In the matter of Intersnack Mid Co Pty Ltd

By Originating Process filed on 28 November 2023 the Plaintiffs, Intersnack Mid Co Pty Ltd (“Intersnack Mid Co”) and others as named in the Schedule of the Originating Process seek orders under ss 411 and 413 of the Corporations Act 2001 (Cth) (“Act”) to convene a meeting to consider schemes of arrangement between each of the Plaintiff companies and its respective shareholder or, in the case of one Plaintiff company, its two shareholders. Broadly, the proposed schemes of arrangement provide for the transfer of the undertaking, property and liabilities the subject of the schemes of arrangement from the Plaintiff companies to the Defendants, Snack Foods Pty Ltd (“Snack Foods”) (which is wholly owned by Consolidated Snacks Pty Ltd (“Consolidated Snacks”)) and Intersnack ANZ Pty Ltd (“Intersnack ANZ”). The Plaintiff companies, Intersnack ANZ, Snack Foods and the shareholders in those companies are all part of the same corporate group and are direct or indirect wholly owned subsidiaries of Intersnack International B.V. Directions are also sought under s 1319 of the Act as to the conduct of the scheme meetings. At the second Court hearing, an order will be sought approving the schemes of arrangement and giving effect to the proposed transfer of the undertaking, property and liabilities the subject of the schemes from the Plaintiff companies to Snack Foods and Intersnack ANZ.

The Plaintiffs read the affidavit dated 28 November 2023 of Ms Alexandra Smith, who is a partner in the firm of solicitors acting for the Plaintiffs and Defendants. An exhibit to Ms Luck Smith’s affidavit exhibited searches for each of the relevant companies.

The Plaintiffs also read the affidavit dated 30 November 2023 of Mr Benjamin O’Connor, who is the Finance Director of the Intersnack Australia Group, comprised of Intersnack ANZ and its subsidiaries, including Snack Foods and the several Plaintiff companies. Mr O’Connor describes the proposed reorganisation (O’Connor 30.11.23 [7]), which he notes is intended to:

Mr O’Connor also notes (O’Connor 30.11.23 [8]) that the effect of the proposed reorganisation, including the schemes, would be to reduce the number of entities within the Intersnack Australia Group’s Australian business from 17 to 2. Mr O’Connor also describes the nature of Intersnack Australia Group’s business (O’Connor 30.11.23 [13]), which is, in Australia, the manufacture and supply of salty snack products and, in New Zealand, the manufacture and supply of biscuits and nut bars, some of which are exported and sold in Australia. An exhibit to Mr O’Connor’s affidavit contains the constitution of each of the Plaintiff companies and his affidavit also outlines relevant information as to Intersnack ANZ and Snack Foods, the proposed transferee companies.

Mr O’Connor also refers to the terms of the proposed schemes. The first step in the restructuring, the “Partnership Transfer Schemes” involves Snack Brands Foods Pty Ltd (“SBF”), Snack Brands Industries Pty Ltd (“SBI”) and the Snack Brands Australia Partnership (“Partnership”) and contemplates the transfer of employees of those companies and the Partnership to become employees of Snack Foods on the same terms and conditions, the transfer of an operations agreement to Snack Foods and interests held by SBF in the Partnership to be transferred to SBI. The second step in the restructuring, described as the “Business Transfer Schemes”, involves all Plaintiffs, other than Snack Foods, and provides, inter alia, for the transfer of the undertaking and assets other than Excluded Assets (as defined) of each Plaintiff company to Snack Foods. Third, in the “Share Transfer Scheme”, subject to the completion of the Business Transfer Scheme, Consolidated Snacks will transfer all its interest in Snack Foods to Intersnack ANZ.

Mr O’Connor notes (O’Connor 30.11.23 [31]) that the steps comprising the Business Transfer Schemes are to be implemented sequentially, after the implementation of the Partnership Transfer Schemes. Mr O’Connor notes that the assets of each Plaintiff company to be transferred to Snack Foods under the proposed schemes include approximately 130 contracts to which the Plaintiff companies are party and Snack Foods relies on the capacity of a restructuring scheme to bring about that transfer without seeking consent of each contractual counterparty to the transfer of material contracts, although the lessor’s consent to the transfer of a major lease is a condition precedent to the transaction.

