FEDERAL COURT OF AUSTRALIA
Spicers Limited, in the matter of Spicers Limited (No 2) [2019] FCA 1110
File number(s): VID 388 of 2019 Judge(s): O'BRYAN J Date of judgment: 3 July 2019 Date of publication of reasons: 19 July 2019 Catchwords: CORPORATIONS – members’ scheme of arrangement – second court hearing – order sought under s 411(4)(b) of the Corporations Act 2001 (Cth) approving scheme of arrangement – whether conditions precedent to scheme have been satisfied or waived – whether scheme should be approved where condition precedent is waived – whether director who is to receive additional financial benefit if scheme is approved should make recommendation to members to vote in favour of scheme – whether full and fair disclosure given by directors – approval given Legislation: Corporations Act 2001 (Cth) ss 411(4)(b), 411(12) Cases cited: Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213
Re Central Pacific Minerals NL [2002] FCA 239
Re Gazal Corporation Limited [2019] FCA 701
Re Medical Australia Ltd (No 2) [2017] FCA 1429
Re Navitas Ltd; Ex parte Navitas Ltd(No 2) [2019] WASC 218
Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd [2019] WASC 189
Re Permanent Trustee Co Ltd (2002) 43 ACSR 601
Re Seven Network (No 3) (2010) 267 ALR 583; 77 ACSR 701
Re Signature Capital Investments Ltd (No 2) [2016] FCA 385
Re SMS Management and Technology Limited [2017] VSC 257
Re Solution 6 Holdings Ltd (2004) 50 ACSR 113
Re Spicers Limited [2019] FCA 731
Re Tatts Group Ltd (No 2) [2017] VSC 770
Re Toll Holdings Ltd (No 2) [2015] VSC 236
Date of hearing: 3 July 2019 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 47 Counsel for the Plaintiff: Mr C M Archibald QC Solicitor for the Plaintiff: Allens Counsel for the Other: Mr G Ahern Solicitor for the Other: Herbert Smith Freehills ORDERS
VID 388 of 2019 IN THE MATTER OF SPICERS LIMITED (ACN 005 146 350)
BETWEEN: SPICERS LIMITED (ACN 005 146 350)
Plaintiff
KOKUSAI PULP & PAPER CO LTD
Interested Person
JUDGE:
O'BRYAN J
DATE OF ORDER:
3 JULY 2019
OTHER MATTERS:
A.There has been produced to the Court a statement in writing by the Australian Securities and Investments Commission (ASIC) in accordance with s 411(17)(b) of the Corporations Act 2001 (Cth) (the Act) stating that ASIC has no objection to the scheme of arrangement referred to in this Order.
THE COURT ORDERS THAT:
1.Pursuant to s 411(4)(b) of the Act, the scheme of arrangement between the plaintiff and its members set out in Exhibit MGC-3 to the affidavit of Michael Gerard Clark affirmed on 16 May 2019 (the Scheme), be approved.
2.Pursuant to s 411(12) of the Act, the plaintiff be exempt from compliance with s 411(11) of the Act in relation to the Scheme.
3.Pursuant to Rule 39.34 of the Federal Court Rules 2011 (Cth), these…
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- AGLC
- Re Spicers Ltd (No 2) [2019] FCA 1110
- Case
- [2019] FCA 1110
- Decision Date
CaseChat Overview and Summary
The legal issues before the court included whether the conditions precedent to the scheme had been satisfied or waived, and whether the scheme should be approved despite the waiver of a condition precedent. The court also had to determine whether a director who was to receive additional financial benefit if the scheme was approved should make a recommendation to shareholders to vote in favour of the scheme. Additionally, the court had to consider whether full and fair disclosure had been made by the directors to the members. The court considered these issues in light of the relevant provisions of the Corporations Act 2001 (Cth) and relevant case law.
