Case: Re APN News &amp; Media Ltd (2007) 62 ACSR 400
Outcome: discussed
Section 411 further requires that the Court is satisfied that the scheme can properly be described as a compromise or arrangement so as to come within its ambit. The word "arrangement" has been held to be a word of wide import, not limited by its relationship or the expression "compromise". An arrangement may extend to any subject matter which is something which a company is able to agree with its members, and is likened to a contract between a company and its members. As noted earlier, there have been a number of cases in which a scheme involving the acquisition of a company's issued capital for cash, so that the company becomes a wholly owned subsidiary of an acquiring entity, is a common use of the Pt 5.1 procedure. See also e.g. Re Mincom Ltd (No 3) (2007) 25 ACLC 207; and Re APN News &amp; Media Ltd (2007) 62 ACSR 400. 31 In Re APN News Ltd 62 ACSR 400, Lindgren J discussed at some length aspects of the proposed scheme then under consideration which may be described as performance risk; "no-shop" and "no-talk" restrictions; break fee; and a deemed warranty by the members of the target company. Each of those features is present in the proposed scheme. It is appropriate to consider them each in turn. 32 The performance risk concern has been raised in previous scheme of arrangement applications. They are referred to by Lindgren J in Re APN News 62 ACSR 400 at [23]. I will not repeat them. It is necessary to consider the so called "performance risk" of shareholders being left in a position, once the scheme has become effective, of their shares having been transferred to Broadcast Australia, but then facing a delay in the provision of the scheme consideration, so that their only remedy would be to sue on the Deed Poll. That risk has been overcome here by requiring the scheme consideration to be paid to Hostworks before 12 noon on the "implementation date" to be held in trust by Hostworks for the purpose of being paid to the scheme participants, that is the shareholders of Hostworks, before they are divested of their shares in Hostworks later on in the implementation date. Broadcast Australia must provide the funds to pay for the shares it is to acquire before they are transferred. A similar arrangement was satisfactory to Robson J for the purposes of authorising or directing the calling of the proposed meeting in Re Coles Group [2007] VSC 389 ; see at [38]. The Deed Poll contains a covenant on the part of Broadcast Australia to provide the scheme consideration on the implementation date in accordance with the terms of the scheme so that it ties the settlement step of payment and transfer together. 41 Under cl 7.3(a) of the Implementation Agreement, each scheme participant is deemed to have warranted that all of its shares in Hostworks which are transferred under the scheme will be free from all mortgages and encumbrances. Fryberg J in Re Mincom Ltd (No 3) (2007) 25 ACLC 207, regarded an almost identical deemed warranty clause as onerous and unreasonable and "calculated to catapult unsuspecting shareholders who have not read the small print of the arrangement in the schedule to the explanatory statement into a state of breach of warranty": at [21]. In Re APN News &amp; Media Ltd 62 ACSR 400, Lindgren J disagreed with the approach of Fryberg J: see at [59]-[62]. I respectfully agree with and adopt the views of Lindgren J. I share the understanding of his Honour that the purpose and effect of such a clause is simply to ensure that a scheme participant whose shares are subject to an encumbrance is not unfairly advantaged. The amount of the damages payable for breach of the warranty would be equal to the amount required to discharge the encumbrance. I note that the approach of Lindgren J has been preferred in subsequent cases, including by Robson J in Re Coles Group Limited [2007] VSC 389 at [45] ; by Lander J in Re Adelaide Bank Limited [2007] FCA 1582 at [33] ; and by Gyles J in Orion Telecommunications Ltd [2007] FCA 1389 at [9] .