Mr O’Connor identifies the several conditions precedent to the schemes of arrangement and conditions subsequent including financier approval and tax approvals; the scheme consideration, which is an amount equal to the fair market value of assets (other than the Excluded Assets) of each Plaintiff company less the fair market value of its liabilities; and, in the case of shares in Snack Foods held by Consolidated Snacks, the fair market value of the shares. Mr O’Connor also notes the intention to wind up and deregister each Plaintiff, other than the transferee companies, after the completion of the schemes, and to separate the New Zealand business from the Australian business by the transfer of shares in Intersnack New Zealand Holding Company Ltd held by Intersnack Mid Co to Intersnack International B.V. Mr O’Connor also refers to the view formed by directors of the Plaintiff companies that creditors and employees of each of the Plaintiff companies will not be materially prejudiced by the proposed schemes of arrangement, and an expert report prepared by PricewaterhouseCoopers Securities Ltd (“PwCS”) supports that view. Mr O’Connor also outlines the due diligence and verification process for the scheme booklet which was in customary form.

An exhibit to Mr O’Connor’s first affidavit comprised the scheme booklet, which described the elements of the proposed reorganisation, consistent with the description of those elements in Mr O’Connor’s affidavit, and the effect of implementation of the schemes such that there would be two operating companies within the Intersnack Australia Group’s Australian business, being Intersnack ANZ and its wholly owned subsidiary Snack Foods, which would be the primary operating company, and the Plaintiff companies (other than Snack Foods) would subsequently be wound up and deregistered. The scheme booklet also described the steps in implementation of the schemes, again consistent with Mr O’Connor’s affidavit evidence concerning those matters, and the conditions precedent and conditions subsequent to the schemes. The scheme booklet also outlined the scheme consideration payable, again consistent with Mr O’Connor’s evidence, and outlined advantages and disadvantages of the schemes, which included the fact that third party consents would not be required for the transfer of contracts under the schemes, avoiding the costs and time involved in individually negotiating those consents, and the converse risk that the other party to a contract might seek to exercise any rights arising from any transfer of the relevant contracts under the contractual terms.

The scheme booklet also addressed tax and stamp duty considerations in respect of the schemes and their impact on creditors and employees, again in a manner consistent with Mr O’Connor’s evidence, and noted the conclusion reached by PwCS that, in effect, creditors of the Plaintiff companies and transferee companies would not be adversely affected as a result of the schemes. The scheme booklet recorded the recommendation of directors of each Plaintiff company. The scheme booklet also contained the independent expert’s report of PwCS, to which I have referred above, and Ms Scott, who appeared for the Plaintiff in the application, took me through that report in the course of submissions. An appendix to the PwCS report also set out the corporate structure of the Intersnack Australia Group before and after the implementation of the schemes. The exhibit to Mr O’Connor’s first affidavit also contained the schemes of arrangement between the Plaintiff companies and their several members.

A second exhibit to Mr O’Connor’s first affidavit contains, inter alia, the constitutions of the relevant companies, deeds of cross-guarantee for Intersnack ANZ and Intersnack Australia Holding Company Pty Ltd (“IAHC”) and financial statements of Intersnack ANZ and IAHC. That exhibit also included correspondence with the Australian Securities & Investments Commission (“ASIC”), which had raised several questions to which the Plaintiff companies had responded, through their legal advisers, and circular resolutions of the directors in respect of the proposed scheme.

By his second affidavit dated 30 November 2023, Mr O’Connor exhibited management accounts of the relevant companies and identified the basis on which a claim for confidentiality was made in respect of those accounts. I made orders under the Court Suppression and Non-Publication Act 2010 (NSW) in respect of those management accounts for the reasons set out in a separate ex tempore judgment.

The principles relevant to an application under s 411 for orders to convene a meeting to consider a proposed scheme of arrangement and to a restructuring under s 413 of the Act are well-established and I have drawn here on Ms Scott’s submissions and my summary of those principles in Re Ellerston Global Investments Ltd [2020] NSWSC 879 (“Ellerston”) and Re Telstra Corporation Ltd [2022] NSWSC 1180 (“Telstra”).

