FEDERAL COURT OF AUSTRALIA ASG Group Limited, in the matter of ASG Group Limited (No 2) [2016] FCA 1586 File number(s): WAD 484 of 2016 Judge(s): SIOPIS J Date of judgment: 12 December 2016 Catchwords: CORPORATIONS – approval of scheme of arrangement under s 411 of the Corporations Act 2001 (Cth) – failure to serve notice of meeting and scheme booklet on all shareholders – whether s 1322(3) of the Corporations Act applies – whether orders should be made under s 1322(4) of the Corporations Act. Legislation: Corporations Act 2001 (Cth) ss 411(1), 411(4), 411(11), 411(12), 411(17), 1322(3), 1322(4), 1322(6) Date of hearing: 12 December 2016 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 36 Counsel for the Plaintiff: Mr M Lundberg and Mr A Gorovtsov Solicitor for the Plaintiff: King & Wood Mallesons Counsel for Nomura Research Institute Ltd: Mr C Belyea Solicitor for Nomura Research Institute Ltd: Clayton Utz ORDERS WAD 484 of 2016 IN THE MATTER OF ASG GROUP LIMITED (ACN 070 045 117) ASG GROUP LIMITED (ACN 070 045 117) Plaintiff JUDGE: SIOPIS J DATE OF ORDER: 12 DECEMBER 2016 THE COURT ORDERS THAT: 1. Pursuant to sections 411(4)(b) and 411(6) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the plaintiff and its shareholders, a copy of which is annexed to these orders and marked Annexure A, be approved. 2. Pursuant to section 411(12) of the Act, the plaintiff be exempted from compliance with section 411(11) of the Act, in relation to the scheme of arrangement referred to in Order 1 of these orders. 3. Pursuant to section 1322(4)(a) of the Act: (a) the scheme meeting held on 8 December 2016 is not invalid; and (b) the resolution passed at the scheme meeting is not invalid. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT SIOPIS J: 1 This is the second hearing of an application for the approval of a scheme of arrangement under s 411(1) of the Corporations Act 2001 (Cth). 2 On 2 November 2016, the Court made orders for the convening of a meeting of the members of ASG Group Limited (ASG) to consider and, if thought fit, to approve a scheme of arrangement between ASG and its members. The shares in ASG are listed on the Australian Securities Exchange (ASX). 3 Pursuant to the scheme, the shares of all the members of the company would be acquired by Nomura Research Institute Ltd (Nomura), a company incorporated in Japan whose shares are listed on the Tokyo Stock Exchange, and which operates in the same industry as ASG. 4 The meeting of shareholders was duly held on 8 December 2016, and the majorities which are referred to in s 411(4) were achieved and very substantially exceeded. Mr Ian Campbell deposed that approximately 99.92 per cent of the votes cast were in favour of the scheme, with 96.77 per cent of the shareholders in favour of the scheme. 5 On the second hearing date for the approval of a scheme of arrangement, the Court will have regard to a number of considerations. These will include whether the requirements of the Corporations Act have been complied with, whether the scheme has been proposed in good faith and not for some illegitimate purpose, and whether the scheme is fair and reasonable so that an honest and independent person might approve it. 6 In relation to the question of whether the scheme is fair and reasonable, the Court will usually take the approach that the shareholders are the best arbiters of that question. In this case, by voting with such overwhelming majorities, they have plainly come to the view that the scheme falls into that category. 7 I also add that there is before the Court expert evidence to the effect that the scheme consideration and other characteristics of the scheme are fair and reasonable. 8 I accordingly find that the scheme is fair and reasonable. 9 There is also, in the affidavit of Mr David Jewkes, evidence before the Court that the conditions precedent to the scheme, which are set out in the scheme implementation agreement, have been satisfied or waived. 10 There is, however, one issue which Mr Lundberg, counsel for ASG, has brought to the attention of the Court. That is that ASG did not comply with order 10 of the orders which the Court made on 2 November 2016. 11 Order 10 provided that, "[i]f an email notification of a failure to deliver an email to a Shareholder's nominated electronic address pursuant to Order 9(c) of these orders is received, there be dispatched by prepaid post, parcel post or courier to, the address of each such Shareholder as set out in the register of members, a copy of the Scheme Booklet and a personalised Proxy Form." 12 The order was made in conjunction with other orders for the giving of notice to shareholders of the meeting and the serving of the scheme booklet. 13 Counsel for ASG said that order 10 was sought at the first hearing for consistency with the requirement contained in article 72.3(2) of ASG's constitution which provides: "[a] notice of meeting given to a member under rule 71.1(3) is not effective, if in the case of service by electronic mail, the Company's computer reports that delivery has failed." 14 ASG had engaged a share registry to attend to the despatch of the notice of the meeting and the scheme booklet. 15 The discovery by ASG that there had been noncompliance with order 10 occurred in the following circumstances. 16 On 6 December 2016, two days before the date of the meeting to consider approval of the scheme, a solicitor for ASG, in preparation for the making of this application, sent a draft affidavit to Mr Christian Hernandez, an officer of the share registry for ASG, deposing to compliance with the Court's order for service of the notice of meeting and the scheme booklet. The draft affidavit referred to compliance with order 10. 17 On receiving the draft affidavit, Mr Hernandez replied to the solicitor saying that he could not execute the affidavit in the form sent to him because he had not known about order 10, that order 10 was an unusual order that was not used in all schemes, and he had not complied with the order. 