Supreme Court New South Wales Medium Neutral Citation: In the matter of Boart Longyear Limited [2017] NSWSC 756 Hearing dates: 9 June 2017 Date of orders: 13 June 2017 Decision date: 13 June 2017 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Injunctive relief refused Catchwords: CORPORATIONS – amalgamations and reconstructions – creditors schemes – order under Corporations Act s 411(16) restraining proceedings against corporation pending approval of scheme – whether extends to proceedings to enforce members rights in respect of general meeting – held, it does not CORPORATIONS - members rights and remedies – directors' duties – information as to proposals to be put to general meeting – obligation of directors to give full and frank disclosure and advice – content and extent of obligation – where misleading statement unlikely to affect voting – relief declined EQUITY – remedies – injunctions – interlocutory injunctions – where interlocutory injunction will practically be dispositive of claim for final injunction – approach of court includes evaluation of strength of plaintiff's prima facie case Legislation Cited: (CTH) Australian Securities and Investments Commission Act 2001, s 12DA (CTH) Corporations Act 2001, ss 233, 249L, 411, 664A Cases Cited: Bulfin v Bebarfalds Ltd (1938) 38 SR NSW 423 Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 11 ACLR 94 Countouris v Kallos (2008) 67 ACSR 543 Courtesy Real Estate (NSW) Pty Ltd, Re (2013) 96 ACSR 593; [2013] NSWSC 1666 Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (1985) 9 ACLR 956 ENT Pty Ltd v Sunraysia Television Ltd (2007) 61 ACSR 626; [2007] NSWSC 270 First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116 Fraser v NRNA Holdings Limited (1995) 55 FCR 452 GAR Pty Ltd, Re [1962] VR 252 Kolback Securities Limited v Epoch Mining NL (1987) 8 NSWLR 533 Peters' American Delicacy Co Ltd v Heath (1939) 61 CLR 457 Playcord Pty Ltd v Venture Stores (Retailers) Pty Ltd (1992) 7 ACSR 193 Posgate & Denby (Agencies) Ltd, Re (1986) 2 BCC 99,35 Stratford Sun Ltd v OM Holdings Ltd (No 5) [2011] FCA 1275; (2011) 198 FCR 372 Category: Principal judgment Parties: Snowside Pty Ltd (first plaintiff) Maurici Nominees Pty Ltd (second plaintiff) Boart Longyear Limited (first defendant) Jeffrey Robert Olsen & others (second defendant) Representation: Counsel: R.P. Austin with N. Mirzai (plaintiffs) C.R.C. Newlinds SC with M. Izzo (first defendant) M.L. Rose (second defendant) Solicitors: Speed and Stracey (plaintiffs) Ashurst Australia (first defendant) King & Wood Mallesons (second defendant) File Number(s): 2017/171210 Judgment 1. The essential issue in this application is whether the defendant company Boart Longyear Ltd (BLY) should be restrained from putting to members at its annual general meeting, to be held later today, certain special business, being resolutions which would approve and authorise a proposal for recapitalisation of BLY, for at least 14 days and until further disclosure has been made to members. 2. BLY is a publicly listed company, in which the plaintiffs – of which Mr A.P. Maurici is the principal – together hold 2.82% of the issued ordinary shares and constitute the third largest shareholding, after Centerbridge Partners LP ("Centerbridge") (48.9%), and another shareholder which is independent of Centerbridge. BLY is in financial distress, and has proposed two creditor schemes under (CTH) Corporations Act 2001, s 411, one in respect of its secured creditors, and the other in respect of its unsecured creditors. The scheme meetings were held on 30 May 17, when the resolutions put to those meetings in favour of the creditor schemes were carried. The second court hearing is to be held on 4 July 2017, and the schemes, if approved, are to be implemented from 11 July 2017. If not approved, it is likely that BLY would go into liquidation or some other form of insolvency administration. [1] 3. The creditor schemes are interdependent with a recapitalisation of BLY, which involves (1) the issue of shares comprising 42% of the ordinary shares in BLY to certain creditors, Ares and Ascribe; (2) the conversion by Centerbridge of its convertible preference shares into ordinary shares (equivalent to 3.6% of the issued ordinary shares); and (3) the issue by BLY to Centerbridge, in exchange for a reduction of interest in respect of certain loans, of further shares comprising 52.4% of the ordinary shareholding, so that upon completion of the proposed transactions Centerbridge will hold a total of 56% of the issued ordinary shares, Ascribe 19.2%, Ares 18%, unidentified note holders 4.8%, and previous shareholders other than Centerbridge (including the plaintiffs) ("the non-associated shareholders") 2%. The plaintiffs' shareholding would be reduced from 2.82% to about 0.1%. 