Supreme Court New South Wales Medium Neutral Citation: In the matter of TPG Telecom Limited [2020] NSWSC 978 Hearing dates: 26 June 2020 Date of orders: 26 June 2020 Decision date: 30 July 2020 Jurisdiction: Equity - Corporations List Before: Black J Decision: Orders made approving the scheme of arrangement. Catchwords: CORPORATIONS – Arrangements and reconstructions – Schemes of arrangement or compromise – Application under s 411 of the Corporations Act 2001 (Cth) for orders approving scheme of arrangement – Where formal requirements satisfied – Whether scheme of arrangement should be approved. Legislation Cited: - Corporations Act 2001 (Cth), ss 411 Cases Cited: - Re Amcor Limited (No 2) [2019] FCA 842 - Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 - Re Atlas Iron Ltd (No 2) [2016] FCA 481 - Re Aveo Group Ltd [2019] NSWSC 1679 - Re Central Pacific Minerals NL [2002] FCA 239 - Re David Jones Limited (No 3) [2014] FCA 753 - Re Equinox Resources Ltd (2004) 49 ACSR 692 - Re GBST Holdings Ltd [2019] NSWSC 1503 - Re NRMA Ltd (No 2) (2000) 156 FLR 412 - Re Permanent Trustee Co Limited (2002) 43 ACSR 601 - Re Redcape Property Fund Ltd and Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) [2012] NSWSC 486 - Re Seven Network Ltd [2010] FCA 400; 77 ACSR 701 - Re Solution 6 Holdings Ltd (2004) 50 ACSR 113 - Re Texon Petroleum Ltd (No 2) [2013] FCA 147 Category: Principal judgment Parties: TPG Telecom Limited (Plaintiff) Representation: Counsel: J Williams/H Atkin (Plaintiff) M Oakes SC (Acquirer) Solicitors: Herbert Smith Freehills (Plaintiff) Norton Rose Fulbright (Acquirer) File Number(s): 2020/129431 Judgment Background and affidavit evidence 1. On 19 May 2020, the Court made orders convening a meeting of shareholders in TPG Telecom Limited ("TPG") to consider a scheme of arrangement between TPG and holders of its ordinary shares, which would effect a merger between TPG and Vodafone Hutchison Australia Limited ("VHA"), and approved a scheme booklet for distribution to TPG shareholders. That scheme meeting was subsequently held on 24 June 2020 and TPG shareholders approved the scheme by a substantial majority of 99.9% of shares by value and approximately 99.19% of shareholders by number present and voting. Plainly, those majorities substantially exceeded the necessary statutory requirements for the approval of a scheme. TPG now seeks orders under s 411(4)(b) of the Corporations Act 2001 (Cth) approving that scheme. 2. TPG relies on the affidavit dated 24 June 2020 of its executive chair, Mr Teoh, who also acted as chair of the virtual scheme meeting, which was held online by reason of the COVID-19 pandemic. Mr Teoh outlines the proceedings at the scheme meeting and the results of the poll in respect of the scheme resolution, to which I have referred above. 3. An affidavit dated 24 June 2020 of Ms Coyle, who is a relationship manager employed by Computershare Investor Services Pty Ltd, deals with the maintenance of TPG's register of members, the despatch of scheme materials and the information memorandum to TPG shareholders, including those shareholders who elected to receive that information by electronic means, and the despatch of a reminder to vote email that was previously approved by the Court to TPG shareholders on 16 June 2020. Ms Coyle also addresses the receipt of proxies for the scheme meeting, although her evidence in that regard was corrected in a minor respect by her further affidavit dated 25 June 2020. She also addresses the process adopted for the scheme meeting and voting at the scheme meeting, the preparation of a poll report for the scheme meeting and the voting participation rate at that scheme meeting, which was an impressive 90.11%, exceeding the already relatively high participation rates at TPG's two most recent annual general meetings. 4. By her affidavit dated 24 June 2020, Ms Rebecca Maslen-Stannage, a partner in the firm of solicitors which acted for TPG in respect of the scheme, dealt with the registration of the scheme booklet with the Australian Securities and Investments Commission ("ASIC"); the disclosure of TPG's intent to pay a fully franked special dividend prior to implementation of the scheme, subject to specified matters; TPG's announcement to Australian Securities Exchange of the quantum of that special dividend; the disclosure of the proposed demerger of TPG's Singapore mobile business by an in specie distribution of shares in that company to TPG shareholders in the scheme booklet; the publication of an advertisement of the second court hearing; and the conduct of the scheme meeting. Ms Maslen-Stannage fairly there disclosed that, early in the scheme meeting, the audio of the meeting dropped out for a couple of seconds on approximately three occasions, prior to the substantive content of that meeting. She expresses the view that no material which she considered to be material was omitted because of that occurrence. That matter does not seem to me to be material to the determination of this application. 5. An affidavit dated 24 June 2020 of Mr Reed, who is a general manager with Lumi Technologies Pty Ltd, dealt with the engagement of that company to provide registration and vote counting services at the scheme meeting and the use of that firm's "Meeting Manager" system to conduct that scheme meeting, and also addressed the conduct of the scheme meeting and of the poll at that meeting. 