Supreme Court New South Wales Medium Neutral Citation: In the matter of Pendal Group Limited (No 3) [2023] NSWSC 14 Hearing dates: 11 January 2023 Date of orders: 11 January 2023 Decision date: 24 January 2023 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 Amcor Ltd (No 2) [2019] FCA 842 - Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 - Re Ardent Leisure Management Ltd in its capacity as the responsible entity of the Ardent Leisure Trust (No 2) [2018] NSWSC 1990 - Re Atlantic Gold NL (No 2) [2014] FCA 869 - Re Atlas Iron Ltd (No 2) [2016] FCA 481 - Re Aurora Funds Management Ltd (2019) 138 ACSR 1; [2019] NSWSC 630 - Re Aveo Group Ltd [2019] NSWSC 1679 - Re Boart Longyear (No 2) (2017) 122 ACSR 437; [2017] NSWSC 1105 - Re Central Pacific Minerals NL [2002] FCA 239 - Re Centro Properties Ltd (2011) 86 ACSR 584; [2011] NSWSC 1465 - Re David Jones Ltd (No 3) [2014] FCA 753 - Re DUET Management Co 1 Ltd (2013) 95 ACSR 34; [2013] NSWSC 817 - Re DUET Management Company 1 Ltd [2013] NSWSC 1060 - Re Ellerston Global Investments Ltd [2020] NSWSC 1108 - Re Equinox Resources Ltd (2004) 41 ACSR 692 - Re GBST Holdings Ltd [2019] NSWSC 1503 - Re International Coal Holdings Ltd [2011] FCA 209 - Re Investa Listed Funds Management Ltd as responsible entity for Armstrong Jones Office Fund and Prime Credit Property Trust [2018] NSWSC 1432 - Re iProperty Group Ltd (No 2) [2016] FCA 36 - Re NRMA Ltd (No 2) (2000) 156 FLR 412 - Re Pendal Group Ltd [2022] NSWSC 1575 - Re Pendal Group Limited (No 2) [2022] NSWSC 1648 - Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 117 - 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) 77 ACSR 701; [2010] FCA 400 - Re Simavita Holdings Ltd [2013] FCA 1274 - Re Texon Petroleum Ltd (No 2) [2013] FCA 147 Category: Principal judgment Parties: Pendal Group Limited (Plaintiff) Representation: Counsel: J Williams SC/H Atkin (Plaintiff) K Petch (Bidder) Solicitors: King & Wood Mallesons (Plaintiff) Herbert Smith Freehills (Bidder) File Number(s): 2022/320227 Judgment Nature of the application and background 1. By Further Amended Originating Process dated 15 November 2022, the Plaintiff, Pendal Group Ltd ("Pendal"), seeks orders under s 411(1) of the Corporations Act 2001 (Cth) ("Act") in respect of a scheme of arrangement, by which Perpetual Group Ltd ("Perpetual") would acquire all of its shares. I had previously determined, as a preliminary issue, an application by Pendal for a declaration as to the proper construction of the scheme implementation deed dated 25 August 2022 ("SID") between Perpetual and Pendal, by my judgment delivered on 17 November 2022 ([2022] NSWSC 1575). By orders made on 21 November 2022, for the reasons set out in my second judgment delivered on 5 December 2022 ([2022] NSWSC 1648), I made orders convening the scheme meeting and associated orders. 2. The scheme meeting was held on 23 December 2022 and Pendal Shareholders approved the scheme by both a majority in number present and voting and by more than 75% of the votes cast. Approximately 99.28% of shares by value, and approximately 94.66% of Pendal shareholders by number present and voting at the scheme meeting, voted in favour of scheme. 3. Pendal now seeks orders at the second Court hearing that it be approved pursuant to s 411(4)(b) of the Act. I made the orders sought at the end of the second Court hearing on 11 January 2022 and these are my reasons for doing so. I have drawn on the helpful submissions of Mr Williams, with whom Mr Atkin appeared for Pendal in the application, in this judgment. Affidavit evidence 1. At this second Court hearing, Pendal reads the affidavit dated 23 December 2022 of Ms Deborah Page, who is an independent, non-executive director and chair of Pendal. Ms Page acted as chair of the scheme meeting held on 23 December 2022 and outlines the conduct of the scheme meeting and refers to questions asked by shareholders prior to and at that meeting and to her answers to those questions. She also indicates the result of that meeting, by which the scheme resolution was passed (as I noted above) by 99.28% of votes cast on it and by 94.66% of Pendal shareholders present and voting at the scheme meeting. She also refers to the tagging of the votes of certain Pendal shareholders, namely certain "Key Employees" (as defined) and Perpetual in respect of shares which it held on behalf of its funds or client discretionary accounts, and I refer to that matter below. Ms Page also notes that the trustee of Pendal's employee share scheme, which holds approximately 10.65 million Pendal shares for that employee share scheme, abstained from voting those shares on the scheme resolution. 