Re URB Investments Ltd

Case [2019] FCA 1977

FEDERAL COURT OF AUSTRALIA

URB Investments Limited, in the matter of URB Investments Limited [2019] FCA 1977

File number: NSD 1733 of 2019
Judge: MARKOVIC J
Date of judgment: 4 November 2019
Date of publication of reasons: 25 November 2019
Catchwords: CORPORATIONS – scheme of arrangement – first court hearing – application for order pursuant to s 411 of the Corporations Act 2001 (Cth) that company convene meeting of members and distribute explanatory statement – application allowed
Legislation: Corporations Act 2001 (Cth) ss 411, 412(1)(a)
Cases cited:

Associated Advisory Practices Limited, in the matter of Associated Advisory Practices Limited [2013] FCA 761

ReCapilano Honey Limited Ltd (2018) 131 ACSR 9; [2018] FCA 1568

Perpetual Custodians Limited (as custodian for Tamoran Pty Ltd as trustee for Crivelli) v IOOF Investment Management limited (2013) 304 ALR 436; [2013] NSWCA 231

Re David Jones Ltd (No 2) (2014) 101 ACSR 381; [2014] FCA 720

David Jones Ltd, in the matter of David Jones Ltd (No 3) [2014] FCA 753

Sovereign Life Assurance Company v Dodd [1892] 2 QB 573
Date of hearing: 4 November 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: 50
Counsel for the Plaintiff: Mr R Foreman SC and Ms S Scott
Solicitor for the Plaintiff: Ashurst Australia
Solicitor for 360 Capital FM Limited: Mr E Park of Clayton Utz

ORDERS

NSD 1733 of 2019

IN THE MATTER OF URB INVESTMENTS LIMITED ACN 615 320 262
BETWEEN:

URB INVESTMENTS LIMITED ACN 615 320 262

Plaintiff

JUDGE:

MARKOVIC J

DATE OF ORDER:

4 November 2019

THE COURT ORDERS THAT:

1.Grant leave to the plaintiff to file an amended originating process in the form provided by the solicitors for the plaintiff appearing at tab 2 of the court book to be filed electronically by 5.00 pm today.

2.Pursuant to ss 411(1) and 1319 of the Corporations Act 2001 (Cth) (Corporations Act), the plaintiff convene and hold a meeting (Scheme Meeting) of its holders of fully paid ordinary shares, excluding 360 Capital FM Limited ACN 090 664 396 as responsible entity of the 360 Capital Total Return Active Fund, (Scheme Shareholders) for the purpose of considering, and if thought fit, agreeing to (with or without modification) a scheme of arrangement proposed to be entered into between the plaintiff and the Scheme Shareholders (Scheme), the terms of which are contained in Schedule 2 of Exhibit C as provided to the Court on 4 November 2019 (Scheme Booklet).

3.The Scheme Meeting be held on Friday, 6 December 2019 at Brickworks Design Studio, 2 Barrack Street, Sydney NSW 2000, commencing at 9.00 am (Sydney time), subject to Order 5(b).

4.The Scheme Shareholders who are eligible to vote at the Scheme Meeting will be those whose names are recorded in the register of members of the plaintiff (Register) at 7.00 pm (Sydney time) on 4 December…

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Re URB Investments Ltd [2019] FCA 1977
Case
[2019] FCA 1977
Decision Date

CaseChat Overview and Summary

URB Investments Ltd, a public company listed on the Australian Stock Exchange (ASX), applied to the Federal Court for an order that it convene a meeting of its members to consider and vote on a proposed scheme of arrangement (Scheme) for the acquisition of 100% of URB by 360 Capital FM as responsible entity for the TOT Active Fund. The Court was required to determine whether the Scheme was of such a nature and cast in such terms that if it achieved the requisite statutory majorities at the meeting of members, the Court would likely approve it. This involved assessing the fairness and appropriateness of the Scheme, including the valuation of URB by an independent expert and the potential benefits for URB's shareholders. The Court also needed to consider whether the Scheme involved a class creating transaction, which would require separate class meetings and approvals.

The Court accepted URB's submissions that the Scheme was not class creating, primarily because the transaction did not affect the legal rights of URB's shareholders differently. The Court was satisfied that the Scheme was fair and reasonable, considering the independent expert's valuation and the potential benefits to URB's shareholders, such as a modest increase in net tangible asset value, higher expected distributions, and improved share liquidity post-implementation. The Court further noted that the Deed of Novation, which was part of the Scheme's conditions precedent, was negotiated at arm's length and did not alter the community of interest among URB's shareholders. Based on this assessment, the Court made the orders sought by URB, including convening a meeting of URB's members to vote on the Scheme, distributing the explanatory statement to eligible members, and approving the form of the proxy form and the scheme documents. The Court also granted relief from certain procedural rules to facilitate the meeting and the Scheme's implementation.

