Ricegrowers Limited, in the matter of Ricegrowers Limited
[2011] FCA 408
•21 April 2011
FEDERAL COURT OF AUSTRALIA
Ricegrowers Limited, in the matter of Ricegrowers Limited [2011] FCA 408
Citation: Ricegrowers Limited, in the matter of Ricegrowers Limited [2011] FCA 408 Parties: RICEGROWERS LIMITED (ACN 007 481 156) File number: NSD 426 of 2011 Judge: STONE J Date of judgment: 21 April 2011 Catchwords: CORPORATIONS – Corporations Act 2001 (Cth) – s 411(1) – scheme of arrangement – application for orders approving company convening separate meetings for A Class and B Class shareholders to consider proposed scheme of arrangement and directions as to conduct of meeting – ASIC exemption under s 196(1) Corporations Act 2001 (Cth) Legislation: Corporations Act 2001 (Cth) – s 196(1), s 411(1), (4)(b), s 412(1)(a)
Foreign Acquisitions and Takeovers Act 1975 (Cth)
Competition and Consumer Act 2010 (Cth) s 51
Rice Marketing Act 1983 (NSW) s 56, s 164(3)Competition Code of New South Wales
Corporations Regulations 2001 cl 8302(d) and cl 8302(h) of Part 3 Schedule 8Cases cited: Re ABB Grain Ltd [2010] FCA 1309
Re APN News & Media Limited (2007) 62 ACSR 400
Re Arthur Yates & Co Ltd (2001) 36 ACSR 40Re Australian Co-operative Foods Ltd [2001] NSWSC 382, (2001) 38 ACSR 71
Re Investa Properties Limited [2007] FCA 1104, (2007) 25 ACLC 1186
Re Macquarie Private Capital A Limited [2008] NSWSC 323, (2008) 26 ACLC 366
Re SFE Corporation Ltd [2006] FCA 670, (2006) 59 ACSR 82Date of hearing: 18 April 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 45 Counsel for the Plaintiff: F Gleeson SC with M Izzo Solicitors for the Plaintiff: Chang, Pistilli & Simmons Counsel for Ebro Foods SA: M Oakes SC Solicitors for Ebro Foods SA: DLA Phillips Fox
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 426 of 2011
IN THE MATTER OF RICEGROWERS LIMITED (ACN 007 481 156)
RICEGROWERS LIMITED (ACN 007 481 156)
Plaintiff
JUDGE:
STONE J
DATE OF ORDER:
18 APRIL 2011
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.Pursuant to s 411(1) of the Corporations Act 2001 (“Act”):
aThe plaintiff, Ricegrowers Limited (“SunRice”) convene a meeting (“A Class scheme meeting”) of the holders of A Class Shares in SunRice (“A Class Shareholders”) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement to be made between SunRice and its A Class Shareholders and the holders of B Class Shares in SunRice (together “Shareholders”) being the scheme substantially in the form contained in the explanatory statement in relation to the Scheme (“Scheme Booklet”), which is Exhibit 1 in the proceedings.
bThe A Class scheme meeting be held at 10.00am on Tuesday, 31 May 2011 at the Jerilderie Civic Hall, 33 Jerilderie Street, Jerilderie, New South Wales.
cSunRice convene a meeting (“B Class scheme meeting”) of holders of B Class Shares in SunRice (“B Class Shareholders”) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement to be made between SunRice and its Shareholders being the scheme substantially in the form contained in the Scheme Booklet.
dThe B Class scheme meeting be held at the later of 11.00am and the conclusion or adjournment of the A Class scheme meeting, on Tuesday, 31 May 2011 at the Jerilderie Civic Hall, 33 Jerilderie Street, Jerilderie, New South Wales.
2.Gerard Francis Lawson, or failing him, David Mark Robertson, act as Chairperson of the A Class scheme meeting and B Class scheme meeting (collectively “the Scheme Meetings”).
3.The Chairperson appointed to the Scheme Meetings have power to adjourn the Scheme Meetings in his absolute discretion.
