Supreme Court New South Wales Medium Neutral Citation: In the matter of Genex Power Limited (No 2) [2024] NSWSC 954 Hearing dates: 19 July 2024 Date of orders: 19 July 2024 Decision date: 05 August 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), s 411 Cases Cited: - Centro Properties Ltd v PricewaterhouseCoopers (2011) 86 ACSR 584; [2011] NSWSC 1465 - Re Altium Ltd [2024] NSWSC 736 - Re Amcor Ltd (No 2) [2019] FCA 842 - Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229; [2003] WASC 19 - Re Atlas Iron Ltd (No 2) [2016] FCA 481 - Re Bellamy's Australia Ltd [2019] NSWSC 1889 - Re Capilano Honey Ltd (No 2) (2018) 132 ACSR 332; [2018] FCA 1925 - Re Central Pacific Minerals NL [2002] FCA 239 - Re Coca-Cola Amatil Ltd [2021] NSWSC 489 - Re CSR Ltd (2010) 183 FCR 358; 265 ALR 703; 77 ACSR 592; [2010] FCAFC 34 - Re Ellerston Global Investments Ltd [2020] NSWSC 1108 - Re GBST Holdings Ltd [2019] NSWSC 1503 - Re Genex Power Limited (No 2) [2024] NSWSC 752 - Re InvoCare Ltd (No 2) [2023] NSWSC 1350 - Re Ovato Print Pty Ltd [2020] NSWSC 1882 - Re Pendal Group Ltd (No 3) [2023] NSWSC 14 - Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 - Re Prime Infrastructure Holdings Ltd [2010] NSWSC 1337 - Re Redcape Property Fund Ltd and the Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) [2012] NSWSC 486 at [7] - Re Seven Network (No 3) (2010) 267 ALR 583; [2010] FCA 400 - Re Signature Capital Investments Ltd (No 2) [2016] FCA - Re Solution 6 Holdings Ltd (2004) 50 ACSR 113; [2004] FCA 1049 - Re Tassal Group Ltd (No 2) [2022] NSWSC 1619 - Re Telstra Corp Ltd (No 2) (2022) 163 ACSR 543; [2022] NSWSC 1460 Category: Principal judgment Parties: Genex Power Limited (Plaintiff) Representation: Counsel: J Williams SC/B Ng (Plaintiff) M Izzo SC (Bidder) Solicitors: Gilbert & Tobin (Plaintiff) Minter Ellison (Bidder) File Number(s): 2024/188463 Judgment Nature of the application and background 1. By Originating Process filed on 21 May 2024, Genex Power Ltd ("Genex") seeks orders under s 411 of the Corporations Act 2001 (Cth) ("Act") and associated orders relating to a proposed scheme of arrangement between Genex and holders of its fully paid ordinary shares, other than Excluded Target Shareholders (as defined). 2. By way of background, Genex is a company listed on the Australian Securities Exchange ("ASX") which is developing a portfolio of renewable energy generation and energy storage projects in Australia. On 12 April 2024, Genex announced to ASX that it had entered into a Transaction Implementation Deed ("TID") with Electric Power Development Co Ltd ("J-POWER"). On 4 June 2024, Genex announced to the ASX that Genex and J-POWER had amended the TID under a deed of variation dated 4 June 2024. The TID (as amended) provides for J-POWER, through a subsidiary ("J-POWER Nominee") to acquire, by way of scheme of arrangement, all of the ordinary shares in Genex other than those held by Excluded Target Shareholders (which include J-POWER Nominee) for A$0.275 in cash per share. The total scheme consideration payable to scheme shareholders is approximately A$351.5 million. The effect of the scheme would be to make Genex a wholly owned subsidiary of J-POWER and it is proposed that Genex would delist from the ASX following implementation of the scheme. The TID also provides for J-POWER Nominee to make a simultaneous off-market takeover offer for all of the Genex shares other than those held by J-POWER Nominee for A$0.270 in cash per share, conditional on the scheme not being approved by shareholders or by the Court and on J-POWER Nominee having a relevant interest in at least 50.1% of the Genex shares on issue, subject to a waiver of the latter condition in specified circumstances. 3. On 6 June 2024, I made an order that Genex convene the scheme meeting for the reasons set out in my judgment in Re Genex Power Limited (No 2) [2024] NSWSC 752 ("Genex 1"). The proposed scheme of arrangement was then approved at the scheme meeting by both a majority in number of Genex shareholders present and substantially more than 75% of the votes cast. At this second Court hearing, Genex now seeks orders approving the scheme. I made those orders at the conclusion of the second Court hearing on 19 July 2024. These are my reasons for making those orders, and I have drawn on the helpful submissions of Mr Williams, with whom Ms Ng appears for Genex, in this judgment. Affidavit and other evidence 1. At the second Court hearing, Genex read the affidavit dated 18 July 2024 of Mr Ralph Craven, an independent non-executive and chair of Genex. Mr Craven gave evidence of the registration of the transaction booklet by the Australian Securities and Investments Commission ("ASIC"), the dispatch of scheme documents to shareholders and the conduct of a shareholder information line by Morrow Sodali on Genex's behalf. Mr Craven noted that, although there had been reference to "reminder to vote" emails or SMS communications at the first Court hearing, no such communications were sent. Mr Craven also gave evidence as to the conduct of the scheme meeting and the results of the poll