Supreme Court New South Wales Medium Neutral Citation: In the matter of CIC Australia Limited (No 2) [2015] NSWSC 1314 Hearing dates: 15 May 2015 Date of orders: 15 May 2015 Decision date: 15 May 2015 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Scheme of arrangement approved. Catchwords: CORPORATIONS – arrangements and reconstructions – schemes of arrangement or compromise – whether procedural pre-requisites for approval satisfied – whether Court should approve scheme – where majority at creditors' meeting approved scheme – where proposed scheme is reasonable and does not treat minority shareholders unfairly – where scheme would not prejudice company's ability to pay creditors – where scheme not opposed by ASIC – held, approval given. Legislation Cited: (Cth) Corporations Act 2001, s 257B, s 257D, s 411(1), s 411(4), s 411(11), s 411(12), s 411(17), Pt 2J.1 Div 2 Cases Cited: In the matter of CIC Australia Limited [2015] NSWSC 557 Category: Principal judgment Parties: CIC Australia Ltd ACN 003 157 515 (plaintiff) Representation: Counsel: I Jackman SC w R M Foreman (plaintiff) Solicitors: Baker & McKenzie (plaintiff) File Number(s): 2015/83205 Judgment (ex tempore) 1. HIS HONOUR: On 1 April 2015, I made orders pursuant to (Cth) Corporations Act 2001, s 411(1), convening a meeting of the holders of ordinary shares in the company CIC Australia Limited other than Peet Limited – which members were called, for convenience, the non-Peet shareholders or the scheme shareholders – for the purposes of considering, and if thought fit, agreeing to a scheme of arrangement proposed to be made between CIC and the scheme shareholders [see In the matter of CIC Australia Limited [2015] NSWSC 557]. 2. The scheme meeting was duly held on 8 May 2015 and at that meeting the scheme shareholders, which themselves represented approximately 14 per cent of the issued shares in the company, thirty-seven of the sixty-one shareholders who voted (representing 60.7 per cent of the scheme shareholders by number but 98.99 per cent of the scheme shares by value), voted in favour of the scheme resolution, with twenty-four shareholders (or 39.3 per cent by number, representing 165,388 shares or 1.01 per cent by value) voting against. This represents by number a majority approval of the scheme resolution, and by value a very overwhelming approval of it. Prior to the scheme meeting, a general meeting of shareholders was held for the purposes of considering the buy-back resolution, at which 99.9 per cent of votes cast were in favour of the resolution and 0.1 per cent against it. 3. A compromise or arrangement under s 411 is binding on the members or a class of members if and only if the scheme is agreed to by a majority number of the creditors present and voting at the scheme meeting and 75 per cent of the votes cast by value, and is approved by order of the court. The results of the scheme meeting to which I have referred satisfy the first of those requirements. 4. At this so-called second hearing of an application under s 411, the court's role in approving or considering whether to approve the scheme involves being satisfied that the procedural requirements have been complied with, and then having regard to diverse considerations which may inform whether or not the scheme should be approved. 5. While the outcome of the scheme meeting is not decisive – as if it were, the requirement for court approval would be superfluous – it is nonetheless a very important consideration, and where the level of approval is very high and the dissent very low, a court will give considerable weight to that factor. Nonetheless, the court will be concerned as to whether minority shareholders are dealt with fairly under the scheme, and whether there are any public policy considerations against the scheme, amongst other considerations. In circumstances where there is no appearance in opposition to the application, after appropriate notice has been given in the scheme booklet and in the publication of an advertisement, as required by the order made at the earlier stage, the court will still consider whether minority shareholders will be oppressed, but with less vigilant scrutiny than might be the case if opposition were raised. 6. The evidence establishes that all relevant procedural requirements, as modified by the orders made at the first hearing, have been complied with. 7. As I indicated in the judgment given on the earlier occasion, the independent expert formed the view that the scheme was not fair but reasonable. For reasons I then gave, it seems to me that however one regards the phrase "not fair but reasonable", this is a case in which, while one might query the conclusions reached by the independent expert as to the true value of the shares which informed the conclusion that it was not fair, a conclusion that it was nonetheless "reasonable" is well supported, both by the expert's reasoning, and by the doubt that in my mind attends some aspects of the valuation. In short, it seems to me that the conclusion that the scheme was not fair might be influenced by a potential over-valuation of the shareholding. Alternatively put, I am not in the least concerned that the minority shareholders are dealt with unfairly by this scheme. 8. I have had close regard to the matters that were raised on behalf of the dissentient minority at the scheme meeting, and at the general meeting that preceded it. What were raised were questions about how certain interests had acted and whether there was any prospect of an increased consideration, but no argument was advanced against approval of the scheme, nor has any member of the minority appeared today formally to oppose approval of the scheme. 9. It should also be recorded that of the dissentient minority of twenty-four shareholders, eighteen of them became members of CIC as a result of transfers made between 25 April and 6 May 2015 – that is to say, after the first hearing, and presumably with notice of the scheme proposal. In other words, only six shareholders who were shareholders prior to the proposal of the scheme voted against it. 10. As observed in the earlier judgment, the scheme also involves a selective off-market buy-back, requiring compliance with Corporations Act, Pt 2J.1, Div 2, and although that does not of itself require court approval, compliance with those provisions is relevant to the exercise of the court's discretion whether or not to approve the scheme. The evidence establishes, as I recorded on the previous occasion, that it is manifest that the scheme and the buy-back would not materially prejudice the company's ability to pay its creditors. For the purposes of the special resolution under s 257B and s 257D, the company disregarded shares voted in favour of the buy-back resolution by any of the non-Peet shareholders, being those affected by the scheme. 11. The Australian Taxation Office has issued a draft class ruling as was contemplated in the scheme booklet, which is materially consistent with the statements made in s 9 of the scheme booklet, and which was announced to the ASX on 1 May 2015. 12. Under s 411(17), the court must not approve a scheme unless it is satisfied that it has not been proposed for the purpose of enabling a person to avoid the operation of Chapter 6, or there is produced to the court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement. There has been tendered to the court a letter dated 14 May 2015 by a delegate of ASIC advising that under Corporations Act, s 411(17)(b), ASIC has no objections to the proposed scheme. 13. There has also been tendered a deed poll by CIC confirming that the conditions set out in clauses 3.1(a), (b), (c) and (d) of the scheme of arrangement have been satisfied in accordance with the terms of the scheme. 14. Accordingly, I am satisfied that the applicable procedural requirements have been met. I am satisfied that the scheme shareholders have approved the scheme by the requisite majority. Moreover, I am satisfied that the scheme shareholders overwhelmingly desire that the scheme proceed, and that the minority is not dealt with unfairly by the scheme. In those circumstances, it is appropriate that the court give its approval to the scheme. 15. The Court therefore orders that: 1. Pursuant to Corporations Act, s 411(4)(b), the scheme of arrangement between the plaintiff and holders of fully paid ordinary shares in the plaintiff, other than Peet Limited, in the form of annexure C to exhibit 1 in this proceeding, is approved. 2. The plaintiff lodge with the Australian Securities and Investment Commission a copy of the approved scheme at the time of lodging a copy of these orders. 3. Pursuant to s 411(12), the plaintiff be exempted from compliance with Corporations Act, s 411(11), in relation to the scheme. 4. These orders are to be entered forthwith. ********** 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: 08 September 2015