RHG Limited, in the matter of RHG Limited

[2013] FCA 1169

FEDERAL COURT OF AUSTRALIA

RHG Limited, in the matter of RHG Limited [2013] FCA 1169

Citation:	RHG Limited, in the matter of RHG Limited [2013] FCA 1169
Parties:	RHG LIMITED ACN 055 136 564
File number:	NSD 1661 of 2013
Judge:	JACOBSON J
Date of judgment:	7 November 2013
Catchwords:	CORPORATIONS – scheme of arrangement – application for the convening of a meeting under s 411 of the Corporations Act 2001 (Cth)
Legislation:	Corporations Act 2001 (Cth) s 411(1)
Date of hearing:	7 November 2013
Date of last submissions:	7 November 2013
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	19
Counsel for the Plaintiff:	Mr M Oakes SC with Mr S Nixon
Solicitor for the Plaintiff:	King & Wood Mallesons
Counsel for Australian Mortgage Acquisition Company Pty Limited and Resimac Limited as amicus:	Ms K Morgan
Solicitor for Australian Mortgage Acquisition Company Pty Limited and Resimac Limited as amicus:	Herbert Smith Freehills

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1661 of 2013

IN THE MATTER OF RHG LIMITED (ACN 055 136 564)

RHG LIMITED ACN 055 136 564 Plaintiff
JUDGE:	JACOBSON J
DATE OF ORDER:	7 NOVEMBER 2013
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.Pursuant to section 411(1) of the Corporations Act 2001 (Cth) ("Act"), the Plaintiff convene a meeting ("Scheme Meeting") of the shareholders of the Plaintiff for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed between the Plaintiff and its shareholders ("Scheme"), being the scheme substantially in the form contained at Annexure C of the scheme book prepared by the Plaintiff in the form of Tab 8 of Exhibit GWG-1 to the Affidavit of Glenn William Goddard sworn 6 November 2013 in these proceedings ("Scheme Book").

2.The Scheme Meeting be held on 18 December 2013 at the Wesley Conference Centre, 220 Pitt Street, Sydney in the State of New South Wales.

3.The Chairman of the Scheme Meeting be Mr Glenn William Goddard and, in his absence, Mr John Warwick Kean.

4.The Chairman appointed to the Scheme Meeting has the power to adjourn the Scheme Meeting in his absolute discretion.

5.Except for procedural motions, all voting at the Scheme Meeting be by poll as declared by the Chairman.

6.The Scheme Book substantially in the form of Tab 8 of Exhibit GWG-1 to the Affidavit of Glenn William Goddard sworn 6 November 2013, is approved for distribution to shareholders of the Plaintiff, together with the Proxy Form for the Scheme Meeting (substantially in the form of the pro forma copy at Tab 9 of Exhibit GWG-1 to the Affidavit of Glenn William Goddard sworn 6 November 2013 in these proceedings).

7.Regulations 5.6.12 and 5.6.14 to 5.6.36A of the Corporations Regulations 2001 (Cth) will not apply to the Scheme Meeting.

8.The plaintiff be relieved of compliance with rule 3.4 of the Federal Court (Corporations) Rules 2000, conditional upon the Plaintiff publishing once in The Australian newspaper, on or before Thursday, 12 December 2013, an advertisement substantially in the form of Annexure "A" to this order.

9.The Originating Process be adjourned to 10.15 am on Friday, 20 December 2013, before Justice Jacobson.

10.Liberty to apply.

11.These orders be entered forthwith.

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

Annexure “A”

Notice of hearing to approve compromise or arrangement

TO all the creditors and members of RHG Limited (ACN 055 136 564).

TAKE NOTICE that, in the event that a resolution proposing the approval of a compromise or arrangement between RHG Limited and its members is approved by the requisite majority at a meeting of the members of the above-mentioned company to be held on 18 December 2013, the Federal Court of Australia at Queens Square, Sydney will, at 10.15 a.m. on 20 December 2013, hear an application by the above-mentioned company seeking the approval of that compromise or arrangement.

lf you wish to oppose the approval of the compromise or arrangement, you must file and serve on the plaintiff a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on the plaintiff at its address for service at least 1 day before the date fixed for the hearing of the application.

The address for service of the plaintiff is:

Attention: Alexander Morris

King & Wood Mallesons

Level 61

Governor Phillip Tower

1 Farrer Place

Sydney NSW 2000

Name of person giving notice or of person's legal practitioner: Alexander Morris

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1661 of 2013

IN THE MATTER OF RHG LIMITED (ACN 055 136 564)

RHG LIMITED ACN 055 136 564
Plaintiff

JUDGE:	JACOBSON J
DATE:	7 NOVEMBER 2013
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. This is the first Court hearing of an application to approve a scheme of arrangement between the plaintiff, RHG Limited (RHG) and its shareholders.  The scheme is a standard form of acquisition in terms to which I will refer shortly. 

2. RHG is a publicly listed Australian company which manages a book of residential home loans in Australia.  The loan book has been in run-off since November 2007 when RHG sold the well-known RAMS brand and other assets to Westpac Banking Corporation.  The operations of RHG since that time have been limited to the funding and servicing of the loan book that was in existence prior to November 2007 with the exception of some sales of mortgage assets to third parties.

3. There has been a competitive bidding process culminating in the proposal which is the subject of the scheme.  The competitive bidding process is described in detail in the scheme booklet.  It commenced in May 2013 when RHG announced that a syndicate compromising Resimac Limited (Resimac) and Australian Mortgage Acquisition Company Pty Limited (AMAC, AMAC and Resimac being referred to collectively in the documentation as the Resimac Syndicate) submitted a proposal under which the Resimac Syndicate would acquire 100 per cent of the issued shares in RHG pursuant to a scheme of arrangement.

