued securities. That buy back involved an outlay of about $6.9m to buy back 88.7m securities (at a weighted average price of $0.0786). It resulted in Lantern still having about 1,600 security holders. But more than 1,400 of the holdings involve amounts less than $10,000 and fewer than 30 holdings involve more than $100,000. In fact, the 5 security holders listed in the Table in paragraph 10 below, and their associates, held about 85% of Lantern’s issued securities.
In December 2013 Lantern learnt that one of the principal security holders, Millinium Asset Services Pty Limited (which held its securities as the trustee of “the Borg Fund”) wanted to dispose of its approximately 24.3% holding (involving some 214.7m Lantern securities). The Lantern board, principally at the instigation of Messrs Naylor and Mogridge, became apprehensive that a competing hotel group might purchase Millinium’s significant Lantern holding. After various communications, on 4 February 2014 the Borg Fund’s investment manager made a 45 day conditional, but irrevocable, offer involving an off market buy back of the Millinium security holding in a series of three, 60 day, stages after any required security holder approval. The then proposed buy back price was to be the volume weighted average ASX trading price in the 20 days preceding each buy back stage - subject to being within the range from $0.065 to $0.075. After each stage date Lantern was to pay interest at 8%, based on a price of $0.07I. If Lantern did not acquire the whole security holding with 12 months, Millinium could sell the balance of the security holding to a third party.
On 17 February 2014 the Lantern Board resolved, apparently unanimously, to authorise formal acceptance of the conditional buy back offer.
Notwithstanding the content of the 4 February offer 2014, and particularly the fact that it said it was irrevocable and able to be accepted at any time before 21 March 2014, on 28 February 2014 and 5 March 2014 Millinium entered into two call option deeds with other prospective purchasers. The option deeds contemplated the sale of 111m of Millinium’s Lantern securities to Totem Holdings Pty Ltd (at $0.072 each) and the sale of 103.7m securities to CVC Limited (also at $0.072 each).
Perhaps unsurprisingly, Lantern commenced Supreme Court proceedings against Millinium, Totem and CVC on 7 March 2014. The basic purpose of the proceedings was to prevent them giving effect to the option deeds. On 11 March 2014 Totem applied to the Australian Government Takeovers Panel to restrain Lantern from accepting the 4 February 2014 buy back offer. On 14 March 2014 the Takeovers Panel published a decision, refusing Totem’s application. On 18 March 2014 Lantern announced to the ASX that it had accepted the 4 February 2014 buy back offer.
Shortly afterwards Lantern negotiated a settlement of, and discontinued, the Supreme Court proceedings. The settlement terms were the subject of a 4 April 2014 Deed between Lantern, Millinium, Totem and CVC. Under the Deed terms Totem and CVC agreed not to exercise their respective call options, and Lantern conditionally agreed to a $16.1m buy back of Millinium’s 24.31% security holding. The more important elements of Lantern’s Deed obligations were
(a)a $1.4m payment to Millinium by 31 July 2014
(b)a further $0.6m payment to Millinium by 7 August 2014, if Lantern failed to obtain relevant security holder approval by 31 July 2014
(c)a buy back proposal, conditional upon relevant approvals by LHGL share holders, LRE_T unit holders, the ASX and ASIC, involving
(i)the purchase of Millinium’s 214.7m securities - potentially in three sequential buy back tranches to be completed within 180 days of any security holder approval
(ii)a total consideration of $16.1m, reflecting a fixed purchase price of $0.075 per security
(iii)a proviso apparently permitting deferred final payment, with 8% interest, on 31 July 2016.
The following table indicates Lantern’s issued securities, the holdings of Lantern’s 5 principal security holders, and those of Messrs Mogridge and Naylor. It also indicates the effect of implementing the buy back contemplated by the April 2014 Deed.
Pre buy back Post -buy back issued % issued % Total issued shares 883,202,000 100.00% 668,477,778 100.00% Principal security holders Torchlight related entities Torchlight GP Limited 266,629,935 30.19% 266,629,935 39.89% Mogridge, Byran 11,086,119 1.26% 11,086,119 1.66% Naylor, Russell (directly or indirectly) 10,750,085 1.22% 10,750,085 1.61% Torchlight entities - Total 288,466,139 32.66% 288,466,139 43.15% Allan Gray Australia Pty Ltd 160,593,723 18.18% 160,593,723 24.02% Cartwright (Lantern director) 1,228,240 0.14% 1,228,240 0.18% Colonial First State Investment Ltd 45,025,520 5.10% 45,025,520 6.74% Millinium Asset Services Pty Ltd 214,724,222 24.31% 0 0.00% Renaissance Property Securities Pty Ltd 75,564,522 8.56% 75,564,522 11.30% Subtotal - principal security holders 785,602,366 88.95% 570,878,144 85.40% Other security holders 97,599,634 11.05% 97,599,634 14.60% Relationships - Torchlight, Naylor and Mogridge
Torchlight GP Limited is an entity ultimately beneficially owned by Pyne Gould Corporation Ltd, a company listed on the New Zealand stock exchange. More specific aspects of Torchlight GP Limited’s status are that it is a:-
(a)subsidiary of Torchlight Group Limited and, indirectly, of its holding company Torchlight Investment Group Ltd
(b)general partner, and day to day manager, of a Cayman limited partnership “The Torchlight Fund”.
Mr Bryan Mogridge, one of the individual security holders shown in the Table in paragraph 10, is one of the four directors of LHGL and LRE_L. He is the chairman of Pyne Gould Corporation Ltd, LGHL and LRE_L.
Mr Russell Naylor, another of the security holders named in the Table in paragraph 10, is an executive director of LHGL and LRE_L. He is also
(a)an executive director of Pyne Gould Corporation Ltd
(b)an executive director of Torchlight GP Limited
(c)a member of The Torchlight Fund investment committee.
Asx approval
The 4 April 2014 Deed did not stipulate the nature of the ASX approvals it contemplated. They involved (i) a statement, under Listing Rule 15.1, of lack of objection to relevant changes to the LRE_T constitution, (ii) confirmation, under Listing Rule 6.12.3, of the constitution changes as appropriate and equitable, and (iii) confirmation of the acceptability of the proposed transaction timing. On 30 June 2014 the ASX granted the relevant approvals for the proposed buy back.
Lantern’s Explanatory Booklet
Also on 30 June 2014, Lantern gave notice of share holder and unit holder meetings to be held on 31 July 2014, and notice of the special resolutions to be put to the meetings. The notices formed part of an Explanatory Information Booklet, which contained an Independent Expert’s Report relating to the proposed buy back.
This material described the proposed buy back as resulting from the April 2014 settlement of the Supreme Court proceedings and involving all of the features summarised in paragraph 9 above, apart from the contemplated three stage process of acquisition and payment. Instead of that process it characterised the transaction as one whereby Lantern would acquire all of Millinium’s securities immediately after obtaining the required approvals, but would defer payment until 31 July 2016, subject to paying quarterly interest at a rate of 8%. That proposed transaction structure was set out in a draft “Buy-Back Agreement” (between Lantern and Millinium) annexed to the Explanatory Information Booklet.
The Explanatory Booklet information included summary balance sheets and trading statements for the 2013 financial year and for the six months to December 2013. The balance sheets indicated that Lantern had net assets of $102m, comprised mainly of Australian freehold property assets (valued at $162m) and New Zealand hotels (current value about $11.1m, book value $7.48m). The trading statements indicated that Lantern had a June 2013 financial year pre tax net profit of $3.15m but, despite a substantial increase in gross operating profit, a loss of $2.16m for the six months to December 2013 (although after a $3m write down in asset carrying value). In the light of the reported financial information, and the proposed transaction structure, the booklet disclosed that Lantern proposed to fund the $16.1m buy back consideration either from its operating profit, or from those profits and the sale of its New Zealand assets.
The Explanatory Information Booklet summarised the proportionate effect of the buy back transaction on Lantern’s principal shareholders (consistent with the information in the Table in paragraph 10 above). It also disclosed not only the fact that the buy back proposal could not proceed unless ASIC granted relevant CorpAct 2001 relief, but also that, on 27 June 2014, ASIC had conveyed to Lantern its “in principle” decision to refuse the contemplated approvals for which Lantern had applied.
The Torchlight interests disclosures
The Explanatory Information Booklet Lantern provided to its security holders for the 31 July 2014 meetings included an introductory notice stating that the booklet contained all of the information known to Lantern that was material to the proposed transaction. It also contained a letter from Mr Mogridge. In the letter Mr Mogridge summarised the proposal as one involving a purchase price “at a material discount to net asset value” but whilst higher than the current market price, nevertheless “fair and reasonable”. His letter recorded the unanimous recommendation of Lantern’s non-executive directors, Mr Naylor’s abstention from making a recommendation (because of his association with “Torchlight”) and Torchlight’s status as the largest Lantern security holder. The Booklet also included
(a)a discussion of various reasons why security holders might consider voting against it because of its possible disadvantages (including foregoing other potential investment opportunities, the prospect that it could require increased borrowings, the fact that the buy back price was higher than the current ASX price, and the prospect of a further decrease in the volume of ASX trading)
(b)a discussion of the potential significance of Torchlight’s status as a security holder (that its individual 39% holding might deter potential future takeover offers for Lantern).
