FEDERAL COURT OF AUSTRALIA Scarborough Equities Limited, in the matter of Scarborough Equities Limited (No 2) [2009] FCA 484 CORPORATIONS – scheme of arrangement – no incumbrances clause Corporations Act 2001 (Cth) ss 411, 411(17) Re Scarborough Equities Limited [2009] FCA 24 Re WebCentral Group Ltd (No 2) (2006) 58 ACSR 742 Re Metals Exploration Limited [2007] FCA 84 Re Uranium King Limited (No 3) (2008) 67 ACSR 513 Re Investa Properties Limited [2007] FCA 1104 Re APN News & Media Limited (2007) 62 ACSR 400 IN THE MATTER OF SCARBOROUGH EQUITIES LIMTIED (ABN 58 061 287 045) SCARBOROUGH EQUITIES LIMITED (ABN 58 061 287 045) WAD 302 of 2008 SIOPIS J 27 FEBRUARY 2009 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 302 of 2008 IN THE MATTER OF SCARBOROUGH EQUITIES LIMITED (ABN 58 061 287 045) BETWEEN: SCARBOROUGH EQUITIES LIMITED (ABN 58 061 287 045) Plaintiff JUDGE: SIOPIS J DATE OF ORDER: 27 FEBRUARY 2009 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. Pursuant to s 411(4)(b) and s 411(6) of the Corporations Act 2001 (Cth), the scheme of arrangement (being Annexure D to "Exhibit A" of the second affidavit of Daniel David Kirk sworn 22 January 2009) is approved (Scheme). 2. Pursuant to s 411(12) of the Corporations Act 2001 (Cth), the plaintiff is exempted from compliance with s 411(11) of the Corporations Act 2001 (Cth) in relation to the Scheme. Note: 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 eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 302 of 2008 IN THE MATTER OF SCARBOROUGH EQUITIES LIMITED (ABN 58 061 287 045) BETWEEN: SCARBOROUGH EQUITIES LIMITED (ABN 58 061 287 045) Plaintiff JUDGE: SIOPIS J DATE: 27 FEBRUARY 2009 PLACE: PERTH REASONS FOR JUDGMENT 1 This is the second hearing of an application for the approval of a scheme of arrangement between Scarborough Equities Limited and its ordinary shareholders pursuant to s 411 of the Corporations Act 2001 (Cth). The first hearing was on 16 January 2009. On that occasion, I made orders for the convening of meetings to consider the proposed scheme of arrangement (Re Scarborough Equities Limited [2009] FCA 24). 2 The principles that the Court should apply on the second hearing are well‑established. Generally speaking, the Court should be satisfied that the requirements of s 411 have been met; that the majority shareholders voting in favour of the scheme were acting in good faith and that the proposal is sufficiently fair and reasonable that an intelligent and honest shareholder acting alone might approve it. 3 At the meeting, the plaintiff's members voted overwhelmingly in favour of the scheme. The scheme was approved in accordance with the requisite majorities under the Act. I am satisfied on the affidavit material that the provisions of s 411 of the Act have been met and that there has been compliance with the Court's orders. I am also satisfied that the members have acted in good faith in voting to approve the scheme. 4 As to whether the scheme is sufficiently fair and reasonable that an intelligent and honest shareholder acting alone might approve it, I am satisfied that this condition has been met. In that regard, I note that the experts who have given the opinions which are in the scheme booklet have come to the view that the scheme is fair and reasonable. Further, there is nothing in the materials before me which would cause me to question that view. 5 The affidavit material shows that, subject to the conditions which relate specifically to this hearing, the conditions precedent in the merger implementation agreement have been complied with. The evidence also discloses that notice of this hearing was published in accordance with the orders of the Court and that no persons have given notice that they wish to oppose the scheme. Accordingly, the only person who has made submissions today is Mr Lundberg on behalf of the plaintiff. 6 As he did at the first hearing, Mr Lundberg drew my attention to a number of aspects of the scheme. 7 The first matter related to the fact that Bentley International Ltd, the company that will be acquiring the shares from the plaintiff's members, has executed a deed poll undertaking to perform its obligations to give effect to the scheme. I am satisfied that this measure provides sufficient protection to the members of the plaintiff. 8 The second matter related to the treatment of ineligible overseas shareholders. This issue will be dealt with by the establishment of a nominee who will sell the shares and pay the proceeds to the ineligible overseas shareholders. I am satisfied with the proposed treatment of the ineligible overseas shareholder. 9 The third matter is the presence in the scheme of a "no incumbrances" provision. Provisions of this kind have been the subject of a number of decisions, stemming from Lindgren J's decision in Re WebCentral Group Ltd (No 2) (2006) 58 ACSR 742 (WebCentral). I followed WebCentral in the cases of Re Metals Exploration Limited [2007] FCA 84 and Re Uranium King Limited (No 3) (2008) 67 ACSR 513. The concern in relation to the "no incumbrances" clauses, the subject of those decisions, was that third party interests might be affected by the presence of such a clause. However, in the case of Re Investa Properties Limited [2007] FCA 1104 (Investa Properties), Lindgren J considered whether the inclusion of the words "to the extent permitted by law" at the commencement of the "no incumbrances" clause would be sufficient to overcome the potential difficulties for third parties. 10 Lindgren J concluded that the inclusion of those words would give adequate notice that a third party would not suffer extinguishment of an interest in shares if the acquiring company had notice of that interest. I am content to follow the decision of Investa Properties. Accordingly, a clause in the terms of cl 7.4(a) of this scheme, in my view, is not objectionable. 11 The fourth matter that Mr Lundberg referred to was the deemed warranty provision in the scheme. I do not consider that clause to be objectionable. In this regard, I apply the decision of Lindgren J in Re APN News & Media Limited (2007) 62 ACSR 400. 12 As to s 411(17) of the Act, Mr Lundberg has put into evidence a letter from the Australian Securities and Investments Commission given under s 411(17)(b) stating that it has no objection to the scheme. 13 In the circumstances, I will, therefore, make the orders approving the scheme which the plaintiff seeks. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate: Dated: 13 May 2009 Counsel for the Plaintiff: Mr MG Lundberg Solicitor for the Plaintiff: Mallesons Stephen Jaques Date of Hearing: 27 February 2009 Date of Judgment: 27 February 2009