Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2]
[2018] WASC 357
•19 NOVEMBER 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE WESFARMERS LTD; EX PARTE WESFARMERS LTD [NO 2] [2018] WASC 357
CORAM: VAUGHAN J
HEARD: 19 NOVEMBER 2018
DELIVERED : 19 NOVEMBER 2018
FILE NO/S: COR 163 of 2018
EX PARTE
WESFARMERS LTD
Plaintiff
Catchwords:
Corporations law - Scheme of arrangement - Proposed demerger - Proposed equitable capital reduction - Application for orders approving scheme under s 411(b) of the Corporations Act 2001 (Cth)
Legislation:
Corporations Act 2001 (Cth), s 411, s 1322
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | S K Dharmananda SC & A J Papamatheos |
Solicitors:
| Plaintiff | : | Herbert Smith Freehills |
Case(s) referred to in decision(s):
iProperty Group Ltd (No 2) [2016] FCA 36
Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213
Re APN Outdoor Group Ltd (No 2) [2018] FCA 1633
Re Central Pacific Minerals NL [2002] FCA 239
Re Coles Group (No 2) [2007] VSC 523; (2007) 215 FLR 411
Re Macquarie Private Capital A Ltd [2008] NSWSC 323; (2008) 26 ACLC 366
Re Medical Australia Ltd (No 2) [2017] FCA 1429
Re NRMA Ltd [No 1] [2000] NSWSC 82; (2000) 156 FLR 349
Re NRMA Ltd [No 2] [2000] NSWSC 408; (2000) 156 FLR 412
Re Opus Group Ltd [2018] FCA 1413
Re Programmed Maintenance Services Limited [2017] FCA 1265
Re Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583
Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308
Re Wood Parsons Pty Ltd (in liq) [2002] NSWSC 1058; (2002) 43 ACSR 257
Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396
VAUGHAN J:
Overview
On 5 October 2018 I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) to convene a meeting of the holders of ordinary shares in Wesfarmers Ltd (Wesfarmers) to consider and vote on a proposed scheme of arrangement. I also approved for distribution to the members a scheme booklet containing the explanatory statement required by s 412(1)(a) of the Act.
The proposed scheme provides for Wesfarmers to separate and demerge Coles Group Ltd (Coles).
The scheme meeting was held on 15 November 2018. It followed a general meeting to approve a proposed capital reduction. The capital reduction is integral to effectuation of the proposed demerger. The members approved the capital reduction in accordance with s 256C(1) of the Act. Following that the scheme was approved by 99.52% of votes cast and 96.22% of members present in person or by proxy.
On 19 November 2018 I made orders pursuant to s 411(4)(b) of the Act approving the scheme. These are my reasons for those orders.
Background and additional evidence
Incorporation of earlier reasons
I gave reasons for my 5 October 2018 orders in Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd.[1] I do not intend to repeat what was said in those reasons. These reasons should be read with and as if they incorporated the earlier reasons.
[1] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308.
In particular I rely on what was stated in the earlier reasons as to:
(1)the two relevant entities, Wesfarmers and Coles ([5] ‑ [12]);
(2)announcement of the demerger proposal ([13] ‑ [17]) and the rationale for the demerger proposal ([38] - [39]);
(3)the nature of the demerger proposal as evidenced in the draft scheme of arrangement ([18] - [37]); and
(4)the description of the scheme booklet ([41] - [43]).
Additional evidence
Wesfarmers relied on a considerable amount of evidence at the first hearing.[2] That material was formally relied on for the second hearing.
[2] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [40].
