Re Tatts Group Ltd (No 2)
[2017] VSC 770
•20 December 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
REDCREST CORPORATIONS LIST
S ECI 2017 00157
| IN THE MATTER OF TATTS GROUP LIMITED (ACN: 108 686 040) | |
| TATTS GROUP LIMITED (ACN: 108 686 040) | Plaintiff |
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JUDGE: | Sifris J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13 December 2017 |
DATE OF JUDGMENT: | 20 December 2017 |
CASE MAY BE CITED AS: | In the matter of Tatts Group Limited (No 2) |
MEDIUM NEUTRAL CITATION: | [2017] VSC 770 |
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CORPORATIONS – Scheme of arrangement – Whether appropriate to approve Scheme – Amendment to the Scheme – Procedural irregularities – Adequacy of disclosure – Final disclosure in many cases less than 10 days before meeting – Low voter turnout – All conditions precedent fulfilled – Scheme approved – s 411 Corporations Act 2001 (Cth).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | P. D. Crutchfield QC with E. R. Tadros | Clayton Utz |
| For Tabcorp | A. C. Archibald QC with C. Archibald | Herbert Smith Freehills |
HIS HONOUR:
A Introduction
By originating process dated 7 July 2017 filed under the Supreme Court (Corporations) Rules 2013 (Vic) (Rules), the plaintiff (Tatts) sought orders for a meeting of its members (Shareholders) to be convened and held to consider and, if thought fit, to approve a proposed scheme of arrangement (Scheme) between Tatts and its shareholders (Scheme Meeting).[1]
[1]The orders were sought pursuant to s 411 of the Corporations Act 2001 (Cth) (Act).
The commercial purpose of the Scheme is to give effect to the merger of Tatts and Tabcorp Holdings Limited (Tabcorp) by the acquisition of all of the shares in Tatts by Tabcorp in exchange for shares in Tabcorp and cash.[2]
[2]Details of the Scheme are set out in the affidavit of Anne Elizabeth Tucker sworn 6 September 2017 (Second Tucker Affidavit) and in the Scheme Booklet at tab 3 of exhibit AET-7 to the fourth affidavit of Anne Elizabeth Tucker sworn 28 September 2017 (Fourth Tucker Affidavit).
On 8 September 2017, I ordered that Tatts convene and hold a Scheme Meeting on 18 October 2017 to consider and, if thought fit, approve the Scheme, and that the further hearing of the originating process be adjourned to Associate Justice Randall on 23 October 2017 and to me on 24 October 2017 (First Orders).[3]
[3]On 18 September 2017 I published reasons for my decision, [2017] VSC 552. In approving the Scheme I have also had regard to those reasons (Reasons).
On 28 September 2017, I ordered that the Scheme Meeting be adjourned to 30 November 2017, and that the further hearing of the originating process be adjourned to Associate Justice Gardiner on 4 December 2017 and me on 5 December 2017 (Second Orders). The adjournment, pursuant to s 1319 of the Act, was necessary because of outstanding competition issues.[4]
[4]I refer to paragraphs [20]-[22] of the Reasons.
On 28 November 2017, I ordered that the Scheme Meeting be further adjourned to 12 December 2017, and that the further hearing of the originating process be adjourned to Associate Justice Gardiner and me on 13 December 2017 (Third Orders). The adjournment was necessary because of outstanding competition issues. As referred to later in these reasons, these issues were resolved prior to the Scheme Meeting.
The Scheme Meeting was convened and held on 12 December 2017. At the Scheme Meeting:[5]
[5]Affidavit of Harry Boon affirmed 12 December 2017 (Boon Affidavit), [13].
(a) 15.98% of all Shareholders were present and voted (either in person or by proxy);[6]
[6]
(b) those Shareholders held approximately 58.44% of the total number of shares in Tatts on issue;[7]
(c) 95.55% of Shareholders, who were present and voting either in person or by proxy, voted in favour of the Scheme; and
(d) 98.64% of the votes cast, in person or by proxy, were in favour of the Scheme.
[7]Sakurai Affidavit, [39]. The Shareholders who attended the Scheme Meeting, either in person or by proxy, held 858,535,005 shares in Tatts as at 6.00 pm on 8 December 2017. As at that time, 1,468,980,764 shares in Tatts were on issue. Hence, the Shareholders who attended the Scheme Meeting held approximately 58.44% of the total number of shares in Tatts on issue.
On 13 December 2017 at 9.15 am (interim hearing), Associate Justice Gardiner made orders pursuant to r 16.6 of the Rules that the Scheme Meeting was duly convened and held in accordance with the First Orders, Second Orders and the Third Orders and that the Scheme resolution was duly passed, subject to certain minor irregularities.
Tatts now seeks an order pursuant to s 411(4)(b) of the Act that the Scheme, approved by the requisite majorities at the meeting of its members on 12 December 2017, be approved (subject to the words ‘and the removal of Tatts from the official list of ASX’ being struck out from clause 6(b) of the Scheme pursuant to s 411(6)). Tatts also seeks an order pursuant to s 411(12) that it be exempt from compliance with s 411(11). In the event of approval of the Scheme, Tatts further requests that the Court note that Tabcorp will rely upon such approval for the purposes of qualifying for an exemption from the U.S. Securities Act of 1933, (US Securities Act) in connection with the Scheme.
On 13 December 2017 I approved the Scheme substantially for the reasons advanced by Tatts[8] and orders were made accordingly. I indicated that reasons would follow. These are the reasons.
[8]I have relied on and accepted the helpful written submissions made by Tatts dated 12 December 2017. For convenience I have retained references to the relevant affidavit material.