on the scheme resolution, the passage of the scheme resolution by the requisite statutory majorities and voter turnout at the scheme meeting. He also gave evidence of publication of notice of the second Court hearing, by an announcement made to ASX, and also noted that J-Power Nominee was the only Excluded Target Shareholder (as defined in the scheme). Mr Craven also gave evidence as to the conditions precedent to the scheme, and conditions precedent certificates, demonstrating the satisfaction of relevant conditions precedent, were tendered at the second Court hearing (Ex P1). Mr Craven also referred to Genex's expectation that it would receive a letter from ASIC confirming that it did not object to the scheme for the purposes of s 411(17)(b) of the Act, and a letter to that effect was also tendered at the second Court hearing (Ex P2). 2. Genex also read the affidavit dated 17 July 2024 of Ms Alexandra Whitby, a solicitor acting for it in respect of the scheme, which identified information contained in the transaction booklet relating to a loan between a subsidiary of Genex and the State of Queensland (on behalf of the North Australia Infrastructure Facility) ("NAIF Facility Agreement") and also referred to previous announcements made by Genex to ASX in respect of the NAIF Facility Agreement. Ms Whitby also drew attention to disclosure as to Genex's debt facilities, including the NAIF Facility Agreement, contained in quarterly cashflow reports released by Genex to ASX. Ms Whitby also referred to, and exhibited, communications from Mr Howard Patrick, a shareholder in Genex, to Genex's solicitors, to Mr Craven, to regulators and to the Court. I noted that Mr Patrick has since sent further communications to the Court, although my Associate advised him, at my request, that the Court would determine this application at the second Court hearing and not on the basis of correspondence to Chambers. That correspondence has continued after the making of orders at the second Court hearing, although the Court's function was complete. I have had regard to the correspondence from Mr Patrick, including the correspondence to which I have referred above. Applicable principles 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 ("Central Pacific Minerals") at [8]-[14]; Re Seven Network (No 3) (2010) 267 ALR 583; [2010] FCA 400 ("Seven Network") at [35]-[39]; Re Solution 6 Holdings Ltd (2004) 50 ACSR 113; [2004] FCA 1049 at [18]-[24]; Re Redcape Property Fund Ltd and the Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) [2012] NSWSC 486 at [7]; Re Signature Capital Investments Ltd (No 2) [2016] FCA 385 at [4]; Re Atlas Iron Ltd (No 2) [2016] FCA 481 at [5]–[6]; Re Amcor Ltd (No 2) [2019] FCA 842 at [7]-[11]; Re Ellerston Global Investments Ltd [2020] NSWSC 1108 ("Ellerston") at [10]-[12]; Re Coca-Cola Amatil Ltd [2021] NSWSC 489 at [9]; Re Pendal Group Ltd (No 3) [2023] NSWSC 14 at [9]. Mr Williams submits and I accept that the Court will also have regard to shareholders' assessment of their interests as manifested in the voting results on the scheme resolution in recognising that shareholders are "the best judges of whether an arrangement is to their commercial advantage": Central Pacific Minerals at [13]; Ellerston at [10]. 2. I also 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]." Determination 1. The evidence establishes that Genex has complied with the Court's orders in respect of the distribution of scheme documents to Genex shareholders. As I noted above, the scheme was approved at the scheme meeting by the requisite statutory majorities. The 829,043,160 votes cast at the scheme meeting (in person or by proxy) by 1,112 Genex shareholders, represent approximately 64.86% of all votes able to be cast and approximately 16.11% of the total number of Genex shareholders eligible to vote, which is higher than the voting participation rates in Genex's most recent annual general meetings. The voting participation rate at the scheme meeting does not raise any concern that there was any irregularity in the procedure for convening the scheme meeting and does not give rise to any reason not to approve the scheme. 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. 2. Mr Williams also addresses the matters raised in the communications from and to Mr Patrick, who has been a Genex shareholder since January 2017 and as at 16 July 2024, held 646,564 Genex shares jointly with Mrs Patrick. As I noted above, Mr Patrick has sent communications to the solicitors acting for Genex in the proceedings, to which they have responded (Ex AMW-2, Tab D6); Dr Craven to which he has responded (Ex AMW-2, Tab D7) and the Court (largely copied to Ms Whitby) (including those at Ex AMW-2, Tab D8). Mr Patrick raises concerns about a loan to a subsidiary of Genex (Kidston Hydro Project Co Pty Ltd) in its own right and as trustee of the Kidston Hydro Project Trust by the State of Queensland (among others). I am satisfied there has been proper disclosure of that arrangement, which was announced by Genex to ASX on 15 April 2021 in an announcement entitled "Genex Reaches Finance Document Contractual Close for Kidston Pumped Storage Hydro Project" (NAIF Facility Agreement) and the scheme (Whitby [11]; Ex AMW-2, 196). Disclosures to ASX in 2020 and 2021 indicate that the NAIF Facility Agreement is a long-term debt facility to finance the construction of the Kidston Pumped Storage Hydro Project (Ex AMW-2, Tabs D2-D4), with a debt amount of up to A$610 million over a term of 15 years from financial close (Ex AMW-2, 50). As at 31 March 2024, about A$521.8 million of the facility has been drawn down (Ex AMW-2, 250). Repayments are to commence from 15 June 2025 with the facility set to mature on 19 May 2036 (Ex AMW-2, 255). 