Re Mitre 10 Limited

[2010] VSC 100

IN THE SUPREME COURT OF VICTORIA	Not Restricted
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

CORPORATIONS LIST

No S CI  570 of 2010

IN THE MATTER OF MITRE 10 LIMITED ACN 004 603 114
MITRE 10 LIMITED ACN 004 603 114	Plaintiff
AND
No. S CI 543 of 2010
IN THE MATTER OF MITRE 10 AUSTRALIA LTD  ABN 98 009 713 704
MITRE 10 AUSTRALIA LTD  ABN 98 009 713 704	Plaintiff

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	17 March 2010
DATE OF JUDGMENT:	17 March 2010
CASE MAY BE CITED AS:	Re Mitre 10 Limited
MEDIUM NEUTRAL CITATION	[2010] VSC 100

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CORPORATIONS – schemes of arrangement – approval of schemes – takeover schemes involving two related corporations – different classes of shareholders – consideration of s 411(17) of the Corporations Act 2001 – role of court – exercise of discretion to approve – schemes approved – s 411(11) and (17) of the Corporations Act 2001

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Appearances:	Counsel	Solicitors
For the Plaintiffs	Mr P D Crutchfield S.C. and Mr Carl Möller of counsel	Middletons Solicitors for Mitre 10 Australia Lloyd Mitchell Legal Pty Ltd Solicitors for Mitre 10 Ltd
For Metcash Trading Limited and Mittenmet Limited	Mr M N Connock of counsel

Cases cited

ACM Gold Ltd & Mt Leyshon Gold Mines Ltd, Re (1992) 34 FCR 530
Alabama, New Orleans, Texas and Pacific Junction Railway Company, In re [1891] 1 Ch 213
Coles Group Ltd (No 2), Re (2007) 65 ACSR 494
Equigold NL (No 3), Re [2008] FCA 894
Equinox Resources Limited, Re (2004) 49 ACSR 692
Foundation Healthcare Limited, Re (2002) 42 ACSR 252
Hostworks Group Ltd (No 2), Re [2008] FCA 248
Lion Selection Ltd, Re [2009] VSC 546
Lonsdale Financial Group Limited (No 2), Re [2007] VSC 525
NRMA Insurance Ltd (No 1), Re (2000) 156 FLR 349
NRMA Ltd (No 2), Re (2000) 156 FLR 412
Pheon Pty Ltd, Re (1986) 47 SASR 427
Rocksoft Ltd, Re [2006] FCA 1098
Stockbridge Ltd, Re (1993) 9 ACSR 637
Uranium King Ltd (No 3), Re (2008) 67 ACSR 513

HIS HONOUR:[1]

THE APPLICATIONS

[1]In formulating these reasons, I acknowledge that I have quoted extensively from the Plaintiffs’ written submissions.

1. There are two applications before the court. The first seeks approval pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (“the Act”) of a proposed scheme of arrangement and the second seeks an order under s 411(12) of the Act, exempting the respective plaintiff from compliance with s 411(11) of the Act.

1. The applications are unopposed and ASIC have provided a letter indicating that it does not object to the scheme.

1. To describe the scheme in general terms, I quote from the letter of the chairmen of Mitre 10 Ltd and Mitre 10 Australia Ltd, Mr David Woodman and Mr Lance Collins respectively to the members of each as set out at the beginning of the scheme booklet.  In their letter of 12 February 2010, they say that:

For some time now, Mark Burrowes, CEO of Mitre 10 Australia Ltd (M10A), has been updating you on Mitre 10's transformation strategy and more specifically the search for external equity capital from a strong strategic alliance partner to rapidly position Mitre 10 both financially and operationally for increased industry competition from Woolworths/Lowe’s joint venture (incorporating Danks) and Bunnings.

As you are aware, on 10 December 2009, Mitre 10A and Mitre 10 Limited (M10L) (jointly the Mitre 10 Group) entered into agreements with Metcash Trading Limited (Metcash Trading) under which Metcash Trading will effectively subscribe for a 50.1% shareholding in the Mitre Group (Transaction). Metcash Trading will also have the right to move to 100% ownership of the Mitre 10 Group in the future.

1. Metcash Trading is to subscribe a significant amount of loans and capital to the new company, Mittenmet Limited, in exchange for its 50.1 percent interest.  The schemes are inter-conditional and inter-dependent; they involve the entities through which the Mitre 10 hardware business is conducted namely, Mitre 10 Ltd, (“M10L”), and Mitre 10 Australia Ltd, (“M10A”), referred to respectively as the “M10L Scheme” and the “M10A Scheme”.

