CRESO PHARMA LIMITED
[2019] WASC 472
•23 DECEMBER 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: CRESO PHARMA LIMITED [2019] WASC 472
CORAM: HILL J
HEARD: 17 SEPTEMBER 2019
DELIVERED : 2 OCTOBER 2019
PUBLISHED : 23 DECEMBER 2019
FILE NO/S: COR 175 of 2019
EX PARTE
CRESO PHARMA LIMITED
Plaintiff
Catchwords:
Corporations law - Scheme of arrangement - Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth) - Share scheme considered not fair but reasonable by independent expert - Related option scheme considered fair and reasonable - Naked no vote break fee - Whether directors should make voting recommendation to members - Where bridging finance provided by bidder - Whether requirements to order scheme meeting are satisfied - Orders made convening meeting
Legislation:
Corporations Act 2001 (WA), s 411
Supreme Court (Corporations) (WA) Rules 2004 (WA)
Result:
Orders made convening meeting
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr A J Papamatheos |
| Interested party | : | Mr M J Feutrill SC |
Solicitors:
| Plaintiff | : | Steinepreis Paganin |
| Interested party | : | Minter Ellison |
Case(s) referred to in decision(s):
Re Amcom Telecommunications Ltd [2015] FCA 341
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re Atlantic Gold NL [2014] FCA 697
Re Beadell Resources Ltd; Ex parte Beadell Resources Ltd [2018] WASC 410; (2018) 133 ACSR 600
Re Bolnisi Gold NL [No 2] [2007] FCA 2078; (2007) 165 FCR 45
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re Doray Minerals [2019] WASC 57
Re Dreamscape Networks Ltd; Ex parte Dreamscape Networks Ltd [2019] WASC 412
Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34
Re Investa Properties Ltd [2007] FCA 1104
Re Kangaroo Resources Ltd; Ex Parte Kangaroo Resources Ltd [No 2] [2018] WASC 388
Re Marengo Mining Ltd [2012] FCA 1220
Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd [2009] FCA 813
Re Scarborough Equities Ltd [No 2] [2009] FCA 484
Re SRG Limited [2018] FCA 1092
Re Wellcom Group Ltd [2019] FCA 1655
Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308
HILL J:
Overview
By an originating process dated 30 August 2019 the plaintiff, Creso Pharma Limited (Creso Pharma), sought orders pursuant to s 411 of the Corporations Act 2001 (Cth) (Act) convening a meeting of its members to consider two proposed schemes of arrangement (Schemes). Pursuant to the Schemes, being a share scheme and an option scheme, it was proposed that Creso Pharma become a wholly owned subsidiary of PharmaCielo Limited (PharmaCielo).[1]
[1] Affidavit of Katina Maria Bacopanos filed 30 August 2019, par 6.
The matter came before me for the first court hearing on 2 October 2019. At the conclusion of this hearing, I made orders pursuant to s 411(1) of the Act to convene a meeting of Creso Pharma's members to consider and vote on the proposed Schemes. I also made ancillary orders as to the convening and conduct of the meeting pursuant to pt 2G.2 of the Act.
At the first court hearing, I also made orders pursuant to O 67A r 12 and O 67B r 5 of the Rules of the Supreme Court 1971 (WA) restricting access until 1 January 2020 to certain clauses of the annexures of the affidavit of Alberto Colla filed 13 September 2019.
In making these orders, I stated that I would publish written reasons for my orders subsequently. These are my reasons for those orders. In publishing my reasons, I have drawn on the helpful submissions of Mr Papamatheos who appeared as counsel for Creso Pharma in these proceedings.
Factual background
Creso Pharma
Creso Pharma was incorporated in Western Australia on 20 November 2015 and admitted to the official list of the Australian Securities Exchange (ASX) on 18 October 2016.[2] At the date of the first court hearing, Creso Pharma had 151,544,332 fully paid ordinary shares (Shares) and 72,796,411 listed options (Options) on issue.[3] The capital structure of Creso Pharma also comprised a further 5,596,000 performance rights, 7,086,250 unlisted options and 1,212,120 performance shares. A subsidiary of Creso Pharma, Creso Pharma Canada Limited has an additional 8,300,000 exchangeable shares Exchangeable Shares).[4]
[2] Scheme booklet, par 10.1.
[3] Scheme booklet, par 10.5.
[4] Submissions, par 3.
Creso Pharma develops cannabis and hemp-derived nutraceuticals and medicinal cannabis products that are utilised in both human and animal health. Creso Pharma's products aim to target behavioural disorders, pain and arthritis in cats and dogs, and manage stress and support nervous and mental functions in humans.[5]
PharmaCielo
[5] Scheme booklet, par 10.2.
PharmaCielo is a global company with headquarters in Toronto, Canada. Since 18 January 2019, PharmaCielo has publicly traded on the Toronto Stock Exchange (TSX-V).[6]
[6] Scheme booklet, par 11.1.
PharmaCielo is a medicinal cannabis company with most of its operations concentrated at its facility in Rionegro, Colombia. The focus is on supplying domestic and international markets with cannabis and cannabis-derived products. PharmaCielo's core operations are carried out through its wholly owned subsidiary PharmaCielo Colombia, where medicinal cannabis is cultivated and a research and processing centre is currently being completed.[7]
Proposed Schemes
[7] Scheme booklet, par 11.2, p 74 - 76.
The proposed Schemes contemplate that PharmaCielo will acquire all of the Shares of Creso Pharma and that the Options will be cancelled. Under the share scheme, the proposed consideration to be provided to Creso Pharma shareholders is 0.0775 PharmaCielo shares per Share (Share Scheme). Under the option scheme, all Options will be cancelled and option holders will receive 0.0185 PharmaCielo shares for each Option (Option Scheme).[8]
[8] Scheme booklet, par 6, p 19.
There are two relevant exceptions to the proposed scheme consideration being Ineligible Foreign Shareholders and Electing Small Security holders. It is proposed that each will receive a cash amount being the net proceeds of the sale of their Scheme consideration.[9]
[9] Share Scheme, cl 7.3 and cl 7.4; Option Scheme, cl 7.3 and cl 7.4; Scheme booklet, par 9.3.
