Supreme Court New South Wales Medium Neutral Citation: In the matter of Templeton Global Growth Fund Limited [2021] NSWSC 1351 Hearing dates: 19 October 2021 Date of orders: 19 October 2021 Decision date: 21 October 2021 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), s 411 - Securities Act 1933 (US), s 3(a)(10) Cases Cited: - Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 - Re Atlas Iron Ltd (No 2) [2016] FCA 481 - Re Aveo Group Ltd [2019] NSWSC 1679 - Re Boart Longyear Ltd (No 2) (2017) 122 ACSR 437; [2017] NSWSC 1105 - Re Central Pacific Minerals NL [2002] FCA 239 - Re Ellerston Global Investments Ltd [2020] NSWSC 1108 - Re iProperty Group Ltd (No 2) [2016] FCA 36, - Re NRMA Ltd (No 2) (2000) 156 FLR 412; (2000) 34 ACSR 261; [2000] NSWSC 408 - Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 - 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 (No 3) (2010) 77 ACSR 701; [2010] FCA 400 - Re Simavita Holdings Ltd [2013] FCA 1274 - Re Solution 6 Holdings Ltd (2004) 50 ACSR 113; [2004] FCA 1049 - Re Templeton Global Growth Fund Ltd [2021] NSWSC 1169 - Re TriAusMin Ltd (No 2) [2014] FCA 833 Category: Principal judgment Parties: Templeton Global Growth Fund Limited (Plaintiff) Representation: Counsel: J Williams SC (Plaintiff) O Jones (Acquirer) Solicitors: King & Wood Mallesons (Plaintiff) Mills Oakley (Acquirer) File Number(s): 2021/228006 Judgment Background 1. By Originating Process filed on 10 August 2021, the Plaintiff, Templeton Global Growth Fund Limited ("TGG") applied, inter alia, for an order under s 411 of the Corporations Act 2001 (Cth) that it convene a meeting of its members to consider a proposed scheme of arrangement. I made the orders sought at the conclusion of the first Court hearing on 25 August 2021, for the reasons set out in my earlier judgment in Re Templeton Global Growth Fund Ltd [2021] NSWSC 1169 ("Earlier Judgment"). At the second Court hearing on 19 October 2021, I made orders approving the scheme, and these are my reasons for doing so. I have drawn on the helpful submissions of Mr Williams, who appears for TGG, in these reasons. 2. As I noted in the Earlier Judgment, and by way of background, TGG is an investment company which invests in equity stocks traded on international stock exchanges, its investment portfolio has been managed by a third party under an Investment Management Agreement and it also outsourced its administration functions to that third party. On 29 June 2021, TGG and the acquiring party, WAM Global Ltd ("WAM Global"), announced to the Australian Securities Exchange ("ASX") that they had entered into a Scheme Implementation Agreement which was subsequently amended on 22 August 2021. The proposed scheme effects a merger between TGG and WAM Global, which is a listed investment company managed by Wilson Asset Management. It provides for WAM Global to acquire all of the issued TGG shares that it does not already own, other than any TGG shares which are to be bought back by TGG under a buy-back which will occur in parallel with the scheme, in consideration for the issue of ordinary shares and options in WAM Global based on the relative net tangible assets ("NTA") per share of TGG and WAM Global before deferred taxes. 3. In parallel to the proposed scheme, TGG would undertake an equal access buy-back of TGG shares which would enable TGG shareholders to elect to sell into the buy-back for cash equal to NTA per TGG share after current and deferred taxes and transaction costs. TGG shareholders can therefore either accept the buy-back offer and receive cash from TGG for their TGG shares or they can elect not to accept the buy-back offer and receive the scrip consideration offered under the scheme. The scheme and buy-back are inter-conditional such that neither would proceed unless TGG shareholders approved both the scheme and buy-back resolutions. Affidavit evidence 1. At this second Court hearing, TGG read the affidavit dated 14 October 2021 of Mr Christopher Freeman, who is an independent, non-executive director of TGG and the chair of its board. Mr Freeman referred to supplementary disclosure which was made by TGG in early September 2021 to correct two typographical errors in the explanatory memorandum for the scheme, in accordance with the Court's order made on 10 September 2021. He also referred to the conduct of the scheme meeting and the associated general meeting to consider the resolution to approve the proposed buy-back. He referred to the conduct of that