1. On 12 February 2010, I made orders for the convening of the scheme meetings. M10L and M10A filed a written submission in relation to those orders, upon which they rely in relation to these applications.

1. Pursuant to the orders, the scheme meetings were held on 12 March 2010. The scheme resolutions were passed by overwhelming majorities by the members present and voting in person or by proxy.  Specifically, 97.72 per cent of the shareholders present and voting representing 98.18 per cent of the votes, voted in favour of the M10A Scheme, and 99 per cent of the shareholders present and voting representing 98.87 per cent of the votes, voted in favour of the M10L Scheme.

1. On 5 March 2010, Associate Justice Efthim conducted enquiries under Rule 16.6 of the Supreme Court (Corporations Rules) 2003 into the scheme meetings. Associate Justice Efthim made orders directing that the meetings had been duly convened and held in accordance with my orders, and the resolutions approving the schemes duly passed under s 411(4) of the Act.

1. In accordance with my orders, notice of these hearings was published in The Australian newspaper on 5 March 2010.

1. Further material has been filed dealing with events which have occurred since the approval hearing.  These comprise affidavits made by:

a)   Catherine Oosterman, sworn 5 March 2010, which amongst other things exhibits the final version of the Scheme Booklet;

b)     Jolyon Percival Rogers of M10A’s solicitors concerning the advertising of the scheme meetings and this hearing, sworn 12 March 2010;

c)   Lance Harcourt Collins, the chairman of M10A, sworn 12 March 2010, concerning the proceedings at, and outcome of resolution considered by, the M10A extraordinary general meeting and the M10A scheme meeting; and

d)     David William Woodman, the chairman of M10L, sworn 12 March 2010, concerning the proceedings at, and outcome of resolution considered by, the M10L extraordinary general meeting and the M10L scheme meeting.

1. At the hearing this morning, I received into evidence and accepted, as Exhibit AA, a letter from ASIC dated 16 March 2010, in relation to both schemes, under which it advises that under s 411(17)(b) of the Act, it has no objection to the M10A and M10L schemes of arrangement. This advice was given having regard to ASIC's criteria for providing a statement in writing that it has no objection, as set out in Regulatory Guide 60 - Schemes of Arrangement and s 411(17) of the Act. It is signed by Tim King, Corporations from ASIC. I have also had tendered into evidence, as Exhibit AC, a consent to waiver conditions under Clause 3.3 of either merger implementation agreement and a waiver condition under Clause 6.3C of the investment and implementation agreement. I also had tendered Exhibit AB, a certificate under Clause 3(d) of the M10A scheme of arrangement.

1. Further, the plaintiffs have filed a further affidavit of Jolyon Percival Rogers sworn 17 March 2010 where he exhibits similar certificates under Clause 3.10 of the M10L Scheme and under 3(d) of the M10A Scheme.  The letter from ASIC which I have referred to is also exhibited, those certificates signed by the representatives of Mittenmet Limited  and Metcash Trading Ltd.

ROLE OF THE COURT

1. In deciding whether to approve a scheme, the court must consider whether there has been compliance with the Act, whether the majority of shareholders are acting bona fide and whether the scheme is at least so far fair and reasonable that an intelligent and honest person, who is a member of a relevant class of shareholders, and acting alone in respect of her or his interests as such a shareholder, might approve it.[2] Where there has been proper disclosure in the explanatory statement, it should be assumed that shareholders have been properly informed in making their decision,[3] and that the court is reluctant to interfere with the commercial judgment of the shareholders.[4]

   [2]See In Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213, 247; Re NRMA Insurance Ltd (No 1) (2000) 156 FLR 349, 361; Re NRMA Ltd (No 2) (2000) 156 FLR 412, 419-420; Re Uranium King Ltd(No 3) (2008) 67 ACSR 513, 514; Re Coles Group Ltd (No 2) (2007) 65 ACSR 494, [9].

   [3]          Re NRMA Ltd(No 2) (2000) 156 FLR 412, 421-422.

   [4]Ibid, 419-420, referring to Re Pheon Pty Ltd (1986) 47 SASR 427, 432; Re Stockbridge Ltd (1993) 9 ACSR 637; Re Coles Group Ltd (No 2) (2007) 65 ACSR 494, [8].

CONDITIONS PRECEDENT

1. There are several conditions to the schemes becoming effective.[5]  The schemes were arranged to contemplate the provision of certificates concerning the conditions precedent.  The scheme provides that such certificates constitute “conclusive evidence that such conditions precedent are satisfied, waived or taken to be waived”.[6]  I have referred to those certificates which have been tendered into evidence.

