FEDERAL COURT OF AUSTRALIA
Dragontail Systems Limited, in the matter of Dragontail Systems Limited [2021] FCA 834
File number: NSD 626 of 2021 Judgment of: HALLEY J Date of judgment: 16 July 2021 Date of publication of reasons: 22 July 2021 Catchwords: CORPORATIONS – members’ scheme of arrangement – first court hearing – application under ss 411 and 1319 of the Corporations Act (Cth) for orders convening a meeting of members to consider and agree a proposed scheme of arrangement – proposed acquisition of shares in target company in exchange for consideration – performance risk where foreign withholding tax obligations of outsiders secured by deed poll and trustee arrangement – exclusivity – break fee – deemed warranties – proposed hybrid electronic meeting of members due to COVID-19 restrictions – application granted Legislation: Corporations Act 2001 (Cth) ss 411, 1319
Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Cth) s 5
Cases cited: Adelaide Bank Limited, in the matter of Adelaide Bank Limited [2007] FCA 1582
Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341
APN News & Media Limited, in the matter of APN News & Media Limited (2007) 62 ACSR 400; [2007] FCA 770
Asaleo Care Limited, in the matter of Asaleo Care Limited [2021] FCA 406
In the matter of BINGO Industries Limited [2021] NSWSC 798
In the matter of Coca-Cola Amatil Limited [2021] NSWSC 270
In the matter of Ellerston Global Investments Limited [2020] NSWSC 879
Palladium Group Holdings Pty Ltd, in the matter of Palladium Group Holdings Pty Ltd [2020] FCA 1123
Westfield Holdings Limited (2004) 49 ACSR 734; [2004] NSWSC 458
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 51 Date of hearing: 16 July 2021 Counsel for the Plaintiff: Mr M Oakes SC Solicitor for the Plaintiff: Thomson Geer Counsel for the Interested Party: Ms TL Wong SC Solicitor for the Interested Party: Baker McKenzie ORDERS
NSD 626 of 2021 IN THE MATTER OF DRAGONTAIL SYSTEMS LIMITED ACN 614 800 136
DRAGONTAIL SYSTEMS LIMITED ACN 614 800 136
Plaintiff
ORDER MADE BY:
HALLEY J
DATE OF ORDER:
16 JULY 2021
THE COURT ORDERS THAT:
Electronic hearings
1.Pursuant to s 17(4) of the Federal Court of Australia Act 1976, to the extent that, and for so long as, the Public Health (COVID-19 Gathering Restrictions) Order (No 2) 2021 and the Public Health (COVID-19 Temporary Movement and Gathering Restrictions) Order 2021 under the Public Health Act 2010 (NSW) operate to limit or exclude members of the public from being able to attend court at the Law Courts Building Queens Square Sydney during the hearing of this proceeding, the sitting of the Court continues notwithstanding the inability of members of the public to be present who have not applied to the Registry to observe the hearing by video…
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- AGLC
- Re Dragontail Systems Ltd [2021] FCA 834
- Case
- [2021] FCA 834
- Decision Date
CaseChat Overview and Summary
The Court found that Dragontail Systems Ltd had satisfied all the statutory preconditions for the approval of the scheme. The evidence demonstrated that the scheme was bona fide and properly proposed, with adequate disclosure made to the shareholders through the scheme booklet. The inclusion of provisions addressing Israeli withholding tax obligations and the deemed warranties were deemed sufficient to inform shareholders of the potential risks. The Court also accepted that the hybrid electronic meeting format was appropriate given the COVID-19 restrictions. The independent expert's report confirmed that the scheme was fair and reasonable, and in the best interests of the shareholders.
The Court granted the application and ordered the convening of a meeting of Dragontail Systems Ltd's shareholders to consider and vote on the proposed scheme. The meeting was scheduled to take place on 23 August 2021, both virtually and in person, with specific provisions for electronic communication and documentation distribution. The Court also exempted the company from certain procedural requirements, such as publishing a notice of the hearing in a newspaper, given the hybrid meeting format.
The final orders included detailed provisions for the conduct of the meeting, the distribution of the scheme booklet and related documents to shareholders, and the process for following up with shareholders regarding compliance with Israeli withholding tax obligations. The Court emphasized the importance of clear communication and compliance with tax obligations to ensure the scheme's fairness and transparency.
