FEDERAL COURT OF AUSTRALIA ISS Group Limited, in the matter of ISS Group Limited (No 2) [2013] FCA 816 Citation: ISS Group Limited, in the matter of ISS Group Limited (No 2) [2013] FCA 816 Parties: ISS GROUP LIMITED ABN 27 109 443 852 File number: WAD 171 of 2013 Judge: BARKER J Date of judgment: 26 July 2013 Catchwords: CORPORATIONS – application pursuant to s 411 Corporations Act 2001 (Cth) – application to approve scheme of arrangement Legislation: Corporations Act 2001 (Cth) s 411(4), s 411(4)(b), s 411(11), s 411(12), s 411(17), s 411(17)(a), s 412(1)(a) Cases cited: ISS Group Limited, in the matter of ISS Group Limited [2013] FCA 630 Re ACM Gold Limited; Re Mt Leyshon Gold Mines Limited (1992) 34 FCR 530 Re Central Pacific Minerals NL [2002] FCA 239 Re Stockbridge Ltd (1993) 9 ACSR 637 Date of hearing: 26 July 2013 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 18 Counsel for the Plaintiff Mr A Papamatheos Solicitor for the Plaintiff Steinepreis Paganin IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 171 of 2013 IN THE MATTER OF ISS GROUP LIMITED ABN 27 109 443 852 ISS GROUP LIMITED ABN 27 109 443 852 Plaintiff JUDGE: BARKER J DATE OF ORDER: 26 JULY 2013 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. Pursuant to section 411(4)(b) of the Corporations Act 2001 (Cth) (Corporations Act) the scheme of arrangement between the plaintiff and its members, a copy of which is the document behind Tab 3 to exhibit RP-1 to the affidavit of Richard Pang sworn on 5 June 2013, is approved. 2. Pursuant to section 411(12) of the Corporations Act, the plaintiff is exempted from compliance with section 411(11) of the Corporations Act, in relation to the scheme of arrangement referred to in order 1. 3. The plaintiff is to lodge an office copy of these orders with the Australian Securities and Investments Commission as soon as practicable. 4. These orders be entered forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 171 of 2013 IN THE MATTER OF ISS GROUP LIMITED ABN 27 109 443 852 ISS GROUP LIMITED ABN 27 109 443 852 Plaintiff JUDGE: BARKER J DATE: 26 JULY 2013 PLACE: PERTH REASONS FOR JUDGMENT overview 1 On 26 July 2013, I approved a scheme of arrangement in relation to the plaintiff (ISS). These are the reasons for so doing. second hearing 2 This is the second hearing of ISS's application for orders approving a scheme of arrangement between it (ISS) and its members (shareholders) pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Act) (scheme), and exempting ISS pursuant to s 411(12) of the Act from compliance with the requirements of s 411(11). 3 The primary question that arises is whether approval should be granted for the scheme whereby all of the ordinary shares in ISS will be transferred to P2ES Holdings, Inc (P2ES), and in return each ISS shareholder will receive $0.33 for every ISS share held. 4 On 20 June 2013, at the first hearing of the application, orders were made for the convening of a meeting of shareholders (scheme meeting) and the Court also approved the scheme booklet (which contained an explanatory statement required by s 412(1)(a) of the Act to accompany notices of the meeting): see ISS Group Limited, in the matter of ISS Group Limited [2013] FCA 630. 5 Section 411(4) of the Act primarily controls the process by which a scheme of arrangement may become binding, and so the matters to be considered at the second hearing, in the following terms: (4) A compromise or arrangement is binding on the creditors, or on a class of creditors, or on the members, or on a class of members, as the case may be, of the body and on the body or, if the body is in the course of being wound up, on the liquidator and contributories of the body, if, and only if: (a) at a meeting convened in accordance with an order of the Court under subsection (1) or (1A): (i) in the case of a compromise or arrangement between a body and its creditors or a class of creditors—the compromise or arrangement is agreed to by a majority in number of the creditors, or of the creditors included in that class of creditors, present and voting, either in person or by proxy, being a majority whose debts or claims against the company amount in the aggregate to at least 75% of the total amount of the debts and claims of the creditors present and voting in person or by proxy, or of the creditors included in that class present and voting in person or by proxy, as the case may be; and (ii) in the case of a compromise or arrangement between a body and its members or a class of members—a resolution in favour of the compromise or arrangement is: (A) unless the Court orders otherwise—passed by a majority in number of the members, or members in that class, present and voting (either in person or by proxy); and (B) if the body has a share capital—passed