3. As Mr Williams points out, Mr Patrick raises concerns as to, inter alia, whether there was adequate and timely disclosure of the NAIF Facility Agreement and whether Genex shareholders did not have knowledge of the financial performance of the Kidston Pumped Storage Hydro Project and were therefore unable to determine whether J-POWER's offer for Genex shares was fair and reasonable. Mr Williams responds and I accept that Genex has disclosed details about the NAIF Facility Agreement in ASX announcements dated 22 December 2020, 15 April 2021 and 20 May 2021 (Whitby [9]; Ex AMW-2, Tabs D2-D4) and, on 29 April 2024, Genex released to the ASX the Appendix 4C (Quarterly cash flow report for entities subject to Listing Rule 4.B) which disclosed details regarding the NAIF Facility Agreement (and Genex's other debt facilities) such as the identity of the lenders, the amount drawn down, the amount available to be drawn down, the maturity of the debt facilities, and the weighted average interest rate of these debt facilities as at 31 March 2024 (Whitby [10]; Ex AMW-2, Tab D5). The transaction booklet also included disclosure as to the NAIF Facility Agreement (Ex AMW-2, 101, 196) and the independent expert also addressed that facility in assessing whether the scheme was fair and reasonable and in the best interests of Genex shareholders (Ex AMW-2, 210, 250, 255, 269-270). I am satisfied this matter was sufficiently disclosed and Genex shareholders have had the opportunity to take it into account in voting at the scheme meeting. 4. Mr Patrick also raises concerns whether, if J-POWER acquired Genex, whether there would be a breach of the Northern Australia Infrastructure Facility Act 2016 (Cth) ("NAIF Act") or the scheme would otherwise be illegal because J-POWER, a foreign entity, would have access to Australian taxpayer funds via the NAIF Facility Agreement; and whether funds advanced under the NAIF Facility Agreement have been misused. Mr Williams responds that these concerns are not issues which appear to be relevant to a Genex shareholder's decision on whether to approve the scheme and are matters for J-POWER should the scheme be approved by Genex shareholders. There is force in that submission and there is also no doubt that Mr Patrick has made his concerns known to government and regulators, clearly and often, to the extent that the issues raised are matters for government rather than for Genex shareholders. 5. I am satisfied that these further concerns raised by Mr Patrick do not warrant declining approval for the scheme, which has the support of the requisite majorities of Genex shareholders, on public policy, commercial morality or other grounds. In Re CSR Ltd (2010) 183 FCR 358; 265 ALR 703; 77 ACSR 592; [2010] FCAFC 34 ("CSR"), on appeal, Finkelstein J criticised the subjectivity of a concept of "commercial morality" as a basis for not convening such a meeting and, in particular (at [82]-[84]) that: "There has crept into Australian jurisprudence the view that a court will not confirm a scheme if it is contrary to "public policy" or is not consistent with "commercial morality". A consideration of what is contrary to "public policy" cannot extend beyond considering the interests of members, creditors and persons who in the future might deal with the scheme company or invest in its shares. Their interests are, however, adequately protected by an inquiry whether the scheme is fair or reasonable. So, considerations of public policy seem to add nothing to existing principles. The concept of commercial morality was raised in a scheme case in Re Mascot Home Furnishings Pty Ltd (in liq) [1970] VR 593. Two companies were in liquidation. Schemes of arrangement were proposed the effect of which were that for a pecuniary consideration the creditors of the companies would assign their debts and the members would transfer their shares to a third party. The third party would then be able to divert part of its income to each so-called "loss company", thereby reducing the incidence of income tax on that income. The objective was not illegal. Gillard J refused to approve the schemes. He did so because the schemes were not conducive to commercial morality nor in the interest of the public at large. Other judges soon followed suit. There is a real problem with "commercial morality" being applied to discretionary decision-making. It suggests the existence of a fixed set of standards by which the community assesses conduct to be legitimate or acceptable. Putting to one side the obvious difficulty which confronts a judge in attempting to discover what are the relevant community standards, the fact is that many so-called standards, when they exist, are not fixed. They are constantly changing." 