Re Abano Healthcare Group Limited [2020] NZHC 3343

Re Abano Healthcare Group Limited [2020] NZHC 3343 [16 December 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2020-404-1915[2020] NZHC 3343UNDER Part 19 of the High Court RulesIN THE MATTER of a scheme of arrangement under Part 15 ofthe Companies Act 1993IN THE MATTER of ABANO HEALTHCARE GROUPLIMITEDApplicantHearing: 9 December 2020Counsel: DJ Cooper and NW Starrenburg for applicantJQ Wilson and JP Cooney for Adams NZ Bidco LimitedJudgment: 9 December 2020Reasons: 16 December 2020REASONS FOR JUDGMENT OF FITZGERALD JThis judgment was delivered by me on 16 December 2020 at 12 noon,pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors: Harmos Horton Lusk, AucklandBell Gully, AucklandIntroduction[1] On 9 December 2020, I granted final orders approving a scheme ofarrangement under Part 15 of the Companies Act 1993 (the Act). Those orders werein the following terms:(a) The scheme of arrangement described in the Scheme Plan annexed tothis order (the "Scheme") is approved and binding upon:(i) Abano Healthcare Group Limited;(ii) Adams NZ Bidco Limited; and(iii) Every person who is a Scheme Shareholder in terms of theScheme Plan.(b) Abano is granted leave to apply to the Court for approval of anyamendment, modification or supplement to the Scheme.[2] This judgment provides my reasons for making the above orders.The partiesAbano[3] The applicant (Abano) was incorporated in New Zealand on 1 August 1961 asNew Zealand Petroleum Company Limited, and listed on the NZX in January 1970.In 1999, the company's name was changed to Eldercare New Zealand Limited (as itfocused on the development of retirement village properties and aged care services).In 2003, the company was renamed Abano, reflecting its move towards a multi-discipline approach in healthcare and medical services. In 2008, Abano entered theAustralian dental market and in 2017 sold its shareholding in Ascot Radiology to focussolely on the trans-Tasman dental market.[4] Abano operates through two brands: Lumino The Dentists (Lumino) in NewZealand and Maven Dental Group (Maven) in Australia. Its corporate office is incentral Auckland.[5] As of 31 August 2020, Abano had 228 dental practices, with:(a) 121 Lumino practices; and(b) 107 Maven practices.[6] Abano engages over 2,030 staff or contractors across New Zealand andAustralia.[7] At the time the application for approval of the proposed Scheme ofArrangement (Scheme) was filed, Abano had 26,282,238 ordinary shares on issue("Shares") and as at 4 September 2020, there were 3,382 registered shareholders. AllShares are fully paid ordinary shares. At the time the application was filed, there wereno shareholders that had a relevant interest in 5 per cent or more of the Shares.[8] Abano's Shares are widely held by institutional and retail investors eitherdirectly or through custodial services. The top 20 shareholders as at 30 September2020 together accounted for 45 per cent of the Shares on issue.Bidco[9] Adams NZ Bidco Ltd (Bidco) is a New Zealand limited liability company thatwas incorporated on 7 November 2019 for the purpose of acquiring the Shares.[10] At the time of the application, Bidco did not hold any shares in Abano, anduntil the implementation of the Scheme, that remains the position.[11] The ultimate holding company of Bidco is Adams Group Aus Holdings Pty Ltd(AU Holdco). Bidco is indirectly 100 per cent owned by AU Holdco. AU Holdco isan Australian incorporated company that was established as the investment vehicle toaggregate the BGH Capital Fund's and Ontario Teachers' Pension Plan Board'sparticipation in the Scheme.Background to Scheme[12] In summary, the Scheme provides for:(a) Abano shareholders to transfer all of their shares to Bidco; and(b) Bidco to pay those shareholders $5.20 per Abano share if no"Adjustment Events" occur prior to the Scheme implementation date.[13] The concept of "Adjustment Events" was novel in the Scheme, and came aboutgiven the COVID-19 events of 2020. In short, an earlier proposed scheme had beencancelled by Bidco due to a "material adverse change", namely the impact on Abano'sbusiness of the COVID-19 pandemic, including the four week lockdown in NewZealand in late March 2020 and restrictions in Australia in April 2020. To providegreater certainty of completion of the Scheme to shareholders, the (second proposed)Scheme did not give Bidco a right of termination if a material adverse changeoccurred, but rather agreed "consideration reductions" would be made to the headlineprice per share in the event one or more "Adjustment Event" occurred. The reductionin consideration was, however, capped at $0.75 per share.