Re Dreamscape Networks Ltd; Ex parte Dreamscape Networks Ltd
[2019] WASC 412
•13 NOVEMBER 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE DREAMSCAPE NETWORKS LTD; EX PARTE DREAMSCAPE NETWORKS LTD [2019] WASC 412
CORAM: HILL J
HEARD: 30 AUGUST & 14 OCTOBER 2019
DELIVERED : 14 OCTOBER 2019
PUBLISHED : 13 NOVEMBER 2019
FILE NO/S: COR 168 of 2019
EX PARTE
DREAMSCAPE NETWORKS LTD
Plaintiff
Catchwords:
Corporations law - Scheme of arrangement - Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth) - Whether requirements to order scheme meeting are satisfied - Whether directors should make a voting recommendation to members - Orders made convening meeting
Corporations - Scheme of arrangement - Application for orders approving the scheme under s 411(b) of the Corporations Act 2001 (Cth) - Orders made approving scheme
Legislation:
Corporations Act 2001 (Cth) s 411
Supreme Court (Corporations ) (WA) Rules 2004 (WA)
Result:
Orders made convening scheme meeting
Order made approving scheme
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr S K Dharmananda SC & Ms K J Hall |
| Interested Party | : | Mr P Tydde |
Solicitors:
| Plaintiff | : | DLA Piper Australia - Perth |
| Interested Party | : | Gilbert + Tobin |
Case(s) referred to in decision(s):
Re ACM Gold Limited; Re Mt Leyshon Gold Mines Ltd (1992) 34 FCR 530
Re Amcom Telecommunications Ltd [2015] FCA 341
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re Coles Group [No 2] [2007] VSC 523; (2007) 65 ACSR 494
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re David Jones Ltd [No 2] [2014] FCA 753
Re Doray Minerals Ltd; Ex Parte Doray Minerals [2019] WASC 57
Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34
Re International Goldfields Ltd [2004] WASC 112
Re Investa Properties Ltd [2007] FCA 1104
Re Kangaroo Resources Ltd [2018] WASC 327
Re Kidman Resources Ltd [2019] FCA 1226
Re Macquarie Private Capital A Ltd [2008] NSWSC 323
Re Mod Resources Ltd [2019] WASC 326
Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
Re Ruralco Holdings Ltd [2019] FCA 878; (2019) 136 ACSR 628
Re Scarborough Equities Ltd [No 2] [2009] FCA 484
Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583
Re SMS Management & Technology Ltd [2017] VSC 257
Re SRG Limited [2018] FCA 1092
Re Villa World Ltd [2019] NSWSC 1207
Re Wellcom Group Ltd [2019] FCA 1655
Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308
Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [2018] WASC 357
HILL J:
Overview
The plaintiff, Dreamscape Networks Ltd (Dreamscape), is an Australian public company listed on the official list of the ASX Ltd (ASX).
On 24 July 2019, Dreamscape announced that it had entered into a scheme implementation deed (SID) with Web.com Group Inc (Web.com).[1] Under the SID, it was proposed that Web.com would acquire 100% of the share capital of Dreamscape by way of a scheme of arrangement[2] and that shareholders would receive cash consideration of $0.27 for each Dreamscape share.[3]
[1] Affidavit of Evan George Cross filed 13 August 2019, 'EGC2'.
[2] Affidavit of Evan George Cross filed 13 August 2019, par 13(b).
[3] Scheme, cl 6.1 and Schedule 1.
By originating process dated 13 August 2019, Dreamscape sought orders under s 411 of the Corporations Act 2001 (Cth) (Act) in relation to the proposed scheme of arrangement (Scheme). The application came before me for the first court hearing on 30 August 2019.
On 30 August 2019, I made orders pursuant to s 411(1) of the Act to convene a meeting of Dreamscape's members to consider and vote on the proposed Scheme. Orders were also made for the approval for distribution of a scheme booklet under s 412(1)(a) of the Act. I also made ancillary orders as to the convening and conduct of the Scheme meeting under s 1319 of the Act. I said that I would publish written reasons for my orders subsequently.
The Scheme meeting was held on 7 October 2019. At this meeting, the Scheme was approved by the requisite statutory majority.
On 14 October 2019, I made orders approving the Scheme. In making these orders, I stated that I would publish written reasons for my orders subsequently.