The Share Scheme is not dependent on the Option Scheme being approved. In contrast, it is a condition precedent of the Option Scheme that the Share Scheme is approved. If the Share Scheme is approved, PharmaCielo will be entered into the Creso Pharma register as the registered owner of all Shares, Creso Pharma will become a wholly owned subsidiary of PharmaCielo and will be delisted from the ASX.
On 6 June 2019, Creso Pharma and PharmaCielo entered into a Scheme Implementation Agreement (SIA).[10]
[10] Affidavit of Katina Maria Bacopanos filed 30 August 2019, par 6, 'KMB-1'.
The directors of Creso Pharma unanimously recommended that their listed securityholders vote in favour of the Scheme.[11] This recommendation was footnoted to a disclosure of the various benefits to be received by some of the directors. This is discussed in more detail below.
[11] Scheme booklet, par 6, page 16.
The independent experts retained by Creso Pharma, Mr Sherif Andrawes and Mr Adam Myers of BDO Corporate Finance (WA) Pty Ltd (BDO), to give an opinion on the proposed Schemes concluded that the Share Scheme was not fair but reasonable and, in the absence of a superior proposal, was in the best interests of shareholders.[12] In regards to the Option Scheme, the independent expert concluded that, in the absence of an alternate offer, the Option Scheme was fair and reasonable and in the best interest of listed option holders.[13]
[12] Scheme booklet, 'Annexure 1', page 3.
[13] Scheme booklet, 'Annexure 1', page 4.
Evidence for first court hearing
Creso Pharma and PharmaCielo relied on nine affidavits that were filed prior to the first hearing. These were:
(a)an affidavit of Katina Maria Bacopanos sworn 30 August 2019. Ms Bacopanos is a senior associate employed by Steinepreis Paganin, the solicitors for the plaintiff. Ms Bacopanos confirmed a number of formal matters, and outlined the nature of the proposed Schemes. The affidavit annexed the SIA, the ASX announcement of the proposed Schemes, the draft Scheme booklet, the proposed deed polls, as well as records in respect of the plaintiff that had been obtained from the Australian Securities and Investments Commission (ASIC).
(b)an affidavit of Dr Miriam Halperin Wernli sworn 9 September 2019. Dr Wernli is the Chief Executive Officer and the founding director of Creso Pharma. Dr Wernli confirmed a number of formal matters, outlined the nature of the proposed Schemes, the arrangements entered into with each security holder outside the proposed Schemes, the funding provided by PharmaCielo to Creso Pharma via loan agreements, Creso Pharma's mandate with EverBlu Capital and her proposed employment arrangement with PharmaCielo in the event the Schemes are implemented. She also attested to the due diligence and verification process that had been undertaken by Creso Pharma in relation to the draft scheme booklet. She gave evidence of the position of certain directors and the basis upon which they believed it was appropriate to make a recommendation in respect of the Schemes. Dr Wernli's affidavit annexed a number of documents including the constitution of Creso Pharma, a report from the Creso Pharma share registry, documents related to the transaction mandate of Everblu, proxy forms proposed to be sent to Creso Pharma shareholders and optionholders, the election forms to be sent to Small Security holders and a copy of the signed verification memorandum.
(c)an affidavit of Stephen John Penrose sworn 9 September 2019. Mr Penrose is a partner of Tottle Partners and the proposed chairperson for each of the meetings of the Schemes. By his affidavit, Mr Penrose consented to act as chairperson of the meetings and provided the necessary disclosures required by r 3.2 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules).
(d)an affidavit of Grant Thomas Paterson sworn 10 September 2019, a lawyer at GTP Legal and the proposed alternate chairman for the meetings of the Schemes. By his affidavit, Mr Paterson consented to act as chairperson of the meetings of each Scheme if Mr Penrose was unable to and provided the necessary disclosures required by r 3.2 of the Corporations Rules.
(e)an affidavit of Alberto Colla sworn 13 September 2019. Mr Colla is a partner of MinterEllison, the Australian solicitors for PharmaCielo. Mr Colla’s affidavit annexed a copy of the letter of agreement between Creso Pharma and PharmaCielo of 6 June 2019. Portions of these annexures are confidential in accordance with orders I made on 2 October 2019.
(f)a second affidavit of Alberto Colla sworn 15 September 2019. Mr Colla’s affidavit set out the verification process undertaken by and on behalf of PharmaCielo in relation to the scheme booklet. The affidavit annexed verification certificates, executed Deed Polls in respect of both Schemes, a legal opinion of McMillan LLP that PharmaCielo was able to enter into and execute the Deed Polls and relevant sections of The Business Corporations Act (British Columbia).
(g)three affidavits of Zachary Tyrone Friend sworn 26 September 2019, 1 October 2019 and 2 October 2019. Mr Friend is a solicitor employed by Steinepreis Paganin. Mr Friend annexed copies of the email exchanges between Steinepreis Paganin and ASIC in relation to the draft scheme booklet. The third affidavit annexed a copy of the final scheme booklet, as well as emails from the directors of Creso Pharma confirming the accuracy of the final version of the scheme booklet, and a letter from ASIC confirming they did not intend to appear at the first court hearing.
Nature of proposed transactions
The proposed Schemes contemplate the merger of Creso Pharma and PharmaCielo such that Creso Pharma will be a wholly owned subsidiary of PharmaCielo. The Share Scheme provides that existing shareholders (with the exception of the Ineligible Foreign Shareholders and Electing Small Shareholders) will receive 0.0775 shares in PharmaCielo for each Creso Pharma share that they currently hold. The Option Scheme provides that each option holder (with the exception of Ineligible Foreign Option holders and Electing Small Option holders) will receive 0.0185 PharmaCielo shares for each Creso Pharma option that they currently hold.
Ineligible Foreign Security holders are security holders who at the time of the record date of either Scheme have their address listed in a jurisdiction other than Australia, New Zealand, Switzerland, Israel, Canada or Colombia in the security holders registers.[14]
[14] Scheme booklet, par 9.3(a).
A Creso Pharma security holder who is entitled to receive less than 62 PharmaCielo shares following the implementation of the Schemes may elect to instead receive cash proceeds from the sale of these shares.[15] Any security holder who makes this election is an Electing Small Security holder. Election forms were to be sent to shareholders who held less than 794 Shares and option holders who held less than 3,325 Options at the time of determining which security holders are entitled to receive a copy of the scheme booklet.[16]
[15] Scheme booklet, par 9.3(b).
