Federal Court of Australia Australian Leaders Fund Ltd v Equity Trustees Ltd, in the matter of Australian Leaders Fund Ltd (No 2) [2021] FCA 234 File number: NSD 49 of 2021 Judgment of: STEWART J Date of judgment: 16 March 2021 Catchwords: CORPORATIONS – scheme of arrangement – second court hearing – applications under s 411(4)(b) and s 411(6) of the Corporations Act 2001 (Cth) for approval of scheme – formal requirements – discretionary considerations Legislation: Corporations Act 2001 (Cth) ss 411(1), 411(4)(a)(ii), 411(4)(b), 411(6), 411(11), 411(12), 411(17)(b), 413 Cases cited: Australian Leaders Fund Ltd v Equity Trustees Ltd, in the matter of Australian Leaders Fund Ltd [2021] FCA 88 Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; 177 CLR 485 FT Eastment & Sons Pty Ltd v Metal Roof Decking Proprietary Ltd (1977) 3 ACLR 69 Re Avoca Resources Ltd [2011] FCA 208 Re Auzex Resources Ltd (No 2) [2012] QSC 101 Re CSR Ltd [2010] FCAFC 34; 183 FCR 358 Re Equinox Resources Ltd [2004] WASC 143; 49 ACSR 692 Re InvestInfo Ltd [2005] FCA 1848; (2006) 24 ACLC 44 Re Lion Nathan Ltd (No 2) [2009] FCA 1261 Re MB Group PLC [1989] BCLC 672 Re Seven Network Ltd (No 3) [2010] FCA 400; 77 ACSR 701 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 26 Date of hearing: 16 March 2021 Counsel for the Plaintiff: M Oakes SC Solicitor for the Plaintiff Mont Lawyers Solicitor for the Defendant: The defendant did not appear ORDERS NSD 49 of 2021 IN THE MATTER OF AUSTRALIAN LEADERS FUND LTD BETWEEN: AUSTRALIAN LEADERS FUND LTD Plaintiff AND: EQUITY TRUSTEES LTD AS RESPONSIBLE ENTITY FOR THE WATERMARK ABSOLUTE RETURN FUND Defendant order made by: STEWART J DATE OF ORDER: 16 MARCH 2021 THE COURT ORDERS THAT: 1. Pursuant to subsection 411(4)(b) and subsection 411(6) of the Corporations Act 2001 (Cth) (the Act), the scheme of arrangement between Australian Leaders Fund Limited (ACN 106 845 970) (ALF), and its members, in the form of Exhibit "P1" in the proceeding, be approved (Scheme). 2. ALF lodge with the Australian Securities and Investment Commission a copy of the approved Scheme at the time of lodging a copy of these Orders. 3. Pursuant to subsection 411(12) of the Act, ALF be exempted from compliance with subsection 411(11) of the Act in relation to Order 1. 4. Pursuant to section 413 of the Act (and using the definitions in the Scheme), on the Implementation Date, the ALF Assets be transferred to the defendant in its capacity as responsible entity for the Watermark Absolute Return Fund, such transfer to be implemented in accordance with clauses 4.2 and 4.3 of the Scheme. 5. Liberty reserved to either party to apply for any further orders as may be considered necessary or desirable under section 413 of the Act. THE COURT NOTES THAT: 1. For the purposes of subsection 411(6) of the Act the alteration to clause 2(b) of the Scheme, being the addition of the number of ALF shares on issue as at the date of this Order. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Revised from the transcript) STEWART J: 1 I previously ordered that, pursuant to s 411(1) of the Corporations Act 2001 (Cth), the plaintiff, Australian Leaders Fund Ltd, convene a meeting of the holders of ordinary shares issued in the company for the purpose of considering and, if thought fit, agreeing to (with or without modification) a scheme of arrangement proposed to be entered into between the company and the shareholders. See Australian Leaders Fund Ltd v Equity Trustees Ltd, in the matter of Australian Leaders Fund Ltd [2021] FCA 88. 2 In ordering the convening of the scheme meeting I was satisfied, in the language of FT Eastment & Sons Pty Ltd v Metal Roof Decking Pty Ltd (1977) 3 ACLR 69 at 72 that, "the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the creditors' meeting the court would be likely to approve it on the hearing of a petition which is unopposed." 3 The meeting was convened, and the votes cast were as follows: (1) shares present and voting in favour, 86.19%; and (2) members present and voting in favour, 88.29%. 4 The statutory majorities required by s 411(4)(a)(ii) were accordingly attained. 5 Approval of the scheme is uncontested, thus, aside from discretionary considerations that I will come to, the remaining matter on which I must be satisfied is that there has been procedural fairness. I am so satisfied. 