Ms Scott submits and I accept that:

Ms Scott also refers to Davies J’s summary of the applicable principles in Re Orica Ltd [2010] VSC 231 at [7]. I also summarised the applicable principles in Ellerston as follows (at [25]ff):

Section 413 of the Act allows the Court to make orders to facilitate the reconstruction of a company if three requirements are satisfied. Those requirements are: that an application has been made under Pt 5.1 of the Act for the approval of a compromise or arrangement; the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for, relevantly, the reconstruction of a Pt 5.1 body or bodies; and the whole or any part of the undertaking or property of a body concerned in the scheme is to be transferred to a company under the scheme: see, for example, Re Application of AGL Sydney Ltd (1994) 13 ACSR 597; Barrick (Australia Pacific Exploration) Pty Ltd v Barrick (PD) Australia Pty Ltd [2017] FCA 998 at [81]; Re Ovato Print Pty Ltd [2020] NSWSC 1882 at [47]; Telstra at [27].

Ms Scott submits and I accept that:

Ms Scott also refers to Woolworths Group Ltd v Pinnacle Liquor Group Pty Ltd, in the matter of Woolworths Group Ltd [2019] FCA 1810 (“Woolworths Group”), where Farrell J observed (at [20]) that:

Ms Scott also points out that Snack Foods and Intersnack ANZ, the transferee companies, have been joined as defendants in accordance with the approach set out in Royal Victorian Institute for the Blind Ltd v RBS.RVIB.VAF Ltd (2004) 206 ALR 581 at [17]; SGIC Insurance Ltd v Insurance Australia Ltd (2004) 51 ACSR 470 at [6]; Equatorial Mining Pty Ltd v Antofagasta Investment Company Ltd [2013] FCA 1452 at [14]; and Woolworths Group at [20].

Ms Scott draws several aspects of the schemes to the Court’s attention. Ms Scott addresses the statutory and formal requirements for the Court to convene the scheme meetings, and I accept that the evidence establishes that the Plaintiff companies are Part 5.1 bodies; the Plaintiff companies have committed themselves to propounding the schemes, there is prima facie evidence that the schemes are bona fide and have been properly proposed; the text of the schemes provides prima facie evidence that it is “an arrangement” within s 411 and the evidence of verification of factual information in the scheme booklet provides prima facie evidence of proper disclosure; and the necessary consents to act as chair and alternative chair of the scheme meeting have been given. ASIC was provided with drafts of the scheme booklet and ASIC has confirmed that it does not propose to appear at the first Court hearing, while reserving its position as to s 411(17) of the Act to the second Court hearing.

Ms Scott submits and I accept that the proposed schemes are an arrangement within the meaning of s 411 of the Act, which has the necessary element of compromise in effecting a restructure so that the assets and liabilities which comprise the Snack Foods business of the Plaintiffs are transferred to Snack Foods and the shares in Snack Foods are transferred to Intersnack ANZ. She points out that, consistent with that characterisation, if the schemes are implemented, Snack Foods will continue to conduct the business in generally the same manner as it was conducted immediately prior to the implementation of the schemes and will continue to employ the transferring employees on the same terms and conditions in which they were previously employed. As Ms Scott points out, the schemes include a provision at cl 5.1(b) by which each Plaintiff company shareholder approves the scheme and consents to the reconstruction notwithstanding the diminution of the value of its shareholding in the Plaintiff company and any rights that it may have in connection with the scheme (including pursuant to the Plaintiff company’s constitution) and waives any rights it may otherwise have as against the Plaintiff company in connection with the scheme. This aspect of the schemes evidence an element of compromise for the purposes of s 411 of the Act: AGL Energy Services (Queensland) Pty Ltd v AGL Energy Services Pty Ltd [2010] FCA 452 at [15].

Ms Scott submits that the scheme booklet for the schemes provides proper disclosure to members, and I have addressed Mr O’Connor’s evidence of the due diligence process and verification of the scheme booklet above. Ms Scott recognises that the scheme booklet does not include an independent expert report as to whether the scheme is in the best interests of the Plaintiff company shareholders. She submits, and I accept, that such a report is not required in the circumstances of these schemes, and ASIC has granted relief to permit the dispatch of the scheme booklet without an independent expert report referred to in cl 8303 of Pt 3 of Schedule 8 of the Corporations Regulations 2001 (Cth): Woolworths Group at [26].