2. Pendal also read the affidavit dated 10 January 2023 of Ms Lucy Chiu, who is a client relationship manager with Link Market Services Ltd ("LMS") dealing with despatch of scheme materials to Pendal shareholders, compilation of proxy forms, and recording of votes cast at the scheme meeting. Ms Chiu outlined the services provided by LMS to Pendal in respect of the scheme, including the process adopted for the dispatch of material to Pendal shareholders in electronic and hard copy form. She noted that, in accordance with instructions received by LMS from Pendal, shareholder documents were not dispatched to four shareholders of Pendal who were resident in France. That matter was sufficiently drawn to the attention of the Australian Securities & Investments Commission ("ASIC") by the service of the affidavits read at this hearing upon it and I address it below. She also referred to the dispatch of a reminder to vote communication, in a form that had been approved by the Court at the first Court hearing, the receipt of proxy votes for the scheme meeting, and the conduct of the scheme meeting on 23 December 2022. Ms Chiu also indicated the result of the scheme meeting, consistent with Ms Page's evidence to which I referred above, and also addressed the position in respect of tagged votes cast by the Key Employees and by Perpetual at the scheme meeting. Ms Chiu also addressed the voting participation rate at the scheme meeting, which was broadly comparable by number of shares and higher by number of shareholders and the voting participation rate at Pendal's three most recent annual general meetings, and also addressed the elections made by Pendal shareholders with respect to non-marketable parcels. 3. By his affidavit dated 10 January 2023, Mr Robert Kelly, the solicitor acting for Pendal in respect of the scheme, referred to the provision of the scheme booklet to ASIC and further announcements made to Australian Securities Exchange ("ASX") in relation to the scheme. Mr Kelly also indicates the reasons why documentation relating to the scheme had not been dispatched to four shareholders in Pendal with registered addresses in France. Mr Kelly also noted that no notice had been received of any shareholder proposing to object to approval of the scheme, and no shareholder appeared at the second Court hearing to oppose Pendal's application for approval of the scheme. Mr Kelly also addressed the position in respect of Perpetual's invitation to three non-executive directors of Pendal to join Perpetual's board and the circumstances in which one of the persons invited to join that board had withdrawn from consideration for that appointment. It is not necessary to address that matter further, where the result is that that person will not be appointed to Perpetual's board. 4. By his affidavit dated 10 January 2023, Mr Justin Foord, who is Senior Director (Client Services) at Morrow Sodali, addresses the manner in which outbound calls were made by Morrow Sodali to about 3,000 Pendal shareholders, although only about 1,400 of those shareholders answered those calls. No issue arises from those calls that is adverse to the approval of the scheme. 5. Pendal also tendered conditions precedent certificates executed by Pendal, by Perpetual and by Perpetual Acquisition Company Ltd (Ex A1) and a letter dated 10 January 2023 from ASIC (Ex A2) in which it advised that, under s 411(17)(b) of the Act, it had no objection to the scheme. Matters relevant to approval of the scheme 1. Mr Williams submits, in familiar terms, that the Court will consider, at the second Court hearing in respect of a scheme, whether the procedural requirements for the scheme have been satisfied and whether to exercise its discretion 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]. He rightly 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, but will have due regard to the assessment by members of their interests as manifested in the voting at the meeting: Re NRMA Ltd (No 2) (2000) 156 FLR 412 at [22]; Re Seven Network Ltd (2010) 77 ACSR 701; [2010] FCA 400 at [31]-[34]; Re International Coal Holdings Ltd [2011] FCA 209 at [16] Re Atlas Iron Ltd (No 2) [2016] FCA 481 at [5]. 2. Mr Williams also rightly submits that there is no exhaustive statement of the matters as to which the Court must be satisfied before exercising its discretion to approve a scheme, but relevant matters include whether scheme shareholders 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: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 at [8]; Re Seven Network at [35]-[40]; Re Centro Properties Ltd (2011) 86 ACSR 584; [2011] NSWSC 1465 at [32]-[33]; Re Texon Petroleum Ltd (No 2) [2013] FCA 147 at [6]-[17]; Re David Jones Ltd (No 3) [2014] FCA 753 at [3]; Re GBST Holdings Ltd [2019] NSWSC 1503 at [11]; Aveo Group at [15]. 