(c)an explanation that the Lantern directors considered there was no impediment to Torchlight voting at the meetings - although (as I have noted in paragraph 35 below) Torchlight did not in fact vote
(d)a statement of the number of securities held by individual directors (including both Mogridge and Naylor) and their intention to vote in favour of the proposal.
As the preceding summary shows, the information in the Explanatory Information Booklet recorded both Mogridge and Naylor’s status as Lantern security holders. It also recorded Mr Naylor’s role as a director of “Torchlight” (ie without discussion of the different entities listed in paragraph 11 above). The Booklet did not record the fact of either Mogridge or Naylor’s status as directors of Pyne Gould Corporation Limited. But that information had previously been disclosed in Lantern’s 2012 and 2013 annual reports. The fact of Pyne Gould’s ultimate ownership of the Torchlight corporate entities was not explicitly revealed in either the Explanatory Information Booklet or in Lantern’s previous annual reports.
Independent Expert reports
The Independent Expert Report (“the June 2014 IER”) included in the Explanatory Information Booklet concluded that the proposed buy back was fair to the other Lantern security holders, and consequently also “reasonable”. This Report, and the fairness opinion it contained, satisfied the requirements of ASX Listing rule 10 and was, in effect, a precondition to obtaining security holder approval for the buy back proposal.
The June 2014 IER noted that 117.8m Lantern securities (involving 13.34% of those issued) had been traded on the ASX in the preceding 12 months. In the period from July to December 2013 the ASX trading had dropped from about $0.08 to $0.05. But the volume weighted average price for the whole 12 month period to 11 June 2014 had been $0.075. The Report opined that, given the limited and irregular trading volume, the ASX price valued the securities on a minority basis. The Report considered that it would be appropriate to apply a control premium of 20% and, on this basis concluded that the market pricing of Lantern securities gave rise to an appropriate fair value range of AUD0.084 to AUD0.096.
The June 2014 IER also assessed the net asset value, and the net tangible asset value of the Lantern securities. It based the assessment on the financial statements to June 2012, June 2013 and December 2013. It concluded that at December 2013 the net asset value per security was AUD0.115.
Taking into account both its assessments of ASX trading and net asset value, the June 2014 IER determined that, after allowing for the unconditional payment obligations in the April 2014 Deed, the appropriate “pre-transaction” valuation range for Lantern securities was $0.090 to $0.113. The Report also concluded that after Lantern incurred the purchase price payment obligation involved in the proposed buyback, the fair market value of a Lantern security would be $0.105. That value was towards the upper end of the June 2014 IER’s “pre-transaction” valuation range, and significantly above both the $0.75 transaction price and the volume weighted average price for the 12 month period to 11 June 2014. On that basis the June 2014 IER concluded that the proposed transaction was both fair and reasonable.
In addition to its formal conclusion that the proposed buy back was both fair and reasonable, the June 2014 IER noted a range of comparative advantages and disadvantages of the buy back proposal. These were
(a)Advantages:
(i)increased net asset value for the remaining issued securities
(ii)consistency with, and acceleration of, the general “buy back” strategy Lantern initiated in 2012
(iii)increased value of the remaining security holdings
(iv)delayed payment of the buy back consideration
(v)avoiding the $600,000 payment obligation that would be triggered by the absence of timely shareholder approval.
(b)Disadvantages:
(i)increased debt and gearing as a result of the $16.1m payment obligation
(ii)comparative increase in the holdings of the controlling security holders (especially Torchlight GP Limited and Allan Gray Australia Pty Ltd) and the potential for a corresponding reduction in the prospect of a takeover offer for Lantern
(iii)the ASX closing price for Lantern securities on 11 June 2014 ($0.067) was less than the $0.075 buy back price
(iv)the (approximately $1.8m minimum) costs of implementing the buy back transaction, plus interest on any delayed payment of the buy back consideration.
After the oral hearing in the present proceedings, and in response to criticisms ASIC had made in its submissions, Lantern obtained an updated expert report (“the March 2015 IER”). This report specifically took into account
(a)the materiality of the $600,000 payment obligation referred to in paragraph 9(b) above (in the light of the claims Totem and CVC made in August 2014 - see paragraph 43 below)
(b)Lantern’s asset value as at December 2014
(c)the trading in Lantern securities since June 2014
(d)Lantern’s continued ownership of the New Zealand assets, despite its intention and attempts to dispose of them
(e)Lantern’s continuing ability to meet its obligations to creditors.
The March 2015 IER noted the possibility that Lantern might have to meet the $600,000 payment obligation asserted by Totem and CVC. However the IER reported that such a contingency would not alter its opinion that the proposed buy back was fair. That conclusion was essentially an inevitable consequence of the “pre” and “post” buy back value comparison that the March 2015 IER adopted as the principal criterion for its “fairness” assessment of the proposal.
In addressing that value comparison the March 2015 IER noted that Lantern had increased both its total assets ($195m) and its liabilities ($96m) since December 2013. As a result, its net assets had declined to $99m. Lantern’s total assets included the book value of the remainder of its New Zealand assets (AUD6.63m). The March 2015 IER noted that the current value of the remaining New Zealand assets was AUD8.03m.
Despite the marginal decline in Lantern’s net assets in the year to December 2014, the trading results for the last six months of that period, as summarised in the March 2015 IER indicated (i) a significant increase in annual operating cash flow, (ii) an approximately 28% increase in annualised gross profit, (iii) a net pre tax annualised net profit of $1.67m, and (iv) a small net increase in current assets (cash, receivables and inventories). The Report concluded that at December 2014 the net asset value per security was $0.112. This reflected a marginal reduction from the assessment in the June 2014 IER (see paragraph 23 above).
The March 2015 IER reviewed the ASX trading in the previous 12 months and reported that 64.62m Lantern securities (involving about 7.3% of those issued) had been traded, at prices ranging from a June 2014 low of $0.065 to a January 2015 high of $0.089 - with a volume weighted average price for Lantern securities was $0.076. However, of that total trading volume, interests associated with Torchlight and Mr Mogridge had purchased approximately 35m Lantern securities - about 26m in October and November 2014 before the publication of Lantern’s improved half year trading results, and a further 9.2m in early March 2015. The March 2015 IER considered that the appropriate ASX market value range was between $0.75 and $0.85. It then applied a 20% control premium to that assessment, to arrive at a “control” valuation, based on the ASX trading, of $0.90 to $0.102. This reflected a significant increase from the June 2014 IER assessment (see paragraph 22 above).
Taking into account both its assessments of ASX trading and net asset value, the March 2015 IER considered that the appropriate “pre-transaction” valuation range for Lantern securities was of $0.090 to $0.110. It also concluded that the proposed buy back would result in a post-transaction security value of about $0.101 - which reflected a marginal reduction from the assessment in the June 2014 IER, but still a substantial premium to the historical ASX trading prices. On that basis the March 2015 IER concluded that the proposed buy back would be both fair to the “non Millinium” security holders, and accordingly “reasonable”.
Notwithstanding that assessment, the March 2015 IER again outlined some of the comparative advantages and disadvantages of the buy back proposal. Its analysis was essentially the same as in the June 2014 IER (see paragraph 25 above), but with comparatively more attention to Lantern’s funding requirements - given the delay in the realisation of its New Zealand assets. The report noted that Lantern might have to resort to further drawdowns on its existing borrowings (which it said had about $13m headroom). It continued with the observation that Lantern’s gearing ratio would increase from 38.47% to approximately 46.90%, and that this was at the higher end of Lantern’s target range. However the IER also noted that if Lantern was required to draw down on its existing facilities in order to fund completion of the buy back that would not have any effect on Lantern’s current operations or necessary capital expenditure.
The security holder’s approval
LGHL’s 31 July 2014 share holder meeting approved the share buy back transaction described in the Explanatory Information Booklet, conditionally on LRE_T unit holder approval and amendment of the LRE_T constitution. On the same day LRE_T’s unit holder meeting, subject to the condition of obtaining ASIC’s favourable CorpAct 2001 determination, resolved
(a)to amend the Trust’s constitution so as to permit implementation of the buy back proposal
(b)to approve the buy back proposal described in the Booklet.
A summary of the precise breakdown of the meeting votes is complicated by the fact that many of the recorded security holders are nominee or investor services entities who may have acted for different ultimate beneficial interests. However the following table, which combines details in the parties agreed statement of facts, and a summary provided by Link Market Services, sufficiently indicates the meeting votes.