6 It is at the second court hearing that the court's discretion to approve is relevantly exercised, as it is at the second court hearing that a "final determination" is made: Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; 177 CLR 485 at 505 per Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ. 7 Insofar as discretionary considerations are concerned, in Re Seven Network Ltd (No 3) [2010] FCA 400; 77 ACSR 701 at [31]-[40], Jacobson J with exhaustive reference to authority summarised the approach of the court at the approval hearing as follows: (1) The court has a discretion whether to approve a scheme and is not bound to approve it simply because it made orders for the scheme meeting to be convened or because the statutory majorities were obtained. (2) The court will usually approach the task of deciding whether to approve a scheme on the basis that the company's members are better judges of what is in their commercial interests than the court. (3) Matters noted by the Corporations and Markets Advisory Committee (CAMAC), which the courts have considered in relation to member schemes, are: (a) whether those sought to be bound by the scheme have voted in good faith and not for an improper purpose; (b) whether the proposal is at least fair and reasonable so that an intelligent and honest man or woman who was a member of the relevant class, properly informed and acting alone, might approve it; (c) whether the plaintiff has brought to the court's attention under the ex parte disclosure principle all information relevant to the exercise of the court's discretion; (d) whether there has been full and frank disclosure of all information material to the members' decision; and (e) whether minority shareholders would be oppressed by the scheme. (4) A further consideration is whether the scheme offends public policy. See, e.g., Re CSR Ltd [2010] FCAFC 34; 183 FCR 358 at [51]-[56]. 8 As to fairness, the independent expert's report records the opinion expressed by Titan Partners Corporate Finance Pty Ltd, the independent expert appointed by the company's independent board committee to assess the scheme. That opinion, as dealt with at the first hearing, is that the scheme is fair and reasonable and is in the best interests of the company's shareholders. 9 There is no contrary evidence and nothing in the report, on its face, that suggests that the opinion expressed lacks validity. As noted, I was previously satisfied under the Eastment principle that the reasonableness of the scheme was prima facie established. 10 On the evidence, there has been no criticism of the substance of the disclosure contained in the scheme booklet by any regulatory body or member. A member sought clarification regarding the timetable for withdrawals/redemptions, which was answered by way of an announcement on the ASX. The clarification that was sought does not impugn the substance of the disclosure. I accordingly infer that there has been full and adequate disclosure. 11 There is nothing to suggest that the relevant members voted other than in good faith or that they cast their votes for an improper purpose or that any member has been treated in a way that might be characterised as oppressive. 12 There is nothing that materially casts doubt on the procedural integrity of the meeting processes. 13 The Australian Securities and Investments Commission (ASIC) did not appear, as is usual in these circumstances. It provided its statement under s 411(17)(b) stating that it has no objection to the scheme. ASIC has not raised any public policy concern and there is nothing on the face of the proposal which would suggest that there should be such a concern. 14 On 5 February 2021, an email in the form approved by the Court was sent to all of the company's shareholders who had consented to receiving shareholder communications electronically. 15 Also that on day, a hardcopy mail-out of the Court-approved letter and proxy forms to remaining company shareholders was completed. 16 The electronic and hardcopy mail-out was based on the share register as at 3 February 2021. Although there is no statutory obligation to notify members of the scheme meeting who come onto the share register only after the date on which the membership for the initial mail-out was determined, personalised letters, proxy forms and envelopes were sent by mail to the 21 new members who came onto the share register in the period 3 February 2021 to 1 March 2021. 