[16] Scheme booklet, par 9.3(b).
Ineligible Foreign Shareholders and Electing Small Security holders will not receive PharmaCielo shares. The shares that would have otherwise been issued to them will be issued to a sale agent on their behalf and sold on the TSX-V. The cash proceeds will then be paid to these two groups of security holders.[17]
[17] Scheme booklet, par 9.1.
There are 27 Ineligible Foreign Shareholders holding 1,297,111 Shares which comprises approximately 0.86% of the Shares on issue.[18] There is one Ineligible Foreign Option holder holding 1,000 Options which comprises approximately 0.001% of the total number of Options on issue.[19]
[18] Affidavit of Miriam Halperin Wernli filed 9 September 2019, par 76, 'MHW28'.
[19] Affidavit of Miriam Halperin Wernli filed 9 September 2019, par 87, 'MHW30'.
The SIA between Creso Pharma and PharmaCielo sets out the procedures for the implementation of the proposed merger.
On the Implementation Date, under the Share Scheme, all existing Shares will be transferred to PharmaCielo or a wholly owned subsidiary, and in exchange, each shareholder will receive the Share Scheme Consideration for each Share held at that date.[20] The Option Scheme will operate concurrently with the Share Scheme. Under the Option Scheme, all Options will be cancelled and each option holder will be entitled to receive the Option Scheme Consideration.[21]
[20] SIA, cl 4.1.
[21] SIA, cl 5.1.
PharmaCielo is required to register the former Creso Pharma security holders as the holders of PharmaCielo shares. The obligations of PharmaCielo under the Schemes are supported by deed polls which were executed by PharmaCielo on 11 September 2019.[22]
[22] Affidavit of Zachary Tyrone Friend filed 26 September 2019, 'ZF-28', Annexures E and F.
If the Schemes are implemented, Creso Pharma will become a wholly owned subsidiary of PharmaCielo and will be delisted from the ASX.
The Schemes will not be effective unless and until a number of conditions precedent are satisfied or waived. The conditions precedent which are required to be satisfied are fully disclosed in the scheme booklet.[23]
[23] Scheme booklet, par 7.1(a).
The directors of Creso Pharma unanimously recommended that security holders vote in favour of the Schemes.[24]
[24] Scheme booklet, cl 4.7.
The SIA required Creso Pharma to obtain an independent expert report.[25] The IER expresses the opinion that the Share Scheme is not fair but reasonable and therefore is in the best interests of shareholders on the basis that the advantages of the Share Scheme outweigh the disadvantages. In coming to this conclusion, the independent experts determined the range for a Share as follows:
[25] SIA, cl 8.1.
| Low | Preferred | High | |
| Value of a Creso Pharma Share prior to the Schemes (control) | 0.502 | 0.545 | 0.589 |
| Value of 0.0775 shares in the Proposed Merged Entity (minority) | 0.429 | 0.447 | 0.465 |
The basis of the valuation and the methodologies employed are set out in the IER. As the consideration offered by PharmaCielo is less than the range of the independent experts' assessment of the value of a Share, the independent expert concluded that the Share Scheme is not fair to shareholders. However, the independent experts considered the Share Scheme to be reasonable because the advantages were greater than the disadvantages.
In regards to the Option Scheme, the IER expresses the opinion that the Option Scheme is fair and reasonable and therefore in the best interest of option holders.[26] In coming to this conclusion, the independent experts determined the range for an Option as follows:
[26] Scheme booklet, par 7.1(h), Annexure A.
Low
Preferred
High
Value of a Creso Pharma listed Option prior to the Schemes
0.066
0.084
0.104
Value of 0.0185 shares in the Proposed Merged Entity (minority)
0.102
0.107
0.111
The basis for the valuation and the methodologies employed are set out in the IER. As the consideration offered by PharmaCielo is greater than the range of the independent experts’ assessment of the value of an Option, the independent expert concluded that the Option Scheme is fair to shareholders. The independent experts also considered the Option Scheme to be reasonable because the advantages were greater than the disadvantages.
The scheme booklet also contains information on the tax implications of the Schemes.[27]
[27] Scheme booklet, s 15.
I was provided with the draft scheme booklet which was submitted to ASIC on 27 August 2019[28] and the various amendments that have been made to the document since then.[29]
[28] Affidavit of Katina Maria Bacopanos filed 30 August 2019, par 10, 'KMB-5'.
[29] Affidavit of Zachary Tyrone Friend filed 26 September 2019, 'ZF-28' and 'ZF-29'.
The scheme booklet contains the following sections:
(a)detailed warnings on the inside cover and encouragement for Creso Pharma security holders to obtain independent legal, financial, taxation and other professional advice;
(b)important information regarding the directors' recommendations in support of the Schemes;
(c)a listing of all key dates for the Schemes;
(d)letters from a Creso Pharma and PharmaCielo director separately addressing the Schemes and the recommendations of both corporations’ directors in support of the Schemes;
(e)information on the Scheme meetings and how to vote;
(f)a 'frequently asked questions' table, which addresses all the essential matters;
(g)key considerations that are relevant to the security holders casting their vote;
(h)an overview of the proposed Schemes;
(i)the consideration to be provided under the Schemes;
(j)information about Creso Pharma and PharmaCielo, as well as the proposed group that the Schemes would create;
(k)the intentions of PharmaCielo as to how the proposed group would operate should the Schemes be successful;
(l)a section on risk factors;
(m)a section on tax considerations for both Australian and non-Australian residents;
(n)a comparison of Australian and Canadian laws and a summary of the rights that attach to the new PharmaCielo shares prepared by McMillan LLP;
(o)key terms of the SIA; and
(p)additional information required to be disclosed to the security holders, such as the interests currently held by Creso Pharma directors in Creso Pharma securities, benefits to directors if the proposed Schemes are implemented and the Everblu Capital arrangement.
The scheme booklet included a number of important annexures which will form part of the scheme booklet. These include the IER, a letter from BDO concerning the financial information disclosed in the scheme booklet, the proposed Share Scheme and Option Scheme, the Deed Polls, the relevant notices of meeting and a comparison of Australian and Canadian laws and a summary of the rights attaching to the new PharmaCielo shares.
