In the matter of Cenntro Electric Group Ltd

[2024] NSWSC 180

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Cenntro Electric Group Ltd [2024] NSWSC 180

Hearing dates:

14, 16 February 2024

Date of orders:

14, 16 February 2024

Decision date:

29 February 2024

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Orders made approving a scheme of arrangement.

Catchwords:

CORPORATIONS – Arrangements and reconstructions – Schemes of arrangement or compromise – Application under s 411 of the Corporations Act 2001 (Cth) for orders approving scheme of arrangement – Where formal requirements satisfied – Whether scheme of arrangement should be approved.

Legislation Cited:

- Corporations Act 2001 (Cth), ss 411, 1319, 1322

Cases Cited:

- Re Atlantic Gold NL (No 2) [2014] FCA 869

- Re Cenntro Electric Group Ltd [2023] NSWSC 1644

- Re Cirrus Networks Holdings Ltd (No 2) [2023] NSWSC 1436

- Re CSG Ltd [2019] NSWSC 1905

- Re Estia Health Ltd [2023] NSWSC 1256

- Re InvoCare Ltd (No 2) [2023] NSWSC 1350

- Re Spark Infrastructure Holdings No 1 Ltd & Ors (2010) 79 NSWLR 756; [2010] NSWSC 1497

- Re Surf Lakes Holdings Ltd (No 2) [2023] FCA 1601

- Re Tronox Ltd (No 2) [2019] FCA 681

- Re Vimy Resources Ltd [No 2] [2022] WASC 257

- Re WPP AUNZ Ltd [2021] NSWSC 520

Texts Cited:

- T Damian and A Rich, Schemes, Takeovers and Himalayan Peaks (4th ed), The University of Sydney, Ross Parsons Centre of Commercial, Corporate and Taxation Law, 2021

Category:

Principal judgment

Parties:

Cenntro Electric Group Limited (Plaintiff)

Representation:

Counsel:
M Izzo SC (Plaintiff)

Solicitors:
MinterEllison (Plaintiff)

File Number(s):

2023/292940

Judgment

Nature of the application

1. By Originating Process filed on 14 September 2023, the Plaintiff, Cenntro Electric Group Ltd (“CEG”) sought orders under ss 411 and 1319 of the Corporations Act 2001 (Cth) (“Act”) convening a meeting of CEG’s ordinary shareholders to consider a scheme of arrangement and ancillary orders. The proposed scheme would effect a redomiciliation of CEG from Australia to the United States, by Cenntro, Inc. (“HoldCo”), a new corporation formed under the laws of Nevada in the United States, acquiring all of the CEG shares, so that CEG initially became a wholly owned subsidiary of HoldCo. The scheme provides for eligible CEG shareholders to receive one HoldCo share for each CEG share, which will be credited to each eligible scheme shareholder's account with the Exchange Agent (as defined); “Street-name Holders” will receive one HoldCo share for each CEG share, which will be initially issued to the Clearance Nominee (as defined) and held through the facilities of the Depository Trust Company (“DTC”) in the United States; and shares to which Ineligible Foreign Shareholders (as defined) would otherwise be entitled to under the scheme will be issued to a Sale Agent (as defined) and sold through a sale facility, with the proceeds being remitted to the Ineligible Foreign Shareholders. Following implementation of the proposed scheme, CEG shareholders will still hold the same proportional economic interest in the assets of the Cenntro Group that they currently hold. It is intended that CEG will be delisted from the Nasdaq Capital Market (“Nasdaq”) in the United States following implementation of the scheme and that HoldCo will apply to be listed on Nasdaq. I made the orders sought by CEG at the conclusion of the hearing on 14 December 2023 for the reasons set out in my judgment in Re Cenntro Electric Group Ltd [2023] NSWSC 1644 (“First Judgment”).

2. At the second Court hearing on 14 February 2024, continued on 16 February 2024, the Plaintiffs sought orders approving the schemes of arrangement. I made the orders sought by the Plaintiffs on 16 February 2024. These are my reasons for doing so and I have drawn on the helpful submissions of Mr Izzo who appeared for CEG in this judgment.