4. On 12 May 2017, BLY distributed to its shareholders an electronic notice of general meeting convening its annual general meeting on 13 June 2017. The notice includes, as special business, resolutions ("the recapitalisation resolutions") to give effect to the proposed recapitalisation, subject to the Court approving the creditor schemes at the second hearing. The notice of meeting was accompanied by a detailed explanatory statement, of some 692 pages, containing material relevant to the recapitalisation proposal, including (1) an independent expert report prepared by KPMG Financial Advisory Services (Australia) Pty Ltd ("the KPMG report"), which expresses the opinion that the recapitalisation, in the context of the Schemes, is fair and reasonable to the non-associated shareholders; and (2) the recommendation of the "independent directors" to vote in favour of the recapitalisation resolutions, subject to no superior proposal emerging. 5. On 24 May, at the invitation of BLY, Mr Maurici had a discussion with BLY about the proposed resolutions. On 25 May, the plaintiffs engaged Sumner Hall Associates Pty Ltd to review the explanatory statement, including the KPMG Report. On 2 June 2017, Mr Hall furnished a report (in which he subscribed to the expert witness code) ("the Hall report") which concludes that the explanatory statement has a number of deficiencies with respect to the reasons given by the independent directors for their recommendation, and that had those matters been taken into account the independent directors would not have been able to make the recommendation that they did, because the KPMG report would not have concluded that the recapitalisation is fair and reasonable but, at best, not fair though reasonable and possibly not reasonable; and that even if the recapitalisation were to maximise long-term value for the company, that would not be the case for non-associated shareholders if it transpires that their shares would be subject to forcible acquisition through a "squeeze out" of minority interests before long term value is realised. The Hall report provides the foundation of the plaintiffs' complaints of inadequate disclosure, to which it will be necessary to return. 6. The plaintiffs' solicitors thereupon wrote to BLY, enclosing the Hall report and raising two additional matters of complaint, and demanding that the meeting be postponed for at least 14 days, that the Hall report be distributed to all shareholders, and that shareholders be provided with further information concerning the matters raised in the Hall report and in the solicitors' letter, so as to enable them to make an informed decision. On 7 June, BLY declined to comply with the plaintiffs' requests. 7. In a supplementary report of 8 June 2017, KPMG, having reviewed the Hall report, respond to some, though not all, of the matters raised in it, and conclude that nothing in it causes them to consider that there are deficiencies in their independent expert report, and to the opinions expressed in which they adhere. Application 1. On 7 June 2017, the plaintiffs obtained leave to file an originating process, claiming by way of final relief damages for misleading and deceptive conduct and/or breach of the directors' fiduciary duty properly to inform the shareholders, and an order for the purchase of their shares on grounds of oppression. Presently before the court is their application for interlocutory relief, to the effect that the defendants be restrained from putting the recapitalisation resolutions to the general meeting for at least two weeks after 13 June and until further explanatory information is provided to shareholders. 2. On an application for an interlocutory injunction, a plaintiff has to establish that there is a sufficiently seriously arguable case for a final injunction that the balance of prejudice favours the grant over the withholding of interlocutory relief. So stating the test recognises that (1) there must be an arguable case for a final injunction, (2) the strength of that case informs the balance of convenience, and (3) the balance of convenience really involves an inquiry into the relative prejudice that will be occasioned by wrongly granting an injunction and that which would be involved in wrongly refusing one. While it is sometimes said that a third question – in addition to a seriously arguable case and the balance of convenience – is whether damages would be an adequate remedy, that is really an aspect of the inquiry into whether there is a seriously arguable case for a final injunction, which would be declined if damages were a sufficient remedy. 3. Dr Austin for the plaintiffs submitted that I should not endeavour to resolve the differences between the experts but, faced with their competing opinions, should accept that there is an arguable case, while Mr Newlinds SC for the defendants submitted that I should decide the application on a final basis. Although ordinarily on an interlocutory application the court does not undertake a preliminary trial or forecast the ultimate result, it may, in a case where the interlocutory hearing will practically be dispositive of the substance of the matter in issue, evaluate the strength of the plaintiff's case for final relief, for the purpose of seeing where the balance of convenience lies. [2] This is such a case, because if the "interlocutory" relief sought by the plaintiffs is granted, there never will be a final hearing on the question of whether further disclosure should be required: there may be a final hearing about compensatory relief; but not about a final injunction. The present hearing is in that way practically dispositive of the claim for injunctive relief. Accordingly, it is appropriate to evaluate the strength of the plaintiffs' claim. 