Re DuluxGroup Ltd

Case [2019] FCA 961


FEDERAL COURT OF AUSTRALIA

DuluxGroup Ltd, in the matter of DuluxGroup Ltd [2019] FCA 961

File number(s): VID 577 of 2019
Judge(s): O'BRYAN J
Date of judgment: 14 June 2019
Date of publication of reasons: 21 June 2019
Catchwords: CORPORATIONS – scheme of arrangement – first court hearing – order sought under s 411(1) of the Corporations Act 2001 (Cth) – exercise of discretion – performance risk – deemed warranty – break fee – exclusivity arrangements – employee incentive arrangements – financial assistance – orders made for convening of shareholders’ meeting
Legislation: Corporations Act 2001 (Cth) ss 411(1), 411(4), 411(17), 412
Cases cited:

ASC v Marlborough Gold Mines Ltd (1993) 177 CLR 485

Charterhouse Investment Trust Ltd v Tempest Diesels Ltd [1986] BCLC 1

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

Milburn v Pivot Ltd (1997) 78 FCR 472

Nordic Bank Plc v International Harvester Australia Ltd [1983] 2 VR 298

Re ACM Gold Ltd (1992) 34 FCR 530

Re Adelaide Bank Ltd [2007] FCA 1582

Re Amcor Ltd [2019] FCA 346

Re APN News & Media Ltd (2007) 62 ACSR 400

Re Arthur Yates & Co Ltd (2001) 36 ACSR 758

Re AWB Ltd [2010] VSC 456

Re AXA Asia Pacific Holdings Ltd [2011] VSC 4

Re Biosceptre International Limited [2013] FCA 1429

Re Cashcard Australia Ltd (2004) 48 ACSR 738; [2004] FCA 223

Re Chevron (Sydney) Ltd [1963] VR 249

Re Coles Group Ltd (2007) 25 ACLC 1380

Re Coles Group Ltd (No 2) (2007) 65 ACSR 494

Re Cytopia Ltd [2009] VSC 560

Re Dyno Nobel Ltd [2008] VSC 154

Re Ecosave Holdings Limited [2015] FCA 1121

Re English, Scottish and Australian Chartered Bank [1893] 3 Ch 385

Re Foster’s Group Ltd (No 2) [2011] VSC 547

Re Foundation Healthcare Ltd (2002) 42 ACSR 252

Re Healthscope Ltd [2010] VSC 367

Re Healthscope Ltd [2019] FCA 542

Re Hills Motorway Ltd (2002) 43 ACSR 101; (2003) 21 ACLC 35

Re Hostworks Group Ltd (2008) 26 ACLC 137

Re ITX Group Pty Ltd [2010] FCA 1241

ReIXLA Ltd [2007] VSC 573

Re KAZ Group Ltd [2004] FCA 738

Re Lion Nathan Limited [2009] FCA 870

Re Lonsdale Financial Group Ltd [2007] VSC 394

Re Macquarie Private Capital A Ltd (2008) 26 ACLC 366

Re Marengo Mining Ltd [2012] FCA 1220

Re Mitchell Communication Group [2010] VSC 423

Re NRMA Insurance Ltd (No 1) (2000) 156 FLR 349; 33 ACSR 595

Re Opes Prime Stockbroking Ltd (2009) 179 FCR 20

Re Opus Group Limited [2018] FCA 959

Re RP Data Ltd [2011] FCA 228

Re SFE Corporation Ltd see (2006) 59 ACSR 82

Re Simavita Holdings Limited [2013] FCA 1274

Re Sirtex Medical Limited [2018] FCA 584

Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525

Re Staging Connections Group Limited [2015] FCA 1012

Re Toll Holdings Ltd [2015] VSC 123

Re Ventura Investment Management Ltd [2011] FCA 721

Re Verdant Minerals Ltd [2019]…

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Details
AGLC
Re DuluxGroup Ltd [2019] FCA 961
Case
[2019] FCA 961
Decision Date

CaseChat Overview and Summary

DuluxGroup Limited sought an order convening a meeting of its shareholders to consider and vote on a proposed scheme of arrangement under section 411 of the Corporations Act 2001 (Cth). The scheme involves the transfer of all DuluxGroup shares to Nippon Paint in exchange for a cash payment of $9.80 per share, less the amount of any dividends paid. The court was required to determine whether to approve the explanatory statement accompanying the scheme, which is a document that explains the scheme to the shareholders and is a requirement under section 412 of the Act. The court also had to decide whether to make an order convening the meeting of shareholders to consider the scheme.

