Supreme Court New South Wales Medium Neutral Citation: In the matter of CSR Limited (No 2) [2024] NSWSC 792 Hearing dates: 18 June 2024 Date of orders: 18 June 2024 Decision date: 26 June 2024 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) ss 411, 1319 Cases Cited: - Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 at 240; [2003] WASC 19 - Re Central Pacific Minerals NL [2002] FCA 239 - Re CSR Ltd [2024] NSWSC 502 - Re GBST Holdings Ltd [2019] NSWSC 1503 - Re InvoCare Ltd (No 2) [2023] NSWSC 1350 - Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 - Re Seven Network (No 3) Ltd (2010) 267 ALR 583; [2010] FCA 400 - Re Signature Capital Investments Ltd (No 2) [2016] FCA 385 - Re Silver Lake Resources Ltd (No 2) [2024] NSWSC 737 - Re Solution 6 Holdings Ltd (2004) 50 ACSR 113; [2004] FCA 1049 Category: Principal judgment Parties: CSR Limited (Plaintiff) Representation: Counsel: D F C Thomas SC (Plaintiff) T E O'Brien (Bidder) M Bevins (ASIC – part hearing) Solicitors: Herbert Smith Freehills (Plaintiff) Corrs Chambers Westgarth (Saint Gomain BidCo Pty Ltd) Australian Securities & Investments Commission (Interested Party – part hearing) File Number(s): 2024/134678 Judgment Nature of the application 1. By Originating Process filed on 11 April 2024, the Plaintiff, CSR Limited ("CSR") sought orders under ss 411 and 1319 of the Corporations Act 2001 (Cth) ("Act") to convene a scheme meeting in respect of a proposed scheme and in respect of ancillary matters. 2. By way of background, CSR is a company admitted to the official list of the financial market operated by the Australian Securities Exchange Limited ("ASX") and supplies building products for residential and commercial construction, and also receives earnings from its property division, typically from the sale of former operating sites, and holds an effective 25.2% interest in the Tomago Aluminium Smelter, through its substantial interest in Gove Aluminium Finance Ltd. Under the proposed scheme, Compagnie de Saint-Gobain ("Saint-Gobain") would acquire all of the issued shares in CSR by way of a scheme of arrangement. Under the proposed scheme, CSR shareholders will receive $9.00 in cash per CSR share, which may include a fully franked dividend up to a specified amount paid to shareholders before implementation, with the amount of that dividend deducted from the cash offer price, and an additional $0.0006575 per CSR share, accruing on a daily basis, would be payable if the effective date of the scheme is delayed beyond 26 June 2024. 3. I made the orders sought by CSR at the conclusion of two hearings on 26 April 2024 for the reasons set out in my judgment in Re CSR Ltd [2024] NSWSC 502. The proposed scheme of arrangement was then approved at the scheme meeting by both a majority in number of CSR shareholders present and more than 75% of the votes cast, with approximately 98.55% of shares by value, and approximately 88.63% of CSR shareholders by number present and voting at the scheme meeting, having voted in favour of the scheme. 4. At this second Court hearing, CSR now seeks orders approving the scheme. I made those orders at the conclusion of the second Court hearing on 18 June 2024. These are my reasons for making those orders, and I have drawn on the helpful submissions of Mr Thomas, who appears for CSR, in this judgment. Affidavit and other evidence 1. CSR reads the affidavit dated 17June 2024 of its Chief Financial Officer, Ms Sara-Ann Lom, who addresses the registration of the scheme booklet with the Australian Securities & Investments Commission ("ASIC"); the dispatch of scheme documents to CSR shareholders; CSR's other shareholder communications; the holding of the scheme meeting, the passage of the scheme resolution and the voting participation rate; the publication of an ASX announcement giving notice of the second Court hearing; and matters relating to asbestos-related product liability claims for CSR, which I address further below. Ms Lom's affidavit annexes ASIC's letter dated 17 June 2024 indicating that it has no objection to the scheme for the purposes of s 411(17)(b) of the Act. CSR also tenders a certificate executed by CSR and Saint-Gobain confirming the satisfaction or waiver of conditions precedent to the scheme. Applicable principles, submissions and determination 1. The Court must be satisfied of several matters in order to approve a scheme of arrangement at the second Court hearing, namely that the plaintiff has complied with the orders of the Court convening the meeting of members; the meeting of members so convened has approved the scheme with the requisite majorities; all other statutory requirements have been satisfied; the scheme 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; 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 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) 267 ALR 583; [2010] FCA 400 at [35]-[39]; Re Solution 6 Holdings Ltd (2004) 50 ACSR 113; [2004] FCA 1049 at [18]-[24]; Re Signature Capital Investments Ltd (No 2) [2016] FCA 385 at [4]. 