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Re Foundation Healthcare Ltd

Re Foundation Healthcare Ltd

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FEDERAL COURT OF AUSTRALIA
In the Matter of Foundation Healthcare Limited
ACN 002 611 501 [2002] FCA 742
CORPORATIONS – arrangements – application for leave to convene meetings of Shareholders and Optionholders to approve Schemes – Schemes involving transfer of shares and options to another company – effective merger – criteria for approval – function of Court – Explanatory Statement requirements – Independent Expert Report – not mandated – including forecast of earnings – whether ASIC consent necessary – other statutory requirements – interaction between Ch 5 and Ch 6 – application approved.
Corporations Act 2001 (Cth) s 411, s 413
Corporations Regulations Reg 5.1.01
Re Parmelia Resources NL (1994) 15 ACSR 392 cited
Re Bond Corporation Holdings Ltd (1991) 5 ACSR 304 cited
Re Stockbridge Ltd (1993) 11 ACLC 201 cited
Re ACM Gold Ltd (1992) 10 ACLC 573 cited
Re Jax Marine Pty Ltd (1967) 1 NSWR 145 cited
Re NRMA Ltd (2000) 3 ACSR 595 cited
Re Theatre Freeholds Ltd (1996) 14 ACLC 1150 cited
IN THE MATTER OF FOUNDATION HEALTHCARE LIMITED
ACN: 002 611 501
W3008 OF 2002
FRENCH J
11 JUNE 2002
PERTH

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

W3008 OF 2002

IN THE MATTER OF FOUNDATION HEALTHCARE LIMITED ACN: 002 611 501
APPLICANT

JUDGE:

FRENCH J

DATE OF ORDER:

11 JUNE 2002

WHERE MADE:

PERTH

THE COURT ORDERS THAT:
1.The Applicant be at liberty to convene the following meetings of holders of shares (Shareholders) and options to acquire shares in the capital of the Applicant (Optionholders) for the purpose of considering and if thought fit, approving with or without modifications, schemes of arrangement proposed between the Applicant and its Shareholders and between the Applicant and its Optionholders:
(a)a meeting of Shareholders of the Applicant who are holders of fully paid ordinary shares in the capital of the Applicant to be held at the Radisson Plaza Hotel, 27 O’Connell Street, Sydney, New South Wales at 10.30am (EST) on 16 July 2002 (Shareholders Meeting); and

(b)a meeting of Optionholders of the Applicant who are holders of the options to acquire shares in the capital of the Applicant exercisable on or before 31 December 2003 at an exercise price of 50 cents each to be held at the Radisson Plaza Hotel, 27 O’Connell Street, Sydney, New South Wales at 11.00am (EST) on 16 July 2002 (or as soon as possible after the meeting referred to in (a) has concluded) (Optionholders Meeting),

(together the Meetings). The relevant scheme documents are set out in Appendix 2 to the explanatory statement referred to in paragraph 4 below.
2.Each of the Meetings shall be convened, held and conducted:
(a)in accordance with the provisions of Part 2G.2 of the Corporations Act (Act) that apply to members of a company and the provisions of the Applicant’s constitution that are not inconsistent therewith and that apply to meetings of members;

(b)on the basis that a quorum for the purpose of the Optionholders’ Meeting shall be 2 Optionholders, present in person…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2002] FCA 742
Decision Date: 11 JUNE 2002

CaseChat Overview and Summary

In the case of Re Foundation Healthcare Limited, the parties involved were Foundation Healthcare Limited, its shareholders, and optionholders. The dispute centered around the approval of a proposed scheme of arrangement between the company and its stakeholders. The matter was heard in the Federal Court of Australia. The central legal issues revolved around the procedural requirements for convening and approving a scheme of arrangement under the Corporations Act 2001. Specifically, the court had to determine whether the scheme was fair and appropriate for approval at the initial stage and whether the procedural requirements for convening the meetings of stakeholders were properly followed.

The court reasoned that, at the stage of ordering a meeting to approve the scheme, it is not typically necessary for the court to delve deeply into the fairness or appropriateness of the arrangement. This consideration is reserved for the final approval stage. The court found that the scheme did not appear to be obviously unfair or inappropriate on its face, and any adverse impacts on interests would likely be raised during the scheme meetings or the final approval stage. The court also noted that ASIC had no objections to the proposed scheme, which provided some assurance of its fairness. The court decided to order the convening of the scheme meetings, taking into account the procedural requirements under the Corporations Regulations, and noted that certain regulations did not need to be imposed given the specific circumstances of the case.

The final orders of the court included granting Foundation Healthcare Limited the liberty to convene meetings for shareholders and optionholders to consider and approve the proposed schemes of arrangement. The court also approved the draft explanatory statement that would accompany the scheme documents, subject to minor amendments required by ASIC. Additionally, the court directed that the scheme documents be dispatched to the relevant stakeholders and allowed for subsequent applications for final approval of the schemes. The court emphasized the importance of providing proper notice to ASIC and the applicant for any further applications related to the scheme.