4. Dr Austin properly drew attention to the circumstance that on 27 April 2017, in the scheme proceedings, Black J made orders, pursuant to Corporations Act, s 411(16), restraining any further proceedings in any action or civil proceeding against any or all of the plaintiffs in those proceedings. Corporations Act, s 411(16), provides: (16) [Court may order restraint of further proceedings] Where no order has been made or resolution passed for the winding up of a Part 5.1 body and a compromise or arrangement has been proposed between the body and its creditors or any class of them, the Court may, in addition to exercising any of its other powers, on the application in a summary way of the body or of any member or creditor of the body, restrain further proceedings in any action or other civil proceeding against the body except by leave of the Court and subject to such terms as the Court imposes. 1. The present plaintiffs submit that that order should not be construed as prohibiting a challenge to the lawfulness of a procedure which is interdependent with the scheme. The purpose of s 411(16), and an order made pursuant to it, is to protect the assets of the company pending the possible adoption of the scheme. [3] Proceedings of the present kind do not fall within the mischief which the provision was intended to address. In my judgment, this is not an "action or other civil proceeding" of the kind contemplated by s 411(16); but if I were wrong in that respect I would grant leave under s 411(16). Causes of action 1. The plaintiffs propound three causes of action for final relief: breach of the directors' duty to provide members with adequate information fully and fairly to inform them in relation to the matters to be considered; misleading and deceptive conduct; and oppression. Duty of disclosure 1. While Corporations Act, s 249L(1)(b), requires only that a notice of a meeting of a company's members state the general nature of the meeting's business, that is not an exhaustive statement of the obligations of directors to provide information to members relevant to proposals to be considered in general meeting. The following summary of the relevant principles is distilled from the judgments of the Full Federal Court in Fraser v NRNA Holdings Limited, [4] and of Austin J in ENT Pty Ltd v Sunraysia Television Ltd, [5] which was cited with approval by Foster J in Stratford Sun Ltd v OM Holdings Ltd (No 5). [6] 2. When directors are advising or urging a particular action or course of conduct upon members of the company, they are under a fiduciary duty to provide the members with such material information as will fully and fairly inform members of what is to be considered at the meeting (and for which their proxy may be sought), such as will enable members to judge for themselves whether to attend the meeting and vote for or against the proposal, or whether to leave the matter to be determined by the majority attending and voting at the meeting. [7] This principle has been applied, inter alia, in the context of enabling a member to make an informed decision as to the worth or otherwise of a proposed reconstruction or amalgamation. [8] 3. The obligation to make full and fair disclosure to members does not require the directors to provide every piece of information that might conceivably affect their vote; it is moderated by the need to present a document that is intelligible to reasonable members of the class to whom it is directed, and is likely to assist rather than to confuse; the adequacy of the information provided is to be assessed in a practical and realistic way, having regard to the complexity of the proposal. [9] While directors may have to take reasonable steps to ascertain relevant information for communication to members if that information is not known to them, and must not turn a blind eye to relevant material in order to avoid placing before members information which may contradict or qualify the position taken or advocated by them, [10] their obligation in that respect may be qualified by the time, cost and delay involved in doing so. [11] Materiality is of accentuated importance in the case of a complex proposal which involves difficult commercial judgments and questions of degree and speculation about which there is room for a range of honestly and reasonably held opinions. [12] 4. If a deficiency in disclosure is identified, the court considers whether there is any reasonable ground for supposing that the deficiency would cause shareholders to vote, or abstain from voting, under a serious misapprehension of the position. [13] Misleading and deceptive conduct 1. The statutory cause of action for misleading and deceptive conduct under (CTH) Australian Securities and Investments Commission Act 2001, s 12DA, in this context, is closely connected with the directors' fiduciary duty of disclosure. [14] In Fraser v NRMA, the Full