2. I summarised the applicable principles in Re InvoCare Ltd (No 2) [2023] NSWSC 1350 at [8]-[9] as follows: "The matters of which the Court must be satisfied in approving the scheme at the second Court hearing are whether there was compliance with the orders of the Court convening the scheme meeting or meetings; whether the resolution to approve the scheme was passed by the requisite majority and whether other statutory requirements have been satisfied; and whether all conditions to which the scheme is subject (other than Court approval and lodgement of the Court's orders with ASIC) have been met or waived: Re ELMO Software Ltd (No 2) [2023] NSWSC 81 ("ELMO") at [7]. The Court also has, in exercising its power of approval, a residual discretion whether to approve a scheme and is not bound to approve it merely because it has made orders for the convening of meetings or because the statutory majorities have been achieved: Re Seven Network Ltd (No 3) (2010) 267 ALR 583 ("Seven Network") at [31]; Re Staging Connections Group Ltd (No 2) [2015] FCA 1102 at [12]. In exercising that residual discretion, the (non-exhaustive) matters the Court will take into account include whether the scheme is fair and reasonable so that an intelligent and honest member of the relevant class, properly informed and acting alone, might approve it; whether there was full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme; and 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: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [8]; Seven Network at [35]-[40]; Re Pendal Group Ltd (No 3) [2023] NSWSC 14 at [10]; ELMO at [8]." 1. I have drawn this summary from my judgment in Re Silver Lake Resources Ltd (No 2) [2024] NSWSC 737 at [4]-[5]. 2. The evidence establishes that CSR has complied with the Court's orders in respect of the distribution of scheme documents to CSR shareholders. As I noted above, the resolution to approve the scheme was supported by CSR shareholders at the scheme meeting. The requisite majorities for the purposes of s 411(4)(a)(ii) of the Act were satisfied with 232,532,548 votes (98.55% of all votes cast) representing 5,075 CSR shareholders (88.63% of all CSR shareholders present and voting either for and against, in person or by proxy) voting in favour of the scheme resolution. A total of 235,954,934 votes were cast at the scheme meeting (either in person or by proxy) by 5,726 CSR shareholders, representing approximately 49.43% by number of CSR shares and approximately 12.83% by number of CSR shareholders. That participation level is less by percentage of shares voted and substantially larger by percentage of shareholders voting than participation rates at CSR's recent AGMs and raises no concern as to the effective dispatch of scheme documents to CSR shareholders. Each of the conditions precedent to the scheme have been satisfied or waived and ASIC has confirmed that it has no objection to the scheme for the purposes of s 411(17)(b) of the Act. I am satisfied that the procedural requirements for approval of the scheme are satisfied. 3. Turning now to the exercise of the Court's discretion in respect of the scheme, the scheme was recommended by CSR's directors and the independent expert, whose report was included in the scheme booklet, expressed the view that the scheme was fair and reasonable and in the best interests of CSR shareholders in the absence of a superior proposal. No CSR shareholder or other person indicated an intention to appear at the second Court hearing on 16 June 2024 to oppose the scheme and there was no such appearance. Subject to the issue that I address below, there is no reason to doubt that the scheme is fair and reasonable so that an intelligent and honest CSR shareholder, properly informed and acting alone, might approve it. 4. One issue arises relating to the scheme. Mr Thomas draws the Court's attention to the fact that, by letters dated 3 June 2024, the Asbestos Injuries Compensation Fund Limited ("AICF") raised concerns about the scheme relating to asbestos-related product liability claims for CSR with the Foreign Investment Review Board ("FIRB") and with CSR and Saint-Gobain. Mr Thomas points out that the AICF is unrelated to CSR and is the fund that is responsible, by