Re Ruralco Holdings Ltd

Case [2019] FCA 878

FEDERAL COURT OF AUSTRALIA

Ruralco Holdings Limited, in the matter of Ruralco Holdings Limited [2019] FCA 878

File number(s): NSD 780 of 2019
Judge(s): FARRELL J
Date of judgment: 5 June 2019
Date of publication of reasons 11 June 2019
Catchwords: CORPORATIONS – members’ scheme of arrangement – application under ss 411 and 1319 of the Corporations Act 2001 (Cth) for orders convening a meeting of members to consider a proposed scheme – where directors unanimously recommend that members vote in favour of the scheme – where, if scheme is implemented, the managing director/CEO will be entitled to a maximum cash payment of up to $2,460,375 – whether payment is to be distinguished from a bonus – application granted
Legislation: Corporations Act 2001 (Cth) ss 411, 1319
Cases cited: Gazal Corporation Limited, in the matter of Gazal Corporation Limited [2019] FCA 701
Date of hearing: 5 June 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: 29
Counsel for the Plaintiff: Mr I Jackman SC
Solicitor for the Plaintiff Gilbert + Tobin Lawyers
Counsel for Nutrien Ltd. and Agrium Australia Pty Ltd: Mr D Sulan
Solicitor for Nutrien Ltd. and Agrium Australia Pty Ltd: Allens

ORDERS

NSD 780 of 2019

IN THE MATTER OF RURALCO HOLDINGS LIMITED
BETWEEN:

RURALCO HOLDINGS LIMITED (ACN 009 660 879)

Plaintiff

NUTRIEN LTD.

Interested Person

AGRIUM AUSTRALIA PTY LTD

Interested Person

JUDGE:

FARRELL J

DATE OF ORDER:

5 JUNE 2019

THE COURT ORDERS THAT:

1.Pursuant to s 411(1) of the Corporations Act 2001 (Cth):

(a)Ruralco Holdings Limited (ACN 009 660 879) (Ruralco) convene a meeting (scheme meeting) of holders of fully paid ordinary shares in Ruralco (Ruralco 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 contained in Attachment C of the scheme booklet, a copy of which is Exhibit 1 in the proceeding;

(b)The scheme meeting be held at the offices of Gilbert + Tobin at 10:00 am (Sydney time) on Wednesday, 17 July 2019 at Level 35, Tower Two – International Towers, 200 Barangaroo Avenue, Sydney NSW 2000; and

(c)The scheme booklet, substantially in the form of Exhibit 1, be sent to Ruralco Shareholders (which scheme booklet is hereby approved as the explanatory statement for the purposes of s 411(1) of the Corporations Act) in the following manner:

(i)in the case of those Ruralco shareholders who have elected to receive communications electronically, by way of email to their nominated email address;

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

(iii)in the case of those Ruralco shareholders who have not elected to receive communications electronically and whose postal address is…

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Re Ruralco Holdings Ltd [2019] FCA 878
Case
[2019] FCA 878
Decision Date

CaseChat Overview and Summary

The case of Re Ruralco Holdings Ltd involved an application for orders under sections 411 and 1319 of the Corporations Act 2001 (Cth) to convene a meeting of members of Ruralco to consider a proposed scheme of arrangement. The application was brought by Ruralco and the scheme, if approved, would result in a cash payment of up to $2,460,375 to the managing director/CEO, Travis Andrew Dillon. The issue before the court was whether the disclosure of Dillon's interest in securing approval of the scheme was adequate and not misleading. The court found that the disclosure in the scheme booklet was adequate and not misleading, as it provided information on Dillon's interest in the outcome of the scheme.

The court considered that the disclosure of Dillon's interest in the scheme was necessary to ensure that the shareholders were aware of the potential conflict of interest and could make an informed decision. The court also noted that the bare statement of the directors' recommendation in other communications with shareholders, such as in telephone canvassing, might be a circumstance which might lead a court at the second court hearing to decline to approve the scheme because the court could not be assured of the integrity of the outcome of the shareholder vote. The court concluded that it was for the members to decide whether to make a recommendation or decline to do so and explain why, and that it was for the Court to be satisfied that the disclosure in the scheme booklet was adequate and not misleading.