6. TPG also tendered conditions precedent certificates executed by each of TPG and VHA and a letter dated 25 June 2020 from ASIC to the directors of TPG which advised that, under s 411(17)(b) of the Corporations Act, ASIC had no objection to the proposed scheme. The applicable principles 1. Section 411(4) of the Corporations Act provides that an arrangement is binding on scheme shareholders and TPG if, at a meeting of scheme shareholders, it is passed by a majority of scheme shareholders present and voting (in person or by proxy) and by 75% of votes cast and it is approved by order of the Court. Section 411(6) of the Act provides that the Court may grant approval subject to such alterations or conditions as it thinks just. Mr Williams, who appears with Mr Atkin, for TPG, rightly submits that, at the second court hearing, the Court will first determine whether the procedural requirements in respect of the scheme have been satisfied and then exercise its discretion as to whether or not to approve the scheme: Re Central Pacific Minerals NL [2002] FCA 239 at [12]; Re Redcape Property Fund Ltd and Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) [2012] NSWSC 486 at [7]; Re Aveo Group Ltd [2019] NSWSC 1679 at [15]. 2. Mr Williams recognises that the Court is not bound to approve a scheme merely because it has previously made orders for the convening of meetings and the statutory majorities have been achieved: Re NRMA Ltd (No 2) (2000) 156 FLR 412 at [22]; Re Seven Network Ltd [2010] FCA 400; 77 ACSR 701 at [31]; Re Atlas Iron Ltd (No 2) [2016] FCA 481 at [5]. However, as Mr Williams also points out, the Court will have due regard to members' assessment of their interests as manifested in the voting at the scheme meeting, and will recognise that shareholders are generally "the best judges of whether an arrangement is to their commercial advantage", and will therefore "be reluctant to make decisions contrary to the views of security holders expressed at meetings": Re Central Pacific Minerals NL above at [13]. 3. Mr Williams also draws attention to matters that the Court will generally take into account in the exercise of its discretion, while recognising they are not a closed list, including whether scheme members have voted in good faith and not for an improper purpose; whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone might approve it; whether the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion; whether there has been full and fair disclosure of all information material to the decision; whether minority shareholders would be oppressed by the scheme; whether the scheme offends public policy; and whether the interests of other groups who are not parties to, but are affected by, the scheme are dealt with appropriately: Corporations and Markets Advisory Committee report, Members' schemes of arrangement, 2009, pp 49-52; Re Permanent Trustee Co Limited (2002) 43 ACSR 601 at [8]–[10]; Re Solution 6 Holdings Ltd (2004) 50 ACSR 113 at [18]–[24]; Re Seven Network Limited above at [35]-[40]; Re Texon Petroleum Ltd (No 2) [2013] FCA 147 at [6]-[17]; Re David Jones Limited (No 3) [2014] FCA 753 ("David Jones") at [3]; Re GBST Holdings Ltd [2019] NSWSC 1503 ("GBST Holdings") at [11]; Aveo Group above at [15]. 4. In Re Amcor Limited (No 2) [2019] FCA 842 at [7]-[11], Beach J summarised the applicable principles as follows: "In essence, my role at the second court hearing is to assess the Scheme taking into account whether the Scheme is sufficiently fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it. Of course, I can only approve a scheme of arrangement if the requisite majority of shareholders vote in favour of it, but I am not bound to approve the Scheme simply because I previously made orders for the convening of a Scheme meeting and subsequently the requisite majority agreed to it. But I accept that shareholders voting collectively at the Scheme meeting are better judges than I of what is to their commercial advantage and in their interests and accordingly, absent good reason, I should give effect to their intentions. Now whilst there is no exhaustive statement of the matters as to which I must be satisfied before granting approval, it is not in doubt that in exercising my power under s 411(4)(b), I should be satisfied that: (a) the Scheme complies with the law, including the relevant procedural requirements; (b) The Scheme was approved by shareholders acting in good faith and for proper purposes; (c) There has been an accurate and comprehensive disclosure of the details of the Scheme and its effect to those voting on it; (d) there is no suggestion of oppression of any minority; (e) there is no evidence that any third parties will be disproportionately adversely affected by the operation of the Scheme; (f) the Scheme does not offend against any aspect of public policy; and (g) all matters that could be considered relevant to the exercise of my discretion have been drawn to my attention. I also need to be satisfied that the conditions precedent to the Scheme have been met, save for Court approval, and that ASIC has been given the opportunity to draw to my attention any relevant matter(s). In considering whether the Scheme complies with the law, including the relevant procedural requirements, I need to satisfy myself that the procedural and other requirements in the Act, Corporations Regulations 2001 (Cth) and [the Corporations Rules] have been complied with and that the requirements for a valid resolution of the shareholders have been satisfied. Now as I have said, my task is to consider whether the Scheme is fair and reasonable with the test of fairness and reasonableness including a consideration of whether "an intelligent and honest [shareholder], properly informed, acting alone, might approve [the scheme]" … But the Scheme