These are my reasons for the orders I made on 30 August 2019 and 14 October 2019.
Factual background
Dreamscape
Dreamscape was incorporated on 27 April 2016 and admitted to the official list of the ASX in December 2016.[4] It provides web‑based products and services across three major areas of website domains, hosting and solutions to assist clients in managing and growing their online presence.[5]
[4] Affidavit of Evan George Cross filed 13 August 2019, par 17.
[5] Scheme booklet, par 4.2.
As at 12 August 2019, Dreamscape had 389,653,332 shares and 28,814,900 options on issue. The options are unlisted and have various expiry dates and vesting conditions.[6]
Web.com
[6] Affidavit of Evan George Cross filed 13 August 2019, par 19.
Web.com provides a full range of internet services to small businesses, including domains, hosting, website design and online marketing. It is wholly owned by an affiliate of Siris Capital Group LLC, a New York based private equity firm.[7]
[7] Scheme booklet, par 5.2(a).
At the date of the first hearing, Web.com held a relevant interest in 77,769,330 shares in Dreamscape.[8] The relevant interest arose from two call options granted by Mark Evans and Cloudsafe Holdings Ltd (Cloudsafe), an entity controlled by Mr Evans, to Web.com being:[9]
(a)an option over 38,884,665 Dreamscape shares for the Scheme consideration; and
(b)subject to FIRB approval being obtained, an option over a further 38,884,665 shares for the Scheme consideration.
Siteplus
[8] Scheme booklet, par 5.7(a).
[9] Scheme booklet, par 2.15.
Siteplus is a do‑it‑yourself website builder that can be used to create mobile friendly websites. Siteplus was incorporated in Singapore on 1 June 2016.[10] Its shareholders are Cloudsafe and Bluegeko Holdings Ltd (Bluegeko), who are also substantial shareholders of Dreamscape.[11]
[10] Scheme booklet, par 6.1.
[11] Scheme booklet, par 10.4.
At present, Dreamscape offers Siteplus through its product 'Sitebeat'. Dreamscape negotiated an arm's length third party commercial supply agreement with Siteplus in 2018.[12]
[12] Scheme booklet, par 6.1.
Web.com formed the view that owning Siteplus, rather than accessing its services through a supply agreement, could improve Dreamscape's business.[13]
[13] Affidavit of Christina Leigh Clohecy affirmed 28 August 2019, par 23.
On 23 July 2019, Dreamscape, by its wholly owned subsidiary Dreamscape Networks International Pte Ltd (Dreamscape International), entered into a call option agreement (Siteplus Option) with Cloudsafe and Bluegeko. Under the Siteplus Option, Cloudsafe and Bluegeko granted Dreamscape International the right to acquire all the issued capital of Siteplus Pte Ltd (Siteplus).[14]
[14] Affidavit of Evan George Cross filed 13 August 2019, par 33.
The Siteplus Option can be exercised only if the Scheme becomes effective and Dreamscape is removed from the official list of the ASX. It expires on 31 March 2020 or on the provision of notice that Dreamscape International does not intend to exercise the option. If the Siteplus Option is exercised, Cloudsafe and Bluegeko will each receive $5.4 million and $1.2 million will be paid to the Siteplus Performance Rights Holders.[15]
[15] Scheme booklet, par 6.3.
ASX Listing Rule 10.1 prohibits the acquisition of a substantial asset from a substantial holder without shareholder approval having first been obtained. Dreamscape accepts that the grant of the Siteplus Option is such an acquisition and that shareholder approval is required.
It is proposed that shareholders approve entry into the Siteplus Option by resolution at an extraordinary general meeting to be held on the same date as the Scheme meeting.[16] Under the SID, it is a condition that Dreamscape's shareholders approve the grant of the Siteplus Option.[17]
Proposed Scheme
[16] Scheme booklet, Letter to Shareholders; Important Dates; par 6.4.
[17] Scheme booklet, par 6.3.
The purpose of the proposed Scheme between Dreamscape and Web.com is to effect a corporate merger of these entities. If the Scheme is implemented, the plaintiff's shareholders will receive $0.27 per share from Web.com as consideration for the acquisition of their shares under the Scheme.[18]
[18] Scheme, cl 6.1, Schedule 1.