B Summary of reasons for approval
In summary, the Scheme was approved and the orders were made for the following reasons:
(a) the conditions contained in the Act have been complied with;
(b) the proposed alteration to the Scheme is minor and technical and does not affect the details of the Scheme, nor does it cause any prejudice to the Shareholders;
(c) save for Court approval of the Scheme, all of the conditions precedent have either been satisfied or waived, and in particular there are no outstanding competition issues;
(d) Tatts has made adequate disclosure to the Shareholders;
(e) the Scheme was proposed in good faith, is fair and reasonable and is capable of being accepted;
(f) exemption from compliance with s 411(11) is appropriate because the Scheme will not alter the constitution of Tatts or the rights of shareholders, creditors or other persons dealing with the company;
(g) no class issue arises in this case with respect to certain shareholders who hold shares in both Tatts and Tabcorp or who are ineligible overseas shareholders as there is no difference in the rights they have against Tatts as compared with other Tatts Shareholders;
(h) no issue arises from the cash-settled equity swap arrangement between UBS Group AG (UBS) and a wholly-owned subsidiary of Tabcorp, as UBS abstained from voting at the Scheme Meeting in respect of the Tatts Shares it held;
(i) no issue arises due to low voter turnout at the Scheme Meeting;
(j) Tatts’ request that the Court note in the orders made that its approval will be relied upon by Tabcorp to claim an exemption from the US Securities Act, is relatively common practice in schemes of arrangement;
(k) there was no opposition to approval of the Scheme from any relevant party including ASIC and the ACCC; and
(l) ASIC providing the ‘no objection’ letter for the purposes of s 411(17)(b) of the Act.
C Amendment to the scheme
Clause 6(b) of the Scheme currently provides that (emphasis added):
(b)Tatts must apply to ASX for termination of official quotation of the Tatts Shares on ASX and the removal of Tatts from the official list of ASX with effect from the Business Day immediately following the Implementation Date.
The Court was advised that it would not be technically possible for Tatts to be removed from the official list of ASX upon implementation of the Scheme, as Tatts Bonds will continue to be listed following implementation.[9] The continued listing of Tatts Bonds was however addressed in the Scheme Booklet. An amendment to the Scheme is therefore necessary to ensure that the Scheme is consistent with the Scheme Booklet and can be implemented in accordance with its terms.[10]
[9]Sixth Tucker Affidavit, [11].
[10]Sixth Tucker Affidavit, [11].
On 5 December 2017, Tatts announced to the ASX that, inter alia (emphasis added):[11]
As described in sections 9.10, 12.3(d), 12.4(b) and 13.4(e) of the Scheme Booklet dated 8 September 2017, Tatts Bonds (ASX Code: TTSHA) are expected to remain quoted on ASX following Implementation of the Scheme, subject to receiving Court approval to amend paragraph 6(b) of the Scheme and ASX approval to permit the Tatts Bonds to remain quoted on ASX.
[11]Tab 8 to Exhibit AET-9 of the Sixth Tucker Affidavit.
Accordingly, Tatts seeks an order approving a form of the Scheme with the words ‘and the removal of Tatts from the official list of ASX’ deleted from clause 6(b).
The Tatts Chairman notified Shareholders who attended the Scheme Meeting of Tatts’ intention to seek such an order at the Scheme Meeting.[12]
[12]Boon Affidavit, [8].
The Court has power under section 411(6) of the Act to approve a scheme of arrangement ‘subject to such alterations or conditions as it thinks just’.[13]
[13]In Snowside Pty Ltd (as trustee for the Snowside Trust) v Boart Longyear Ltd [2017] NSWCA 215, the New South Wales Court of Appeal held that the power conferred by s 411(6) is broad and empowers the court to approve a scheme which is different from that which was approved by the members or creditors, even where the alteration is ‘material’ or ‘substantial’: See [22] - [26].
In my opinion, the Court ought, for the reasons submitted, exercise its discretion to make the proposed alteration because:[14]
[14]The following authorities were referred to and support the general proposition advanced. Damian and Rich’s Schemes, Takeovers and Himalayan Peaks (2013), at pages 173 to 174; See Re Independent Practitioner Network Ltd (No 2) [2008] FCA 1593 [16]-[17], [21] (per Lindgren J); Re Australian Co-operative Foods Ltd [2008] NSWSC 1221, [48], [50] (per Barrett J); Re Permanent Trustee Co Ltd (2002) 42 ACSR 601, [21]-[22] (per Barrett J); Re Boart Longyear Limited (No 2) (2017) 323 FLR 241, [92]-[95], [108] (per Black J), affirmed in Snowside Pty Ltd (as trustee for the Snowside Trust) v Boart Longyear Ltd [2017] NSWCA 215; Re Marengo Mining Ltd (No 2) [2012] FCA 1498, [26] (Barker J).
(a) it is not appropriate for the words in clause 6(b) to remain in the Scheme given that it will not be technically correct to say that Tatts has been removed from the official list of ASX because Tatts Bonds will continue to be listed following implementation of the Scheme;
(b) it is minor and technical in nature and does not affect the details of the Scheme;
(c) it will not prejudice or cause adverse effects to Shareholders;
(d) it will ensure that the Scheme is consistent with the Scheme Booklet;
(e) notice of Tatts’ intention to seek the amendment of the Scheme was given by way of an ASX announcement on 5 December 2017;
(f) the requisite majority of Shareholders voted to approve the Scheme, notwithstanding the proposed amendment;
(g) there was no opposition to the Scheme (as proposed to be amended or otherwise) at the court approval hearing; and
(h) given the above, I am satisfied that the requisite majorities of Shareholders would have still voted for the Scheme in the form which includes the proposed alteration.
