Re Gazal Corporation Ltd

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FEDERAL COURT OF AUSTRALIA

Gazal Corporation Limited, in the matter of Gazal Corporation Limited [2019] FCA 701

File number(s): NSD 385 of 2019
Judge(s): FARRELL J
Date of judgment: 17 May 2019
Date of publication of reasons 24 May 2019
Catchwords: CORPORATIONS – scheme of arrangement – application under ss 411 and 1319 of the Corporations Act 2001 (Cth) for orders convening a meeting of members to consider and agree a proposed scheme – application to approve a scheme pursuant to s 411(4)(b) of the Corporations Act – whether appropriate that director recommends in scheme booklet that shareholders vote in favour of scheme when also standing to receive a bonus if scheme approved – applications granted
Legislation: Corporations Act 2001 (Cth) s 411
Cases cited:

Afterpay Holdings Limited, in the matter of Afterpay Holdings Limited (No 2) [2017] FCA 737

Re SMS Management & Technology Ltd  [2017] VSC 257
Date of hearing: 8 April, 17 May 2019
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 34
Counsel for the Plaintiff: Mr R M Foreman with Ms K E Boyd (8 April 2019)
Solicitor for the Plaintiff: Johnson Winter & Slattery
Counsel for Sunshine B Pty Ltd Mr J R J Lockhart SC
Solicitor for Sunshine B Pty Ltd Clifford Chance
Table of Corrections
4 September 2019 In paragraph 29, “a” has been deleted before “shareholders”.

ORDERS

NSD 385 of 2019

IN THE MATTER OF GAZAL CORPORATION LIMITED

GAZAL CORPORATION LIMITED (ACN 004 623 474)

Plaintiff

JUDGE:

FARRELL J

DATE OF ORDER:

8 APRIL 2019

THE COURT ORDERS THAT:

Convening of Scheme Meetings

Key Management Scheme Meeting

1.Pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act) there be convened a meeting (Key Management Scheme Meeting) of Michael Gazal, MJ & HH Gazal Pty Limited, Michael & Helen Pty Limited, Titan Sydney Pty Ltd, Cleocatra Pty Ltd, Archapal Pty Ltd, Craig Barnett and any other Key Management Shareholder as defined in paragraph 1(a)(ii) of the originating process (Key Management Shareholders) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement (Scheme), the terms of which are set out in Annexure 2 of the scheme booklet, a copy of which is at Exhibit A (Scheme Booklet).

2.The Key Management Scheme Meeting be held at The EY Centre, Level 34, 200 George Street, Sydney, New South Wales on 14 May 2019 at 1:00 pm (Sydney time).

General Scheme Meeting

3.Pursuant to s 411(1) of the Act there be convened a meeting (General Scheme Meeting) of holders of fully paid ordinary shares of the plaintiff (Gazal Shareholders), other than:

(a)those held by or on behalf of or for the benefit of Sunshine B Pty Ltd (ACN 631 685 553) or any of its related bodies corporate (Excluded Shareholders); and

(b)those held by the…

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Details
Case
[2019] FCA 701
Decision Date

CaseChat Overview and Summary

The court was required to consider whether it was appropriate for the director of Gazal to recommend that shareholders vote in favour of the proposed scheme when the director stood to receive a bonus if the scheme was approved. The court also needed to determine whether the scheme was fair and reasonable to all parties, and whether it complied with the requirements of the Corporations Act.

The court held that it was appropriate for the director to recommend the scheme despite receiving a bonus, as the director's recommendation was based on a comprehensive assessment of the scheme's benefits and risks. The court found that the scheme was fair and reasonable to all parties, and that it complied with the requirements of the Corporations Act. The court also granted the exemption from compliance with s 411(11) of the Corporations Act, as the exemption was necessary to ensure that the scheme could be implemented efficiently and without unnecessary delay.

