Supreme Court New South Wales Medium Neutral Citation: In the matter of AusNet Services Limited (No 2) [2022] NSWSC 79 Hearing dates: 3 February 2022 Date of orders: 3 February 2022 Decision date: 11 February 2022 Jurisdiction: Equity - Corporations List Before: Black J Decision: Orders made approving a 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 Cases Cited: - Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 - Re Atlas Iron Ltd (No 2) [2016] FCA 481 - Re AusNet Services Ltd [2022] NSWSC 21 - 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 1280 - Re Legend Corporation Ltd [2019] FCA 1249 - Re Legend Corporation Ltd (No 2) [2019] FCA 1444 - Re NRMA Ltd (No 2) (2000) 156 FLR 412; (2000) 34 ACSR 261; [2000] NSWSC 408 - 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 (No 3) (2010) 77 ACSR 701; [2010] FCA 400 - Re Spark Infrastructure RE Ltd [2021] NSWSC 1564 - Re Windlab Ltd [2020] NSWSC 936 Category: Principal judgment Parties: AusNet Services Ltd (Plaintiff) Representation: Counsel: I M Jackman SC (Plaintiff) P M Wood (Acquirer) Solicitors: Allens (Plaintiff) Herbert Smith Freehills (Acquirer) File Number(s): 2021/317018 Judgment Nature of the application 1. On 16 December 2021, I made orders that the Plaintiff, AusNet Services Limited ("AusNet") convene a meeting of AusNet shareholders to consider a proposed scheme of arrangement and approving a scheme booklet to be distributed to AusNet shareholders in connection with the scheme. The proposed scheme provides for Australian Energy Holdings No 4 Pty Ltd ("Bidder"), an entity controlled by Brookfield Asset Management Inc to acquire all of the ordinary shares in AusNet for a cash consideration of $2.6025 for each AusNet share, being $2.65 less an amount paid as a dividend to its shareholders. I set out the reasons for making those orders in my judgment in Re AusNet Services Ltd [2022] NSWSC 21 ("Earlier Judgment"). 2. The scheme meeting was held on 28 January 2022 and approximately 99.76% of votes cast on the resolution and approximately 86.43% of AusNet shareholders by number virtually present and voting voted in favour of the scheme, satisfying the requisite majorities for the purposes of s 411(4)(a)(ii) of the Corporations Act 2001 (Cth) ("Act"). 3. At the second Court hearing on 3 February 2022, AusNet sought, inter alia, an order under s 411(4)(b) of the Act approving that scheme of arrangement. I made the orders sought at the conclusion of the hearing and these are my reasons for doing so. I have drawn in this judgment on the helpful submissions of Mr Jackman, who appeared for AusNet at that hearing. Affidavit evidence 1. At this hearing, AusNet relied on an affidavit dated 28 January 2022 of Mr Peter Mason, who is the independent chair and a non-executive director of AusNet and the chair of the virtual scheme meeting held on meeting on 28 January 2022. Mr Mason refers to the conduct of that meeting, his address to that scheme meeting, the opportunity provided to shareholders to ask questions through the online platform, and the fact that some questions were asked by shareholders at that meeting. He refers to the conduct of a poll on the scheme resolution and to the poll report in respect of that resolution, provided by Mr Dedrick as returning officer for the poll, and indicating that some 86.43% of AusNet shareholders present and voting by number and some 99.76% of votes cast were in favour of the scheme resolution. 2. AusNet also relies on an affidavit dated 28 January 2022 of Mr David Squires, who is a senior client relationship manager at Computershare Investor Services Pty Ltd, which outlines the process adopted to dispatch scheme materials to AusNet shareholders by email, post and airmail as appropriate describes the dispatch of scheme materials to new AusNet shareholders who came on to the register between 17 December 2021 and 14 January 2022 and the dispatch of a "reminder to vote material"; and also outlines the process by which proxy votes were received for the scheme meeting. 3. By an affidavit dated 28 January 2022, Mr Christopher Dedrick, who is a relationship manager at Computershare Investor Services Pty Ltd, outlines the conduct of the virtual scheme meeting and refers to the preparation of a poll report by staff acting under his supervision, which was then provided to Mr Mason as noted above. Mr Dedrick notes that the voting participation rate at that meeting was approximately 19.04% by number of AusNet shareholders and 84.83% of AusNet shares on issue. He notes that no issues arose in respect of the conduct of the virtual scheme meeting and indicates his satisfaction that the dispatch, meeting and voting processes were properly completed in relation to the scheme meeting. 