Orders

Orders of the court

1. Grant leave to the plaintiff to file an amended originating process in the form provided by the solicitors for the plaintiff appearing at tab 2 of the court book to be filed electronically by 5.00 pm today.

2. Pursuant to ss 411(1) and 1319 of the Corporations Act 2001 (Cth) (Corporations Act), the plaintiff convene and hold a meeting (Scheme Meeting) of its holders of fully paid ordinary shares, excluding 360 Capital FM Limited ACN 090 664 396 as responsible entity of the 360 Capital Total Return Active Fund, (Scheme Shareholders) for the purpose of considering, and if thought fit, agreeing to (with or without modification) a scheme of arrangement proposed to be entered into between the plaintiff and the Scheme Shareholders (Scheme), the terms of which are contained in Schedule 2 of Exhibit C as provided to the Court on 4 November 2019 (Scheme Booklet).

3. The Scheme Meeting be held on Friday, 6 December 2019 at Brickworks Design Studio, 2 Barrack Street, Sydney NSW 2000, commencing at 9.00 am (Sydney time), subject to Order 5(b).

4. The Scheme Shareholders who are eligible to vote at the Scheme Meeting will be those whose names are recorded in the register of members of the plaintiff (Register) at 7.00 pm (Sydney time) on 4 December 2019 (Voting Record Date).

5. Pursuant to s 1319 of the Corporations Act:

(a) Warwick Martin Negus or, failing him, Robert Bruce Dungey be Chairperson of the Scheme Meeting;

(b) the Chairperson of the Scheme Meeting has the power to adjourn the Scheme Meeting in his or her absolute discretion to such time, date and place as he considers appropriate;

(c) at the Scheme Meeting, two Scheme Shareholders, present and entitled to vote, in person or by proxy, or by an attorney under power, or in the case of corporate Scheme Shareholders, by corporate representatives, shall constitute a quorum;

(d) at the Scheme Meeting, each Scheme Shareholder, present and entitled to vote, will be entitled to one vote for each fully paid ordinary share in the capital of the plaintiff that the Scheme Shareholder is registered as holding at the Voting Record Date; and

(e) except for procedural motions, all voting at the Scheme Meeting will be conducted by way of a poll.

6. The following documents are approved for distribution to Scheme Shareholders:

(a) the Scheme Booklet, substantially in the form of Exhibit C as provided to the Court on 4 November 2019, and modified in accordance with the Court's directions (which Scheme Booklet be and is hereby approved for the purposes only of s 411(1) of the Corporations Act); and

(b) the proxy form for the Scheme Meeting substantially in the form of the document at Schedule 4 of the Scheme Booklet referred to in Order 6(a) above,

(together, Scheme Documents).

7. Subject to registration of the Scheme Booklet with the Australian Securities and Investments Commission pursuant to s 412(6) of the Corporations Act, on or before 7 November 2019 the Scheme Documents be dispatched to each Scheme Shareholder whose name is recorded in the Register as being a shareholder as at 7.00 pm (Sydney time) on 5 November 2019 (Register Time):

(a) in the case of Scheme Shareholders who have nominated an electronic address for the purpose of receiving communications from the plaintiff - by email to that address containing a link to a website at which the Scheme Documents can be accessed. An email substantially in the form of Tab 17 of Exhibit WN-1 to the affidavit of Warwick Negus affirmed on 1 November 2019 is approved for this purpose;

(b) in the case of Scheme Shareholders, other than those in paragraph (a) above, with a registered address in Australia – by regular post to those addresses as set out in the Register and a reply paid envelope addressed to Link Market Services Limited (Link), PO Box 1519, Sydney South New South Wales 1234; and

(c) in the case of Scheme Shareholders, other than those in paragraph (a) above, with a registered address outside Australia – by airmail to those addresses as set out in the Register and a return envelope addressed to Link.

8. With respect to Order 7(a) above, if the plaintiff receives an email notification of a failure to deliver an email to a Scheme Shareholder's nominated electronic address, the Scheme Documents are to be dispatched by the plaintiff to those Scheme Shareholders as follows:

(a) where the Scheme Shareholder has a registered address in Australia, in the manner described in Order 7(b); and

(b) where the Scheme Shareholder has a registered address outside Australia, in the manner described in Order 7(c).

9. The time by which proxy forms must be returned or lodged online in accordance with the instructions given on the proxy form is at 9.00 am (Sydney time) on 4 December 2019.

