Abano Healthcare Group Limited

[2020] NZHC 3343

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-1915

[2020] NZHC 3343

UNDER

Part 19 of the High Court Rules

IN THE MATTER

of a scheme of arrangement under Part 15 of the Companies Act 1993

IN THE MATTER

of ABANO HEALTHCARE GROUP LIMITED

Applicant

Hearing:

9 December 2020

Counsel:

DJ Cooper and NW Starrenburg for applicant

JQ Wilson and JP Cooney for Adams NZ Bidco Limited

Judgment:

9 December 2020

Reasons:

16 December 2020

REASONS FOR JUDGMENT OF FITZGERALD J

This judgment was delivered by me on 16 December 2020 at 12 noon, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Harmos Horton Lusk, Auckland

Bell Gully, Auckland

Re Abano Healthcare Group Limited [2020] NZHC 3343 [16 December 2020]

Introduction

[1]    On 9 December 2020, I granted final orders approving a scheme of arrangement under Part 15 of the Companies Act 1993 (the Act). Those orders were in the following terms:

(a)The scheme of arrangement described in the Scheme Plan annexed to this order (the “Scheme”) is approved and binding upon:

(i)Abano Healthcare Group Limited;

(ii)Adams NZ Bidco Limited; and

(iii)Every person who is a Scheme Shareholder in terms of the Scheme Plan.

(b)Abano is granted leave to apply to the Court for approval of any amendment, modification or supplement to the Scheme.

[2]This judgment provides my reasons for making the above orders.

The parties

Abano

[3]    The applicant (Abano) was incorporated in New Zealand on 1 August 1961 as New Zealand Petroleum Company Limited, and listed on the NZX in January 1970. In 1999, the company’s name was changed to Eldercare New Zealand Limited (as it focused on the development of retirement village properties and aged care services). In 2003, the company was renamed Abano, reflecting its move towards a multi- discipline approach in healthcare and medical services. In 2008, Abano entered the Australian dental market and in 2017 sold its shareholding in Ascot Radiology to focus solely on the trans-Tasman dental market.

[4]    Abano operates through two brands: Lumino The Dentists (Lumino) in New Zealand and Maven Dental Group (Maven) in Australia. Its corporate office is in central Auckland.

[5]As of 31 August 2020, Abano had 228 dental practices, with:

(a)121 Lumino practices; and

(b)107 Maven practices.

[6]    Abano engages over 2,030 staff or contractors across New Zealand and Australia.

[7]    At the time the application for approval of the proposed Scheme of Arrangement (Scheme) was filed, Abano had 26,282,238 ordinary shares on issue (“Shares”) and as at 4 September 2020, there were 3,382 registered shareholders. All Shares are fully paid ordinary shares. At the time the application was filed, there were no shareholders that had a relevant interest in 5 per cent or more of the Shares.

[8]    Abano’s Shares are widely held by institutional and retail investors either directly or through custodial services. The top 20 shareholders as at 30 September 2020 together accounted for 45 per cent of the Shares on issue.

Bidco

[9]    Adams NZ Bidco Ltd (Bidco) is a New Zealand limited liability company that was incorporated on 7 November 2019 for the purpose of acquiring the Shares.

[10]   At the time of the application, Bidco did not hold any shares in Abano, and until the implementation of the Scheme, that remains the position.

[11]   The ultimate holding company of Bidco is Adams Group Aus Holdings Pty Ltd (AU Holdco). Bidco is indirectly 100 per cent owned by AU Holdco. AU Holdco is an Australian incorporated company that was established as the investment vehicle to aggregate the BGH Capital Fund’s and Ontario Teachers’ Pension Plan Board’s participation in the Scheme.

Background to Scheme

[12]In summary, the Scheme provides for:

(a)Abano shareholders to transfer all of their shares to Bidco; and

(b)Bidco to pay those shareholders $5.20 per Abano share if no “Adjustment Events” occur prior to the Scheme implementation date.

