Re AXA Asia Pacific Holdings Ltd
[2011] VSC 4
•28 January 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST E
No. 6924 of 2010
IN THE MATTER OF AXA ASIA PACIFIC HOLDINGS LIMITED (ACN 069 123 011)
| AXA ASIA PACIFIC HOLDINGS LIMITED (ACN 069 123 011) | Plaintiff |
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JUDGE: | CROFT J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14 January 2011 | |
DATE OF JUDGMENT: | 28 January 2011 | |
CASE MAY BE CITED AS: | Re AXA Asia Pacific Holdings Ltd | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 4 | |
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SCHEMES OF ARRANGEMENT – Acquisition of shares and cancellation of rights – Application for meeting under s 411(1) Corporations Act 2001 (Cth) – Factors to consider at meeting stage – Independent expert’s opinion of the schemes – Performance risk – Exclusivity period – No-talk and no shop – Deemed warranty – Information for shareholders and rightsholders – Sections 411 and 412 Corporations Act 2001 (Cth).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N.J. Young QC with Mr R.V. Strong | Mallesons Stephen Jaques |
| For AMP Limited | Mr C. Scerri QC with Mr T. Boston | Clayton Utz |
| For Australian Securities & Investments Commission | No appearance |
HIS HONOUR:
Application
The plaintiff, AXA Asia Pacific Holdings Limited (“AXA APH”) made application by originating process filed 21 December 2010 under s 411(1) of the Corporations Act 2001 (Cth) (“the Act”) for orders that:
(a)a meeting of a class of the holders of its shares (“minority shareholders”) be convened for consideration of a proposed scheme of arrangement (“Share Scheme”) between AXA APH and those members; and
(b)meetings of a class of its creditors (“Rightsholders”), being all the holders of certain rights to acquire its ordinary shares (“AXA APH Rights”) be convened for consideration of a proposed scheme of arrangement (“Rights Scheme”) between AXA APH and those creditors,
and for associated directions.
For the purposes of an application under subsection 411(1) of the Act, the compromise or arrangement proposed must be between a “Part 5.1 body” and its members or any class of them or its creditors or any class of them. A Part 5.1 body is defined in section 9 of the Act in terms that include a company registered under the Act. The Certificate of Registration confirms that as a company incorporated under the Corporations Law of Victoria, AXA APH has this status. It is well established that a scheme designed to effect an acquisition by one company of the shares in another, such as the Share Scheme, may be an “arrangement” under subsection 411(1).[1] It is also well established, that in the absence of opposition, holders of options to take up shares in a company are considered a class of contingent creditors of the company.[2] Therefore, the Rights Scheme, which cancels rights to acquire shares upon payment of cash consideration, is also a proposed “arrangement” under the Act.
[1]Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [39] (French J).
[2]Re MIA Group Limited (2004) 50 ACSR 29 at [2] – [9] (Barrett J); Re Sino Gold Mining Ltd (2009) 74 ACSR 647 at [2] (Lindgren J).
Nature of the Schemes
AXA APH is a public company incorporated in Australia. It is a company limited by shares and admitted to the official list of the ASX. It is a financial services company with wealth management and life insurance and financial protection business in Australia, Hong Kong, China, India and a number of countries in South-East Asia. AXA SA is a French financial services company offering insurance, re-insurance, savings and pensions products and asset management services in Europe, North America and Asia. AXA SA has a 53.9% interest in AXA APH.
AMP Limited (“AMP”) is a public company limited by shares and admitted to the official list of ASX and the official list of NZX. AMP Financial Services Holdings Limited is a public company limited by shares incorporated in Australia and is a wholly owned subsidiary of AMP. AMP and its subsidiaries also provide financial services, including those of a similar nature to those provided by AXA APH.
The Share Scheme and the Rights Scheme are being offered for consideration in the context of a series of transactions under which it is proposed that:
(a)AMP Financial Services Holdings Limited will acquire by means of the Share Scheme all of the shares in AXA APH other than shares (“excluded shares”) held:
(i)by AXA SA and its subsidiary Societe Beaujon; or
(ii)beneficially by AMP and its subsidiaries;
(b)AMP Financial Services Holdings Limited will acquire pursuant to a share sale deed all of the shares in AXA APH held by AXA SA and Societe Beaujon;
(c)AXA SA will acquire pursuant to a share sale agreement with AXA APH and one of its subsidiaries shares in certain subsidiaries of AXA APH carrying on business in jurisdictions other than Australia and New Zealand; and
(d)the Rights Scheme will effect the cancellation of all of the AXA APH rights upon a cash consideration being paid for such cancellation by AMP Financial Services Holdings Limited.