In addition Wesfarmers relied on the following affidavits:
(1)affidavits of Baden Furphy (Wesfarmers' solicitor) affirmed 13, 14, 16 and 19 November 2018;
(2)an affidavit of Nagulan Siritharan (Wesfarmers' Project Principal) affirmed 14 November 2018;
(3)an affidavit of Kimalee Hunter (Wesfamers' Assistant Company Secretary) affirmed 14 November 2018;
(4)an affidavit of Eduardo Fernandez (person with primary responsibility for the formatting and typesetting of the scheme booklet) affirmed 14 November 2018;
(5)an affidavit of Michael Chaney AO (Wesfarmers' chairman) affirmed 16 November 2018;
(6)an affidavit of Sebastian Erna (a representative of Wesfarmers' external registry services provider) sworn 16 November 2018;
(7)an affidavit of Danielle Charles (another representative of Wesfarmers' external registry services provider) affirmed 16 November 2018; and
(8)a series of affidavits addressing the substantial logistical undertaking that was necessitated in dispatch of the scheme booklet and accompanying documentation to Wesfarmers' members (more than 300,000 physical copies of the scheme booklet having to be printed, together with personalised letters and proxy forms, and dispatched).[3]
[3] Affidavits of Eduardo Fernandez affirmed 14 November 2018; Ibrahim Chatila affirmed 14 November 2018; Paul Woplin affirmed 13 November 2018; Dario Fernandez sworn 14 November 2018. See also the affidavit of Craig Cain affirmed 14 November 2018 (addressing the dispatch of the scheme booklet to new shareholders added to Wesfarmers' register after 28 September 2018 and up to 6 November 2018).
The additional affidavits addressed matters that were required to be established at the second hearing. They also addressed an inadvertent error that occurred in uploading the scheme booklet to the ASX website and in provision of a URL link in emails circulated to Wesfarmers' members.
Separately, Mr Furphy's 14 November 2018 affidavit assisted me by addressing certain matters raised at the first hearing, namely, the demerger mechanics[4] and a letter agreement on the part of Wesfarmers Retail Holdings Pty Ltd to better ensure eventual effectuation of the proposed scheme in the terms as contemplated.[5] Mr Furphy's 16 November 2018 affidavit also addressed the satisfaction of an important condition precedent.
[4] Affidavit of Baden Furphy affirmed 14 November 2018 pars 5 - 18.
[5] Affidavit of Baden Furphy affirmed 14 November 2018 pars 19 - 20.
Applicable legal principles
The application before me was one for approval of the proposed scheme under s 411(4)(b) of the Act. This third stage of the process under s 411 is commonly referred to as the second court hearing. It follows the scheme proponent having successfully obtained approval of the scheme by the requisite statutory majorities at the scheme meeting.
At this third stage of the process under s 411 the court's task is twofold:
(1)First, to ensure that all statutory and procedural requirements in relation to s 411 have been observed. These include:
(a)compliance with the orders convening the scheme meeting;
(b)compliance with the disclosure obligations under s 412(1) of the Act;
(c)the passing of the approval resolution by the requisite majorities; and
(d)satisfaction of the condition under s 411(17) of the Act.
(2)Second, to determine in the exercise of the court's discretion whether to approve the arrangement.
The role of the court in approving a scheme of arrangement is supervisory.[6] The court has a discretion whether to approve a scheme and is not bound to approve merely because it previously made an order to convene the scheme meeting or because the statutory majorities have been achieved.[7] However, the court will usually approach its task on the basis that the members are better judges of what is in their own commercial interests than the court.[8]
[6] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [66] (and see the cases referred to at footnote 31).
[7] Re NRMA Ltd [No 2] [2000] NSWSC 408; (2000) 156 FLR 412 [21]; Re Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583 [31]; Re Medical Australia Ltd (No 2) [2017] FCA 1429 [4]; Re APN Outdoor Group Ltd (No 2) [2018] FCA 1633 [4].
[8] Re NRMA Ltd [No 2] [23]; Re Seven Network Ltd (No 3) [32] - [33]; Re Medical Australia Ltd (No 2) [4]; Re APN Outdoor Group Ltd (No 2) [4]. See also Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [73].
