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Australia – Low Voter Turnout Not Fatal To Scheme.

25 November, 2014

 


What You Need To Know

 

  • Low voter turnout at a scheme meeting will not, by itself, prevent a court approving a scheme.
  • Scheme documents should not be amended or supplemented without first obtaining court approval, even if amendments are required by a regulator.

 
The Federal Court considered the significance of low voter turnout in the course of approving a scheme proposed by TriAusMin Limited, a company listed on ASX and TSX, to effect a merger with Heron Resources Limited.

 
Low Voter Turnout At Scheme Meeting

 
Only 10.94% of eligible TriAusMin shareholders voted at the scheme meeting. These shareholders held 52.9% of the shares and shareholders holding 26.4% had indicated they intended to vote in favour of the scheme.

 
Justice Farrell noted that voter turnout is usually considered by the Court in deciding whether to approve a scheme. Low shareholder turnout may be indicative of a procedural irregularity or an unrepresentative vote, and makes it relevant to consider whether members have been deterred from attending or voting at the meeting.

 
Justice Farrell referred to a number of earlier decisions in which low voter turnout had not prevented approval of schemes. In one, where the turnout was only 9.75% of shareholders with 42.3% of the votes, the Court had noted that this was still substantially higher than at the company’s AGMs.

 
Justice Farrell concluded that low voter turnout should not prevent approval of the TriAusMin Scheme, noting that:

 

  • TriAusMin shareholders who did vote were overwhelmingly in favour of the scheme. The scheme was passed by 99.93% of the votes cast and 98.75% of shareholders voting.
  • Voter turnout at the scheme meeting was significantly higher than the turnout of approximately 2-3% atTriAusMin’s three previous general meetings. Justice Farrell noted that the scheme meeting turnout of 10% was significantly higher than normal even if it represented only 26.5% of the shares (this calculation excludesshares held by shareholders who had indicated in the scheme booklet that they would vote in favour).
  • Aside from minor matters (discussed below) there was nothing to suggest any irregularity or issue which would have deterred shareholders from attending or voting. Justice Farrell noted however that the low turnout may be explained by the fact that 56.5% of TriAusMin shareholders each held shares worth $620 or less.

 
Irregularities Affecting Canadian Shareholders

 
Several irregularities affecting Canadian TriAusMin shareholders were brought to the Court’s attention. Scheme booklets were not dispatched to five small Canadian shareholders (with aggregate holdings worth less than USD 100) until ten days before the scheme meeting. Also, the documents sent to Canadian shareholders differed from those approved by the Court in that:

 

  • additional forms required by Canadian regulation were included; and 
  • the notice of meeting was amended to include a clarification requested by TSX (which turned out to be incorrect).

 
Justice Farrell noted that this should not have occurred without Court approval and the fact that a regulator (TSX) required the additional material made no difference.

 

However, Justice Farrell concluded that these irregularities did not prevent the Court exercising its discretion to approve the TriAusMin Scheme.

 
Comment

 
The TriAusMin decision confirms that low voter turnout alone, or even in conjunction with minor defects, will not be fatal to approval of a scheme. It is, nevertheless, a factor that may heighten the court’s scrutiny where there are irregularities.

 
The fact that Justice Farrell referred to the percentage of shares voted excluding shares held by shareholderswho had committed to vote in favour could potentially be a concern in other cases (especially if there is not a higher turnout of shareholders than in past meetings of the company). However, it is important to note that this was merely a passing reference – Justice Farrell did not directly consider whether committed votes should be excluded in assessing voter turnout. The percentage calculated with committed votes excluded may have been referenced merely to put the proposition being rejected (that is, that the voter turnout was inadequate) at its highest.

 
Even so, it will always be desirable, in order to minimise the risk of the court exercising its discretion adversely, to ensure both a strong voter turnout and the absence of material irregularities

 

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For further information, please contact:

 

Bruce Dyer, Partner, Ashurst
bruce.dyer@ashurst.com

 
Amy Grondal, Ashurst
amy.grondal@ashurst.com

 

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