The minority shareholders are the holders of all AXA APH shares other than excluded shares. As at 14 December 2010, the minority shareholders held approximately 46.1% of the shares in AXA APH and the shares had a market value (as at 17 December 2010) of approximately $6 billion.
The transactions referred to in paragraph (a), (b) and (c) of the preceding paragraph are interdependent. The Rights Scheme is conditional upon the other three transactions proceeding, but those transactions are not conditional upon the Rights Scheme proceeding.
The consideration under the Share Scheme will consist of 0.73 AMP ordinary shares plus a variable amount of cash for each AXA APH share. The cash amount will vary, depending upon the arithmetic average of the daily volume weighted average AMP share price for the ten trading days following the effective date of the Share Scheme (“Post Scheme AMP VWAP”), subject to a maximum cash amount per AXA APH share of $3.145. If the Post Scheme AMP VWAP is in the range of $4.50 to $5.60, the cash amount will be varied so that the value of the Consideration will be $6.43 per AXA APH share. If the Post Scheme AMP VWAP is greater than $5.60, the cash consideration will be reduced such that the AXA APH shareholders will receive 50% of the benefit of the increase in value of the share component. If the Post Scheme AMP VWAP is below $4.50, then the value of the Consideration will be less than $6.43 as the cash amount is capped at $3.145 per AXA APH share.
Under the Rights Scheme, all AXA APH rights on issue will be cancelled pursuant to a scheme of arrangement in exchange for cash. The cash consideration for the cancellation will depend upon whether the rights are in-the-money (i.e. their exercise price is lower than the Consideration under the Share Scheme) or out-of-the-money (ie their exercise price is equal to or greater than the Consideration). For rights that are in-the-money, the cash consideration will be equal to the intrinsic value of the rights (i.e. the difference between the value of the Consideration and their exercise price). For rights that are out-of-the-money, the cash consideration will be determined on the basis of the option value of the rights and, for unvested rights, an estimate of the probability that the rights will vest.
The details of and conditions attaching to the Share Scheme, the Rights Scheme and the entitlements of minority shareholders and Rightsholders under each Scheme are set out in the Explanatory Memorandum – for the proposed merger of the Australian and New Zealand Businesses of AXA – Asia Pacific Holdings Limited with AMP Limited and for the sale of the Asian Businesses to AXA SA (“the Explanatory Memorandum”).
The Court’s Discretion
Matters relevant to the exercise of the discretion of the Court under s 411 of the Act will, as might be expected, vary depending upon the particular circumstances of the scheme under consideration. Nevertheless, the authorities indicate that these matters may be seen to fall into two broad categories:
(a)whether the scheme “is of such a nature and cast in such terms that, if it achieves the statutory majority at the [members’ or creditors’] meeting the court would be likely to approve of it on the hearing of a petition which is unopposed”;[3] and
(b)whether “the members or creditors [are to be] properly informed of the nature of the scheme before the scheme meeting”.[4]
[3]FT Eastment & Sons v Metal Roof Decking Supplies (1977) 3 ACLR 69 at 72 (Street CJ); ASC v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504; Re GIO Building Society (2001) 39 ACSR 77 at [5] (Austin J); Re Amcor Ltd (2000) 34 ACSR 199 at [24] (Warren J).
[4]Re NRMA Ltd (2000) 33 ACSR 595 at [30] (Santow J); Re Foundation Health Care Ltd (2002) 42 ACSR 252 at [38] (French J).