4.All voting at the Scheme Meetings to be by poll as declared by the Chairperson, except for procedural motions.
5.Pursuant to subsection 411(1) of the Act, the Scheme Booklet be approved for distribution to Shareholders.
6.Other than regulation 5.6.13 of the Corporations Regulations 2001, rule 2.15 of the Federal Court (Corporations) Rules 2000 (“Rules”) shall not apply to the Scheme Meetings
7.Notice of the hearing of an application pursuant to subsection 411(4)(b) of the Act for orders approving the Scheme be published by an advertisement substantially in the form of Annexure “A” to this order, such advertisement to be published on or before 30 May 2011 in each of the “The Australian” and “The Land” newspapers, and that SunRice otherwise be exempted from compliance with rule 3.4 of the Rules.
8.The Originating Process filed 11 April 2011 be adjourned to 10:15am on Monday, 6 June 2011.
9.Liberty to apply on 2 days’ notice.
10.These orders be entered forthwith.
Annexure A
NOTICE OF HEARING TO APPROVE COMPROMISE OR ARRANGEMENT
TO all the creditors and shareholders of Ricegrowers Limited (ACN 007 481 156)
TAKE NOTICE that at 10.15 am on Monday, 6 June 2011, the Federal Court of Australia at Queens Square, Sydney, New South Wales, will hear an application by Ricegrowers Limited seeking the approval of an arrangement between Ricegrowers Limited and its members if agreed to by a resolution to be considered by meetings of the shareholders of the company to be held at:
(a)10.00am on Tuesday, 31 May 2011 at the Jerilderie Civic Hall, 33 Jerilderie Street, Jerilderie, New South Wales for A Class shareholders; and
(b)the later of 11.00am and the conclusion or adjournment of the A Class scheme meeting, on Tuesday, 31 May 2011 at the Jerilderie Civic Hall, 33 Jerilderie Street, Jerilderie, New South Wales for B Class shareholders.
If you wish to oppose the approval of the arrangement, you must file and serve on Ricegrowers Limited 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 Ricegrowers Limited at its address for service below at least one day before the date fixed for the hearing of the application.
The address for service of Ricegrowers Limited is:
c/- Chang, Pistilli & Simmons
Level 13, Plaza Building
Australia Square
95 Pitt Street
SYDNEY NSW 2000
Attention: Tim Grave
Ph: (02) 8922 8000
Fx: (02) 8922 8088
Tim Grave
Solicitor for the Plaintiff, Ricegrowers LimitedNote:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 426 of 2011
IN THE MATTER OF RICEGROWERS LIMITED (ACN 007 481 156)
RICEGROWERS LIMITED (ACN 007 481 156)
Plaintiff
JUDGE:
STONE J
DATE:
21 APRIL 2011
PLACE:
SYDNEY
REASONS FOR JUDGMENT
By application under s 411(1) of the Corporations Act 2001 (Cth) filed on 11 April 2011 the plaintiff, Ricegrowers Limited (SunRice) seeks orders for the convening of separate meetings of its A and B Class shareholders to consider a proposed scheme of arrangement (Scheme). Pursuant to the Scheme Ebro Foods SA (Ebro) will acquire all of the issued shares in SunRice. The application came on for hearing on 18 April 2011 and, at the conclusion of the hearing I made the orders sought by the plaintiff. These are my reasons for those orders.
Ebro
Ebro is a company incorporated in Spain and part of a leading corporate group in the Spanish food sector. Its shares are listed on the Madrid Stock Exchange, the Bolsa de Madrid. Ebro’s assets as at 31 December 2010 were approximately €1.6 billion. It proposes to fund the consideration payable under the Scheme from its existing cash resources.
SunRice
SunRice carries on the business of acquiring, milling and marketing rice. It was originally formed as a co-operative through which rice growers could process their rice for sale to consumers. It is now a public company limited by shares and listed on the National Stock Exchange of Australia (NSX).