Orders
Orders of the court
Scheme of arrangement
4. Pursuant to ss 411(1) and 1319 of the Corporations Act 2001 (Cth) (Act):
(a) the Plaintiff convene a meeting (Scheme Meeting) of the holders of its fully paid ordinary shares (Shareholders) for the purpose of considering, and if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement to be made between the Plaintiff and its Shareholders (Scheme) in the form sent electronically to the court by the plaintiffs at 5.54 pm on 16 July 2021 which has been tendered and marked Exhibit 1 in these proceedings (Scheme Booklet);
(b) the Scheme Meeting be held on 23 August 2021 virtually and in person at Level 9, 40 St Georges Terrace, Perth, Western Australia 6000 commencing at 12 noon (Perth time);
(c) the time for determining eligibility to vote at the Scheme Meeting be fixed at 5:00pm (Perth time) on 21 August 2021;
(d) the chairperson of the Scheme Meeting be Henry Shiner, or failing him, Ron Shaul Zuckerman;
(e) the chairperson appointed to the Scheme Meeting has the power to adjourn or postpone the Scheme Meeting in his absolute discretion for such time and to such date as the chairperson considers appropriate;
(f) the chairperson appointed to the Scheme Meeting be permitted to attend and chair the meeting by video-conferencing technologies;
(g) at the Scheme Meeting, the resolution to approve the scheme be decided by way of a poll;
(h) the Scheme Booklet be approved for distribution to Shareholders, together with:
(i) a proxy form for the Scheme Meeting (substantially in the form of the pro forma copy which is Annexure IL-7 to the Affidavit of Ido Levanon affirmed 14 July 2021 in these proceedings) (Proxy Form);
(ii) (for a Shareholder whose registered address is in Australia) a bank account update form (substantially in the form of the pro forma copy which is Annexure IL-8 to the Affidavit of Ido Levanon affirmed 14 July 2021 in these proceedings) (Australian Bank Account Form);
(iii) (for a Shareholder whose registered address is outside Australia) a bank account update form (substantially in the form of the pro forma copy which is Annexure IL-9 to the Affidavit of Ido Levanon affirmed 14 July 2021 in these proceedings) (Overseas Bank Account Form); and
(iv) an Israeli withholding tax declaration (substantially in the form of the pro forma copy which is Annexure IL-10 to the Affidavit of Ido Levanon affirmed 14 July 2021 in these proceedings) (IWHT Form).
5. Pursuant to s 1319 of the Act, the Plaintiff is to cause to be issued on or before 22 July 2021:
(a) to each Shareholder who, in accordance with the Act, has nominated an electronic address for the purposes of receiving notices of meeting from the Plaintiff, at such address, an email substantially in the form of the document which is Annexure HHJ-10 to the Affidavit of Helen Hui Jin affirmed 16 July 2021 in these proceedings, including:
(i) an electronic hyperlink to download the Scheme Booklet;
(ii) an electronic hyperlink to the webpage where that Shareholder can electronically lodge proxies for the Scheme Meeting; and
(iii) attaching a copy of the IWHT Form and either (for a Shareholder whose registered address is in Australia) the Australian Bank Account Form or (for a Shareholder whose registered address is outside Australia) the Overseas Bank Account Form;
(b) to each Shareholder (other than those referred to in 2(a) above) by pre-paid post, or in the case of a Shareholder whose registered address is outside Australia, by pre-paid air mail, addressed to that Shareholder's address set out in the register of members of the Plaintiff:
(i) a letter with the URL address to the Scheme Booklet substantially in the form of the document which is Annexure HHJ-11 to the Affidavit of Helen Hui Jin affirmed 16 July 2021 in these proceedings;
(ii) a Proxy Form, an IWHT Form and either (for a Shareholder whose registered address is in Australia) the Australian Bank Account Form or (for a Shareholder whose registered address is outside Australia) the Overseas Bank Account Form; and
(iii) a reply paid envelope addressed to the Plaintiff.
6. Pursuant to s 1319 of the Act, the Plaintiff shall by no later than 16 August 2021, and may at any other time, cause to follow up those Shareholders who have not returned their IWHT Form or otherwise complied with the Israeli Withholding Tax Ruling in Annexure B of the Scheme Booklet, by either:
(a) if such Shareholder has, in accordance with the Act, nominated an electronic address for the purposes of receiving notices of meeting from the Plaintiff, sending to such address, an email substantially in the form of the document which is Annexure HHJ-12 to the Affidavit of Helen Hui Jin affirmed 16 July 2021 in these proceedings; and/or
(b) issuing a letter to such Shareholder by pre-paid post, or in the case of a Shareholder whose registered address is outside Australia, by pre-paid air mail, a letter substantially in the form of the document which is Annexure HHJ-13 to the Affidavit of Helen Hui Jin affirmed 16 July 2021 in these proceedings.
7. Pursuant to s 1319 of the Act, the Plaintiff may cause to follow up those Shareholders who have not returned their IWHT Form or otherwise complied with the Israeli Withholding Tax Ruling in Annexure B of the Scheme Booklet, by calling such Shareholder, provided the caller follows a script substantially in the form of the document which is Annexure HHJ-14 to the Affidavit of Helen Hui Jin affirmed 16 July 2021 in these proceedings.