Federal Court said: [15] Although s 52 gives rise to no duty to provide information, when information is in fact given in purported discharge of the fiduciary duty, s 52 requires that the information given is not misleading or deceptive or likely to mislead or deceive. Additionally, the section requires that the conduct of the directors in withholding certain information is not itself conduct which is misleading or deceptive or likely to mislead or deceive. It is in the area of the proper discharge of the fiduciary duty to provide relevant information that there is an overlap between discharge of the duty and the operation of s 52: a failure properly to discharge the duty may itself constitute a contravention of s 52 as well as a contravention of s 995 of the Law. … Whilst s 52 does not by its terms impose an independent duty of disclosure which would require a corporation or its directors to give any particular information to members asked to consider a motion in general meeting, where information for that purpose is promulgated, unless the information given constitutes a full and fair disclosure of all facts which are material to enable the members to make a properly informed decision, the combination of what is said and what is left unsaid may, depending on the full circumstances, be likely to mislead or deceive the membership. Oppression 1. The plaintiffs contend that the combination of the alleged defects in disclosure, the proposed dilution of their shareholding, and the consequences of the proposed redomiciliation to Delaware, would be oppressive of the plaintiffs. 2. The powers of the court in respect of oppression include prohibitory and mandatory injunctions, [16] and it has been held that the court may grant interlocutory injunctive relief in respect of actual or threatened acts of oppression, in respect of which the usual principles relating to interlocutory injunctive relief apply. [17] 3. However, if the recapitalisation, in the context of the schemes, is oppressive of the plaintiffs, that would be not because of any defects in disclosure, but in the operation of the recapitalisation and any redomiciliation. The plaintiffs' present application is directed only to disclosure. In the context of the present application, if the plaintiffs cannot succeed in respect of misleading and deceptive conduct and/or breach of the duty of disclosure, then an arguable cause of action in oppression would not avail them: they do not presently seek to restrain the recapitalisation or redomiciliation per se; and their rights to do so, or to obtain other relief (such as a "buy-out order") for oppression, will not be affected by the disposition of this motion. 4. Accordingly, the question is whether the plaintiffs have established a sufficiently arguable case of inadequate – and/or misleading and deceptive – disclosure. The alleged defects in disclosure 1. The Hall report raises four main issues with the explanatory statement, which below are described as the "enterprise value" issue, the "control premium" issue; the share purchase price issue; and the redomiciliation issue. In their letter to the directors of 2 June 2017, the plaintiffs' solicitors raised a further two issues: the "associates" issue, and the "independent directors" issue. Enterprise value 1. In its current condition, shares in BLY are of slight value. [18] The rationale of the recapitalisation, in the context of the schemes, is that it provides the best available option for maximising long-term shareholder value. The KPMG conclusion that the proposed recapitalisation is fair and reasonable to non-associated shareholders depends on the proposition that the value of their diluted shareholding in the recapitalised company will be not less than its value undiluted in the company before recapitalisation. On the approach to valuation adopted by KPMG, this will be so if the (present) enterprise value (EV) of BLY does not exceed USD$704 million; if the EV exceeds USD$704 million, then the value of a share is lower after recapitalisation than before, and the recapitalisation would not be "fair". 2. The KPMG Report adopts an EV of USD$650 million, and thus concludes that the recapitalisation is fair. Mr Hall points to a number of indications that EV could be higher: first, the share price ($0.02) provided for in the share purchase plan referred to in the explanatory statement implies an EV of USD$968 million; secondly, BLY has adopted a minimum EV of USD$750 million for consideration of future mergers and acquisitions as part of the proposed redomiciliation; thirdly, KPMG has (unusually) derived the EV range by applying the low end of the multiples range to the high end of the earnings estimate, and the high end of the multiples range to the low end of the earnings estimate, and if the more usual approach of applying the high end of the multiples range to the high end of the earnings estimate had been adopted, then the high end of the EV range would have been $715 million instead of $650 million; and fourthly, if the average multiple of 6.9x had been applied to the average earnings estimate of USD$115 million, then EV would have been $793.5 million. 