On 23 July 2019, the plaintiff and Web.com entered into the SID for the proposed merger.[19] This Deed was varied on 28 August 2019 for reasons which are discussed in more detail below.[20]
[19] Affidavit of Evan George Cross filed 13 August 2019, par 6.
[20] Second Affidavit of Kirsty Jayne Hall filed 29 August 2019, 'KJH-11'.
The Scheme contains a condition that the holders of the options enter into a deed with Dreamscape and Web.com prior to the second court hearing to cancel their options in return for cash consideration.[21]
[21] Affidavit of Evan George Cross filed 13 August 2019, par 18 - 20.
The independent directors of Dreamscape unanimously recommended that their shareholders vote in favour of the Scheme.[22] Mr Evans, the managing director of Dreamscape, abstained from making a recommendation.
[22] Scheme Booklet, par 2.3.
Dreamscape retained an independent expert to give an opinion on the proposed Scheme. The independent expert, Mr Adam Myers and Mr Sherif Andrawes of BDO Corporate Finance (WA) Pty Ltd, concluded that the position of the Dreamscape's shareholders is more advantageous if the Scheme is implemented than if the Scheme is not implemented.[23]
[23] Scheme Booklet, par 2.4, Annexure '1'.
Evidence for first court hearing
Dreamscape and Web.com relied on 10 affidavits that were filed prior to the first hearing. These were:
(a)an affidavit of Evan George Cross sworn 13 August 2019. Mr Cross is a non‑executive director of Dreamscape. Mr Cross confirmed a number of formal matters, outlined the nature of the proposed Scheme and attested to the verification process that had been undertaken by Dreamscape in relation to the draft scheme booklet. His affidavit annexed the draft scheme booklet, the ASX announcement of the proposed Scheme, information about Dreamscape obtained from the ASIC, Dreamscape's constitution, a report from the Dreamscape's share registry and the proxy form proposed to be given to shareholders. Mr Cross also gave evidence about the proposed ongoing arrangements between Mark Evans and Web.com, including that Mr Evans would receive a retention bonus of $7.5 million four months after the implementation of the Scheme.
(b)a second affidavit of Evan George Cross sworn 16 August 2019. This affidavit annexed the annexures to the draft scheme booklet that were inadvertently left out of the first Cross affidavit.
(c)an affidavit of Kirsty Jayne Hall sworn 26 August 2019. Ms Hall is a solicitor of DLA Piper, the solicitors for the plaintiff. Ms Hall confirmed that the draft scheme booklet and notice of the hearing had been served on ASIC on 13 August 2019 and annexed evidence of these matters.
(d)an affidavit of Michael Phillip Bowen sworn 26 August 2019. Mr Bowen is a partner of DLA Piper, and is the proposed chairperson of the Scheme meeting. By his affidavit, Mr Bowen 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). Mr Bowen gave evidence that Scott Gibson, another partner of DLA Piper, had been nominated as alternate chairperson for the scheme meeting, that Mr Gibson consented to this nomination and provided the necessary disclosures required by r 3.2 of the Corporations Rules on behalf of Mr Gibson.
(e)an affidavit of Jamie Matthew Ammendolea sworn 29 August 2019. Mr Ammendolea is a solicitor of Gilbert + Tobin, the solicitors who act for Web.com. Mr Ammendolea's affidavit annexed two affidavits: first, the affidavit of Christina Leigh Clohecy affirmed 28 August 2019, and second, the affidavit of Tyler Dwight Sipprelle affirmed on 28 August 2019. Ms Clohecy is the chief financial officer of Web.com. Ms Clohecy's affidavit set out the verification process that had been undertaken by Web.com in respect of the scheme booklet and annexed an ASIC search of Web.com, the deed of variation of the SID dated 28 August 2019, the executed deed poll, the Siteplus Option Agreement dated 23 July 2019 and the option deed that gave rise to Web.com's relevant interest in Dreamscape. Mr Sipprelle is a non‑executive director of Web.com. Mr Sipprelle's affidavit also confirmed the verification process that had been undertaken by Web.com in respect of the scheme booklet.