agreement between James Hardie Industries NV and the NSW Government, for the asbestos liabilities of the former James Hardie Group companies, and CSR was never part of that Group. AICF there raised a concern, first, that CSR "may have" understated its asbestos liabilities to Saint-Gobain. That proposition relied on a report concerning the asbestos-related disease liabilities of former James Hardie entities, apparently disregarding the express limitation in that report that it was not intended to be used for any purpose other than to value the liabilities of entities to be met by the AICF Trust. It is not apparent how an assessment of the liabilities or potential liabilities of the James Hardie companies could allow any reliable assessment of the liabilities of CSR particularly where, as CSR later pointed out, its historical involvement with asbestos differed in significant respects from that of the James Hardie companies. AICF also there raised a second concern that the scheme would allow Saint-Gobain, after implementation, to review CSR's operations and to restructure "which could negatively impact their willingness to cover legacy asbestos liabilities". That proposition had the difficulty that, irrespective of the scheme, CSR might itself review its own operations and restructure those operations, although any restructure would in either case be subject to the obligations of CSR's directors and any other relevant statutory obligations. 5. After consulting with CSR, Saint-Gobain's solicitors responded to the concerns raised by the AICF to FIRB on 4 June 2024. On 11 June 2024, Saint-Gobain received written notice on behalf of the Treasurer that the Commonwealth Government had no objections to the scheme, subject to certain conditions that were acceptable to Saint-Gobain. It is not necessary to address those conditions in detail, beyond noting that they indicated that FIRB had given close attention to CSR's continued ability to meet its asbestos liabilities after implementation of the scheme. 6. The AICF also provided a copy of its letter to ASIC and, on 12 June 2024, Saint-Gobain's solicitors also sent an email to ASIC informing ASIC of Saint-Gobain's correspondence with FIRB in response to AICF's letter and of the Treasurer's lack of objection to the acquisition of CSR by Saint-Gobain. That email pointed to the obvious difficulty, which I noted above, in assessing CSR's asbestos liabilities by reference to the position of a different company, potentially with a different profile of claimants; outlined the process adopted by CSR to determine its product liability provision on an annual basis and disclose that provision in its financial statements; and responded to AICF's observation as to a potential restructuring by observing that: "The transaction involves the transfer of shares in CSR to S[ain]t-Gobain. There is no reduction in the assets of CSR that will be available to claimants." 1. By an email dated 14 June 2024 to CSR's and Saint-Gobain's solicitors, ASIC summarised the matters raised by AICF, which it characterised as raising issues of disclosure and matters of public policy and also sought specific information as to several questions from CSR and Saint-Gobain. On 15 June 2024, CSR's solicitors responded to ASIC's requests for further information, in a manner agreed with Saint-Gobain's solicitors, addressing both the wider issues raised by ASIC and ASIC's specific questions. Saint-Gobain's solicitors also provided ASIC with an extract of the conditions imposed by FIRB in relation to asbestos liabilities to ASIC on a confidential basis. As I noted above, ASIC has now provided a 'no objection' letter under s 411(17) of the Act in respect of the scheme. 2. Mr Thomas points out that CSR had disclosed its exposure to asbestos-related product liability claims at the first Court hearing on 26 April 2024 and refers to my observations in my earlier judgment (at [17]-[19]) that: "First, Mr Thomas points out that an issue arose in a scheme of arrangement propounded by CSR in 2010 ("2010 Scheme") as to the effect of the scheme and related transactions on CSR's future ability to satisfy claims that may be made for asbestos related injuries, arising from the historical mining by CSR of asbestos and the manufacture of products containing asbestos: Re CSR Ltd (2010) 183 FCR 358 ("CSR 2010") at [18]. He submits that that issue arose in that case because a condition precedent to that scheme was a capital reduction under s 256B of the Act that was intended to facilitate the demerger of a new listed entity from "New CSR": CSR 2010 at [2]. He also notes that the effect of the 2010 