3. Fundamentally, the issue is whether the KPMG opinion that the recapitalisation is fair and reasonable is undermined to the extent that the directors ought put to shareholders an alternative analysis. In the context of this application and its potentially dispositive consequences, I do not accept that I should refrain from evaluating the expert evidence; to the contrary, it is appropriate to evaluate the strength of the plaintiffs' case. 4. It is important to recognise that Mr Hall does not express an opinion as to EV, but merely points out that various alternative valuation hypotheses would produce a higher EV than that adopted by KPMG, which would then undermine their conclusion as to fairness if not reasonableness. Mr Hall does not go so far as to say that any one or more of the alternative approaches referred to in his report is to be preferred to that adopted by KPMG. On the other hand, in their response, KPMG, while accepting that the breakeven point is $704 million – in that value after recapitalisation would be lower than before if EV exceeds that amount – do not consider that any of the approaches referred to by Mr Hall, which would produce such a valuation, is appropriate for considering the EV of BLY. 5. As KPMG point out in their reply report, the share purchase plan issue price of $0.02 per share was a negotiated outcome, which does not necessarily reflect fair value. Moreover, the share purchase plan is capped at raising A$9 million, and cannot be simply extrapolated to a value of USD$968 million. The minimum EV of USD$750 million referred to in the explanatory statement was also a negotiated outcome, for the purpose setting a minimum value that would be accepted in case of a potential offer, and not necessarily representative of present fair value. 6. KPMG applied the low end of the multiple range to the high end of the earnings range, and vice versa, because greater risk was associated with the high end (and less risk with the low end) of the range. This is not only not a novel proposition, but also a logical one. Moreover, while the approach which Mr Hall considers more orthodox would produce an upper end of the EV range of $715 million – slightly in excess of the breakeven point of $704 million – the lower end of the EV range would be lower than in the KPMG report. EV is more likely to be in the middle, than at the upper end, of such a range. The midpoint would not change, and would remain well below $704 million. 7. As KPMG explain in their reply report, they considered selection of an average multiple of 6.9x to be inappropriate for several reasons, in particular that the average was impacted by an outlier within the comparables, while the median would have been only 4.6; and that multiples in the Asia-Pacific region, which they considered most relevant, averaged only 3.5. 8. The explanatory statement identifies, as a reason for voting against the recapitalisation resolutions, that shareholders may disagree with the recommendation of the independent directors and/or the findings of KPMG, and be of the opinion that the recapitalisation is not in the best interests of the company and its shareholders (par 7.3(e)). There is no evidence that any appropriately qualified person considers that any of the alternative valuation approaches referred to by Mr Hall are appropriate in the circumstances, and KPMG's responsive report articulates plausible, logical and persuasive reasons why they are not. No expert – Mr Hall included - has expressed an opinion that BLY's EV exceeds $704 million. An independent expert's report prepared by KordaMentha Restructuring in connection with the proposed creditor schemes, dated 1 May 2017, expresses the view that EV is in the range USD$246.5 million to USD$286.6 million. 9. The plaintiffs have not established a sufficiently arguable case that KPMG's conclusion that the recapitalisation is fair and reasonable is flawed. The directors are not obliged to inform shareholders that alternative valuation approaches, not accepted by KPMG and not endorsed as appropriate to the circumstances even by Mr Hall, might produce a different result. Provision of such alternative valuation scenarios, which are endorsed as appropriate by no expert, would be potentially confusing, if not misleading. Control premium 1. Mr Hall says that the explanatory statement does not clearly set out the price being paid by Centerbridge, Ares and Ascribe for new shares in BLY, nor the control premium that Centerbridge is to pay for the controlling interest that it will acquire, and whether it is appropriate in the circumstances. 