1. The proposition that "public policy" does not extend beyond consideration of whether a scheme is fair and reasonable and that "commercial morality" was not an independent ground for refusing approval to a scheme was also approved by Barrett J in Centro Properties Ltd v PricewaterhouseCoopers (2011) 86 ACSR 584; [2011] NSWSC 1465, in dealing with the approval of a scheme at a second Court hearing. Barrett J there noted what he described as the "strong reservations about the relevance (or, rather, irrelevance) of 'public policy' and 'commercial morality' as criteria to be applied by the court when deciding whether to approve a scheme" in Finkelstein J's observations in CSR although he also noted that the majority in CSR did not join in those observations and took a narrower approach. His Honour went on to observe (at [43]-[44]) that: "There is nevertheless force in the observations of Finkelstein J. "Public policy" is "a very unruly horse and once you get astride it you never know where it will carry you" (Richardson v Mellish (1824) 2 Bing 229 at 252; 130 ER 294 at 303 per Burrough J); while "commercial morality" is often no more than a label used to describe the basis for a discretionary decision founded on particular objective criteria: see, for example, Stolar Joinery (Aust) Pty Ltd v Charterarm Investments Pty Ltd (in liq) [2011] VSC 577 where "commercial morality" terminology was employed in deciding not to terminate a winding up that would have left the company in the hands of a sole director who had been shown to be habitually inattentive to his duties and responsibilities. The majority in [CSR] recognised that a real risk of inability to pay debts, if produced by a scheme, could found a valid "public policy" objection. Here too, it seems to me, that "public policy" is in the nature of a label attached to some independently existing ground for adverse exercise of discretion." 1. The same approach was taken in and in Re Capilano Honey Ltd (No 2) (2018) 132 ACSR 332; [2018] FCA 1925 at [6] and in Re Ovato Print Pty Ltd [2020] NSWSC 1882 at [50]. I also summarised the applicable principles in Re Telstra Corp Ltd (No 2) (2022) 163 ACSR 543; [2022] NSWSC 1460 at [44]ff, on which I have drawn for these observations. I there noted (at [50]) that "the question of "public interest" … is not at large, but is confined by the nature of the statutory jurisdiction exercised by the Court." While Mr Patrick plainly does not approve of the transaction, his criticisms of it do not establish a public interest objection to it in the relevant sense. For completeness, Mr Patrick did not give notice of his intention to appear and did not appear to oppose the scheme at this second Court hearing. 2. Turning now to other matters relevant to the exercise of the Court's discretion in respect of the scheme, the scheme was recommended by Genex's independent board committee 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 Genex shareholders in the absence of a superior proposal. No Genex shareholder or other person indicated an intention to appear at the second Court hearing to oppose the scheme and there was no such appearance, and I have addressed Mr Patrick's objections raised in correspondence above. There is otherwise no reason to doubt that the scheme is fair and reasonable so that an intelligent and honest Genex shareholder, properly informed and acting alone, might approve it. I am satisfied that there is also no reason to doubt that Genex 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 Genex 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. There is evidence that J-POWER Nominee is, and on the Scheme Record Date (as defined) will be, the only "Bidder Subsidiary" or other "Bidder Group Member" (as those terms are defined in the scheme) that is a holder of Genex Shares and the only person that holds any Genex shares on behalf of, or for the benefit of, any "Bidder Group Member" (as that term is defined in the scheme). Genex seeks an order under s 411(6) of the Act to amend the scheme to identify J-POWER Nominee as the Excluded Target Shareholder. I will make that order, consistent with the approach taken to identify excluded shareholders by name in Re Prime Infrastructure Holdings Ltd [2010] NSWSC 1337 at [6]-[7] and Re Tassal Group Ltd (No 2) [2022] NSWSC 1619 ("Tassal") at [12]. 4. Genex 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 Genex'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 Genex 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]; Re Bellamy's Australia Ltd [2019] NSWSC 1889 at [16]; Tassal at [14]. Orders 1. For these reasons, I made the orders sought by Genex at the conclusion of the second Court hearing on 19 July 2024. ********** 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: 07 August 2024