meeting as a virtual meeting and addressed the means by which shareholders were given the opportunity to ask questions both prior to the vote on the scheme resolution and during the meeting. He identified the several questions raised by shareholders, and the answers which were given to those questions are recorded in the minutes of the scheme meeting. Mr Freeman also noted the results on the poll in respect of the scheme resolution, which was supported by over 98% of the votes cast and over 97% of shareholders by number, and on the buy-back resolution which was supported by over 99% of the number of votes cast. Each of the scheme resolution and buy-back resolution was therefore passed by the requisite statutory majorities. Mr Freeman also noted that the result of the meetings was announced to ASX on 29 September 2021. 2. By an affidavit dated 15 October 2021, Mr Oliver Bampfield, who is the Managing Director of Lumi Technologies Pty Ltd ("Lumi") in New South Wales, referred to Lumi's engagement to provide registration and vote counting services at the meetings and addressed the conduct of the meetings in respect of the scheme and the buy-back and the conduct of the poll on the scheme resolution and buy-back resolution. 3. By his affidavit dated 17 October 2021, Mr Steven Fahey, who is an independent non-executive director of TGG, referred to TGG's continuous disclosure policy and addressed events since the scheme meeting on 29 September 2021, including the disposal of a portion of TGG's equity investment portfolio in order to fund the proposed buy-back and associated transaction costs. Mr Fahey noted that TGG had provided updates to ASX and to TGG shareholders with respect to movements in its NTA since the scheme meeting and gave evidence, by reference to several matters, that there had been no material change in TGG's circumstances or financial position since that meeting. Mr Fahey also addressed the calculation of TGG's NTA and the amount of scrip consideration and cash consideration payable under the scheme and noted that those amounts had been announced to ASX on 14 October 2021. 4. By his affidavit dated 18 October 2021, Mr Jesse Hamilton, who is the Company Secretary of WAM Global and the Chief Financial Officer of its Investment Manager, Wilson Asset Management (International) Pty Ltd, referred to updates provided by WAM Global to ASX and its shareholders as to its asset position since the scheme meeting. He also confirmed that there had been no material change in WAM Global's circumstances or financial position since the scheme meeting. He confirmed that, as contemplated by the Explanatory Memorandum, an entity associated with WAM Global which held shares in TGG had not voted at the scheme meeting. Mr Hamilton also identified WAM's and TGG's proposed reliance on the approval of the scheme for the purposes of s 3(a)(10) of the Securities Act 1933 (US), a matter which I will address below. 5. By his affidavit dated 18 October 2021, Mr Peter Renda, who is a relationship manager employed by ComputerShare Investor Services Pty Ltd, which was engaged by TGG to provide services in respect of the scheme meetings and general meeting relating to the buy-back, referred to the dispatch of scheme materials in electronic form and in physical form, the receipt of proxies, the registration of attendees at the scheme meeting and buy-back meeting and to voting at those meetings. Mr Renda also set out the results of voting at that meeting, consistent with the evidence to which I have referred above. He also addressed the participation rate at the meetings, and noted that the scheme meeting was attended by about 37% of TGG shareholders by number of shares and 17% by number of shareholders, and the buy-back meeting was attended by about 35% of shareholders by number of shares and about 15% by number of shareholders. Those participation rates are not high in absolute terms, but are higher than the voting participation rates by number of shares at TGG's last two annual general meetings. 6. By his affidavit dated 18 October 2021, Mr Jonathan Grant, who is a partner in the firm of solicitors acting for TGG in respect of the scheme, referred to the lodgement of the explanatory memorandum with the Australian Securities & Investments Commission ("ASIC"), the publication of an advertisement for the second Court hearing in a national newspaper, and also noted that no notice had been received by TGG's solicitor from any party that wished to appear at the second Court hearing. He also referred to a waiver granted by ASX in respect of the timing of notification in respect of the buy-back. By a further affidavit dated 19 October 2021, Mr Grant confirmed that the solicitors for TGG had not received any notice from any party wishing to appear at the second Court hearing. There was in fact no such appearance at that hearing. 