2. The function of the KPMG report is to express an opinion by an independent expert as to whether or not the recapitalisation is fair and reasonable for the non-associated shareholders. It does so essentially by comparing the value of their shares in the company before recapitalisation with the value of their diluted shareholding post-recapitalisation. This appropriately identifies the impact of the recapitalisation on the non-associated shareholders. Whether and if so to what extent Centerbridge is paying a premium for control does not appear to be relevant to that exercise. Moreover, in the context that Centerbridge already holds 48.9% of the shareholding, and the next largest shareholder holds 3.86%, it is unlikely that much of a premium for control would be incurred. The quantum of any control premium payable by Centerbridge is not sufficiently material to the decision that the non-associated shareholders must make, as to require that it be disclosed by the directors to shareholders. Share Purchase Plan 1. In para 7.2 of the explanatory statement ("Reasons Shareholders may vote FOR the Recapitalisation Resolutions"), the following appears: (d) The Recapitalisation provides an opportunity for all Shareholders to participate in the issue of further Shares under the Share Purchase Plan, and offers the opportunity to subscribe for Shares at a discount to the current offer price. 1. However, having regard to the dilution of the shareholding that will be effected by the recapitalisation, there is no such discount; to the contrary there is a very great premium. It follows that in holding out the prospect of acquiring additional shares under the share purchase plan at discount from the current price as a reason for voting for the proposal, the explanatory statement is positively misleading. 2. Mr Newlinds pointed out that there can be found, in the KPMG report, an explanation of the effect of the dilution, and that is so; but it is obscure and in any event has none of the prominence of the statement in the "Reasons Shareholders may vote FOR the Recapitalisation Resolutions", where it is presented as the fourth of five reasons. Mr Newlinds also argued that the share purchase plan was not part of the recapitalisation, but a subsequent transaction. Again that is so, but it does not detract from the force of the argument that the opportunity to acquire shares at a discount under the share purchase plan is advanced by the directors to shareholders as a reason for voting in favour of the recapitalisation resolutions – when that prospect is in fact illusory. 3. In this respect, the explanatory statement, by holding out the prospect of acquiring additional shares at discount from the current price as an attraction of the proposal, when having regard to the dilution of the shareholding there is no such discount but a premium, is misleading and deceptive, in contravention of ASIC Act, s 12DA. 4. The question then is whether there is reasonable ground for supposing that the misrepresentation, if not corrected, would cause shareholders to vote under a serious misapprehension of the true position. Admittedly weighing in favour of a conclusion that it would are the circumstances that it appears in a prominent part of the explanatory statement, where it is presented as a reason for voting in favour of the resolutions, and constitutes one of the five reasons proffered for voting in favour of the recapitalisation resolutions. However, viewed objectively and in a practical and realistic way, the real issues for non-associated shareholders would appear to involve weighing the prospects of realising greater long term value through the proposed recapitalisation, against the dilution of their shareholding and the acquisition of post-recapitalisation control by Centerbridge. In that context, the prospect of subsequently acquiring some additional shares in a distressed company at a discount under the share purchase plan could be, at the highest, a faint consideration. While the explanatory statement is in this respect misleading and deceptive, it is not likely to cause shareholders to vote in favour of the recapitalisation resolutions if they would not otherwise do so. Redomiciliation 1. The explanatory statement discloses that one of the intentions of BLY and its largest shareholders is to seek to redomicile the company in Delaware. Mr Hall observes that the explanatory statement does not disclose the mechanism by which BLY might redomicile, the advantages or disadvantages of so doing, and any adverse consequences for the non-associated shareholders. Mr Hall observes that under the law of Delaware, minority interests may be compulsorily acquired, and that their dissenter appraisal rights would not reflect the long-term value that the recapitalisation was intended to deliver. 2. Mr Hall is an accountant, not a lawyer. I have not been favoured with expert evidence of a Delaware lawyer as to these matters. The shares in question are shares in an Australian corporation listed on the ASX. As it seems to me, those shares cannot be the subject of compulsory acquisition under Delaware law. If it were proposed to replace members' shares with shares in a Delaware corporation, then a members' scheme would be required, when any concern about fairness could be considered and addressed. Prima facie, post recapitalisation, without any redomiciliation, the non-associated shareholders would in any event be vulnerable to compulsory acquisition under Corporations Act, s 664A. 3. The explanatory statement identifies, as reasons for voting against the recapitalisation resolutions, that the aggregate percentage shareholding of non-associated shareholders