Shades of SunRice’s history as a co-operative can be seen in the organisation of its share capital which consists of A and B Class shares. A Class shares are redeemable preference shares that entitle the holder to vote but do not carry any entitlement to dividends. B Class shares are non-voting shares however they entitle the holder to dividends. A Class shares can only be issued to persons who were originally members of the co-operative or who are Active Growers, or whom the Board of SunRice believes will become Active Growers. Clause 1.1 of SunRice’s Constitution defines an Active Grower as:
any person who, on a particular date (“Test Date”) has supplied not less than one tonne of paddy rice (being the produce of that grower and not acquired for delivery) to the Company during the period from and including the beginning of the Two Year Delivery Period up to and including the day before the Test Date.
In the same clause, ‘paddy rice’ is described as ‘harvested rice in an unprocessed state’.
The marketing of rice grown in New South Wales is controlled by the provisions of the Rice Marketing Act 1983 (NSW). By force of a proclamation made under s 56 of that Act all paddy rice produced in NSW is vested in the Rice Marketing Board (RMB) however under s 57(8) of the Act, sales of rice to a buyer authorised by the RMB are exempt from the operation of s 56. The RMB has appointed SunRice as an authorised buyer to acquire rice produced in NSW for domestic resale. SunRice is one of seven of such authorised buyers however it is the only one of the seven authorised to export the rice it acquires.
The right to export rice was granted under a Sole and Exclusive Export Agreement to which SunRice and RMB are parties. The Agreement was initially entered into in 2006 and restated on 28 June 2007. Clause 4 of the Agreement requires SunRice to “accept all Rice of merchantable quality offered to it by the Rice Producers” of NSW and “to operate an equitable crop marketing and payment scheme”. By operation of s 164(3) of the Rice Marketing Act and s 51 of the Competition and Consumer Act 2010 (Cth) these arrangements are exempt from the restrictive trade practices provisions of the Commonwealth Act and the Competition Code of New South Wales.
Evidence
Evidence in support of the application was given in the following affidavits which were read at the hearing:
·two affidavits of Gerard Francis Lawson sworn respectively on 7 and 15 April 2011. Mr Lawson is a non-executive director and Chairman of SunRice;
·affidavit of David Mark Robertson sworn 7 April 2011. Mr Robertson is a director and Deputy Chairman of SunRice;
·affidavit of Bradley Leonard Hingle affirmed on 7 April 2007. Mr Hingle is the Chief Financial Officer of SunRice;
·affidavit of Madeleine Frances del Gigante sworn on 13 April 2011. Ms del Gigante is the secretary of SunRice, a position she shares with Mr Hingle;
·affidavit of Grant Frederick Latta affirmed on 14 April 2011. Mr Latta is a director of SunRice and, through an entity in which he has an interest, a shareholder of SunRice;
·affidavit of Gary Helou sworn on 14 April 2011. Mr Helou is an executive director and the Chief Executive Officer of SunRice;
·affidavit of Craig Lloyd Edwards sworn on 14 April 2011. Mr Edwards is a Chartered Accountant and Managing Director of Lonergan Edwards & Associates a specialist valuation firm appointed as the independent expert in relation to the Scheme;
·affidavit of Philip Martin Holt sworn on 14 April 2011. Mr Holt is a Chartered Accountant and Director of Lonergan Edwards & Associates;
·two affidavits of Jane Ann Gray affirmed 15 April 2011. Ms Gray is a solicitor and Special Counsel with Chang, Pistilli and Simmons who act for SunRice in connection with the proposed Scheme;
·Affidavit of Antonio Hernández Callejas sworn 14 April 2011. Mr Hernández is the Chairman of Ebro.
The Scheme
If the Scheme becomes effective all SunRice shares (A and B Class) will be transferred to Ebro. In return the shareholders will receive $50,000 in cash for each A Class share and $5.025 for each B Class share. In the latter case the payment may be comprised of a dividend of $1.407 from SunRice and the balance of $3.618 from Ebro or, if SunRice revokes the proposed special dividend the whole amount will be paid by Ebro. The total value of the transaction proposed under the Scheme is approximately $314.8 million, including a proposed special dividend by SunRice of approximately $76.9 million. Once the Scheme has been implemented the B Class shares will be removed from quotation on the NSX.
