Seven Network Limited (ACN 052 816 789), in the matter of Seven Network Limited (No 3) [2010] FCA 400
Citation:
Seven Network Limited (ACN 052 816 789), in the matter of Seven Network Limited (No 3) [2010] FCA 400
Parties:
SEVEN NETWORK LIMITED (ACN 052 816 789)
File number(s):
NSD 167 of 2010
Judge:
JACOBSON J
Date of judgment:
27 April 2010
Catchwords:
CORPORATIONS – scheme of arrangement – application for court approval – objections by shareholders – conduct of scheme meeting – enforceability of Deed Polls entered into for benefit of unrelated shareholders – evidence provided by ASIC - factors relevant to the exercise of the court’s discretion to approve a scheme meeting
Counsel for Australian Capital Equity Pty Limited and Others (with leave):
Mr N Young QC with Ms K Barrett
Solicitor for Australian Capital Equity Pty Limited and Others:
Clayton Utz
Counsel for ASIC (with leave):
Ms K Williams
Solicitor for ASIC:
ASIC Corporations Division, New South Wales Regional Office of ASIC
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 167 of 2010
IN THE MATTER OF SEVEN NETWORK LIMITED
SEVEN NETWORK LIMITED (ACN 052 816 789) Plaintiff
JUDGE:
JACOBSON J
DATE OF ORDER:
27 APRIL 2010
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.Pursuant to paragraph 411(4)(b) of the Corporations Act 2001 (Cth) (“the Act”):
(a) the scheme of arrangement proposed to be made between the Plaintiff and the holders of its fully paid ordinary shares (“Share Scheme”), a copy of which is annexed to the orders in the Court file and marked “A”; and
(b)…
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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AGLC
Re Seven Network Ltd (No 3) [2010] FCA 400
Case
[2010] FCA 400
Decision Date
CaseChat Overview and Summary
In the matter of Seven Network Limited, the court was asked to decide whether to approve a scheme of arrangement proposed by the company. The Australian Securities and Investments Commission (ASIC) did not oppose the scheme, but it did provide evidence concerning several issues that had been raised during the scheme process. These issues included the adequacy of the notice given to shareholders, the voting intentions of certain institutional shareholders, and allegations that those shareholders had been provided with additional information as an incentive to vote in favour of the scheme.
The court was required to decide whether the scheme should be approved, despite the fact that the requisite statutory majority had already approved it. The court noted that it was not bound to approve the scheme merely because of the majority vote, and that it could withhold approval if it believed that the scheme was not fair and reasonable to the shareholders. The court also considered the evidence provided by ASIC and the steps it had taken to monitor the scheme process.
The court found that there was no evidence to suggest that the unrelated shareholders or the TELYS3 holders had voted in bad faith or for an improper purpose. The court also found that the schemes did not contain features that would warrant overriding the will of the majority, and that there were no significant questions affecting the integrity of the process by which the shareholders were brought to the point of their resolution. The court noted that ASIC had issued a no-objection letter under section 411(17)(b) of the Act, and that it had gone beyond its usual procedure of simply providing a letter by filing affidavit evidence setting out some of its reasons for the issue of the no objection letter.
Based on the evidence before it, the court was satisfied that the scheme was fair and reasonable to the shareholders, and that it ought to exercise its discretion to approve the scheme. The court noted that the transaction had been the subject of considerable media scrutiny, and that the shareholders had chosen to vote in numbers in excess of the minimum statutory requirements to approve the schemes.
