Re Colorpak Limited

[2016] VSC 834

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2016 00018

IN THE MATTER OF COLORPAK LIMITED
(ACN 107 485 898)

COLORPAK LIMITED   Plaintiff

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	24 February 2016
DATE OF RULING:	24 February 2016
CASE MAY BE CITED AS:	Re Colorpak Limited
MEDIUM NEUTRAL CITATION:	[2016] VSC 834

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CORPORATIONS – Application for orders convening a meeting to consider a scheme of arrangement – Break fee payable up to two months after scheme is rejected or not approved – Break fee justified as fresh offer may be made in that period – Portion of consideration for shares to be dividends payable by target – Orders for meetings – Corporations Act 2001 (Cth).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr R D Strong	Herbert Smith Freehills
For the Proposed Acquirer	Mr C M Archibald	DLA Piper Australia

HIS HONOUR:

Introduction

1. I have before me, by way of originating process dated 4 February 2016, an application under s 411 of the Corporations Act 2001 (Cth) (the Act) seeking an order convening a meeting of the ordinary shareholders of Colorpak Limited (Colorpak) for the purposes of considering a scheme of arrangement proposed to be made between Colorpak and its ordinary shareholders (the scheme), and, if passed by the necessary majority, orders pursuant to s 411(4)(b) of the Act approving the scheme.

The scheme

1. The scheme is a takeover scheme whereby the shareholders of Colorpak will sell their shares to Graphic Packaging International Australia Pty Ltd (GPIA), a wholly owned subsidiary of Graphic Packaging International Inc. (GPI), a United States company.  Under the scheme, shareholders will receive consideration of 68 cents per share.  It is proposed that a portion of the consideration will be in the payment of dividends and the balance will be made up with a payment by the acquiring company, GPIA. 

Deed poll

1. As is usual in a scheme such as this where a parent company is putting forward a subsidiary to make an acquisition, a deed poll has been executed in which the parent (GPI) has guaranteed the performance of the obligations by the acquiring company (GPIA).  A legal advice has been obtained on the enforceability of the deed poll against the American parent by shareholders in Australia.  The deed poll is referred to in the explanatory booklet.  The legal opinion, however, has not been.  ASIC has not seen fit to require the inclusion in the booklet of the opinion and I am satisfied the circumstances do not require such action.

Break fee

1. The break fee provisions provide for a break fee of one per cent.  Such a fee is not unusual.[1] 

   [1]See Gyles J comments in Re SFE Corporation Ltd (2006) ACSR 82 [7].

1. The break fee payable by the target will be payable if the scheme does not go ahead, inter alia, if a superior proposal is publicly announced prior to the end date, and within nine months from the date of the public announcement of such superior proposal, the proponent of such superior proposal, acquires Colorpak.

1. In this case, however, the period in which the break fee can be enlivened has been extended for up to two months beyond the date upon which the scheme is either rejected by the shareholders or not approved by the Court, as may be the case.  Mr Strong submitted that it is commercially reasonable that the period should be extended for two months because, if the scheme is rejected, it is likely that those who are putting it forward may again consider varying it or amending it.  Mr Strong submitted that in view of the time and effort that goes into a proposed scheme it is not unreasonable to envisage that the bidder may wish to reconstitute its bid.  I am satisfied that it is not unreasonable to extend, for two months, the time in which the break fee may be payable.

Statutory requirements

1. Pursuant to s 411(1)(d), I must satisfy myself that ASIC has had a reasonable time to review the scheme and in particular the scheme booklet. I note that ASIC has suggested many amendments. ASIC informed the Court in a letter that, in its view, it has had a reasonable opportunity to examine the scheme. I am satisfied that ASIC has had the reasonable opportunity to consider the scheme.

1. I am also satisfied that this is the type of scheme that a reasonable shareholder might consider to be to their advantage.[2]  Further, I am satisfied that proper and full disclosure has been made to the shareholders of the relevant factors that they need to take into account including (although not required under the Act) a lengthy and detailed expert opinion which expresses the view that the value of the shares falls in the range of 64 cents to 74 cents.  The 68 cents consideration offered falls within this range.  The shares had been trading before the proposed scheme was announced at 52 cents.  The offer is at something of a premium to the market price before the proposed scheme was announced.  I have received the plaintiff’s submissions and I consider them to have addressed all the elements that are required to be addressed on seeking the meeting. 

   [2]See Hayne J Re Sonodyne International Ltd (1994) 15 ACSR 494, 497, 499.

Performance risk 

1. I have addressed performance risk above (in relation to the deed poll) and Mr Strong has satisfied me that the consideration for the shares is to be paid into a trust account.  Mr Strong also explained that so far as the dividends are concerned, the scheme is conditional on them being paid.  There is material in the explanatory booklet concerning the resources of the target company to pay the proposed dividends.  Under the scheme, insofar as dividends are not paid, then the obligation falls on the acquiring company (GPIA) to make up the consideration to 68 cents per share.

Conclusion

1. For the reasons given, I propose to make the orders sought and, subject to approval of the shareholders and the Associate Justice, schedule a hearing for the approval of the scheme on 8 April 2016.