[14] On 19 October 2020, I made initial orders addressing various proceduralmatters leading to a meeting of Abano shareholders to consider and vote on theScheme. Some of those initial orders concerned timetabling for any notices ofopposition or appearances to be filed with this Court in respect of Abano's applicationfor final orders approving the Scheme. In the event, no notices of opposition orappearances were filed.[15] On 11 November 2020, I made amended initial orders to reflect that, since theapplication for the initial orders, Abano's financial performance had been better thanexpected. As a result, Abano's Board of Directors had revised their forecast ofAbano's financial performance for the financial year ending 31 May 2021, and alsodetermined that a capital raising would no longer be required if the Scheme was notapproved by Abano shareholders (which had been the Board's expectation at the timethe initial orders were sought and made). These developments caused the IndependentAdvisor on the Scheme, Calibre Partners, to revise (upwards) its valuation of Abano.In response, Bidco agreed to increase the headline price per share from $4.75 to $5.20,and to increase the minimum price (if an Adjustment Event occurred) from $4.00 to$4.45.[16] These changes led Abano to produce a supplementary Scheme Booklet andother materials updating shareholders accordingly. It also pushed out by one week theshareholder meeting to approve the Scheme, which was ultimately held on25 November 2020.Legal principles applicable to schemes of arrangement[17] Section 236 of the Act provides this Court with jurisdiction to approve ascheme of arrangement subject to such terms and conditions as the Court thinks fit:236 Approval of arrangements, amalgamations, and compromises(1) Notwithstanding the provisions of this Act or the constitution of acompany, the court may, on the application of a company or anyshareholder or creditor of a company, order that an arrangement oramalgamation or compromise shall be binding on the company andon such other persons or classes of persons as the court may specifyand any such order may be made on such terms and conditions as thecourt thinks fit.[18] Section 237(1) provides the power to make additional orders giving effect toany arrangement approved under s 236(1) of the Act:(1) Without limiting section 236, the court may, for the purpose of givingeffect to any arrangement or amalgamation or compromise approvedunder that section, either by the order approving the arrangement oramalgamation or compromise, or by any subsequent order, providefor, and prescribe terms and conditions relating to, –(a) the transfer or vesting of real or personal property, assets,rights, powers, interests, liabilities, contracts, andengagements:(b) the issue of shares, securities, or policies of any kind:(c) the continuation of legal proceedings:(d) the liquidation of any company:(e) the provisions to be made for persons who voted against thearrangement or amalgamation or compromise at any meetingcalled in accordance with any order made under subsection(2)(b) of that section or who appeared before the court inopposition to the application to approve the arrangement oramalgamation or compromise:(f) such other matters that are necessary or desirable to giveeffect to the arrangement or amalgamation or compromise.[19] Section 236A of the Act also applies in this case. It provides that if theproposed arrangement affects the voting rights of a code company (being a companythat the Takeovers Code applies to, which includes Abano), the applicant must notifythe Takeovers Panel of the application at the same time as filing the application inCourt.1 An arrangement affects the voting rights of a code company if it "involves achange in the relative percentage of voting rights held or controlled by [one] or moreshareholders".2 The Scheme falls within this definition as it will change thepercentage of voting rights held by Bidco from zero to 100 per cent, and will changethe percentage of voting rights held by every existing shareholder in Abano to zero.[20] The Court may not make an order that affects the voting rights of a codecompany unless:3(a) the code company's shareholders approve the arrangement by aresolution approved by a majority of:(i) 75 per cent of the votes of the shareholders in each interest classentitled to vote and voting; and(ii) a simple majority of the votes of those shareholders entitled tovote; and(b) either:(i) the Court is satisfied that the shareholders of the code companywill not be adversely affected by the use of section 236(1) ratherthan the Takeovers Code to effect the change involving the codecompany; or1 Section 236A(1).2 Section 236A(5).3 Sections 236A(2) and 236A(4).