Encumbrances and deemed warranties
Clause 7.2(a) of the Scheme provides that, to the extent permitted by law, shares transferred under the Scheme will be transferred free of encumbrances. The ability of such a clause to affect the rights of third parties is limited by the words, “to the extent permitted by law” which indicates, what would in any event be the case, namely that the rights of third parties of which Ebro has notice will be unaffected.
Under clause 7.2(b) of the Scheme, the Shareholders each warrant that all their shares transferred under the Scheme will be, at the date of transfer, fully paid and free from encumbrances and restrictions and that they have full power and capacity to sell the whole of their interests in the shares. A breach of this warranty will lead to the consideration payable to the relevant Shareholder being diminished by the obligation to repay the amount required to discharge the encumbrance.
Provided that these provisions are adequately disclosed in the Scheme Booklet they do not preclude Court approval under s 411(1); Re Investa Properties Limited [2007] FCA 1104, (2007) 25 ACLC 1186 at [22]-[30]; Re Macquarie Private Capital A Limited [2008] NSWSC 323, (2008) 26 ACLC 366 at [13]-[14] and Re ABB Grain Ltd [2010] FCA 1309 at [34]-[39]. In this case the Scheme Booklet discloses the provisions at [9.17]
Implementing the Scheme
The funds for the payment of the special dividend will be provided by Ebro which will subscribe $76,966,697 for 76,966,697 C Class shares in SunRice. Under clause 4.2 of the Scheme this payment will be deposited in cleared funds into a bank account opened by SunRice for the purpose. The C Class shares will not be issued until Ebro has made the payment. Ebro will also deposit the balance of the amount to be paid to Shareholders into a trust account operated by DLA Phillips Fox, the company’s Australian solicitors. On the Implementation Date for the Scheme the Scheme Consideration will be paid into a trust account operated by SunRice as trustee for its Shareholders. The transfer of A and B Class shares to Ebro will not occur until after the payment has been made. SunRice will make the payments due to its Shareholders within 5 business days after the Implementation Date.
Performance risk
The risk of Shareholders suffering a delay or default in payment of the Scheme Consideration is adequately addressed by the timing of payments described above. As the issue of C Class shares and the transfer of shares will not occur until Ebro has made the necessary payments as described above, Shareholders are protected from such delays or default; Re SFE Corporation Ltd [2006] FCA 670, (2006) 59 ACSR 82 at [4] and Re APN News & Media Limited (2007) 62 ACSR 400 at [23]. Although Ebro has guaranteed performance of its obligations under the Scheme by delivery to SunRice of an executed Deed Poll in favour of SunRice Shareholders, the timing of payments and transfers is such that Shareholders are unlikely to have to rely on that guarantee.
If Ebro does not make payment for the issue of C Class shares the directors of SunRice will be forced to revoke their decision to pay the proposed dividend. In that case the Scheme Consideration will increase to $5.025 in respect of each B Class share. If that payment is not made SunRice is entitled to terminate the Scheme Implementation Agreement (SIA) and consequently the Scheme will lapse.
The Scheme Implementation Agreement
On 25 November 2010, SunRice and Ebro entered into the SIA which was amended and restated on 11 February 2011 and again on 31 March 2011 and is now entitled, Amendment and Restatement Agreement. Under the SIA, SunRice and Ebro agreed to propose and implement the Scheme subject to Court approval and the satisfaction or waiver of various conditions in the SIA. In addition to the conditions precedent, the terms of the SIA include many which are common in schemes of arrangement such as this Scheme including provision for a break fee and no shop, no talk provisions.
