In the matter of Donaco International Limited

[2025] NSWSC 662

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Donaco International Limited [2025] NSWSC 662

Hearing dates:

20 June 2025

Date of orders:

20 June 2025

Decision date:

24 June 2025

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Order convening scheme meeting and associated orders made.

Catchwords:

CORPORATIONS — arrangements and reconstructions — schemes of arrangement or compromise — application under s 411 of the Corporations Act 2001 (Cth) for orders convening meeting of members to consider and, if thought fit, to agree to proposed scheme of arrangement — whether requirements to order scheme meeting are satisfied

Legislation Cited:

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

- Supreme Court (Corporations) Rules 1999, r 3.4

Cases Cited:

- Re APM Human Services International Ltd [2024] NSWSC 1095

- Re Ansarada Group Ltd [2024] NSWSC 411

- Re Coca-Cola Amatil Ltd [2021] NSWSC 270

- Re DWS Ltd (2020) 148 ACSR 616; [2020] FCA 1590

- Re Ellerston Global Investments Ltd [2020] NSWSC 879

- Re ELMO Software Pty Ltd [2023] NSWSC 12

- Re Invocare Ltd [2023] NSWSC 1180

- Re Kidman Resources Ltd (2019) 139 ACSR 122; [2019] FCA 1226

- Re Oz Minerals Ltd [2023] FCA 197

- Re Pacific Smiles Group Ltd [2024] NSWSC 812

- Re Vocus Group Ltd [2021] NSWSC 630

Category:

Principal judgment

Parties:

Donaco International Limited (Plaintiff)
On Nut Road Limited (Bidder)

Representation:

Counsel:
J Hutton SC/B Ng (Plaintiff)
S Scott (Bidder)

Solicitors:
Ashurst (Plaintiff)
Hamilton Locke (Bidder)

File Number(s):

2025/226390

JUDGMENT

Nature of the application

1. By Originating Process filed on 13 June 2025, the Plaintiff, Donaco International Ltd (“Donaco”) applies for orders under ss 411 and 1319 of the Corporations Act 2001 (Cth) (“Act”) in respect of a proposed scheme of arrangement.

2. By way of background, Donaco is a public company listed on the Australian Securities Exchange (“ASX”) which operates leisure and entertainment businesses across the Asia Pacific region, including the Star Vegas Resort and Club in Cambodia and the Aristo International Hotel in Vietnam. Under the proposed scheme of arrangement, Donaco and On Nut Road Ltd (“ONR”) have agreed that ONR will acquire all of the scheme shares for AUD$0.045 per scheme share in cash by way of a scheme of arrangement between Donaco and shareholders (other than excluded shareholders) under Pt 5.1 of the Act. The excluded shareholders are ONR and its related bodies corporate and any Donaco shareholder who holds any shares on their behalf.

Affidavit evidence

3. Donaco reads the affidavit dated 13 June 2025 of its solicitor, Mr Thomas Storer, which exhibits a company search for Donaco and an announcement dated 17 March 2025 made by Donaco to the ASX that it had entered into a scheme implementation deed (“SID”) with ONR and its related bodies corporate.