[13]   The concept of “Adjustment Events” was novel in the Scheme, and came about given the COVID-19 events of 2020. In short, an earlier proposed scheme had been cancelled by Bidco due to a “material adverse change”, namely the impact on Abano’s business of the COVID-19 pandemic, including the four week lockdown in New Zealand in late March 2020 and restrictions in Australia in April 2020. To provide greater certainty of completion of the Scheme to shareholders, the (second proposed) Scheme did not give Bidco a right of termination if a material adverse change occurred, but rather agreed “consideration reductions” would be made to the headline price per share in the event one or more “Adjustment Event” occurred. The reduction in consideration was, however, capped at $0.75 per share.

[14]   On 19 October 2020, I made initial orders addressing various procedural matters leading to a meeting of Abano shareholders to consider and vote on the Scheme. Some of those initial orders concerned timetabling for any notices of opposition or appearances to be filed with this Court in respect of Abano’s application for final orders approving the Scheme. In the event, no notices of opposition or appearances were filed.

[15]   On 11 November 2020, I made amended initial orders to reflect that, since the application for the initial orders, Abano’s financial performance had been better than expected. As a result, Abano’s Board of Directors had revised their forecast of Abano’s financial performance for the financial year ending 31 May 2021, and also determined that a capital raising would no longer be required if the Scheme was not approved by Abano shareholders (which had been the Board’s expectation at the time the initial orders were sought and made). These developments caused the Independent Advisor on the Scheme, Calibre Partners, to revise (upwards) its valuation of Abano. In response, Bidco agreed to increase the headline price per share from $4.75 to $5.20, and to increase the minimum price (if an Adjustment Event occurred) from $4.00 to

$4.45.

[16]   These changes led Abano to produce a supplementary Scheme Booklet and other materials updating shareholders accordingly. It also pushed out by one week the shareholder  meeting  to  approve  the  Scheme,   which  was  ultimately  held  on   25 November 2020.

Legal principles applicable to schemes of arrangement

[17]   Section 236 of the Act provides this Court with jurisdiction to approve a scheme of arrangement subject to such terms and conditions as the Court thinks fit:

236     Approval of arrangements, amalgamations, and compromises

(1) Notwithstanding the provisions of this Act or the constitution of a company, the court may, on the application of a company or any shareholder or creditor of a company, order that an arrangement or amalgamation or compromise shall be binding on the company and on such other persons or classes of persons as the court may specify and any such order may be made on such terms and conditions as the court thinks fit.

…

[18]   Section 237(1) provides the power to make additional orders giving effect to any arrangement approved under s 236(1) of the Act:

(1)Without limiting section 236, the court may, for the purpose of giving effect to any arrangement or amalgamation or compromise approved under that section, either by the order approving the arrangement or amalgamation or compromise, or by any subsequent order, provide for, and prescribe terms and conditions relating to, –

(a)the transfer or vesting of real or personal property, assets, rights, powers, interests, liabilities, contracts, and engagements:

(b)the issue of shares, securities, or policies of any kind:

(c)the continuation of legal proceedings:

(d)the liquidation of any company:

(e)the provisions to be made for persons who voted against the arrangement or amalgamation or compromise at any meeting called in accordance with any order made under subsection (2)(b) of that section or who appeared before the court in opposition to the application to approve the arrangement or amalgamation or compromise:

(f)such other matters that are necessary or desirable to give effect to the arrangement or amalgamation or compromise.

[19]   Section 236A of the Act also applies in this case. It provides that if the proposed arrangement affects the voting rights of a code company (being a company that the Takeovers Code applies to, which includes Abano), the applicant must notify the Takeovers Panel of the application at the same time as filing the application in Court.1 An arrangement affects the voting rights of a code company if it “involves a change in the relative percentage of voting rights held or controlled by [one] or more shareholders”.2 The Scheme falls within this definition as it will change the percentage of voting rights held by Bidco from zero to 100 per cent, and will change the percentage of voting rights held by every existing shareholder in Abano to zero.