D Conditions precedent
Scheme Conditions Precedent
Clause 2.1 of the Scheme, which is annexure C of the Scheme Booklet, lists the following conditions precedent upon which the Scheme is conditional:
(a) as at 8.00 am on 13 December 2017, each of the conditions set out in clause 3.1 of the merger implementation deed (MID)[15] (other than the condition relating to the approval of the Scheme by the Court) have been satisfied or waived in accordance with the terms of the MID;
[15]Being the merger implementation deed dated 18 October 2016; see exhibit AET-4 to the Second Tucker Affidavit.
(b) as at 8.00 am on 13 December 2017, neither the MID nor the deed poll[16] have been terminated;
[16]See exhibit SBH-1 to the affidavit of Sean Bernard Hughes sworn 8 September 2017.
(c) the Court approves the Scheme under s 411(4)(b) with or without modification acceptable to Tabcorp and Tatts (each acting reasonably);
(d) such other conditions made or required by the Court under s 411(6) in relation to the Scheme as are acceptable to Tabcorp and Tatts (each acting reasonably) have been satisfied or waived; and
(e) pursuant to s 411(10), the coming into effect of the orders of the Court made under s 411(4)(b) (and if applicable, section 411(6)) in relation to the Scheme, before 31 December 2017.
Clause 2.2 of the Scheme requires both Tatts and Tabcorp to provide to the Court a certificate confirming whether or not as at 8.00 am on 13 December 2017 the conditions in clause 3.1 of the MID, other than the condition concerning approval of the Scheme by the Court, have been satisfied or waived. The certificates of Tatts and Tabcorp were provided on 13 December 2017.
As a result of the waiver of the competition condition, as referred to below, and Shareholder approval, all other conditions to the Scheme, apart from approval of the Scheme by the Court, have been satisfied following provision to the court of the conditions precedent certificates as referred to above.
Status of competition condition[17]
[17]The relevant background is set out in paragraphs [19]-[28] of the Reasons.
Under clause 3.1(a) of the MID, the Scheme is subject to a condition precent relating to competition approval that will be satisfied by the authorisations granted to Tabcorp provided no application for judicial review is made within the prescribed period (competition condition).
On 22 November 2017, the Australian Competition Tribunal granted authorisations to Tabcorp pursuant to sections 95AT and 95AZJ of the Competition and Consumer Act 2010 (Cth) to acquire all Tatts shares, on the basis that the transaction would result, or be likely to result, in such a benefit to the public that it should be allowed to occur.[18] The authorisations are conditional on Tabcorp divesting its Odyssey Gaming Business (which has been agreed, conditional on the Scheme proceeding).[19]
[18]Fifth Tucker Affidavit, [14] and tab 5 to exhibit AET-8.
[19]Ibid.
The last date for a party to lodge an application for judicial review in respect of the authorisations granted by the Tribunal is 20 December 2017.
On 30 November 2017, Tabcorp announced that it had entered into agreements with CrownBet Pty Ltd (CrownBet) pursuant to which CrownBet agreed that it would not seek judicial review of the authorisations.[20]
[20]Sixth Tucker Affidavit, [7] and tab 2 of Exhibit AET-9.
On 1 December 2017:[21]
(a) the Australian Competition and Consumer Commission (ACCC) announced that it had decided that it did not intend to seek judicial review of the authorisations; and
(b) as a result of the ACCC’s decision, Tatts and Tabcorp agreed to waive the competition condition by letter dated 1 December 2017.
[21]Sixth Tucker Affidavit, [8] and tabs 3 and 4 of exhibit AET-9.
Tatts informed Shareholders of waiver of this condition by:[22]
[22]Tatts submitted that in any event it was not required to seek court approval to inform shareholders of this waiver, given it was foreshadowed that it may waive the competition condition in the Supplementary Booklet approved for dispatch by this Court on 28 November 2017. As disclosed in the Supplementary Booklet, the Independent Expert remains of the view that Scheme is in the best interests of Tatts Shareholders, in the absence of a superior proposal, notwithstanding the information contained therein, including the risks of proceeding with the Scheme while the judicial review period is extant.
(a) announcing it on the ASX on 1 December 2017;[23]
(b) sending a letter dated 4 December 2017 (ACCC Confirmation Letter) to Shareholders by mail or email on 4 December 2017;[24] and
(c) publishing notice of the waiver in The Australian and The Courier Mail newspapers on 5 and 11 December 2017.[25]
[23]See also Tabcorp’s ASX announcement on 1 December 2017 regarding the same.
[24]See the Sixth Tucker Affidavit, [6(c)]; second affidavit of Rebecca Anne Teichmann affirmed 8 December 2017, [5]-[16] and second affidavit of Marie-Christine Sonia Guezennec sworn 8 December 2017, [7]-[21].
[25]Sixth Tucker Affidavit, [9]-[10].
E Tatts has made adequate disclosure to Shareholders
The explanatory memorandum substantially in the form of Annexure B to the First Orders which was dispatched to Shareholders on 18 September 2017 (Scheme Booklet) states that Tatts will apply to the Court for approval of the Scheme on 24 October 2017[26] and explains that Shareholders may oppose the approval of the Scheme on that day.[27] The letter from the Chairman of Tatts dated 28 September 2017 (First Adjournment Letter) states that the court date for approval of the Scheme is 5 December 2017.[28] The supplementary explanatory memorandum that was dispatched to Shareholders on 1 December 2017 (Supplementary Booklet) states that the court date for approval of the Scheme is 13 December 2017.[29]
[26]Scheme Booklet, pages 5 and 35.
[27]Scheme Booklet, page 6.