The matters referred to in paragraph (a) of the preceding paragraph require the Court to look forward to the exercise of the Court’s discretion at the stage of the s 411 procedure when the Court is asked to approve the scheme. Thus, Davies J said in Re Cytopia Ltd:[5]
“The approach that the Court should adopt when considering this application is to review the scheme and the Scheme Booklet to ascertain whether the scheme complies with the requirements under the Act and to consider whether there is any presently discernible reason as to why the proposed scheme of arrangement should not be put to the meeting of the members to vote on. Ordinarily, the Court will not order the convening of a meeting ‘unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the … meeting the court would be likely to approve it on the hearing of a petition which is unopposed’.[6] Thus, as Finkelstein J observed in Re Opes Prime Stockbroking Ltd:[7]
[I]t is necessary for a court to be alive to any difficulties that may arise if in due course it may be asked to approve the scheme.[8]
The authorities make it clear that the Court’s role at this stage is not to express a view on whether the proposed scheme should be approved.[9] It is also clear that it is not the Court’s role to usurp the shareholders’ decision, by attempting to intrude its own commercial judgment.[10] The Court is to be concerned with whether there is adequate disclosure to the shareholders in the Scheme Booklet (or explanatory memorandum), whether the legal requirements otherwise have been complied with and whether the scheme, on its face, is one that is sufficiently ‘fair and reasonable’ to be capable of being put to shareholders for their approval or rejection.[11]”
[5][2009] VSC 560 at [3].
[6]FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69, 72 (Street CJ); Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485, 504 (Mason CJ, Brennan, Dawson, Toohey, Gaudron JJ); Re Opes Prime Stockbroking Ltd(recs and mgrs appointed) (in liq) (2009) 258 ALR 362, 386 [102] (Finkelstein J).
[7](2009) 258 ALR 362.
[8]Ibid, 386 [102].
[9]Re Sonodyne International Ltd (1994) 15 ACSR 494, 497 (Hayne J).
[10]Re GIO Australia Holdings Ltd (1999) 37 ACSR 483, 286 (Santow J).
[11]ReGIO Australia Holdings Ltd (1999) 33 ACSR 283, 286 (Santow J).
At this present stage of the proceedings, it is useful to make some reference to the nature of the discretion of the Court to approve a scheme. In Re Permanent Trustee Co Ltd,[12] Barrett J reviewed some of the authorities of the nature of this discretion:[13]
[12](2002) 43 ACSR 601.
[13](2002) 43 ACSR 601 at [8]-[10].
“[8] I proceed to the central question whether the court should exercise its discretion in favour of approving the scheme. There is no exhaustive statement of the matters as to which the court must be satisfied before granting approval. Indeed, courts have been reluctant to attempt any comprehensive or compendious statement of relevant criteria. I refer to the judgment of MacFarlan J in Re A W Allen Ltd [1930] VLR 251:
‘In my opinion nothing can be more dangerous than to attempt to determine the conferring or withholding of the Court's sanction by the application of any formula. ... The authorities relied on are all useful as directing the attention of the Court which is asked for sanction to considerations which have occurred to, or have been brought to the minds of, other judges and which they have properly held to be of importance. Considerations which are of the greatest weight in one class of case may be … outweighed by circumstances not present in the former. If the Legislature had desired to say that the Court should sanction an arrangement if the necessary majorities were obtained and the conditions of reasonableness and absence of oppression (or any others definable in advance) existed, it would have been easy to say so. It has chosen not to do so.’
[9] It is nevertheless clear that the court must form a favourable view as to the reasonableness of the compromise or arrangement. This was established in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213. Fry LJ said in that case:
‘Under what circumstances is the Court to sanction a resolution which has been passed approving of a compromise of arrangement? I shall not attempt to define what elements may enter into the consideration of the Court beyond this, that I do not doubt for a moment that the Court is bound to ascertain that all the conditions required by the statute have been complied with; it is bound to be satisfied that the proposition was made in good faith, and, further, it must be satisfied that the proposal was at least so fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such a member, might approve of it. What other circumstances the Court may take into consideration I will not attempt to forecast’.
Lindley LJ said (at 238-9):
‘… what the Court has to do is to see, first of all, that the provisions of that statute have been complied with; and, secondly, that the majority have been acting bona fide. The Court also has to see that the minority is not being overridden by a majority having interest of its own clashing with those of the minority whom they seek to coerce. Further than that, the Court has to look at the scheme and see whether it is one as to which persons acting honestly, and viewing the scheme laid before them in the interests of those whom they represent, take a view which can be reasonably taken by business men. The Court must look at the scheme, and see whether the Act has been complied with, whether the majority are acting bona fide, and whether they are coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and then see whether the scheme is a reasonable one or whether there is any reasonable objection to it, or such an objection to it as that any reasonable man might say that he could not approve of it.’