(ii) the applicant has filed a statement from the Takeovers Panelindicating that the Takeovers Panel has no objection to an orderbeing made under section 236(1).[21] In terms of the Court's assessment of whether it will approve a scheme ofarrangement, the Court in Re CM Banks Ltd articulated a four-part test:4(a) first, there has been compliance with the statutory provisions as tomeetings, resolutions, the application to the Court, and the like;(b) second, the scheme has been fairly put to the class or classes ofshareholders concerned, and that if a circular or circulars have been sentout, as is usual, whether before or after the making of the application tothe Court, they give all the information reasonably necessary to enablethe recipients to judge and vote upon the proposals;(c) third, the class was fairly represented by those who attended themeeting and that the statutory majority are acting bona fide and are notcoercing the minority in order to promote interests adverse to those ofthe class whom they purport to represent; and(d) fourth, the arrangement was such that an intelligent and honest personof business, a member of the class concerned, and acting in respect ofhis or her interest, might reasonably approve it.[22] More recently, and as observed in Re Auckland International Airport5 andRe ACS (NZ) Ltd,6 the Court also needs to consider, in relation to the fourth limb setout above, whether the proposed arrangement is generally fair and equitable.7 This isbecause it is implicit in the test of the intelligent and honest business person that aproposed scheme is also fair and equitable.4 Re CM Banks Ltd [1944] NZLR 248 (SC) at 253.5 Re Auckland International Airport [2014] NZHC 405 at [9].6 Re ACS (NZ) Ltd [2012] NZHC 1396 at [6].7 Applying Weatherston v Waltus Property Investment Ltd [2001] 2 NZLR 103 (CA) at [35].[23] I consider each of the four limbs of the test in the following sections of myjudgment.Has there been compliance with the relevant statutory provisions?[24] I was satisfied, based on the comprehensive affidavit evidence that had beenfiled and which I considered, that Abano had complied with applicable statutoryprovisions and the Court's initial and amended orders.[25] In particular, the Scheme meeting held on 25 November 2020 was conductedin accordance with the initial and amended orders, and the required resolution was putto shareholders at the meeting. Neither Bidco (nor a number of related or other entitieswith similar interests) were shareholders of Abano on the "Shareholder Voting RecordDate", so there was only one interest class of shareholders for the purposes of votingat the meeting.[26] A key purpose of the initial and amended orders was to ensure that shareholderswere appropriately informed of the Scheme and had a proper opportunity to oppose itif they so wished. I was satisfied that Abano complied with the interim and amendedorders and took the various steps required to ensure that shareholders were soinformed.[27] Two minor matters arose which were strictly not in compliance with the initialand amended orders. The first related to the fact that the amended initial ordersrequired that voting proxies were to be received by 4 pm on 23 November 2020.Abano's Chief Executive Officer explains in his affidavit sworn on 27 November 2020that the Abano Board resolved to waive that proxy deadline and accept eight late proxyappointments received after 4 pm on 23 November 2020, but prior to the Schememeeting. The late proxies represented only 0.09 per cent of the total Abano shares onissue. The Board's decision accordingly did not affect the outcome of the resolution;as addressed further below, the resolution was (easily) passed by the required votingthreshold even if the late proxies were excluded. I was therefore satisfied that thismatter did not provide a basis to decline to approve the Scheme, particularly given itenabled additional shareholders who wished to vote by proxy to have the opportunityto do so, and thus have their say on the future of the company.[28] The second minor departure from the initial and amended orders was that theamended orders required hard copies of the new shareholder materials (explainingthose developments summarised at [15] above) to be available at Abano's head officefrom no later than 13 November 2020. However, when delivery of the hard copymaterials to Abano's offices was attempted on 13 November 2020, there was no-onepresent in the office to receive the delivery, given the Ministry of Health's request forworkers in the Auckland CBD to work from home on 13 November if possible (as aCOVID-19 precaution). Because of this, hard copies of the new shareholder materialswere made available at Abano's offices in Auckland from the following business day,namely 16 November 2020. Again, this minor departure from the amended orders didnot provide any basis to decline to approve the Scheme.