[28]Tab 1 to exhibit AET-8 to the Fifth affidavit of Anne Elizabeth Tucker sworn 28 November 2017 (Fifth Tucker Affidavit).
[29]Tab 1 of exhibit AET-9 to the Sixth affidavit of Anne Elizabeth Tucker sworn 7 December 2017 (Sixth Tucker Affidavit).
Tatts has made detailed and extensive disclosure to Shareholders, which was updated shortly before the Scheme Meeting by distribution of the Supplementary Booklet Package pursuant to the Third Orders. The disclosure has in my opinion been sufficiently and adequately verified.
As contemplated at the hearing before me on 28 November 2017, it is likely that some Shareholders received the Supplementary Booklet Package less than 10 days before the Scheme Meeting. In this regard the Court was provided with the estimated delivery dates. The Court was also provided with estimated delivery dates of the ACCC Confirmation Letter dispatched on 4 December 2017.
ASIC guidance in Regulatory Guide 60 (RG), at RG 60.93, states that it will generally be appropriate for shareholders (including those voting by proxy) to have at least 10 days to consider any supplementary material before being required to vote on a scheme. However, Tatts again submitted that it was appropriate in the circumstances of this case for Shareholders to have had less than 10 days, for the reasons set out in paragraphs 17 to 22 of its submissions dated 28 November 2017, which I accepted in making the Third Orders.
Further, in its letter dated 28 November 2017, ASIC said:
In relation to the proposed arrangements and timing for the distribution and dispatch of the supplementary explanatory statement to the Company’s members, as set out in Mr Morrissy’s email dated 27 November 2017, ASIC generally expects shareholders to be given at least 10 days to consider supplementary disclosure for a proposed scheme of arrangement. However, having regard to the circumstances of the proposed Scheme, in particular the End Date for the Scheme and the Company’s Annual General Meeting to be held on 12 December 2017, ASIC does not on balance have any objections to the proposed arrangements and the timing for the distribution and dispatch of the supplementary scheme booklet to the Company’s members.
Accordingly, notwithstanding the most recent update being sent shortly before the Scheme Meeting, Tatts has in my opinion made adequate and in the circumstances, timely disclosure to its Shareholders.
F Approval of the Scheme under s 411(4)(b)
Purpose of the Scheme is not to avoid Chapter 6 of the Act
If the Court is satisfied that the Scheme has been approved by the requisite statutory majorities at the Scheme Meeting, the Court’s discretion to approve the Scheme is, it was submitted, not confined by the statute, except to the extent that it may be limited by s 411(17) of the Act.
Pursuant to s 411(17), the Court must not approve the Scheme unless:[30]
(a) it is satisfied that it has not been proposed for the purpose of avoiding Chapter 6 of the Act; or
(b) a written statement is provided to the Court by ASIC that it has no objection to the arrangement.
[30]For a history of s 411(17), see Re Coles Group Ltd (No 2) (2007) 215 FLR 411 (Coles (No 2)) at [19]-[24] (per Robson J).
On 13 December 2017 a ‘no objection’ statement was provided by ASIC. That statement satisfies the requirement of s 411(17)(b) and consequently the bar under s 411(17) to approval of the Scheme is, it was submitted, removed.[31]
[31]Coles (No 2), [68] (per Robson J).
A ‘no objection statement’ generally carries with it:[32]
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 under 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.
[32]Ibid, [75], see also [46].
Accordingly, in my opinion, there is no need for the Court to further consider s 411(17)(a), particularly where no issue has been raised concerning Chapter 6 of the Act.[33]
Role of the Court
[33]Reference was also made to Re Toll Holdings Limited (No 2) [2015] VSC 236 (Toll (No 2)) at [15] (per Robson J), citing with approval discussion of s 411(17) in Coles (No 2).
In approving a scheme of arrangement, the role of the Court is supervisory in nature, requiring the Court to be satisfied that:
(a) all the conditions of the Act have been complied with;
(b) the Scheme was proposed in good faith;
(c) the Scheme was fair and reasonable such that an intelligent and honest person might approve it;[34] and
(d) there has been no oppression and the arrangement is one which is capable of being accepted.[35]
[34]Re Alabama, New Orleans, Texas Pacific Junction Railway Company (1891) 1 Ch 213, 257 (per Fry LJ), cited with approval in Coles (No 2) at [69] and Toll (No 2) at [9].
[35]Re NRMA Ltd (No 1) (2000) 156 FLR 412, 607 (per Santow J); Coles (No 2) at [8].
With respect to the first matter, I am satisfied that the two key conditions of the Act have been complied with, namely:
(a) the statutory majorities have been obtained as required by s 411(4)(b);[36] and
(b) s 411(17) does not preclude approval of the scheme (as addressed in paragraphs 33 and 37 above).
[36]See paragraph 6 above.
In addition:
(a) as required by s 412(6) of the Act, the Scheme Booklet referred to in paragraph 1(a) of the First Orders was registered with ASIC on 8 September 2017;[37]
(b) on 7 December 2017, a notice advertising this hearing substantially in the form of Annexure A to the First Orders was published in The Australian newspaper;[38] and
(c) the inquiry by Associate Justice Gardiner as required by r 16.6 of the Rules has occurred.
[37]Fourth Tucker Affidavit, [6]-[8]. Further, in accordance with order 14 of the First Orders, an office copy of the First Orders was lodged with ASIC by 15 September 2017: Fourth Tucker Affidavit, [6].
[38]Sixth Tucker Affidavit, [47]; First Orders, order 12.