(f)a third affidavit of Evan George Cross sworn 29 August 2019, confirming the further verification that had been undertaken by Dreamscape in relation to the scheme booklet. The affidavit annexed an executed copy of the Siteplus Option Agreement, which was referred to in his first affidavit.
(g)three further affidavits of Kirsty Jayne Hall, each sworn 29 August 2019. Ms Hall annexed copies of the email exchanges between DLA Piper and ASIC in relation to the Scheme and draft scheme booklet, as well as a copy of the deed of variation of the SID dated 28 August 2019. The deed of variation was entered into following these exchanges with ASIC. The final scheme booklet was annexed to Ms Hall's fourth affidavit.
(h)a second affidavit of Jamie Matthew Ammendolea sworn 30 August 2019. The affidavit annexed a second affidavit of Tyler Dwight Sipprelle affirmed on 29 August 2019. Mr Sipprelle's affidavit confirmed that the changes to the scheme booklet regarding Web.com had been verified by Web.com.
Nature of Proposed Scheme
The proposed Scheme contemplates that Web.com will acquire all of the fully paid ordinary shares of Dreamscape and that shareholders will receive $0.27 in cash for each Dreamscape share held. That is, the effect of the scheme is to make Dreamscape a wholly owned subsidiary of Web.com.
The Dreamscape options stand outside the proposed Scheme and are to be dealt with by entry into cancellation deeds with each of the relevant option holders. Dreamscape and Web.com have already entered into option cancellation deeds with each of the option holders.[24] Each option holder has agreed to cancel its options in exchange for a cash payment. These arrangements require Web.com to make an additional payment of approximately $436,648.[25]
[24] Affidavit of Evan George Cross filed 13 August 2019, par 21.
[25] Scheme booklet, par 2.25, 10.1.
If the Scheme is implemented, Dreamscape will become a wholly owned subsidiary of Web.com and will be delisted from the ASX. The Scheme will not be effective unless and until a number of conditions precedent are satisfied or waived. These conditions include shareholder approval being obtained for the grant of the call option agreement in respect of Siteplus.[26] The conditions precedent which are required to be satisfied are disclosed in the scheme booklet.[27]
[26] SID, cl 3.1.
[27] Scheme booklet, par 2.7.
If the Scheme is approved by shareholders and by the court at the second court hearing, Dreamscape will transfer all of its shares to Web.com and enter Web.com as the holder of all Dreamscape shares in the Register.[28] Web.com will provide the cash consideration for the Scheme to shareholders in return for their shares in Dreamscape.[29]
[28] Scheme, cl 5.2.
[29] Scheme, cl 6.1.
Web.com is obliged to provide the Scheme consideration prior to the transfer of the shares.[30] The obligations of Web.com under the Scheme are supported by a deed poll dated 28 August 2019 which has been executed by Web.com (Deed Poll).[31]
[30] Scheme, cl 6.2(a).
[31] Affidavit of Christina Leigh Clohecy affirmed 28 August 2019, 'CLC-3'.
The independent directors of Dreamscape unanimously recommended that shareholders vote in favour of the Scheme.[32]
[32] Scheme Booklet, 'Letter to Shareholders'.
Following conferral with the Australian Securities and Investments Commission (ASIC), it was agreed that the managing director of Dreamscape, Mark Evans, abstain from making any recommendation in respect of the Scheme. This was as a result of the substantial financial benefits that Mr Evans and his related entities will receive if the Scheme is implemented, namely a $7.5 million retention bonus which is payable four months after implementation of the Scheme, $72,400 for the cancellation of his Dreamscape Options, and, in the event the Siteplus Option is exercised, a further $5.4 million on the sale of Cloudsafe's shares in Siteplus.[33]
[33] Scheme Booklet, p 18 - 19.
As a consequence, the SID was amended by deed dated 28 August 2019 to remove the requirement that the directors of Dreamscape unanimously recommend that shareholders vote in favour of the scheme[34] and to limit this obligation to the independent directors.[35]
[34] Second Affidavit of Evan George Cross filed 16 August 2019, 'EGC9', cl 6.1, p 77.
[35] Second affidavit of Kirsty Jayne Hall filed 29 August 2019, 'KJH11', cl 2.1, p 409.
