Re Absolute Equity Performance Fund Ltd

Case [2022] FCA 933

FEDERAL COURT OF AUSTRALIA

Absolute Equity Performance Fund Ltd, in the matter of Absolute Equity Performance Fund Ltd [2022] FCA 933

File number(s): NSD 575 of 2022
Judgment of: HALLEY J
Date of judgment: 11 August 2022
Date of publication of reasons: 16 August 2022
Catchwords: CORPORATIONS – members’ scheme of arrangement – first court hearing – application under ss 411 and 1319 of the Corporations Act (Cth) for orders convening a meeting of members to consider and agree a proposed scheme of arrangement – proposed acquisition of shares in target company in exchange for shares in acquiring company –ineligible overseas shareholders cashed out – scheme consideration to be determined after meeting of members to approve scheme and second hearing, based on net tangible assets of target company and acquiring company in accordance with scheme implementation agreement – application allowed
Legislation:

Corporations Act 2001 (Cth) ss 411, 412, 1319

Federal Court (Corporations) Rules 2000 (Cth)

Cases cited:

Alstom Signalling Solutions Pty Ltd, in the matter of Alstom Signalling Solutions Pty Ltd v Alstom Transport Australia Pty Limited [2016] FCA 838

Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341

Associated Advisory Practices Limited, in the matter of Associated Advisory Practices Limited [2013] FCA 761

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

CCI Holdings Limited ABN 51 000 680 740 [2007] FCA 832

CSR Limited, in the matter of CSR Limited (2010) 183 FCR 358; [2010] FCAFC 34

Dragontail Systems Limited, in the matter of Dragontail Systems Limited [2021] FCA 834

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

Integra Mining Limited, in the matter of Integra Mining Limited [2012] FCA 1414

In the matter of Coca-Cola Amatil Limited [2021] NSWSC 270

In the matter of Ellerston Global Investments Limited [2020] NSWSC 879

PM Capital Asian Opportunities Fund Limited, in the matter of PM Capital Asian Opportunities Fund Limited [2021] FCA 1380;

Re Archaean Gold NL (1997) 23 ACSR 143

Re Central Pacific Minerals NL [2002] FCA 239

Re Sonodyne International Ltd (1994) 15 ACSR 494

Watermark Market Neutral Fund Limited v Equity Trustees Limited, in the matter of Watermark Market Neutral Fund Limited [2019] FCA 315

Watermark Global Leaders Fund Limited v Equity Trustees Limited, in the matter of Watermark Global Leaders Fund Limited [2019] FCA 316

Xplore Wealth Limited, in the matter of Xplore Wealth Limited [2020] FCA 1868

Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 44
Date of hearing: 10 August 2022
Counsel for the Plaintiff: Mr M Oakes SC
Solicitor for the Plaintiff: Mont Lawyers
Counsel for the Intervener: Ms E Holmes
Solicitor for the Intervener:  Mills Oakley

ORDERS

NSD 575 of 2022

IN THE MATTER OF ABSOLUTE EQUITY PERFORMANCE FUND LIMITED

ABSOLUTE EQUITY PERFORMANCE FUND LIMITED

Plaintiff

ORDER MADE BY:

HALLEY J

DATE OF ORDER:

11 AUGUST 2022

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Details
AGLC
Re Absolute Equity Performance Fund Ltd [2022] FCA 933
Case
[2022] FCA 933
Decision Date

CaseChat Overview and Summary

The case of Re Absolute Equity Performance Fund Ltd involves the application by Absolute Equity Performance Fund Limited (AEG) to the Federal Court for an order convening a meeting of its members to consider a proposed scheme of arrangement. The proposed scheme involves a merger with WLE, another investment company, and requires shareholder approval. The primary legal issue the Court had to address was whether the preconditions for exercising its power under section 411(1) of the Corporations Act 2001 to order the convening of a scheme meeting were satisfied. The Court also had to consider whether, in the exercise of its discretion, it should approve the convening of the scheme meeting.

The Court found that AEG had sufficiently demonstrated that the proposed scheme met all the statutory requirements for convening a scheme meeting. The evidence provided by AEG, including the affidavits of its chairman and managing director, Marc Michael Fisher, and an independent expert report by David John McCourt, satisfied the necessary preconditions. These included confirming AEG's status as a Part 5.1 body, the bona fide nature of the scheme, adequate disclosure in the scheme booklet, and ASIC's reasonable opportunity to examine the scheme terms. The Court also noted that the procedural requirements of the Federal Court Rules had been met and that there was no apparent reason why the scheme should not receive Court approval if the required majority of votes was achieved.

The Court concluded that the discretion to order the convening of a scheme meeting should be exercised in this case. It was satisfied that the proposed scheme was fair and reasonable and in the best interests of AEG shareholders, as evidenced by the independent expert's report. The Court found that the scheme provided AEG shareholders with a timely exit at a price close to AEG’s pre-tax net tangible asset value, plus access to WLE’s investment strategy and resources. The Court addressed concerns about the wording of the proposed scheme resolution and accepted the amendments proposed by AEG to resolve any ambiguity. The Court approved the convening of the scheme meeting and directed that the scheme booklet be sent to shareholders, enabling them to vote on the proposed scheme.