In Re Seven Network Ltd (No 3) there was identification of six factors commonly taken into account in informing the court's discretion on whether or not to approve a scheme:[9]
(1)Whether the shareholders voted in good faith and not for an improper purpose.
(2)Whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone in respect of his or her interest as a member, might approve it.[10]
(3)Whether the scheme proponent has brought to the attention of the court all matters that could be considered relevant to the exercise of the court's discretion.
(4)Whether there has been full and fair disclosure of all information material to the decision whether to vote for or against the scheme.
(5)Whether minority shareholders would be oppressed by the scheme.
(6)Whether the scheme offends public policy.
[9] Re Seven Network Ltd (No 3) [35] - [40]. That list has been adopted subsequently on numerous occasions. See eg Re Programmed Maintenance Services Limited [2017] FCA 1265 [70].
[10] Here, while mentioning another authority, in fact substantially reproducing the well-established formulation in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213, 247.
The function of the court does not extend to usurping the views of the shareholders. However, the court is not a mere rubber stamp and will look at the arrangement to ensure that it is a reasonable one. In doing so the court is primarily concerned with whether the proposal is 'fair and reasonable' in the sense described in the second factor mentioned in the preceding paragraph.[11] In that respect the court does not determine that the scheme is intrinsically in the members' interest or otherwise.[12] The court ought only require satisfaction that the arrangement is one which is capable of being accepted.[13]
[11] Re Central Pacific Minerals NL [2002] FCA 239 [14].
[12] Re NRMA Ltd [No 2] [2000] NSWSC 408; (2000) 156 FLR 412 [23].
[13] Re NRMA Ltd [No 1] [2000] NSWSC 82; (2000) 156 FLR 349 [41].
The court ought also be satisfied that there is an absence of oppression.[14]
[14] Re NRMA Ltd [No 1] [41].
As to the statutory pre-conditions, s 411(17) of the Act makes the court's approval conditional on one of two alternative conditions.
Production of a 'no objection' letter from the Australian Securities and Investments Commission (ASIC) pursuant to s 411(17)(b) is usually the end of the issue; the court then does not need to consider the s 411(17)(a) issue. However, a 'no objection' letter does not bring an end to the court's discretion.[15] For example, if the court were to find that a scheme had been proposed for the purpose of avoiding the operation of provisions within Chapter 6 of the Act, that might be considered in the exercise of the discretion to approve the scheme under s 411(4)(b).[16]
[15] Re Macquarie Private Capital A Ltd [2008] NSWSC 323; (2008) 26 ACLC 366 [29] - [30].
[16] Re Coles Group (No 2) [2007] VSC 523; (2007) 215 FLR 411 [75] - [78].
Significance ought to be attached to the ASIC's 'no objection' letter given the terms of the ASIC Regulatory Guide 60 Schemes of Arrangement. The Regulatory Guide confirms that a primary consideration for the ASIC is whether, having regard to the principles in s 602 of the Act, shareholders are adversely affected by the takeover being implemented by a scheme of arrangement rather than a takeover bid.[17] The ASIC will only issue a 'no objection' letter if satisfied as to disclosure and that there are no other reasons to oppose the scheme.[18]
[17] ASIC Regulatory Guide 60 Schemes of Arrangement [RG 60.16].
[18] ASIC Regulatory Guide 60 Schemes of Arrangement [RG 60.104].