An independent expert report (IER) has been prepared by BDO Corporate Finance Pty Ltd. The IER expresses the opinion that, in the absence of a superior proposal, the Scheme is fair and reasonable and in the best interests of the shareholders.[36] In reaching this conclusion, the IER determined that the range for the value of a share in Dreamscape was between $0.17 (low) and $0.26 (high). The Scheme consideration of $0.27 is above this valuation range. The basis of the valuation and the methodology used are set out comprehensively in the IER.
[36] Scheme Booklet, Annexure 1.
I was provided with the draft scheme booklet which was submitted to ASIC on 13 August 2019[37] and the various amendments that have been made to the document since then.[38]
[37] Affidavit of Kirsty Jayne Hall filed 26 August, par 2; 'KJH-1'; 'KJH-2'.
[38] Second Affidavit of Kirsty Jayne Hall filed 29 August 2019, par 8; 'KJH-9'; 'KJH-10'.
The scheme booklet contains the following sections:
(a)a letter from the Chairman of Dreamscape which contains a clear statement of the Independent Board's recommendation;
(b)important notices giving an overview of the Scheme and advising shareholders to obtain independent financial and taxation advice;
(c)a listing of all important dates and times for the Scheme;
(d)a 'frequently asked questions' table, which addresses all the essential matters including the independent directors' recommendation, a summary of the benefits to be received by Mr Evans if the Scheme is implemented and the fact that Mr Evans had abstained from making any recommendation and the reasons for this;
(e)an overview of the Scheme and actions for shareholders to take;
(f)a section on reasons to vote for or against the Scheme;
(g)information about Dreamscape and Web.com;
(h)a section on the Siteplus Option;
(i)a section on the key risk factors;
(j)a section on the taxation implications for Dreamscape shareholders;
(k)a section on the key terms of the SID; and
(l)a section on additional information, which included details of the relevant interests of Dreamscape's directors and the benefits they will obtain if the Scheme is approved.
The scheme booklet included a number of important annexures which will form part of the scheme booklet. These include the IER, the SID, the proposed Scheme, the Deed Poll and the relevant notice of meeting.
Legal principles in respect of the Scheme
Pursuant to s 411 of the 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 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 Act.
There are three stages to an application under s 411 of the 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.[39]
[39] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7].
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:[40]
(a)there is a pt 5.1 body;
(b)there is a compromise or arrangement within the meaning of s 411 of the Act;
(c)the proposed scheme booklet contains the prescribed information[41] and provides proper disclosure;[42]
(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;[43]
(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.
[40] Re SRG Limited [2018] FCA 1092 [11]; Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308 [60].
[41] Corporations Act, s 412(1)(a)(ii); Corporations Regulations 2001 (Cth), reg 5.1.01 and Sch 8 cl 8301 ‑ 8310.
[42] Corporations Act, s 412(1)(a)(i).
[43] Corporations Act, s 411(2)(b).
Any issue about classes of members is usually determined at the first hearing.[44] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[45]
[44] Re CSR Ltd [73].
[45] Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 [20].
The standard of review that is undertaken by the court at the first hearing is whether the proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members.[46] 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.[47]
[46] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[47] Re SRG Limited [2018] FCA 1092 [12]; Re Wesfarmers Ltd; Ex Parte WesfarmersLtd [2018] WASC 308 [72] - [76].
Disposition
The formal matters that Dreamscape had to prove are satisfied.
Dreamscape is a company and, accordingly, is a pt 5.1 body. The proposed Scheme constitutes an 'arrangement'. This type of share acquisition scheme has been approved by courts as an arrangement on numerous occasions.
Dreamscape filed the affidavit 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 Scheme Meeting.[48]
[48] Affidavit of Michael Phillip Bowen filed 26 August 2019, par 5.
By letter dated 29 August 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 Scheme and the draft explanatory statement or scheme booklet.[49] ASIC also gave notice that it did not propose to appear at the first hearing to make submissions or intervene to oppose the Scheme.[50]
[49] Third Affidavit of Kirsty Jayne Hall filed 29 August 2019, 'KJH-12'.
[50] Third Affidavit of Kirsty Jayne Hall filed 29 August 2019, 'KJH-12'.
On the materials before me, there was nothing to suggest that the proposed Scheme was not properly proposed. The constitution of Dreamscape does not prevent the Scheme.[51]
[51] Affidavit of Evan George Cross filed 13 August 2019, 'EGC-5'.