The court held that it was appropriate to make the orders sought by DuluxGroup. The court noted that the scheme had been reviewed by the Australian Securities and Investments Commission, which had provided a preliminary no objection letter. The court also noted that an independent expert had opined that the scheme was fair and reasonable and in the best interests of the shareholders. The court was satisfied that the scheme was of such a nature and cast in such terms that, if it achieved the statutory majorities at the scheme meeting, the court would be likely to approve it. The court held that it was appropriate to make the orders sought by DuluxGroup convening the meeting of shareholders to consider the scheme.

The court made orders convening the meeting of DuluxGroup shareholders to consider and vote on the scheme. The meeting was to be held on 31 July 2019. The court also made orders dispensing with certain procedural requirements and setting the date for the hearing of any application to approve the scheme. The court held that the scheme, if considered and adopted by the members of DuluxGroup, was of such a nature that it would be likely to be approved by the court at the second hearing. Accordingly, it was appropriate to make the orders sought convening the meeting.

Orders

Orders of the court

1. Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (the Act), the plaintiff, DuluxGroup Limited (ACN 133 404 065) (DuluxGroup) convene and hold a meeting (Scheme Meeting) of holders of fully paid ordinary shares in DuluxGroup (DuluxGroup Shareholders):

(a) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement (Scheme) proposed between DuluxGroup and Scheme Shareholders, the terms of which are set out in Annexure B to these orders;

(b) to be held at The Clarendon Auditorium, Melbourne Exhibition Centre, 2 Clarendon Street, South Wharf, Victoria, Australia on Wednesday, at 2:00pm on Wednesday 31 July 2019 (Melbourne time).

2. The Scheme Meeting be convened by sending a document substantially in the form of Exhibit 1 (Scheme Booklet) which contains, amongst other things, a Notice of Meeting at Appendix A, along with a proxy form for the Scheme Meeting, such documents to be sent in the following manner:

(a) in the case of those DuluxGroup Shareholders who have elected to receive communications electronically, by way of email to their nominated email address;

(b) in the case of those DuluxGroup Shareholders who have not elected to receive communications electronically and whose postal address is shown on the register of members of DuluxGroup as being within Australia by pre-paid ordinary post to that address; and

(c) in the case of those DuluxGroup Shareholders who have not elected to receive communications electronically and whose postal address is shown on the register of members of DuluxGroup as being outside Australia, by airmail to that address.

3. Pursuant to section 1319 of the Act:

(a) DuluxGroup may determine that, for the purposes of the Scheme Meeting, all the shares in DuluxGroup be taken to be held by the person, persons or bodies corporate who held them as at 7:00pm (Melbourne time) on Monday, 29 July 2019, in accordance with the register held and maintained by DuluxGroup;

(b) a proxy form in respect of the Scheme Meeting will be valid and effective if, and only if, it is completed and delivered in accordance with its terms by 2:00pm (Melbourne time) on Monday, 29 July 2019;

(c) the Chairperson of the Scheme Meeting be Graeme Leibelt or in his absence, Andrew Larke;

(d) the Chairperson of the Scheme Meeting shall have the power to adjourn the meeting in his absolute discretion to such time, date and place as he considers appropriate; and

(e) a poll must be taken to decide the resolutions put to the vote at the Scheme Meeting, except for procedural motions.

4. Compliance with rule 3.4 and Form 6 of the Federal Court (Corporations) Rules 2000 (Cth) (Rules) be dispensed with.

5. Subject to the requisite majorities of DuluxGroup Shareholders voting in favour of the Scheme at the Scheme Meeting, DuluxGroup publish a Notice of Hearing in The Australian newspaper, in substantially the form that appears at Annexure ‘A’ hereto not later than 5 days prior to the date fixed for the hearing of any application to approve the Scheme.

6. Compliance with r 2.15 of the Rules be dispensed with.

7. The proceedings be stood over to 10:15am on 6 August 2019 before Justice O’Bryan for the hearing of any application to approve the Scheme.

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

Annexure A

Notice of hearing to approve scheme of arrangement

(Form 6, rule 3.4)

TO all the members of DuluxGroup Limited (ACN 133 404 065) (DuluxGroup):

TAKE NOTICE that at 10:15am on 6 August 2019, the Federal Court of Australia at 305 William Street, Melbourne, Victoria will hear an application by DuluxGroup seeking the approval of a scheme of arrangement between the above-named company and its members (the Scheme) if agreed to by a resolution to be considered and, if thought fit, passed by the members of DuluxGroup at the meeting to be held on Wednesday 31 July 2019.

If you wish to oppose the approval of the compromise or arrangement, you must file and serve on DuluxGroup a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on the plaintiff at its address for service at least 1 day before the date fixed for the hearing of the application.