will be significantly diluted (at par 7.3(a)), and that BLY's business could be redomiciled to a different jurisdiction, which may adversely impact BLY's listing on the ASX (at par 7.3(d)). Any undisclosed additional risks associated with redomiciliation are not sufficiently material to the judgment of non-associated shareholders as to whether or not to vote in favour of the recapitalisation resolutions as to require disclosure. Associates 1. An additional complaint raised in the plaintiffs' solicitors letter to the directors of 2 June 2017 is that the explanatory statement does not advise shareholders whether Centerbridge, Ares and Ascribe are "associates", why they are or are not "associates", and which are entitled to vote on each recapitalisation resolution, and why. 2. The notice of meeting specifies, in connection with each recapitalisation resolution, the applicable "voting exclusion". It appears from them that Ares and Ascribe are regarded as associates. The explanatory statement lists Centerbridge's associates (par 9.2(a)), and the list does not include Ares and Ascribe; from this it appears that Ares and Ascribe are not considered to be "associates" of Centerbridge. 3. The plaintiffs do not allege that any of these statements, express or implied, are false. Moreover, while characterisation as an associate might affect the outcome of a resolution, it is not apparent how it would affect the directors' recommendation, nor the judgment of a non-associated shareholder, such as the plaintiffs, as to how to vote on the recapitalisation resolutions. It is not material to how a non-associated shareholder should, in its own interests, vote on the resolutions. Viewed in a practical, realistic way and having regard to the complexity of the proposal and the need to present an intelligible, accessible and readable document, there is no obligation to disclose in the explanatory statement whether or not Centerbridge, Ares and Ascribe are associated and why; nor is the explanatory statement misleading or deceptive in not doing so. Independent directors 1. Another complaint raised in the plaintiffs' solicitors 2 June letter is that the explanatory statement does not explain why it is considered that all directors, save two, are considered to be "independent directors" for the purposes of making the recommendation. The plaintiffs do not positively assert that there is anything misleading about the classification of the "Independent Directors", but only that reasons why the "independent directors" are considered to be independent are not explained. 2. The explanatory statement (par 8.2, which includes a cross-reference to par 9.1) explains why Mr Long and Mr Tochilin did not participate in the recommendation, discloses their relationship with Centerbridge, and defines "the independent directors" as the others. The alignment of the interests of the independent directors with that of non-associated shareholders is also explained. The basis upon which the independent directors have been classified as such is reasonably apparent from that context. Viewed in a practical, realistic way and having regard to the complexity of the proposal and the need to present an intelligible, accessible and readable document, and in the absence of any suggestion that the explanatory statement is misleading in its classification of them as "independent", there is no obligation to disclose, any further than the explanatory statement does, why the independent directors are so described; nor is it misleading or deceptive in not doing so. Balance of convenience 1. If injunctive relief is granted, then the general meeting would be deferred for a short time, in order to enable a corrective statement to be distributed. This need not interfere with the progress of the scheme in accordance with the implementation timetable, and could be completed in ample time for the second hearing on 4 July. While the defendant submitted, founded on the fears of BLY's company secretary, that an adjournment may be perceived as a setback for the schemes, cause a loss of confidence on the part of creditors and thus jeopardise the company's survival until the schemes can be approved, that would not be a rational response, and it is not a factor to which the Court should afford much weight. Costs would be incurred in connection with an adjourned meeting. 2. If injunctive relief is refused, then the general meeting may proceed (time for lodging proxies having already expired) under the influence of the misleading and deceptive statement, although – as has been observed above – it would be a faint consideration. It may be difficult to determine, after the event, whether a different result would have obtained but for that statement. On the other hand, the resolutions may be defeated, in which case it will never be necessary to rule on the question. The plaintiffs would in any event retain their rights so far as compensatory relief, and oppression, are concerned. Conclusion 1. On the present state of the evidence, I am satisfied that the explanatory statement, by holding out the prospect of acquiring additional shares at discount from the