Orders

Orders of the court

1. The Applicant be at liberty to convene the following meetings of holders of shares (Shareholders) and options to acquire shares in the capital of the Applicant (Optionholders) for the purpose of considering and if thought fit, approving with or without modifications, schemes of arrangement proposed between the Applicant and its Shareholders and between the Applicant and its Optionholders:

(a) a meeting of Shareholders of the Applicant who are holders of fully paid ordinary shares in the capital of the Applicant to be held at the Radisson Plaza Hotel, 27 O’Connell Street, Sydney, New South Wales at 10.30am (EST) on 16 July 2002 (Shareholders Meeting); and

(b) a meeting of Optionholders of the Applicant who are holders of the options to acquire shares in the capital of the Applicant exercisable on or before 31 December 2003 at an exercise price of 50 cents each to be held at the Radisson Plaza Hotel, 27 O’Connell Street, Sydney, New South Wales at 11.00am (EST) on 16 July 2002 (or as soon as possible after the meeting referred to in (a) has concluded) (Optionholders Meeting),

(together the Meetings). The relevant scheme documents are set out in Appendix 2 to the explanatory statement referred to in paragraph 4 below.

2. Each of the Meetings shall be convened, held and conducted:

(a) in accordance with the provisions of Part 2G.2 of the Corporations Act (Act) that apply to members of a company and the provisions of the Applicant’s constitution that are not inconsistent therewith and that apply to meetings of members;

(b) on the basis that a quorum for the purpose of the Optionholders’ Meeting shall be 2 Optionholders, present in person or by proxy or attorney, and otherwise as if such Optionholders were a separate class of creditors; and

3. Michael Denis Boyd or, failing him, Roger Christian Steinepreis, shall act as chairperson of the Meetings and report the results of those Meetings to this Court.

4. The draft explanatory statement which is made up of:

(a) Annexure “PJM-7” to the affidavit of Phillip James MacLeod sworn on 31 May 2002 (excluding Appendix 5 – the Independent Expert’s Report); and

(b) the Independent Expert’s Report which is annexed as “PCW-1” to the affidavit of Peter Christopher Wall sworn on 4 June 2002,

being the schemes booklet and explanatory statement required by s 412(1)(a) of the Act (Schemes Booklet), be and is approved (subject to any minor amendments required or approved by the Australian Securities and Investments Commission (ASIC) for the purposes of registration thereof under Section 412(6) of the Act).

5. The Applicant shall (subject to the registration of the explanatory statement by ASIC pursuant to s 412(6) of the Act) dispatch documents in the form of the Schemes Booklet by ordinary pre-paid post (or by airmail to overseas holders) to the Shareholders and Optionholders at their addresses last known to the Applicant on or before 15 June 2002.

6. Leave be given to make application for orders under ss 411(4) and (6) and 413 of the Act following the Meetings, as soon as practicable thereafter (such date to be arranged with the Registrar of the Court) for approval of the Schemes.

7. There be liberty to apply upon the giving of 24 hours’ notice to ASIC and, where relevant, the Applicant.

8. An office copy of this order shall be lodged with ASIC as soon as practicable after the order is made.

9. The Explanatory Statement is to contain a statement to the effect that the forecast of earnings in the Independent Expert Report has not been included with the consent of ASIC as the Expert Report was not mandated by Item 8303 of Schedule 8 to the Corporations Regulations.

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

FRENCH J

The Court at the stage of ordering a meeting to approve a scheme does not ordinarily go very far into the question of whether the arrangement is one which warrants the approval of the Court – Re NRMA Ltd at 605. That question is to be answered when the scheme returns to the Court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further. The Court is not required to be satisfied either at the convening or approval stage that no better scheme could have been devised. The Scheme, on the face of it, is not obviously unfair or otherwise inappropriate. If there are interests adversely and unfairly affected then the probability is that the question will arise at either or both the Scheme meetings or the final approval stage. Conclusion I am prepared to order that Foundation be at liberty to convene the Scheme meetings for Shareholders and Optionholders in terms of the minute of proposed orders. In so doing, it has been drawn to my attention that Rule 2.15 of the Corporations Rules would apply the procedural requirements of the Corporations Regulations 5.6.12 to 5.6.36A to a meeting ordered under Pt 5.1 unless otherwise directed by the Court. Having regard to the directions made as to notice, the small defined class of affected creditors, ie the Optionholders, and the defined class of Shareholders, I do not consider it necessary to impose the requirements of these Regulations which would not apply of their own force to meetings under that Part. There will be orders accordingly.