7. TGG also tendered certificates of satisfaction of conditions precedent executed by each of TGG and WAM Global (Ex P1) and a letter dated 18 October 2021 from ASIC confirming that it had no objection to the proposed scheme of arrangement for the purposes of s 411(17)(b) of the Corporations Act. Submissions and determination 1. Section 411(4) of the Act provides that an arrangement is binding on TGG shareholders and TGG only if, at a meeting of TGG shareholders, it is passed by a majority of the shareholders present and voting 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. 2. Mr Williams outlines the applicable principles which are uncontroversial. At the second Court hearing, TGG must satisfy the Court that the scheme resolutions have been passed in accordance with the statutory requirements and the applicable procedural requirements have been satisfied. Where those matters are established, the Court has a supervisory discretion and will consider whether the scheme involves oppression and whether the arrangement is capable of being accepted: Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 247. In deciding whether to give approval to the scheme, the Court will typically wish to be satisfied that the orders of the Court convening a meeting of members were complied with; the meeting of members so convened has approved the scheme with the requisite majority; all other statutory requirements have been satisfied; the scheme is 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; 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; and there was full and fair disclosure to members of all information material to the decision whether to vote for or against the applicable scheme: Re Solution 6 Holdings Ltd (2004) 50 ACSR 113; [2004] FCA 1049 at [18]-[24]; Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 at [8]-[10]; Re Central Pacific Minerals NL [2002] FCA 239 at [8]-[14]; Re Seven Network (No 3) (2010) 77 ACSR 701; [2010] FCA 400 at [35]-[39]; 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]. 3. As Mr Williams points out, the Court will have regard to the assessment by members of their interests as manifested in the voting at the meeting: Re Central Pacific Minerals NL above at [12]; Re Redcape Property Fund Ltd and Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) above at [7]; Re Aveo Group Ltd above at [15]. The Court is not bound to approve a scheme merely because it has previously made orders for the convening of meeting of the members and the statutory majorities have been achieved: Re NRMA Ltd (No 2) (2000) 156 FLR 412; (2000) 34 ACSR 261; [2000] NSWSC 408 at [22]; Re Seven Network above at [31]; Re Atlas Iron Ltd (No 2) [2016] FCA 481 at [5]. 4. The affidavit evidence here establishes that the Court's orders in respect of the dispatch of the scheme booklet and the scheme meeting were complied with. As I noted above, the scheme was approved by the requisite majorities of votes cast and by number of TGG shareholders present at the scheme meeting and the statutory majorities in sections 411(4)(a)(ii)(A) and (B) of the Act have been satisfied. The voting participation rates at that meeting are not particularly high although they are higher than the voting participation rates at TGG's recent annual general meetings. As in previous cases, I bear in mind the observation of Farrell J in Re TriAusMin Ltd (No 2) [2014] FCA 833 at [10]-[12] that: "Although the statutory requirement under s 411(4)(a)(ii) has been satisfied, it is the usual practice of the court at the second court hearing to consider the number of shareholders who attended the Scheme Meeting in person or by proxy. Low shareholder turnout may be an indication that some procedural irregularity occurred. It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme: Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [7] and Re Seven Network Ltd (No 3) (2010) 267 ALR 583 … at [61] per Jacobson J; apathy should not be presumed to be antagonism: Re Matine Ltd (1998) 28 ACSR 268 at 295 per Santow J. 1. The condition precedent to the scheme in respect of the approval of the buy-back at the general meeting held at the same time as the scheme meeting has been satisfied, and the evidence to which I have referred above addresses the calculation of the NTA of each of TGG and WAM Global and of the scrip consideration for the scheme and the cash consideration for the buy-back and indicates that there have been no material adverse events in respect of either TGG or WAM Global in the period since the scheme meeting. The amounts resulting from those calculations are marginally higher, and more favourable for TGG shareholders, than the indicative examples of that calculation in the explanatory memorandum for the scheme. 