3. Mr Williams addresses the registration of the scheme booklet with ASIC and the process by which it was dispatched; the despatch of a reminder email to Pendal shareholders and the outbound call campaign addressed in Mr Foord's affidavit; and the conduct of the scheme meeting. Mr Williams also addresses the issue, which I noted above, as to the non-despatch of scheme materials to four Pendal shareholders which are resident in France. He points out that, as at the close of business on 8 November 2022, four Pendal shareholders, holding 20,575 Pendal shares in total, had a registered address in France, two of whom were Pendal employees. He notes that Pendal does not intend to treat these four Pendal shareholders as Ineligible Foreign Shareholders (as defined) so that, if the scheme is implemented, they will be issued with the scheme consideration including Perpetual shares, rather than receiving only cash following the sale of their Perpetual shares under the sale facility applicable to Ineligible Foreign Shareholders. He notes that Pendal proposes to take that approach where two of those four shareholders resident in France are employees and there is a benefit in aligning their interests with the combined group following the merger. He refers to advice received by Pendal that it would be a contravention of French law to despatch the scheme booklet to Pendal shareholders resident in France if those shareholders are to receive Perpetual shares under the scheme and notes that, in those circumstances, Pendal instructed Link not to despatch the scheme materials to these four shareholders and none of the four shareholders resident in France voted on the scheme. Mr Williams recognises that the consequence of non-despatch of the scheme materials to these four shareholders, in order to comply with French law, is that they may have been deprived of an opportunity to vote on the scheme if they were otherwise unaware of the scheme meeting, although he also notes that at least the two of those shareholders who were Pendal employees were likely aware of the scheme. He submits that this matter should not prevent approval of the scheme where the number of affected shares (20,575 or 0.000053% of the Pendal shares on issue) is not material and the votes cast in respect of those shares could not have affected the outcome of the resolution. 4. A broadly similar issue arose at the first Court hearing in respect of a trust scheme in Re DUET Management Co 1 Ltd (2013) 95 ACSR 34; [2013] NSWSC 817, where a responsible entity foreshadowed its intention to seek relief under s 1322(2) of the Act in respect of not sending a scheme booklet to a securityholder resident in Malaysia and two securityholders resident in Thailand, where to do so could constitute an offer of securities requiring regulatory approval in those countries. I there observed (at [17]-[19]) that: "It is well established that s 1322 of the Corporations Act reflects a broad legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements, where such non-compliance is the product of honesty or inadvertence and where the court can avoid its effects without prejudice to third parties or the public interest in compliance with the law, the court will have regard to the purposes of the Corporations Act, the interests of all affected parties and the public interest in exercising its powers under the section: Re Wave Capital Ltd [2003] FCA 969 ; (2003) 47 ACSR 418. Section 1322(4) of the Corporations Act in turn allows the court to declare that an act, matter or thing purporting to have been done, or any proceedings purporting to have been instituted or taken, under the Corporations Act or in relation to a corporation is not invalid by reason of a contravention of a provision of the Act or a provision of the corporation's constitution. The power under s 1322(4)(a) may be exercised where, relevantly, the contravention is essentially procedural, or the persons concerned had acted honestly, or it is just and equitable that an order be made, and provided that no substantial injustice has been or is likely to be caused to any person: s 1322(6). The conditions specified in s 1322(6) are alternative, so that only one of them need be satisfied in order to allow an order to be made under s 1322(4). The width of the power under s 1322(4) of the Corporations Act has recently been confirmed by the High Court of Australia in Weinstock v Beck [2013] HCA 14 ; (2013) 93 ACSR 231. French CJ there observed (at [39]) that: In accordance with its evident purpose, s 1322(4)(a) is to be construed broadly and applied pragmatically, principally by reference to considerations of substance rather than those of form. Hayne, Crennan and Kiefel JJ observed (at [55]) that "the power given to the court by s 1322(4)(a) is not to be hedged by any implied limitation" and Gageler J also referred (at [60]), with apparent approval, to the Court of Appeal's observation in that case that s 1322(4)(a) is "to be construed with all the liberality that its language permits". Mr Jackman refers to the decision of Middleton J in Nenna v Australian Securities and Investments Commission [2011] FCA 1193 ; (2011) 198 FCR 32 as authority that an act that is advertent rather than inadvertent may nonetheless be not invalid, so far as it involves a "procedural irregularity" for the purposes of s 1322(2) of the Act, or may be validated by the court under s 1322(4) of the Act. I agree with his Honour's reasoning and it