In the matter of Australian Leisure and Entertainment Property Management Limited [2021] NSWSC 1421 (4 November 2021)

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Case Name:	In the matter of Australian Leisure and Entertainment Property Management Limited
Medium Neutral Citation:	[2021] NSWSC 1421
Hearing Date(s):	28 October 2021
Date of Orders:	28 October 2021
Decision Date:	4 November 2021
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Order made convening scheme meetings and approving the scheme booklet for distribution to shareholders. Judicial advice given that the Plaintiff is justified in propounding resolutions to implement the proposed trust scheme and proceeding on the basis that constitutional amendments to implement the trust scheme is within the constitutional powers of alteration conferred and s 601GC of the Corporations Act 2001 (Cth).
Catchwords:	CORPORATIONS – Arrangements and reconstructions – Schemes of arrangement or compromise – Application under s 411 of the Corporations Act 2001 (Cth) for orders convening meetings of members to consider and, if thought fit, to agree to proposed scheme of arrangement – Whether requirements to order scheme meetings are satisfied. CORPORATIONS – Managed investments – Application for judicial advice by responsible entity under s 63 of the Trustee Act 1925 (NSW) – Whether responsible entity would be justified in propounding resolutions to implement the proposed trust scheme – Whether proposed amendments are within the constitutional powers of alteration and s 601GC of the Corporations Act.
Legislation Cited:	- Corporations Act 2001 (Cth), Ch 5C; Pt 5.1; ss 411, s 601GC - Trustee Act 1925 (NSW), s 63
Cases Cited:	- Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; (1993) 112 ALR 627; (1993) 10 ACSR 230; [1993] HCA 15 - First Pacific Advisers LLC v Boart Longyear Ltd (2017) 121 ACSR 136; [2017] NSWCA 116 - F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 - Re Abacus Funds Management Ltd (2006) 24 ACLC 211; [2005] NSWSC 1309 - Re APN News & Media Ltd (2007) 62 ACSR 400; [2007] FCA 770 - Re Ardent Leisure Ltd [2018] NSWSC 1665 - Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 - Re Atlas Iron Ltd (2016) 112 ACSR 554; [2015] FCA 366 - Re Bigair Group Ltd [2016] FCA 1296 - Re BINGO Industries Ltd [2021] NSWSC 798 - Re BIS Finance Pty Ltd [2017] NSWSC 1713 - Re Bolnisi Gold NL (No 2) (2007) 65 ACSR 510; [2007] FCA 2078 - Re Centrebet International Ltd [2011] FCA 870 - Re Citadel Group Ltd (2020) 148 ACSR 598; [2020] FCA 1580 - Re Coca-Cola Amatil Ltd [2021] NSWSC 270 - Re CSR Ltd (2003) 45 ACSR 34; [2003] FCA 82 - Re CSR Ltd (2010) 183 FCR 358; (2010) 265 ALR 703; (2010) 77 ACSR 592; [2010] FCAFC 34 - Re DUET Finance Ltd [2017] NSWSC 415 - Re DUET Management Company 1 Ltd (2013) 95 ACSR 34; [2013] NSWSC 817 - Re Ellerston Global Investments Ltd [2020] NSWSC 879 - Re Foster’s Group Ltd (No 2) [2011] VSC 547 - Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742 - Re Gazal Corporation Ltd [2019] FCA 701 - Re GBST Holdings Ltd [2019] NSWSC 1280 - Re Hills Motorway Ltd (2002) 43 ACSR 101; [2002] NSWSC 897 - Re Kidman Resources Ltd (2019) 375 ALR 760; (2019) 139 ACSR 122; [2019] FCA 1226 - Re Macquarie Private Capital A Ltd [2008] NSWSC 323 - Re Mainstream Group Holdings Ltd [2021] FCA 948 - Re Mirvac Ltd (1999) 32 ACSR 107; [1999] NSWSC 457 - Re Mirvac Funds Management Ltd [2014] NSWSC 1569 - Re Mortgage Choice Ltd [2021] NSWSC 553 - Re Mosaic Oil NL [2010] FCA 985 - Re Navitas Ltd (No 2) [2019] WASC 218 - Re OneVue Holdings Ltd [2020] FCA 1321 - Re Prime Infrastructure Holdings Ltd [2010] NSWSC 1104; (2010) 80 ASCR 193 - Re Real Energy Corporation Ltd [2020] FCA 1634 - Re Recall Holdings Ltd [2015] FCA 1142 - Re RXP Services Ltd [2021] FCA 38 - Re SFE Corporation Ltd [2006] FCA 670 - Re Simavita Holdings Ltd [2013] FCA 1274 - Re Sirtex Medical Ltd [2018] FCA 1315 - Re SMS Management & Technology Ltd [2017] VSC 257 - Re Staging Connections Group Ltd [2015] FCA 1012 - Re Sydney Airport Holdings Ltd [2013] NSWSC 1665 - Re Tatts Group Ltd [2017] VSC 552 - Re Tawana Resources NL [2018] FCA 1456 - Re TPG Telecom Ltd [2020] NSWSC 772 - Re Villa World Ltd [2019] NSWSC 1207 - Re Windlab Ltd [2020] NSWSC 571
Category:	Principal judgment
Parties:	Australian Leisure and Entertainment Property Management Limited (Plaintiff)
Representation:	Counsel: J Williams SC (Plaintiff) M Izzo SC (Acquirer) Solicitors: Allens (Plaintiff) Arnold Bloch Leibler (Acquirer)
File Number(s):	2021/293217