[29] As noted earlier, and as required by s 236A of the Act, a shareholder resolutionapproving a scheme of arrangement will be approved if passed by:(a) a majority of 75 per cent of the votes of the shareholders in each interestclass entitled to vote and voting; and(b) a simple majority of the votes of those shareholders entitled to vote.[30] In this case, Abano's shareholders approved the Scheme at the Schememeeting, with 95.40 per cent of the votes cast at the meeting being in favour of theresolution proposing to approve the Scheme, which in turn represented 61.75 per centof all Abano shares being voted in favour of the resolution.[31] Also relevant for present purposes, on 30 November 2020, the Takeovers Panelprovided Abano with a letter confirming that the Takeovers Panel had no objection toan order being made by this Court under s 236(1) of the Act, as required by s 236A ofthe Act.Was the Scheme fairly put to shareholders?[32] I was satisfied that the Scheme was fairly put to shareholders. The informationprovided to shareholders (including in the Scheme Booklet, the SupplementaryScheme Booklet and at the Scheme meeting) fairly and fully explained what wasproposed, its intended effect (including the effect of any one or more AdjustmentEvents occurring), the reason why Abano proposed the Scheme and why its Boardrecommended shareholders approve it.[33] I was similarly satisfied that this information was provided in a timely andpractical way, and thus provided shareholders with an appropriate opportunity tooppose the application for final orders approving the Scheme, if they so wished. Asnoted earlier, no notices of opposition were filed with the Court. Nor were there anyattendances at the (on notice) hearing of the application for final orders on 9 December2020 seeking to oppose the application.Were the shareholders fairly represented by those who attended the meeting?[34] As counsel for the applicant submits, that this requirement is met is indicatedby:(a) the high proportion of shareholders who voted (64.7 per cent of the totalnumber of all shares on issue);(b) the high level of support for the resolution to approve the Scheme(95.40 per cent of all shares voted at the Scheme meeting); and(c) the fact that no shareholder filed a notice of opposition or had signalledto Abano an intention to do so (noting that the deadline for filing andserving notices of opposition was 5.00 pm on 30 November 2020 inany event).Is the Scheme one that an intelligent and honest person of business mightreasonably approve?[35] I was satisfied this fourth limb of the test was also met. I was also satisfiedthat the Scheme is generally fair and equitable.[36] As noted above, the overwhelming majority of shareholders who voted did soin support of the Scheme and thus considered it to be in their best interests. In myview, the sheer level of shareholder support for the Scheme must be given considerableweight, as well-informed shareholders, as in this case, are the best placed persons todetermine what is in their own best interests.[37] Moreover, Abano's directors (all independent) reached the view that it was inthe best interests of Abano and its shareholders for the Scheme to proceed. Again, theBoard's collective judgement, being fully familiar with Abano's affairs and potentialalternatives to the Scheme, must be given significant weight.[38] Further, the Scheme will not prejudice Abano's creditors, given that followingimplementation of the Scheme, Abano expects to satisfy the statutory solvency testprescribed by s 4 of the Act.[39] I also ascribed weight to the Independent Advisor's report prepared by CalibrePartners, which concluded that the base (unadjusted) Scheme consideration of $5.20was within the assessed value range for Abano shares (of $4.95 to $5.80 per share).Calibre Partners were also of the opinion that the Bidco offer was reasonable.[40] Finally, the base (unadjusted) price per share represents:(a) a premium of 99 per cent to Abano's closing price of $2.61 per shareon Friday 28 August 2020, being the last trading day prior to Abanoannouncing the Scheme; and(b) a premium of 99 per cent to Abano's volume weighted average pricefor the 30-day period prior to Friday 28 December 2020.Conclusion[41] Drawing all the above threads together, I was satisfied it was appropriate toexercise my discretion to approve the Scheme and therefore to make those orders setout at [1] of this judgment.____________________________Fitzgerald J