also seems to me that an act may be taken honestly, or it may be just and equitable to validate it, for the purposes of s 1322(6) notwithstanding that a technical defect with the act is known at the time it takes place. It is not necessary for me to form a final view as to that matter, which will be a question for the second hearing, to be addressed in circumstances that other interested parties have an opportunity to make submissions. It is sufficient that I consider, as I do, that it is likely that the Plaintiffs' conduct in respect of the securityholders in Malaysia and Thailand will be validated under s 1322 of the Act, so as to permit the court to make the orders sought at the second court hearing if securityholders otherwise approve the relevant schemes." [1] 1. At the second Court hearing in that matter, and for the reasons set out in Re DUET Management Company 1 Ltd [2013] NSWSC 1060, I made an order under s 1322(4) of the Corporations Act, nunc pro tunc, that the resolutions at the scheme meetings were not invalid by reason of any contravention of the Corporations Act relating to that matter. 2. That case differs from the present case in two respects. First, the responsible entity in that case had advised the three foreign securityholders of the scheme by letter, and there is no evidence that Pendal took that course in respect of the four French shareholders. Second, Pendal contends that its failure to give notice of the scheme meeting to the four French shareholders is a "procedural irregularity" which, by reason of s 1322(2) of the Act, does not invalidate the resolution passed at the scheme meeting unless the Court is of the opinion that the irregularity caused or may cause substantial injustice that cannot be remedied by any order of the Court and declares the resolution to be invalid. An irregularity is a "procedural irregularity" for the purposes of s 1322(2) if it departs from the prescribed manner of doing an act, rather than changing the substance of that act: Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd (2005) 194 FLR 322; 55 ACSR 185; [2005] NSWSC 1005. On balance, I accept that, in the particular circumstances, Pendal's failure to give notice to the four French-resident shareholders in this case is a "procedural irregularity" within the scope of s 1322(2) of the Act. I am not of the opinion that that irregularity caused or may cause substantial injustice, where it complied with the requirements of French law, plainly did not alter the outcome of the scheme meeting and allowed the four French shareholders to be issued shares in Perpetual under the scheme, in the same manner as other shareholders. In those particular circumstances, the resolution is validated by s 1322(2) of the Act and an order under s 1322(4) of the Act is not required. I note, however, that s 1322(4) of the Act has wider scope than s 1322(2) of the Act, since it does not require that the irregularity be "procedural" in nature, and it may generally be preferable for a scheme company to seek an order under that section rather than under s 1322(2) of the Act in circumstances of this kind, as was done in Re DUET Management Company 1 Ltd above. 3. Mr Williams also rightly notes that the scheme resolution was approved by the requisite majorities of Pendal shareholders for the purposes of s 411(4)(a)(ii) of the Act at the scheme meeting. He also points out that, although the scheme is between Pendal and Pendal shareholders other than Excluded Shareholders (namely Perpetual or any of its subsidiaries if they hold Pendal shares other than on behalf or for the benefit of any other person), Perpetual and its subsidiaries did not hold any Pendal shares other than on behalf or for the benefit of other persons as at the Scheme Record Date, so there are no Excluded Shareholders for the purposes of the scheme. 4. Mr Williams also points out that the votes of Key Employees and Perpetual funds did not affect the outcome of the vote at the scheme meeting. As noted at the first Court hearing, Pendal had reached agreements with certain Key Employees, providing for the issue of additional Perpetual equity incentives or deferred cash payments in return for their accepting a rollover of part of their Pendal employee incentives into Perpetual equity incentives rather than the acceleration of all their Pendal employee incentives. Pendal caused Link to tag the votes cast by those Key Employees at the scheme meeting. Nineteen of the Key Employees voted on the scheme, and eighteen of them (holding a total of 15,499,841 shares) voted in favour of the scheme and one of them (holding 124,802 shares) voted against the scheme. Pendal also caused Link to tag any votes cast by Perpetual in respect of Pendal shares held by it on behalf of its funds or client discretionary accounts. Bond Street Custodian Ltd, as custodian for Perpetual, held 218,999 Pendal shares on behalf of its funds or client discretionary accounts; it voted 172,733 of those shares in favour of the scheme; and no shares held by Perpetual on behalf of its funds or client discretionary accounts were voted against the scheme. It is apparent that the votes of Key Employees and Perpetual made no difference to the outcome of the scheme meeting, where, excluding these votes, the resolution to approve the scheme would still have been approved by 99.29% of votes cast and 94.64% of shareholders present and voting at the scheme meeting. 