[20]   The Court may not make an order that affects the voting rights of a code company unless:3

(a)the code company’s shareholders approve the arrangement by a resolution approved by a majority of:

(i)75 per cent of the votes of the shareholders in each interest class entitled to vote and voting; and

(ii)a simple majority of the votes of those shareholders entitled to vote; and

(b)either:

(i)the Court is satisfied that the shareholders of the code company will not be adversely affected by the use of section 236(1) rather than the Takeovers Code to effect the change involving the code company; or

1      Section 236A(1).

2      Section 236A(5).

3      Sections 236A(2) and 236A(4).

(ii)the applicant has filed a statement from the Takeovers Panel indicating that the Takeovers Panel has no objection to an order being made under section 236(1).

[21]   In terms of the Court’s assessment of whether it will approve a scheme of arrangement, the Court in Re CM Banks Ltd articulated a four-part test:4

(a)first, there has been compliance with the statutory provisions as to meetings, resolutions, the application to the Court, and the like;

(b)second, the scheme has been fairly put to the class or classes of shareholders concerned, and that if a circular or circulars have been sent out, as is usual, whether before or after the making of the application to the Court, they give all the information reasonably necessary to enable the recipients to judge and vote upon the proposals;

(c)third, the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and

(d)fourth, the arrangement was such that an intelligent and honest person of business, a member of the class concerned, and acting in respect of his or her interest, might reasonably approve it.

[22]   More recently, and as observed in Re Auckland International Airport5  and  Re ACS (NZ) Ltd,6 the Court also needs to consider, in relation to the fourth limb set out above, whether the proposed arrangement is generally fair and equitable.7 This is because it is implicit in the test of the intelligent and honest business person that a proposed scheme is also fair and equitable.

4      Re CM Banks Ltd [1944] NZLR 248 (SC) at 253.

5      Re Auckland International Airport [2014] NZHC 405 at [9].

6      Re ACS (NZ) Ltd [2012] NZHC 1396 at [6].

7      Applying Weatherston v Waltus Property Investment Ltd [2001] 2 NZLR 103 (CA) at [35].

[23]   I consider each of the four limbs of the test in the following sections of my judgment.

Has there been compliance with the relevant statutory provisions?

[24]   I was satisfied, based on the comprehensive affidavit evidence that had been filed and which I considered, that Abano had complied with applicable statutory provisions and the Court’s initial and amended orders.

[25]   In particular, the Scheme meeting held on 25 November 2020 was conducted in accordance with the initial and amended orders, and the required resolution was put to shareholders at the meeting. Neither Bidco (nor a number of related or other entities with similar interests) were shareholders of Abano on the “Shareholder Voting Record Date”, so there was only one interest class of shareholders for the purposes of voting at the meeting.

[26]   A key purpose of the initial and amended orders was to ensure that shareholders were appropriately informed of the Scheme and had a proper opportunity to oppose it if they so wished. I was satisfied that Abano complied with the interim and amended orders and took the various steps required to ensure that shareholders were so informed.

[27]   Two minor matters arose which were strictly not in compliance with the initial and amended orders. The first related to the fact that the amended initial orders required that voting proxies were to be received by 4 pm on 23 November 2020. Abano’s Chief Executive Officer explains in his affidavit sworn on 27 November 2020 that the Abano Board resolved to waive that proxy deadline and accept eight late proxy appointments received after 4 pm on 23 November 2020, but prior to the Scheme meeting. The late proxies represented only 0.09 per cent of the total Abano shares on issue. The Board’s decision accordingly did not affect the outcome of the resolution; as addressed further below, the resolution was (easily) passed by the required voting threshold even if the late proxies were excluded. I was therefore satisfied that this matter did not provide a basis to decline to approve the Scheme, particularly given it enabled additional shareholders who wished to vote by proxy to have the opportunity to do so, and thus have their say on the future of the company.

[28] The second minor departure from the initial and amended orders was that the amended orders required hard copies of the new shareholder materials (explaining those developments summarised at [15] above) to be available at Abano’s head office from no later than 13 November 2020. However, when delivery of the hard copy materials to Abano’s offices was attempted on 13 November 2020, there was no-one present in the office to receive the delivery, given the Ministry of Health’s request for workers in the Auckland CBD to work from home on 13 November if possible (as a COVID-19 precaution). Because of this, hard copies of the new shareholder materials were made available at Abano’s offices in Auckland from the following business day, namely 16 November 2020. Again, this minor departure from the amended orders did not provide any basis to decline to approve the Scheme.