Voting holders Approve Oppose Abstain no issued % of issued % of issued securities Resolutions LHGL share buy back 277,674,166 31.44% 30.90% 0.53% 0.01% LRET constitution amendment 277,674,166 31.44% 30.89% 0.53% 0.02% LRET unit buy back 277,674,166 31.44% 30.90% 0.53% 0.00% LGHL voting breakdown Top security holders (6 of 10) 238,920,319 27.05% 27.05% 0.00% 0.00% Naylor 10,750,085 1.22% 1.22% 0.00% 0.00% Mogridge 11,086,119 1.26% 1.26% 0.00% 0.00% Other holders 16,917,643 1.92% 1.38% 0.53% 0.00% Excluded / non voting top security holders Top security holders (2 of 10) 20,702,439 2.34% no voting instruction Millinium Asset Services PL 214,724,222 24.31% did not vote Torchlight GP Ltd 266,629,935 30.19% excluded Total (voting & non voting) 779,730,762 88.28%
The Table shows that
(a)four of the top security holders were either excluded (Millinium and Torchlight GP Ltd) or failed to provide any voting instruction
(b)the remaining six top security holders supported the proposal
(c)the security holders who voted at the meeting overwhelmingly supported the various resolutions
(d)about 12% of the security holders took no part in the voting
(e)only 0.53% of the holders (involving about 4.7m of 883m securities) actively opposed the proposal by voting against it.
Current views of the Lantern security holders
I note that Torchlight GP Limited’s exclusion from voting occurred despite the fact that Lantern’s Explanatory Information Booklet contained a detailed statement recording Lantern’s directors views that there was no “legal, regulatory or policy basis” for such an exclusion. It may be inferred from that statement, viewed in the light of the subsequent exclusion, that Torchlight was expected to support the buy back proposal. However the Explanatory Information Booklet contained a statement that Mr Naylor had no actual or prospective involvement in Torchlight’s decision making process in relation to the proposal.
Apart from an assumption about Torchlight’s position, having regard to the size of its security holding, Mr Naylor’s status and its subsequent on market acquisitions, there is no significant evidence about the current attitudes of Lantern’s security holders. More specifically, there is nothing to indicate their views differ from those that influenced the approval vote at the July 2014 meetings. On the contrary, since Torchlight’s on market acquisition of 9.1m in November 2014 Lantern’s securities have typically traded on the ASX above the $0.075 buy back price, and that trading performance is likely to encourage the existing security holders to adhere to the views they took in July 2014. Consistent with that likelihood in December 2014 Renaissance Property Securities Pty Ltd (the holder of 8.56% of the issued securities) sent Mr Naylor an email indicating general support for Lantern’s management and current strategy. The email specifically stated that Renaissance supported “the pursuit of the off market buyback in principle through the AAT process.” Although the email concluded with the, perhaps Delphic, reservation that “actual voting intentions will be assessed at the time on a case by case basis”, I would infer that the existing security holders remain of the essentially favourable view that was reflected in the July 2014 meetings.
Dissonance between the April 2014 Deed and the Meeting Approvals
I noted, in paragraph 9(c)(iii) above, that the April 2014 Deed appeared to permit Lantern to defer payment to Millinium until 31 July 2016 - subject to a corresponding interest 8% obligation. Indeed this was the basis on which the proposed transaction was presented to the Lantern security holders in the Explanatory Information Booklet and the June 2014 IER.
In early July 2014, Millinium complained to Lantern that such a description of the proposed buy back was misleading and deceptive, in so far as it conveyed that Lantern could defer payment until July 2016. Millinium emphasised that the three separate buy back tranches described in the April 2014 Deed (ie, in 60 day intervals after security holder approval) each stipulated that Lantern was to pay the corresponding acquisition price at the same time.
Millinium’s complaint reflects a literal reading of one part of the April 2014 Deed. But the descriptions, and the payment obligations, to which Millinium referred were explicitly stated to be subject to three provisos. Two of those provisos are particularly relevant to Millinium’s complaint. They stated that
(a)“depending on the … structure used” Lantern “may acquire all” of the Millinium security holding within 60 days of security holder approval
(b)Lantern must make full payment by 31 July 2016, and if any part of the buy back price was not paid “on the relevant due date for payment” Lantern would pay interest (and, having regard to other parts of the Deed, that obligation would be to pay quarterly at a rate of 8%).
The drafting of the April 2014 Deed, or at least those parts of it that became the source of controversy between Lantern and Millinium about the precise timing of Lantern’s payment obligations, lacks the clarity of expression necessary to justify characterisation of Millinium’s complaint as entirely without foundation. But the April 2014 Deed sufficiently indicates that it was not intended to set out the immutable final form of the contractual buy back arrangement. Furthermore, the stipulation that Lantern must make full payment within two years (ie by 31 July 2016), and the additional provision for the quarterly payment of a specified rate of interest, are both very difficult to reconcile with, and rather point against the validity of, Millinium’s insistence that it had an unqualified entitlement to the incremental full payment of the individual tranches of the buy back transactions described in the Deed.
The contextual pointers to which I have just referred were followed by ASIC and Lantern in the statement of facts they agreed upon for the purpose of the present proceedings. In that statement of agreed facts Lantern and Millinium describe the buy back proposal as one that provided for Lantern to pay the purchase price over a deferred 2 year period. They also describe the March 2014 IER, and the respective security holder meetings, as having approved the proposed buy back agreed to in the April 2014 Deed. Those agreed descriptions of the effect of the April 2014 Deed, and the relevant similarity between the buy back transaction it proposed, and that considered by the security holders, reflects my own view:- that there is no material difference between the proper commercial construction of the April 2014 Deed and the transaction approved by the July 2014 meetings.
Dispute about the $600,000 payment obligation
As I noted in paragraph 9(b) above, the April 2014 Deed obliged Lantern to pay Millinium $600,000 if the Lantern security holders did not approve the buy back proposal by 31 July 2014.
Notwithstanding the favourable results of the 31 July 2014 meetings, both Totem and CVC complained that they did not constitute approvals of the kind contemplated by the April 2014 Deed. They asserted that the $600,000 amount had become payable. CVC’s position was different from Totem’s. CVC said that the meeting approval of the transaction described in the Explanatory Information Booklet was not the approval contemplated by the April 2014 Deed. The substance of Totem’s position was that (i) the LGHL shareholders approval was merely conditional (upon LRE_T obtaining the relief which ASIC’s 27 June 2014 correspondence indicated would be refused), and (ii) the LRE_T unit holders approval was similarly conditional, and also relevantly ineffectual - because it purported to approve a transaction as being in accordance with “the LRET Constitution (as amended)” when no relevant amendment had in fact been made.
Lantern rejected CVC and Totem’s interpretation of the April 2014 Deed, and the effect of the 31 July 2014 meeting resolutions. It conveyed that rejection in letters dated 14 August 2014. There was no evidence to establish whether Totem and CVC accepted Lantern’s rejection, or that they would adhere to their previously stated views that the $600,000 payment obligation had crystallised. The uncertainty about the payment obligation was raised by ASIC in submissions, and subsequently dismissed as immaterial in the March 2015 IER: see paragraph 27 above.
I reject CVC’s contention about the $600,000 payment obligation. For the reasons I set out in paragraphs 41 and 42 above, it does not reflect the proper construction of the April 2014 Deed. Totem’s position is, in my view, also unjustified. In the context where the proposed buy back involved stapled securities it was, as a matter or practical reality, either unavoidable or at least readily to be contemplated, that the LGHL shareholders would approve the share buy back only conditionally upon the approval of the LRE_T unit buy back. Furthermore, the objective factual context surrounding the April 2014 Deed was that (i) the contemplated unit buy back could not occur without amendment of the LRE_T constitution, and (ii) such an amendment could only take effect after it had been lodged with ASIC: see CorpAct 2001 s 601GC. In this context, there is no justification for construing the meeting approval condition in the April 2014 Deed as requiring the kind of unconditional approval canvassed in Totem’s complaint letter of 13 August 2014. Totem’s complaint, in my view, advocates a literal interpretation that is quite at odds with the contractual reality the parties embraced. As Mason J observed in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981-2) 149 CLR 337 at 348 “there is more to the construction of the words of written instruments than merely assigning them their plain and ordinary meaning”. In that context it is instructive to recall the dictum of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109:
It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another … If the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust.
More recently, in Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; 310 ALR 113 at 126 Leeming JA described as the “signal element” in the proper construction of commercial contracts, the obligation to approach the task with “business common sense”. His Honour acknowledged that “there are indubitably cases where there may be a real contest about what amounts to business common sense”. But, taking up Leeming JA’s point and adapting his mode of expression to the present circumstances, they do not include cases involving the sort of interpretation advanced by Totem in its complaint about the contractual inadequacy of the 31 July 2014 security holder approvals.
The consequence of my view about the invalidity of CVC and Totem’s contentions is that I am satisfied Lantern has no obligation to make the additional $600,000 payment. For that reason, in addition to the views expressed in the March 2015 IER (see paragraph 26 above) such a postulated liability is immaterial to a proper assessment of the fairness of the buy back transaction.
Relevant legal framework
The CorpAct 2001 conditionally permits a company to selectively buy-back its own shares: s 257A. The material conditions are that (i) the buy-back does not materially prejudice the company’s ability to pay its creditors and (ii) the company follows the procedures set out in CorpAct 2001 ss 257B-J.
The CorpAct 2001 ss 257B-J procedures relevantly include the following:
(a)pre-agreement approval either by all members, or by a special resolution where no proposed vendor (nor any vendor’s associate) cast votes in favour of the resolution: CorpAct 2001 s 257D(1).