1 By Originating Process filed on 14 October 2021, Australian Leisure and Entertainment Property Management Ltd (“ALE”) seeks orders under s 411 of the Corporations Act 2001 (Cth) in respect of a company scheme of arrangement and also seeks the Court’s opinion, advice and direction under s 63 of the Trustee Act 1925 (NSW) in relation to a trust scheme concerning the Australian Leisure and Entertainment Property Trust (“ALE Trust”).

2 By way of background, the ALE Property Group is listed on Australian Securities Exchange (“ASX”) and, under the terms of the constitutions of ALE and the ALE Trust, each share in ALE is stapled to a unit in the ALE Trust, and vice versa, to form ALE stapled securities which are quoted and traded on ASX. The ALE Property Group owns a portfolio of 78 freehold hotel properties across the five mainland states of Australia valued at approximately $1.2 billion as at 30 June 2021. All the properties are leased to a third party, Australian Leisure and Hospitality Group Pty Limited, a wholly owned subsidiary of Endeavour Group Limited.

3 The company scheme and trust scheme would together bring about the acquisition of ALE Property Group by a consortium (“Consortium”) comprising Charter Hall Long WALE REIT (“CLW”) and Host-Plus Pty Limited as trustee for the Hostplus Pooled Superannuation Trust (“Hostplus”). Under the proposed schemes, the holders of ALE stapled securities would transfer all of their shares in ALE to Charter Hall Holdings Pty Limited (“Consortium Acquirer Nominee”), a wholly owned subsidiary of the Charter Hall Group and all of their units in the ALE Trust to Bieson Pty Limited (“Consortium Acquirer”) as trustee for the CH LEP Investment Trust, the units in which are owned in equal shares by CLW and Hostplus. If the schemes become effective, the Consortium (through the Consortium Acquirer and the Consortium Acquirer Nominee) would become the holder of all of the units in the ALE Trust and all of the shares in ALE and ALE Property Group would de-list from the ASX. ALE, the Consortium Acquirer, CLW and Hostplus entered into a Scheme Implementation Deed on 20 September 2021 (“SID”), by which the parties agreed to implement the schemes subject to satisfaction, or waiver, of various conditions precedent, including ALE securityholder and Court approval.

4 The consideration which ALE securityholders would receive under the schemes is (at their election) either $3.673 cash and 0.4080 CLW Securities for each ALE stapled security (“Mixed Consideration”), which is the default consideration; or $5.681 per ALE Security (“Maximum Cash Consideration”), unless the Maximum Cash Consideration is subject to specified scaleback arrangements; or 1.1546 CLW securities per ALE Security (“Maximum Scrip Consideration”), unless the Maximum Scrip Consideration is subject to specified scaleback arrangements. The scaleback arrangements for the Maximum Cash Consideration and the Maximum Scrip Consideration ensure that that the cash and scrip components of the scheme consideration are less than the maximum amount of cash consideration available (approximately $736.8 million) and maximum amount of scrip consideration available (approximately 81.8 million CLW securities) respectively. Ineligible Foreign Shareholders (as defined) will receive the Mixed Consideration, although the scrip component will be sold by a sale agent on their behalf.