   [5]See clause 3 of the M10L scheme of arrangement (Annexure F to the Scheme Booklet) and clause 3 of the M10A scheme of arrangement (Annexure K to the Scheme Booklet); the conditions were also the subject of paragraphs 22-36 of the submissions filed at the convening hearing.

   [6]See clause 3(d) of each scheme.

SECTION 411(17)

1. Under s 411(17) of the Act, the court must not approve a compromise or arrangement under this section unless: (a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or (b) there is produced to the court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement; but the court need not approve a compromise or arrangement merely because a statement by ASIC stating that ASIC has no objection to the compromise or arrangement has been produced to the court, as mentioned in paragraph (b). I have already read the letter from ASIC which is provided under s 411(17)(b) of the Act.

1. The cases have established that the court should not refuse approval of a scheme merely because it is possible that the arrangement might have been able to be effected under Chapter 6 of the Act.[7]

   [7]          Re ACM Gold Ltd & Mt Leyshon Gold Mines Ltd (1992) 34 FCR 530, 542, Re Stockbridge Ltd (1993) 9 ACSR 637, 652- 653; Re Foundation Healthcare Limited (2002) 42 ACSR 252, 265.

1. In Re Stockbridge Limited,[8] Murray J stated:

…the provisions of Ch 6 should not be regarded as being in a position of dominance over or automatically taking precedence over, the provisions of Ch 5. So it could not be considered that the arrangement “must be struck down if it or any part of it, could have been implemented as a takeover scheme or by means of a takeover announcement”.[9]

[8] (1993) 9 ACSR 637.

[9]Ibid 652-653.

1. In Re ACM Gold Ltd & Mt Leyshon Gold Mines Ltd,[10] O'Loughlin J noted that in making a determination under s 411(17), the court should treat at face value a transaction which does not show any purpose other than the purpose of a commercial enterprise. His Honour further noted that in considering s 411(17), the court should have regard to whether a proposed scheme contains an essential element which could not be achieved under Chapter 6.

   [10](1992) 34 FCR 530.

1. In Re Lonsdale Financial Group Limited(No 2),[11] I was of the view that the court is neither compelled to take the purpose for which the scheme is proposed into account, nor compelled to disregard that question. However, if the court finds that the scheme was proposed for the purpose of avoiding the operation of any of the provisions of Chapter 6, that finding may be relevant, although it will not normally be of particular significance if ASIC has issued a no-objection letter, as it has in this case.

   [11][2007] VSC 525.

1. In Re Coles Group Limited (No 2),[12] I stated:

In my view, in normal circumstances the existence of the no-objection statement would carry with it the implication that ASIC is of the view that members have received all material information that they need for their decision, members have received reasonable and equal opportunity to share in the benefits provided of the scheme and that members are not being adversely affected by the takeover proceeding by a scheme of arrangement rather than by a takeover under Chapter 6. If the court accepted that was the case, then the no- objection statement may well effectively counter any adverse inference that might have been drawn from the existence of the proscribed purpose.[13]

[12](2007) 65 ACSR 494.

[13]Ibid [75].

1. Here, the schemes of arrangement were undertaken for bona fide commercial reasons, particularly having regard to the structure of the Mitre 10 Group.  Had the transactions not been undertaken by schemes, two takeover offers would have been required: either by Metcash for both of the Mitre 10 companies; or by one Mitre 10 company for the other, followed by one by Metcash for the acquirer.

1. If the transaction had proceeded by way of two takeovers, then each takeover would have needed to have been subject to defeating conditions requiring that the other takeover was successfully completed and that certain shareholder resolutions were passed at the extraordinary general meetings of both M10A and M10L.

1. These were key commercial terms of the transaction. However, the plaintiffs submit it is highly doubtful that Chapter 6 of the Act would have allowed two inter-conditional takeovers on the grounds that at least some of those defeating conditions were within the control of the bidder. For instance, the imposition of a condition in a takeover offer by M10A for M10L would not be able to be subject to a condition requiring M10A to put certain resolutions to its shareholders.

1. Under s 629 of the Act, a “self-defeating” condition proposed by the bidder under a takeover offer is void. In addition to the legitimate reasons for structuring the transaction as two inter-conditional schemes of arrangement, the two schemes of arrangement received very strong support from M10L's and M10A's respective shareholders which it is submitted by the plaintiffs should, in any event, obviate any concern that the transaction restructure was so as to avoid the requirements of Chapter 6 of the Act. I accept those submissions.