(a)prior lodgement of meeting documents with ASIC: CorpAct 2001 s 257D(3)
(b)inclusion with the meeting notice of all information known to the company that is “material to the decision how to vote” (except information it would be “unreasonable to require the company to” include “because the company had previously disclosed the information to its shareholders): CorpAct 2001 s 257D(2)
(c)pre-agreement lodgement with ASIC of any buy back offer documents: CorpAct 2001 s 257E.
LRE_T’s current constitution permits its responsible entity” (ie LRE_L) to buy back units “subject to and in accordance with the Corporations Act and any requirements under the Listing Rules”. More specifically, if the scheme is not “liquid” (for the purposes of CorpAct 2001) the LRE_T constitution only allows a unit holder to withdraw in accordance with the terms of an offer that complies with the CorpAct 2001 provisions and the ASX Listing Rules.
No CorpAct 2001 provisions permit the selective offers to buy-back units in a managed investment scheme. On the contrary, various CorpAct 2001 provisions are inconsistent with the permissibility of a selective buy back offers, and especially where the scheme assets predominantly comprise interests in freehold properties. The specific provisions are:
(a)601FC(1)(d): - which broadly requires a “responsible entity” to treat members equally, or where they have different class rights, to treat them fairly
(b)s 601GA(4) - which stipulates that any member’s right to withdraw from a scheme must be both fair to all members and specifically stated (as well as procedurally detailed) in its constitution:
(c)ss 601KB-KE - which mandates that where scheme members are permitted by its constitution to withdraw from a scheme, and the scheme holds less than 80% of its assets as cash, bank bills, marketable securities or prescribed kinds of property, the “responsible entity” must make time limited written offers to all members of the same class and specify the assets to be used to effect the buy back.
But the difficulties created by the provisions outlined in the preceding paragraph are not an insuperable obstacle. CorpAct s 601QA gives ASIC a power to exempt a person from any “managed investment scheme” provision in CorpAct 2001 ss 601EA to 601QB and in any relevant regulation. Such an exemption can be partial or complete, conditional or unconditional. Alternatively, ASIC can declare that any such CorpAct 2001 provision does not apply to a person, or applies only in a modified or varied form. CorpAct 2001 s 601QA(1)(b).
ASIC’s reasons for refusing exemption
On 16 June 2014 Lantern applied to ASIC for a determination that would have the effect of (i) modifying the application of s 601GA(4) to Lantern, and (ii) dispensing with compliance with ss 601FC(1)(d) & 601KB-KE - so as to permit Lantern to buy back Millinium’s securities. On 27 June 2014 ASIC conveyed to Lantern its “in principle” refusal indication.
After that initial indication, and after taking into account further information Lantern provided, ASIC had a change of view. On 18 July 2014 ASIC told Lantern that ASIC’s “Regulatory Policy Group” had considered the matter and made an “in principle”, albeit conditional, decision to grant the application. One of the relevant conditions was that each of Lantern’s directors provide personal declarations detailing their awareness of (i) the relationship between Torchlight and Lantern and (ii) any role Torchlight had played in the buy back proposal. The directors were also required to detail the extent of their own personal involvement in the proposal, and the basis for their views that the proposal was both commercial and in the best interests of the security holders. ASIC asked to be given drafts of the director’s declarations.
Lantern sent declaration drafts to ASIC on Tuesday 22 July 2014. Just after 11am on Friday 25 July 2014 it asked ASIC to “provide an update of the status of the declarations” and whether ASIC required any changes or further information. In a telephone conversation later that day ASIC responded that it would refuse Lantern’s application. On Monday 28 July Lantern told ASIC that it wanted to provide some additional information. On 29 July 2014 it sent ASIC an email referring to the 4 February 2014 buy back offer, and providing various board minutes as well as an affidavit Mr Naylor had sworn for the purpose of the March 2014 Supreme Court proceedings. That material included the Totem and CVC Option Deeds, Millinium’s asserted view that the Options were a “fall back” and conditional upon Lantern not accepting the 4 February 2014 offer, and Lantern’s (in my view correct) contention that no such condition was expressed in the Option Deeds.
Notwithstanding the approvals by the ASX, the additional information Lantern had provided, and its own prior indication of “in principle” approval, ASIC’s 29 July 2014 decision formally refused Lantern’s application. ASIC rejected Lantern’s application, on a number of grounds. They included
(a)concern that the purchase required a payment consideration that would have “an impact on the assets of the scheme for remaining members”
(b)concern that the buy back price involved a premium of more than 5% above the prevailing ASX market price, and, for that reason, comparatively disadvantaged other security holders
(c)an absence of satisfaction that security holders had been given sufficient time to consider all relevant information before the 31 July 2014 meeting
(d)an absence of satisfaction that Lantern had adequately disclosed to security holders Mogridge and Naylor’s “executive positions within the Torchlight Group”.
The first three matters relied on by ASIC in its 29 July 2014 refusal communication must have been obvious to ASIC from the contents of the Explanatory Information Booklet. They had presumably been taken into account before ASIC conveyed its “in principle” approval on 18 July 2014. Indeed, in the statement of reasons it provided in September 2014 (pursuant to s 37 of the AAT Act) ASIC explained its evident change of view between 18 and 25 July 2014, by reference to the directors’ declarations Lantern had provided on 22 July 2014. ASIC contended that the declarations contained material disclosures that had not been provided to the security holders in the circulated pre-meeting information. More specifically, ASIC contended that the pre-meeting information did not set out
(a)Pyne Gould’s ultimate beneficial ownership of “Torchlight”
(b)Naylor and Mogridge’s relationships with Pyne Gould and Torchlight (see paragraphs 11 to 13 above)
(c)that the buy back proposal resulted from preliminary discussions between Naylor, Mogridge and Millinium
(d)that Naylor and Mogridge had been “active in the initiation and development of the buy-back proposal”.
Increase in net asset value per security and fair price
ASIC’s observation that the proposed buy back would correspondingly reduce Lantern’s net asset value is, of course, true. But that reduction had been specifically addressed in the Explanatory Information Booklet, and analysed in the June 2014 IER. Lantern’s directors had identified the reduction in its cash reserves, and its potentially increased gearing, as reasons why shareholders might oppose the transaction. In addition, the “pre-transaction” and “post-transaction” net asset value comparison undertaken in the June 2014 IER was based upon an explicit recognition of the reduction in Lantern’s net assets as a result of carrying out the proposed buy back.
It follows that the contemplated reduction in Lantern’s net asset value is clearly a material consideration, and it was recognised as such in the pre-meeting information provided to the security holders. But it is also true that this contemplated reduction in net asset value is only one of the relevant considerations. And its potential significance has to be gauged against the effect of the buy back in reducing the total number of issued securities.
The Table in paragraph 10 illustrates the proportionate effect of the buy back proposal on the remaining security holders - and indicates that both the continuing “top” shareholders, and the minority shareholders collectively, would all increase their proportionate security holding. The analysis evident from the Table conveys the probability that, so long as the buy back price was less than the net asset backing of the security holder’s interests, the transaction conveyed the potential for significant benefit to the remaining security holders. That prospective advantage was one of the reasons Lantern’s directors advanced in support of the buy back proposal. The June 2014 IER supported that view and opined that there was likely to be an increase in the net asset backing for each issued security.
This corresponding increase in net asset value per issued security must have been one of the “commercial benefits” that ASIC alluded to, but did not discuss in any detail, in its July 2014 letter, and its subsequent statement of reasons in September 2014. But it is not satisfactory to deal with Lantern’s application at a level of generality in relation to this aspect of the proposed transaction.
Both the June 2014 IER and the March 2014 IER attempted to quantify the potential benefit to the remaining shareholders in the light of their assessment of the appropriate valuation range for Lantern and its individual securities. I outlined the content of the Reports in paragraphs 21 to 32 above. The following Table effectively summarises their views about the value of the Lantern securities before and after the proposed buyback transaction.
2013 2014 June December June December m m m m Pre buy back transaction Issued securities 883,202 883,202 883,202 883,202 Net assets 100,582 101,961 97,805 98,690 Intangibles 26,640 29,090 28,298 33,520 Less Settlement costs 400 400 400 400 Transaction costs 1,400 1,400 1,400 1,400 Adjusted net assets 98,782 100,161 96,005 96,890 NAV / security 0.112 0.113 0.109 0.110 Post buy back transaction Issued securities 668,478 668,478 668,478 668,478 Buy back consideration 16,100 16,100 16,100 16,100 Adjusted net assets 82,682 84,061 79,905 80,790 NAV / security 0.124 0.126 0.120 0.121 NAV / security (minority - 83.3%) 0.103 0.105 0.100 0.101
The Table shows that the IER assessment of the proposed transaction would result
(a)in a significant increase in net asset value per security, before adjustment for the minority interest of individual security holders
(b)even after adjustment for the minority interest of individual holders, in a value significantly above the valuation range suggested by historical ASX trading: see paragraphs 22 and 30 above.