Disposition
Statutory pre-conditions and formal requirements
Wesfarmers' additional affidavits satisfied me that:
(1)a copy of the court's orders made 5 October 2018 were lodged with the ASIC on 5 October 2018;[19]
(2)a copy of the scheme booklet as approved for distribution by the court on 5 October 2018 was lodged with the ASIC and registered on 5 October 2018;[20]
(3)save as mentioned below, the scheme booklet was dispatched to Wesfarmers' members in accordance with pars 2(g) - (h) of the 5 October 2018 orders;[21]
(4)save as mentioned below, the scheme meeting was convened and held on 15 November 2018 in accordance with pars 2(a) ‑ (f) of the 5 October 2018 orders;[22]
(5)immediately before the scheme meeting was held there was a general meeting of Wesfarmers' members at which an ordinary resolution was passed in accordance with s 256C(1) of the Act approving the proposed capital reduction as an equal capital reduction under s 256B. The resolution was passed by a majority of 99.5% of votes cast (604,046,208 in favour and 3,061,337 against);[23] and
(6)at the scheme meeting the scheme was approved by a resolution with the required statutory majorities. As to votes, 99.52% of votes cast were in favour of the resolution (601,032,572 in favour and 2,900,858 against). As to headcount, 96.22% of members in attendance in person or by proxy voted in favour of the resolution (36,888 in favour and 1,450 against).[24] Some 53.26% of the ordinary shares on issue were voted.[25]
[19] Affidavit of Baden Furphy affirmed 13 November 2018 attachment 'BCF-50'.
[20] Affidavit of Baden Furphy affirmed 13 November 2018 pars 5 - 7, attachments 'BCF-50', 'BCF-51', 'BCF-52'.
[21] See the affidavits referred to at footnote 3 above. As to the electronic dispatch of the scheme booklet see the affidavit of Danielle Charles affirmed 16 November 2018 (especially at pars 5 - 6, 13, 25 - 26, 29 - 36, 40, 44).
[22] Affidavit of Michael Chaney AO affirmed 16 November 2018 pars 23 - 46. Otherwise refer to footnote 21 above.
[23] Affidavit of Michael Chaney AO affirmed 16 November 2018 pars 5 - 22, 42.
[24] Affidavit of Michael Chaney AO affirmed 16 November 2018 pars 44 - 45.
[25] There being some 1,133,840,242 ordinary shares on issue as at 27 September 2018: Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [6].
There was, however, an inadvertent error with the uploading of the scheme booklet to the ASX platform on the ASX's website. Wesfarmers first uploaded a version of the scheme booklet to the ASX platform at 2.09 pm WST on 5 October 2018. Regrettably, due to human error, this did not include section 1 of the scheme booklet. It will be recalled that section 1 details the advantages, disadvantages and other relevant considerations for shareholders. The error was identified at about 3.21 pm WST later that day. It was then rectified by the uploading of a complete version of the scheme booklet to the ASX platform at approximately 3.58 pm WST on 5 October 2018. There was no such issue with the version of the scheme booklet as uploaded to Wesfarmers' website.
Accordingly, the incomplete scheme booklet was in place for less than two hours. The error did not affect the hard copy of the scheme booklet as later dispatched to a number of Wesfarmers' members.
The uploading of the incomplete scheme booklet created a further irregularity. Paragraph 2(g) of the orders made 5 October 2018 required that certain of Wesfarmers' members (some 233,914 in number) receive email notification of the convening of the scheme meeting by 12 October 2018. The emails were dispatched by an external provider of registry services with the emails being broadcast between 6.00 pm WST and 6.41 pm WST on Friday, 12 October 2018. Regrettably, again due to human error, the URL link embedded in the emails directed the members to the incomplete scheme booklet. The error was identified at 5.02 am WST on Saturday, 13 October 2018. Wesfarmers took immediate advice from its legal representatives, including counsel, and liaised with its registry services provider to determine what could be done to ameliorate the irregularity.
By 3.32 pm WST on Saturday, 13 October 2018, with assistance from the ASX, steps had been taken so that any member clicking on the URL link in the emails would be directed to the complete scheme booklet rather than the incomplete scheme booklet. Later that day, between 7.55 pm WST and 8.55 pm WST, further emails were sent to Wesfarmers' members informing them of the error. Shareholders who had lodged proxy voting instructions online prior to 8.55 pm WST on 13 October 2018 were also sent an email on 29 October 2018 reminding them that they were entitled to change their proxy voting instructions. This is with the exception of 69 shareholders who were not identified as having so voted because they voted at a time when the voting system was 'locked down' for a nightly update. However, those 69 shareholders were sent the 13 October 2018 email.