Bowen LJ said (at 243):
‘I do not think myself that the point of jurisdiction is worth discussing at much length, because everybody will agree that a compromise or agreement which has to be sanctioned by the Court must be reasonable, and that no arrangement or compromise can be said to be reasonable in which you get nothing and give up everything. A reasonable compromise must be a compromise which can, by reasonable people conversant on the subject, be regarded as beneficial to those on both sides who are making it.’
[10] These observations have been accepted for over a century by courts exercising this jurisdiction. A modern expression of the relevant principle will be found in the judgment of R D Nicholson J in Re Challenge Bank Ltd (1995) 19 ACSR 421:
‘The court is required to consider and to be satisfied whether the proposals in the schemes are at least fair and reasonable from the viewpoint of an intelligent and honest person, that is a person who might approve of it.’
It is, of course, the scheme as a whole - the totality of the give and take that is the compromise or arrangement between the company and its members - that falls to be assessed in this way.”
It is clear that the role of the court is supervisory, but that this does not involve the “second guessing” of the commercial judgment of the shareholders or to substitute its own commercial judgment.[14] The nature of the jurisdiction was described by Emmett J in Re Central Pacific Minerals NL as follows:[15]
“[13] The jurisdiction of the Court in relation to an arrangement is supervisory, in the sense that the Court is concerned to be satisfied that there has been an absence of oppression and that the arrangement is one that is capable of being accepted. For example, the Court will withhold its approval where a majority is shown to be acting in bad faith or where a majority’s acceptance is in the nature of a fraud on the minority. The Court will, of course, generally take the view that the shareholders are the best judges of whether an arrangement is to their commercial advantage and will be reluctant to make decisions contrary to the views of security holders expressed at meetings. The function of the Court does not extend to usurping the views of the relevant security holders.”
[14]See GIO Australia Holdings Ltd (1999) 33 ACSR 283 at 286 (Santow J).
[15][2002] FCA 239 at [13] (Emmett J); see also Re ACN Gold Ltd (1992) 34 FCR 530 at 534 (O’Loughlin J), citing with approval Re English Scottish and Australian Chartered Bank [1893] 3 Ch 385 at 409 (Lindley LJ).
The effect of the authorities in relation to the function of the Court in relation to applications such as this was summarised by Davies J in Re Orica Limited:[16]
“7. The function of the Court on an application to convene a meeting essentially is:
(a) to consider whether the scheme booklet that will be provided to the shareholders sufficiently discloses the detail and effect of the scheme to enable shareholders to make an informed decision on how to vote;
(b) to consider procedural matters about the calling and conduct of the meeting;
(c) to ascertain whether the Australian Securities and Investments Commission (‘ASIC’) has had reasonable opportunity to examine the proposed scheme;
(d) to consider whether there may be matters that may make it unlikely that the scheme would be capable of a grant of approval by the Court if, in due course, its approval is sought and so make it futile to put the scheme to the shareholders for their vote. [17]
8. It is not the function of the Court on an application for a order convening a meeting to consider the business or commercial efficacy of the proposed scheme, as that is a matter for the shareholders nor is it the Court’s role to express a view on whether the proposed scheme should be approved, if the requisite majority of votes is obtained.[18] An order of the Court that the meeting be convened is not an indication that the Court has a view as to the merits of the scheme or as to how shareholders should vote.”
[16][2010] VSC 231 at [7] and [8]; and see also Re Healthscope Limited [2010] VSC 367 at [8]-[10] (Davies J).
[17]FT Eastman and Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69, 72 (Street CJ); Australian Securities Commission v Malborough Gold MinesLtd (1993) 177 CLR 485, 504 (Mason CJ, Brennan, Dawson, Toohey, Gaudron JJ); Lindholm, Re Opes Prime Stockbrocking Limited (Administrators appointed) (Receivers and Managers Appointed) (2008) 171 FCR 473, [102] (Finklestein J); ReCSR Limited [2010] FCAFC 34, 64 (Keane CJ, Jacobson J), 76 (Finklestein J); Re Foundation Health Care Limited (2002) 42 ACSR 252, [36], [44] (French J).
[18]Re Sonodyne International Limited (1994) 15 ACSR 494, 497 (Hayne J).