The address for service of DuluxGroup is c/o Gilbert + Tobin, Level 22, 101 Collins Street, Melbourne Victoria, 3000 (Attention: Janet Whiting/Alexandra Whitby).

Annexure B

Scheme

[The Order entered is available on the Commonwealth Courts Portal, which attaches the Scheme.]

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

Section 411(1) provides that, if the Court has made an order convening a meeting or meetings of members or creditors, the Court “may approve the explanatory statement.” The practice of courts varies in this respect. Orders approving the explanatory statement have been made in a number of cases: see for example Re Adelaide Bank Ltd [2007] FCA 1582; Re Marengo Mining Ltd [2012] FCA 1220; Re Opus Group Limited [2018] FCA 959; Re Ecosave Holdings Limited [2015] FCA 1121; and Re Biosceptre International Limited [2013] FCA 1429. In other cases the court has declined to make orders approving the explanatory statement: see for example ReIXLA Ltd [2007] VSC 573 at [38]. In declining to approve the explanatory statement in that case, Robson J said (at [38]) that, in view of the requirement for registration by ASIC and the criteria that ASIC must apply, it was more appropriate that the explanatory statement for a members’ scheme be dealt with in that fashion. The same approach was recently taken by this Court in Re Amcor Ltd [2019] FCA 346 at [114]-[115] per Beach J; Re Verdant Minerals Ltd [2019] FCA 556 at [84] per Moshinsky J; and in Re Healthscope Ltd [2019] FCA 542 at [189] per Beach J. I propose to adopt the same approach.E. Conclusion In conclusion, I am satisfied that the Scheme is of such a nature and cast in such terms that, if it achieves the statutory majorities at the Scheme Meeting, the Court would be likely to approve it and that it is therefore appropriate to make the orders sought by DuluxGroup.

Ratio Decidendi

Legal Principle Established

The Scheme provides for the transfer of all DuluxGroup shares to Nippon Paint, in consideration for a cash payment by Nippon Paint to DuluxGroup shareholders of $9.80 per DuluxGroup share less the amount of the Permitted Dividends, described further below (Scheme Consideration). If the Scheme is implemented, DuluxGroup will become a wholly-owned subsidiary of Nippon Paint and will be delisted from the ASX. Subject to the required Court and shareholder approvals, it is anticipated that the Scheme will be implemented on 21 August 2019, by reference to DuluxGroup shares held by shareholders on the “Record Date” (being 7.00pm on the fifth business day after the Scheme becomes effective, which is anticipated to be the day of the second court hearing) (Scheme Shares). On 15 May 2019, DuluxGroup declared an interim dividend of $0.15 per DuluxGroup share and a special dividend of $0.28 per DuluxGroup share. Those dividends were contemplated by the Implementation Deed and are referred to as the “Permitted Dividends”. Those dividends are not conditional on the Scheme and will be paid on 28 June 2019, prior to the proposed Scheme Meeting on 31 July 2019. However, as noted above, the Scheme Consideration payable for each Scheme Share is calculated as $9.80 less the amount of the Permitted Dividends, being an amount of $9.37. The draft Scheme Booklet (which includes the explanatory statement required by s 412 of the Act) (Scheme Booklet) provides a description of the Scheme and its advantages and disadvantages. It has been reviewed by the Australian Securities and Investments Commission (ASIC). On 13 June 2019, ASIC provided DuluxGroup with a letter in the usual form, known as a “preliminary no objection letter”. The letter stated that, based on ASIC’s examination of the terms of the Scheme and the Scheme Booklet, ASIC does not currently propose to appear to make submissions, or intervene to oppose the Scheme at the first hearing. Consistently with the terms of the letter, ASIC did not appear at the first hearing. The Scheme Booklet records the recommendation of all the DuluxGroup Directors that shareholders vote to approve the Scheme, in the absence of a superior proposal, and that all DuluxGroup Directors intend to vote their shares in favour of the Scheme. An Independent Expert’s Report (IER) has been obtained from Grant Samuel & Associates Pty Limited (Grant Samuel), which will be included as an annexure to the Scheme Booklet. In the opinion of Grant Samuel, the Scheme is fair and reasonable and in the best interests of the DuluxGroup shareholders. This is on the basis that the Scheme Consideration is within the assessed value range of DuluxGroup shares, which Grant Samuel considers is $8.53-9.93 per share. For the reasons set out below, the Scheme, if considered and adopted by the members of DuluxGroup, is of such a nature that it would be likely to be approved by the Court at the second hearing. Accordingly, it is appropriate to make the orders sought convening the meeting: Re Biosceptre International Limited [2013] FCA 1429 at [34].B. Scheme mechanism