Accordingly, there was a period from late on 12 October 2018 to 3.32 pm WST on Saturday, 13 October 2018 where members were directed to the incomplete scheme booklet. And until 8.55 pm that night there were shareholders who proceeded to record their voting intentions not realising the error with the incomplete scheme booklet.
Wesfarmers has been able to inform the court of the impact on shareholders. In the period between the sending of the emails with the incorrect URL link until circulation of the corrective emails, votes were recorded by some 1,534 ordinary shareholders holding a little over 2.526 million shares. Only seven of those shareholders, holding some 9,956 shares, changed their voting instructions following the emails informing them of the error. The likelihood is that the others saw no need to alter their voting intentions. Possible confusion on the part of shareholders is likely to have been minimal. It appears, for example, that no shareholders contacted Wesfarmers following the 13 and 29 October 2018 emails. The most that occurred was that Wesfarmers received three calls from shareholders enquiring about the number of communications they had received.
I am satisfied that there was substantial compliance with pars 2(g) - (h) of the 5 October 2018 orders. The inadvertent uploading of the incomplete scheme booklet on 5 October 2018 is not such that it is likely to have caused any confusion or disenfranchisement of Wesfarmers' members. The difficulty was for a very short period - less than two hours - and a week before members were to commence lodging their votes by proxy. The possible impact on those members who voted based on the incomplete scheme booklet is of greater concern. However, the proportion of affected members is very low - based on votes cast by shares, only about 0.42% of the votes cast are potentially affected. Moreover, the possibility of prejudice was, in my view, eliminated by the sensible measures employed by way of remediation. Affected members were informed of the error, provided with the correct link, and informed of their ability to change their voting instructions.
The failure is a procedural irregularity. There has been a defect, irregularity or deficiency in notice and time:[26] an email, giving the correct URL link, should have been provided by 12 October 2018 but was not; it was provided the following day. A scheme meeting is a proceeding under the Act. Accordingly, the effect of s 1322(2) of the Corporations Act 2001 (Cth) is to provide for automatic validation of the scheme meeting despite the procedural irregularity, subject to a court order to the contrary.[27] In the circumstances I have described the irregularity caused no substantial injustice and no such order ought to be made.
[26] Corporations Act 2001 (Cth) s 1322(1)(b)(ii).
[27] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [7].
The inadvertent non‑compliance with the court's order of 5 October 2018 is not such as would cause me to decline to approve the proposed scheme. The impact was minimal and appropriate steps were taken to rectify the deficiency. I was satisfied that I should grant approval under s 411(4)(b) notwithstanding the issues arising from the uploading of the incomplete scheme booklet and the initial linking to that document by URL over 12 to 13 October 2018.
Out of an abundance of caution Wesfarmers sought that I make a validation order under s 1322(4)(a) of the Act. Senior counsel for Wesfarmers described this as a 'belt and braces' approach.
The validation order is not required. The issue that has arisen is a mere procedural irregularity and s 1322(2) provides for automatic validation. That said, the circumstance that s 1322(2) operates does not exclude the potential application of s 1322(4). There are a number of cases where the court has made curative orders under s 1322(4) notwithstanding that the irregularity is cured automatically by s 1322(2).[28] This is a large scheme. I readily understood the desirability of removing any doubt as to validity and was prepared to do so. (Although, if I considered the issue meant the scheme resolution was invalid, I would not approve the scheme under s 411(4)(b) - so it is implicit in the approval order that the irregularity does not result in invalidity.)
[28] See eg iProperty Group Ltd (No 2) [2016] FCA 36 [15]; Re Opus Group Ltd [2018] FCA 1413 [15].