5 ALE’s directors have unanimously recommended that ALE securityholders vote in favour of the schemes, in the absence of a superior proposal, and subject to the independent expert continuing to conclude that the schemes are in the best interests of ALE securityholders (section 4.8 of the scheme booklet). Duff & Phelps Australia Pty Limited, trading as Kroll, have prepared an independent expert’s report and concluded, with reference to each of the Mixed Consideration, the Maximum Cash Consideration and Maximum Scrip Consideration (as defined), that the schemes are fair and reasonable and in the best interests of ALE securityholders, in the absence of a superior proposal.

6 I made the orders sought by ALE at the end of the first Court hearing in respect of the matter. These are my reasons for doing so. I have drawn on the helpful submissions of Mr Williams, who appears for ALE in respect of the application, in this judgment.

7 ALE reads the affidavit dated 14 October 2021 of Mr Ross Drinnan, who is a partner in the firm of solicitors acting for it in this application. Mr Drinnan there refers to a release made by ALE to ASX on 20 December 2021 in respect of the proposed scheme. ALE also reads the affidavit dated 26 October 2021 of Mr Robert Mactier, who is a non-executive director and chairman of ALE. Mr Mactier consents to act as chairperson of the company scheme meeting and trust scheme meeting which are proposed to be held as virtual meetings in respect of the scheme. By her affidavit dated 26 October 2021, Ms Phillipa Downes indicates her consent to act as chair of the scheme meetings if Mr Mactier is unable or unwilling to do so.

8 ALE also relies on the affidavit dated 27 October 2021 of Mr Guy Farrands, who is its managing director. Mr Farrands refers to the background of the ALE Property Group, and to ALE’s announcement on 20 September 2021, that it had entered into the SID and to the terms of the proposed schemes. Mr Farrands also sets out the steps which would be necessary to give effect to the schemes and to the treatment of a distribution to ALE securityholders for the quarterly period ended 31 December 2021, if the schemes have not been implemented by that date. Mr Farrands also outlines the structure of the scheme booklet and refers to the drafting and verification process adopted in respect of the scheme booklet, and to exclusivity provisions and a break fee provided under the scheme, to which I will refer below.

9 ALE also reads the affidavit dated 26 October 2021 of Ms Kirsten O’Hara, who is a client relationship manager with Link Market Services Ltd, which provides registry services to ALE and has been engaged by ALE to provide services in relation to the company scheme and the trust scheme, including the dispatch of communications to ALE securityholders, the receipt and collation of completed voting and proxy forms and the recording of votes cast, and hosting the scheme meetings on Link’s online software platform. Ms O’Hara refers to the process which will be adopted for the dispatch of scheme materials and for the registration of securityholders prior to and at the scheme meetings and to the manner in which the scheme meetings will be conducted.

10 By his affidavit dated 27 October 2021, Mr Ian Jedlin, who is a managing director of Duff & Phelps Australia Pty Ltd trading as Kroll, addresses the preparation of an independent expert’s report for inclusion in the scheme booklet. Mr Jedlin confirms, inter alia, that he holds the opinions expressed in the draft independent expert’s report and has complied with the Expert Witness Code of Conduct and applicable Australian Securities and Investments Commission (“ASIC”) regulatory guides in preparing that report.

11 By his affidavit dated 28 October 2021, Mr Vijay Cugati, who is also a partner in the firm of solicitors acting for ALE in respect of the schemes, addresses regulatory relief which has been obtained by ALE from ASIC and ASX in respect of the proposed schemes, the provision of material to ASX, and the execution of a deed poll by the Consortium Acquirer, CLW and Hostplus in respect of the schemes. ALE also tenders a letter dated 28 October 2021 from ASIC (Ex P2) which reserves its position as to s 411(17)(b) of the Act in customary terms and indicates that ASIC does not currently propose to appear to make submissions or intervene to oppose the scheme at the first Court hearing.

