The Supreme Court of NSW's latest thinking on shareholder communications

The Supreme Court of New South Wales has recently provided guidance on its requirements for communications with shareholders via inbound and outbound calls and on meetings with proxy advisers in the context of a scheme of arrangement.

IN BRIEF

• The Supreme Court of New South Wales has recently provided guidance on its requirements for communications with shareholders via inbound and outbound calls and on meetings with proxy advisers in the context of a scheme of arrangement.
• The Court’s position now appears to be that:

1. approval should be sought at the first Court hearing or in a separate application to the Court for the scripts for any outbound calls a scheme company seeks to make to shareholders in connection with a scheme; and
2. Court approval is not required for inbound call scripts or proxy adviser briefings.

• Despite inbound call scripts and proxy adviser briefings not requiring Court approval, scheme companies may still consider it prudent for these materials to be put before the Court, consistent with the principle that the Court should have oversight of proposed supplementary disclosure to the scheme booklet.

BACKGROUND

In schemes of arrangement, it is well-established that where the Court has ordered the convening of a scheme meeting and approved dispatch of a scheme booklet, the Court’s approval should be sought before additional explanatory material is dispatched to shareholders.¹

In this context, reminder to vote emails and investor presentations also require Court approval.²

In Re ResApp Health Ltd³, the Supreme Court of New South Wales considered a proposal to allow one-on-one calls to be made by the Chief Executive Officer of the scheme company to shareholders. This was rejected by the Court on the basis that these calls could result in implied advocacy for the scheme and such communications could otherwise be performed neutrally by a shareholder communication service.⁴

The Supreme Court of New South Wales has now provided clear guidance in the Re Tassal Group Limited⁵ judgment on its requirements for communications with shareholders via inbound and outbound calls and on meetings with proxy advisers, as outlined below.

INBOUND CALLS RECEIVED FROM SHAREHOLDERS

In members’ schemes of arrangement, it is common for target companies to establish a dedicated phone number (often described as a ‘shareholder information line’) disclosed in the scheme booklet to which shareholders may call in relation to queries about a scheme.

Historically, the scripts for such inbound calls have not been approved by the Court or put in evidence at the first Court hearing, where their content substantially reflects the content of the Court-approved scheme booklet.

In Re Tassal Group Limited, the Supreme Court of New South Wales specifically confirmed that Court approval of inbound call scripts is not required. The Court’s rationale was based on shareholder information lines having been used in schemes for many years, and that any issues arising from such engagement with shareholders are to be addressed at the second Court hearing.⁶

Scheme companies may still, however, consider it prudent to provide inbound call scripts to the Court for visibility purposes at the first Court hearing, consistent with the principles above.

OUTBOUND CALL CAMPAIGNS

Prior to a scheme vote, it is also common practice for scheme companies to make calls to target company shareholders to provide details about the scheme and encourage shareholders to vote at the scheme meeting. These are often described as ‘outbound call campaigns’.

As with inbound call scripts, until recent times, scripts for outbound call campaigns were not typically provided to or approved by the Court.

In Re Tassal Group Limited, the Supreme Court of New South Wales indicated that Court approval should generally be sought at the first Court hearing or in a separate application to the Court for any outbound call campaign. The Court explained the distinction between the position with inbound call scripts as follows:

“An outbound campaign is distinct from a shareholder information line in that the scheme company seeks to initiate an engagement with a shareholder which has not sought it and seems to involve a greater practical risk of distorting, or distracting attention from, the information provided in the scheme booklet than a response to incoming shareholder questions.”⁷

The Court also noted that it will “generally be preferable” to identify any issues resulting in approval of an outbound call campaign being withheld before the call campaign is undertaken, than for the target and its shareholders to carry the risk that the call campaign might undermine the integrity of the scheme meeting and lead the Court not to approve a scheme at the second Court hearing.⁸

In order for an outbound call script to be approved, the Court indicated in Re Tassal Group Limited that:

1. the content must not go beyond the information in the scheme booklet;
2. the script must present information in a balanced manner, and highlight the advantages and disadvantages of the scheme; and
3. the script must also encourage shareholders to read the scheme booklet in its entirety.⁹

Applying these principles, the Court had no issues in relation to the outbound call script proposed by Tassal, which was approved at the first Court hearing, and no issues arose in respect of such outbound calls which needed to be addressed at the second Court hearing.

COMMUNICATIONS WITH PROXY ADVISERS

In Re Tassal Group Limited, it was proposed that, in addition to an outbound calling campaign, meetings occur between the scheme company and major proxy advisers in relation to the scheme.

In connection with this, Tassal included a slide presentation and script in the evidence for the first Court hearing.

The Supreme Court of New South Wales’ position in the Tassal scheme was that approval was not required for these communications given the Court considered they were analogous to a one-on-one briefing of a substantial shareholder. However, it was noted that their content would be scrutinised at the second Court hearing, and that any issues which arose would be relevant to whether the scheme should be approved.¹⁰

As such, scheme companies may still consider it prudent to include the content of proxy adviser briefings in the evidence or a first Court hearing, consistent with the position with regards to inbound call scripts as described above.