Overwhelming security holder approval
It is of course proper to recognise that views may reasonably, and properly, differ about the desirability of a proposed transaction where net asset values differ from the historical trading price history of a particular security. There is, indeed, a prospect of significant differences of view where the particular transaction price broadly accords with a “volume weighted average” over a reasonable period of time (see for example paragraphs 22 and 30 above) but is less than current ASX trading prices. But what those possibly different views reflect are varying interpretations of the trading history and different attitudes to the degree of risk and the prospect of an investment return. Differences of those kinds, provided they are based on assessment of materially complete and accurate information, are matters primarily for the decision of the security holders concerned in, and likely to be affected by, the proposed transaction.
At the time of its 29 July 2014 decision ASIC did not, of course, have the benefit of the result of the security holders’ meetings on 31 July 2014. Those meetings overwhelmingly endorsed the proposed transactions - indeed the recorded opposition involved little more than 0.5% of the total number of issued securities. More informatively, one can extract the following propositions from the voting summarised in the Table in paragraph 34 above:
(a)in addition to the top security holders, the minority holders of almost 17m Lantern securities (accounting for about 2% of the issued securities) voted in favour of the proposal
(b)two of the top 10 Lantern security holders (accounting for about 2.3% of the issued securities) did not consider themselves sufficiently concerned by the proposed transaction to vote at the July 2014 meetings
(c)a significant number of minority shareholders (accounting for almost 12% of the issued securities) were similarly indolent about opposing the proposal
(d)The remaining security holders who voted overwhelmingly in favour of the proposed transaction were fully satisfied of its potential commercial benefit and were, indeed, enthusiastic for it to be implemented - despite the disadvantages pointed out in the Explanatory Information Booklet by both the Lantern directors and the independent expert.
The timing & sufficiency of Lantern’s pre-meeting disclosures
It is in this context, of overwhelming security holder approval, that ASIC directs attention to what it characterises as the inadequacies in the timing and content of Lantern’s pre-meeting notices and disclosures. I summarised ASIC’s complaints in paragraphs 57 and 58 above.
ASIC’s complaint about the timing of the 31 July 2014 meetings is insubstantial. The only formal notice period was 28 days (see CorpAct 2001 s 249HA). The parties to the present proceedings agreed that Lantern published its notices on 30 June 2014 and that the meetings occurred on 31 July 2014 - more than 28 days later. Given the content of the Explanatory Information Booklet (as I have summarised it in paragraphs 15 to 32 above) and the contingent payment obligation that would have been triggered under the April 2014 Deed if the security holder meetings occurred after 31 July 2014, there is no valid basis for criticising the notice period Lantern gave to its security holders. Nor does the permissible shortness of that period provide any meaningful reason that would contribute to a justifiable rejection of Lantern’s application.
Careful reading of the Explanatory Information Booklet reveals that ASIC’s imprecise complaint that it failed to reveal Mogridge and Naylor’s “executive positions within the Torchlight Group” (see paragraph 57(d) above) is something of an overstatement. It is an overstatement because (a) it is not all clear that Mogridge in fact had any such “executive position” within “Torchlight” and (b) Naylor’s involvement with “Torchlight” was in fact disclosed (see paragraph 20 above). It is rather more accurate to say that what the Booklet did not disclose was (a) Mogridge and Naylor’s status as directors of Pyne Gould and (b) Pyne Gould’s ultimate beneficial ownership of “Torchlight” (or at least of the corporate Torchlight entities).
In assessing whether that additional information is “material to the decision how to vote” on the proposed resolution (see CorpAct 2001 s 257C(2)) it is important to recognise that the criterion of materiality requires a wider enquiry than the likelihood the information would have led a security holder to oppose various resolutions. It is an enquiry about whether the information “would reasonably have affected the mind” of a hypothetical security holder in determining whether they would support or oppose the transaction: see eg Mayne Nickless Ltd v Pegler [1974] 1 NSWLR at 238-239; Marene Knitting Mills Pty Ltd v Greater Pacific General Insurance Ltd (1976) 11 ALR 167 at 172. Conversely, the criterion of materiality is generally accepted as narrower than the concept of mere relevance. That is implicit in the idea that materiality involves the capacity to have an actual influence, although not necessarily a determinative one, on the relevant decision.
The assessment involved in characterising particular information as “material” is inevitably impressionistic. And that impression will necessarily also be influenced by the nature of the decision to be made and the quality and extent of the information otherwise presented to the decision maker. ASIC’s Regulatory Guides 101 (at 101.44 -101.45) and 110 (at 110.18) set out a range of matters ASIC generally considers material to disclose to security holders whose buy back approval is sought. They do not appear to include information of the kind I identified in paragraph 58 above. Nevertheless, in the present matter the hypothesis ASIC advances to suggest the materiality of that undisclosed information is that it would have influenced the mind of a Lantern security holder in their assessment of the buy back transaction. That hypothesis is, in my view, superficial.
Two aspects of ASIC’s criticism are that the buy back proposal resulted from “preliminary discussions” in which Naylor and Mogridge, with their relationship with “Torchlight” were involved. These criticisms, as it seems to me, are insubstantial. They do not take sufficiently into account the reality of what had occurred, including the terms of the April 2014 Deed, and the proposal that was actually put to the July 2014 security holder meetings. As I set out in paragraph 5 above, the 4 February 2014 buy back offer from Millinium was made on very clear terms, and the buy back price was linked to the historical ASX trading. The history of how that offer came to be made might be of some passing relevance, in motivating a security holder to consider and assess the implications of the transaction, and its comparative advantages and disadvantages. But the information and analysis necessary for that assessment was contained in the Explanatory Information Booklet. In my view additional information that Lantern personnel had been “involved in preliminary discussions”, or had been active in the “initiation and development” of the buy back proposal, would likely be regarded by the hypothetical security holder as nothing more than consistency with Lantern’s previously announced buy back strategy and, of itself, immaterial to any decision about how to vote on the proposed resolutions.
My views in that regard are reinforced by the reality that the resolutions addressed in the Explanatory Information Booklet concerned the April 2014 Deed, rather than the 4 February 2014 buy back offer from Millinium. The Booklet set out the relevant history - substantially as I summarised it in paragraphs 7 to 9 above. That history indicated that the buy back price had been agreed upon in the context a four way commercial dispute between Lantern, Millinium, Totem and CVC. Moreover, the price in the April 2014 Deed (i) reflected the maximum price that Lantern would have been required to pay under the 4 February 2014 offer, (ii) was less than the average price at which Lantern had conducted its on market buy back transactions (see paragraph 0 above) and (iii) corresponded to the volume weighted average price for Lantern’s ASX trading in the 12 months to June 2014 (see paragraph 22 above). In these circumstances I remain of the view that the hypothetical Lantern security holder would have regarded knowledge of “preliminary discussions with Millinium” and “active involvement” in developing the 4 February 2014 offer, as immaterial to their decision about how to vote on the proposed resolutions.
I am of substantially the same view in relation to knowledge of (i) Pyne Gould’s ultimate beneficial ownership of “Torchlight” and (ii) Mogridge’s status as a director and chairman of Pyne Gould - the only other aspects of ASIC’s criticisms that involve information not contained in the Explanatory Information Booklet. Torchlight’s position as a major security holder - indeed the single largest shareholder - was abundantly clear from various parts of the Booklet. So too was the potential for the proposed transaction to advantage “Torchlight”, and present risks to other security holders - both in terms of reducing the prospect of future takeover offers and reducing the liquidity of on market trading in Lantern securities. These potential implications of the buy back proposal were clearly stated. In my view they were matters to be considered irrespective of the details of the ownership and control of “Torchlight”. Correspondingly, in my view, those details would add nothing material to that consideration. For those reasons I consider that the hypothetical Lantern security holder would not have regarded knowledge of Mogridge’s status within Pyne Gould, nor Pyne Gould’s ultimate beneficial ownership of “Torchlight” as matters that were material to their decision about how to vote on the proposed resolutions.
The IER endorsement of the proposal as fair and reasonable to the non-participating security holders
As is apparent from the summary I have provided, both the June 2014 IER and the March 2015 IER, endorsed the proposed transaction as fair to the continuing shareholders and also reasonable. A critical aspect of that endorsement was the favourable comparison between the proposed buy-back price, the assessed net asset value of Lantern securities and the on market price at which Lantern securities had been traded.
ASIC’s July 2014 decision, and its subsequent statement of reasons, acknowledged that there was a commercial benefit of the proposed transaction. Implicit in that acknowledgement was an acceptance of the conclusions expressed in the June 2014 IER. And it is consistent with that implicit acceptance that the 31 July 2014 meetings also approved the proposed transaction discussed in the June 2014 IER.
ASIC’s criticisms of the IERs
ASIC’s submissions sought to minimise the significance of the June 2014 IER and the March 2015 IER, as well as its own previous acknowledgment of commercial benefit associated with the proposed buy back transaction. Those submissions involved contentions that
(a)neither IER addressed the transaction contemplated by the April 2014 Deed
(b)the June 2014 IER disclosed that some asset valuations might be up to three years old, none of the updated valuations foreshadowed in the June 2014 IER had been provided and in those circumstances there was no sufficient basis to conclude positively that the proposed transaction would result in a commercial benefit
(c)there was no information about the extent to which the New Zealand asset sales had proceeded, and some information suggesting that their carrying value had declined
(d)the March 2015 IER reported a higher resultant gearing ratio than the June 2014 IER, and differed from the June 2014 IER in postulating that the proposed transaction might require delay in planned capital expenditure
(e)the March 2015 IER, but not the June 2014 IER specifically acknowledged the interest cost of the proposed transaction as a potential disadvantage. This acknowledgment emphasised the material potential disadvantage associated with the use of operating proceeds to fund the proposed buy back.