Legal principles in respect of the Scheme
Pursuant to s 411 of the Corporations Act, a scheme of arrangement can be used to re-organise a company in a manner which will be binding on its members provided that:
(a)the arrangement is agreed by the requisite majorities as prescribed by s 411(4)(a) of the Corporations Act, namely 75% of shareholders by value and 50% by number; and
(b)the court approves the arrangement pursuant to s 411(4)(b) of the Corporations Act.
There are three stages to an application under s 411 of the Corporations Act. First, the court approves the convening of a scheme meeting and the draft explanatory statement to be sent to the scheme members. Second, the members vote on the proposed scheme at the scheme meeting. Third, assuming the first two stages have occurred, the court approves the proposed scheme.[30]
[30] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7].
As Mr Papametheos, who appeared as counsel for the plaintiff, noted, there are well-established principles which apply to the first stage of proceedings. The court will order the convening of the scheme meeting and approve the dispatch of the scheme booklet if is satisfied that:[31]
(a)there is a pt 5.1 body;
(b)there is a compromise or arrangement within the meaning of s 411 of the Corporations Act;
(c)the proposed scheme booklet contains the prescribed information[32] and provides proper disclosure;[33]
(d)the scheme is bona fide and properly proposed;
(e)ASIC has had at least 14 days' notice of the proposed hearing date and a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions;[34]
(f)the procedural requirements of the Act and the Corporations Rules have been met;
(g)the scheme is of such a nature that, if it receives the necessary statutory majority at the scheme meeting, the court will be likely to approve it.
[31] Re SRG Limited [2018] FCA 1092 [11]; Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308 [60].
[32] Corporations Act, s 412(1)(a)(ii); reg 5.1.01 and sch 8 cl 8301 - 8310 of the Corporations Regulations 2001 (Cth).
[33] Corporations Act, s 412(1)(a)(i).
[34] Corporations Act, s 411(2)(b).
Any issue about classes of members is usually determined at the first hearing.[35] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[36]
[35] Re CSR Ltd [73].
[36] Re Opes Prime Stockbroking Ltd [2009] FCA 813 [20].
The standard of review that is undertaken by the court at the first hearing is whether each proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members.[37] If the proposed arrangement is one that appears fit for consideration by a meeting of members and is a commercial proposition likely to gain the Court's approval if passed by the necessary majority, leave should be given to convene the meeting.[38]
[37] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[38] Re SRG Limited [2018] FCA 1092 [12]; Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [72] ‑ [76].
Disposition - Scheme
The formal matters that Creso Pharma had to prove are satisfied.
Creso Pharma is a company and, accordingly, is a pt 5.1 body. Each of the proposed Schemes constitutes an 'arrangement'. This type of restructure has been approved by courts as an ‘arrangement’ on numerous occasions.[39] Creso Pharma has filed the affidavits required by r 3.2 of the Corporations Rules regarding the persons who have been nominated to be the chairperson and alternate chairperson for the meetings of the Schemes.[40]
[39] See for example Re Marengo Mining Ltd [2012] FCA 1220 [6].
[40] Affidavit of Stephen John Penrose filed 9 September 2019; Affidavit of Grant Thomas Paterson filed 10 September 2019.
No class issue arose in relation to the Schemes. All shareholders and option holders are being treated equally in each Scheme. Accordingly, there is only a single class in each Scheme.
I note that there are foreign shareholders of Creso Pharma. As a result, there is a need to include mechanisms to address the issue of securities to parties in other jurisdictions. As set out above, Ineligible Foreign Shareholders will receive the cash proceeds of the sale of the PharmaCielo shares that they would have otherwise received as consideration for their current Creso Pharma Shares. For those security holders resident in the jurisdictions of Australia, New Zealand, Switzerland, Israel, Canada or Colombia, there is no illegality in issuing the new PharmaCielo shares following the implementation of the Schemes.
By letter dated 2 October 2019, ASIC confirmed that it had been given 14 days' notice of the hearing and had a reasonable opportunity to examine the terms of the Schemes and the draft explanatory statement.[41] ASIC also gave notice that it did not propose to appear at the first hearing to make submissions or intervene to oppose the Schemes.[42]
[41] Third affidavit of Zachary Tyrone Friend filed 2 October 2019, 'ZF-7'.
[42] Third affidavit of Zachary Tyrone Friend filed 2 October 2019, 'ZF-7'.
On the materials before me, there is nothing to suggest that the proposed Schemes are not properly proposed. The constitution of Creso Pharma does not prevent the Schemes.[43]
[43] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, 'MHW-1'.
There are a number of conditions precedent to the Schemes.[44] Dr Wernli has deposed that she is not aware of any basis to believe that any condition precedent will not be satisfied or waived by the necessary time.[45]
[44] Share Scheme, cl 3; Option Scheme, cl 3.
[45] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, pars 68 - 70.
I have read the initial draft of the scheme booklet (as provided to ASIC) and considered the various amendments made. I have also been provided with the communications between ASIC and Creso Pharma's solicitors in relation to ASIC's review of the draft scheme booklet. I was and am satisfied that there will be proper disclosure as to the effect of the proposed Schemes and the material considerations for security holders.
There is evidence before me as to the due diligence and verification process that was undertaken by both Creso Pharma and PharmaCielo.[46] On the basis of this evidence, I accept that:
(a)Creso Pharma undertook a process of due diligence and verification to verify the accuracy of statements attributable to Creso Pharma in the scheme booklet;
(b)PharmaCielo undertook a similar process to verify the statements attributable to it;
(c)McMillan LLP undertook a similar process to verify the information provided by them within the scheme booklet;
(d)appropriate steps have been taken to satisfy Creso Pharma and PharmaCielo that the scheme booklet does not omit any material information.
[46] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, pars 138 - 157; Second affidavit of Alberto Colla filed 16 September 2019, pars 14 - 30; Third affidavit of Alberto Colla filed 4 October 2019, pars 9 - 11.
The directors of Creso Pharma have resolved to approve the scheme booklet in its final form.[47]
[47] Third affidavit of Zachary Tyrone Friend filed 2 October 2019, par 8, 'ZF-1' - 'ZF-4'.