With respect to the second, third and fourth matters set out at paragraph 38, I am satisfied that the Court should exercise its discretion to approve the Scheme for the following reasons:
(a) the overwhelming support of Shareholders as reflected in the voting results of the Scheme Meeting (95.55% of members voting and 98.64% votes cast);
(b) the opinion of the Grant Samuel & Associates Pty Limited (Independent Expert) that the Scheme is fair and reasonable and therefore in the best interests of Shareholders (see page 121 of the Scheme Booklet and page 9 of the Supplementary Booklet);
(c) the unanimous recommendation from directors of Tatts that Shareholders vote in favour of the Scheme (see page 14 of the Scheme Booklet and page 8 of the Supplementary Booklet);
(d) the premium offered for Tatts Shares as referred to at page 16 of the Scheme Booklet and page 6 of the Supplementary Booklet;
(e) the absence of any opposition to the Scheme by ASIC, the ACCC, or any Shareholder, and the position of ASIC in relation to s 411(17);
(f) the Scheme Booklet and Supplementary Booklet fully disclosed the potential benefits and disadvantages and risks of the Scheme;
(g) there is no evidence to suggest that the Shareholders voted other than in good faith; and
(h) there is no evidence to suggest that any Shareholder was oppressed.
G Procedural irregularities
Section 1322 of the Act provides that:
A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid.[39]
[39]A meeting to consider and vote upon a scheme of arrangement has been held to be a ‘proceeding under this Act’ for the purposes of s 1322: see Clough Limited, in the matter of Clough Limited (No 2) [2013] FCA 1346 at [10] and SGIC Insurance Limited v Insurance Australia Limited [2004] FCA 1638 at [15].
There are four minor matters that may be considered “procedural irregularities” for the purposes of s 1322 of the Act:[40]
[40]A deficiency of notice or time is a ‘procedural irregularity’: s 1322(1)(b)(ii) of the Act.
(a) the emails sent to those Shareholders who had nominated to receive communications from Tatts by email (Email Shareholders) on 18 September 2017, 5 October 2017 and 29 November 2017 failed to transmit to 249, 629 and 53 of those Shareholders respectively;[41]
[41]See First Orders, order 3, Second Orders, order 4 and Third Orders, order 7 and affidavit of Marie-Christine Sonia Guezennec sworn 6 December 2017 (Guezennec Affidavit), [33]-[35]; [56]-[57], [82].
(b) the First Adjournment Letter was sent by email to all Email Shareholders, even if their registered postal address was located outside of Australia;[42]
(c) the First Adjournment Letter was sent by priority post to Shareholders whose registered addresses was located within Australia (save for Email Shareholders), instead of ordinary post;[43] and
(d) the First Adjournment Letter was embedded within the emails rather than being sent by emailing a link to the investor vote website where Shareholders could access an electronic version of it.[44]
[42]See Second Orders, order 5 and affidavit of Rebecca Anne Teichmann affirmed 6 December 2017 (Teichmann Affidavit), [22]-[34].
[43]See Second Orders, order 5(c) and Teichmann affidavit, [31].
[44]See Second Orders, order 5(b) and Guezennec Affidavit, [56]-[57].
In my opinion, for the reasons advanced which are set out hereunder, none of these procedural irregularities invalidate the proceeding as they have not caused ‘substantial injustice’ for the reasons submitted as set out below.
Email transmission failure to Email Shareholders
Tatts has complied with paragraph 3(a) of the First Orders, paragraph 5(a) of the Second Orders and paragraph 7(a) of the Third Orders by sending an email to the relevant email address nominated by each Email Shareholder. To the extent that the failure of the email transmission constitutes a procedural irregularity, no substantial injustice has arisen since Tatts sent each of those Shareholders hard copy versions of the same materials shortly thereafter.
In this respect:[45]
[45]Teichmann Affidavit, [20]-[21], [58]-[62]; Guezennec Affidavit, [56]-[57], [82]; affidavit of Leanne Kay Greene sworn 5 December 2017 (Greene Affidavit), [12]-[13]. This was in accordance with the process foreshadowed in the Second Tucker Affidavit, [113].
(a) on 21 September 2017, a hard copy of the Scheme Booklet, a personalised proxy form and a pre-addressed envelope for the return of the proxy form (Scheme Booklet Package) was sent by ordinary post or airmail to each of the 249 Email Shareholders who failed to receive the email on 18 September 2017;
(b) on 10 October 2017, a hard copy of the First Adjournment Letter was sent by priority post or airmail to each of the 629 Email Shareholders who failed to receive the email on 5 October 2017; and
(c) on 1 December 2017, a hard copy of the Supplementary Booklet, a personalised proxy form and a pre-addressed envelope for return of the proxy form (Supplementary Booklet Package) was sent by priority post or airmail to each of the 53 Email Shareholders who failed to receive the email on 29 November 2017.
Further:
(a) having regard to the adjournments of the Scheme Meeting, the 249 Email Shareholders referred to at paragraph 46(a) above, would have had more than two months’ notice of the Scheme Meeting after receiving a hard copy of the Scheme Booklet Package;
(b) the main purpose of the First Adjournment Letter was to notify Shareholders that the Scheme Meeting had been adjourned from 18 October 2017 to 30 November 2017, and such letter was released, in any case, as an ASX announcement on 28 September 2017;[46] and
(c) based on the estimated delivery dates for the Supplementary Booklet Package (which contained notice of the adjourned Scheme Meeting date), approximately 52 Email Shareholders are likely to have received the Supplementary Booklet Package between 4 and 7 December 2017 (at least five days prior to the Scheme Meeting), and 1 Email Shareholder is likely to have received the Supplementary Booklet package on 11 December 2017 (one day prior to the Scheme Meeting). Further, on 28 November 2017, Tatts lodged an announcement with ASX stating that the Scheme Meeting had been postponed until 12 December 2017 and attached a copy of the Supplementary Booklet to that announcement.[47]
[46]Fifth Tucker Affidavit, [6].