(f)the March 2015 IER disclosed the post June 2014 share purchases by Torchlight and Mogridge, further highlighting the potential significance of the former’s apparent control, and the corresponding risk of (both of lack of market liquidity and unattractiveness as a potential takeover target) to minority investors.
The “dissonance” issue: ASIC’s first contention involves what I have described earlier as the perceived “dissonance” between the April 2014 Deed and the proposal described in the June 2014 IER and addressed at the security holders’ meetings in July 2014. I regard the perceived “dissonance” as insubstantial - for the reasons I set out earlier (in paragraphs 40 to 42). Even if I was satisfied the difference was substantial I would not regard it as a material matter in considering Lantern’s application, because that application concerns the proposal approved by the security holders rather than the transaction outlined in the Deed.
The current valuation issue: It is true that the June 2014 IER noted Lantern’s policy of a maximum three year external valuation review, and reported that some assets were due for revaluation as at June 2014. But it also significant to note that the March 2015 IER no longer included reference to outstanding revaluations. It contained balance sheets and financial statements that reflect significant downward asset value adjustments as at both December 2013 ($3m) and 30 June 2014 ($1.84m). Despite those downward adjustments, Lantern’s total asset value substantially increased – as a result of two additional hotel purchases in September and October 2014.
So far as the evidence reveals, Lantern’s practices suggest a prudent, conscientious monitoring and assessment of the fair value of its investment assets. That approach is described in the June 2014 IER and its implementation is apparently evidenced in the financial information summarised in the March 2015 report. In these circumstances, which include my acceptance of the “fair and reasonable” conclusion in the March 2015 IER, ASIC’s essentially speculative critical apprehensions about asset valuation assessments do not provide a good reason to undermine the significance that I think should properly be accorded to the overwhelming security holder approval that was given in July 2014.
The New Zealand assets: The June 2014 IER reported that Lantern’s New Zealand assets were proposed to be sold. The March 2015 IER reported that a conditional sale contract, had not been completed. It also included a lower valuation for the New Zealand assets in its financial analysis as at December 2014. And it is these two events, the lack of progress with the sale of the New Zealand assets, as well as their reduced valuation, that were the focus of ASIC’s criticisms.
ASIC’s criticisms are not a significant matter. The prospect of delay in the sale of the New Zealand assets was disclosed in the June 2014 IER. Recognition of its potential significance was inherent in the discussion about the way the proposed deferred buy back payment (due in July 2016) would be funded, if the New Zealand assets had not been sold by that time. Furthermore, in relation to the value of the New Zealand assets it is material to note that both the June 2014 IER and the March 2015 IER analysed the proposed transaction by taking into account the “carrying” value of the New Zealand assets, rather than their current market valuations. The contrast between the relevant valuations is revealed in the following table.
June 2014 IER March 2015 IER Carried Ext Val'n Carried Ext Val'n AUDm AUDm AUDm AUDm NZ assets 7,478 11,119 6,631 8,030
The Table reflects the facts that (i) the IER analysis was carried out on the basis of the “carrying amount” value of the New Zealand assets (ii) even the re-assessed external valuation as at March 2015 substantially exceeded the carrying value on which the June 2014 IER assessment had been based. Given those matters, and the more general treatment of the New Zealand assets in the Explanatory Information Booklet, I do not regard ASIC’s criticism as a material matter.
The gearing ratio issue: ASIC noted the increased gearing ratio commented on in the March 2015 IER, and contrasted its remark that Lantern had no planned capital expenditure in the coming year, with the statement in the June 2014 IER that the increased debt attributable to the buy back transaction was not expected to impact on Lantern’s ability to fund future acquisitions and capital expenditure. ASIC speculated that this implied change in capital expenditure, against the background of the higher gearing ratio, reflected adversely on the assessment of the proposed transaction.
ASIC’s speculation leaves out of account some significant aspects of Lantern’s reported financial statements. First of all, Lantern’s overall liabilities decreased in the year to June 2014. Secondly, in the first part of the 2015 financial year Lantern increased its assets by purchasing additional hotel properties (in September and October 2014). Thirdly, in order to fund the further purchases Lantern drew down $20m from its existing financing arrangements.
A proper evaluation of the apparent significance of the proposed buy back, in relation to its effect on Lantern’s gearing ratio, and its proposed capital expenditure, requires recognition of the matters referred to in the preceding paragraph. That is best done by looking at the derivation of Lantern’s gearing ratio at different points in time, and attempting to identify the actual effect of the proposed buy back itself, without the arguably confounding effect of Lantern’s capital acquisitions in the latter part of calendar 2014. That picture is displayed in the following table.
Jun-13 Dec-13 Buy back Jun-14 Buy back Dec-14 Buy back AUDm AUDm AUDm AUDm AUDm AUDm AUDm notional notional notional Cash 56,202 3,060 3,060 2,747 2,747 3,755 3,755 Interest bearing liabilities Current 64 66 66 12,265 12,265 12,264 12,264 Non-current 90,328 56,813 56,813 44,965 44,965 65,030 65,030 Buy Back liability 16,100 16,100 16,100 IBL - less cash 34,190 53,819 69,919 54,483 54,483 73,539 89,639 Total assets 211,142 176,113 176,113 174,786 174,786 194,901 194,901 Total assets less cash 154,940 173,053 173,053 172,039 172,039 191,146 191,146 IBL / asset gearing % 22% 31% 40% 32% 32% 38% 47%
The shaded columns in the table illustrate the effect of the $16.2m buy back liability, calculated at three different notional transaction dates (December 2013, June 2014 and December 2014). These notional calculations highlight that if the proposed buy back had been implemented shortly after June 2014 it would in fact have caused little change in Lantern’s gearing from December 2013, and would actually have been below the target gearing range (of 35% to 50%) described in the June 2014 IER. Furthermore, but for the $20m drawdown in September and October 2014 to fund the additional hotel purchases, implementation of the proposed buy back shortly after December 2014 would likely still have left Lantern with a gearing ratio near the bottom of the director’s target range.
The reality of the effect of the proposed transaction is that it would result in an increase of about 9% in the value of Lantern’s gearing. This was readily apparent in the Explanatory Information Booklet, and may be assumed to have been taken into account by the security holders at the time of the July 2014 meetings. In those circumstances, I do not regard the matters affecting Lantern’s calculated gearing, having regard to its trading performance and capital acquisitions after June 2014, as material considerations that detract from the significance of the overwhelming security holder approval at the July meetings.
The ASX trading issue: The table in paragraph 10 above summarised Lantern’s security holdings as at June 2014, and the effect of the buy back proposal if it had been implemented at that time. The March 2015 IER’s analysis of the ASX trading in Lantern securities revealed a number of shareholding changes, especially the increased holdings of Torchlight, Mogridge and Naylor, which ASIC contended were material considerations. The broad nature and extend of the security holding changes are displayed in the following Table.
The Table reveals a number of details, apart from the increased Torchlight, Mogridge and Naylor security holdings. These include (i) Allan Gray Australia’s reduction in its shareholding, (ii) Colonial First State’s disposal of its entire holding and (iii) the increased security holding by investors other than those described as “principal” security holders. Those matters need to be evaluated against the background, noted in the March 2015 IER, that (i) the volume weighted average ASX price for Lantern securities in the 12 month period to March 2015 had been $0.76 and (ii) since November 2014 Lantern securities had typically traded at or above $0.80. This information rather tended to reinforce the fair and reasonable opinion expressed in the June 2014 IER.
Nevertheless, ASIC’s submissions contended that the comparative strengthening of the Torchlight and Allan Gray’s security holding were material matters adverse to Lantern’s application. In support of that submission ASIC referred to the observation in the March 2015 IER that these combined shareholdings might have an adverse effect in discouraging a future takeover and “potentially less possibility of Lantern security holders participating in a premium payable in a takeover”. However it is again material to bear in mind two things. The first is that the June 2014 IER contained an identical statement, and a substantially similar statement had been set out in the Explanatory Information Booklet as a reason why security holders might consider opposing the buy back proposal. The second is that both the IERs contained an additional qualifying statement, to the effect that the potential detriment of Torchlight and Allan Gray’s combined shareholding may be offset by the possible advantage of eliminating Millinium as a major security holder.
There is good reason, as suggested in the IERs and the Explanatory Information booklet, why Lantern security holders might have regarded the increased Torchlight and Allan Gray security holdings as a reason to oppose the transaction. But it is very clear that the broad nature of that possible disadvantage was very clearly identified in the material that was put before the security holders. It is also very clear that the overwhelming majority of the security holders did not oppose the transaction. In my view, the minor change in the combined Torchlight / Allan Gray holding likely to result from the buy back proposal as a result of the ASX trading since June 2014 (according the table set out above the combined “post transaction” security holding would increase from about 67% to 71%) is not a matter materially adverse to Lantern’s current application.