12 By his affidavit dated 27 October 2021, Mr Scott Phillips, who is a partner in the firm of solicitors acting for the Consortium Acquirer and the Consortium refers to the terms of the SID and the verification of information concerning the Consortium Acquirer in the scheme booklet, and also addresses the negotiation of exclusivity and break fee provisions in respect of the schemes and sets out the categories of costs that had been incurred by the Consortium in respect of the schemes. He also refers to the execution of the deed poll in respect of the schemes.

13 ALE also tenders a statement of facts (Ex P1) in respect of the trust scheme, which broadly reflects the facts established by the affidavit evidence.

14 The Court will order the convening of the scheme meeting and approve the draft explanatory statement for the company scheme if it is satisfied that ALE is a Part 5.1 body; the proposed scheme is an arrangement within the meaning of s 411 of the Act; the scheme booklet will provide proper disclosure to members; the scheme is bona fide and properly proposed; ASIC has had a reasonable opportunity to examine the terms of the scheme and the explanatory statement and make submissions and has had 14 days’ notice of the proposed hearing date; the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) have been met; and there is no apparent reason why the scheme should not, in due course, receive the Court’s approval if the necessary majority of votes is achieved: Re Staging Connections Group Ltd [2015] FCA 1012 at [19]- [20]; Re Atlas Iron Ltd (2016) 112 ACSR 554; [2016] FCA 366 at [30]; Re DUET Finance Ltd [2017] NSWSC 415 at [15]; Re BIS Finance Pty Ltd [2017] NSWSC 1713 at [20].

15 The Court will not ordinarily summon a meeting unless a scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed, although it “does not ordinarily go very far” into that question at the first Court hearing: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, approved in Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504; (1993) 112 ALR 627; (1993) 10 ACSR 230; [1993] HCA 15; Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742 at [36] and [44]; Re CSR Ltd (2010) 183 FCR 358; (2010) 265 ALR 703; (2010) 77 ACSR 592; [2010] FCAFC 34 at [58]. The Court will assess at the first Court hearing whether the scheme is one which is adequately explained to those who have a financial interest in it, and whether there is any obvious flaw in the scheme, such that it would be inappropriate even for it to be submitted for consideration: Re Abacus Funds Management Ltd (2006) 24 ACLC 211; [2005] NSWSC 1309 at [23]; Re Ellerston Global Investments Ltd [2020] NSWSC 879 at [25]- [27]. The Court is not required to be satisfied that no better scheme could have been proposed, and the question is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed is of benefit to members: Re Centrebet International Ltd [2011] FCA 870 at [29]; Re DUET Finance Ltd above at [14].

16 There is evidence here that ALE is a Part 5.1 body, the proposed company scheme is an arrangement within the meaning of s 411 of the Act and there is no reason to doubt that the scheme booklet provides proper disclosure to ALE securityholders. I have referred to evidence of a verification and due diligence process above. There is no reason to doubt that the proposed company scheme is bona fide and properly proposed and could be approved at the second Court hearing if it receives the requisite securityholder approvals. Although ASIC has reserved its position as to s 411(17)(b) in accordance with its usual practice, the Court can address that question at the second Court hearing. I am satisfied that the orders sought should be made in respect of the proposed company scheme.

17 Mr Williams points out that the judicial advice application concerns proposed amendments to the constitution of ALE Trust to effect a “trust scheme”, consistently with the principles articulated in Re Mirvac Ltd (1999) 32 ACSR 107; [1999] NSWSC 457 and discussed in Guidance Note 15 issued by the Takeovers Panel. It is now common in a “trust scheme” for a responsible entity to seek judicial advice in a two-stage process by analogy with a company scheme under Pt 5.1 of the Act: Re Mirvac Ltd above; Re DUET Management Company 1 Ltd (2013) 95 ACSR 34; [2013] NSWSC 817; Re Sydney Airport Holdings Ltd [2013] NSWSC 1665. This practice typically includes an application by the responsible entity of the trust, at the first Court hearing, for judicial advice that it is justified in propounding resolutions to implement the scheme and in proceeding on the basis that proposed amendments to the constitution of the registered managed investment scheme to implement the trust scheme would be within the powers of alteration conferred by that document and s 601GC of the Act: Re Mirvac Ltd above at [46]–[47]; Re DUET Management Company 1 Ltd above at [9]. That judicial advice, and the right of unitholders to appear at the second Court hearing and object to the trust scheme, is then disclosed in the explanatory statement sent to unitholders for a meeting to consider the resolutions to implement the scheme; unitholders meet to consider and vote on the resolutions; and the responsible entity can seek judicial advice at the second hearing that, having regard to the result of voting at the scheme meeting and any other relevant circumstances, it is justified in implementing the scheme.