Affidavit evidence

3. By his affidavit dated 12 February 2024, Edmond Cheng, who is the Chief Financial Officer of CEG and its related companies, led evidence of the registration of the scheme booklet and lodgment of the convening orders with the Australian Securities & Investments Commission (“ASIC”) and of an announcement published on CEG’s website and to the Securities and Exchange Commission (US) (“SEC”) regarding the second Court hearing. Mr Cheng also set out the process adopted for the dispatch of documents to CEG’s shareholders in connection with the scheme meeting, undertaken by Broadbridge, CEG’s security services provider in the United States. Mr Cheng also referred to a reminder letter that was sent to CEG shareholders who had not lodged a proxy in respect of the scheme, in the form of the reminder letter that had been disclosed at the first Court hearing. Mr Cheng also indicated that a shareholder engagement campaign was undertaken in relation to the scheme, in accordance with an outbound script which substantially corresponded to the script for dealing with inbound calls. In the event, no difficulty has arisen from the terms of the communications or the manner in which that contact occurred.

4. Mr Cheng also addressed the manner in which the scheme meeting was held as a hybrid meeting on 24 January 2024 (US Eastern standard time (“USET”)) and on 25 January 2024 (Australian Eastern time), comprising both a physical meeting and by an online platform, and addressed the conduct of the poll in respect of the scheme resolution. A difficulty arose in respect of the conduct of that poll, where two third party intermediaries who held shares in CEG for their beneficial holders did not submit their votes to Broadridge until 30 January 2024, after the deadline for the submission of proxy votes and after that meeting had closed. On 31 January 2024, after those results had been submitted, the second Court hearing was deferred at CEG’s request from 1 February 2024 to 14 February 2024, and CEG notified its shareholders of that matter by an announcement on its website and to the SEC. CEG initially calculated the results of the meeting held on the basis that the votes cast by the two late-voting intermediaries were included, and Mr Cheng exhibited a report addressing the results of the votes prepared on that basis which indicated that the scheme resolution was comfortably passed by the the requisite number and percentage of shareholders. The second Court hearing was further adjourned from 14 February 2024 to 16 February 2024, after the issue as to the late-voting intermediaries was identified and CEG now accepts that those votes could not properly be included in determining the result of the scheme meeting.

5. By a further affidavit dated 14 February 2024, Mr Cheng addressed a further announcement made by CEG on its website and to the SEC concerning the further adjournment of the second Court hearing to 16 February 2024. Mr Cheng set out, by reference to information provided by Broadridge, the circumstances in which Broadridge had received voting results from the two late-voting intermediaries concerning votes cast by the beneficial owners of securities held in the name of those entities, on the evening of 30 January 2024. Mr Cheng’s evidence was that the votes cast by those intermediaries related to voting elections which were made by beneficial holders of the shares that they held prior to the cut-off for receipt of proxy forms for the scheme meeting, but he accepts that, obviously enough, those intermediaries had votes the shares that they held after the proxy cut-off time specified in the proxy form and notice of scheme meeting.

6. Mr Cheng’s further affidavit annexed a further poll report setting out voting results on the poll, after disregarding the votes cast by the two late-voting intermediaries, which also had the result that the scheme resolution was passed by a substantial majority by number of shareholders and number of shares, exceeding the statutory requirements. Mr Cheng also there led evidence as to the number of CEG shareholders voting at that meeting, calculated on that basis, in comparison with the number of shareholders voting at previous annual meetings.

7. By an affidavit dated 16 February 2024, Mr Sommer, a solicitor acting for CEG in the application, exhibited correspondence with ASIC in relation to the adjourned second Court hearing and with one person who had sent an email to CEG indicating that he wished to appear at the second Court hearing. Mr Sommer’s evidence is that CEG has not identified the email address of that person in its records, although that may be explicable where US shareholders in CEG generally hold their shares through the DTC system, and will not be recorded in the share register in their own names. In any event, that shareholder did not subsequently file a notice of appearance or appear at the second Court hearing.

