Supreme Court New South Wales Medium Neutral Citation: In the matter of Asciano Limited (No 2) [2015] NSWSC 1651 Hearing dates: 6 November 2015 Date of orders: 09 November 2015 Decision date: 09 November 2015 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Orders made postponing meeting. Catchwords: CORPORATIONS – schemes of arrangement – application for postponement of scheme meeting – where new developments create situation of fluidity – what course will best serve the interests of the shareholders as a whole Legislation Cited: (CTH) Corporations Act 2001, s 411, s 1319 Cases Cited: Cleary v Australian Co-operative Foods Limited (Nos 2 and 3) (1999) 32 ACSR 701 In the matter of Asciano Ltd [2015] NSWSC 1548 In the matter of Envestra Limited (No 2) [2014] FCA 483 In the matter of Seven Network Limited (No 2) [2010] FCA 355 Texts Cited: ASIC Regulatory Guide 60, Schemes of Arrangement Category: Principal judgment Parties: Asciano Limited (plaintiff) Brookfield Infrastructure Partners LP (first intervener) Qube Holdings Limited (second intervener) Representation: Counsel: I J M Ahmed (plaintiff) P M Wood (first intervener) I M Jackman SC (second intervener) Solicitors: King & Wood Mallesons (plaintiff) Herbert Smith Freehills (first Intervener ) Allens (second Intervener) File Number(s): 2015/249906 Judgment 1. HIS HONOUR: On 29 September 2015, for reasons then given, on the application of the plaintiff Asciano Limited, orders were made pursuant to (CTH) Corporations Act 2001, s 411, for the convening on Tuesday 10 November 2015 of a meeting of its members to consider and vote on a proposed Scheme of Arrangement between it and its members, whereby all the shares in Asciano would be acquired by Brookfield Infrastructure Partners LP in consideration for which Asciano shareholders would receive, for each share, either cash in the amount of AU$6.9439 and 0.0387 Chess depository interests ("CDIs") in Brookfield Infrastructure or, at their election, a total cash consideration of AU$9.1507, or a total consideration in CDIs up to that value. Orders were also made approving an explanatory statement for distribution to shareholders, and adjourning the proceedings to 17 November 2015 for the hearing of any application to approve the scheme ("the second hearing"). [1] 2. On 15 October, the Australian Competition and Consumer Commission ("ACCC") released a Statement of Issues in respect of the proposed scheme, and indicated that it expected to announce its final decision on 17 December 2015. As ACCC merger clearance is a condition precedent to the scheme taking effect, on 19 October 2015, on the application of Asciano, the second hearing appointed for 17 November was vacated and instead 21 December 2015 was appointed for the second hearing. Ancillary orders were made for notification of shareholders. The orders of 19 October did not affect the holding of the scheme meeting on 10 November. 3. On 30 October 2015, Qube Holdings Limited announced that it, with the support of two co-investors Global Infrastructure Partners and Canada Pension Plan Investment Bard, had acquired an aggregate interest of 19.99% in Asciano. Qube indicated that it and its associates do not support the proposed scheme, and do not intend to vote in favour of it at the scheme meeting, but may enter into discussions with Brookfield and/or Asciano in relation to an alternative transaction involving the possible carve-up of Asciano's assets. (Qube has since confirmed that it and its associates will vote against the scheme). 4. On 2 November, Asciano announced to the ASX, and communicated to shareholders, that the board was considering the implications of the Qube acquisition, that it continued to recommend the proposed scheme in the absence of a superior proposal, that the second hearing had been adjourned to 21 December in light of the revised timing of the ACCC decision, and that the scheme meeting would still be held on 10 November. 5. On 5 November (Bermuda time), Brookfield announced that it had acquired approximately 14.9% of Asciano, and had entered into arrangements which gave it economic interests in a further approximately 4.3% - a total of 19.2%. Brookfield requested Asciano to defer the scheme meeting to a later date, and indicated to Asciano that, subject to agreeing a bid implementation agreement with Asciano, it intends to make a takeover offer for all remaining shares in Asciano, with the same consideration as the standard consideration under the proposed scheme, and on conditions similar to those of the scheme. Asciano announced this development on 6 November, stating that it intended to apply to the court for an adjournment of the second hearing, and that the Board remained committed to maximising value for shareholders and continued unanimously to recommend that shareholders vote in favour of the scheme in the absence of a superior proposal. In communications with Asciano's solicitors, ASIC noted this intention without objection, and referred to "the level of uncertainty regarding the scheme" and "the uncertain status of the scheme". 6. Although under the orders convening the meeting, the chairperson is given absolute discretion to adjourn or postpone the meeting, on the afternoon of Friday 6 November, Asciano applied to the court for an order, pursuant to Corporations Act, s 1319, postponing the second meeting to a date to be fixed. The application was supported by Brookfield, but opposed by Qube and its associates. Section 1319 provides that where, under the Act, the Court orders a meeting to be convened, the Court may, subject to the Act, give such directions with respect to the convening, holding or conduct of the meeting, and such ancillary or consequential directions in relation to the meeting, as it thinks fit. 7. It is now apparent that the scheme will be opposed by Qube, which now holds almost 20% of the issued capital, so that there seems a high degree of probability that the scheme would not achieve approval by 75% of votes cast by value at the scheme meeting. (To achieve approval, there would have to be a voter turnout of in excess of 80%, with all non-Qube shareholders voting for the scheme). It also appears that Brookfield may make a takeover offer, with only a 50.1% minimum acceptance condition, but otherwise on substantially the same terms as the scheme. With Qube and Brookfield both holding strategic stakes of just under the 20% threshold, the potential for competing bids to emerge is clear, and this would benefit shareholders. However, at present the scheme is the only firm offer available for acceptance, and whether others will in fact materialise, and if they do whether they will be superior in all respects to the scheme, remains uncertain. 