18 I will deal with several specific issues that extend to the trust scheme below. I am otherwise satisfied that ALE as responsible entity of the ALE Trust would be justified in proceeding on the basis that the making of the proposed amendments to the Trust’s constitution in connection with the trust scheme, following the requisite approval by unitholders, would be within its powers, including the power of alteration conferred by the Trust’s constitution and s 601GC of the Act.

Scaleback provisions for Maximum Scrip Consideration and Maximum Cash Consideration

19 In accordance with the common practice at a first Court hearing in respect of a scheme, Mr Williams identified several aspects of the schemes which it is appropriate to bring to the Court’s attention. First, Mr Williams points out that, as I noted above, the Maximum Scrip Consideration and the Maximum Cash Consideration options are subject to scaleback arrangements to ensure that the scrip and cash components of the scheme consideration are less than the total available scrip consideration and the total available cash consideration of approximately 81.8 million CLW Securities and approximately $736.8 million respectively. Mr Williams points out that the option to elect the Maximum Scrip Consideration or the Maximum Cash Consideration is open to all ALE securityholders, other than Ineligible Foreign Shareholders who are deemed to elect the Mixed Consideration.

20 Mr Williams also points out that the operation of the scaleback arrangements in respect of the Maximum Cash Consideration and Maximum Scrip Consideration is explained in section 4.3 of the scheme booklet. He also points out that the level of scaleback under each option will depend on the number of ALE Securityholders who elect the Maximum Cash Consideration and Maximum Scrip Consideration options, and ALE securityholders who elect to receive the Maximum Cash Consideration or the Maximum Scrip Consideration will not know, at the time of making the election, the precise combination of cash and CLW securities they will receive. However, section 4.3(b) of the scheme booklet contains worked examples showing the range or possible outcomes and ALE proposes to announce the final elections made by ALE securityholders to ASX prior to the scheme meetings so that ALE securityholders can take that into account in voting on the schemes.

21 Mr Williams points to other cases which have accepted structures where the available consideration choices partly depended on the number of shares held and scaleback mechanisms: Re Prime Infrastructure Holdings Ltd (2010) 80 ASCR 193; [2010] NSWSC 1104; Re Recall Holdings Ltd [2015] FCA 1142. He submits, and I accept, that the fact that some ALE securityholders may elect, based on their individual circumstances and preferences, one form of consideration over another or to participate in an offer made to all does not create a need for separate classes at the scheme meeting, where the existing rights of all ALE securityholders are the same and the rights afforded to them under the schemes are the same and there is no impediment, let alone impossibility, to all ALE securityholders consulting together with a view to their common interest: First Pacific Advisers LLC v Boart Longyear Ltd (2017) 121 ACSR 136; [2017] NSWCA 116 at [80]. This aspect of the schemes does not give rise to any reason not to make the orders sought.

22 Mr Williams points out that Caledonia (Private) Investments Pty Limited (“Caledonia”) is the largest securityholder in ALE Property Group, and holds approximately 33.6% of the ALE stapled securities on issue and has disclosed to ASX an economic interest in a further 7.6% of the ALE stapled securities through a cash settled equity swap. Caledonia has indicated that it intends to vote in favour of the schemes in the absence of a superior proposal and subject to the independent expert continuing to conclude the schemes are in the best interests of ALE securityholders. ALE has not entered into any agreement or understanding obliging Caledonia to vote in favour of the schemes and does not stand to derive any collateral benefit should the schemes be implemented. This matter does not give rise to any reason not to approve the schemes.