5. Mr Williams also points out that, as I noted above, ASIC has confirmed that it has no objection to the scheme and provided a letter to that effect under s 411(17)(b) of the Act. That letter is sufficient to satisfy the requirements of that section. As I noted above, no notice of appearance was served on Pendal's solicitors by any person intending to appear at the hearing to oppose the approval of the scheme and no shareholder or other person appeared at the second Court hearing to oppose the approval of the scheme. The implementation of the scheme was conditional on a number of conditions precedent being satisfied or waived and, as I also noted above, Pendal tendered certificates confirming that all of the relevant conditions precedent had been satisfied or waived, other than the condition relating to Court approval of the scheme. Mr Williams submits and I accept that the procedural requirements in respect of the scheme have been satisfied. The independent expert has also concluded that the scheme is fair and reasonable and in the best interests of Pendal shareholders in the absence of a Superior Proposal (as defined) and Pendal shareholders have approved the scheme by the requisite statutory majorities. I am satisfied that it would be an appropriate exercise of the Court's discretion to approve the scheme under s 411(4)(b) of the Act. Exemption from section 411(11) of the Act 1. Mr Williams submits that there would be no utility in requiring the Court's order approving the scheme to be annexed to Pendal's constitution, where that order does not effect any change to that constitution, and that this is an appropriate matter for an order exempting Pendal from compliance with the requirement in s 411(11) of the Act: Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 at 240; Re Equinox Resources Ltd (2004) 41 ACSR 692; Re GBST Holdings at [15]. I accept that submission. Section 3(a)(10) of the US Securities Act of 1933 1. Perpetual indicated at the first Court hearing that it intends to rely on the Court's approval of the scheme to qualify for an exemption from the registration requirements of the United States Securities Act of 1933, under 3(a)(10) of that Act, for the issue of Perpetual shares under the scheme. Mr Williams points out that the Court's recognition of the intended reliance on the Court's approval is a requirement of the exemption 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 Perpetual, I will record that notice was given to the Court regarding Perpetual's reliance on the exemption in the orders made by the Court, and I note certain matters below, consistent with the approach adopted in other decisions including Re Simavita Holdings Ltd [2013] FCA 1274 at [52]; Re Atlantic Gold NL (No 2) [2014] FCA 869 at [8]; Re iProperty Group Ltd (No 2) [2016] FCA 36; Re Atlas Iron Ltd (No 2) above; Re Boart Longyear (No 2) (2017) 122 ACSR 437; [2017] NSWSC 1105; Re Ardent Leisure Management Ltd in its capacity as the responsible entity of the Ardent Leisure Trust (No 2) [2018] NSWSC 1990 at [19]; Re Amcor Ltd (No 2) [2019] FCA 842 at [38] and Re Ellerston Global Investments Ltd [2020] NSWSC 1108 at [19]. 2. I note the following matters: (a) the Court was advised before the commencement of this approval hearing that Perpetual 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 consideration, namely the Perpetual shares; (c) an independent expert report concluded that the proposal is in the best interests of Pendal 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 Perpetual 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 are to be issued have had an opportunity to oppose or otherwise raise any objection to the scheme; and (e) no Perpetual shareholder has given notice of any intention to appear at the second Court hearing to oppose the approval of the scheme or has opposed its approval. Orders 1. For these reasons, I was satisfied that I should approve the scheme and make the associated orders. I made those orders at the conclusion of the second Court hearing on 11 January 2023 in accordance with the short minutes of order initialled by me and placed in the file. ********** Endnote 1. These observations have since been followed in several subsequent cases, including Re Investa Listed Funds Management Ltd as responsible entity for Armstrong Jones Office Fund and Prime Credit Property Trust [2018] NSWSC 1432 and Re Aurora Funds Management Ltd (2019) 138 ACSR 1; [2019] NSWSC 630 at [165]. 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: 27 January 2023