Ratio Decidendi

Legal Principle Established

Established by: FRENCH J

It is to be noted that there is pending litigation brought by Foundation and its subsidiary, Foundation Medical Centres Pty Ltd, against Clift (BVI) Limited, Trounce (BVI) and Doctor John Lawrence Clift. Shares in Foundation are sought under a counterclaim by the defendants. Post-merger Foundation may seek orders from the Court under s 413(1)(c) for the continuation, by and against LifeCare, of the legal proceedings pending by and against Foundation. In the event that the counterclaim is successful, LifeCare shares could be issued pursuant to a court order. ASIC Consideration Between 10 May 2002 and 4 June 2002 Mr Wall, a solicitor acting for Foundation, prepared final drafts of the documents to comprise the scheme booklet including the schemes, explanatory statement and notices of meeting. He sent copies of the documents to the Australian Securities and Investments Commission (ASIC). On 4 June 2002, ASIC wrote to Mr Wall advising that it has no objection to the proposed scheme. It reserved the right to change its view should further material information come to its notice prior to the confirmation hearing. The letter concluded: “Please note that this letter is not the ‘statement in writing’ referred to in section 411(17) of the Corporations Act 2001.” A further letter, dated 4 June 2002, and handed up on the day of the hearing (Exhibit 1) stated: “Under subregulation 5.1.01(1) of the Corporations Regulations, the Australian Securities and Investments Commission (Commission) allows Foundation Healthcare Limited, to send an explanatory statement under s 412(1) of the Corporations Act 2001, which does not: .state the matters set out in paragraphs 8201(a), 8201(b), 8201(d) and 8201(e); nor.contain or have annexed to the explanatory statement the reports and copies of documents referred to in paragraphs 8203(a) and 8203(b); of Part 2 of Schedule 8 to the Corporations Regulations.”ASIC made that allowance on the basis that the Explanatory Statement sent will be substantially in the form given to the Commission on or about 4 June 2002. The requirements waived are relevant to an Explanatory Statement for a meeting of creditors pursuant to s 411. This waiver is presumably given on the assumption that the proposed Optionholders’ meeting falls within that category. Having regard to the limited nature of the class and the small size (four in all), it is not surprising that the particular notice requirements mentioned in the letter were waived. Statutory Framework The application is made under Pt 5.1, “ARRANGEMENTS AND RECONSTRUCTIONS” appearing in Ch 5 of the Corporations Act headed “EXTERNAL ADMINISTRATION”. The relevant parts of s 411 are in the following terms: “411(1) Where a compromise or arrangement is proposed between a Part 5.1 body and its creditors or any class of them or between a Part 5.1 body and its members or any class of them, the Court may, on the application in a summary way of the body or of any creditor or member of the body, or, in the case of a body being wound up, of the liquidator, order a meeting or meetings of the creditors or class of creditors or of the members of the body or class of members to be convened in such manner, and to be held in such place or places (in this jurisdiction or elsewhere), as the Court directs and, where the Court makes such an order, the Court may approve the explanatory statement required by paragraph 412(1)(a) to accompany notices of the meeting or meetings....411(2) The Court must not make an order pursuant to an application under subsection (1) … unless: (a)14 days notice of the hearing of the application, or such lesser period of notice as the Court or ASIC permits, has been given to ASIC; and (b)the Court is satisfied that ASIC has had a reasonable opportunity: (i)to examine the terms of the proposed compromise or arrangement to which the application relates and a draft explanatory statement relating to the proposed compromise or arrangement; and (ii)to make submissions to the Court in relation to the proposed compromise or arrangement and the draft explanatory statement.”Subsection (3) explains the term “draft explanatory statement”. That is a statement: “(a)explaining the effect of the proposed compromise or arrangement and, in particular, stating any material interests of the directors of the body, whether as directors, as members or creditors of the body or otherwise, and the effect on those interests of the proposed compromise or arrangement in so far as that effect is different from the effect on the like interests of other persons; and (b)setting out such information as is prescribed and any other information that is material to the making of a decision by a creditor or member of the body whether or not to agree to the proposed compromise or arrangement, being information that is within the knowledge of the directors of the body and has not previously been disclosed to the creditors or members of the body....411(4) A compromise or arrangement is binding on the creditors, or on a class of creditors, or on the members, or on a class of members, as the case may be, of the body and on the body or, if the body is in the course of being wound up, on the liquidator and contributories of the body, if, and only if:(a)at a meeting convened in accordance with an order of the Court under subsection (1) or (1A): (i)in the case of a compromise or arrangement between a body and its creditors or a class of creditors – the compromise or arrangement is agreed to by a majority in number of the creditors, or of the creditors included in that class of creditors, present and voting, either in person or by proxy, being a majority whose debts or claims against the company amount in the aggregate to at least 75% of the total amount of the debts and claims of the creditors present and voting in person or by proxy, or of the creditors included in that class present and voting in person or by proxy, as the case may be; and(ii)in the case of a compromise or arrangement between a body and its members or a class of members – a resolution in favour of the compromise or arrangement is:(A)passed by a majority in number of the members, or members in that class, present and voting (either in person or by proxy); and (B)if the body has a share capital – passed by 75% of the votes cast on the resolution; and (b)it is approved by order of the Court.”

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W3008 OF 2002

IN THE MATTER OF FOUNDATION HEALTHCARE LIMITED ACN: 002 611 501 APPLICANT
JUDGE:	FRENCH J
DATE OF ORDER:	11 JUNE 2002
WHERE MADE:	PERTH