shareholders' vote in favour of the Scheme is evidence of its inherent fairness. Put another way, if a majority of the Scheme shareholders have approved the Scheme, it is unlikely that the Scheme would be unreasonable. Further, I do not have to be satisfied that no better Scheme could have been devised." Determination 1. As Mr Williams points out, the Scheme was supported by TPG shareholders at the scheme meeting on 24 June 2020, by substantial majorities that comfortably exceeded the required majorities for the purposes of s 411(4) of the Act. The scheme booklet that was despatched to TPG shareholders on 25 May 2020 was substantially in the form of the document approved by the Court, and was registered with ASIC, and the evidence addresses the manner in which that booklet was sent. On 15 June 2020, TPG also sent a "reminder to vote" email substantially in the form approved by the Court on 19 May 2020 to those TPG shareholders who had nominated an electronic address for receipt of communications from TPG and who had not yet lodged proxy voting instructions. The evidence to which I have referred above also addresses steps taken by TPG in relation to the receipt of proxy forms, the collation of proxies, the preparation of a proxy report and the registration, voting and poll procedures at the scheme meeting and the conduct of the scheme meeting. TPG also published a notice of the Court hearing for approval of the Scheme in The Australian newspaper on 15 June 2020. I am satisfied that the procedural requirements in respect of the scheme were satisfied. 2. Mr Williams also draws attention to the disclosure in the scheme booklet that TPG intended to declare and pay a fully franked cash special dividend prior to implementation of the Scheme if, as expected, TPG's actual net debt and working capital balances on the "Locked Box Date" (30 April 2020) were less than the permitted amounts in the Scheme Implementation Deed as adjusted. On 12 June 2020, TPG announced to ASX that the quantum of the special dividend was expected to be in the range of $0.49 to $0.52 per share. Mr Williams points out that the final quantum of the special dividend will be determined and the special dividend will be paid prior to the issue of the scheme consideration and prior to implementation of the Scheme to those TPG shareholders who hold TPG shares as at 1 July 2020. 3. Mr Williams points out that the scheme booklet also disclosed TPG's intention, should the scheme become effective, to demerge its Singapore mobile business by way of in-specie distribution to TPG shareholders of one share in Singapore Co for every two TPG shares held, and that TPG shareholders were provided with an information memorandum in relation to Singapore Co shares at the same time as the scheme materials. Mr Williams points out that this distribution will be made to those TPG shareholders who hold TPG shares as at 1 July 2020 prior to the implementation of the scheme. 4. Mr Williams also notes that, under the Scheme, TPG shareholders will receive one share in VHA for each TPG share held, and it is proposed that VHA will list on ASX. A condition precedent to the scheme, and a condition to VHA's admission to the official list of ASX, is that VHA convert from a proprietary to a public company. VHA was converted to a public company and renamed Vodafone Hutchison Australia Limited on 19 June 2020. 5. Implementation of the Scheme was conditional on a number of conditions precedent being satisfied or waived. As I noted above, TPG has tendered certificates under cl 3.2 of the scheme executed by TPG and VHA stating that all of the relevant conditions precedent have been satisfied or waived, other than the conditions relating to Court approval of the scheme. ASIC has also confirmed that it has no objection to the scheme and provided a letter to that effect under s 411(17)(b) of the Act, and that letter is sufficient to satisfy the requirements of s 411(17). 6. There is no reason to doubt that the substantial number and majority of scheme members who voted in favour of the scheme did so in good faith and for a proper purpose, and no reason to doubt that the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone might approve it. As Mr Williams points out, the independent expert's report contained in the scheme booklet concluded that the scheme was in the best interests of TPG shareholders, in the absence of a superior proposal, which has not emerged. 7. There is also no reason to doubt that TPG has brought to the Court's attention the matters that could be considered relevant to the exercise of the Court's discretion, or to doubt that there has been full and fair disclosure of all information material to the decision whether to approve the scheme. There is no element of oppression to minority shareholders in the scheme; any competition issues have been addressed in earlier proceedings in the Federal Court of Australia, and there is no other aspect as to which the scheme might offend public policy, or adversely affect the interests of other groups who are not parties to the scheme. 8. Mr Williams also submits, and I accept, that there is no utility having the Court order annexed to TPG's constitution, where that order does not effect any change to the constitution and TPG should be exempted from compliance with s 411(11) in this situation: Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 at 240; Re Equinox Resources Ltd (2004) 49 ACSR 692. Orders 1. For these reasons, I made the orders sought by TPG at the second Court hearing on 26 June 2020. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 July 2020