The final orders of the court were to approve the scheme of arrangement, subject to the replacement of the definition of "Excluded Shareholder" with "Excluded Shareholder means PVH Services (UK) Limited", and to exempt Gazal from compliance with s 411(11) of the Corporations Act. The orders were to be entered forthwith.

Orders

Orders of the court

1. Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Corporations Act), the scheme of arrangement (Scheme) between the plaintiff and the holders of fully paid ordinary shares in the capital of the plaintiff (other than an Excluded Shareholder), in the form of Annexure 2 to the document which has been tendered and marked Exhibit A, be approved, subject to the Scheme being altered so that the definition of “Excluded Shareholder” be deleted and be replaced with “Excluded Shareholder means PVH Services (UK) Limited.

2. Pursuant to s 411(12) of the Corporations Act, the plaintiff be exempted from compliance with s 411(11) of the Corporations Act in respect of the scheme of arrangement referred to in Order 1.

3. These Orders be entered forthwith.

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

Background

Background to the litigation

These are the reasons for making orders convening two scheme meetings, approving a draft Scheme Booklet in the form of Exhibit A for dispatch and for approving the scheme.BACKGROUND AND FIRST COURT HEARING Gazal is listed on markets operated by the Australian Securities Exchange Limited (ASX). Its business was founded in 1958. That business was acquired by an ASX listed company in 1987. Gazal’s issued capital comprises 44,687,514 fully paid ordinary shares. Its market capitalisation as at 3 April 2019 was $273 million based on a closing price of Gazal shares on the ASX of $6.11. Gazal, through its wholly-owned subsidiary, Gazal Apparel Pty Ltd, owns 50% of the shares in PVH Brands Australia Pty Ltd (PVHBA). PVHBA is a joint-venture company. Its other shareholder is PVH Services (UK) Limited (PVH Services UK). PVH Services UK is a wholly owned subsidiary of PVH Corp., which is incorporated in the United States of America and listed on the New York Stock Exchange. Sunshine B is an indirectly wholly-owned subsidiary of PVH Corp. If the scheme becomes effective, PVH Services UK will, before the scheme is implemented, transfer its existing shareholding in Gazal to Sunshine B in exchange for new shares in Sunshine A Pty Ltd (also known as PVH HoldCo) which is Sunshine B’s immediate parent company. PVHBA manufactures, imports, markets and distributes the PVH Group’s apparel brands led by Calvin Klein and Tommy Hilfiger or other licensed or PVHBA-owned brands through its branded retail stores and via wholesale channels (principally Myer and David Jones) in Australia and New Zealand. Aside from its 50% interest in PVHBA, Gazal’s only other major asset is its property at 3-7 McPherson Street, Banksmeadow in New South Wales. Gazal has entered into a sale and leaseback arrangement with a large Australian industrial real estate fund in relation to the Banksmeadow property which is conditional on Sunshine B acquiring all of the shares in Gazal other than shares held by Excluded Shareholders (Excluded Shares). The sale is for $85 million and Gazal (but not the purchaser) is entitled to waive the condition in relation to Sunshine B’s acquisition of the Scheme Shares. There are 796,579 Gazal Performance Rights held by nine Gazal directors and employees, all of which were issued on 4 May 2018. There is no exercise price for any of the current Gazal Performance Rights. Upon exercise, each Gazal Performance Right entitles the holder to acquire one Gazal share or an equivalent cash amount, plus a payment equivalent to the aggregate dividends per Gazal share paid between the date of granting and the data vesting (known as a “dividend equivalent payment”). Vesting of a Gazal Performance Right relies upon Gazal and/or PVHBA achieving specific profit targets and a participant’s continued employment by Gazal until 2 February 2021. Based on the audited financial statements for financial year 2018, the profit targets have been met. There are 527,215 PVHBA Performance Rights held by nine PVHBA employees. They are on substantially same terms as the Gazal Performance rights and would vest upon relevant participants remaining in employment with Gazal until 2 February 2021.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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