23 Mr Williams points out that each ALE securityholder whose address as recorded in the share register is outside Australia and Australia's external territories is treated as an “Ineligible Foreign Shareholder” for the purposes of the schemes; that shareholder is deemed to elect the Mixed Consideration under the schemes, but CLW securities comprising part of the Mixed Consideration will not be issued to Ineligible Foreign Shareholders and will be sold under a sale facility, with the proceeds of sale distributed on a pro rata basis to the Ineligible Foreign Shareholders. That matter is disclosed in section 4.3(f) of the scheme booklet. Mr Williams submits and I accept, for the purposes of this hearing, that “Ineligible Foreign Shareholders” would not constitute a separate class: Re Hills Motorway Ltd [2002] NSWSC 897; [2002] 43 ACSR 101 at 104; [2002] NSWSC 897; Re CSR Ltd [2003] FCA 82; (2003) 45 ACSR 34 at 36; [2003] FCA 82; Re SFE Corporation Ltd [2006] FCA 670 at [8].

24 Mr Williams points out that the ALE Property Group makes quarterly distributions to ALE securityholders and that it is expected that the schemes, if approved, will be implemented in December 2021. If there is a delay in implementation of the Schemes, ALE may declare and pay a distribution to ALE securityholders in respect of the quarter ended 31 December 2021, in addition to the distribution for the quarter ended 30 September 2021 announced to ASX on 20 September 2021 and scheduled to be paid on 15 November 2021, although the scheme consideration will be reduced by the amount of any distribution for the December 2021 quarter. That approach is disclosed in section 4.3(e) of the scheme booklet and ALE securityholders can take it into account in voting upon the schemes.

25 Mr Williams points out that the ALE Property Group has issued rights to deferred delivery of ALE securities under its Executive Stapled Security Scheme (“ESSS Rights”) and it is proposed that up to 33,731 ESSS Rights will be issued to Mr Farrands, who is (as noted above) an executive director and Chief Executive Officer of the ALE Group, subject to ALE securityholder approval at the 2021 annual general meeting. The ALE Property Group board has also determined that all ESSS Rights will vest and automatically convert to ALE securities on the Effective Date (as defined) so that their holders will be entitled to the consideration under the schemes in respect of the ALE securities to which they would be entitled upon vesting of the ESSS Rights, and this approach would extend to the 33,731 ALE securities to be issued to Mr Farrands upon vesting of his ESSS Rights, if that proposal is approved. Mr Williams also notes that ALE has also entered into a variation letter agreement with Mr Farrands by which he will be entitled, if the schemes become effective, to payment of six months’ remuneration in lieu of notice if he is not offered a comparable role on specified terms. Mr Williams points out that these interests are prominently disclosed in the Chairman's letter in the scheme booklet which states that, given the importance of the scheme and Mr Farrands’ role in the management of ALE, the ALE board has determined that Mr Farrands can, and should if he wishes, make a recommendation to ALE securityholders on the schemes, notwithstanding the nature and quantum of the benefits he stands to receive if the schemes are implemented.

26 Mr Williams submits that the fact that Mr Farrands has made a recommendation, as a director, in favour of the schemes although he has an interest in the outcome of the votes by reason of these matters should not cause the Court to decline to convene the company scheme meeting or give the judicial advice sought. I again prefer the approach adopted in Re SMS Management & Technology Ltd [2017] VSC 257; Re Kidman Resources Ltd (2019) 375 ALR 760; (2019) 139 ACSR 122; [2019] FCA 1226; Re Villa World Ltd [2019] NSWSC 1207 and Re GBST Holdings Ltd [2019] NSWSC 1280 to that taken in Re Gazal Corporation Ltd [2019] FCA 701 and Re Navitas Ltd (No 2) [2019] WASC 218. I have also taken the former approach in Re Coca-Cola Amatil Ltd [2021] NSWSC 270 and Re BINGO Industries Ltd [2021] NSWSC 798, and the same view has recently been taken in the Federal Court of Australia in Re Citadel Group Ltd (2020) 148 ACSR 598; [2020] FCA 1580; Re RXP Services Ltd [2021] FCA 38 and Re Mainstream Group Holdings Ltd [2021] FCA 948. I accept that Mr Farrands’ interest does not prevent him from making a voting recommendation to ALE securityholders where that interest is sufficiently disclosed in the scheme booklet and ALE securityholders may take it into account in determining the weight to give to that recommendation.

