Scheme company taken to task over financial results disclosure

In Re TASK Group Holdings Limited [2024] NSWSC 821, the Supreme Court of New South Wales ordered TASK Group Holdings Limited (TASK) to make supplementary disclosure following release of its annual results, after TASK had sent a scheme booklet to shareholders in connection with the scheme of arrangement under which it would be acquired by PAR Technology Corporation. In this article, we consider the issues explored by the decision.

In brief

Careful consideration must be taken by scheme companies where material financial information is released after a scheme booklet and prior to the scheme meeting, including as to the timing of release and the appropriate disclosures to be made in the scheme booklet and the relevant announcements.

Background

TASK is a provider of software solutions and operates an enterprise transaction management platform and end-to-end transaction management platform. On 11 March 2024, TASK announced that it had entered into a scheme implementation deed with PAR Technology Corporation under which PAR Corporation would acquire 100% of TASK.

TASK released its scheme booklet on 28 May 2024 which included historical financial information for TASK for the financial years ending 2021, 2022 and 2023. However, the scheme booklet did not refer to any upcoming annual results being released by the company, including to the ASX.

TASK subsequently released its 2024 annual results to the ASX 3 days post the release of the scheme booklet on 31 May 2024, which included its financial report for the financial year ended 31 March 2024. On the same day, TASK published a media release on ASX, an investor presentation and held an investor conference call in relation to its 2024 results.

The annual report and other announcements relating to the 2024 results included various details in relation to the scheme, including references to the TASK board’s unanimous recommendation in favour of the scheme, but without reference to the interests of TASK’s directors in the outcome of the scheme. The investor presentation also included information about the reasons for the directors’ recommendation without any reference to reasons why shareholders may choose not to vote in favour of the scheme. None of the announcements in relation to the 2024 results provided that shareholders should refer to the scheme booklet for further information in relation to the scheme, or, importantly, included confirmation from the independent expert that the 2024 results did not affect the expert’s opinion in relation to the scheme.

Issues raised

Black J raised two issues with the approach taken by TASK:

• Firstly, the position in TASK’s financial results could have potentially affected the information conveyed in the scheme booklet and therefore likely required the Court’s approval.
• Secondly, while it was relevant for TASK’s financial results to draw attention to the directors’ recommendation in respect of the ongoing scheme, the Court queried whether TASK’s shareholders would then wonder if the annual results affected that recommendation and the reference to the directors’ recommendation in isolation did then not adequately draw attention to the more comprehensive outline of the scheme and its advantages and disadvantages set out in the scheme booklet.

Supplementary disclosure

As set out in Black J’s decision, TASK subsequently became aware of the issues with its 2024 results disclosures in the context of the scheme on 26 June 2024, which was two days prior to the scheme meeting which had been scheduled for 28 June 2024.

As a result, TASK subsequently announced on 28 June 2024 that it had adjourned the scheme meeting, pending approval from the Supreme Court of New South Wales to provide supplementary disclosure to TASK shareholders:

• reminding them of matters in the scheme booklet that they should have regard to in considering recent announcements made by TASK, in circumstances where those announcements should have but did not contain that reminder, including by prominently referring back to the scheme booklet, stating the advantages and disadvantages of the scheme and identifying the interests of TASK’s directors in the outcome of the scheme; and
• regarding the independent expert’s consideration of TASK’s FY24 financial results.

With the Court’s approval, TASK’s supplementary disclosure was then released on 1 July 2024 and confirmed the following matters:

• the details for the adjourned scheme meeting, which was rescheduled to 4 July 2024;
• that the independent expert had confirmed that the annual results did not change the independent expert’s opinion of the scheme;
• that shareholders should read the information and statements released about TASK’s 2024 results in the context of the scheme booklet as a whole including as to the TASK directors’ interests in the outcome of the scheme; and
• that TASK would re-open the proxy voting, for just over a day, to enable shareholders to change their votes (recognising the possibility that shareholders might change their votes in response to TASK’s financial results, although the independent expert had not changed its view).

Decision

Black J was satisfied that the Court should approve the proposed form of supplementary disclosure to be released to the ASX because of the following three reasons:

1. Shareholders shared the common desire to minimise any delay to the scheme.
2. A substantial majority of shareholders had already voted by proxy in favour of the scheme and so while the period for shareholders to alter their proxy votes was a short period, this was justifiable. Black J was of the view that, while there was a possibility of shareholders changing their mind, the outcome of the scheme meeting was not ”presently finely balanced”. Black J, referring to TASK’s submissions also noted in relation to the timing issues that:

“the information which is at issue here is not, in truth, new information, but the information as to TASK’s financial results that was previously announced to ASX. Those shareholders who wish to take those results into account in respect of the scheme would likely have already had regard to TASK’s earlier announcement of those results; and, the information itself is not particularly complex, nor would any decision to change a vote to be made on the basis of it require lengthy thought by a shareholder.”

3. ASIC had received notice of the application and had not opposed it, suggesting that ASIC had not formed an adverse view of the short time permitted for shareholders to change their proxy votes (being just over a day).

Black J considered that, in the situation, it was appropriate for TASK to release its supplementary disclosure to the ASX (rather than, for example, dispatched by email or mail to shareholders) because of three reasons:

1. The scheme booklet contemplated the possibility of further announcements to ASX.
2. The financial results that now required the supplementary disclosure, were also disclosed to the ASX.
3. Scheme shareholders would want to minimise delay, so that they could receive their scheme consideration sooner rather than later.

Commentary

The TASK decision is an important reminder of the careful consideration that needs to be taken by scheme companies in relation to the release of material financial information before a scheme meeting and after the release of a scheme booklet. This includes the need to ensure:

1. that relevant announcements appropriately remind shareholders to have regard to the information in the scheme booklet for details in relation to the scheme, including both the advantages and disadvantages of the scheme and the interests of target directors in the outcome of the scheme;
2. the independent expert considers the new information and whether this affects its opinion in relation to the scheme; and
3. scheme shareholders are given sufficient time to consider supplementary information before having to vote on the scheme (which ASIC considers should generally be a minimum of at least 10 days, though this will depend on the relevant circumstances).

The release of a scheme company’s financial results after a scheme booklet and ahead of a scheme meeting is not novel and has occurred in other recent instances. These include:

1. the 2024 CSR scheme (in relation to which HSF acted for CSR) where CSR’s YEM24 audited financial results were released approximately a month prior to the scheme meeting; and
2. the 2023 Tesserent scheme (in relation to which HSF acted for the bidder, Thales), where Tesserent released its full year statutory financial results approximately 3 weeks prior to the scheme meeting.

In the recent CSR scheme, the relevant issues which arose in the TASK scheme were able to be managed by:

1. the scheme booklet foreshadowing the proposed results announcements after the scheme booklet and noting that the target would confirm with the independent expert that those results do not change the expert’s opinion prior to the scheme meeting;
2. the relevant results announcements specifically referring shareholders to the scheme booklet for further information in relation to the scheme; and
3. the target subsequently releasing an announcement a short time after the relevant results were released, confirming that the independent expert had reviewed the YEM24 results and confirmed that there was no change to its opinion in relation to the scheme.

A similar approach was also taken in the Tesserent scheme.

Where scheme companies ensure that shareholders have sufficient time to consider new material financial information ahead of a scheme meeting (including the impact of any such new financial information on the independent expert’s opinion), and relevant disclosures, including in the scheme booklet, are appropriately couched and sign-posted, additional supplementary disclosure should not be required.