The court approved the scheme of arrangement proposed by Seven Network Limited, subject to certain conditions. The court also made orders for costs and the payment of expenses.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
It is well established in the authorities, to which I will refer later, that the court is not bound to approve the scheme merely because the requisite statutory majority has given its approval. Nevertheless, the circumstances in which the court will withhold its approval against the wishes of the majority of shareholders are somewhat limited. Before considering whether this is such a case I will refer to the evidence on the principal issues raised before me at the second court hearing. ASIC’S EVIDENCE The Australian Securities and Investments Commission (“ASIC”) did not oppose approval of the scheme. It appeared by counsel and provided a letter under section 411(17)(b) of the Act in the terms referred to in Regulatory Guide 60. ASIC also provided me with a lengthy affidavit of Ms Jane Eccleston setting out details of the steps taken by ASIC to monitor the scheme process from 16 March 2010 to 22 April 2010. The steps taken by ASIC included review of Australian Securities Exchange (“ASX”) announcements and media reports, review of information posted on a dedicated Seven website, reviewing a number of broker reports and maintaining advertising monitors to review advertisements concerning the schemes. ASIC also reviewed reports prepared by two proxy advisers, Risk Metrics (Australia) Pty Limited and CGI Glass Lewis, both of whom recommended voting against the Seven share scheme. Five principal issues were referred to in ASIC’s affidavit. The first was the ASX announcement of 12 April 2010 and the Deed Poll given by Australian Capital Equity Pty Limited (“ACE”) providing for the cancelling of 15 million shares in Seven Group Holdings Limited (“SGH”) in the event that WesTrac Holdings Pty Limited’s financial year 2011 forecast EBITDA is not achieved. I referred to this in my reasons for judgment given on 12 April 2010 when the matter was listed urgently before me (see Seven Network Limited, in the matter of Seven Network Limited (No 2) [2010] FCA 355). On that occasion ASIC drew attention to the fact that ACE’s shares in SGH are to be held by North Aston Pty Limited (“North Aston”). On 13 April 2010 ASIC reviewed a Deed Poll signed by North Aston and is satisfied that the Deed Poll addresses the issues raised by ASIC’s counsel, Ms Williams, in court on 12 April 2010. The issue of the period of notice adverted to on 12 April 2010 was not raised at the second court hearing; see [14] of my judgment of 12 April 2010. The second issue, referred to in the affidavit, also arose out of the ASX announcement of 12 April 2010. It concerned statements of voting intention made by Ausbil Dexia Pty Limited (“Ausbil Dexia”) and Perennial Value Management Limited (“Perennial Value”). ASIC sought and obtained from Seven’s solicitors and from Ausbil Dexia and Perennial Value confirmation that those two institutional shareholders had not received or been offered any collateral benefits to vote in favour of the scheme. The third issue was a claim made in a media report that Ausbil Dexia and Perennial Value had been provided with additional material information in a private briefing apparently as an incentive to vote in favour of the scheme. The information concerned the details of WesTrac’s forward order book.
Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
The same seems to me to apply in relation to ex parte applications. The obligations of full disclosure on counsel are well established. As I said in my first judgment, it is significant that CAMAC did not suggest any amendment to the existing procedures; see [58] of my first judgment.CONSIDERATION In light of the principles stated above, I am satisfied that I ought to exercise my discretion to approve the Seven scheme and the TELYS3 scheme. My reasons are as follows. First, there is nothing to suggest that the unrelated shareholders or the TELYS3 holders voted otherwise than in good faith, or that they cast their votes for an improper purpose. Second, the test of reasonableness stated in authorities dating back to the 19th century, and recently reiterated in Fowler v Lindholm, appear to be satisfied. The schemes do no contain features of the type found in cases where the court was prepared to override the will of the majority; see for example Re Direct Acceptance Corp Ltd (1987) 19 ATR 328. In Re Phosphate Resources Limited (2006) 56 ACSR 169 at [132], French J (as his Honour then was) refused to sanction a scheme which had been approved by shareholders because there were significant questions affecting the integrity of the process by which the shareholders were brought to the point of their resolution. No such questions have been raised in the present matter, nor on the basis of what has been brought to my attention, or from what I have seen in the evidence, can I be satisfied that such questions exist in the present case. Third, I have a statement from ASIC under section 411(17)(b) of the Act. ASIC’s Regulatory Guide 60 at RG 60.104 indicates that ASIC issues such a letter if an applicant satisfies it that: ·all material information has been disclosed;·the standard of disclosure meets the requirements of the relevant Corporations Regulations;·the standard of disclosure is equivalent to the standard that would be required by the disclosure obligations and principles in section 602 of the Act relating to takeover bids; and·there are no other reasons to oppose the scheme, e.g. public policy grounds. In this case ASIC has gone beyond its usual procedure of simply providing me with a letter because it has filed affidavit evidence which appears to set out some of its reasons for the issue of the no objection letter. I should also take into account the correspondence with ASIC which was engaged in prior to the first court hearing and to which I referred in my earlier judgment. The evidence in ASIC’s affidavit includes the material to which I referred above about the role of the independent directors. It is significant that ASIC issued its no-objection letter after receipt of that information. The question of whether there ought to be legislative reforms of the tenure of independent directors is not an issue which arises on this application. A further reason for reaching the view that there has been full disclosure is the fact that the transaction has been the subject of considerable media scrutiny. Ms Eccleston refers to the media attention in her affidavit. She also notes that particular attention was given to the recommendations of the proxy advisers to vote against the schemes. Notwithstanding those recommendations, the shareholders chose to vote in numbers in excess of the minimum statutory requirements to approve the schemes.