4. Donaco also reads the affidavit dated 19 June 2025 of Mr Andrew Phillips, a non-executive director of Donaco, who refers to Donaco’s history and notes that ONR presently holds 12.84% of the shares in Donaco and Messrs Lee Bug Huy and Lee Bug Tong together hold 42.08% of the shares in Donaco. Mr Lee Bug Huy is also a director of Donaco. Mr Phillips also refers to the terms of the scheme; ONR’s execution of a deed poll in favour of scheme shareholders on 18 June 2025; the conditions precedent to the SID and exclusivity provisions and the existence of a break fee in respect of the scheme; and director’s interests in respect of the scheme. Mr Phillips also addresses a one-off bonus payment to be made to each of Donaco’s directors in the amount of AUD$150,000 (exclusive of GST) in recognition of their increased workload and time commitment in respect of matters relating to the scheme, and notes that that one-off bonus payment is not contingent on the scheme proceeding and will be paid irrespective of its outcome. That arrangement is properly disclosed in the explanatory memorandum for the scheme. Mr Phillips notes that Donaco’s board unanimously recommends that Donaco shareholders vote in favour of the scheme and will vote their own shares in favour of the scheme, in the absence of a superior proposal and subject to the independent expert continuing to conclude that the scheme is fair and reasonable and in the best interests of Donaco’s shareholders. Mr Phillips also outlines the content of the scheme booklet; the proposed arrangements for dispatch of the scheme booklet and conduct of the scheme meeting; and proposed arrangements for Donaco to conduct an outbound and inbound call line. The scripts of those communications are in evidence although, in accordance with current scheme practice, Donaco does not seek my approval for them. By a second affidavit also dated 19 June 2025, Mr Phillips addresses the process adopted by Donaco for verification and due diligence in respect of the scheme booklet, which was in customary form.

5. By his affidavit dated 19 June 2025, Mr Joshua Walsh, the solicitor acting for Donaco in respect of the scheme, refers to lodgement of the proposed scheme booklet with the Australian Securities and Investments Commission (“ASIC”) and to certain relief sought from, and granted by, ASIC in respect of the scheme.

6. By his affidavit dated 19 June 2025, Mr Kin Chan, who is a director of Adriatic Sea Management Ltd, a British Virgin Islands entity which is the sole director of ONR, refers to the due diligence and verification process undertaken by ONR in respect of information concerning it in the scheme booklet, which was again in customary form; Mr Chan also addresses ONR’s execution of the deed poll in favour of Donaco shareholders, the funds available to Donaco to pay the scheme consideration and a reverse break fee payable in respect of the scheme.

7. Mr Hutton, with whom Ms Ng appeared for Donaco, also took me through the scheme booklet (Ex 1) at the scheme hearing. Donaco also tendered a letter dated 19 June 2025 from ASIC in customary form (Ex 2), which reserved its position as to s 411(17)(b) of the Act to the second Court hearing but indicated that it currently did not propose to appear to make submissions or intervene to oppose the scheme at the first Court hearing.

Role of the Court at the first Court hearing

8. Mr Hutton submitted, uncontroversially, that the Court’s role at a first Court hearing in respect of a scheme is primarily to determine, in the exercise of its discretion, whether to convene a scheme meeting and approve the explanatory statement if it is satisfied of several matters, namely that the plaintiff is a “Part 5.1 body”; the proposed scheme is an “arrangement” within the meaning of s 411 of the Act; there has been proper disclosure to members (or creditors if a creditors’ scheme); the scheme is bona fide and properly proposed; ASIC has had reasonable opportunity to examine the proposed scheme and explanatory statement, to make submissions and has had 14 days’ notice of the proposed hearing date of the first Court hearing; the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) have been met; and there is no apparent reason why the scheme should not, in due course, receive the Court’s approval if the necessary majority of votes is achieved: Re Ellerston Global Investments Ltd [2020] NSWSC 879 at [25]–[26]; Re Vocus Group Ltd [2021] NSWSC 630 at [12]; Re Invocare Ltd [2023] NSWSC 1180 at [14]; Re Pacific Smiles Group Ltd [2024] NSWSC 812 at [9]; and Re APM Human Services International Ltd [2024] NSWSC 1095 at [11]) (“APM”).

9. Mr Hutton submits, and I accept, that each of the preconditions to the exercise of s 411(1) of the Act is met. Donaco is registered under the Act and is a Part 5.1 body and the proposed scheme is an “arrangement” between Donaco and Scheme Shareholders (as defined in the scheme). On 4 June 2025, Donaco lodged the draft scheme booklet with its annexures with ASIC; ASIC was also given notice of this hearing and ASIC has been given at least 14 days’ notice as required under s 411(2) of the Act. I have referred to Donaco’s tender of ASIC’s customary letter above at [7]. There is evidence that the draft scheme booklet has been the subject of a verification process. The procedural requirements under the Supreme Court (Corporations) Rules 1999 have been met, on the basis that I will dispense with r 3.4 where it proposes to give notice of the second Court hearing by way of ASX announcement in accordance with common practice.