18 There were 18 shareholders who fell within the ambit of order 10, being shareholders in respect of whom delivery failure messages were recorded on the company's computer in respect of the email purporting to give notice of the meeting and the despatch of the scheme booklet. The evidence showed that once ASG appreciated that there had been the noncompliance with order 10, substantial measures were taken to try and track down and contact, in person, the 18 affected shareholders before the meeting. This was done by using Google, Facebook and other similar computer-based applications. 19 The solicitors and officers of the share registry were able to speak to three of the 18 shareholders. Each of those three said that they would have voted in favour of the scheme. 20 It is obvious that there was an accidental failure on the part of the ASG to comply with order 10. This arose through a failure in communication between the solicitors and the share registry and the company secretary. 21 In light of the noncompliance with order 10, ASG has referred to both s 1322(3) and s 1322(4)(a) of the Corporations Act. ASG has submitted that, out of an abundance of caution, the Court should make orders under s 1322(4)(a) declaring that the meeting of shareholders held on 8 December 2016 was not invalid and the resolution approving the scheme of arrangement was not invalid. 22 Section 1322(3) provides: (3) A meeting held for the purposes of this Act, or a meeting notice of which is required to be given in accordance with the provisions of this Act, or any proceeding at such a meeting, is not invalidated only because of the accidental omission to give notice of the meeting or the non-receipt by any person of notice of the meeting, unless the Court, on the application of the person concerned, a person entitled to attend the meeting or ASIC, declares proceedings at the meeting to be void. 23 Section 1322(4) relevantly provides: (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; … and may make such consequential or ancillary orders as the Court thinks fit. 24 Section 1322(6) relevantly provides: (6) The Court must not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a): (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is just and equitable that the order be made; and … (c) In every case––that no substantial injustice has been or is likely to be caused to any person. 25 In my view, the circumstances of this case fall within s 1322(3) of the Corporations Act. That section deals specifically with the omission to give notices to a "meeting held for the purposes of [the] Act". The meeting of 8 December 2016 was one such meeting. 26 Section 1322(3) applies because there was in this case an "accidental omission" to give notice of the meeting to the 18 affected shareholders. Pursuant to the terms of that section, the meeting is not, on that account, invalidated, unless on the application of a qualified person, the Court declares that proceedings at the meeting are to be void. No person has made any such application here today. 27 However, Mr Lundberg, out of an abundance of caution, has asked that the Court make an order under s 1322(4)(a) of the Corporations Act declaring that the meeting is not invalid, and that the resolution passed at the scheme meeting is not invalid. In light of the importance of the meeting, the amount of monies involved, the number of persons affected and the important commercial consequences flowing from the approval of the scheme, I agree that commercial certainty is desirable. Such certainty will be achieved by the making of the orders sought under s 1322(4)(a) of the Corporations Act. 28 Section 1322(6) of the Corporations Act provides that the Court must not make such an order under s 1322(4)(a) unless it is satisfied that one of the three nominated circumstances referred to in s 1322(6)(a) pertains; and no substantial injustice has been or is likely to be caused to any person. 29 In my view, the persons concerned in the failure to give notice to the 18 affected shareholders in accordance with the articles of the ASG constitution and order 10, plainly acted honestly and so s 1322(6)(a)(ii) applies. 30 Further, in my view, no substantial injustice has been or is likely to have been caused to any person. As mentioned, there were 18 shareholders who were not notified in accordance with ASG's constitution and order 10. These shareholders accounted for 0.63 per cent of ASG's 2,864 shareholders and 0.066 per cent of ASG's 201,781,465 shares on issue. It is obvious, therefore, that the shareholders if they had been given notice and had voted against the scheme would have made no difference to the outcome, and, therefore, the omission to give the notice to the 18 affected shareholders has had no prejudicial consequence to either the affected shareholders or to the outcome of the vote. 31 Accordingly, I will make the orders sought under s 1322(4)(a) of the Corporations Act. 32 In addition, under s 411(17), the Court must not approve a scheme unless satisfied that this scheme has not been proposed for the purpose of enabling any person to avoid the operation of any provision of Chapter 6 of the Corporations Act, or that there is before the Court a statement in writing from ASIC that it has no objection to the scheme. There is before the Court such a letter from ASIC stating that it has no objection to the scheme. 33 Therefore, s 411(17) has, in my view, been complied with, and there is nothing in relation to this scheme which would cause the Court to exercise the residual jurisdiction under s 411(17) to not approve the scheme even though ASIC has stated that it has no objection. 34 There is also an application for an order under s 411(12) dispensing with compliance with s 411(11) of the Act, which requires that these orders must be annexed to every copy of ASG's constitution issued after this order is made. As ASG will now become a wholly owned subsidiary of Nomura, I am content to make an order to that effect. 35 I also observe, finally, that no one has appeared today to oppose the making of the orders sought by ASG for the approval of the scheme. 36 In those circumstances, I will make orders, other than in respect of order 4, in terms of the minute of proposed orders which Mr Lundberg has handed up to me. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate: Dated: 13 January 2017