current price as an attraction of the proposal, when having regard to the dilution of the shareholding there is no such discount but a premium, is misleading and deceptive, in contravention of ASIC Act, s 12DA. However, viewed objectively and in a practical and realistic way, the misrepresentation about the share purchase plan is not likely to cause non-associated shareholders to vote in favour of the recapitalisation resolutions if they would not otherwise do so: in the context that the real issues for non-associated shareholders would appear to involve weighing the prospects of realising greater long term value through the recapitalisation, against the dilution of their shareholding and the post-recapitalisation dominance of Centerbridge, the prospect of subsequently acquiring some additional shares in a distressed company at a discount under the share purchase plan could be, at the highest, a faint consideration. 2. The plaintiffs have otherwise failed to establish a sufficiently arguable case of breach of the directors' duty of disclosure or of misleading and deceptive conduct. 3. While it may be that viewed in isolation, little prejudice would be occasioned by granting the relief sought, little will be inflicted by not doing so. The recapitalisation resolutions will not necessarily be carried. If they are, the plaintiffs will retain their rights in respect of compensatory remedies, and oppression. As contributories they can appear at the second scheme hearing and oppose approval of the scheme on grounds of unfairness to them, or miscarriage of the general meeting. The only breach established is insufficiently material to the decision which the non-associated shareholders must make as to justify, at this late stage, restraining the company from putting the recapitalisation resolutions to the general meeting. 4. The Court therefore orders that: 1. The application for interlocutory relief be dismissed. 2. Costs of the application be the defendants' costs in the proceedings. ********** Endnotes 1. A more extensive description of the commercial background and the schemes may be found in the judgment of Bathurst CJ in First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116. 2. Kolback Securities Limited v Epoch Mining NL (1987) 8 NSWLR 533, 536A-C. 3. Re GAR Pty Ltd [1962] VR 252, 256; Playcorp Pty Ltd v Venture Stores (Retailers) Pty Ltd (1992) 7 ACSR 193. 4. (1995) 55 FCR 452. 5. [2007] NSWSC 270; (2007) 61 ACSR 626. 6. [2011] FCA 1275; (2011) 198 FCR 372. 7. Fraser v NRMA Holdings Limited (1995) 55 FCR 452, 465-6, citing Jackson v The Munster Bank Ltd (1884) 13 LR Ir 118 at 136-7; Tiessen v Henderson [1899] 1 Ch 861869 at 866-7, 869-71; Peel v London and North Western Railway [1907] 1 Ch 5 (CA) at 12-14, 16-17, 31; Baillie v Oriental Telephone and Electric Company Ltd [1915] 1 Ch 503 (CA) at 514-15, 518; Pacific Coast Coal Mines Ltd v Arbuthnot [1917] AC 607 (PC) at 618; Goldex Mines Ltd v Revill (1974) 54 DLR (3d) 672 (Ont CA) at 679; see also Bulfin v Bebarfalds Ltd (1938) 38 SR NSW 423, 440 (Long Innes CJ in Eq); approved in Peters' American Delicacy Co Ltd v Heath (1939) 61 CLR 457, 486 and in Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 11 ACLR 94, 96-7 (McLelland J); Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (1985) 9 ACLR 956 (Young J); ENT Pty Ltd v Sunraysia Television Ltd [2007] NSWSC 270; (2007) 61 ACSR 626 at 630-1 [15] (Austin J). 8. Fraser v NRMA Holdings Limited (1995) 55 FCR 452, 466, citing Garvie v Axmith (1962) 31 DLR (2d) 65; Re National Grocers Co Ltd [1938] 3 DLR 106; Re N Slater Co Ltd [1947] 2 DLR 311. 9. ENT Pty Ltd v Sunraysia Television Ltd [2007] NSWSC 270; (2007) 61 ACSR 626 at 631-2 [19] (Austin J), citing Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (1985) 9 ACLR 956, 959; Re Dorman Long & Co Ltd [1934] 1 Ch 635, 665-66; Fraser v NRMA Holdings Ltd (1995) 55 FCR 452; 127 ALR 543; 15 ACSR 590. 10. Fraser v NRMA Holdings Limited (1995) 55 FCR 452, 466. 11. ENT Pty Ltd v Sunraysia Television Ltd [2007] NSWSC 270; (2007) 61 ACSR 626, 632 [21] (Austin J), citing Cleary v Australian Co-operative Foods Ltd (Nos 2 and 3) (1999) 32 ACSR 701 at 719; [1999] NSWSC 991. 12. Fraser v NRMA Holdings Ltd at FCR 468; ALR 556; ACSR 603; cited in ENT Pty Ltd v Sunraysia Television Ltd [2007] NSWSC 270; (2007) 61 ACSR 626, 632 [19]. 13. ENT Pty Ltd v Sunraysia Television Ltd [2007] NSWSC 270; (2007) 61 ACSR 626 at 632 [20] (Austin J), citing Devereux Holdings, 958–9 (Young J) and Re Imperial Chemical Industries Ltd [1936] Ch 587, 618 (Clauson J). 14. ENT Pty Ltd v Sunraysia Television Ltd [2007] NSWSC 270; (2007) 61 ACSR 626, 632-3 [23] (Austin J), 15. Fraser v NRMA Holdings Ltd at FCR 465-7; ALR 554-5; ACSR 602. 16. Corporations Act, s 233(i) and (j). 17. Re Courtesy Real Estate (NSW) Pty Ltd (2013) 96 ACSR 593; [2013] NSWSC 1666; Re Posgate & Denby (Agencies) Ltd (1986) 2 BCC 99,352; but cf Countouris v Kallos (2008) 67 ACSR 543 at [13] (Young CJ in Eq). 18. They last traded at 4c. Nonetheless, this implies that the plaintiffs' combined shareholding is worth some $1,070,927. 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: 17 April 2018