10. Rule 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules) does not apply to the Scheme Meeting, save in respect of the application of Rule 75- 15(2) of the Insolvency Practice Rules (Corporations) 2016 (Cth).

11. The plaintiff be relieved of compliance with r 3.4 of the Corporations Rules in respect of the Scheme, subject to the plaintiff publishing once in The Australian newspaper, on or before 2 December 2019, an advertisement substantially in the form of Annexure A to these Orders.

12. The originating process be adjourned to 10.15 am on 10 December 2019.

13. The plaintiff be given liberty to apply.

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

Background

Background to the litigation

These are my reasons for making those orders. background URB is a public company listed on the Australian Stock Exchange (ASX). It is a research driven investment company focused on capturing long-term value by investing in a diversified portfolio of assets with exposure to urban renewal and regeneration. As at 29 October 2019 URB had 73,959,549 ordinary shares on issue held by 2,295 shareholders. This included 17 overseas shareholders, five of which are (or are acting on behalf of) a citizen or resident of a jurisdiction other than Australia, its external territories or New Zealand or whose registered address is outside those places (Ineligible Overseas Shareholders). As at 29 October 2019 Ineligible Overseas Shareholders held 162,439 shares in URB which equates to approximately 0.22% of URB shares on issue as at that date. The Scheme On 14 October 2019 URB announced to the ASX that it had entered into a scheme implementation deed (SID) with 360 Capital FM as responsible entity for the TOT Active Fund and 360 Capital Total Return Passive Fund (TOT Passive Fund) (together TOT) by which it is proposed that 360 Capital FM as responsible entity for the TOT Active Fund will acquire 100% of URB’s issued capital. The Scheme, if approved, will effect a transfer by Scheme Shareholders of all of their shares in URB to 360 Capital FM as responsible entity for the TOT Active Fund. The consideration for the transfer will be the issue of 0.9833 of a newly issued stapled security in TOT consisting of a fully paid unit in the TOT Active Fund and a fully paid ordinary unit in the TOT Passive Fund (Scrip Consideration) in exchange for each URB share held at the “scheme record date” (as defined in the Scheme Booklet). URB shareholders are expected to have an entitlement to the TOT December 2019 quarterly distribution, forecast to be 2.25c to the unit on the basis that the “Scheme implementation date” will occur prior to the record date for the TOT December distribution. The TOT December distribution is not part of the Scheme. If the Scheme implementation date occurs after the record date for the TOT December distribution, the Scheme Shareholders will, subject to URB granting a loan to TOT on the terms set out in Sch 4 to the SID, receive additional Scheme consideration in cash, of $0.0225 per share (Cash Consideration). If the SID is terminated or the Scheme is approved and implemented prior to the TOT December 2019 quarterly distribution record date, URB will not enter into the loan with TOT. The directors of URB recommend that Scheme Shareholders vote in favour of the Scheme, in the absence of a superior proposal and subject to the independent expert, Lonergan Edwards & Associates Limited (Independent Expert), continuing to conclude that the Scheme is in the best interests of the Scheme Shareholders. Subject to that same proviso the URB directors each intend to vote all of their URB shares in favour of the Scheme.Independent Expert The URB directors appointed the Independent Expert to assess the merits of the Scheme. The Independent Expert has assessed the value of URB at between $1.07 and $1.11 per share and noted that the value of the Scrip Consideration at between $1.05 and $1.16 per share is consistent with the value of URB shares which represents a premium of between 2.9% and 7.4% to the likely listed market value of URB shares in the absence of the Scheme. The Independent Expert has also identified other advantages of the Scheme, namely that:(1)there is a modest increase in the NTA position of URB shareholders as a result of the Scheme;(2)the TOT Active Fund has historically paid higher annual distributions than URB, which is expected to continue; and(3)the market capitalisation of the TOT Active Fund post implementation of the Scheme (Merged Entity) will be more than twice the market capitalisation of URB, which should result in improved share liquidity for both URB shareholders and TOT Active Fund members. In addition, the increased size of the Merged Entity should result in a more diversified investment portfolio.Novation of the investment management agreement