Wesfarmers' proposed order under s 1322(4)(a) sought to excuse non-compliance with par 2(g)(i) of the orders of the court made 5 October 2018 and s 412(1) of the Act insofar as the members received an incomplete scheme booklet. It also sought that the s 1322(4)(a) order be made with retroactive effect, ie nunc pro tunc.
I accept that a s 1322(4)(a) order may be made as to the contravention of s 412. That is a 'contravention of a provision of this Act' within s 1322(4)(a). But that is not the case with the non‑compliance with par 2(g)(i) of the orders made 5 October 2018. Nor is that non‑compliance a contravention of a provision of Wesfarmers' constitution. Accordingly, non‑compliance with the orders falls outside s 1322(4)(a). Nevertheless, I could make an order under s 1322(4)(d) of the Act to extend the time for doing the things required by par 2(g)(i) of the orders until the time that the corrective emails were sent on 13 October 2018 - and do so even though the period concerned has ended. That will have the same practical effect.
It has been accepted that an order under s 1322(4)(a) of the Act may be made nunc pro tunc.[29] That might be necessary where steps have been taken on the faith of an act which is otherwise invalid; for example, where an external administrator was invalidly appointed. But ordinarily validation without more - more correctly an order declaring that an act, matter or thing or proceeding taken under the Act is not invalid - will be sufficient when concerned with the impact of potential invalidity on prospective events. While, in the present circumstances, an order nunc pro tunc is probably excessively cautious, I was prepared to make the curative order with retrospective effect to resolve any residual doubt as to validity.
[29] Re Wood Parsons Pty Ltd (in liq) [2002] NSWSC 1058; (2002) 43 ACSR 257 [52], [61].
No order may be made under s 1322(4) unless there is satisfaction in terms of s 1322(6). As to the order under s 1322(4), one of the criteria in s 1322(6)(a) must be satisfied. In the present case all three criteria were satisfied: the irregularity was of a procedural nature, Wesfarmers had acted honestly, and it was just and equitable that the order be made. As to s 1322(4)(a) and (d), I must also be satisfied that no substantial injustice has been or is likely to be caused to any person. For the reasons previously given I was so satisfied. That was all the more so given the steps taken by way of remediation. Even if the criteria are satisfied there is a residual discretion as to whether or not to make the order. I was satisfied that it was appropriate to do so in order to better facilitate a scheme that has the overwhelming support of Wesfarmers' members. Accordingly, I made an order under s 1322(2)(d) extending the time for compliance with par 2(g)(i) of the 5 October 2018 orders and a nunc pro tunc order under s 1322(4)(a) declaring that the scheme meeting and the resolution passed at the meeting are not invalid by reason of any contravention of s 412(1) of the Act due to the circulation of the incomplete scheme booklet.
Turning back to the procedural and substantive requirements for approval, notice of the second court hearing was given by way of advertisement in The Australian newspaper on 13 November 2018 in accordance with par 5 of the orders made 5 October 2018.[30]
[30] Affidavit of Baden Furphy affirmed 16 November 2018 par 5.
By letter dated 16 November 2018 the ASIC informed Wesfarmers that, pursuant to s 411(17)(b) of the Act, it had no objection to the proposed scheme. I note, in any case, that having regard to the nature of the demerger proposal I am satisfied that the scheme is not proposed to avoid the operation of Chapter 6 of the Act. Putting to one side the s 411(17) question, there is nothing about the proposed scheme whereby it could sensibly be suggested that the scheme is offensive to public policy. That much is itself implicit in the ASIC's 'no objection' letter.
Accordingly, all statutory pre-conditions to the court's approval were satisfied.
Fairness and reasonableness
At the first hearing, based on the evidence then before the court and for the reasons that I gave, I was satisfied that the proposed demerger scheme is a commercial proposition of such a nature and cast in such terms that there is no apparent reason that it should not receive the court's approval if the requisite majorities were achieved at the scheme meeting.[31] I considered it was a scheme that sensible business people might consider to be to the benefit of Wesfarmers' members.[32]
[31] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [161].