No class issue arose in relation to the Scheme. All shareholders are being treated equally and, as a result, constitute a single class.
There are number of conditions precedent to the Scheme.[52] Mr Cross has deposed that he is not aware of any basis to believe that any condition precedent will not be satisfied by the necessary time.[53]
[52] Scheme, cl 3.1.
[53] Affidavit of Evan George Cross filed 13 August 2019, par 77 - 79.
I have read the initial draft of the scheme booklet (as provided to ASIC). I have also been provided with the communications between ASIC and Dreamscape's solicitors in relation to ASIC's review of the draft scheme booklet. As a result of this conferral, an amendment was made to the Scheme to remove the requirement that Mark Evans make a recommendation in respect of the Scheme or vote at the Scheme meeting and to require Web.com to nominate its nominee prior to the first court hearing. It also resulted in a number of changes to the scheme booklet both as a consequence of these amendments and to address other matters including that the votes of Bluegeko at the Scheme meeting would be tagged.
I was and am satisfied that there will be proper disclosure as to the effect of the proposed Scheme and the material considerations for shareholders of Dreamscape.
There is evidence before me as to the due diligence and verification process that was undertaken by both Dreamscape and Web.com.[54] On the basis of this evidence, I accept that:
(a)Dreamscape undertook a process of due diligence and verification to verify the accuracy of statements attributable to Dreamscape in the Scheme booklet;
(b)Web.com undertook a similar process to verify the statements attributable to it;
(c)appropriate steps have been taken to satisfy Dreamscape and Web.com that the scheme booklet does not omit any material information.
[54] Affidavit of Evan George Cross filed 13 August 2019, par 41 - 54; Third Affidavit of Evan George Cross filed 29 August 2019, par 6 - 12; Affidavit of Tyler Dwight Sipprelle filed 4 September 2019; Second Affidavit of Tyler Dwight Sipprelle filed 4 September 2019.
The directors of Dreamscape have resolved to approve the scheme booklet in its final form.[55]
[55] Third Affidavit of Evan George Cross filed 29 August 2019.
Based on the checklist provided by counsel for Dreamscape,[56] I was satisfied that the scheme booklet contained the prescribed information in accordance with s 412(1)(a)(ii) of the Act and Sch 8 of the Corporations Regulations 2001 (Cth).
[56] Submissions, p 25.
In written and oral submissions, counsel for Dreamscape and Web.com drew my attention to some specific matters. I address each of these below.
Performance Risk
I was and am satisfied that the nature and terms of the proposed Scheme are such that the shareholders are adequately protected against the risk that they will not receive the Scheme consideration and have no capacity to sue Web.com to recover their shares or damages.
In that respect I have had regard to the terms of the Scheme and the Deed Poll. Pursuant to these documents:
(a)Web.com is required to pay $0.27 in cash for each share held prior to the transfer of shares taking place;[57]
(b)Web.com is obliged to deposit in cleared funds the amount equal to the total Scheme consideration into a trust account operated by Dreamscape or its registry as trustee of the shareholders by the business day prior to the Scheme implementation date;[58]
(c)Web.com does not acquire beneficial title to the shares unless it has paid the scheme consideration;[59]
(d)Dreamscape is required to pay the cash consideration to its shareholders on the Scheme implementation date.[60]
[57] Second Affidavit of Evan George Cross filed 16 August 2019, 'EGC-10', cl 5.2, p 165 and cl 6.2, p 166.
[58] Second Affidavit of Evan George Cross filed 16 August 2019, ‘EGC10’, cl 6.2(a), p 166; 'EGC-11', cl 3(a), p 180.
[59] Second Affidavit of Evan George Cross filed 16 August 2019, 'EGC-10', cl 5.2, p 165 and cl 9.5(a), p 170.
[60] Second Affidavit of Evan George Cross filed 16 August 2019, 'EGC10', cl 6.2(b), p 166.
The resignation of the current directors and appointment of the Web.com nominees to the board of Dreamscape is subject to and conditional upon the Scheme consideration having been paid.[61] Accordingly, there was no concern that the incoming board of Web.com could interfere with the implementation of the Scheme or payment to shareholders.