[47]Sixth Tucker Affidavit, [6].
In any event, the shares held by the Email Shareholders to whom the emails failed to send on:[48]
[48]Sakurai Affidavit, [41].
(a) 18 September 2017 represented 0.31% of the total shares of Tatts on issue as at 8 December 2017;
(b) 5 October 2017 represented 0.39% of the total shares of Tatts on issue as at 8 December 2017; and
(c) 29 November 2017 represented 0.03% of the total shares of Tatts on issue as at 8 December 2017.
First Adjournment Letter irregularities
The First Adjournment Letter was sent to all Email Shareholders, even if they had a registered postal address overseas. This is because it is the general practice of Computershare Investor Services Pty Ltd (Computershare) to send material to Shareholders by email where they have expressed a preference for Computershare to do so and have an email address on file, regardless of whether their registered address is located within or outside of Australia.[49] There were significant costs savings to Tatts in sending the First Adjournment Letter by email rather than airmail and post (approximately $40,500).[50]
[49]Guezennec Affidavit, [46].
[50]Guezennec Affidavit, [55].
Further:
(a) the Tatts Constitution permits Tatts to give notice to a Shareholder, pursuant to or for the purposes of the Act, by sending it to an electronic address (if any) nominated by that Shareholder;[51] and
(b) the Act permits giving notice to members by sending it to the member by electronic means (if any) nominated by the member.[52]
[51]See clause 11.1(a)(iii) of exhibit AET-2 to the first affidavit of Anne Elizabeth Tucker sworn 7 July 2017 (First Tucker Affidavit).
[52]Section 249J(3)(c).
In this respect, it was an error on the part of those preparing the Second Orders that those orders provided that the First Adjournment Letter be sent by airmail to overseas shareholders who had expressed a preference to receive material by email. No substantial injustice has arisen because there is no reason to suspect that the Shareholders affected by this irregularity did not receive the First Adjournment Letter. They either would have received it by email on 5 October 2017 (in accordance with their preference) or, if the email failed to transmit, in the subsequent mail out on 10 October 2017.
The First Adjournment Letter was sent by priority post rather than ordinary post as ordered because it is the practice of Computershare Communication Services Pty Ltd’s (CCS) to send all mail on behalf of its corporate clients by priority post where possible, since priority post delivers faster than ordinary post (generally one to four days after posting for priority post versus two to six days after posting for ordinary post).[53]
[53]Teichmann Affidavit, [34].
In this respect, it was an error on the part of those preparing the Second Orders that those orders provided that the letter be sent by ordinary post. No substantial injustice has arisen because the Shareholders would have received the First Adjournment Letter more quickly than if there had been strict compliance with the Second Orders.
The First Adjournment Letter was embedded within the email because the size of the letter was sufficiently small to fit within the body of the email.[54] In this respect, it was an error on the part of those preparing the Second Orders that those orders provided that the email contain a link to the Investor Vote Website. No substantial injustice has arisen because the format in which the Shareholder received the First Adjournment Letter is unimportant; the critical fact is that they received it.
[54]Guezennec Affidavit, [45]-[55].
H Exemption from s 411(11)
Section 411(11) of the Act requires, subject to s 411(12), that a copy of the Court’s order approving a scheme of arrangement be annexed to every copy of the company’s constitution issued after the order is made. The purpose of this provision is to ensure that prospective creditors or shareholders will have the opportunity of seeing what their rights would be, as modified by the scheme of arrangement.[55]
[55]Reference was made to the following cases: Re Equinox Resources Ltd (2004) 49 ACSR 692 at [22] (per EM Heenan J) as approved in Re Hostworks Group Ltd (No 2) [2008] FCA 248 at [36] (per Mansfield J), Re AXA Asia Pacific Holdings Ltd (No 2) (2011) 82 ACSR 501 at [36] (per Croft J), Re Amcom Telecommunications Ltd (No 4) [2015] FCA 720 at [103]-[104] (per McKerracher J), Re Great Southern Managers Australia Ltd (in liq) [2016] VSC 38 at [40] (per Croft J), Rubik Financial Ltd (No 2) [2017] FCA 493 at [17] (per Yates J) and Re Afterpay Holdings Ltd (No 2) [2017] FCA 737 at [23] (per Yates J).
Section 411(12) allows the Court to exempt a body from compliance with this provision or to determine the period during which it shall comply.
In my opinion exemption from compliance with s 411(11) is appropriate given that the Scheme will not alter the constitution of Tatts or the rights of shareholders, creditors or other persons dealing with the company.[56] Current Shareholders are fully informed of the Scheme and will be informed of the approval of the Scheme by the Court. Further, on the implementation of the Scheme, Tatts will become a wholly-owned subsidiary of Tabcorp, a listed public company. An order under s 411(12) is regularly made on this basis.[57]
[56]Re Lion Selection Limited [2009] VSC 546 at [24] (per Judd J); cited in Re Transcomm Credit Co-Operative Ltd [2016] VSC 835 at [33] (per Robson J).
[57]For example, Re Amcor Limited (2000) 34 ACSR 199at [35] and [40] (per Warren J); Re Lion Selection Limited [2009] VSC 546 at [24] (per Judd J).
Class issues – common Shareholders
The Scheme Meeting was convened on the basis that all Shareholders were members of a single class for the purposes of ss 411(1) and (4).