8. Rule 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) shall not apply to the Scheme Meeting.
9. Notice of the hearing of the application pursuant to subsection 411(4)(b) of the Corporations Act for orders approving the Scheme be published once in "The Australian" newspaper, by advertisement substantially in the form of Annexure "A" to these orders, such advertisement to be published on or before 24 August 2021, and the Plaintiff otherwise be exempted for compliance with the requirement to publish a notice of the hearing of the application pursuant to rule 3.4 of the Federal Court (Corporations) Rules 2000 (Cth).
10. The proceeding be stood over to 10:15am on Monday, 30 August 2021 for the hearing of any application to approve the Scheme.
11. There be liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANNEXURE A
Dragontail Systems Limited
ACN 614 800 136
Notice of hearing to approve scheme of arrangement
TO all the creditors and members of Dragontail Systems Limited (ACN 614 800 136) (Dragontail).
TAKE NOTICE that at 10:15am (Sydney time) on 30 August 2021, the Federal Court of Australia at Law Courts Building, 184 Phillip Street, Queens Square, Sydney NSW 2000, Australia will hear an application by Dragontail seeking the approval of a compromise or arrangement between Dragontail and its ordinary shareholders (Shareholders) as proposed by a resolution passed at a meeting of Shareholders held on 23 August 2021.
If you wish to oppose the approval of the compromise or arrangement, you must file and serve on Dragontail a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on Dragontail at its address for service at least 1 day before the date fixed for the hearing of the application.
The address for service of Dragontail is: c/- Thomson Geer, Level 14, 60 Martin Place, Sydney NSW 2000, Australia (Attention: Jason Marcus).
Jason Marcus, Thomson Geer
Solicitor for Dragontail Systems Limited
Background
Background to the litigation
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Evidence
Evidence Before The Court
Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
DTS also relies on the following affidavits:(a)six affidavits of Helen Hui Jin, a solicitor employed by the law firm representing DTS, affirmed on 25 June, 9 July, 15 July (two affidavits) and 16 July (two affidavits) 2021, attaching company searches and communications with the Australian Securities and Investments Commission (ASIC), including a copy of ASIC’s usual first court hearing letter;(b)an affidavit of Sally Mills Glover, a director of Bidco, affirmed on 15 July 2021 providing information about Bidco and the verification process undertaken by Bidco;(c)an affidavit of Henry Shiner, a non-executive director of DTS, affirmed on 13 July 2021 confirming that he had agreed to chair the Scheme Meeting;(d)an affidavit of Ron Shaul Zuckerman, a non-executive director of DTS, affirmed on 13 July 2021 confirming that he had agreed to act as an alternate chairperson for the Scheme Meeting;(e)an affidavit of David John McCourt, a director of BDO Corporate Finance (East Coast) Pty Ltd, affirmed on 15 July 2021 annexing his independent expert’s report in which he concludes that the proposed Scheme is fair and reasonable and, as a result, is in the best interests of the shareholders of DTS at the time of writing his report;(f)an affidavit of Eng Hua Ng, a director of BDO Corporate Tax (WA) Pty Ltd, affirmed on 12 July 2021 annexing his letter that was included in the Scheme Booklet addressing the Australian taxation implications for the proposed Scheme;(g)an affidavit of Oz Liberman, a tax partner of Kost, Forer, Gabbay & Kasierer, annexing his letter that was included in the Scheme Booklet addressing the Israeli withholding tax issues; and(h)an affidavit of Ester Copley, a Hebrew to English translator accredited by the National Accreditation Authority for Translators and Interpreters, affirmed on 9 July 2021 confirming that she had checked and confirmed the English translation of the Israeli withholding tax ruling that was included in the Scheme Booklet. CONSIDERATIONFormal requirements to exercise s 411(1) power Section 411(1) of the Act confers a power on the Court to order a meeting of members to be convened and to approve the relevant explanatory statement. I am satisfied that the evidence upon which DTS relies is sufficient to establish each of the following matters that have been considered necessary preconditions to the Court making orders for the convening of a scheme meeting: Australian Leaders Fund Ltd v Equity Trustees Ltd, in the matter of Australian Leaders Fund Ltd [2021] FCA 88 (Leaders Fund) at [16] (Stewart J) citing Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 (Amcon) at [12] (McKerracher J); Staging Connections Group Limited, in the matter of Staging Connections Group Limited [2015] FCA 1012 at [19]-[20] (Gleeson J); and Xplore Wealth Limited, in the matter of Xplore Wealth Limited [2020] FCA 1868 at [23] (Markovic J); see also Signature Capital Investments Limited, in the matter of Signature Capital Investments Limited [2016] FCA 258 at [12] (Farrell J):(a)DTS is a Part 5.1 body;(b)the Scheme Participants are members of DTS;(c)the Scheme Meeting will be convened between members of the same class;(d)the Scheme is bona fide and properly proposed;(e)ASIC has had a reasonable opportunity to examine the terms of the Scheme and the Scheme Booklet and make any submissions to the Court;(f)the Scheme Booklet provides adequate disclosure; and(g)the Scheme can properly be described as an arrangement or a compromise.