In conclusion, the Court granted AEG’s application, ordering the convening of a scheme meeting to consider the proposed merger with WLE. The Court’s order included directions for the despatch of the scheme booklet to shareholders, ensuring they were provided with adequate information to make an informed decision. The decision underscores the importance of meeting statutory requirements and exercising discretion judiciously when approving scheme meetings under the Corporations Act.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

The AEG board consider that the Scheme addresses these issues by providing AEG shareholders with first, the ability to exit their investment at a price close to AEG’s pre-tax NTA in a timely fashion at an attractive premium over the trading prices of AEG shares prior to the date on which the intention to proceed with the Scheme was announced and second, access to WLE’s investment strategy, profit reserves, franking account balance, larger capital and shareholder base with the enhanced scale of the enlarged WLE/AEG group, including a reduced management expense ratio.EVIDENCE RELIED UPON BY AEG The application is supported by an affidavit of Marc Michael Fisher, affirmed on 8 August 2022. Mr Fisher is the chairman and managing director of AEG. In his affidavit, Mr Fisher:(a)explains that AEG is a listed investment company that provides investors with a diversified portfolio of Australian listed equities;(b)annexes copies of the constitution of AEG, its 2021 Annual Report, its half-year report for the year ended 31 December 2021 and a company extract dated 5 August 2022 obtained from the Australian Securities and Investments Commission (ASIC);(c)states that AEG has 90,264,949 fully paid ordinary shares on issue and no other class of shares on issue and AEG currently has 2,011 shareholders;(d)explains that WLE is an investment company that provides investors access to an active investment process and an investment strategy focused on investments in large-cap Australian companies;(e)explains the negotiation of the Scheme Implementation Agreement between AEG and WLE (SIA);(f)explains the rationale for the inclusion in the Scheme of exclusivity provisions and a deed poll executed by WLE;(g)explains the calculation under which the Scheme Participants will be entitled to exchange their AEG shares for the New WLE Shares;(h)explains the due diligence and verification process undertaken by the AEG board for the Scheme;(i)describes the process for the despatch of the Scheme Booklet to shareholders;(j)confirms that he will act as chair of the Scheme Meeting;(k)discloses that he has a relevant interest in 124,083 fully paid ordinary shares in AEG, of which 124,082 are held by Harc International Pty Ltd and one is held by him directly, that he does not hold any shares in WLE and he is not otherwise associated with a shareholder of WLE; and (l)confirms that the AEG board unanimously recommends to shareholders that they vote in favour of the Scheme in the absence of a superior proposal. AEG also relies on an affidavit of David John McCourt, a director of BDO Corporate Finance (East Coast) Pty Ltd, affirmed 4 August 2022, annexing his independent expert’s report. Mr McCourt has concluded in his report that the Scheme is fair and reasonable and therefore in the best interests of AEG shareholders. Mr McCourt is a chartered accountant and has a Graduate Diploma of Applied Finance & Investment and a Bachelor of Business (Finance & Accounting). Mr McCourt has more than 20 years’ experience in specialist corporate advisory capacities including company valuations, financial modelling, preparation and review of business feasibility studies, accounting, advising on mergers and acquisitions and advising on independent expert reports. I am satisfied that he has the appropriate experience and qualifications to express an opinion on whether the Scheme is fair and reasonable and therefore in the best interests of AEG shareholders.

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

The Naulls-Johnstone affidavit also satisfactorily addresses the concern I raised in the course of the hearing with respect to an inherent ambiguity in the wording of the proposed Scheme resolution. The Scheme resolution initially proposed used the phrase “(with or without any alterations or conditions agreed or any alterations or conditions required by the Court)”. The “or without” alternative has now been removed from the proposed Scheme resolution.CONSIDERATIONFormal requirements to exercise s 411(1) power Section 411(1) of the Act confers a power on the Court to order a meeting of members to be convened and to approve the relevant explanatory statement. As stated by McKerracher J in Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 (Amcom) at [12], the Court should order the convening of the scheme meeting and approve the scheme booklet if it is satisfied of the following matters:(a)the proposed scheme is an arrangement in respect of which the Court may order a meeting of the members: s 411(1) of the Act. That is, the scheme is an arrangement, the company is a Pt 5.1 Body, the scheme participants are members of the company and the scheme meeting will be convened between members of the same class; (b)ASIC has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions to the Court in relation to those matters: s 411(2)(b) of the Act; (c)the scheme booklet provides adequate disclosure (s 412(1)(a)(i) of the Act) and contains the prescribed information: s 412(1)(a)(ii) of the Act, r 5.1.01; sch 8 cll 8301-8310 of the Corporations Regulations 2001 (Cth);(d)the procedural requirements of the Federal Court Rules 2011 (Rules) have been met; and(e)there is no apparent reason why the scheme should not, in due course, receive the Court’s approval if the necessary majority of votes are achieved: Integra Mining Limited, in the matter of Integra Mining Limited [2012] FCA 1414 (Integra Mining) at [12] (McKerracher J), and the cases cited therein. See also Xplore Wealth Limited, in the matter of Xplore Wealth Limited [2020] FCA 1868 at [23] (Markovic J). I am satisfied that the evidence upon which AEG relies is sufficient to establish that:(a)AEG is a Part 5.1 body;(b)the Scheme Participants are members of AEG;(c)the Scheme Meeting will be convened between members of the same class;(d)the Scheme is bona fide and properly proposed;(e)ASIC has had a reasonable opportunity to examine the terms of the Scheme and the Scheme Booklet and make any submissions to the Court;(f)the Scheme Booklet provides adequate disclosure and contains the prescribed information; (g)the procedural requirements of the Rules have been met; and(h)there is no apparent reason why the Scheme should not receive the Court’s approval if the necessary majority of votes are achieved. Once the preconditions to the exercise of power under s 411(1) to order the convening of a meeting have been satisfied, it is then necessary to consider whether that power ought to be exercised pursuant to the Court’s discretion.Relevant principles for the exercise of discretion