The court granted the orders sought by Ruralco, which included convening a meeting of members to consider the proposed scheme, determining the date, time, and place of the meeting, and approving the scheme booklet as the explanatory statement for the purposes of section 411 of the Corporations Act. The court also dispensed with the compliance with certain rules, except for rule 75-15(2) of the Insolvency Practice Rules (Corporations) 2016 (Cth). The proceedings were stood over to a later date for the hearing of any application to approve the scheme. The court's decision was based on the adequacy of the disclosure in the scheme booklet and the need to ensure that the members were aware of any potential conflicts of interest.

Orders

Orders of the court

1. Pursuant to s 411(1) of the Corporations Act 2001 (Cth):

(a) Ruralco Holdings Limited (ACN 009 660 879) (Ruralco) convene a meeting (scheme meeting) of holders of fully paid ordinary shares in Ruralco (Ruralco 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 contained in Attachment C of the scheme booklet, a copy of which is Exhibit 1 in the proceeding;

(b) The scheme meeting be held at the offices of Gilbert + Tobin at 10:00 am (Sydney time) on Wednesday, 17 July 2019 at Level 35, Tower Two – International Towers, 200 Barangaroo Avenue, Sydney NSW 2000; and

(c) The scheme booklet, substantially in the form of Exhibit 1, be sent to Ruralco Shareholders (which scheme booklet is hereby approved as the explanatory statement for the purposes of s 411(1) of the Corporations Act) in the following manner:

(i) in the case of those Ruralco shareholders who have elected to receive communications electronically, by way of email to their nominated email address;

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

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

2. Pursuant to s 1319 of the Corporations Act:

(a) Ruralco may determine that, for the purposes of the scheme meeting, all the shares in Ruralco be taken to be held by the person, persons or bodies corporate who held them as at 7:00 pm (Sydney time) on Monday, 15 July 2019, in accordance with the register held and maintained by Ruralco;

(b) Ruralco may determine that only the proxy forms in relation to the scheme meeting received by Ruralco by no later than 10:00 am (Sydney time) on Monday, 15 July 2019, are valid;

(c) The Chairperson of the scheme meeting be Richard Lee or in his absence, Trudy Vonhoff;

(d) The Chairperson of the scheme meeting shall have the power to adjourn the meeting in his (or her) absolute discretion to such time, date and place as he (or she) 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.

3. Subject to the requisite majorities of Ruralco shareholders voting in favour of the scheme at the scheme meeting, Ruralco 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.

4. Compliance with r 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) be dispensed with to the extent necessary, except for r 75-15(2) of the Insolvency Practice Rules (Corporations) 2016 (Cth).

5. The proceedings be stood over to 10:15 am on Monday, 22 July 2019 before Justice Farrell for the hearing of any application to approve the Scheme.

6. The plaintiff has liberty to apply.

7. These orders be entered forthwith.

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 creditors and members of Ruralco Holdings Limited (ACN 009 660 879) (Ruralco):

TAKE NOTICE that at 10:15 am on Monday, 22 July 2019, the Federal Court of Australia at Law Courts Building, Queens Square, Sydney, will hear an application by Ruralco seeking the approval of a scheme of arrangement between the above-named company and its members (the Scheme) as proposed by a resolution to be passed by the members of Ruralco at the meeting to be held on Wednesday, 17 July 2019.

If you wish to oppose the approval of the compromise or arrangement, you must file and serve on Ruralco 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 Ruralco is c/o Gilbert + Tobin, Level 35, Tower Two, International Towers Sydney, 200 Barangaroo Avenue, BARANGAROO NSW 2000 (Attention: Colleen Platford/Alice Pailthorpe).