Perpetual Limited (Perpetual) and AustraliaSuper Pty Ltd (AusSuper) are common substantial shareholders of Tatts and Tabcorp. Those entities respectively hold approximately 9.83% and 3.39% of the issued share capital in Tatts[58] and approximately 9.19% and 5.00% of the issued share capital in Tabcorp, according to the most recent substantial holding notices filed with ASX.[59]
[58]Seventh affidavit of Anne Elizabeth Tucker sworn 12 December 2017 (Seventh Tucker Affidavit), [8].
[59]Tabcorp ASX announcements titled ‘Form 604 - Notice of change of interests of substantial holder’ and ‘Notice of Substantial Shareholding’ dated 6 June 2017; and ‘Form 603 - Notice of change of interests of substantial holder’ and ‘Notice of Substantial Shareholding’ dated 28 November 2017 (relating to Perpetual and AusSuper respectively).
In my opinion, and as submitted, no class issue arises due to Perpetual and AusSuper’s shareholding status as there is no difference in rights they have against Tatts compared to the rights of other Shareholders.[60] Perpetual and AusSuper are entitled to receive the same benefits (comprising of the Scheme Consideration and Special Dividend) and have the same rights against Tatts as other Shareholders.[61] There is no additional benefit being offered by Tabcorp to Perpetual or AusSuper under or in connection with the Scheme.[62] Divergent commercial interests are ordinarily not a factor which should differentiate scheme company shareholders into separate classes.[63] It is not a factor in this case and there has been no suggestion to the contrary.
[60]Reference was made to the following cases: Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 (Sovereign Life Assurance) at 583 (per Bowen LJ) (which concerned a creditors’ scheme of arrangement, but the test enunciated by Bowen LJ has been adopted in members’ schemes); cited with approval in Re Opes Prime Stockbroking Ltd (2009) 179 FCR 20 (Opes Prime), [64]-[71] (per Finkelstein J); First Pacific Advisors LLC v Boart Longyear Ltd (2017) 320 FLR 78, [80] (per Black J). See also Opes Prime, at [66] in which Finkelstein J cautioned against judges being ‘too assiduous in identifying classes’ and to ‘adopt a practical business-like approach to the issue’.
[61]In Re Amcom Telecommunications Ltd (No 4) (2015) 107 ACSR 341 (Re Amcom (No 4)), McKerracher J accepted that common shareholders between Amcom (the scheme company) and Vocus (the bidder) held the same right as the other shareholders to receive the scheme consideration, and that any benefit offered by Vocus to its shareholders was independent and external to the scheme itself. His Honour held, at [68]: “[62]See Re Amcom (No 4) at [67].
[63]Re NRMA Limited (2000) 156 FLR 412, 617 (per Santow J); cited with approval in Re Toll Holdings Limited [2015] VSC 123 at [41] (per Robson J) and Re Skilled Group Limited (No 1) (2015) 113 ACSR 525 at [58] (per Robson J).
Further, a separate class meeting will not ordinarily be required for shareholders who are members of both the scheme company and the bidder, particularly where there is no relevant difference of legal rights (as distinct from the possibility of differences in economic interests).[64] In Viscopy, Black J stated that:[65]
…differences in economic interests, rather than legal rights, may properly be addressed by a tagging of votes, so that the Court will be made aware at the second hearing if a particular group of members, with a particular incentive, vote in a way that is quite different from those members who do not have that incentive.
[64]See for example: Re Viscopy Limited [2017] NSWSC 1516 (Viscopy) at [12] (per Black J), Re Sylvastate Ltd [2011] FCA 211 and Re Linton Park Plc [2008] BCC 17.
[65]Viscopy, [12].
Both Perpetual and AusSuper voted in favour of the resolution prior to the Scheme Meeting. The Tatts Shares held by Perpetual represented approximately 16.8% of votes cast on the Scheme resolution. The Tatts Shares held by AusSuper represented approximately 5.8% of votes cast on the Scheme resolution.[66] The voting results demonstrate that the requisite majorities were satisfied irrespective of Perpetual and AusSuper’s votes.
[66]Seventh Tucker Affidavit, [8].
Viewed in the totality of the Scheme’s context, in my opinion Perpetual and AusSuper’s interests will not be affected by the Scheme in such a way that it was impossible for them to consult together with other members with a view to their common interest.[67] Each of the directors of Tatts and the Independent Expert concluded that the Scheme was in the best interests of the Shareholders and 95.55% of Shareholders voted in favour of the Scheme. Accordingly, the votes of Perpetual and AusSuper can be said to be representative of the interests of the class of Shareholders as a whole.[68]
Ineligible Foreign Shareholders
[67]Sovereign Life Assurance at 583; Opes Prime at [64] to [71]; Re iSoft Group Limited [2011] FCA 68; Re Boart Longyear Limited [2017] NSWSC 567 at [30]; Re Pulse Health Limited [2017] NSWSC 651 at [14].
[68]See Re Amcom (No 4) at [69].
Similarly, in my opinion, as submitted, any of Tatts’ Ineligible Foreign Shareholders (as defined in the Scheme) need not constitute a separate class for the purpose of voting on the Scheme. In Re Orica Ltd[69], Davies J referring at [14] to the observations of Barrett J in Re Hills Motorway Ltd[70], held that the ineligible overseas shareholders in that case should not be treated as a distinct class for the purposes of the scheme because the shares that would otherwise have been issued to them had they lived in an eligible jurisdiction would have been transferred to a sale agent for sale on their behalf.[71]
[69][2010] VSC 231.
[70](2002) 43 ACSR 101.