[61] Second Affidavit of Evan George Cross filed 16 August 2019, 'EGC9', cl 8, p 82.
The arrangements under the terms of the proposed Scheme are supported by the Deed Poll. By the Deed Poll, Web.Com covenants in favour of each Dreamscape shareholder that it will perform all actions attributed to it under the Scheme. There is also an acknowledgement that the Deed Poll may be relied on and enforced by any Scheme shareholder in accordance with its terms and that Dreamscape and each of its directors may act as agent and attorney to enforce the Deed Poll on behalf of the Dreamscape shareholders. In my view, the shareholders are sufficiently identified within the deed poll to enable them to enforce the deed poll as against Web.com by reason of the Property Law Act 1969 (WA), s 11(1).
Exclusivity provisions and break fee
The SID contains the customary lock‑up devices in the form of 'no shop', 'no talk', 'no due diligence', 'notification obligations' and 'matching right' provisions.[62] The 'no talk' and 'no due diligence' provisions are subject to a fiduciary carve‑out.[63] In certain circumstances, a reciprocal break fee of $1 million is payable.[64]
[62] Second Affidavit of Evan George Cross filed 16 August 2019, 'EGC9', cl 10, p 87 - 91.
[63] Second Affidavit of Evan George Cross filed 16 August 2019, 'EGC9', cl 10.7, p 90.
[64] Second Affidavit of Evan George Cross filed 16 August 2019, 'EGC9', cl 11 and 12.
In considering whether the exclusivity provisions impact on completion of the transaction and the duties of directors, the court has regard to:[65]
(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.
[65] Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [29] - [35]; Re Kangaroo Resources Ltd [2018] WASC 327 [57] - [61].
In this case, the exclusivity period in the SID is defined and, at most, a period of 6 months. The no‑talk and no due diligence provisions contain appropriate directors' duty qualifications.[66] The exclusivity arrangements are prominently disclosed in the Scheme booklet at sections 1, 2.14 and 9.5.[67]
[66] Second Affidavit of Evan George Cross filed 16 August 2019, 'EGC9', cl 10.7, p 90.
[67] Fourth affidavit of Kirsty Jayne Hall sworn 29 August 2019, 'KJH13'.
The Scheme booklet specifically discloses that the failure by shareholders to approve the Scheme will not trigger an obligation on the part of Dreamscape to pay the Break Fee to Web.com.[68] I was and am satisfied that there is adequate disclosure of the Break Fee in the Scheme booklet.[69]
[68] Scheme Booklet, par 2.28, 9.7.
[69] Fourth affidavit of Kirsty Jayne Hall sworn 29 August 2019, 'KJH13'.
The affidavit of Mr Cross of 13 August 2019 sets out the commercial justification for the exclusivity provisions and the Break Fee.[70] I accept his evidence that the exclusivity provisions are reasonable and appropriate for a transaction of this nature. The inclusion of these provisions in the SID followed arm's‑length commercial negotiations in which the parties were separately advised and represented by external legal advisers.[71]
[70] Affidavit of Evan George Cross filed 13 August 2019, par 60 - 70.
[71] Affidavit of Evan George Cross filed 13 August 2019, par 62.
The amount of the Break Fee represents approximately 1% of the equity value of Dreamscape based on the Scheme consideration. As such, it is within the generally accepted commercial parameters for break fees.
No collateral benefit which should prevent the approval of the Scheme
The court must examine whether a benefit exists for one shareholder in particular so as to bring into question the overall fairness of the Scheme.[72] To determine whether there is a collateral benefit, the court considers the 'net benefits' test, to ensure that there is no overall disparity in favour of the party to the non‑Scheme transaction.[73] If no net benefit is present, then, prima facie, the equality principle under s 602(c) of the Act is satisfied.
[72] Re David Jones Ltd [No 2] [2014] FCA 753 [12] ‑ [16] (Farrell J).
[73] Takeovers Panel, Guidance Note 21: Collateral Benefits [15].
Dreamscape drew my attention to three matters which may constitute a collateral benefit: first, the cash consideration payable to Option holders on the cancellation of the options; second, the payments to Mark Evans and third, the payments to Bluegeko under the Siteplus Option.