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

It is certainly the case that it is an issue for Mr Dillon to decide whether to make a recommendation or decline to do so and explain why. It is for the Court to be satisfied that the disclosure in the scheme booklet is adequate and not misleading. Disclosure of Mr Dillon’s interest in securing approval of the scheme in the Chairman’s Letter and in every other place in the explanatory material in the scheme booklet where the directors’ unanimous recommendation is mentioned allows a shareholder to understand that there is an issue of what weight should be given to his recommendation. Save for the front cover of the scheme booklet, that is what has occurred in this case, and it is the reason why approval to dispatch of the scheme booklet was given. The bare statement of the directors’ recommendation (without reference to Mr Dillon’s interest) in other communications with shareholders, such as in telephone canvassing, might be a circumstance which might lead a Court at the second court hearing to decline to approve the scheme because the Court could not be assured of the integrity of the outcome of the shareholder vote. Such issues would be avoided if Mr Dillon had declined to make a recommendation on the basis of his interest in the outcome of the scheme which is both material and different from that of other shareholders.CONCLUSION For the foregoing reasons, the Court made the orders under ss 411(1) and 1319 of the Corporations Act sought by Ruralco.

Ratio Decidendi

Legal Principle Established

If the scheme is approved, each shareholder will receive total cash consideration comprising:(1)Scheme consideration of $4.40 per Ruralco share, less the amount of any fully franked special dividend of up to 90 cents per share declared and paid by Ruralco on or before the date on which the scheme is implemented (special dividend); and(2)The special dividend. On 14 May 2019, the board of Ruralco announced that it will pay an interim dividend of 10 cents per Ruralco share on 18 June 2019, and that dividend will not reduce the total cash consideration. The Court understands this to mean that the interim dividend will not be regarded as part of the special dividend. The total cash consideration of $4.40 per Ruralco share represents a 43.8% premium to the closing price of $3.06 per Ruralco share on 25 February 2019, being the last trading day before Ruralco entered into a trading halt and announced that it had entered into the scheme implementation deed with Nutrien. It also represents a premium of 44.4% to the 30-day value weighted average price (VWAP) of $3.05 per Ruralco share up to and including 25 February 2019 and a 44.6% premium to the 90-day VWAP of $3.04 per Ruralco share up to that date. This implies an equity value of $469 million and an enterprise value of $615 million.Ruralco’s capital structure and changes incident on the scheme Ruralco’s capital structure is as follows:(1)105,052,247 ordinary shares on issue;(2)1,301,611 performance rights granted or issued under a Long Term Incentive Plan (Ruralco Performance Rights);(3)165,130 share rights, granted or issued under Ruralco’s Employee Retention Plan or otherwise in connection with the retention of Ruralco’s employees (Ruralco Share Rights);(4)67,510 matched share rights, being rights to Ruralco shares awarded under Ruralco’s executive share matching plan (Ruralco Matched Share Rights). On the effective date of the scheme, holders of Ruralco Performance Rights, Ruralco Share Rights and Ruralco Matched Share Rights will be issued Ruralco shares such that the number of Ruralco shares on issue by the scheme record date will increase to 106,540,034 and there will no longer be any of those Rights on issue. The directors and their recommendation The directors of Ruralco are all described as non-executive independent directors other than Mr Dillon who is the Managing Director and Chief Executive Officer. The number of Ruralco shares in which they have a relevant interest are as follows:(1)Richard John Lee AM, Chairman, 83,334;(2)Elizabeth Mabel Johnstone, 51,860;(3)Andrew John MacPherson, 34,000;(4)Trudy Joy Vonhoff, 46,607; and(5)Travis Andrew Dillon, 111,854 of which 7,247 are shares held in the employee share trust that are allocated to Mr Dillon pursuant to his 7,247 Ruralco Matched Share Rights. The directors unanimously recommend that members vote in favour of the scheme in the absence of a superior proposal and each has stated his or her intention to vote their shares in favour of the scheme on the same basis.