Re Staging Connections Group Ltd

Case [2015] FCA 1012

FEDERAL COURT OF AUSTRALIA

Staging Connections Group Limited, in the matter of Staging Connections Group Limited [2015] FCA 1012

Citation: Staging Connections Group Limited, in the matter of Staging Connections Group Limited [2015] FCA 1012
Parties: STAGING CONNECTIONS GROUP LIMITED ACN 083 269 701
File number: NSD 898 of 2015
Judge: GLEESON J
Date of judgment: 14 September 2015
Catchwords: CORPORATIONS – scheme of arrangement – proposed classes for voting purposes – deal protection clauses – execution of deed poll – electronic notification of shareholders – content of explanatory statement – Corporations Act 2001 (Cth), s 411
Legislation: Corporations Act 2001 (Cth), ss 411, 249J(3)
Federal Court (Corporations) Rules 2000 (Cth), r 3.2
Cases cited: Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341
Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485
Biosceptre International Ltd, in the matter of Biosceptre International Ltd [2013] FCA 1429
Central Pacific Minerals v NL [2002] FCA 239
David Jones Ltd, in the matter of David Jones Ltd [2014] FCA 530
Durban Roodepoort Deep Ltd v Newshore Nominees Pty Ltd [2005] WASCA 231
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452
FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Ply Ltd (1977) 3 ACLR 69
ReAlinta Ltd (No 2) [2007] FCA 1378
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re Archaean Gold NL (1997) 23 ACSR 143
Re Consolidated Media Holdings Ltd [2012] FCA 1186
Re Crusader Ltd [1996] 1 Qd R 117; (1995) 120 FLR 219
Re Hastings Deering Pty Ltd (1985) 9 ACLR 755
Re Hills Motorway Ltd [2002] NSWSC 897; (2002) 43 ACSR 101
Re Marengo Mining Ltd (No 2) [2012] FCA 1498
Re Nine Entertainment Group Limited (No 1) [2012] FCA 1464; (2012) 211 FCR 439
Re NRMA Insurance Ltd(No 1) [2000] NSWSC 82; (2000) 156 FLR 349
Re Orion Telecommunications Ltd [2007] FCA 1389
Re Permanent Trustee Company Limited [2002] NSWSC 1177; (2002) 43 ACSR 601
Simavita Holdings Ltd, in the matter of Simavita Holdings Ltd [2013] FCA 1274
Sovereign Life Assurance Co v Dodd [1892] 2 QB 573
Date of hearing: 17 August 2015
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 65
Counsel for the Plaintiff: Mr M Oakes SC
Solicitor for the Plaintiff: Thomson Geer
Counsel for the Third Party: Mr RM Foreman

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 898 of 2015
STAGING CONNECTIONS GROUP LIMITED ACN 083 269 701
Plaintiff

JUDGE:

GLEESON J

DATE OF ORDER:

17 AUGUST 2015

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The Plaintiff convene a meeting of the holders of its fully paid ordinary shares (other than Equity Management Unit Holdings Pty Ltd ABN 48 142 746 281 (EMUH)) (Scheme Meeting 1) for the purposes of considering, and if thought fit, approving (with or without modifications) the proposed…

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Re Staging Connections Group Ltd [2015] FCA 1012
Case
[2015] FCA 1012
Decision Date

CaseChat Overview and Summary

The decision in Re Staging Connections Group Ltd concerns a proposed scheme of arrangement for the acquisition of Staging Connections Group Limited (STG), an unlisted public company, by Freeman Audio Visual, Inc. (FAV). The Federal Court was required to decide whether the scheme met the jurisdictional requirements of the Corporations Act 2001 (Cth) (Act). The court had to determine whether the scheme booklet provided proper disclosure to members, if the scheme was bona fide and properly proposed, and whether other procedural requirements had been met.

The court found that STG was a Part 5.1 body and that the scheme was an “arrangement” within the meaning of the Act. The scheme booklet was considered to provide proper disclosure to members, as it contained all information that shareholders and their professional advisors would reasonably require to make an informed assessment of the scheme and the transaction. The scheme was deemed bona fide and properly proposed, as STG had committed itself to propounding the scheme by entering into the scheme implementation agreement. The court also found that the Australian Securities and Investments Commission (ASIC) had had a reasonable opportunity to examine the proposed scheme and explanatory statement, and to make submissions.