8. It will be apparent from the above that the latest developments occurred overnight on Thursday-Friday 5-6 November Sydney time. That leaves very little time before the meeting to be held on Tuesday 10 November. Importantly, it may be assumed that many shareholders intending to vote by proxy will already have completed and lodged their proxies, unaware of these developments. The desirability of members who are to vote on a scheme having adequate time to consider supplementary information that becomes available after the dispatch of the explanatory statement is referred to in ASIC Regulatory Guide 60 (Schemes of Arrangement), which states that it will generally be appropriate for members to be given at least 10 days to consider any supplementary documentation. [2] As Austin J observed in Cleary v Australian Co-operative Foods Limited (Nos 2 and 3) (1999) 32 ACSR 701 (at [30]), the court would be unlikely to exercise its discretion in favour of approving an arrangement which had been affected by material new information if the members had not had the opportunity to consider and respond to it. [3] 9. Qube submitted that the extensive press coverage of the Brookfield acquisition in the financial press on 6 November meant that it could not seriously be suggested that shareholders were not adequately informed of the recent developments, and the meeting should go ahead so that corporate democracy can take its course. Qube referred to the judgment of Jacobson J in Seven Network, in which Seven had made an announcement of material new information on 12 April, when a scheme meeting was to be held on 20 April. As in the present case, there had been extensive press coverage of the development. The question for the court was whether to exercise the power to postpone the meeting (to enable shareholders to have adequate time to consider the new information). Mr Bathurst QC, as his Honour the Chief Justice then was, for Seven, submitted that the court should merely note the new information, and that the matter of the timeliness of the disclosure could, if it became an issue, be dealt with at the second hearing, observing that there had been extensive press coverage and that Seven accepted the risk that the matter might become an issue at the second hearing, in which case the court might determine that an inadequate period of notice had been given and decline to approve the scheme. ASIC appears to have suggested, in effect, that there should be a circular to shareholders and a postponement of the meeting for 10 days. Jacobson J concluded that in the light of the extensive newspaper coverage, and in particular Seven's acceptance of the risk that approval of the scheme might be declined at the second hearing if there were an issue with the sufficiency of time to consider the new information, it was preferable that the meeting proceed. 10. There are many material distinctions between Seven Network and the present case. First, in Seven Network, the company opposed postponement; here, it seeks it. Secondly, Seven accepted the risk that the issue could be raised and might potentially prove fatal at the second hearing; Asciano does not. Thirdly, in Seven Network the risk was that if the new information inappropriately influenced a vote to approve the scheme, the court could protect the interests of shareholders by withholding its approval; here, if the scheme does not achieve the requisite majority at the meeting, no question of the court's approval will arise. The matters that were crucial to Jacobson J's decision – the facility for revisiting the question at the second hearing, and the company's acceptance of that risk – are absent in the present context. In my view, once the quite different dynamics of the present case are understood, to the extent that Seven Network provides any guidance at all in the present context, it points in the opposite direction. 11. Brookfield, supporting the application for postponement of the meeting, invoked the decision of Yates J In the matter of Envestra Limited (No 2) [2014] FCA 483, in which about 5 days before the scheme meeting, the holder of 25% of the scheme shares ("CKI") submitted a confidential, indicative, non-binding proposal for a transaction to acquire up to 100% of the issued shares in Envestra by way of an off-market takeover, following which Envestra shares were placed in a trading halt pending further announcement. Envestra announced that it would apply for an adjournment of the scheme meeting. Yates J was of the view that there was insufficient time for shareholders to be sufficiently informed of material information concerning the new proposal before submitting their proxies for the scheme meeting. Bearing in mind that the CKI's 25% shareholding meant that it had the capacity to defeat the proposed scheme, while its proposal was yet to be developed into a binding offer, the better course was to exercise the court's power to adjourn the meeting, thereby preserving the extant scheme proposal while any alternative was developed. In my view, Envestra is far more closely analogous to the present circumstances than Seven Network. 12. The fundamental consideration in the current circumstances is the interests of Asciano's shareholders as a whole, in the context of the proposed scheme. At the core of their interests in that context is the maximisation of the realisable value of their shares. 