The interest cost issue: ASIC’s submissions noted (i) the increase in Lantern’s liabilities after June 2014, (ii) a reclassification categorising liabilities of about $12.2m as current and (iii) the March 2015 IER’s specific inclusion of a disadvantage heading referring to the Lantern’s ability to meet its obligations to creditors after the proposed buy back. ASIC submitted that the latter specific comment in the March 2015 IER was a significant consideration, might have affected the views of the creditors and should weight against Lantern’s application.
I do not accept that any of ASIC’s contentions is a material consideration that weighs significantly against the granting the relief Lantern seeks.
I summarised Lantern’s reported trading results and financial statements in paragraphs 17 and 29 above. Up to December 2013 Lantern had a significant surplus of net current assets, but reported a loss (after a $3m asset devaluation) of $2.16m. At the end of June 2014 Lantern had reclassified part of its borrowings, and showed a deficiency in net current assets as well as a reported annual loss of $2.3m. By December 2014 Lantern continued to show a deficiency in net current assets and had substantially increased its non-current liabilities. But its annualised operating revenue had substantially increased (to about $59m) and its net trading profit had also increased (to approximately $1.6m).
Against the background of Lantern’s financial performance to June 2014, Lantern’s historical balance sheet and trading profit would suggest it might have some difficulty in funding the 8% per annum quarterly interest cost of the proposed $16.1m payment to Millinium. It was therefore not surprising that, according to Lantern’s directors, the buy back cost was to be funded partly from the proceeds of sale of its New Zealand hotel properties, and partly from operating profits. But the directors’ further contemplation, that the required purchase price payment might, if Lantern was unable to achieve timely sales of its New Zealand assets, be funded entirely from ongoing operations, was an over optimistic analysis of the situation as at June and July 2014.
However, even in the absence of a timely sale of Lantern’s remaining New Zealand assets, Lantern’s subsequent trading results up to December 2014 do suggest that Lantern had by that time achieved a level of operating profit ($1.6m pa) that would have allowed it to meet an additional annual interest cost of $1.3m ($16.2m @ 8% per annum). And, in any event, it appears that both the Directors and the IERs regarded the level of borrowings reflected in Lantern’s net asset position, if the proposed buy back transaction proceeded, as within the scope of its existing financing facilities and target gearing - without likely impact on its ability to meet its creditors.
ASIC is, of course, correct to point out that the March 2015 IER did alter the wording of one of the disadvantage headings to refer specifically to Lantern’s ability to meet its liabilities to creditors. But the simple fact is that there is nothing in the wording of that report, or in the June 2014 Report, that conveys any material apprehension that Lantern would be likely to be unable to pay its creditors. On the contrary, the March 2015 IER reported that Lantern’s gearing was within the directors’ target range and that it could also draw down on its existing finance facilities, if necessary, to fund the deferred payment obligation when it fell due.
In these circumstances, despite ASIC’s submissions, there is nothing of significance in either the June 2014 IER or the March 2015 IER that warrants a conclusion that Lantern would be at material risk of being unable to meet its obligations to creditors if the proposed transaction proceeded. Nor is there anything to require the potential for such a difficulty to be regarded as a matter that materially detracts from the significance of the overwhelming approval the security holders gave at the 31 July 2014 meetings.
Law reform and ASIC’s regulatory guides
Underlying ASIC’s more specific reasons for refusing Lantern’s application was a general consideration that a favourable decision would be unacceptably “similar to law reform”. It sought to explain that expression by saying that its usual approach was not to give relief to reverse the usual and intended effect of relevant CorpAct 2001 provisions: see RG 51.62. ASIC articulated this proposition by describing the selective buy back as a mechanism that “was not intended by Parliament in circumstances where there were insufficient alternative protections”.
Specifically in relation to the latter point, ASIC said the CorpAct Chapter 5C provisions relating to managed investment schemes were materially different from those relating to share buy-backs. ASIC pointed, in particular to the CorpAct 2001 provisions relating to selective share buy backs (see paragraphs 49 and 50 above) and the absence of any analogous provision for managed investment schemes. ASIC contended that the CorpAct 2001 must be taken to have made a deliberate choice precluding scheme unit buy backs from being permitted merely because of the approval of the required majority of scheme members.
In advancing that submission ASIC acknowledged that it had the discretion conferred by CorpAct s 601QA. But it said that it exercised discretions of that kind in accordance with general policies - contained in its Regulatory Guides. ASIC pointed to two particular policy statements - Regulatory Guide 51 (“RG:51”): Applications for relief, and Regulatory Guide 136 Managed Investments: Discretionary powers and closely related schemes (“RG:136”). It emphasised the potential importance of those policies and insisted on the Tribunal accepting the desirability of adherence to them.
In relation to specific aspects of its policies ASIC contended that it was required to pursue two broad objectives, consistency and definite principles: RG 51.50. ASIC said its general approach to relief applications was to grant “new policy” applications where there was a net regulatory benefit, or where any regulatory detriment was minimal and outweighed by commercial benefit: see RG 51.12 & 51.50 –51.55. In advancing that proposition ASIC acknowledged that there would be “commercial benefits” flowing from the proposed buy back transaction. However, without any explicit discussion of those benefits, ASIC declared its dissatisfaction that those benefits outweighed the “detriment in removing the consumer protections that would apply under the Act”.
ASIC is correct to emphasise the importance of relevant policies. But that importance cannot be allowed to obscure the true nature and purpose of the legislative power or discretion to which it applies. The correct role of policy, in the application of a generally expressed statutory discretion, was summarised in the joint judgment of the Full Court of the Federal Court in Hneidi v Minister for Immigration and Citizenship (2010) 182 FCR 115; 265 ALR 292; 114 ALD 26; [2010] FCAFC 20 at [41] to [44]. In Hneidi the Full Court referred to Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 and said it established the following four propositions:
[41] … The first is that the decision-maker is entitled, in the absence of specifically defined criteria for the exercise of the discretion, to take into account "government policy". Thus, where the Tribunal is not under a statutory duty to regard itself as bound by the policy, it is entitled to treat the policy as a relevant consideration.
[42] Second, in the absence of a specific statutory provision (which would no doubt be unusual) the Tribunal is not entitled to abdicate its function of determining whether the decision under review was, on the material before the Tribunal, the correct or preferable one, to a more passive function of determining whether the decision conformed to the relevant policy.
[43] Third, it is not desirable to frame a general statement of the part which government policy should ordinarily play in the determinations of the Tribunal. That is a matter for the Tribunal to determine in the context of the particular case, informed by considerations of the desirability of consistency of administrative decisions but balanced against the ideal of justice in the individual case.
[44] Fourth, the borderline between cases in which the Tribunal has abdicated its functions to those of an unthinking application of "government or Ministerial policy" to the facts may sometimes be blurred. But where the Tribunal considers that the correct or preferable decision results from the application of such a policy, it should make it clear that:
"… it has considered the propriety of the particular policy and expressly indicates the considerations which have led it to that conclusion."
A more succinct summary of the correct approach to the use of policy in the exercise of a statutory discretion is contained in the reasons of DP Handley in Re Wolstenholme and Minister for Immigration and Citizenship [2010] AATA 315. There DP Handley said (at [43]):
… the Tribunal, while having regard to relevant policy and the desirability of consistency in administrative decision-making, must not abdicate its function of determining whether the decision under review was, on the material before it, the correct or preferable one having regard to the justice of the outcome in the individual case.
In the present matter there is a difficulty with an uncritical acceptance of ASIC’s submission that Lantern’s application has to be characterised as one involving “new policy”. RG 51.6 and RG 51.23 attempt to categorise all relief applications into three mutually exclusive categories - (i) standard (in accordance with published policy), (ii) minor and technical (applying existing policy to new situations) and (iii) new policy applications “requiring us to formulate substantive new policy”. This categorisation is a useful illustrative generalisation, and Lantern’s submissions accepted ASIC’s “new policy” description of its application. But the categorisation’s implicit insistence that clear distinctions define the boundaries of the three types of application is questionable. So also is the additional assumption that all applications that are not within the defined descriptions of “standard” or “minor and technical”, do in fact require the formulation of “substantive new policy”. Much, and likely everything, will depend on the actual nature and details of the particular application.
The latter point may be illustrated by reference to ASIC’s Regulatory Guide 136 “Managed investments: Discretionary powers and closely related schemes”, Regulatory Guide 101 “On Market buy backs by ASX listed schemes”, and Regulatory Guide 110 “Share Buy Backs”. RG 136.13 forewarns of ASIC’s care to avoid “changing the intended policy” underlying the relevant legislation. But RG 136.12 also says that ASIC will assess (i) the burden of compliance, (ii) the availability of intended protections to scheme members and (iii) commercial benefit.