27 Mr Williams submits, and I accept, that holders of incentive rights who are also ALE securityholders are not in a separate class by reason only that they also hold incentive rights: Re Foster’s Group Ltd (No 2) [2011] VSC 547 at [38]- [43]; Re Villa World Ltd above at [29].

28 The case law has addressed the question of “performance risk”, namely any risk that the acquirer will not comply with its obligation to pay the scheme consideration to shareholders of the scheme company: Re Simavita Holdings Ltd [2013] FCA 1274 at [43]- [44]. In Re Ellerston Global Investments Ltd above at [29], I noted one means used to address performance risk, by which the transfer of target shares to an acquirer is conditional on the payment of the consideration to target shareholders, and that numerous cases have endorsed that practice. Mr Williams points out that the schemes here provide for payment of the cash consideration to a trust account with an Australian ADI operated by ALE as trustee for ALE securityholders entitled to the cash consideration, prior to transfer of the their ALE securities, and that addresses any risk that ALE securityholders would otherwise suffer delay or default in the provision of the scheme consideration after their ALE securities have been transferred to the Consortium Acquirer and the Consortium Acquirer Nominee. A similar mechanism applies to the issue of CLW securities prior to the transfer of ALE stapled securities. A deed poll has here also been executed in favour of scheme securityholders, and that is a second means of managing performance risk by binding a non-party to the scheme to perform its obligations under the scheme by way of deed poll: Re Simavita Holdings Ltd above at [43].

29 The schemes provide for a deemed warranty by ALE securityholders that their ALE securities will be free from encumbrances under cl 8.4 of the company scheme and proposed cl 41.60 of the ALE Trust’s Constitution. Mr Williams submits, and I accept, that this deemed warranty is sufficiently disclosed in section 13.7 of the scheme booklet. The case law has recognised the legitimacy of deemed warranty provisions, provided that appropriate disclosure is made, since their purpose and effect is to ensure that a scheme participant whose shares are subject to an encumbrance is not unfairly advantaged: Re APN News & Media Ltd (2007) 62 ACSR 400; [2007] FCA 770 at [57]–[63]; Re DUET Management Company 1 Ltd above at [23]; Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26]; Re Villa World Ltd [2019] NSWSC 1207 at [25]; Re Windlab Ltd [2020] NSWSC 571 at [21]. This matter also does not provide reason not to order the convening of the scheme meeting or give the advice sought in respect of the trust scheme.

30 Mr Williams points out that cl 11 of the SID includes a “no shop”, a “no talk”, and a “no due diligence” restriction and a “notification” and “matching right” obligation. He submits, and I accept, that exclusivity provisions in this form are now commonplace in schemes of arrangement and not inconsistent with Guidance Note 7: Lock-up devices issued by the Takeovers Panel: Re Villa World Ltd [2019] NSWSC 1207 at [23]. Mr Williams recognises that an exclusivity clause directed at dealing with an unsolicited alternative merger proposal should be subject to a fiduciary carve out and the provisions must be clearly disclosed in the Explanatory Statement sent to shareholders: Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 at [9]. He points out that the “no talk” and “no due diligence” restrictions in cll 11.3 and 11.4 are subject to the overriding obligation not to breach the directors’ fiduciary or statutory duties, under cl 11.5 of the SID; and, although the “no shop” and “matching right” are not subject to fiduciary carve-out, that approach has been accepted in the case law: Re Bigair Group Ltd [2016] FCA 1296 at [21]; Re DUET Finance Ltd above at [24]. The exclusivity provisions are clearly disclosed in section 13.5(b) of the scheme booklet and Mr Farrands’ evidence is that they were the product of arm’s length negotiations between the parties.