13. The current state of affairs is, to say the least, fluid. The scheme is the only offer presently available, and continues to enjoy the support of the board in the absence of a superior proposal. For reasons explained in the earlier judgment, it appears prima facie to be fair and reasonable and in the interests of shareholders, in the absence of a superior offer. However, there are signs that alternative offers or proposals may emerge, both from Qube and from Brookfield. Shareholders would likely benefit from a contest between them for control. 14. Just what course is now best calculated to maximise value for shareholders, when there is potential for competing offers to emerge, is unclear. The board wishes to 'let the dust settle' and consider how to maximise value for shareholders. While it may be that those shareholders who read the financial press will be aware that Qube and Brookfield have acquired stakes, that bare information may be of limited utility; what would be of much more benefit is the directors' considered recommendation in the light of these recent events. Moreover, the fact that shareholders may be aware of the recent developments through the financial press does not mean that they have had adequate time to consider and act on it; and that applies particularly in respect of those who have already lodged their proxies and effectively "locked in" their votes. 15. Proceeding with the meeting could conceivably (though it appears unlikely given Qube's opposition) result in shareholders accepting the scheme when there is potential for an alternative, or (more likely) rejecting it, and potentially being left with no alternative. Requiring them to make a decision on 10 November would require them to make a decision about the scheme in circumstances which were fluid and in which it might well be difficult to judge whether superior alternative options might emerge. It is in their interests that such decisions be made when the position is clearer, and when the potential alternatives have been explored. 16. In the present case, as in Envestra, postponing the scheme meeting will preserve the current scheme proposal, while potentially allowing others to mature. This offers the potential for significant benefit for shareholders, without foreclosing the present scheme proposal if a superior alternative does not emerge. So far as I can judge, postponement involves no apparent detriment for the shareholders; none was identified at the hearing. Insofar as rejection of the scheme at the meeting might enable Asciano to exit the scheme implementation agreement without incurring the break fee, that possibility will be preserved at any future scheme meeting. 17. In my judgment, in the present situation of fluidity, it is plainly in the interests of shareholders as a whole that the scheme meeting be postponed, so that the current scheme is preserved, while the opportunity for alternative offers to emerge is explored. I can see no benefit at all for shareholders in requiring the meeting to proceed on Tuesday. 18. I will therefore make an order for postponement of the meeting to a date to be fixed. It follows that I will also vacate the appointment for a second hearing, and the order in connection with publication of a notice of the second hearing. I do not at this stage consider it necessary otherwise to discharge the previous orders; they can continue to have application in respect of the meeting when reconvened, and if some alteration is required in the light of any change of circumstances, that can be addressed when and if necessary. Rather than adjourning the proceedings generally, I will adjourn them to a date to be fixed for mention, as I consider it appropriate that they remain under the control and scrutiny of the Court. 19. The Court orders that: 1. The meeting ("Scheme Meeting") convened by the plaintiff pursuant to orders 1 and 2 of the orders made on 29 September 2015 ("the 29 September Orders") not be held on 10 November 2015 and be postponed to a date to be fixed. 2. Order 9 of the 29 September Orders, and order 1 made on 19 October 2015, be set aside. 3. The plaintiff forthwith send by email to those shareholders for whom it has an email address and by ordinary mail to other shareholders, cause to be posted on the ASX Company Announcement Website, cause to be published in The Australian on 10 November 2015, and announce at its Annual General Meeting on 10 November 2015, a notice substantially to the effect of the Schedule. 4. The proceedings be adjourned to a date to 21 December 2015 for mention. 5. There be liberty to apply on such notice as to the Court seems appropriate in the circumstances, including in relation to appointing alternative dates for the holding of the Scheme Meeting and the second hearing. 6. Schedule 7. On 9 November 2015, the Supreme Court of New South Wales, on the application of the Company, made orders: 1. Postponing to a date to be fixed the meeting of holders of fully paid ordinary shares in the capital of the Company ("Shareholders") that, on 29 September 2015, the Court had ordered the Company to convene on 10 November 2015 ("Scheme Meeting"); and 2. Adjourning the Company's application in relation to the proposed scheme of arrangement between the Company and its shareholders to 21 December 2015 for mention. 3. This means that the Scheme Meeting will no longer be held on 10 November 2015. 4. Further details in respect of the Company's decision to apply for the postponement of the Scheme Meeting are contained in the Company's ASX announcement dated 6 November 2015, which can be found on the ASX Company Announcement Website. 5. Shareholders will be informed by way of further circular as to when the Scheme Meeting will be held. ********** Endnotes 1. In the matter of Asciano Limited [2015] NSWSC 1548. 2. ASIC Regulatory Guide 60 Schemes of Arrangement, paras 60.92, 60.93. 3. (1999) 32 ACSR 701 at [30]; cited in In the matter of Seven Network Limited (No 2) [2010] FCA 355 at [11] per Jacobson J. 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: 10 November 2015