The provisions of sub-s 411(17) of the Act restrict the jurisdiction of the Court to approve a scheme. Either the Court must be satisfied in terms of sub-s 411(17)(a) that the scheme is not being proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6 of the Act – Takeovers; or (b) that there was produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the proposed scheme. Although the Act makes it clear that these are matters which affect the discretion to approve the scheme, rather than the discretion to order a meeting, questions have been raised in relation to the extent to which this issue ought to be anticipated at the first stage of the s 411 procedure. The weight of the authorities is, however, now against the need to consider this question at the first stage.[19] On this basis, issues with respect to sub-ss 411(17)(a) and (b) of the Act do not arise at this stage. Nevertheless, ASIC in its letter dated 13 January 2011 to the plaintiff’s solicitors stated that its intention not to intervene at the first hearing under sub-s 411(1) of the Act was “based on the information provided by the applicant to date on the matters to which ASIC will have regard to before it will state that it has no objection to a scheme under s 411(17)(b) of the Act.” ASIC also stated that it had had 14 days notice of the hearing of the application to the Court to convene the meeting in accordance with sub-s 411(2)(a) of the Act and that it had a reasonable opportunity to examine the terms of the proposed Schemes and the draft explanatory statement in relation to the proposed scheme, which is in accordance with sub-s 411(2)(b) of the Act.
[19]See Re Coles Group Ltd (No. 2) (2007) 65 ACSR 494 at [16]-[24] (Robson J) where the history and relationship between the various provisions was discussed; and see Mincom Ltd v EAM Software Finance (2007) 61 ACSR 266; cf Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [25]-[31] (Barrett J).
Particular aspects of the Schemes
Independent expert’s Opinion on the Schemes
AXA APH commissioned Grant Samuel & Associates Pty Limited (“Grant Samuel”) to prepare an independent expert’s report. This report was provided by Grant Samuel and a copy of a draft dated 12 January 2011 of a document entitled Financial Services Guide and Independent Expert’s Report in relation to the Proposal by AMP Limited (“the Report”) was provided to the Court at the hearing of the application.
The Report includes the following:
“2. Scope of the Report
2.1 Purpose of the Report
…
The report will state whether:
§for the purposes of Section 411 of the Corporations Act, the Scheme (whereby AMP will acquire the minority interests of AXA APH) is in the best interests of AXA APH Minority Shareholders and to state the reasons for that opinion;
§the Share Transaction (the proposed acquisition of AXA SA’s 53.9% shareholding in AXA APH by AMP) is fair and reasonable having regard to the interests of AXA APH Minority Shareholders. Australian Securities & Investment Commission (“ASIC”) has provided AMP and AXA SA joint bid relief such that Section 611 approval is no longer required. However, the independent directors have requested that Grant Samuel opine on the Share Transaction as if s 611 approval was still required; and
§for the purposes of Listing Rule 10.1 and Chapter 2E of the Corporations Act, the Asset Transaction (AMP’s divestment of AXA APH’s Asian businesses to AXA SA) is fair and reasonable having regard to the interests of AXA APH’s Minority Shareholders.
…”
The Report is summarised in the letter from Grant Samuel to AXA APH, which is contained in Appendix 1 (Concise Version of the Independent Expert’s Report) to the draft Explanatory Memorandum which was provided to the Court at the hearing. The Concise Version of the Independent Expert’s Report contains favourable opinions in relation to both the proposed Share Scheme and the proposed Rights Scheme. In relation to the Share Scheme:
“In Grant Samuel’s view the Proposal delivers significantly more value than would be available to AXA APH Minority Shareholders in the short to medium term if AXA APH was to continue on a standalone basis. Effectively, the AXA APH businesses are being sold to parties that are prepared to attribute to the business strategic in synergistic value not otherwise available to AXA APH Minority Shareholders. In Grant Samuel’s view the value to be delivered to AXA APH Minority Shareholders under the Proposal is compelling. In the absence of a superior proposal, the Proposal (including the Scheme) is in the best interests of AXA APH Minority Shareholders.
Grant Samuel has valued AXA APH in the range of $6.03 to $6.64 per share. Grant Samuel has attributed a value of $6.43 per AXA APH share to the Consideration, based on recent AMP share prices in the range $5.00 to $5.50, the value attributed to the Consideration of $6.43 per AXA APH share falls within the range of values that Grant Samuel has estimated for AXA APH. On this basis, in the absence of a superior proposal, the Scheme is fair and reasonable to and in the best interests of AXA APH Minority Shareholders.”