The court granted the orders sought by STG, including convening meetings of the shareholders to consider the proposed scheme, approving the scheme booklet and proxy forms, and exempting STG from the requirement to publish a notice of the hearing of the application. The scheme meetings were scheduled for 24 September 2015, with the time for determining eligibility to vote fixed at 10:00am (Sydney time) on 22 September 2015. The court also directed that notice of the hearing of the application be published once in The Australian newspaper.

In summary, the Federal Court found that the proposed scheme of arrangement for the acquisition of STG by FAV met the jurisdictional requirements of the Act and granted the orders sought by STG. The scheme meetings were scheduled for 24 September 2015, and the court directed that notice of the hearing of the application be published once in The Australian newspaper.

Orders

Orders of the court

1. The Plaintiff convene a meeting of the holders of its fully paid ordinary shares (other than Equity Management Unit Holdings Pty Ltd ABN 48 142 746 281 (EMUH)) (Scheme Meeting 1) for the purposes of considering, and if thought fit, approving (with or without modifications) the proposed scheme of arrangement to be made between the Plaintiff and its members (Scheme) substantially in the form of that contained in Annexure C to the explanatory statement in relation to the Scheme (Scheme Booklet), which is Exhibit 1 in the proceeding.

2. The Plaintiff convene a meeting of EMUH (Scheme Meeting 2) for the purposes of considering, and if thought fit, approving (with or without modifications) the Scheme.

3. Scheme Meeting 1 be held on Thursday, 24 September 2015 at 68-72 Lilyfield Road, Rozelle in the State of New South Wales commencing at 10:00am (Sydney time).

4. Scheme Meeting 2 be held on Thursday, 24 September 2015 at 68-72 Lilyfield Road, Rozelle in the State of New South Wales commencing at 10:30am (Sydney time) or as soon thereafter as Scheme Meeting 1 is concluded or has adjourned.

5. The time for determining eligibility to vote at Scheme Meeting 1 be fixed at 10:00am (Sydney time) on Tuesday, 22 September 2015.

6. The time for determining eligibility to vote at Scheme Meeting 2 be fixed at 10:30am (Sydney time) on Tuesday, 22 September 2015.

7. Mr Gregory James Robertson, or failing him, Mr John William Murphy, be chair of Scheme Meeting 1.

8. Mr Gregory James Robertson, or failing him, Mr John William Murphy, be chair of Scheme Meeting 2.

9. The chair of Scheme Meeting 1 report the result of the Scheme Meeting to the Court.

10. The chair of Scheme Meeting 2 report the result of the Scheme Meeting to the Court.

11. Except for procedural motions, all voting at Scheme Meeting 1 and Scheme Meeting 2 be by poll as declared by the chair.

12. The chair appointed to Scheme Meeting 1 has the power to adjourn the Scheme Meeting in his absolute discretion.

13. The chair appointed to Scheme Meeting 2 has the power to adjourn the Scheme Meeting in his absolute discretion.

14. Regulations 5.6.12 and 5.6.14 to 5.6.36A of the Corporations Regulations 2001 (Cth) shall not apply to Scheme Meeting 1.

15. Regulations 5.6.12 and 5.6.14 to 5.6.36A of the Corporations Regulations 2001 (Cth) shall not apply to Scheme Meeting 2

16. The Scheme Booklet and the proxy forms substantially in the form, or to the effect, of the documents which are at Tab 7 of Exhibit ADC1 in the proceeding (Proxy Forms) are approved for distribution to the shareholders of the Plaintiff.

17. On or before 24 August 2015 there be dispatched to:

(a) each shareholder of the Plaintiff who has nominated an electronic address for the purposes of receiving notices of meeting from the Plaintiff, at such address, an email substantially in the form of the document which is Tab 17 of Exhibit ADC1 in the proceeding, including electronic hyperlinks to download the Scheme Booklet and to the webpage where that shareholder can electronically lodge proxies for the general meeting to which that shareholder is entitled to attend; and

(b) each other shareholder of the Plaintiff, by hand at, or prepaid post or courier to, the address of that shareholder as set out in the register of members of the Plaintiff, a copy of the Scheme Booklet and the Proxy Form for the general meeting to which that shareholder is entitled to attend.