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

In the circumstances of this case I accepted URB’s submissions that the Contact Transaction is not class creating given, in particular, that:(1)Contact is not a shareholder in URB and two of the three shareholders in Contact, Fireman Investments and Stayer Holdings, are not shareholders in URB;(2)neither the Scheme nor the Deed of Novation affects the legal rights of any of the shareholders of Contact in a way that is different to the legal rights of any other shareholder in URB;(3)neither the Scheme nor the Deed of Novation affects the legal rights of Mr Millner, TOMCIL or Culbert W&E in a way that is different to any other shareholder in URB;(4)in any event, Mr Millner, TOMCIL and Culbert W&E will not vote at the Scheme Meeting;(5)the value of any net benefit that may flow indirectly to WHSP, the third shareholder in Contact, as a result of the Contact Transaction is de minimis relative to the value of its shareholding in URB. That de minimis net benefit does not destroy the community of interest between WHSP and other shareholders;(6)importantly, WHSP’s votes at the Scheme Meeting will be tagged;(7)the Deed of Novation was negotiated at arm’s length without URB’s involvement; and(8)while the Independent Expert concluded that the Novation Price was above market value, the Independent Expert also concluded that it represented the top end of the range of value to Contact and that the value of the management rights are likely to be materially higher to 360 Capital Group. In that regard, the evidence discloses that the price 360 Capital Group is prepared to pay reflects its board’s view as to the value of Contact notwithstanding that it is higher than the value determined by the Independent Expert.conclusion Based on the evidence before me and submissions made on behalf of URB, I was satisfied that the Scheme is of such a nature and is cast in such terms that if it achieves the requisite statutory majorities at the Scheme Meeting I would be likely to approve it. For those reasons I made the orders sought by URB.

Ratio Decidendi

Legal Principle Established

If the Scheme implementation date occurs after the record date for the TOT December distribution, the Scheme Shareholders will, subject to URB granting a loan to TOT on the terms set out in Sch 4 to the SID, receive additional Scheme consideration in cash, of $0.0225 per share (Cash Consideration). If the SID is terminated or the Scheme is approved and implemented prior to the TOT December 2019 quarterly distribution record date, URB will not enter into the loan with TOT. The directors of URB recommend that Scheme Shareholders vote in favour of the Scheme, in the absence of a superior proposal and subject to the independent expert, Lonergan Edwards & Associates Limited (Independent Expert), continuing to conclude that the Scheme is in the best interests of the Scheme Shareholders. Subject to that same proviso the URB directors each intend to vote all of their URB shares in favour of the Scheme.Independent Expert The URB directors appointed the Independent Expert to assess the merits of the Scheme. The Independent Expert has assessed the value of URB at between $1.07 and $1.11 per share and noted that the value of the Scrip Consideration at between $1.05 and $1.16 per share is consistent with the value of URB shares which represents a premium of between 2.9% and 7.4% to the likely listed market value of URB shares in the absence of the Scheme. The Independent Expert has also identified other advantages of the Scheme, namely that:(1)there is a modest increase in the NTA position of URB shareholders as a result of the Scheme;(2)the TOT Active Fund has historically paid higher annual distributions than URB, which is expected to continue; and(3)the market capitalisation of the TOT Active Fund post implementation of the Scheme (Merged Entity) will be more than twice the market capitalisation of URB, which should result in improved share liquidity for both URB shareholders and TOT Active Fund members. In addition, the increased size of the Merged Entity should result in a more diversified investment portfolio.Novation of the investment management agreement The Scheme is conditional upon the conditions precedent set out in cl 3.2 of the SID, which includes URB delivering to 360 Capital Group Limited (360 Capital Group), the ultimate holding company of 360 Capital FM, a duly executed counterpart of a deed of novation (Deed of Novation) signed by URB in respect of the investment management agreement (IMA) between URB and Contact Asset Management Pty Ltd (Contact). The Deed of Novation was executed and delivered by all parties to it on 14 October 2019. Pursuant to the IMA, Contact provides a number of services to URB, including the day-to-day management and investment of its portfolio. Contact’s shares are owned as to:(1)40% by Fireman Investments Pty Ltd (Fireman). Fireman is the trustee of a family trust. It does not hold URB shares. However, Thomas Millner owns 100% of the shares in Fireman and has a relevant interest in 229,995 URB shares through TOMCIL Pty Ltd (TOMCIL) and a personal shareholding. Mr Millner owns 100% of the shares in TOMCIL;(2)40% by Stayer Holdings Pty Ltd (Stayer), an entity indirectly controlled by Will Culbert. Mr Culbert and his wife each own 50% of the shares in Stayer. Stayer is the trustee of a family trust. Stayer does not hold URB shares. However, Mr Culbert has relevant interest in 258,995 URB shares through Culbert W & E Pty Ltd (Culbert W&E). Mr Culbert and his wife each own 50% of the shares in Culbert W&E; and(3)20% by Washington H Soul Pattinson and Company Ltd (WHSP). WHSP holds 12.35% of URB’s shares with a value of approximately $10m.