Conditions precedent
Clause 3.1 of the SIA provides that the Scheme will not become effective and the parties will not be bound by their obligations to implement the Scheme until the Australian Securities and Investments Commission (ASIC) and the NSX provide all necessary and reasonably desirable consents, the Australian Competition and Consumer Commission has provided informal clearance, governmental approval under the Foreign Acquisitions and Takeovers Act 1975 (Cth) has been obtained and United States Anti-Trust requirements have been met. In addition there must have been no Material Adverse Change to either of SunRice or Ebro and there must have been no insolvency event in respect of either company.
A Material Adverse Change would include a change in the law. Relevantly, Mr Gleeson drew to the Court’s attention that SunRice losing its ability to export rice grown in New South Wales or its status as an authorised buyer of rice would fall within this concept. The written submissions make the following points in relation to this question:
It is possible that future regulatory changes will affect the ability of SunRice to continue to purchase rice from growers, or to purchase it at the prices prescribed in the Paddy Purchase and Pricing Rules. For instance, although the RMB has confirmed that if the Scheme proceeds the agreement will be extended until 20 June 2016 … there is no certainty that vesting of rice in the RMB will continue until that date. The current proclamation made under s 56 of the Act expires on 31 January 2013 …
The Continuity Undertaking provides that, if any of its provisions becomes illegal or prohibited the operation of that provision is suspended pending the obtaining of any necessary approval, which approval Ebro undertakes to seek promptly and using all reasonable endeavours …
The regulatory risk is drawn to Shareholders’ attention in the section 10.6 of the Scheme Booklet. In particular there is a full description of a review of the Rice Marketing Act which took place in later 2010. The Booklet states:
The Rice Marketing Act review has found that the policy objectives of the Rice Marketing Act remain valid and the provisions of that Act (which include vesting and the single export desk) remain efficient for the purpose of achieving these objectives. The Rice Marketing Act review has not yet been adopted or implemented by Government. Changes to the structure of the industry may occur in the future.
Implementation of the Scheme is also dependent upon the various steps in the implementation of the Scheme being taken. In particular, it is necessary for SunRice Shareholders to pass two resolutions at an Extraordinary General Meeting to be held after the Scheme Meetings. The resolutions are necessary to amend the Constitution of the company to enable it to issue C Class shares to Ebro and then to approve the issue of those shares. Each resolution is explained in section 15.2 of the Scheme Booklet. There is also an explanation of the consequences should the Scheme not be implemented because of Ebro’s failure to make the payments to which it has committed. The details are set out clearly in a table which links a statement of each change to the relevant explanation.
Break Fee
The SIA provides for payment of a break fee of $3.148 million. The obligation to pay this fee arises if the Scheme does not proceed for a number of reasons relating to a Competing Proposal. Importantly the fee is not payable if the Scheme is rejected by Shareholders or the necessary changes to the Constitution of SunRice are not approved.
The amount of the break fee is slightly over the 1% of equity value referred to in the Takeovers Panel’s Guidance Note 7: Lock-up Devices (2nd Issue, 2005). At the hearing, senior counsel for SunRice, Mr Gleeson, explained that when negotiated the break fee had been 0.9998%, that is just under the recommended 1% however the deaths of four shareholders and an error in double counting one shareholder had taken it to 1.0007%, slightly over the recommended value.
In his affidavit of 14 April 2011, Mr Helou stated his belief that the Break Fee does not operate against the interests of SunRice Shareholders and that it was in their interests for it to be included so as to secure the benefit of the proposed Scheme. He also referred to negotiations between SunRice and Ebro in which each party was legally represented and to cl 11.4(a) of the SIA in which SunRice confirms that it received legal advice in relation to the operation of the clause and states that it considers the provision “to be fair and reasonable” and appropriate in order to secure “significant benefits” to SunRice and its Shareholders.
The 1% of equity value referred to in the Guidance Note is by way of guidance as to what would be a reasonable fee taking into account the expenditure incurred, in this case, by Ebro and whether the amount would be likely to deter competing offers or impose pressure on Shareholders to vote in favour of the proposal. In this case the fact that the fee is not payable if the Scheme fails for lack of Shareholder approval means that there is no likelihood of the latter problem. In my view the increase in the percentage of equity value represented by the break fee is so small as to be immaterial and would be unlikely to deter a competing proposal. See generally Re APN News & Media Limited (2007) 62 ACSR 400, [2007] FCA 770 at [43]-[[54]. The break fee is disclosed clearly and in some detail in the Scheme Booklet at 9.14 and 12.4.