Based on the checklist provided by counsel for Creso Pharma,[48] I was satisfied that the scheme booklet contained the prescribed information in accordance with s 412(1)(a)(ii) of the Corporations Act and sch 8 of the Corporations Regulations 2001 (Cth).
[48] Submissions, Appendix A.
In written and oral submissions, counsel for Creso Pharma and PharmaCielo drew to my attention some specific matters. I address each of these below.
Treatment of other securities on issue
As noted above, Creso Pharma has a number of other securities currently on issue namely unlisted options, performance rights, and performance shares. In addition, one of its subsidiaries has issued the Creso Pharma Exchangeable Shares. None of these are being dealt with by way of separate schemes of arrangement.
In respect of the unlisted options, each of the holders of the unlisted options have entered into deeds with Creso Pharma (other than Tranche CPHOPT3 options) whereby the unlisted options will be cancelled at 12.00 pm on the date of implementation of the Share Scheme subject to PharmaCielo issuing each option holder with the number of shares as agreed under the SIA.[49] In respect of the Tranche CPHOPT3 options, these options were issued in respect of a previously proposed business proposal that has since been abandoned.[50] Creso Pharma proposed that these options remain on issue as at the date of implementation of the schemes as these options will expire on 13 October 2020.
[49] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, 'MHW8'; SIA, cl 6.2(c).
[50] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, par 34.
In respect of the performance rights, subject to approval of the Share Scheme at the second court hearing, each performance right will automatically vest and can be exercised by a performance rights holder who will receive a new Creso Pharma Share on a one for one basis.[51] Under the terms of the SIA, it is a condition of the Share Scheme that prior to the record date for the Share Scheme, Creso Pharma has entered into legally binding agreements with the holders of the performance rights so that any vested performance rights will be exercised and there will be no performance rights in existence. As at the date of the first court hearing, these agreements had not yet been entered into but it was anticipated that they would be entered into prior to the second court hearing.[52]
[51] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, par 38.
[52] Submissions, par 45.
In respect of the performance shares, it is proposed that each of the Creso Pharma performance shares vest and automatically be converted to Shares.[53] Under the terms of the SIA, it is a condition of the Share Scheme that the performance shares vest on a one-for-one basis so that they can be dealt with under the Share Scheme.[54]
[53] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, pars 40 - 41.
[54] SIA, cl 3.1(h)(1) and 6.3(b); Scheme, cl 3(a)(i).
Finally, in respect of the Exchangeable Shares, as noted above, these securities are securities issued by a subsidiary of Creso Pharma. The Exchangeable Shares were issued as consideration for the acquisition of Mernova Medicinal Inc. The acquisition contemplated the issue of Creso Pharma Exchangeable Shares in two tranches as well as a payment of $800,000 to Mernova Medicinal on the grant of the Mernova licence. The first tranche of Exchangeable Shares has already been issued but the second tranche is yet to be issued. These securities, together with the obligation to make the payment, are proposed to be dealt with by way of private arrangement.[55] The arrangements have not yet been concluded. In the event that supplementary disclosure is required, the matter will come back before the court for further consideration.
[55] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, par 42 - 44.
Director benefits and director recommendations
In respect of the directors of Creso Pharma, counsel drew my attention to the positions of Mr Blumenthal, Dr Wernli and Mr Wachtel.
In respect of Mr Blumenthal, he holds or controls both Shares and Options. In addition, his corporate advisory firm, EverBlu Capital, is the corporate adviser to Creso Pharma and stands to receive a mandate fee payable in PharmaCielo shares in the event that the Schemes are approved. The obligation to pay the mandate fee arises under an agreement entered into in 2017. Mr Wachtel does not consider that these matters should prevent him from making a recommendation in relation to the Schemes.
It is proposed that Dr Wernli will be employed in an executive capacity by PharmaCielo in the event the Schemes are approved. As part of her proposed remuneration package, she will receive shares and options in PharmaCielo. The evidence before me was that the proposed remuneration package was broadly equivalent to her current package.[56]
[56] Submissions, par 137. See also Scheme booklet, cl 18.6 and 18.8(a).
In respect of Mr Wachtel, he holds or controls Shares, Options and performance rights. The performance rights will be dealt with outside the terms of the Schemes as noted above. Mr Wachtel does not consider that these matters should prevent him from making a recommendation in relation to the Schemes.
Counsel specifically drew my attention to the following matters:
(a)out of an abundance of caution, Dr Wernli and Mr Blumenthal recused themselves from the decision of the directors of Creso Pharma to enter into the SIA;[57]
(b)the SIA contains a fiduciary carve-out in respect of each of the directors' recommendations. That is, each director may cease to make a recommendation in respect of the Schemes if required by reason of their fiduciary duties, without Creso Pharma being in breach of the SIA;[58]
(c)the directors of Creso Pharma separately (and as separately constituted quorums) considered the position of each director with a potential benefit in the Schemes and determined that each director could make a recommendation in respect of the Schemes if they wished to do so;[59]
(d)Dr Wernli, Mr Blumenthal and Mr Wachtel each considered their circumstances and took independent legal advice. Each concluded that they could and would make a recommendation in respect of the proposed Schemes;[60]
(e)the potential benefits that each will receive is prominently disclosed in detail early in the scheme Booklet and virtually all references to the recommendations of directors is appropriately footnoted by a reference back to this disclosure.[61]
[57] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, pars 185 - 187.
[58] SIA, cl 7.2.
[59] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, pars 192 - 195.
[60] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, pars 196 - 198, 'MHW45', 'MHW46'.
[61] Scheme Booklet, vi - vii; cl 18.2, cl 18.5 and cl 18.8.
As I noted in Re Dreamscape Networks Ltd; Ex parte Dreamscape Networks Ltd, in a number of recent decisions, courts have considered the appropriateness of a director, who is to receive an additional financial benefit if the scheme is approved, making a recommendation to shareholders about voting in favour of the scheme.[62] It is not necessary for me to repeat what I said there. Those reasons for decision reflect my views on this matter.
[62] Re Dreamscape Networks Ltd; Ex parte Dreamscape Networks Ltd [2019] WASC 412 [78] - [80].