8. CEG also tendered a conditions precedent certificate of CEG and a joint conditions precedent certificate of CEG and HoldCo indicating the satisfaction of conditions precedent to the scheme and a letter dated 13 February 2024 indicating that ASIC had no objection to the proposed scheme for the purposes of s 411(17)(b) of the Act. ASIC did not indicate any change to its position arising from the late submission of voting results for the two shareholders to which I referred above.

Submissions and determination

9. Mr Izzo rightly notes that the principles that apply to the role of the Court in approving a scheme of arrangement under s 411(4)(b) of the Act are well established and refers to my summary of those principles in Re InvoCare Ltd (No 2) [2023] NSWSC 1350 (“InvoCare (No 2)”) at [8].

10. Mr Izzo submits, and I accept, that CEG has substantially complied with the Court’s orders as to its convening and holding the scheme meeting and he points out that the reminder to vote emails were also sent to shareholders in substantially the form disclosed to the Court at the first hearing. He notes an aspect of non-compliance with those orders, where documents relating to the scheme meeting were not dispatched to CEG shareholders until 20 December 2023 (USET), later than the date of 15 December 2023 (USET) specified in the Convening Orders. I accept that this non-compliance does not provide reason not to approve the scheme where, as Mr Izzo points out, the documents were dispatched in time for CEG shareholders to receive them well in advance of the deadline for delivery of proxy forms, and allowed sufficient time for shareholders to consider the documents and vote at the scheme meeting; and the scheme booklet was publicly available in an announcement to the SEC and on CEG's website from 14 December 2023. In these circumstances, I accept Mr Izzo’s submission that the late dispatch of the documents is a procedural irregularity which has not caused any substantial injustice within the meaning of s 1322(2) of the Act and is automatically validated in the absence of any application to the contrary: Re WPP AUNZ Ltd [2021] NSWSC 520 at [12]; Re Vimy Resources Ltd [No 2] [2022] WASC 257 at [36]-[37].

11. Mr Izzo also points to the conduct of the outbound shareholder campaign and I accept that the script for the outbound calls was consistent with and reflects the information in the inbound call script and the scheme booklet, and has been reviewed on behalf of CEG on that basis. An order approving the script in advance is not necessary, although it will generally be in a scheme proponent’s interests to draw it to the Court’s attention: Re InvoCare Ltd [2023] NSWSC 1180 at [23]-[26]; Re Estia Health Ltd [2023] NSWSC 1256 at [26]. As I noted above, that script caused no difficulty here.

12. Mr Izzo initially pointed out that the requisite majorities and headcount test were satisfied, if the two late-voting intermediaries’ votes were counted. At the adjourned second Court hearing on 16 February, CEG accepted that, where the two late-voting intermediaries’ votes were received by Broadridge after the proxy cut-off time, those votes were not valid and effective votes cast on the scheme resolution in accordance with the notice of scheme meeting and proxy form. However, Mr Izzo pointed out that, after excluding those votes, the resolution to agree to the scheme was still passed by a majority in number of members present and voting (either in person or by proxy) at the scheme meeting, and by 75% of the votes cast on the scheme resolution. He points to Exhibit EC-3 to Mr Cheng’s third affidavit which indicates that, on that basis, the scheme resolution was passed by 98.71% of the votes cast and 85.71% of CEG shareholders present and voting (in each case, in person or by proxy) excluding the two late-voting intermediaries.