No shop, no talk
The SIA also provides for an exclusivity period during which SunRice, without Ebro’s written consent, must not solicit, initiate or invite discussions which might lead to a competing proposal or participate in any such discussions. Such provisions are common in schemes of arrangement such as the Scheme under consideration here. They embody a practical and commercially desirable compromise between the interests of the parties. They have been held not to preclude Court approval of a Scheme so long as they are lawful, apply for no more than a reasonable period and are subject to the overriding fiduciary obligations of the directors. In addition they must be clearly disclosed in the Scheme Booklet; Re Arthur Yates & Co Ltd (2001) 36 ACSR 40 at [9].
The exclusivity provisions in the SIA meet these requirements. The period extends from 25 November 2010 when the SIA was initially signed and concludes no later than 30 June 2011. In all the circumstances of this proposal I do not think that this period, the expiration of which is precisely identified, is unreasonable. The exception in favour of Directors’ fiduciary obligations in clause 12.2 of the SIA applies where the SunRice Board acts in good faith in relation to a bona fide competing proposal that was not solicited or invited, or an expression of interest which might reasonably be expected to lead to such a proposal and where the Board has received written legal advice that a failure to respond would be likely to involve a breach of fiduciary or statutory obligations. The exclusivity period, and in particular these aspects of it, are adequately discussed at 12.3 of the Scheme Booklet.
The Continuity Undertaking
The fact that holders of A Class shares in SunRice must be, or be likely to become, Active Growers, indicates that the interests of many of the Shareholders in SunRice extend beyond their status as Shareholders. They inevitably have a continuing interest in the marketing of their rice and the ongoing opportunities for export. These interests are addressed in ongoing commitments that Ebro has made to ensure that SunRice continues to support the rice industry. These commitments are contained in a deed poll entitled the Continuity Undertaking Deed Poll which is annexed to the Scheme Booklet. The Chairman’s letter in the Scheme Booklet describes the Continuity Undertaking Deed Poll as follows:
The commitments include a rolling seven year paddy price mechanism for up to 800,000 tonnes of medium grain rice calculated by reference to Californian medium grain rice prices. Under the Paddy Purchase and Pricing Rules, Ebro can only elect to terminate this commitment at the end of a seven year rolling period if there has been a material adverse change in business conditions during that period. The Paddy Purchase and Pricing Rules also allow for the commitment to be varied or terminated earlier if there is a change in regulatory conditions.
Ebro has also undertaken to support the NSW rice industry, the Ricegrowers’ Association of Australia Inc … and research and development.
These arrangements and Ebro’s ongoing relationship with Growers will be governed by the Ebro Group Undertaking which provides significant protection to Growers, including the establishment of a Grower Advisory Board.
Mr Helou referred to the history of SunRice as a co-operative in explanation of his experience that SunRice Shareholders “have certain expectations as to the level of communication and transparency in dealings in the operation of SunRice”. He explained that for this reason since the announcement of the proposed Scheme a total of 6 meetings with growers have been held to present and explain the terms of the proposal. A copy of the slideshow presentation given at those meetings was exhibited to Mr Helou’s affidavit.
While direct communication such as described by Mr Helou is likely to be helpful in the present circumstances it is necessary to bear in mind Santow J’s warning in Re Australian Co-operative Foods Ltd [2001] NSWSC 382, (2001) 38 ACSR 71 at [89] to the effect that it is important to ensure that any such communication does not detract from the impact of the scheme information or qualify its impact. In my opinion the information in the slideshow presentation is consistent with the information in the Scheme documents and does not fall into the trap to which Santow J referred.