by 75% of the votes cast on the resolution; and (b) it is approved by order of the Court. It is understood that the Court has a broad discretion to approve a scheme under s 411(4)(b). procedural requirements 6 The first question is whether there has been a meeting convened in accordance with the orders made by the Court at the first hearing and whether other matters required by the orders have been attended to. 7 In this regard all procedural matters have been satisfied. The scheme booklet approved by the Court has been registered with the Australian Securities and Investments Commission (ASIC) and a copy of the orders made by the Court at the first hearing has also been lodged with ASIC. Further, the scheme booklet in the form approved by the Court and proxy appointment forms were dispatched to shareholders on 24 June 2013. 8 The scheme meeting was then convened and held in accordance with the constitution of ISS, the Act and the orders of the Court, and statutory majorities were obtained at the meeting. Further, proxies received were collated and at the scheme meeting the votes cast were recorded. 9 Finally, notice of the second hearing of the application was published in "The Australian" and "The West Australian" newspapers on 19 July 2013, in accordance with the orders of the Court. court's discretion 10 So far as the Court's discretion is concerned, first, I am satisfied that the scheme has been advanced in good faith and is fair and reasonable in that it will yield commercial benefits for the shareholders and is of a kind that is fair and reasonable from the viewpoint of an intelligent and honest person: Re Central Pacific Minerals NL [2002] FCA 239 at [14]. Further, an independent expert has concluded that the scheme is fair and reasonable and in the best interests of shareholders in the absence of a superior proposal. Importantly, Chad Heath Martin, chief financial officer of P2ES, has sworn an affidavit which, in my view, addresses any perceived concerns as to performance risk of the scheme. 11 Secondly, there is no person who has indicated an intention to appear at this second hearing or otherwise intends to object to the approval of the scheme. 12 Finally, the conditions precedent to the scheme have been satisfied, save for the approval of the scheme by order of the Court. section 411(17) conditions 13 The Court's ultimate approval of the scheme is dependent upon the fulfilment of one of the two alternative conditions set out in s 411(17) of the Act: (17) The Court must not approve a compromise or arrangement under this section unless: (a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or (b) there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement; but the Court need not approve a compromise or arrangement merely because a statement by ASIC stating that ASIC has no objection to the compromise or arrangement has been produced to the Court as mentioned in paragraph (b). 14 First, ASIC has provided a written statement to the effect that it has no objection to the scheme. 15 Secondly, I accept that where the directors of a target company consider a merger proposal is in the best interests of the members of the target company, the implementation of the merger by a method that provides for the certainty of outcome (100% ownership by the bidder company) through a single process is a commercially rational reason for choosing a scheme of arrangement over a Ch 6 takeover. As such, this reason for preferring a scheme of arrangement to a Ch 6 takeover is not a proscribed purpose under s 411(17)(a): Re ACM Gold Limited; Re Mt Leyshon Gold Mines Limited (1992) 34 FCR 530 at 542-543; Re Stockbridge Ltd (1993) 9 ACSR 637 at 652-653. I am satisfied that there is no other reason to suggest that the scheme has been proposed for the purpose of enabling any person to avoid the operation of the provisions of Ch 6. 16 Therefore, both of the conditions in s 411(17) are satisfied, even though satisfaction of only one is necessary. section 411(11) exemption 17 The Court is also asked to make an exemption order under s 411(12) of the Act, which will exempt ISS from the s 411(11) obligation requiring a copy of every order of the Court made for the purposes of s 411(4)(b) to be annexed to every copy of the company's constitution issued after the order was made. In circumstances where ISS will, from implementation of the scheme, become a wholly owned subsidiary of P2ES, the s 411(11) requirement will serve no useful purpose. The Court will therefore make an order to that effect. conclusion and orderS 18 In the circumstances the Court approves the scheme in the terms proposed by ISS and grants it an exemption from compliance with s 411(11). I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker. Associate: Dated: 13 August 2013