[71]See also Re Marengo Ltd [2012] FCA 1220 and Re Straits Resources Ltd [2010] FCA 1466 at [28] (per Jacobson J). McKerracher J considered the same issue more recently in Re Vietnam Industrial Investments Ltd [2014] FCA 39. At [22] to [23], his Honour accepted ‘that these ineligible foreign shareholders are not in a separate class and the rights of all members under the Scheme are not so different as to require more than one class of members…’.
J Tabcorp equity swap position – UBS voting
UBS Group AG (UBS) and its related bodies corporate abstained from voting at the Scheme Meeting. As disclosed in section 11.13(b) of the Scheme Booklet, UBS is party to a cash-settled equity swap arrangement with Tabcorp Investments No. 4 Pty Ltd, a wholly-owned subsidiary of Tabcorp. As a result of the terms of the cash-settled equity swap, Tabcorp has a relevant interest in 146,705,096 Tatts Shares held by UBS, which represents 9.99% of Tatts Shares. Under the terms of the cash-settled equity swap, Tabcorp was not permitted to direct the voting of these Tatts Shares in relation to the Scheme. UBS abstained from voting at the Scheme Meeting in respect of these Tatts Shares.[72] This matter was in my view properly disclosed but other than to note the matter, no issue arises.
[72]Seventh Tucker Affidavit, [11].
K Voter turnout
Tatts submitted that low voter turnout at the Scheme Meeting does not give rise to any concerns that Shareholders were deterred or did not have notice of the Scheme Meeting.[73] I agree.
[73]Low voter turnout has been considered recently in the following cases referred to by Tatts: in Re TriAusMin Limited (No 2) [2014] FCA 833 (Re TRM), Farrell J approved a scheme where only 10.94% of shareholders, holding 52.90% of shares, voted at the scheme: see [9]-[14]; in Re Skilled Group Limited (No 2) [2015] VSC 805 (Re Skilled (No 2)), Robson J approved a scheme where approximately 14% of all shareholders appeared at the meeting in person or by proxy, having approximately 62% of all issue shares in Skilled Group Limited: see [20]-[23]; and in Re QT Mutual Bank Ltd [2016] QSC 265 (Re QT), Bond J found no issue with low voter turnout where approximately 25% of the total available votes and persons participating voted on the scheme: see [7]-[10].
In Re TriAusMin Limited (No 2),[74] Farrell J approved a scheme where only 10.94% of shareholders, holding 52.90% of shares, voted at the scheme.[75] Her Honour said (with emphasis added):
[10] Although the statutory requirement under s 411(4)(a)(ii) has been satisfied, it is the usual practice of the Court at the second court hearing to consider the number of the shareholders who attended the Scheme Meeting in person or by proxy. Low shareholder turnout may be an indication that some procedural irregularity occurred. It is inappropriate to assume (in the absence of complaint) that that [sic] shareholders who did not vote either did not have the notice of the meeting or were silent in protest of the scheme…apathy should not be presumed to be antagonism: [Re Matine Limited (1998) 28 ACSR 268] (Santow J).
[74][2014] FCA 833.
[75]Considered and applied by Robson J in Re Skilled (No 2).
The affidavit evidence relied upon at the interim hearing establishes that:
(a) except for minor procedural irregularities, there is nothing to suggest that there was any irregularity in the manner of dispatch of material to the Shareholders;
(b) Shareholders were provided with notice of the Scheme Meeting;
(c) there is no evidence of any issue that would have deterred Shareholders from voting at or from attending the Scheme Meeting; and
(d) those Shareholders who did vote voted overwhelmingly in favour of the Scheme.
In the current circumstances, the most likely conclusion (as was submitted and with which I agree) is that there was low voter turnout because those Shareholders who did not attend had no objection to the Scheme.[76]
[76]A similar conclusion was reached in Re Skilled (at [22]) and Re QT (at [7]-[10]).
L Exemption under the US Securities Act
Tabcorp has indicated that it will rely upon the Court’s approval of the Scheme for the purposes of qualifying for an exemption from the registration requirements of the US Securities Act, provided for by section 3(a)(10) of that Act in connection with the implementation of, and the provision of consideration under, the Scheme.
Tabcorp will also rely upon the conclusions reached by the Independent Expert and the supporting affidavits of Caleena Gai Stilwell sworn 6 September 2017 and 27 November 2017 to seek approval for exemption.
It appears that this has become relatively common practice in schemes of arrangement and these matters were noted in other matters.[77]
[77]See, for example, Re Afterpay Holdings Ltd (No 2) [2017] FCA 737, [24] (per Yates J); Re Recall Holdings Ltd (No 2) [2016] FCA 419, [13] (per Yates J); Re BigAir Group Ltd (No 2) [2016] FCA 1513, [14] (per Yates J); Re iProperty Group (No 2) [2016] FCA 36, [19] (per Yates J); Re Atlas Iron Ltd (No 2) [2016] FCA 481 (per Gleeson J); Re M2 Group Ltd [2016] VSC 828, [13]-[12] (per Robson J); Re Permanent Trustee Co Ltd (2002) 43 ASCR 601, [11] to [14] (per Barrett J); and Re Aston Resources Ltd (No 2) [2012] FCA 401, [17] (per Jacobson J).
Affidavit of Rachel Marie Sakurai, sworn 12 December 2017 (Sakurai Affidavit), [38].
10,698 Shareholders out of a total number of 66,964 attended the Scheme Meeting either in person or by proxy. This represents approximately 15.98% of all Shareholders.
The common shareholders of Amcom and Vocus do not form a separate class, as their different interest is a commercial one flowing from their interest in a separate transaction which, although conditional on the approval of the scheme, is not a condition of the scheme.”
See also Re Aston Resources [2012] FCA 229 per Jacobson J at [24]-[25] and [32]-[35].
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