[32] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [159].
In summary, for the reasons that I then gave I concluded that the proposed demerger scheme was one that it would be open for Wesfarmers' members to adopt.[33]
[33] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [115] (see also [115] - [118], [159] - [161]).
Nothing has occurred since 5 October 2018 which justifies any departure from those conclusions. I remain satisfied that the proposed scheme is fair and reasonable such that an intelligent and honest shareholder, properly informed and acting alone informed by his or her interests as shareholder, might approve it. Indeed, my view is now fortified by two subsequent developments. First, the proposed scheme has been supported overwhelmingly by those members who attended the scheme meeting in person or by proxy. Second, no one has come forward to oppose the orders sought approving the scheme.
Also, in reviewing Mr Chaney AO's account of the scheme meeting,[34] I am unable to identify that any substantial issue about the proposed scheme was raised by any member at the meeting.
[34] Affidavit of Michael Chaney AO affirmed 16 November 2018 pars 23 - 46.
Accordingly, I consider that Wesfarmers, as scheme proponent, has met the 'fairness and reasonableness' criterion as explained in Re Seven Network Ltd (No 3).
Similarly, there is nothing to suggest that the statutory majorities were obtained in circumstances where the members voted otherwise than in good faith. Nor is there any basis to suggest improper purpose on the part of the statutory majorities or any proper foundation for a suspicion that there may be oppression.
Full and fair disclosure
At the first hearing, based on the evidence then before the court and for the reasons that I gave, I was satisfied that the draft scheme booklet would provide proper disclosure to the members.[35]
[35] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [130] - [144].
The additional affidavit evidence establishes that the scheme booklet as dispatched to Wesfarmers' ordinary shareholders was substantially in the form approved for distribution by the 5 October 2018 orders.[36]
[36] See footnote 21 above.
Nothing has arisen to suggest that there has not been full and fair disclosure of all information material to the members' decision. For the reasons I gave in approving the draft scheme booklet for distribution I am satisfied that the scheme booklet as distributed met the requirements under s 411(3) and s 412(1) of the Act.
All necessary matters brought to the court's attention
At the first court hearing Wesfarmers, by its counsel, drew a number of matters to my attention. Chief among those was the proposed capital reduction which was an integral part of the proposed demerger scheme. For the reasons I then gave none of those matters, and in particular the proposed capital reduction, was a matter which might have meant that the scheme ought not be approved by the court.
I also raised a number of minor matters for Wesfarmers to consider.[37] Those matters have now been addressed to my satisfaction. Specifically, as to the four matters I noted:
(1)Wesfarmers, by its counsel, informed the court that in accordance with the ASX Listing Rules[38] it was necessary for Wesfarmers to announce its intention to lodge the approval order the day before lodgement occurs. Accordingly, Wesfarmers intends to lodge the approval order with the ASIC on 20 November 2018 and members' expectations as to the 'Effective Date' will be met. Lodgement on 20 November 2018 is contemplated by the approval order as made.
(2)As to satisfaction of the conditions precedent, I have been provided with the affidavit evidence I foreshadowed would be required.
(3)Wesfarmers, by its counsel, suggested a minor alteration to the definition of the 'Implementation Date'. The terms of the proposed alteration addressed the matter I raised. In accordance with s 411(6) of the Act my approval of the proposed scheme was subject to the alteration as proposed by Wesfarmers.
(4)Clause 7.4 provides Wesfarmers, Coles and their officers with an exclusion from liability to scheme participants for acts or omissions done in performance of the scheme or the deed poll in good faith. I questioned whether the clause was necessary or appropriate. Wesfarmers identified that a similar clause had been approved in at least 12 schemes approved since 2006. However, there has been no express curial consideration of the clause.
