Re Boart Longyear Ltd

Case [2019] FCA 62

FEDERAL COURT OF AUSTRALIA

Boart Longyear Limited, in the matter of Boart Longyear Limited [2019] FCA 62

File number(s): NSD 1898 of 2018
Judge(s): FARRELL J
Date of judgment: 1 February 2019
Catchwords:

CORPORATIONS – application to approve a scheme pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) – scheme designed to effect re-domiciliation of target company to Canada – where the scheme was approved by more than 75% of votes cast at scheme meeting but did not pass the headcount test under s 411(4)(a)(ii)(A) of the Corporations Act – whether the Court should exercise its discretion to dispense with the headcount requirement and approve the scheme – whether a communication sent by a shareholder to members of the company prior to the scheme meeting affected the integrity of the vote – where the Court indicated that it would not exercise its discretion to approve the scheme unless the company conducted a further poll of members with corrective disclosure and the scheme satisfied both statutory majorities – second court hearing adjourned

CORPORATIONS – minority shareholders asserted that they would be unfairly prejudiced by approval of the scheme – where minority shareholders had ongoing oppression proceedings against the company in the Supreme Court of New South Wales – whether approving the scheme would deprive those shareholders of their standing to seek relief under s 234 of the Corporations Act – interpretation of the Superior Lawns cases – scheme would not deprive minority shareholders of standing – company proffered a satisfactory undertaking designed to preserve shareholders’ standing

Legislation: Acts Interpretation Act 1901 (Cth) ss 15AA, 15AB
Corporations Act 2001 (Cth) ss 232, 233, 234, 411, 459A, 459P, 1319
Corporations Amendment (Insolvency) Bill 2007 (Cth)
Federal Court (Corporations) Rules 2000 (Cth) r 2.13
Companies Act 1961 (NSW) s 181
Cases cited:

Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41

Capilano Honey Limited, in the matter of Capilano Honey Limited [2018] FCA 1568

Chief Executive Officer of Customs v Adelaide Brighton Cement (2004) 139 FCR 147; [2004] FCAFC 183

Deputy Commissioner of Taxation v Complete Liquid Transport Pty Ltd [2010] FCA 1067

Emanuele v Australian Securities Commission (1997) 188 CLR 114; [1997] HCA 20

In the matter of Boart Longyear Limited (No 2) [2017] NSWSC 1105

Jebb v Superior Lawns Australia Pty Ltd (2017) 123 ACSR 388; [2017] WASC 335

Minister for Immigration and Citizenship v Li (2013) 249 CLR 332; [2013] HCA 18

pSivida Limited v New pSivida, Inc; in the matter of pSivida Limited [2008] FCA 627

Re Centro Retail Limited [2011] NSWSC 1321

Re MIM Holdings Limited (2003) 45 ACSR 559; [2003] QSC 181

Re Norfolk Island & Byron Bay Whaling Co [1970] 1 NSWR 221

Re NRMA Ltd (No 2) (2000) 34 ACSR 261; [2000] NSWSC 408

Re Plantic Technologies Ltd [2010] VSC 484

Re PR Finance Group Limited(No 2) [2013] FCA 633

Re PR Finance Group Limited (No 3) [2013] FCA 704
Re PR Finance Group Limited…

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AGLC
Re Boart Longyear Ltd [2019] FCA 62
Case
[2019] FCA 62
Decision Date

CaseChat Overview and Summary

Boart Longyear Limited (BLY) sought approval from the Federal Court of Australia for a scheme of arrangement to effect the company's re-domiciliation from Australia to Canada. The scheme was approved by over 75% of shareholders who voted, but failed the headcount test under section 411(4)(a)(ii)(A) of the Corporations Act 2001 (Cth). The Court was asked to decide whether to exercise its discretion to approve the scheme despite the headcount test failure. Another issue was whether communications sent by a shareholder prior to the scheme meeting affected the integrity of the vote. The Court also considered whether approval of the scheme would deprive minority shareholders of their standing to seek relief under section 234 of the Corporations Act.

The Court held that it would not exercise its discretion to approve the scheme unless the company conducted a further poll of members with corrective disclosure and the scheme satisfied both statutory majorities. The Court found that a communication sent by a shareholder to other members of the company prior to the scheme meeting did not affect the integrity of the vote. The Court also held that approving the scheme would not deprive minority shareholders of their standing to seek relief under section 234 of the Corporations Act. The company proffered a satisfactory undertaking designed to preserve shareholders’ standing.