There is one other matter relevant to the Continuity Undertaking that Mr Gleeson drew to the Court’s attention and which is addressed in Mr Helou’s affidavit. It concerns the redemption of A Class shares which, under SunRice’s Constitution, the Board has power to do if a member ceases to be an Active Grower. In February 2010 the Board exercised this power and redeemed the shares of 285 A class members. Mr Helou described how a number of complaints had been received in relation to these redemptions. He stated that:
A mechanism has been included in the Continuity Undertaking (“Review Mechanism”) under which, after implementation of the Proposal, a retired Judge will hear applications from eligible persons claiming financial compensation because they believe they have a legal claim against SunRice in connection with the 2010 Redemption. At clause 14 of the Continuity Undertaking, Ebro undertakes to establish and procure the conduct of the review of the 2010 Redemption in accordance with Review Rules which are set out at schedule 3 to the Continuity Undertaking, to implement resulting decisions and pay compensation by SunRice where applicable.
If a former A Class Shareholder is found to be entitled to compensation the Judge can award compensation to a maximum of $50,000. The total fund to pay compensation is capped at $2.5 million including Ebro’s costs of the review process. Mr Helou deposed that since 21 October 2010 SunRice had received 30 written complaints from former A Class Shareholders. Information about the 2010 redemption, the A Class Shareholder claims and the Review process is given at sections 9.19 and 13.11 of the Scheme Booklet.
The Scheme Booklet
The Scheme Booklet, which forms the explanatory statement required under s 412(1)(a) of the Corporations Act was exhibited to the first affidavit of Mr Helou. It was separately tendered as Exhibit 1 in the proceeding. Annexed to it are the respective notices of the Scheme Meetings for A and B Class Shareholders; notice of the Extraordinary General Meeting, The Scheme, the Deed Poll referred to at [13] above, the Continuity Undertaking Deed Poll, the Independent Expert’s Report and a letter to Shareholders from the Rice Marketing Board (RMB) concerning the continuation of the Sole and Exclusive Export Agreement.
Pursuant to s 412(1)(a)(i) and (ii) the Scheme Booklet must be sent to each Shareholder with the notice of the Shareholder meetings. The Scheme Booklet must explain the effect of the Scheme, state the material interests of the Directors “and the effect on those interests of the [Scheme] in so far as that effect is different from the effect on the like interests of any other persons”. It must also set out prescribed information and any other information “material” to the Shareholders’ decisions whether to support the Scheme. In view of the material summarised below, I am satisfied that the Scheme Booklet meets these requirements.
The Chairman’s letter to Shareholders contained in the Scheme Booklet advises that the Directors unanimously recommend that Shareholders vote in favour of the proposal and summarises the considerations that have led the Directors to that recommendation. It also gives summary details of the voting process and the Scheme Meetings as well as referring to the Independent Expert’s report and the fact that the RMB has given its consent to the continuation of the Sole and Exclusive Export Agreement after the change in control of SunRice that will occur if the Scheme is implemented and has agreed to continue the term of the Agreement to 30 June 2016.
Section 1 of the Booklet contains important questions and answers. In tabular form this section sets out questions concerning the key aspects of the proposal and gives a quite detailed answer in clear and easily understood language. As well as the nature of the proposal, the manner of its implementation and the payments to be made under it, this section addresses the views of the Independent Expert and the RMB, issues relating to the paddy purchasing and pricing for the rice crops of 2010 and 2011, future arrangements for paddy pricing, the establishment of a Grower Advisory Board and its functions and many other issues.
Sections 2 and 3 of the Booklet summarise, respectively, reasons why Shareholders may vote in favour of the proposal and against the proposal. In addition to the summaries, the relevant issues are discussed in some detail in the following sections of the Booklet.
The Independent Expert’s Report
SunRice retained Lonergan Edwards & Associates Limited to provide an Independent Expert’s Report in relation to the Scheme stating whether the Scheme is in the best interests of Shareholders and the reasons for that opinion. The Report, which is annexed to the Scheme Booklet, contains a very detailed valuation of SunRice and the Scheme Consideration. It lists advantages and benefits for A and B Class Shareholders as well as disadvantages. It discussed alternatives to the Scheme considered by the Board and the implications for Shareholders if the Scheme is not implemented.