On its proper construction the clause will not exclude liability for acts or omissions in breach of the scheme terms or in breach of the deed poll. Such acts or omissions could not be in performance of the scheme or the deed poll. Accordingly, the clause will not deprive members of their intended benefits under the scheme. To the extent that the clause offers some comfort to those who must implement the mechanics of the scheme it may be seen as facilitating the scheme. I was thus persuaded that cl 7.4 ought to remain as part of the scheme to be approved.
[37] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [128].
[38] ASX Listing Rules LR 7.40, Appendix 7A r 9.
There was nothing to suggest that Wesfarmers had not brought to my attention all matters that could be considered relevant to the exercise of the discretion to approve the scheme. To the contrary, the thorough and careful way in which Wesfarmers, through both its officers and its legal representatives, has approached the scheme process provided me with confidence that all necessary matters had been brought to my attention.
Other requirements: conditions precedent
Wesfarmers' additional affidavit evidence also addressed the various conditions precedent. Ordinarily, in approving a scheme, the court will require satisfaction that all conditions to which the scheme is subject have been met or waived.
Mr Furphy's 16 November 2018 affidavit confirmed that the ASX had, on that day, approved the admission of Coles to the official list of the ASX and the quotation of its shares on the ASX. That was subject to a number of conditions, some of which had already been satisfied. However, Mr Furphy opined, and I accept, that the remaining conditions were customary and appropriate for this type of transaction and are reasonably capable of satisfaction. Mr Furphy's 19 November 2018 affidavit confirmed that there was no change in position as to regulatory approvals at the time of the hearing. Accordingly, the only substantive condition precedent that remained outstanding was the court's approval under s 411(4)(b) of the Act. (Insofar as there is a formal requirement that the order be lodged with the ASIC the order as made requires Wesfarmers to so lodge.)
Section 411(11) exemption
Wesfarmers sought an exemption from s 411(11) of the Act. No ongoing purpose will be served by requiring the orders approving the scheme to be annexed to Wesfarmers' constitution. They will be a matter of historical interest only upon Coles' demerger from Wesfarmers. Accordingly, I made orders under s 411(12) exempting Wesfarmers from complying with this requirement.
Conclusion and orders
For these reasons I was satisfied that I should approve the proposed scheme of arrangement and make orders substantially in the terms as sought by Wesfarmers.
Accordingly, I made orders in the following terms:
1.Pursuant to s 411(4)(b) and s 411(6) of the Corporations Act 2001 (Cth) (Act) the scheme of arrangement between Wesfarmers Ltd ABN 28 008 984 049 (Wesfarmers) and its members, as set out in section 10 of attachment 'BCF-42' to the affidavit of Baden Charles Furphy affirmed 4 October 2018, is approved with the following alteration to the definition of 'Implementation Date', namely:
'28 November 2018 or such other date as
determined by Wesfarmersapproved by the Court.'2.Pursuant to s 1322(4)(d) of the Act the time for compliance with par 2(g)(i) of the orders of the court made 5 October 2018 is extended to 13 October 2018.
3.Pursuant to s 1322(4)(a) of the Act the court declares that, with effect nunc pro tunc from the time they occurred, the following acts, matters and things, namely:
(a)the scheme meeting; and
(b)the resolution passed at the scheme meeting,
are not invalid by reason of any contravention of s 412(1) of the Act insofar as members who received electronic notification of the scheme meeting by email on 12 October 2018 received an incomplete scheme booklet.
4.Pursuant to s 411(12) of the Act Wesfarmers is exempted from compliance with s 411(11) of the Act in relation to the scheme of arrangement referred to in par 1.
5.Wesfarmers lodge an office copy of these orders with the Australian Securities and Investments Commission on 20 November 2018.
6.Wesfarmers have liberty to apply.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CC
RESEARCH ASSOCIATE TO THE HONOURABLE JUSTICE VAUGHAN19 NOVEMBER 2018
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