For the following reasons, this is not the occasion to address the apparently divergent views as to whether it is appropriate for the directors who will receive an additional financial benefit if the Scheme is approved to make a recommendation to shareholders.[63]
[63] See for example Re Wellcom Group Ltd [2019] FCA 1655 [51] - [60] and the cases referred to therein.
First, the benefits to be received by each of Dr Wernli, Mr Blumenthal and Mr Wachtel are not out of the ordinary. The benefits are commercially justifiable and not unreasonable or extravagant.
Second, in respect of the shares to be issued to Everblu Capital and, separately, the shares to be issued to Mr Wachtel for the performance rights, these arise in respect of obligations which were entered into well before the SIA was entered into.
Third, the affidavit evidence confirmed that each of the directors sought independent legal advice as to the relevant factors to be considered by each of them in relation to the Schemes based on recent judicial guidance regarding material personal interests and conflicts of interest. Only on receipt of this advice did each resolve to recommend that the shareholders vote in favour of the Schemes at each of the Scheme meetings.[64] Accordingly, it is not the case that the directors are joining in a unanimous resolution to recommend the Schemes without having given adequate consideration as to whether each has a material personal interest or conflict of interest which would make it inappropriate for them to join in a recommendation of the board of directors of Creso Pharma.
[64] Affidavit of James Donald de Barren Cullen sworn 30 September 2019, pars 12 - 13.
Fourth, importantly, the benefits to be received by each of the directors and the basis upon which each considers it appropriate to make a recommendation to shareholders are fully disclosed in the Scheme booklet.[65]
[65] Scheme Booklet, par 11.1.
For these reasons, it was and is my view that the additional benefits to be received by Dr Wernli, Mr Blumenthal and Mr Wachtel did not make it inappropriate for any of them to make a recommendation in respect of the Scheme.
Independent experts' report on Schemes
As noted above, the independent expert concluded that the proposed Share Scheme is not fair but reasonable. Absent a superior offer, the independent experts concluded that the proposed Share Scheme was in the best interests of shareholders.
In Re Beadell Resources Ltd; Ex parte Beadell Resources Ltd, Justice Vaughan summarised the approach that should be taken by the court in these circumstances as follows:[66]
On occasions it has been suggested that the proposition that an offer may be 'not fair' but nevertheless 'reasonable' is one that presents some difficulty. It has been said that 'persuasive applications of the distinction are likely to be rare'. The distinction is, however, entrenched in the ASIC Regulatory Guide 111 and is one that has been long enforced by the ASIC. On that basis the distinction is one that has meaning. Fairness is concerned with a comparison of the scheme consideration and the true value of the shares. A scheme is reasonable if it is fair; but it may also be reasonable if there are other factors that make it reasonable to accept an offer that is less than fair in the absence of a higher bid.
The circumstance that the IER has concluded that the proposed scheme is not fair but reasonable is not fatal to Beadell's application. There are numerous examples of courts convening scheme meetings and subsequently approving a scheme where an independent expert has concluded that the scheme was reasonable though not fair.
Nevertheless, where an independent expert reports that a scheme is 'not fair' there is a serious question for investigation by the court. As Dodds‑Streeton J explained in Zenyth Therapeutics Ltd v Smith:
'Courts should adopt a cautious approach to the approval of any scheme which the independent expert considers "not fair", particularly when it may involve expropriation at an undervalue. In my opinion, a scheme involving an offer of an undervalue, which is not fair, should generally not be considered reasonable unless it is accompanied by some positive compensatory feature. The fact that the security holders are unable to exact fair, or better, consideration through any avenue alternative to the scheme would not necessarily render an unfair scheme reasonable in the relevant sense.'
That said, as long as the scheme participants are properly informed that the independent expert considers the scheme not to be fair, and why, it is ultimately for the members to decide whether it is an offer that they should accept.
It follows that a key consideration is whether the expert report satisfactorily discloses the basis of the expert's opinion. The members must be provided with a proper opportunity to understand and assess the basis of the opinion. The court should consider whether shareholders will be acting on sufficient information in order to make an informed decision as to whether to accept the scheme consideration for their shares.
The court will also assess the independent expert's explanation for his or her conclusion. For example, in Zenyth Therapeutics Ltd v Smith Dodds‑Streeton J refused a s 411(4)(b) approval application where the expert's conclusion that the scheme was reasonable, despite being not fair, was not clear or logically compelling. [citations omitted]
[66] Re Beadell Resources Ltd; Ex parte Beadell Resources Ltd [2018] WASC 410; (2018) 133 ACSR 600 [59] - [64].
In this case, the IER concluded that the proposed Share Scheme is not fair as:
(a)the experts assess the fair market value of a Creso Pharma share (inclusive of a premium for control) to be between 50.2 cents and 58.9 cents per share, with a preferred value of 54.5 cents;
(b)the experts assess the value of the scheme consideration (on a minority interests basis) to be between 42.9 cents and 46.5 cents per Creso Pharma share, with a preferred value of 44.7 cents.
The independent experts conclude, however that the proposed Share Scheme is reasonable because the advantages of the Scheme outweigh its disadvantages. The advantages include the creation of a merged entity with a stronger balance sheet and a vertically integrated supply chain, with access to PharmaCielo's commercial network, and the continued participation for Creso Pharma security holders in a global medical cannabis company. The IER also observes that the Share Scheme is value accretive for the majority of shareholders who hold a minority interest in Creso Pharma. Assessed on a minority interest basis (as opposed to a control basis), the value of a Creso Pharma Share is assessed in the range of 41.5 cents to 45.3 cents which is less than the value of the Share Scheme consideration (of 42.9 to 46.5 cents).
I carefully considered the explanations contained in the IER to determine the basis for the assessment that the Share Scheme was reasonable but not fair. I was satisfied that the matters referred to by the independent experts summarised above provided justification for the conclusion that the Share Scheme is reasonable. Further, in my view, there is appropriate disclosure of the basis for the opinion of the independent experts. Sufficient information is provided to shareholders to give them an opportunity to understand and assess for themselves the basis of the independent experts' opinion. As such, shareholders of Creso Pharma will be in a position to make an informed decision whether or not to approve the Share Scheme.