And in relation to the Rights Scheme:
“Under the Rights Scheme, all AXA APH rights on issue will be cancelled pursuant to a scheme of arrangement in exchange for cash. Cash consideration for the cancellation will depend on whether the rights are in-the-money (i.e. their exercise price is lower than the Consideration) or out-of-the-money. For rights that are in-the-money, the cash consideration will be equal to the intrinsic value of the rights (i.e. the difference between the value of the Consideration and their exercise price). For rights that are out-of-the-money, the cash consideration will be determined on the basis of the option value of the rights and, for unvested rights, an estimate of the probability that the rights will vest.
In Grant Samuel’s view, the cash consideration to be paid to holders of the rights is fair and reasonable and, accordingly, the Rights Scheme is in the best interests of holders of rights.”
On this basis, I accept the submission that the Court can be satisfied that the schemes, if considered and adopted by the shareholders and rightsholders, are schemes that the Court would be likely to approve if the shareholders and rightsholders vote in their favour.
I am also satisfied that there has been adequate disclosure of the independent expert’s opinion in the Explanatory Memorandum.[20]
[20]See eg the sections titled “Why you should vote in favour and other considerations”; “Why you may want to vote against”; “Key Questions 3. What is the Independent Expert’s opinion on the Proposal, and how can I obtain a copy of the Independent Expert’s Report?”; “1.5 Independent Expert’s review of the Proposal”; “5.1.3 Independent Expert’s conclusion on the AXA SA Share Sale”; “5.2.6 Independent Expert’s conclusion on the sale of the Asian Businesses”; “8.1.5 Independent Directors’ recommendation and Independent Expert’s opinion”; “8.8 Why you should vote in favour of the Rights Scheme”; and Appendix 1 of the Explanatory Memorandum.
Performance risk
In Re SFE Corporation Ltd, the issue of performance risk was addressed by Gyles J:[21]
“[4] The obligations of ASX, in particular in relation to the Scheme consideration, are backed up by an executed deed poll as is the case in many such schemes. I have remarked in other cases (eg Re KAZ Group Ltd[2004] FCA 738) that this procedure is not entirely satisfactory as, in the event of default or delay, the shareholder whose shares have been actually acquired is left with the remedy of suing upon a deed poll. It may be that in this case the practical risk is slight. Indeed, the provision of undertakings plus appropriate evidence, if and when the matter comes back for approval, may eliminate the risk for all practical purposes. It seems to me, however, that schemes of this kind would be more acceptable if a procedure be devised whereby a mechanism were built in by which a third party such as a trustee company would have the role of suing on behalf of former shareholders in the target company. An alternative safeguard in relation to the cash portion of the payment would be to set aside a trust fund immediately before the vesting of the shares in the acquiring company. I do not see why shareholders whose shares are divested should run any performance risk so far as the quid pro quo is concerned.”
On the scheme returning to the Court for approval, Gyles J commented:[22]
“[3] I drew attention on that occasion to a question which arises as to the means of enforcing arrangements such as these, including (although not restricted to) issues about solvency. I am satisfied by the evidence that there is both the capacity to meet the obligations which are being undertaken and willingness on the part of those involved to do so. Indeed, there is every reason for them to do so.”
[21][2006] FCA 670 at [4].
[22](2006) 59 ACSR 82 at [3].
The interests of shareholders have, in some schemes, been protected by provisions for the cash component to be paid by the acquirer into a trust account prior to the scheme implementation date.[23] Nevertheless, the use of a trust arrangement is only one means of reducing the risk to shareholders of non-performance by the acquiring company. The authorities indicate that this is not the only method regarded as appropriate for achieving this result.
[23]See Re WebCentral Group Ltd [2006] FCA 937; and see Re Lonsdale Financial Group [2007] VSC 394; and Re AWB Ltd [2010] VSC 456.
In the present case, protection is achieved for the shareholders and the rightsholders by requiring, in the case of the Share Scheme, performance by AMP of its obligation to provide the consideration before the shares are to be transferred. Similarly, in the case of the Rights Scheme, AMP is required to perform its obligation to provide the consideration before the Rights are to be cancelled. Further, AMP is required to certify its performance to AXA APH.