Ms Scott also points to Mr O’Connor’s evidence that he does not believe that creditors of Snack Foods and Intersnack ANZ will be adversely affected by the schemes; to the tender of audited consolidated financial reports for each of Intersnack ANZ and IAHC for the year ended 31 December 2022 and unaudited management accounts up until 30 September 2023 in support of that evidence; and to Mr O’Connor’s opinion evidence that there has been no material change to the financial position of Snack Foods or Intersnack ANZ since that time. She submits and I accept that this reliance on unaudited management accounts is consistent with the approach accepted in Barrick (Australia Pacific Exploration) Pty Ltd v Barrick (PD) Australia Pty Ltd, in the matter of Barrick (Australia Pacific Exploration) Pty Ltd [2017] FCA 998 at [40] and [58]. Ms Scott also points out that, as I noted above in dealing with Mr O’Connor’s evidence, the Plaintiff companies will receive an amount equal to the fair market value of the assets (other than the Excluded Assets) of the relevant Plaintiff company less the fair market value of the liabilities of the Plaintiff company, and Intersnack ANZ must pay to Consolidated Snacks an amount equal to the fair market value of the shares in Snack Foods held by Consolidated Snacks. As I noted above, PwCS has prepared a report which has considered the impact of the proposed schemes on the creditors by undertaking a creditor analysis to assess the position of the creditors pre-schemes and the position of the creditors post-schemes, focusing on external creditors. Ms Scott also refers to Mr O’Connor’s evidence that the creditors of Snack Foods and Intersnack ANZ are the beneficiaries (I interpolate, on any winding up) of cross-guarantees provided by Intersnack ANZ and IAHC under deeds of cross-guarantee and, following implementation of the proposed schemes, it is proposed that a single deed of cross-guarantee be entered into by Intersnack ANZ and Snack Foods. The potential effect of the schemes on employees and creditors, resulting from the proposed transfer of the relevant assets and liabilities to the transferred companies, will also be addressed at the second Court hearing as a consideration relevant to the discretion whether to approve the scheme: Re Anglo-Gaelic Investments Pty Ltd [2019] NSWSC 441 at [26].

Ms Scott points out that reconstruction schemes frequently involve the transfer of contracts, as part of the “transfer to the transferee company of the whole or a part of the undertaking and of the property or liabilities of the transferor body” under ss 413(1)(a) and 413(2): JP Morgan Operations Australia Ltd v JP Morgan Australia Group Pty Ltd [2018] FCA 1131 at [28]. Here, the schemes provide for the transfer of contracts from the Plaintiff companies to Snack Foods, and that matter is addressed in the disclosure of the advantages and disadvantages of the schemes in the explanatory booklet as I noted above. Ms Scott notes that, in addition to orders under ss 413(1)(a) and 413(2) transferring and vesting those contracts in Snack Foods, the parties to the schemes will seek orders under s 413(1)(g) to facilitate that transfer, of the kind made in other cases including Legrand Australia Pty Ltd v HPM Industries Pty Ltd (No 2) [2009] FCA 1239; Warrnambool Cheese and Butter Factory Company Ltd v Warrnambool Cheese and Butter Factory Company Holdings Ltd [2017] FCA 302; Lendlease RL (Rowville) Pty Ltd v Lendlease Capital Services Pty Ltd (No 2) [2018] FCA 1601 and Barrick (Australia Pacific Exploration) Pty Ltd v Barrick (PD) Australia Pty Ltd (2017) 122 ACSR 553; [2017] FCA 1076 at [108]-[116].

Ms Scott also notes the provision for payment of the scheme consideration, which I have noted above in reviewing Mr O’Connor’s evidence. She notes that the schemes refer to consideration calculated as the “fair value” of assets and liabilities, which are not presently quantified. She submits and I accept that the case law, including Woolworths Group, has permitted, at least in this context, provisions for scheme consideration that is unquantified at the time the member votes on the scheme. Ms Scott also points out that, as I noted above, the schemes are conditional on the satisfaction of conditions subsequent, including financier approval and tax approvals being obtained by each Plaintiff company and transferee company as applicable. Ms Scott submits and I accept that no difficulty arises from the inclusion of conditions subsequent in schemes, although members must be able to see clearly at the time the scheme is proposed what they are being asked to accept, and the Court must be able to see what it is being asked to approve: Re Afterpay Ltd [2021] NSWSC 1640 at [14]. I accept that the conditions subsequent in these schemes are sufficiently clear to meet that requirement.

I am also satisfied, for these reasons, that there is no reason to think that the s 413 orders are not capable of being made at the second Court hearing and no reason not to convene the scheme meeting arises from these matters. The schemes disclose no apparent unfairness that would be likely to preclude approval of them at the second Court hearing.

For these reasons, I made the orders sought by the plaintiff companies at the conclusion of the first Court hearing on 1 December 2023.