Scheme would be that assets of CSR that could otherwise have been used to satisfy asbestos related claims would no longer be held by New CSR by reason of the proposed demerger. He notes that the Full Court of the Federal Court concluded that a possible effect of the reduction in capital in increasing the risk of non-payment of CSR's creditors, in a theoretical rather than material way, would not have warranted a refusal to convene the scheme meeting as a matter of public policy or commercial morality; and that the prospect that the then proposed reduction in capital may materially prejudice the ability of CSR to pay all its creditors, including asbestos claimants, was not so clear as to warrant a conclusion that the scheme could never be approved: CSR 2010 at [68]. Mr Thomas submits and I accept that no corresponding issue arises in this matter. The present scheme does not involve any reduction of capital in CSR and is not conditional on any such reduction, and does not involve a demerger or disposal of CSR's assets. An all-cash acquisition of all of the shares in CSR by the Bidder, replacing the present shareholders of CSR with a new shareholder, has no apparent impact on creditors or contingent creditors of CSR, and that is a complete answer to any concern of the kind that arose in CSR 2010. I accept the submission by Mr Thomas that there is no reason to conclude that the scheme will have any impact, let alone a negative impact, on the ability of CSR to satisfy product liability claims that may be made against it. This matter gives rise to no reason not to convene the scheme meeting. Mr Thomas also points out, for completeness, that CSR's recent provision balances for all known claims and reasonably foreseeable future asbestos related claims are disclosed in section 5.6 of the scheme booklet, which also indicates that CSR includes a product liability provision covering all known claims and reasonably foreseeable future asbestos related claims in its financial statements, and this provision is reviewed every six months. Mr Thomas notes that, although CSR shareholders already have access to these provision balances in CSR's financial statements, the repetition of the information in the scheme booklet will assist CSR shareholders in reaching a view as to whether they wish to vote in favour or against the proposed scheme. I accept that information may well be relevant to CSR shareholders' decisions as to whether to support the scheme and is properly disclosed in the scheme booklet for that reason." 1. Mr Thomas submits that those observations remain applicable for the purposes of this second Court hearing and that: "The present scheme continues to involve no reduction of capital in CSR and is not conditional on any such reduction, and does not involve a demerger or disposal of CSR's assets. As an all-cash acquisition of all the shares in CSR by Bidder, there is no apparent impact on creditors or contingent creditors." 1. I recognise that the Court must form its own view as to the materiality of these matters, although ASIC has not raised any concern arising from them in this second Court hearing. I am satisfied these matters do not indicate any non-disclosure of any material matter to CSR shareholders, or any public policy reason not to approve the scheme, where there is no apparent basis on which the replacement of CSR's diverse shareholder body with an apparently substantial holding company could prejudice the claims of creditors, including asbestos claimants, against CSR. 2. I am satisfied that there is otherwise no reason to doubt that CSR has brought to the Court's attention all matters that could be considered relevant to the exercise of the Court's discretion and that there was full and fair disclosure to CSR shareholders of all information material to the decision whether to vote for or against the applicable scheme. I am therefore satisfied that the scheme is appropriate for the Court's approval. 3. CSR also seeks an exemption under s 411(12) of the Act from compliance with s 411(11) so that a copy of the Court order approving the scheme does not need to be annexed to any copy of CSR's constitution that may be issued in the future. I am satisfied that such an order should be made where, as here, the rights of CSR shareholders are not modified by the scheme: Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 at 240; [2003] WASC 19; Re GBST Holdings Ltd [2019] NSWSC 1503 at [15]. Orders 1. For the reasons set out above, I made the orders sought by CSR at the conclusion of the second Court hearing. ********** 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: 26 June 2024