Additionally, the provisions of the Share Scheme Deed Poll and the Rights Scheme Deed Poll[24] contain covenants by AMP in favour of the Scheme Shareholders and the Rightsholders, respectively, to provide the Scheme Considerations. Under clause 8.2 of the Share Scheme and clause 7.2 of the Rights Scheme, AXA APH is appointed the agent and attorney of the Scheme Shareholders and the Rightsholders for the purpose of enforcing the Deeds Poll. These provisions are supported by clauses 8.3 and 7.3 in favour of the Scheme Shareholders and the Rightsholders, respectively, under which AXA APH undertakes that it will enforce the Deeds Poll. In any event, each of the Deeds Poll provides, in clause 1.3, that its provisions may be enforced by any Scheme Shareholder and that AMP and AMP Financial Services Holdings Limited acknowledge that the Schemes authorise AXA APH to enforce the Deeds Poll on behalf of the minority shareholders and the Rightsholders respectively.
[24]Clause 4.3(e) of the Merger Implementation Deed, dated 29 November 2010, requires AMP to execute deeds poll as set out in Appendices 5 and 6 of the Scheme Booklet under which AMP covenants for the benefit of the Scheme Shareholders and Rightsholders respectively to provide the Scheme Consideration. The Deeds Poll were to be executed before the First Court Date.
In my opinion, the framework of provisions to which reference has been made effectively eliminates the risk identified by Gyles J in Re SFE Corporation Ltd[25] that shareholders who have already transferred their shares will be at risk of delay or default by the acquiring company; and, similarly, with respect to the cancellation of rights. Additionally, a clear mechanism for the enforcement of the obligations of the acquiring company on behalf of the minority shareholders and the Rightsholders is provided by this framework. In these circumstances, I am satisfied that there is no undue risk to minority shareholders or Rightsholders such that the scheme should not go forward for consideration by them.
[25][2006] FCA 670.
Exclusivity Period – no shop and no talk
Clause 9 of the Framework Deed, dated 29 November 2010, contains:
(a)in clause 9.1, a “no shop” provision prohibiting AXA APH from soliciting a Competing Proposal (as defined); and
(b)in clause 9.2 a “no talk” and “no due diligence” provision prohibiting AXA APH from engaging in discussions with or providing information to a third party in relation to, or which might reasonably be expected to lead to, a Competing Proposal,
during the Lock-up Period which is defined as:
“The period commencing on the date of this deed and ending on the earlier of: (a) the date this deed is terminated in accordance with its terms; and (b) the Implementation Date.”
Although the Implementation Date is not a fixed day, the Framework Deed requires, in effect, that all scheme conditions (including the Schemes becoming Effective) must occur by the End Date, which is 30 June 2011 or such other date as AXA APH and AMP may agree in writing. This means that, for practical purposes, and in the absence of unforeseen delays, or unless the process is brought to a halt earlier, the Lock Up Period will extend from mid November 2010 until the end of March 2011, although it could extend to 30 June 2011.
The issue of exclusivity clauses was considered by Santow J in Re Arthur Yates & Co Ltd:[26]
“[9] ... It is important that an exclusivity clause satisfy the following concerns:
(a) it should be for no more than a reasonable period capable of precise ascertainment, hence the need to ensure that any exclusivity period is properly defined;
(b) while an exclusivity clause may differentiate between actively soliciting an alternative merger proposal or simply dealing with an unsolicited one, in either case it is important that such an exclusivity clause be framed so that it is subject to the overriding obligation not to breach the directors’ fiduciary duties or be otherwise unlawful; and
(c) there should be adequate prominence given to that constraint in the explanatory memorandum sent to shareholders.”
[26](2001) 36 ACSR 758 at [9].
I accept that, in practice, since 2001 it has been recognised that a “no-shop clause” need not be subject to a fiduciary “carve-out” of the kind contemplated by Santow J in paragraph (b) in the passage set out above.[27]
[27]See Re Healthscope Limited [2010] VSC 367 at [19]-[22] (Davies J) and the cases set out in footnote 12 of that decision; and note that the Takeover Panel in its Guidance Note 7 – Lock-up Devices (February 2010) confirms this practice (see at [21]).
On this basis, I accept the plaintiff’s submissions that:
(a)the exclusivity period of 7.5 months (in practical terms, likely to be less than five months) is within the range of reasonable period for acquisition schemes;[28]
(b)there is, as required in accordance with subsequent authorities, a carve-out of the no-talk and no due diligence provision in relation to the director’s fiduciary duties – see clause 9.2(c) of the Framework Deed; and
(c)the exclusivity period has been adequately disclosed in the explanatory statement to go to the minority shareholders – see pp 232 and 233 of the Explanatory Memorandum
[28]See, for example, Re Dyno Nobel Ltd [2008] VSC 154 (nine months); Re Hostworks Group Ltd (2008) 26 ACLC 137 (six months); Re Sino Goldmining Ltd [2009] 74 ACSR 647 (seven months).