The court found that the conditions precedent to the scheme had been satisfied or waived, and that the scheme should be approved despite the waiver of a condition precedent. The court also held that a director who was to receive additional financial benefit if the scheme was approved should make a recommendation to shareholders to vote in favour of the scheme, and that full and fair disclosure had been made by the directors to the members. The court made these findings based on its consideration of the evidence presented and the relevant legal provisions.
The court approved the scheme of arrangement between Spicers Ltd and its members, exempting the company from compliance with certain provisions of the Corporations Act 2001 (Cth) in relation to the scheme. The court also directed that these orders be entered forthwith, in accordance with the Federal Court Rules 2011 (Cth).
Orders
Orders of the court
1. Pursuant to s 411(4)(b) of the Act, the scheme of arrangement between the plaintiff and its members set out in Exhibit MGC-3 to the affidavit of Michael Gerard Clark affirmed on 16 May 2019 (the Scheme), be approved.
2. Pursuant to s 411(12) of the Act, the plaintiff be exempt from compliance with s 411(11) of the Act in relation to the Scheme.
3. Pursuant to Rule 39.34 of the Federal Court Rules 2011 (Cth), 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
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
In conjunction with the Scheme, Spicers also sought shareholder approval of a return of capital under s 256C(1) of the Act. The amount of the capital return (Capital Return Consideration) was the sum of the following three amounts:(a)(Asian Operations Distribution) the net proceeds received by the Spicers Group in respect of the sale of its Asian operations in December 2018;(b)(Property Sale Proceeds) the net proceeds received from the sale of properties held by the Spicers Group in Tasmania and Singapore; and(c)(Excess Cash Distribution) a sum calculated as the Excess Net Cash Amount less the Net Working Capital Adjustment as at 30 June 2019 (provided that if the sum resulted in a negative number, the amount would be zero). Each of those components are discussed further below. If approved, the Capital Return Consideration would be paid to shareholders on the Implementation Date together with the Base Scheme Consideration. As at the date of convening the shareholder meeting, the amount of the Asian Operations Distribution was a known and fixed sum ($22.2 million). However, the amount of the Property Sale Proceeds was still to be finalised, including whether any amounts from the sale of the Singapore property was to be held in escrow by the purchaser. Under the Scheme Implementation Deed, Spicers and KPP agreed that any amount from the property sales that was received by Spicers after the Implementation Date would be held for the shareholders and distributed as Deferred Consideration under the Scheme. As at the date of the second hearing before me, all amounts in respect of the property sales had been received by Spicers which meant that there would be no amount of Deferred Consideration and the amount of the Property Sale Proceeds was also a known and fixed sum ($14.8 million). The third component of the Capital Return Consideration, the Excess Cash Distribution, had two integers: the Excess Net Cash Amount and the Net Working Capital Adjustment. The Excess Net Cash Amount was defined in the Scheme Implementation Deed as:(a)the aggregate of all cash and cash equivalents held by the Spicers Group on hand or credited to an account with a bank or other financial institution as recorded in the reconciled general ledgers of the Spicers Group; less(b)the amount of external financial debt of the Spicers Group; less(c)Spicers’ unpaid transaction costs for the transaction, including payments to the directors of Spicers; less(d)an amount equal to any amounts paid by Spicers for directors’ and officers’ run-off insurance cover; less(e)an amount equal to the outstanding liability for the Spicers Group for Victorian and Tasmanian workers’ compensation self-insurance commitments for claims incurred to 31 May 2019, with the liability measured based on an independent actuarial report dated on or about 30 June 2019. The Net Working Capital Adjustment was defined in the Scheme Implementation Deed as an amount (if any) of cash and cash equivalents to be retained by Spicers to ensure that the Net Working Capital (the sum of receivables and inventories less payables) of the Spicers Group that will be recorded in the reconciled general ledgers of the Spicers Group as at 30 June 2019 (as estimated by the Spicers Board acting reasonably and in good faith) would be at least $60.2 million.