RG 101.5 gives various rationales for granting relief from the withdrawal procedures for non-liquid schemes. These include (i) avoiding placing listed schemes at a regulatory disadvantage to listed companies “where there is no regulatory reason for different treatment”, and (ii) to ensure that the scheme provisions operate in a commercially sensible manner, without undermining intended protections. RG 101.12 to 101.16 recognise that some types of investment schemes would inevitably be characterised as non liquid and that the otherwise applicable withdrawal provisions in CorpAct 2001 ss 601KA to KE could not operate consistently with the ASX market rules. RG 101.16 records ASIC’s recognition that the policy objectives underlying those provisions are “less relevant” for listed schemes “because all members are likely to have the ability to liquidate their investments by selling on market at any time”. RG 101.34, in discussing buy back prices, contains an explicit ASIC acceptance that “a buy back price offer exceeding the prevailing market price might be in the best interests of members. This is because remaining members might benefit by many prospective sellers being taken out of the market and because higher returns might be able to be derived by the scheme on the remaining funds”. Finally, in relation to the buy back of stapled securities, RG 101.23 directs attention to RG 110.
Regulatory Guide 110.1 describes the CorpAct 2001 buy back provisions as designed to protect the interests of creditors and shareholders by (i) addressing the risk of insolvency (ii) ensuring fairness between security holders and (iii) requiring the disclosure of material information. RG 110.39 contemplates relevant approval or exemptions being given to facilitate selective (on market) buy backs where a buy back is consistent with those three “underlying principles”.
I have alluded to these various provisions because they contain general statements which, whilst not specifically directed at the selective off market buy back of stapled securities, reflect a general approach to the relevant CorpAct provisions and the policy underlying them. In particular, they convey a willingness to consider the exercise of the discretionary exemption powers where proposed transactions are in the best interests of scheme members, all material information has been provided and members are likely to be treated fairly. It could be argued that these general statements reflect a general policy, and that Lantern’s application is capable of being classified, even within ASIC’s mutually exclusive categories, as a minor or technical application. This is especially the case where the proposed discretionary decision is intended to allow a stapled security to be dealt with in accordance with share buy back provisions in the CorpAct, and there is no clearly identified reason to differentiate between listed schemes and listed companies (see RG 101.5). Alternatively, especially in the light of that particular provision in RG101.5, and the limited nature of Lantern’s application, it could reasonably be said that it was a misleading overstatement to characterise that application as one that required the formulation of “new policy”.
Turning back then to ASIC’s contentions about RG 51.62 there is, in my view, an inherent difficulty with the submission that it is not appropriate to exercise the statutory discretion “to effect law reform”. The inherent difficulty with this proposition is that whilst it lacks any specific meaning, it conveys (or is at risk of conveying) a permissible supervening reluctance to exercise a dispensing statutory discretion, even where good grounds exist for its exercise. That difficulty is compounded by the use of expressions such as “regulatory detriment”, unless that usage is accompanied by a clear and cogent understanding of what the concept involves and how it applies to the circumstances of the particular case.
The circumstances of the present matter involve an exemption or modification related to a particular transaction that has a relatively clear content, purpose and background. It is not one that involves a broad exemption (otherwise contemplated by s 601QA(2)) that would apply generally or to widely described securities or persons. In the present circumstances it is, in my view, both unhelpful and potentially misleading to speak of the discretionary power in CorpAct s601QA as a power to effect “law reform”. The section is itself part of the relevant legislative provisions and contains an express and unconditional exemption power. No doubt that power can only be exercised after taking into account relevant considerations, and for a proper purpose. But the exercise of the discretion, at least in the circumstances involving Lantern, is not properly described as a matter of “law reform”. And the use of such an expression, which forsakes generally accepted vocabulary and its discipline (ie “relevant considerations” and “proper purpose”), is not likely to foster the principled exercise of such a discretion. Perhaps the resort to such a term was meant to emphasise the importance of the basic legislative provisions, and to stress that the discretion can only be exercised for a proper purpose, on the basis of relevant considerations, and with due regard to the particular “circumstances and merits of each individual application” - see RG51.50. But that justified emphasis is not appropriately encouraged by use of the “law reform” expression.
The use of that expression has led to ASIC encouraging the Tribunal to attach determinative weight to the absence from CorpAct 2001 Chapter 5C any provision for a general meeting approval of a selective buy back proposal. The answer to ASIC’s encouragement is that whilst the relevant primary CorpAct 2001 provisions (ie those referred to in paragraph 52 above) require an equality of treatment that is inconsistent with selective off market buy backs of trust interests, nevertheless CorpAct s 601QA expressly permits exemption from any or all of those requirements.
Perhaps the point really underlying ASIC’s contention is that the mere fact of a properly informed special resolution approving a proposed selective buy back should not be regarded as necessarily sufficient to justify exercise of the exemption power. That proposition may be accepted. But it only drives one to recognise the importance of proper consideration of all relevant circumstances.
Those relevant circumstances include the considerations that
(a)CorpAct 2001 does permit member initiated withdrawal from schemes and, to that extent, does contemplate “selective buy backs”: see CorpAct s 601GA(4)(a)&(b) & 601KA(1)
(b)CorpAct 2001 also permits buy backs where schemes are illiquid, and even where they do not have sufficient funds to complete a proposed buy back, subject to equality of treatment: see CorpAct s 601KA(2), 601KB(2)(b), 601KD
(c)The responsible entity of a scheme may at any time cancel a materially erroneous buy back offer, and must cancel an offer (before it closes) if cancellation is in the best interests of the members: CorpAct s 601KE(1).
(d)ASIC has the specific, but generally described, power to not require compliance with any such provision of the CorpAct and thus, in particular, not to require equality of either offer or treatment in relation to withdrawal from an illiquid scheme: see CorpAct s 601QA(1).
It is not correct to draw from these provisions a legislative intention that necessarily precludes selective buy backs of interests in schemes, even interests in illiquid schemes. The exemption power in CorpAct s 601QA provides one reason not to embrace such a proposition. Another is the fact that the provisions only require equality of offers by the responsible entity. They do not mandate uniform acceptance by the scheme members. Neither do they condition the responsible entity’s buy back power on uniform acceptance by the scheme members. Inferentially therefore, the CorpAct provisions contemplate that scheme members may make self interested decisions about acceptance of such an offer. No doubt they would do so when they regarded the buy back offer price as below the fair or realisable value of their security holding.
It is of course true, and it is implicit in ASIC’s submissions, that the kind of unilateral, self interested decision a security holder might make in ignoring an undervalued buy back offer is different from obliging all security holders to acquiesce in a relevant majority decision favouring a particular buy back proposal. But in the case of a majority (special resolution) decision, particularly in the case of a stapled security, it may be highly relevant to consider the potential (or at least analogous) application of the CorpAct provisions that apply to selective share buy backs. In such a case there is an explicit approval of selective buy backs, provided the proposal is endorsed either by all members or by a special resolution, and subject (in the absence of exemption) to disclosure of all known information “material to the decision how to vote on the resolution”.
In the present matter four aspects of Lantern’s proposal are, in my opinion, highly significant. They are as follows:
(a)only a tiny proportion (about 0.5%) of the Lantern security holders any disapproval of the buy back transaction proposed
(b)the security holders were, on the findings I have made, properly informed of all material considerations
(c)the transaction appears to involve a significant commercial benefit to the continuing security holders - by increasing their proportionate holdings and paying less than the net asset value per security for that increase
(d)the transaction has been independently assessed as “fair and reasonable”
(e)the buy back price is consistent with the volume weighted average price at which Lantern has conducted its on market buy backs
(f)the buy back price is consistent with the volume weighted average price at which Lantern Securities have traded on the ASX - both before and after the 31 July 2014 security holder meetings
(g)the exemption is sought only in relation to the particular transaction approved by the security holder meetings on 31 July 2014.
Decision
Having regard to the matters I have discussed in these reasons, and particularly the significant factors I identified in the preceding paragraph, I am satisfied that the preferable decision is to set aside the decision under review. In substitution for that decision I propose to exempt Lantern from compliance with those parts of the provisions referred to in paragraph 52 above that would otherwise preclude the implementation of the transaction approved by the security holders at the 31 July 2014 meeting.
In June 2014 Lantern submitted to ASIC a proposed form of expression for the relief it sought. In the course of submissions in the present matter, Lantern made further submissions suggesting some modifications to the form of relief. Since the expression of the relief is both a matter of potential importance to the parties and may be influenced by the content of what I have written, I direct the parties to formulate the content of the relief sought. That formulation should be in accordance with these reasons and submitted to the Tribunal within 7 days. If the content of the relief is agreed as consistent with my reasons, I will then make a formal substituted decision in accordance with section 43 of the AAT Act. If the content of the form of relief is not agreed I will convene a further directions hearing to settle the terms of the substituted decision.
121. I certify that the preceding 120 (one hundred and twenty) paragraphs are a true copy of the reasons for the decision herein of Senior Member P W Taylor SC
...............................[sgd].........................................
Associate
Dated 17 June 2015
Date(s) of hearing 27 February 2015 Date final submissions received 29 April 2015 Counsel for the Applicant Ms S Mirzabegian Solicitors for the Applicant Baker & McKenzie Counsel for the Respondent Ms K Stern Solicitors for the Respondent Australian Securities & Investments Commission
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