In my view, the conclusion of the IER that the Share Scheme was not fair but reasonable was not a reason to refuse to convene the Share Scheme meeting. The opinion of the independent experts that the Share Scheme was reasonable was open to them. On this basis, the Share Scheme is one that sensible business people may consider will be of benefit to shareholders. Accordingly, it was and is my view that the Share Scheme was fit for consideration by shareholders.
Performance risk
I was and am satisfied that the nature and terms of the proposed Schemes are such that security holders are adequately protected against the risk that PharmaCielo will not perform its obligations under the Schemes.
In that respect I have had regard to:
(a)the terms of the Schemes whereby the obligation to provide the consideration is prior to obtaining Creso Pharma's shares;[67]
(b)the terms of the deed polls executed by PharmaCielo pursuant to which PharmaCielo covenants in favour of each security holder that it will perform all obligations under the Schemes and provide the scheme consideration to each security holder in accordance with the terms of the Schemes.[68] The Deed Poll is governed by Western Australian law and PharmaCielo has submitted to the non-exclusive jurisdiction of the courts of Western Australia;[69]
(c)the legal opinion of PharmaCielo's Canadian advisers that the Deed Polls have been properly executed and are enforceable against PharmaCielo;[70]
(d)the acknowledgement in the Deed Poll executed by PharmaCielo that the deed can be relied on and enforced by any security holder and that Creso Pharma has authority to also enforce these rights on behalf of security holders.[71] In my view, the security holders are sufficiently identified within the deed poll to enable them to enforce the deed poll as against PharmaCielo.[72]
[67] Affidavit of Katina Maria Bacopanos filed 30 August 2019, 'KMB-3', cl 6.3(a)(i), cl 7.2(a), cl 7.3(b)(i) and cl 7.4(b)(i), pages 151 - 153; 'KMB-4', cl 6.3(a)(i), cl 7.2(a), cl 7.3(b)(i) and cl 7.4(b)(i), pages 169 - 171.
[68] Affidavit of Katina Maria Bacopanos filed 30 August 2019, 'KMB-6', cl 4, page 532; 'KMB-7', cl 4, page 541.
[69] Deed Poll, cl 8.6.
[70] Second affidavit of Albert Colla sworn 15 September 2019, par 33 - 39, 'AC9'.
[71] Affidavit of Katina Maria Bacopanos filed 30 August 2019, 'KMB-6', cl 2, page 531; 'KMB-7', cl 2, page 540.
[72] Property Law Act 1959 (WA) s 11(1).
The Schemes set out that the appointment of PharmaCielo as sole proxy occurs only after the provision of the consideration for both Schemes. Accordingly, there was no concern that the incoming board of PharmaCielo could interfere with the implementation of the Schemes or the issue of shares and options to security holders.[73]
[73] Re Kangaroo Resources Ltd; Ex Parte Kangaroo Resources Ltd [No 2] [2018] WASC 388 [28] - [31].
Exclusivity provisions and break fee
The SIA contains the customary lock-up devices in the form of 'no shop', 'no talk', 'no due diligence', 'notification obligations' and 'matching right' provisions.[74] The 'no talk' and 'no due diligence' provisions are subject to a fiduciary carve-out.[75] In certain circumstances, a reciprocal break fee of $1.2 million is payable.[76]
[74] Affidavit of Katina Maria Bacopanos filed 30 August 2019, 'KMB-1', cl 17, pages 66 - 70.
[75] Affidavit of Katina Maria Bacopanos filed 30 August 2019, 'KMB-1', cl 18.5, page 71.
[76] Affidavit of Katina Maria Bacopanos filed 30 August 2019, 'KMB-1', cl 16, pages 64 - 66.
In considering whether the exclusivity provisions impact on completion of the transaction and the duties of directors, the court has regard to:[77]
(a)the period of the exclusivity, which should be no more than a reasonable period and capable of precise ascertainment;
(b)whether the provisions are subject to an overriding obligation that the directors not breach their fiduciary duties or are otherwise unlawful; and
(c)whether there is adequate prominence given to these provisions in the scheme booklet.
[77] Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [29] - [35]; Re Kangaroo Resources Ltd [57] - [61].
In this case, the exclusivity period in the SIA is defined as a period of almost seven months. The no-talk and no due diligence provisions contain appropriate directors' duty qualifications.[78] The exclusivity arrangements are prominently disclosed in the scheme booklet.[79]
[78] Affidavit of Katina Maria Bacopanos filed 30 August 2019, 'KMB-1', cl 17.4, pages 67 - 68.
[79] Scheme booklet, par 17.2.
The scheme booklet specifically discloses that the failure by shareholders to approve the Share Scheme will not trigger an obligation on the part of Creso Pharma to pay the Break Fee to PharmaCielo.[80] I was and am satisfied that there is adequate disclosure of the Break Fee in the scheme booklet.[81]
[80] Scheme booklet, par 14.3, 14.4.
[81] Scheme booklet, par 6, 7.1, 7.3, 8.16, 14.3, 14.4, 17.3 and 17.4.
Dr Wernli sets out the commercial justification for the exclusivity provisions and the Break Fee.[82] I accept her evidence that the exclusivity provisions are reasonable and appropriate for a transaction of this nature. The inclusion of these provisions in the SIA followed arm's-length commercial negotiations in which the parties were separately advised and represented by external legal advisers.[83]
[82] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, par 166 - 174.
[83] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, par 180.
The amount of the Break Fee represents less than 1% of the total equity value of Creso Pharma and the value of the implied Scheme consideration.[84] As such, it is within the generally accepted commercial parameters for break fees.
[84] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, par 182(e).
Reimbursement fee provisions
The SIA contains an obligation on the part of Creso Pharma to pay a 'reimbursement fee' of $450,000 to PharmaCielo in the event the resolution to approve the Share Scheme is not approved at the Share Scheme Meeting. Such a fee is commonly referred to as a 'naked no‑vote fee'.
In Re Bolnisi Gold NL [No 2], Lindgren J discussed the circumstances in which a court should decline to order the convening of a scheme meeting where a naked no-vote fee is payable. Specifically, he stated:[85]
In my opinion, it will be appropriate for the court to decline to order that a scheme meeting be convened, or that a scheme be approved, if the court is satisfied that a naked no vote break fee is so large as to be likely to coerce the shareholders into agreeing to the scheme, rather than assessing the offer on its merits. However, the court should not readily find that the target company’s directors have committed the company to an arrangement that will have the impermissible coercive effect on the company’s shareholders, and nor should the court seek to substitute its view of the best interests of the company for that of the directors.