13. Mr Izzo submits and I accept that the Court would have power to allow CEG, if appropriate, to count the late proxies under s 1319 of the Act: Re CSG Ltd [2019] NSWSC 1905, cited in T Damian and A Rich, Schemes, Takeovers and Himalayan Peaks (4th ed), The University of Sydney, Ross Parsons Centre of Commercial, Corporate and Taxation Law, 2021, at [4.3.2]. However, CEG does not seek such an order where the scheme resolution was passed by the requisite statutory majorities excluding the two late-voting shareholders in any event. I also note that Cede, as nominee for the beneficial owners, was not included as a person by whom the resolution was passed the purposes of applying the headcount test under s 411(4)(a)(ii), consistent with the approach in Re Spark Infrastructure Holdings No 1 Ltd & Ors [2010] NSWSC 1497; (2010) 79 NSWLR 756 at 760-761, [24]-[27] and Re Tronox Ltd (No 2) [2019] FCA 681 at [29].

14. Mr Izzo points out that the chair of the scheme meeting announced that results of the poll on the scheme resolution would be the subject of a published announcement filed with the SEC, following completion of counting of the poll and after the meeting had formally been closed, and that approach has been accepted in cases including Re MAC Services Group Ltd [2010] NSWSC 1474 at [22] and Re CSG Ltd (No 2) [2020] NSWSC 39 at [6]-[8]. No issue arises in the present case concerning the manner in which the poll was conducted or announced. In the event, the calculation of the shares and number of shareholders voting was reduced by the exclusion of the two late-voting intermediaries to which I referred above, but that did not alter the result of the vote.

15. CEG also provides voter turnout information in accordance with Practice Note SC EQ 04 - Corporations List [26(j)]. Mr Izzo notes that 14 CEG shareholders cast a vote in respect of the scheme resolution out of a total number of 196 CEG shareholders, and that result is not affected by the exclusion of the votes of the two late-voting intermediaries where their votes were cast by Cede through the DTC System. Although this is plainly a relatively low voter turnout, it is still higher than the turnout at CEG’s last two annual general meetings, and I accept that this evidence gives rise to no reason to doubt the efficacy of the procedure for convening the scheme meeting.

16. Mr Izzo notes that the scheme is conditional on the satisfaction of the conditions precedent set out in cl 3.1 of the scheme. Clause 3.2 of the scheme provides a regime for certificates to be provided regarding the satisfaction or waiver of conditions precedent and that has occurred as I noted above. As I also noted above, ASIC has given a written statement under s 411(17)(b) of the Act indicating that it has no objection to the scheme.

17. Mr Izzo submits and I accept that CEG should be exempted, by order under s 411(12) of the Act, from the requirement in s 411(11) of the Act to annex a copy of the orders under s 411(4)(b) to its constitution, where the scheme will not amend its constitution and it will become a wholly owned subsidiary of HoldCo on implementation of the scheme, consistent with the approach taken, for example, in Re Cirrus Networks Holdings Ltd (No 2) [2023] NSWSC 1436 at [13].

18. Mr Izzo also points out that, as raised at the first Court hearing and as noted in the convening orders for the scheme meeting, CEG and HoldCo intend to rely upon the Court's approval of the scheme for the purposes of the exemption under s 3(a)(10) of the Securities Act of 1933 (US). I accept that the conditions for that exemption are satisfied here: Re Atlantic Gold NL (No 2) [2014] FCA 869; Re Surf Lakes Holdings Ltd (No 2) [2023] FCA 1601 at [32]-[36]. Relevantly, the Court was advised before the commencement of the second Court hearing that reliance would be placed on the s 3(a)(10) exemption on the basis of the its approval of the scheme; the Court was informed that HoldCo shares were to be offered as scheme consideration, and the independent expert report has addressed the value of those securities and concluded that the scheme is in the best interests of CEG shareholders; the Court has held a hearing to consider the fairness and reasonableness of the proposed scheme; and the second Court hearing was open to the public and any person to whom HoldCo shares were to be issued had standing to appear. As I have noted above, notice of the date of that hearing was included in the scheme booklet sent to all shareholders, and published by the SEC and by CEG's website, and no shareholder has given notice of any intention to appear at the hearing to oppose the approval of the scheme.

19. I am otherwise satisfied that the scheme is appropriate for the Court’s approval. For these reasons, I made the orders sought by CEG at the second Court hearing on 16 February 2024.

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Decision last updated: 01 March 2024