The Court approved the communication sent by BLY to its shareholders concerning the Snowside letter and the court’s decision related to the Oppression Proceedings. The Court adjourned the application and listed the matter for case management on 7 February 2019.

Orders

Orders of the court

1. The application be adjourned to a date to be fixed.

2. The matter be listed for case management on Thursday, 7 February 2019 at 11.00 am.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

For completeness, I note that if the scheme is implemented, shareholders who have not yet commenced oppression proceedings against BLY would not have standing to make an application for orders against it under s 234(a). I do not consider that that is a fairness issue which would prevent final orders being made.Court approved communications by BLY to its shareholders concerning the Snowside letter and the court’s decision related to the Oppression Proceedings During the hearing on 26 November 2018, BLY drew the Court’s attention to the Snowside letter and indicated that it would seek the Court’s approval to a communication to its shareholders concerning the letter. On 28 November 2018, after the Snowside parties had had an opportunity to comment on it, orders were made in Chambers authorising BLY to issue a letter to shareholders. The letter as sent was as follows:28 November 2018VOTE FOR REDOMICILIATIONLETTER FROM BOART LONGYEAR SHAREHOLDERDear Boart Longyear Shareholder,Shareholder Letter from Snowside Pty LimitedA Boart Longyear shareholder, Snowside Pty Limited (Snowside), has recently written to shareholders and provided them with a proxy form asking them to give their proxy to Anthony Maurici to vote against the proposal to re-domicile Boart Longyear to Canada (the Re-domiciliation).As set out in Snowside's letter, Snowside failed in its court actions to stop the restructure agreed to with the Company's major creditors, which Boart Longyear shareholders overwhelmingly supported and which was completed on 25 September 2017. As a result of the restructure the Company's debt was reduced, its liquidity improved and its debt maturities were extended. Snowside has filed in the Supreme Court of New South Wales an application alleging oppression based on the restructure and is opposing the Re-domiciliation in part on the basis of an allegation that the Re-domiciliation could have a negative impact on its oppression proceedings against the Company.The Snowside letter states that the Snowside Parties' oppression proceedings will likely be defeated by the redomiciliation. The Federal Court of Australia heard arguments on this issue on 26 November 2018, and the matter is listed again on 29 November 2018. Your Board does not agree with the Snowside Parties' proposition. The Company submitted to the Court that this is not correct and is not a reason for the Court not to approve the scheme of arrangement effecting the Re-domiciliation (Scheme). The Court has not yet determined this issue.After careful consideration of the advantages, disadvantages and risks, your Board concluded that the advantages of the Re-domiciliation significantly outweighed the disadvantages. Your Board encourages you to read the Explanatory Memorandum (EM) provided to Boart Longyear shareholders which contains disclosure of both the advantages and disadvantages. Your Board points you to the detailed comparison of Australian and Canadian company rules (set out in Section 8.4 of the EM (on pages 47-48) and the taxation report summarising the Australian tax implications (set out in Section 9 of the EM on pages 53-56).What you should doYour Board recommends that you read the EM in full and encourages you to vote at the scheme meeting to be held on 6 December 2018 (Scheme Meeting) (in person or by proxy).Directors' Recommendation - VOTE FORThe Boart Longyear Board unanimously recommends that you approve the Re-domiciliation and VOTE IN FAVOUR of the Scheme at the Scheme Meeting.Independent Expert OpinionThe Boart Longyear Board commissioned Grant Thornton to prepare the Independent Expert's Report. The Independent Expert considered the advantages and disadvantages of the Redomiciliation and concluded in its opinion that the Re-domiciliation is in the best interests of Boart Longyear shareholders. The Report is contained in Appendix A of the Scheme Booklet.Overview of the Re-domiciliationYou are being asked to consider and vote on the proposal to change Boart Longyear's domicile from Australia to Canada.Under the Re-domiciliation, eligible Boart Longyear shareholders will acquire the same proportionate interests they presently hold in Boart Longyear in a new holding company incorporated in British Columbia, Canada, Boart Longyear Incorporated (Boart Longyear 'Canada').Those interests will be held in the form of Chess Depository Instruments (representing a beneficial interest in a share in Boart Longyear ‘Canada’) (CDIs).The Re-domiciliation will not result in any changes to Boart Longyear's management, operations or strategy and Boart Longyear will continue to be listed on ASX and Boart Longyear shareholders will be able to trade their CDIs on ASX. The Re-domiciliation is consistent with the Company's broader strategy to minimise overhead costs and to streamline and make its group structure more efficient. It is expected that the Re-domiciliation will assist in achieving these objectives.To effect the Re-domiciliation, it must be approved by:(a)a majority in number of Boart Longyear shareholders (more than 50%) of those Boart Longyear shareholders present and voting at the Scheme Meeting (in person, by proxy, attorney or corporate representative);(b)at least 75% of the total number of votes cast on the Scheme resolution at the Scheme Meeting by Boart Longyear shareholders.The Scheme must then also be approved by the Court.Your vote is importantEven if you have already lodged a proxy vote, you are able to change your proxy vote at any time up until the proxy voting deadline by lodging a fresh proxy vote online or by completing and returning your proxy form. If voting by proxy then your valid vote must be received no later than 11.00am (Adelaide time) on 4 December 2018.For your convenience, you can lodge a proxy vote online here.Further InformationIf you require assistance with voting or have any questions about the Re-domiciliation, please call the Shareholder Information Line on 1800 781 633 (within Australia) or +61 1800 781 633 (from outside Australia).The Board thanks you for your support and looks forward to your continuing involvement with the Boart Group.Marcus RandolphChairmanBoart Longyear Limited