[29]   As noted earlier, and as required by s 236A of the Act, a shareholder resolution approving a scheme of arrangement will be approved if passed by:

(a)a majority of 75 per cent of the votes of the shareholders in each interest class entitled to vote and voting; and

(b)a simple majority of the votes of those shareholders entitled to vote.

[30]   In this case, Abano’s shareholders approved the Scheme at the Scheme meeting, with 95.40 per cent of the votes cast at the meeting being in favour of the resolution proposing to approve the Scheme, which in turn represented 61.75 per cent of all Abano shares being voted in favour of the resolution.

[31]   Also relevant for present purposes, on 30 November 2020, the Takeovers Panel provided Abano with a letter confirming that the Takeovers Panel had no objection to an order being made by this Court under s 236(1) of the Act, as required by s 236A of the Act.

Was the Scheme fairly put to shareholders?

[32]   I was satisfied that the Scheme was fairly put to shareholders. The information provided to shareholders (including in the Scheme Booklet, the Supplementary Scheme Booklet and at the Scheme meeting) fairly and fully explained what was

proposed, its intended effect (including the effect of any one or more Adjustment Events occurring), the reason why Abano proposed the Scheme and why its Board recommended shareholders approve it.

[33]   I was similarly satisfied that this information was provided in a timely and practical way, and thus provided shareholders with an appropriate opportunity to oppose the application for final orders approving the Scheme, if they so wished. As noted earlier, no notices of opposition were filed with the Court. Nor were there any attendances at the (on notice) hearing of the application for final orders on 9 December 2020 seeking to oppose the application.

Were the shareholders fairly represented by those who attended the meeting?

[34]   As counsel for the applicant submits, that this requirement is met is indicated by:

(a)the high proportion of shareholders who voted (64.7 per cent of the total number of all shares on issue);

(b)the high level of support for the resolution to approve the Scheme (95.40 per cent of all shares voted at the Scheme meeting); and

(c)the fact that no shareholder filed a notice of opposition or had signalled to Abano an intention to do so (noting that the deadline for filing and serving notices of opposition was 5.00 pm on 30 November 2020 in any event).

Is the Scheme one that an intelligent and honest person of business might reasonably approve?

[35]   I was satisfied this fourth limb of the test was also met. I was also satisfied that the Scheme is generally fair and equitable.

[36]   As noted above, the overwhelming majority of shareholders who voted did so in support of the Scheme and thus considered it to be in their best interests. In my view, the sheer level of shareholder support for the Scheme must be given considerable

weight, as well-informed shareholders, as in this case, are the best placed persons to determine what is in their own best interests.

[37]   Moreover, Abano’s directors (all independent) reached the view that it was in the best interests of Abano and its shareholders for the Scheme to proceed. Again, the Board’s collective judgement, being fully familiar with Abano’s affairs and potential alternatives to the Scheme, must be given significant weight.

[38]   Further, the Scheme will not prejudice Abano’s creditors, given that following implementation of the Scheme, Abano expects to satisfy the statutory solvency test prescribed by s 4 of the Act.

[39]   I also ascribed weight to the Independent Advisor’s report prepared by Calibre Partners, which concluded that the base (unadjusted) Scheme consideration of $5.20 was within the assessed value range for Abano shares (of $4.95 to $5.80 per share). Calibre Partners were also of the opinion that the Bidco offer was reasonable.

[40]Finally, the base (unadjusted) price per share represents:

(a)a premium of 99 per cent to Abano’s closing price of $2.61 per share on Friday 28 August 2020, being the last trading day prior to Abano announcing the Scheme; and

(b)a premium of 99 per cent to Abano’s volume weighted average price for the 30-day period prior to Friday 28 December 2020.

Conclusion

[41]   Drawing all the above threads together, I was satisfied it was appropriate to exercise my discretion to approve the Scheme and therefore to make those orders set out at [1] of this judgment.

Fitzgerald J