10. Mr Hutton also rightly submitted that, where the preconditions to the exercise of power under s 411(1) of the Act are satisfied, then it is necessary for the Court to consider whether the Court should, in its discretion, exercise its power under s 411(1) of the Act. The Court will then consider whether the proposed scheme is fit for consideration at the proposed scheme meeting, in the sense that it is of such a nature and cast in such terms that, if it achieves the statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed and that members (or creditors) are to be properly informed as to the nature of the scheme before the scheme meeting: APM at [13].

11. Mr Hutton points out, and I have noted above, that Donaco’s board unanimously recommend that Donaco’s shareholders vote in favour of the scheme at the scheme meeting, in the absence of a Superior Proposal (as defined in the SID) and subject to the independent expert continuing to conclude that the scheme is in the best interest of Donaco shareholders. The independent expert, BDO, has assessed the value of a Donaco share on a controlling interest basis to be in the range of $0.041 (4.1 cents) to $0.064 (6.4 cents), using a summation method where Donaco’s value is primarily derived from individual assets. BDO has in turn relied on valuations made by Knight Frank as set out in Independent Property Expert’s Reports contained in the Independent Expert’s Report. Knight Frank have valued each of Donaco’s operating assets, namely the Lao Cai International, a hotel and casino in Lao Cai, in Northern Vietnam near the border with China, which has been vacant since 2013 following the construction of the Aristo; the Aristo, a hotel and casino also in Lao Cai; and the Star Vegas, a hotel and casino resort in Cambodia near the border with Thailand. As the scheme consideration of $0.045 (4.5 cents) falls within the range of values as assessed by BDO, BDO has expressed the opinion that the scheme is “fair” and “reasonable” and, on that basis in the absence of any other information or a superior proposal, the scheme is in the best interests of Donaco shareholders.

Particular Matters

12. Mr Hutton also draws several aspects of the scheme to the Court’s attention. First, he addresses the questions of funding of the scheme consideration, the entry into a deed poll and performance risk. He points out that, if the scheme becomes effective, the expected scheme consideration to be approximately $48.5 million based on a cash payment of $0.045 (4.5 cents) for each scheme share. The evidence is that ONR will fund the scheme consideration from its cash reserves, which as at the Last Practicable Date (as defined) totalled approximately A$50 million, held in its account at DBS Bank (Hong Kong) Ltd. I am satisfied that there is sufficient evidence of ONR’s capacity to pay that consideration. This matter does not give rise to any reason not to convene the scheme meeting.

13. Second, Mr Hutton points out that, on 18 June 2025, ONR executed a deed poll in favour of the scheme shareholders covenanting that, subject to the scheme becoming effective, ONR will perform its obligations under the scheme. Mr Hutton submits, and I accept, that the deed poll together with the provision of the scheme consideration to a trust account maintained by the scheme company are well-established means of managing performance risk: ReELMO Software Pty Ltd [2023] NSWSC 12 at [27]–[28]. This matter does not give rise to any reason not to convene the scheme meeting.