4. The consideration payable under the proposed scheme has been revised several times as a result of a competing offer.  If the scheme is approved, shareholders of RHG will receive cash of $0.501 for each RHG share upon completion. 

5. A competing offer was made by another syndicate comprising Pepper Australia Pty Limited (Pepper) and Cadence Capital Limited (Cadence).  That offer proposed an alternate transaction to acquire the whole of the capital of RHG for a combination of cash and shares in Cadence.  However, on 25 October 2013, Pepper issued a press release which stated that Pepper and Cadence had decided to withdraw their offer.  This was confirmed by an ASX announcement issued on 28 October 2013.  Accordingly, the only proposed offer for the acquisition of the shares in RHG is the proposal to which I have referred.

6. In the course of submissions this morning, Mr Oakes SC drew my attention to an announcement made by Cadence on 4 November 2013 which relates to a proposed share placement by Cadence which contemplates the possibility of existing RHG shareholders having an opportunity to join the Cadence register through a priority allocation of shares. 

7. RHG, on the same date, issued an announcement in which it noted that so far as it is aware the proposed placement is not conditional on and is independent of the scheme proposal put forward by AMAC and Resimac.  Accordingly, nothing further need be said about that issue.

8. As I have said, the scheme is a straightforward acquisition scheme. It provides that AMAC will acquire all of the RHG shares for the consideration to which I have referred. The scheme is subject to a number of conditions precedent including the passing of a resolution to be put forward at a general meeting of RHG shareholders under ss 260A(1)(b) and 260B of the Corporations Act 2001 (Cth) to approve the payment of amounts by RHG and its wholly owned subsidiary RHG Home Loans Pty Limited (RHGHL) directly or indirectly to AMAC after the scheme is implemented.

9. The resolution is described in the documentation as the financial assistance resolution.  The reason why this resolution is necessary is explained in the scheme booklet in section 7 which explains the funding arrangements that have been put in place.  These commence with a description of AMAC which is a special purpose company established by Mr Trevor Loewensohn for the sole purpose of acquiring 100 per cent of the shares in RHG under the scheme.  Mr Loewensohn is a former director of RHG.  He resigned from the board in March 2013.  He is also the managing director of a company called Alceon GT Pty Ltd (Alceon) which ceased to be a substantial shareholder of RHG in March 2013.

10. Resimac is an unlisted public company with its major shareholder being Ingot Capital Management Limited (Ingot) which currently holds 86.95 per cent of the shares.  Ingot is the investment manager of two diversified investment funds listed on the London Stock Exchange.  Ingot is ultimately owned by Mr Duncan Saville. 

11. AMAC’s rationale for acquiring the RHG shares under the scheme is that immediately after becoming the beneficial owner of the shares of RHG, AMAC will cause relevant RHG group companies and certain other entities to sell the assets to Resimac.  AMAC will effectively retain the RHG group companies and the assets and liabilities of those companies that are not sold to Resimac, and will discharge all of the remaining obligations relating to the RHG group entities and wind them down as appropriate over time.  AMAC expects to have a surplus of net assets available to it following the winding down of the RHG group entities.

12. The cash consideration to be provided by AMAC under the terms of the Merger Implementation Deed and the Deed Poll is slightly in excess of $154 million based on slightly in excess of 308 million scheme shares on issue.  The total amount of funding available to AMAC is sufficient to pay the aggregate scheme consideration.  Resimac guarantees the due and punctual performance and observance by AMAC of its obligations to pay the scheme consideration.

13. AMAC has a binding agreement to obtain loan funding from both Resimac and Alceon.  The purpose of the financial assistance resolution, as explained in paragraph 7.3(b) of the scheme booklet, is to allow RHG and RHGHL to provide some of their funds directly or indirectly to AMAC to repay the loans from Alceon and Resimac following implementation of the scheme and subsequent proposed sale of the assets to Resimac. 

14. In limited circumstances where the asset sale is not completed within two business days of the implementation of the scheme, it will allow the grant by RHG of an all assets security in favour of National Australia Bank Limited which will provide financing for part of the scheme consideration.  The funds which RHG and RHGHL (once under the control of AMAC) will provide are to come predominantly from existing balance sheet cash and other assets referred to in paragraph 7.3(b).  The scheme is conditional upon the passing of the financial assistance resolution.

15. The directors of RHG have unanimously recommended that RHG shareholders vote in favour of the scheme at the scheme meeting, and the financial assistance resolution at the general meeting, in the absence of a superior proposal and subject to the independent expert continuing to conclude that the scheme is in the best interests of RHG shareholders. 

16. The independent expert, Deloitte, has concluded that, in its opinion, the proposed scheme is fair and reasonable and therefore in the best interests of shareholders.  In coming to that view, Deloitte has estimated the fair market value of a share in RHG at a low of $0.419 and a high of $0.459 which, of course, is less than the scheme consideration.

17. Mr Oakes and Mr Nixon have dealt with all of the issues which arise on the present application in their comprehensive written submissions, which I will mark MFI1.  I need not refer to them any further. 

18. One matter which Mr Oakes addressed orally this morning was the question of the break fee.  I’m satisfied for the reasons set out in the written submissions and for the reasons further explained by Mr Oakes this morning that the provisions for the break fee are in accordance with accepted practice. 

19. Accordingly, I propose to make orders in terms of the draft orders which I will sign and date and place with the Court papers.

I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Associate:

Dated:       7 November 2013