Deemed Warranty
Clause 8.7 of the Share Scheme states that:
“Each Scheme Shareholder is deemed to have warranted to AMP and AMP Subsidiary [AMP Financial Services Holdings Limited] … that all of their Scheme Shares (including any rights and entitlements attaching to those Scheme Shares) will, at the time of the transfer of them to AMP Subsidiary [AMP Financial Services Holdings Limited], be fully paid and free from all mortgages, charges, liens, encumbrances, pledges, security interests and other interests of third parties of any kind, whether legal or otherwise, and restrictions on transfer of any kind, and that they have full power and capacity to sell and to transfer their Scheme Shares (together with any rights and entitlement attaching to those Scheme Shares) to AMP Subsidiary [AMP Financial Services Holdings Limited] pursuant to this Scheme.”
The authorities have held consistently that clauses of this kind are acceptable as long as the warranty is sufficiently disclosed in the explanatory statement to shareholders.[29] On this basis, I accept that this deemed warranty clause is acceptable having regard to the disclosure made in s 1.10 of the Explanatory Memorandum.
[29]See, for example, Re Hostworks Group Ltd (2008) 26 ACLC 137; Re Macquarie Private Capital A Ltd (2008) 26 ACLC 366; Re Dyno Nobel Ltd [2008] VSC 154; and Re AWB Ltd [2010] VSC 456.
Information for minority shareholders and Rightsholders
The next issue which has been found relevant to the exercise of the Court’s discretions under s 411 of the Act is the adequacy of the information proposed to be provided to the minority shareholders and to the Rightsholders.
Sub-section 412(1) of the Act sets out requirements for the giving of notice and the provision of information where a meeting is convened under s 411 of the Act. There are three aspects to the requirements of sub-s 412(1).
The first is that the explanatory statement must explain the effect of the compromise or arrangement, and in particular state any material interests of the directors, and the effect on those interests of the compromise or arrangement so far as it is different from the effect on the similar interests of other persons.[30] These matters are addressed at pp 189 to 193 of the Explanatory Memorandum. The information set out makes it clear that the effect of the arrangement on the directors’ interests is the same as on the interests of others in terms of their shareholding. There are, however, termination benefits proposed for “Designated Executives”, as defined in the Explanatory Memorandum, as set out at pages 184 to 188.
[30]See sub-s 412(1)(a)(i) of the Act.
The second aspect of the requirements of sub-s 412(1) of the Act is that the explanatory statement must set out the prescribed information The relevant prescription is contained in regulation 5.1.01 and Schedule 8 of the Corporations Regulations 2001. On the basis of the plaintiff’s submissions, I accept that the provisions of these Regulations have been complied with.
The third aspect to the requirements of sub-s 412(1) of the Act is that the explanatory statement must set out any other information that is material to the making of a decision whether or not to agree with the compromise or arrangement, being information which is within the knowledge of the Directors and has not previously been disclosed.[31] The Explanatory Memorandum appears to be comprehensive and a statement in terms of this requirement is included at Part 10.9 (page 201 of the Explanatory Memorandum). Additionally, the Report of the Independent Expert, the Grant Samuel report, contains a detailed evaluation of the proposal, presented in a way that should enable a shareholder to form his, her or its own view on the merits of the proposed transactions. Assistance in this respect is also provided by the Concise Version of the Independent Expert’s Report, which is contained in Appendix 1 to the draft Explanatory Memorandum.
[31]See sub-s 412(1)(a)(ii) of the Act.
On the basis of the above, I am satisfied as to the adequacy of information to be provided to the minority shareholders and Rightsholders.
Conclusion
For the preceding reasons, I am satisfied that this is an appropriate case for the exercise of the Court’s discretion to make orders convening meetings of the AXA APH minority shareholders and Rightsholders to enable the consideration of the Share Scheme and the Rights Scheme, respectively.
As I said at the hearing of this application, I am satisfied that the proposed orders should be made. The orders were made at the conclusion of the hearing on 14 January 2011 on the basis that I would publish my reasons subsequently. The final version of the Explanatory Memorandum was appended to those orders.
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