18. Notice of the hearing of the application pursuant to subsection 411(4)(b) of the Corporations Act 2001 (Cth) for orders approving the proposed scheme be published once in The Australian newspaper, by advertisement substantially in the form of annexure 'A' to these orders, such advertisement to be published on or before Friday 25 September 2015 and the Plaintiff otherwise be exempted for compliance with the requirement to publish a notice of the hearing of the application pursuant to rule 3.4 of the Federal Court (Corporations) Rules 2000 (Cth).

19. The Originating Process filed on 30 July 2015 is adjourned to 10.15 am on Thursday, 1 October 2015.

20. Liberty to apply on 2 days' notice.

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

Background

Background to the litigation

On 17 August 2015, I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (“Act”) after a first hearing in relation to a proposed scheme of arrangement. These are my reasons for making those orders.BACKGROUND Staging Connections Group Limited (“STG”) is an unlisted public company. The company is an Australian-based venue services and exhibition business and an integrated event services provider. As at 12 August 2015, STG had on issue a total of:(a)98,872,781 fully paid ordinary shares;(b)12,313,606 E Class shares; and(c)a warrant to subscribe for up to 55,084, 5000 new fully paid ordinary shares. As at 12 August 2015, STG had 506 ordinary shareholders, of which 142 had elected to receive electronic notifications.Scheme implementation agreement On 17 July 2015, STG entered into a scheme implementation agreement (“scheme implementation agreement”) with Freeman Audio Visual, Inc. (“FAV”), a Texas corporation, under which STG and FAV agreed (among other things) to FAV acquiring 100% of the share capital of STG. Under the agreement, STG agreed to propose a scheme of arrangement to effect the transaction. Subsequently, STG received an unsolicited “conditional approach” from PSAV Holdings LLC (“PSAV”). FAV was notified of PSAV’s approach. On 10 August 2015, STG and FAV entered into a deed of variation of the scheme implementation agreement under which the agreement was varied to increase the total purchase consideration payable by FAV, to replace the timetable in the agreement and to make other variations. On 14 August 2015, that is, the last business day before the first hearing, STG received a further unsolicited “conditional approach” from PSAV which proposed a higher consideration than the consideration payable by FAV. The directors of STG met to consider the 14 August PSAV offer and decided to proceed with implementation of FAV’s proposal.Proposed scheme The proposal is that:(1)shareholders will transfer their shares to FAV;(2)FAV will advance funds to retire certain debt and other obligations of STG;(3)shareholders of STG apart from Equity Management Unit Holdings Pty Ltd (“EMUH”) will receive a base figure of A$0.09280 cash per share with a possible uplift to A$0.09852 per share depending on the funds (if any) available in the bank accounts in the name of each member of the STG Group as at 9:00am on the day which is three business days prior to the implementation date; (4)payment of the scheme consideration is secured by a deed poll executed by FAV; and(5)the scheme will effect the acquisition of STG by FAV and will result in STG becoming a subsidiary of FAV. FAV is not a party to the scheme, so is bound by a deed poll in favour of each scheme participant. The deed poll enables scheme participants to enforce directly the obligation to provide the scheme consideration. Clause 4.3 of the scheme provides for the transfer of the scheme shares after provision of the scheme consideration under clause 4.1. Thus, the scheme consideration must be provided before the transfer of the scheme shares occurs, satisfying concerns that might otherwise exist about performance risk.