Ratio Decidendi

Legal Principle Established

The Snowside parties submitted that this would not be an appropriate case for the Court to make final orders approving the scheme because: (1)It would be inappropriate for this Court to form a view about the prospects of success of the Oppression Proceedings. In November 2018, an amended statement of claim was filed (and is in evidence in these proceedings) and the Court does not have evidence before it sufficient to form a view;(2)This is not a case where the scheme is proposed as an alternate to insolvency, it is merely proposed pursuant to a contractual obligation;(3)There is no clear and quantified benefit to BLY; the claimed benefits are merely speculative and the Snowside parties’ rights should not be prejudiced without it being clear that a benefit would be derived by BLY;(4)No satisfactory endeavour was made by BLY to ameliorate the impact of the implementation of the scheme on the Oppression Proceedings. While BLY may be prepared to proffer an undertaking not to raise the standing issue, there are other parties who would not be bound by the undertaking;(5)The implementation of the scheme would undermine the policy objectives of Part 2F.1 of the Corporations Act; it would be a curious outcome if a claim of oppression made by a minority shareholder could be defeated by virtue of a scheme approved by the majority; and(6)A court whose jurisdiction is regularly invoked should not summarily decide issues except in the clearest of cases, relying on Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41.Consideration I accept BLY’s submission that the Superior Lawns decisions need to be considered in the context in which they occurred:·Trafalgar was a shareholder in Superior Lawns at the time the proceedings were commenced;·Mr Jebb wished to be substituted as plaintiff;·Although it might be questioned whether Trafalgar itself voluntarily transferred the shares in Superior Lawns to Mr Jebb as the transfer followed a change of trustees, it is plain that Martin J viewed the transfer as voluntary and as part of a scheme by Trafalgar’s guiding mind (Mr Jebb) to allow Mr Jebb to appear in the proceedings.·Justice Martin considered that the likely most appropriate remedy if Trafalgar were to be successful was a buyout of its Superior Lawns shares, a remedy which would be meaningless if Trafalgar was not the registered holder of the shares. In (2017) 123 ACSR 388 at [151]-[152], Martin J summarised the “assessment” he rendered in a number of the Superior Lawns decisions. His Honour’s finding at [151] that “in order to viably prosecute a statutory oppression action under Pt 2F.1 of the Corporations Act to a trial, a plaintiff needs, as a matter of necessary standing, to fall within one or other of the specified categories under s 234 of the Corporations Act and then to remain so until completion of the action” (emphasis added) reflects an ambiguity which I find in much of the language used in the Superior Lawns decisions. It is not clear whether by using the term “viable” (or similar words such as “legitimate” used elsewhere in the Superior Lawns decisions) his Honour is indicating that where a shareholder commences proceedings and then voluntarily disposes of the shares there is a resulting loss of standing (which is what is suggested by the words “as a matter of necessary standing”) to bring the action or that it is unlikely that a court would make the order sought under s 233 as a matter of discretion.