[85] Re Bolnisi Gold NL [No 2] [2007] FCA 2078; (2007) 165 FCR 45 [12]. See also Re Atlantic Gold NL [2014] FCA 697 [29] - [30].
In the present case, the evidence before me is that this fee has been negotiated on an arm's length basis and is less than the pre-estimate of the costs that will be thrown away if the Share Scheme is not approved.[86] I also note that the proposed fee is approximately 0.374% of the total equity value of Creso Pharma and the value of the implied Scheme consideration.
[86] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, par 183.
In the circumstances, it is my view that the fee is not so large as to coerce the shareholders of Creso Pharma to agree to the Share Scheme without considering its merits. Accordingly, in my view, this was not a reason the court should decline to order the convening of the Share Scheme meeting.
EverBlu Capital break fee
EverBlu Capital is the plaintiff's corporate adviser. Mr Adam Blumenthal, a non-executive director of Creso Pharma, is the chairman of EverBlu Capital.
An early draft of the Scheme Booklet contained details of a Break Fee payable to EverBlu Capital. ASIC raised concerns over the Everblu Capital Break Fee. Following this, the solicitors for the plaintiff informed ASIC that the relevant parties had entered into an arrangement to remove the Break Fee.[87] As a consequence, it is no longer in issue whether Creso Pharma’s security holders would have to pay a Break Fee that is coercive, or, alternatively, anti-competitive in the event the Schemes are not implemented.
[87] Affidavit of Zachary Tyrone Friend filed 26 September 2019, 'ZF-5', page 40; 'ZF-6'.
Loan Facility provided by PharmaCielo
PharmaCielo has provided Creso Pharma with bridging finance facilities of up to C$5 million.[88] This facility is disclosed in the scheme booklet.[89] As at 11 September 2019, approximately AUD$2.5 million has been drawn down.[90]
[88] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, pars 62 - 67.
[89] Scheme booklet, cl 10.10.
[90] Affidavit of Dr Miriam Halperin Wernli filed 10 September 2019, par 67.
In Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd,[91] Vaughan J summarised the relevant considerations for the court where a bidder has provided a loan to the target in the following terms:
There are authorities in which the court has been concerned to ensure that a loan between bidder and target does not operate as a lock‑up device. For example, in Re Cortona Resources Ltd, a loan term sheet was entered into on the morning of the first hearing. The loan was a drawdown facility and was not repayable on demand. If the scheme was not implemented the target would be provided to give security. Barker J stated:
'There is nothing obvious in that transaction, in my view, to suggest that it is a 'lock up' device or in the nature of a break fee by a side wind, which might prevent the free consideration by members of the scheme proposal.
…
I do not consider that the term sheet transaction identified is a reason not to make the orders convening a meeting of members. It too is a matter that the members may properly consider at the meeting in light of the disclosure made.'
In Re Anatolia Energy Ltd McKerracher J also adopted the touchstone of whether the loan agreement would prevent free consideration of the proposed scheme by members. [citations omitted]
[91] Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd [2019] WASC 189 [67] - [68].
In this case, counsel drew my attention to the following factors:
(a)the terms of the facility have been disclosed in ASX announcements and the Scheme Booklet;
(b)the facility is not an amount that is a significant proportion of the market capitalisation of Creso Pharma which would compel security holders to vote in a particular way;
(c)the facility is repayable on the latter of 30 November 2019 or four months after Scheme Meetings if the Schemes are not approved. This period is a sufficient period to give Creso Pharma the opportunity to seek alternative financing arrangements if the Schemes are not implemented;
(d)neither the independent expert nor ASIC has expressed any concern as to the loan facility.
For these reasons, I was and am satisfied that the bridging finance facility was not a lock-up device that would have a coercive effect on security holders and prevent them from considering the merits of the proposed Schemes.
Other matters
Counsel for Creso Pharma and PharmaCielo drew my attention to the 'deemed warranty' provision in the proposed Schemes.[92] The warranty provision is disclosed in the scheme booklet.[93] Deemed warranty clauses are not unusual and are acceptable provided that there is adequate disclosure that it is a condition.[94]
[92] Share Scheme, cl 6.5; Option Scheme, cl 6.5.
[93] Scheme booklet, par 7.4.
[94] Re APN News and Media Ltd [57] - [63]; Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34 [23]; Re Nzuri Copper Ltd [90].
In addition, the Schemes provide that, to the extent permitted by law, the Creso Pharma shares and options will transfer free from encumbrances and restrictions on transfer of any kind.[95] The terms of this clause is in standard terms and includes the opening words 'To the extent permitted by law'. The inclusion of these words address the concern that has previously been expressed as to whether third parties may otherwise gain the impression that their rights have been extinguished.[96]
[95] Share Scheme, cl 10.5; Option Scheme, cl 10.5.
[96] Re Investa Properties Ltd [2007] FCA 1104 [25] - [30]; Re Scarborough Equities Ltd [No 2] [2009] FCA 484 [9] - [10].
Additionally, the plaintiff sought orders for electronic dispatch of the scheme booklet. I note that these orders are now common.[97] Details were provided as to the terms of the proposed electronic notification.[98] I was satisfied, having read the terms of the proposed email communication to security holders, that an order for electronic dispatch of the scheme booklet was appropriate.
[97] See, for example, Re SRG Ltd [48]; Re Doray Minerals [2019] WASC 57[72].
[98] Submissions, par 153.
Taking into account all of these matters, I considered that there was no apparent reason why the Schemes should not, if the necessary special resolution of shareholders is passed, receive the Court's approval.
Conclusion
At the hearing before me, I was satisfied that the substantive and procedural requirements under s 411(1) of the Act had been satisfied and that the proposed Schemes were fit for consideration by Creso Pharma's members.
For these reasons, at the conclusion of the hearing on 2 October 2019, I made orders in terms of Annexure 'A' to this judgment in respect of the Schemes.
ANNEXURE 'A'
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MG
Research Orderly to the Honourable Justice Hill
23 DECEMBER 2019
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