4. By her affidavit dated 2 February 2022, Ms Wendy Rae, who is a partner in the firm of solicitors acting for AusNet in respect of the proposed scheme refers to the registration of the scheme booklet with the Australian Securities and Investments Commission ("ASIC"), the publication of an advertisement of the second Court hearing and the fact that no notice was received that any person proposed to appear at that hearing to oppose the approval of the scheme, and also refers to the announcement of the outcome of the scheme meeting made by AusNet to Australian Securities Exchange on 28 January 2022. She also annexes correspondence received from ASIC indicating that it had no objection to the scheme for the purposes of s 411(17)(b) of the Act. 5. By his affidavit dated 1 February 2022, Mr Michael Ryan, who is the company secretary of the Bidder and a managing director at Brookfield Infrastructure Group (Australia) Pty Ltd, outlines the position in respect of a debt facility agreement between the Bidder and financiers in respect of a loan facility of up to $2.8 billion to be used to partially fund the scheme consideration and associated costs. He indicates the position as to outstanding conditions precedent under the Debt Facility Agreement, to which I refer below, and to information provided by the Bidder's solicitors that the remaining conditions are customary for acquisition debt facilities by a scheme of arrangement. His evidence is that he is not aware of any reason why those conditions would not be satisfied for funding on the Business Day prior to the Implementation Date (as defined) for the scheme. I return to that matter below. Submissions and determination 1. As Mr Jackman points out, at the second Court hearing in order to determine whether to approve a scheme of arrangement, the Court will consider whether the relevant resolutions were passed at the scheme meeting in accordance with the statutory requirements and whether the requisite procedural requirements have been satisfied and exercise a discretion as to whether 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 ("Aveo Group") at [15]. 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, but will have regard to shareholders' assessment of their own interests, as manifested in the voting at the meeting: Re NRMA Ltd (No 2) (2000) 156 FLR 412; (2000) 34 ACSR 261; [2000] NSWSC 408 at [85]-[86]; Re Central Pacific Minerals NL above at [13]; Re Seven Network Ltd (No 3) (2010) 77 ACSR 701; [2010] FCA 400 ("Seven Network") at [31]; Re Atlas Iron Ltd (No 2) [2016] FCA 481 at [5] . 2. Mr Jackman also points out that, although there is no exhaustive statement of the matters as to which the Court must be satisfied before exercising its discretion to approve a scheme, relevant matters include whether the Court's orders convening the scheme meeting have been complied with; all other statutory requirements have been satisfied, including that the scheme was agreed to by the requisite statutory majorities; the scheme members have voted in good faith and not for an improper purpose; 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; 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; there has been full and fair disclosure of all information material to the decision; minority shareholders would not be oppressed by the scheme; the scheme does not offend public policy; and the interests of other groups who are not parties to, but are affected by, the scheme are dealt with appropriately: Seven Network above at [35]-[40]; Re David Jones Limited (No 3) [2014] FCA 753 at [3]; Aveo Group at [15]; Re Windlab Ltd [2020] NSWSC 936 at [8]-[13]. 3. I am satisfied that the requisite procedural requirements are satisfied. The evidence establishes that the scheme booklet was registered with ASIC on 16 December 2021, and the scheme booklet as despatched to AusNet shareholders is in the same form of the version approved for despatch by the Court on 16 December 2021. The scheme booklet and associated documents were made available to AusNet shareholders by email, post or airmail notifications in accordance with the Court's orders and scheme materials were also posted to shareholders who requested them by post or in hard copy form. The scheme meeting was held as a wholly virtual meeting by means of audio-visual technology. Mr Jackman points out that a total of 3,249,081,326 votes were cast at that meeting, representing approximately 84.83% of all votes able to be cast, and (as I noted above) the scheme was approved by AusNet shareholders at that meeting by the requisite statutory majorities. 