OTHER ISSUES

1. M10L's issued share capital comprises 365 fully paid shares, falling within Classes “A” to “E” inclusive, “G” and “T”.  At the convening hearing, M10L indicated to the court that a record would be kept of how holders of the separate classes of shares had cast their ballots.

1. The affidavit of Graham Leonard Cummings of 17 March 2010, deposes that immediately following the meeting held on 12 March 2010, he received from Allan Nichols of registries, reports regarding the receipt of proxies from M10L shareholders in relation to each of the M10L share meetings and the M10L EGM.  These reports show how each shareholder directed his, her or its proxy at each meeting and contains a letter summarising the number of votes cast in person or by proxy at the polls conducted at each of the meetings.

1. Mr Cummings cross referenced the voting results shown in the proxy and voting summary with the M10L register and the combined shareholder list, so as to tally the voting results according to each class of shares in M10L.  By that process of cross referencing, he produced a spreadsheet which shows the voting results of the M10L share meeting and the M10L extraordinary general meeting according to share class.  That spreadsheet is Exhibit GLC7 to his affidavit.

1. That exhibit discloses that only in the case of the Class C shares were any votes cast against either the resolutions at the relevant extraordinary general meeting or the scheme.  In that case, out of almost 80 shareholders, three voted against.  Mr Crutchfield who appears for the plaintiffs has submitted to me and I accept that those results indicate that even if a separate meeting had been held for each class of shareholders, the schemes would have been approved in view of the small number of C Class members voting against the scheme.  No one else voted against the relevant resolutions in the other classes.

SECTION 411(11)

1. Under s 411(11) of the Act, it is a requirement that subject to s 411(12), a copy of the order approving a scheme be annexed to every copy of the relevant company's constitution issued after the order is made. Section 411(12) allows the court to exempt a body from compliance with this provision or to determine the period during which it should comply. Orders under s 411(12) are regularly made.[14] The plaintiffs contend that an exemption from compliance with s 411(11) is appropriate given that:

a)   upon implementation of the schemes, the plaintiffs will become wholly owned subsidiaries of Metcash, through it's subsidiary Metcash Trading; and

b)     current shareholders are fully informed about the schemes.  Further, once the schemes become binding, the M10A and M10L registers will be closed such that (except as provided by the schemes) new shareholders will not be entered into the registers of members; and

c)   the order approving the scheme would effect no alteration to the constitution of the plaintiff or to the rights of shareholders, creditors or other persons dealing with the company.[15]

[14]See eg, Re Equinox Resources Limited (2004) 49 ACSR 692; Re Rocksoft Ltd [2006] FCA 1098, Re Hostworks Group Ltd (No 2) [2008] FCA 248 and Re Equigold NL (No 3) [2008] FCA 894.

[15]         Re Hostworks Group Ltd (No 2) [2008] FCA 248, [36] and [37]; Re Lion Selection Ltd [2009] VSC 546.

I accept those submissions.

APPROVAL OF THE SCHEMES – EXERCISE OF DISCRETION

1. It is submitted by the plaintiffs that the court should exercise its discretion and approve each of the schemes for the following reasons -

a)   the terms of the schemes, as set out in the Scheme Booklet;

b)     the unanimous recommendations of the boards of directors of each of the plaintiffs (as set out on p 6 of the Scheme Booklet);

c)   the independent expert is of the opinion that the schemes are in the best interest of shareholders;

d)     The Scheme Booklet fully discloses the potential advantages and disadvantages of the Scheme;

e)   97.72 per cent of the shareholders present and voting at the M10A scheme meeting, in person or by proxy, holding 98.18 per cent of the M10A shares voted at the meeting, voting in favour of the resolution to approve the scheme;

f)   99 per cent of the shareholders present and voting at the M10L scheme meeting, in person or by proxy, holding 98.87 per cent of the M10L shares, voted at the meeting and voted in favour of the resolution to approve the scheme;

g)     ASIC has not raised any objection to the scheme; and

h)     no shareholder raised any objection to the scheme.

1. The plaintiffs submit that I should be satisfied that the majority of the shareholders are acting bona fide and the scheme is at least so far fair and reasonable as that an intelligent and honest person, who is a member of a relevant class of shareholders, and acting alone in respect of her or his interests as such a shareholder, might approve it, citing once again the well established principles set out in Re Alabama, New Orleans, Texas and Pacific Junction Railway Company.[16]  I accept those submissions and I will make the orders sought.

   [16] [1891] 1 Ch 213.

1. I should place on record the court's appreciation for the excellent way in which this matter was prepared and presented by both counsel and solicitors.