2. In making orders to convene the scheme meeting at the first Court hearing, I was satisfied that the scheme was of such a nature and cast in such terms that, if it received the statutory majority at the meeting, the Court would be likely to approve it on the hearing of an application that was unopposed. No TGG shareholder or other person indicated a wish to appear or appeared at the second Court hearing to object to the scheme and, as I noted above, TGG tendered a letter from ASIC issued pursuant to s 411(17)(b) of the Act stating that ASIC has no objection to the scheme. There is no reason to doubt that TGG has brought to the Court's attention all matters that could be considered relevant to the exercise of the Court's discretion, or to doubt that there was full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme. The factual information contained in the scheme booklet was verified in the usual way and the scheme booklet otherwise satisfies the relevant statutory requirements. 3. I am satisfied that the Court should also make an order exempting TGG from compliance with s 411(11) of the Act, where the scheme will not modify any rights of shareholders or of creditors or of persons dealing with TGG: Re Equinox Resources Ltd (2004) 49 ACSR 692; [2004] WASC 143 at [22]; Re Toll Holdings Ltd (No 2) [2015] VSC 236 at [18]–[19]. Section 3(a)(10) of the Securities Act 1933 (US) 1. As I noted above, WAM Global had indicated at the first Court hearing that it intends to rely on the Court's approval of the scheme for the purpose of qualifying for exemption from the registration requirements under s 3(a)(10) of the Securities Act 1933 (US), in connection with the issue of the scrip consideration under the scheme. As Mr Williams points out, that exemption requires that the Court recognise WAM Global's intended reliance on its approval and a practice has developed concerning the terms in which the Court may express that recognition: Re Permanent Trustee Co Ltd above at [11]-[20]. As requested by TGG, the orders made at this hearing note that notice was given to the Court regarding WAM Global's reliance on the exemption. That notation is consistent with approach adopted in earlier cases: Re iProperty Group Ltd (No 2) [2016] FCA 36; Re Atlas Iron Ltd (No 2) above; Re Boart Longyear Ltd (No 2) (2017) 122 ACSR 437; [2017] NSWSC 1105. 2. At TGG's request, and consistent with the approach taken in earlier cases including Re Simavita Holdings Ltd [2013] FCA 1274 at [52] and Re Ellerston Global Investments Ltd [2020] NSWSC 1108 at [19], I also note the following matters in these reasons for judgment: (a) the Court was advised before the commencement of the approval hearing that WAM Global intended to rely on the exemption under s 3(a)(10) of the Securities Act 1933 (US) on the basis of the Court's approval of the Scheme; (b) the Court has been informed of the securities to be offered as scrip consideration, namely WAM Global shares and WAM Global options; (c) an independent expert report concluded that the proposal is in the best interests of TGG shareholders; (d) the Court has held a hearing to consider the fairness and reasonableness of the proposed scheme which was open to everyone to whom WAM Global shares will be issued, and notice of the hearing in appropriate terms has been provided in a timely manner so that those to whom the new securities were to be issued had an opportunity to oppose or otherwise raise any objection to the scheme; and (e) no TGG shareholder gave notice of any intention to appear at the second Court hearing to oppose the approval of the scheme or opposed its approval. Orders 1. For these reasons, I made the orders sought by TGG at the conclusion of the second Court hearing in respect of the scheme. ********** 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: 22 October 2021