14. Third, Mr Hutton submits that the interests of Donaco’s directors are disclosed in the Chairman’s letter at pages 1 to 5 of the scheme booklet and sections 9.1 to 9.3 of the scheme booklet. He points out that, as I noted above and as disclosed at section 9.3(b) of the scheme booklet, Donaco’s board has approved a one-off bonus payment for each Donaco director in recognition of their increased and sustained workload and significant time commitment in connection with the scheme, which is not contingent on the scheme proceeding, in addition to directors’ existing remuneration entitlements. Mr Hutton submits, and I accept, that the case law indicates that, where a director will receive a substantial benefit in relation to a scheme which other shareholders will not receive, that benefit should be disclosed as a matter for shareholders to take into account when considering that director’s recommendation, and submits that a director may make a recommendation as to the scheme if sufficient disclosure of the relevant director's interest in the scheme is provided to shareholders: Re Kidman Resources Ltd (2019) 139 ACSR 122; [2019] FCA 1226 at [115]; Re DWS Ltd (2020) 148 ACSR 616; [2020] FCA 1590 at [41]–[49]; Re Oz Minerals Ltd [2023] FCA 197 at [10], [18]. I accept that the shares held by Donaco directors and the one-off bonus payments to them are sufficiently disclosed in the Chairman’s letter and sections 9.1 to 9.3 of the scheme booklet. This matter does not give rise to any reason not to convene the scheme meeting.

15. Fourth, Mr Hutton addresses the position as to exclusivity provisions. Clauses 9 and 10 of the SID impose several restrictions and obligations on Donaco and the Donaco Board in relation to negotiations with third parties such as “no shop” (cl 9.2(a)), “no talk” (cl 9.2(b)) and “no diligence” (cl 9.2(c)) restrictions and a “notification of approach” obligation (cl 10.1) and a “matching right” (cl 10.2). The “no talk” and “no due diligence” restrictions are subject to the Donaco board’s fiduciary or statutory obligations (cl 9.3). The “End Date” for the “Exclusivity Period” under the SID is six months after the date of the SID, being 16 September 2025, and I accept that this is not an unreasonable period: Re Coca-Cola Amatil Ltd [2021] NSWSC 270 at [22]. I also accept that the exclusivity provisions are consistent with market practice and sufficiently disclosed in the scheme booklet: Re Ansarada Group Ltd [2024] NSWSC 411 at [23] (“Ansarada”).

16. Fifth, Mr Hutton addresses the position as to break fees. Clause 11.2 of the SID provides that Donaco must pay to ONR the Break Fee of $500,000 (exclusive of GST) in the circumstances set out at cl 11.1 of the SID, and that Break Fee is not payable merely because the scheme is not approved at the scheme meeting (SID, cl 11.6). Clause 11.3 of the SID provides that ONR must pay Donaco the Reverse Break Fee of $500,000 (exclusive of GST) where Donaco terminates the SID due to a material breach of the SID or if an Insolvency Event (as defined in the SID) occurs with respect to ONR. The Break Fee and the Reverse Break Fees are disclosed in the scheme booklet. The amount of the Break Free and the Reverse Break Fee is approximately 0.9% of the implied diluted equity value of Donaco at the time of entry into the SID, consistent with the Takeovers Panel’s guidance. Mr Hutton submits, and I accept, that break fees of this kind are now common features in schemes of arrangements and will generally be permitted unless the amount of the break fee is such that it could influence voting at the meeting or it has unusual features: Ansarada at [24]. This matter and the other matters noted above do not give rise to any reason not to convene the scheme meeting.

Exercise of the Court’s discretion whether to convene the scheme meeting

17. Turning now to the wider issues relevant to the exercise of the Court’s discretion whether to convene the scheme meeting, as I noted above, the independent expert expresses the opinion that the scheme is fair and reasonable and therefore in the best interests of scheme shareholders, in the absence of a superior proposal, and Donaco’s board has unanimously recommended the shareholders vote in favour of the scheme, in the absence of a superior proposal and provided that the independent expert does not withdraw its conclusion that the scheme is in the best interests of Donaco’s shareholders. No apparent difficulty arises with the disclosure in the scheme booklet and the verification process adopted in respect of the scheme booklet. I am satisfied that there is nothing in the terms of the scheme or in its effect on scheme shareholders that would otherwise warrant the Court declining to approve the scheme at the second Court hearing, if it receives the statutory majorities required by s 411(4)(a)(ii) of the Act at the scheme meeting.

Orders

18. For these reasons, I made the orders sought by Donaco at the conclusion of the first Court hearing on 20 June 2025.

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Decision last updated: 25 June 2025