31 Mr Williams recognises that the Court will consider whether any exclusivity period extends for no more than a reasonable period and is capable of precise ascertainment: Re Tatts Group Ltd [2017] VSC 552 at [36]–[39]; Re Sirtex Medical Ltd [2018] FCA 1315 at [37]; Re Tawana Resources NL [2018] FCA 1456 at [32]; Re TPG Telecom Ltd [2020] NSWSC 772 at [22]. As Mr Williams points out, the exclusivity period is here capable of precise ascertainment and extends from the date of the SID until the earlier of its termination, implementation of the schemes and the “End Date”, being 6 months from the date of the SID unless some other date is agreed by the parties. I accept that this is a reasonable period. This matter does not provide any reason not to order the convening of the scheme meeting or give the advice sought in respect of the trust scheme.

32 A break fee of $11 million is potentially payable by ALE to the Consortium in specified circumstances under cl 13 of the Scheme Implementation Deed and that provision is disclosed in section 13.5(d) of the SID. That break fee is not triggered solely by ALE securityholders failing to approve the schemes and is not a disincentive to shareholders in their consideration of the proposal: Re Bolnisi Gold NL (No 2) [2007] FCA 2078; (2007) 65 ACSR 510 at 513; [2007] FCA 2078. Mr Farrands and Mr Phillips’ evidence is that the break fee was negotiated between the parties in the course of arm’s length negotiations in which all parties were represented by experienced advisers: Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 at 411; [2007] FCA 770. A “reverse” break fee of $11 million is also payable by the Consortium Acquirer to ALE if ALE validly terminates the SID for material breach by the Consortium Acquirer. The break fee represents approximately 0.93% of the total equity value of the ALE Group of $1.18 billion, by reference to the value of the cash consideration and is consistent with the Takeovers Panel’s Guidance Note 7: Lock-up Devices, and Mr Williams points out that payment of break fees of this magnitude are now commonplace in schemes of this kind: Re Mosaic Oil NL [2010] FCA 985 at [19]; Re TPG Telecom Ltd above at [24]. This matter also does not provide any reason not to order the convening of the scheme meeting or give the advice sought in respect of the trust scheme.

Dispatch of scheme booklet and other materials and conduct of virtual scheme meetings

33 Mr Williams notes that ALE proposes that all ALE securityholders will be sent (either by email notification or by hard copy letter) a link to a website from which the scheme booklet can be downloaded and viewed. A hard copy of the scheme booklet will be provided if requested by an ALE securityholder prior to the date of the scheme meeting. That process is consistent with that adopted in Re Real Energy Corporation Ltd [2020] FCA 1634; Re OneVue Holdings Ltd [2020] FCA 1321; Re Coca-Cola Amatil Ltd above at [26] and Re BINGO Industries Ltd [2021] NSWSC 798.

34 It is proposed that the scheme meeting for the company scheme be held concurrently with the trust scheme meeting and those meetings would be held virtually through an online meeting platform. ALE securityholders who participate in the scheme meetings by the online platform will be able to listen to the scheme meetings, cast an online vote and ask questions online or by telephone. Mr Williams points out that online attendance at the meetings is permitted by s 253Q of the Act provided the technology used gives members as a whole a reasonable opportunity to participate without physically being present in the same place. The Courts have made orders for virtual meetings throughout the pandemic: Re BINGO Industries Ltd above at [29]. I am satisfied that the meetings are properly conducted in that way, and the proposed manner of dispatch of scheme materials to shareholders is appropriate and consistent with that adopted in recent case law.

35 In accordance with the usual practice, the Court will address the question raised by s 411(17) of the Act on an application to approve a scheme at the second Court hearing: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [25]- [37].

36 For these reasons, I was satisfied that the company scheme was an arrangement for the purposes of s 411 of the Corporations Act and that, having regard to the evidence and matters to which I referred above, an order should be made convening the scheme meeting and approving the scheme booklet for distribution to shareholders. I was also satisfied that judicial advice should also be given that ALE is justified in propounding resolutions to implement the proposed trust scheme and proceeding on the basis that the constitutional amendments to implement the trust scheme would be within the constitutional powers of alteration and s 601GC of the Corporations Act. For these reasons I made the orders sought by ALE at the conclusion of the first hearing.

Supreme Court of New South Wales

In the matter of Australian Leisure and Entertainment Property Management Limited [2021] NSWSC 1421 (4 November 2021)