17 Voter turnout is sometimes considered as a possible indicator of whether there has been some flaw in the process of convening the scheme meeting, an unusually low turnout being taken to possibly be suggestive of such a flaw. Voter turnout percentages for the scheme meeting were as follows: Number of votes cast (for or against) As a % of total voting shares Number of members who voted (for or against) As a % of total shareholders 89,463,994 46.58% 571 12.88% 18 Insofar as it is instructive to compare those results with other cases where schemes have been approved, in Re Lion Nathan Ltd (No 2) [2009] FCA 1261 at [6], Emmett J noted that 64% of eligible shares had been represented and voted in the scheme meeting. In Re MB Group PLC [1989] BCLC 672 at 675, Harman J described the turnout of 52% of scheme shares as "a high turnout". 19 In Re Avoca Resources Ltd [2011] FCA 208 at [25], Gilmour J noted, in respect of a members' scheme, that 72.38% of shares on issue were represented and voted and 11.49% of shareholders were represented at the meeting. In Re Auzex Resources Ltd (No 2) [2012] QSC 101 at [18], Applegarth J noted, in respect of a members' scheme, that voter turnout was 42.3% of votes and 9.75% by way of head count. 20 In the present case, 46.58% as a percentage of total voting shares is reasonably close to what Harman J had described as a high turnout. Further, 12.88% as a percentage of total shareholders is more than the turnout for other schemes that were approved. 21 A way of testing whether the figures reflect some flaw in the process is to have regard to the figures of attendance at the company's annual general meetings. I note that at the 2018 annual general meeting 14 members attended in person, representing 0.18% of the total register of members. At the 2019 annual general meeting 37 members attended in person, which represented 0.56% of the company's total register of members. Those figures suggest that the number of members present and voting at the scheme meeting was high and can give confidence in the process. 22 There is nothing in the turnout figures to suggest that there has been a flaw in the convening process. I have, in any event, examined that process on the evidence provided and I am satisfied that the scheme meeting was properly convened. 23 The form of the orders sought today does not go beyond existing practice. Order 1 expresses the power pursuant to s 411(4)(b) and s 411(6) to reflect the "alteration" to clause 2(b) of the scheme to state the number of shares on issue. This is an alteration of a minor kind that does not materially affect the details of the scheme. It is, therefore, clearly within the power under s 411(6). See Re InvestInfo Ltd [2005] FCA 1848; (2006) 24 ACLC 44 at [5]-[7] per Gyles J. 24 An order has also been sought for exemption from compliance with s 411(11). That is an orthodox exemption. See Re Equinox Resources Ltd [2004] WASC 143; 49 ACSR 692 at [21]-[22]. 25 In all the circumstances, I am satisfied that the following orders should be made: (1) Pursuant to subsection 411(4)(b) and subsection 411(6) of the Corporations Act 2001 (Cth) (the Act), the scheme of arrangement between Australian Leaders Fund Limited (ACN 106 845 970) (ALF), and its members, in the form of Exhibit "P1" in the proceeding, be approved (Scheme). (2) ALF lodge with the Australian Securities and Investment Commission a copy of the approved Scheme at the time of lodging a copy of these Orders. (3) Pursuant to subsection 411(12) of the Act, ALF be exempted from compliance with subsection 411(11) of the Act in relation to Order 1. (4) Pursuant to section 413 of the Act (and using the definitions in the Scheme), on the Implementation Date, the ALF Assets be transferred to the defendant in its capacity as responsible entity for the Watermark Absolute Return Fund, such transfer to be implemented in accordance with clauses 4.2 and 4.3 of the Scheme. (5) Liberty reserved to either party to apply for any further orders as may be considered necessary or desirable under section 413 of the Act. 26 Finally, the Court notes that for the purposes of subsection 411(6) of the Act the alteration to clause 2(b) of the Scheme, being the addition of the number of ALF shares on issue as at the date of this Order. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart. Associate: Dated: 18 March 2021