4. AusNet subsequently published a notice of this hearing, in the form provided by the Court's earlier orders, in a national newspaper on 28 January 2022. No notice of appearance was served on AusNet's solicitors by any person intending to appear at the hearing of this application to oppose approval of the scheme and no shareholder appeared at the hearing to oppose the orders sought. ASIC has also advised that it has no objection to the scheme for the purposes of s 411(17)(b) of the Act. 5. Mr Jackman points out that implementation of the scheme is conditional on several conditions precedent being satisfied or waived and AusNet tendered certificates dealing with those conditions at the second Court hearing. Mr Jackman fairly draws attention to the position as to the conditions to the Bidder's equity and debt funding arrangements. The conditions to an equity commitment letter, which I addressed in the Earlier Judgment, are satisfied is subject only to the scheme becoming effective. Several conditions precedent remained outstanding in respect of the Bidder's debt facility agreement, being drawdown requirements relating to the results of searches, enquiries and requisitions in respect of the Bidder and AusNet demonstrating no insolvency proceedings; the payment of fees and expenses due and payable under that facility agreement; the provision of a certificate from a director of the Bidder dealing with specified matters; evidence that all amounts required to pay the scheme consideration have been or will simultaneously with the debt funding be paid into the Trust Account as defined in the Scheme Implementation Deed; delivery of a Funding Notice as defined in the debt facility agreement; and the correctness of certain standard major representations and the non-occurrence of certain standard major events of default. Mr Jackman also identifies two other conditions to funding under the debt facility agreement that will be satisfied in the ordinary course. He draws attention to the evidence, which I have noted above, that the Bidder is not aware of any reason why the remaining conditions to the debt facility agreement will not be satisfied so as to enable that facility to be drawn for the purpose of funding the scheme consideration on the business day prior to the date on which implementation of the scheme will occur. 6. Mr Jackman submits and I accept that the conditionality of the Bidder's funding in respect of the debt facility agreement should not lead the Court to decline approval of the scheme. First, he points out that the scheme provides that scheme shares will not be transferred to the Bidder until the scheme consideration is transferred to AusNet, and I accept that provides a substantial degree of protection for security holders: Re Legend Corporation Ltd [2019] FCA 1249 at [35]-[39]; Re Spark Infrastructure RE Ltd [2021] NSWSC 1564 at [29]. Second, there is authority that customary conditions that are required to protect the interest of third party funders in respect of large transactions and which continue after a second Court hearing and approval of the scheme, do not prevent approval of a scheme; the Bidder's evidence that it is not aware of any material risk to the outstanding conditions being satisfied supports that position: Re Spark Infrastructure RE Limited above at [27]-[29]. As Mr Jackman also submits, several schemes have been approved by a Court where funding arrangements (comprising equity commitment letters and debt facilities) in connection with the scheme remained conditional at the point of approval: Re Legend Corporation Ltd (No 2) [2019] FCA 1444; Re Spark Infrastructure RE Limited above. 7. There is no reason to doubt that AusNet 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 applicable 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. In making orders to convene the meeting of AusNet shareholders, I was previously 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 AusNet shareholder or other person indicated a wish to appear or appeared at the second Court hearing to object to the scheme. The independent expert report concluded that the scheme is in the best interests of AusNet shareholders, in the absence of a superior proposal, and the AusNet shareholders have approved the scheme by the requisite majorities. On this basis, I accept it would be an appropriate exercise of the Court's discretion to approve the scheme under s 411(4)(b) of the Act. 8. Section 411(11) of the Act requires, subject to s 411(12), that a copy of the Court's order approving a scheme of arrangement be annexed to every copy of the company's constitution issued after the order is made. Section 411(12) allows the Court to exempt a body from compliance with this provision or to determine the period during which it shall apply. Mr Jackman submits, and I also accept, that there is no utility in requiring that the Court order approving the scheme be annexed to AusNet's constitution where that order does not bring about any change to that constitution or modify any rights of shareholders or of creditors or of persons dealing with AusNet: Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 at 240; Re Equinox Resources Ltd (2004) 49 ACSR 692 at [22]; Re GBST Holdings Ltd [2019] NSWSC 1280 at [15]. I will make an order under s 411(12) of the Act so that there is no need for that Court order to be annexed to every copy of AusNet's constitution. Orders 1. For these reasons, I made the orders sought by AusNet at the conclusion of the second Court hearing on 3 February 2022. ********** 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: 14 February 2022