The Report assessed value range for A Class shares as between $37,500 and $51,875 and noted that the amount of $50,000 proposed under the Scheme is towards the high end of that range. The Report assessed the value range for B Class shares as between $4.54 and $5.30 and noted that the amount of $5.025 per share is at about the mid-point of that range.
While the report is primarily concerned with value it also recognises that “there are likely to be other issues of significance to shareholders who are active growers in considering their support for the Scheme”. The commitments entered into by Ebro in relation to the promotion of rice sales including the establishment of a Grower Advisory Board and other research and funding obligations were considered. The Report states “In our experience these commitments to the vendors (growers) exceed those generally provided by purchasers of businesses”. In conclusion the Report states that the acquisition of the A and B Class shares by Ebro under the Scheme “is fair and reasonable and is in the best interest of both SunRice A and B Class shareholders in the absence of a superior proposal”.
Verification
Both SunRice and Ebro established a process to verify the information relevant to each company. The process is described in the affidavits of Mr Edwards and Mr Holt, for SunRice and Mr Hernández, for Ebro. Having regard to that evidence I am satisfied that the process provides an adequate basis for the deponents’ respective assertions as the accuracy of the information in the Scheme Booklet.
Material personal interests of directors
In his affidavit Mr Lawson deposed that he had been nominated to act as chairman of the Scheme meeting and is willing to do so. Mr Robertson has similarly indicated that he consents to act as Chairman in Mr Lawson’s absence. Both Mr Lawson and Mr Robertson disclose their material personal interests including directors’ fee and retirement benefits and their interests as Active Growers.
As Mr Gleeson explained, nearly all of the directors are active growers and thus have material personal interests in the transaction. Under the Constitution of SunRice for a quorum to exist the number of directors who are A Class Shareholders must exceed the number of independent directors, consequently decisions necessary to enable SunRice shareholders to consider Ebro’s proposal could not be made by independent directors alone. Exhibited to Mr Lawson’s affidavit is an ASIC declaration, made pursuant to s 196(1) of the Corporations Act to the effect that each SunRice Director who has a material personal interest arising solely as a “Supplier Member” may, despite that interest, be present and vote at the Board meetings in connection with the Scheme.
Mr Hingle’s affidavit addresses the impact of the Scheme on creditors, namely that since all of the Scheme Consideration is to be provided from the cash resources of Ebro there should be no impact on creditors. In addition Mr Hingle deposes as to the fact that ASIC has granted relief from compliance with cl 8302(d) and cl 8302(h) of Part 3 Schedule 8 of the Corporations Regulations 2001. The relief relates to disclosure obligations of the company and is given on conditions which are set out at paragraphs 16 and 18 of Mr Hingle’s affidavit. Mr Hingle deposed to SunRice’s compliance with several of the conditions and the arrangements which had been made for compliance with the remainder. These details are fully disclosed in sections 10.7 and 15.3 of the Scheme Booklet
Evidence necessary for the first court hearing
At the first court hearing in relation to an application under s 411(1) of the Corporations Act there are certain requirements that must be proved to have been met. I am satisfied from the evidence adduced by the plaintiff that those requirements have been met in this case. In particular, I am satisfied that the plaintiff is a Part 5.1 body; that the proposed Scheme is an arrangement within s 411; that Mr Lawson has consented to act as Chairman of the Scheme Meetings and Mr Robertson has consented to act in his absence.
I am also satisfied that the Scheme is bona fide and properly proposed and that ASIC has been given an opportunity to examine the proposal and adequate notice of the first court hearing date. By letter dated 18 April 2011 ASIC confirmed that it did not propose to appear at the first court hearing to make submissions or to intervene.
On the basis of the evidence tendered at the first court hearing and for the reasons given above I made the orders sought by the plaintiff.
I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone. Associate:
Dated: 21 April 2011
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