Evidence

Evidence Before The Court

Two scheme meetings are proposed:(a)A meeting of all shareholders of STG other than EMUH (“non-EMUH shareholders”); and (b)A meeting of EMUH alone. EMUH is in a separate class because it is treated differently under the scheme. EMUH is a bank-owned entity and supports the scheme proposal.EVIDENCE The plaintiff read the following affidavits in support of the application:(1)Affidavit of Johan Christopher Pietersz sworn 30 July 2015;(2)Affidavit of Antony Douglas Chamberlain sworn 12 August 2015;(3)Affidavit of Gregory James Robertson sworn 10 August 2015;(4)Affidavit of John William Murphy sworn 10 August 2015;(5)Affidavit of David John McCourt affirmed 11 August 2015;(6)Affidavit of Johan Christopher Pietersz sworn 12 August 2015;(7)Affidavit of George Angas Hodson affirmed 12 August 2015;(8)Affidavit of Dawnn Repp sworn 11 August 2015;(9)Affidavit of Jonathan Newton sworn 12 August 2015; and(10)Two affidavits of Helen Hui Jin affirmed 14 August 2015. In addition, the plaintiff tendered the following documents:(1)A copy of the draft explanatory statement to be sent to the scheme members (“scheme booklet”);(2)A copy of the resolution of the STG board of directors on 14 August 2015;(3)Four pages identifying the words incorporated into the scheme booklet to address the PSAV offer on 14 August 2015;(4)A letter from PSAV to STG dated 13 August 2015 ;(5)An exhibit to the affidavit of Antony Douglas Chamberlain sworn 12 August 2015;(6)An exhibit to the affidavit of David John McCourt affirmed 11 August 2015; and(7)An exhibit to the affidavit of Jonathan Newtown sworn 12 August 2015.RECOMMENDATIONSDirectors The directors of STG (“directors”) have unanimously recommended that, in the absence of a superior proposal, shareholders vote in favour of the scheme at the proposed scheme meetings.Independent experts BDO Corporate Finance (East Coast) Pty Ltd (“BDO”), the independent expert appointed by the directors to assess the scheme, has concluded that, in the absence of a superior proposal, the scheme is fair, reasonable and in the best interests of STG’s non-EMUH shareholders. In expressing this conclusion, BDO proceeded on the basis that the proposed transaction will be fair to non-EMUH shareholders if the consideration is equal to or greater than the value of the securities the subject of the offer, being the fair market value of an STG share pre-transaction on a control basis. BDO assesses that fair market value at nil because the net debt held by STG exceeds BDO’s derived enterprise value.RELEVANT LEGAL FRAMEWORKJurisdictional requirements There are three stages to an application under s 411. First, the Court approves the convening of a scheme meeting and approves the scheme booklet. Secondly, members vote on the proposed scheme at the scheme meeting. Thirdly, the Court approves the proposed scheme: Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [7] per Keane CJ and Jacobson J; Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 at [8] (“Amcom Telecommunications”); Central Pacific Minerals v NL [2002] FCA 239 at [6] per Emmett J.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

The Chairman’s letter in the draft scheme booklet initially submitted at the hearing was amended to include additional information concerning the 14 August 2015 PSAV offer and the reasons why the directors had decided to proceed with the proposed scheme. CONSIDERATIONPart 5.1 body The evidence confirms that STG is a Part 5.1 body.Proposed scheme is an “arrangement” The text of the scheme (annexed to the scheme booklet) provides prima face evidence that the proposed scheme is an “arrangement”. Scheme booklet will provide proper disclosure to members Mr Chamberlain, the managing director of STG, has given evidence of the due diligence and verification process undertaken for the scheme for the purposes of:(a)ensuring that the scheme booklet complies with all applicable legal requirements and contains all information that STG shareholders and their professional advisors would reasonable require to make an informed assessment of the scheme and the transaction; and(b)conducting an appropriate due diligence and verification process in relation to the scheme booklet. Mr Chamberlain has verified on oath that nothing material has been omitted from the scheme booklet and all of the statements of fact in the scheme booklet are true and correct, save to the extent that they anticipate the making of certain court orders or the lodging of the explanatory statement for the scheme for registration with ASIC. On 11 August 2015, the directors of STG resolved that:(a)the version of the scheme booklet exhibited to the affidavit of Mr Chamberlain be approved;(b)the independent expert’s report completed by BOO Corporate Finance (East Coast) Pty Ltd as at 10 August 2015 be accepted and incorporated into the scheme booklet;(c)the directors of STG unanimously recommended that, in the absence of a superior proposal, STG shareholders vote in favour of the scheme;(d)the directors of STG unanimously believe that, for the reasons set out in section 6 of the scheme booklet, the scheme is in the best interests of STG’s shareholders;(e)all other statements and information/data included in the scheme booklet attributable to the directors of STG are approved. Statements in the scheme booklet concerning FAV are verified by Ms Repp. On the basis of this evidence, and taking into account the changes made to the Chairman’s letter, I am satisfied that there is prima facie evidence that the scheme booklet will provide proper disclosure to members.Scheme is bona fide and properly proposed STG has committed itself to propounding the scheme by entering into the scheme implementation agreement. I accept that this provides prima facie evidence that the scheme is bona fide and has been properly proposed.Notice to ASIC There is evidence that ASIC has had a reasonable opportunity to examine the proposed scheme and explanatory statement, and to make submissions and it has had 14 days’ notice of the proposed hearing date of the first court hearing.Other procedural requirements have been met