I accept there is no collateral benefit that accrues to shareholders who also hold options. Any additional consideration received by these shareholders is consideration for the cancellation of the options they hold and not for their shares. The evidence is that there is no material difference between the cash consideration payable on cancellation of the options and the value of these options.
Mark Evans is the current Managing Director and Chief Executive Officer of Dreamscape. Under the Scheme, following Dreamscape becoming a wholly owned subsidiary of Web.com, Mr Evans will remain in these positions. As part of the employment agreement Mr Evans has entered into with Web.com (Evans Agreement), Mr Evans:
(a)will receive a retention bonus of $7.5 million from Web.com four months from the date that the Scheme is implemented;
(b)is eligible to participate in Web.com's incentive based remuneration subject to achieving various employment and financially based performance targets over the term of the Evans Agreement;
(c)may receive contingent payments from Web.com, either due to the public offering or sale of Web.com (Web.com Exit Event) and Dreamscape achieving an EDITBA target or due to the resale of Siteplus.
In addition, Mr Evans, together with Cloudsafe, has entered into the Cloudsafe Option Deed. Cloudsafe is also one of the vendors of Siteplus and may receive a benefit as a result of the Siteplus Option Agreement.
I am satisfied that any payments proposed to be made to Mr Evans are not payments being made to him as a shareholder of Dreamscape but payments either as a future employee (including a retention payment) or a vendor of Siteplus. Both of these payments are prominently disclosed in the Scheme booklet.[74]
[74] Scheme booklet, sections 1, 2.5, 2.9, 2.10, 2.15, 6 and 10.3.
Mr Evans has informed Dreamscape that, having regard to the potentially substantial benefits that he may receive if the Scheme is implemented, he will abstain from voting on the Scheme. This is prominently disclosed in the Scheme booklet.[75]
[75] Scheme booklet, 'Frequently Asked Questions'.
Counsel for the plaintiffs advised that the votes of Cloudsafe (and the other Siteplus Vendor, Bluegeko) would be tagged at the Scheme meeting. This will enable any issues to be dealt with at the second hearing.[76]
[76] Submissions, par 103.
In relation to the Siteplus Option, I was and am satisfied that this does not constitute a collateral benefit as any payment that is made is consideration for the sale of shares in Siteplus. In addition, I note the following. First, the Siteplus Option will be disclosed to shareholders of Dreamscape in the scheme booklet as well as the notice of meeting that will be sent to shareholders. Second, Dreamscape's shareholders will decide whether or not to grant the Siteplus Option. Third, the Siteplus Option is only exercisable after the Scheme has become effective and Dreamscape has been removed from the official list of the ASX.
Director benefits and director recommendations
The terms of the SID originally required the directors of Dreamscape to state that the Dreamscape board unanimously:
(a)consider the Scheme to be in the best interests of shareholders; and
(b)recommend that shareholders approve the Scheme resolution in the absence of a superior proposal and provided that the independent expert's report continued to conclude that the Scheme is in the best interests of shareholders.
Following conferral with ASIC, the SID was varied to limit this obligation to the independent directors of Dreamscape. That is, it was agreed between Dreamscape and Web.com that Mr Evans make no recommendation in respect of the Scheme. This fact, and the basis for it, is disclosed in the Scheme booklet in accordance with reg 8301(a) of Sch 8 pursuant to the Corporations Regulations 2001 (Cth).
I note that, in this case, the payments that Mr Evans will receive in the event that shareholders approve the Scheme resolution are very substantial. There was no evidence before me that these payments were in accordance with standard commercial practice. In these circumstances, I consider the agreement that was entered into between Dreamscape and Web.com to amend the SID, following conferral with ASIC, was entirely appropriate. If the deed of variation of the SID had not been entered into, it would have been necessary for me to specifically address the question as to whether Mr Evans should make any recommendation, given the very substantial payments that Mr Evans is to receive if the Scheme is implemented.
In respect of the independent directors of Dreamscape, counsel drew my attention to the fact that two of them hold options. These options will be dealt with outside the terms of the Scheme by way of deeds of cancellation. Under the deeds, each of the directors will receive a payment for the cancellation of their options. The independent directors do not consider that these arrangements should prevent them from making a recommendation in relation to the Scheme. In support of this view, counsel drew my attention to a valuation of the Options that had been obtained. On the basis of this valuation, the consideration payable under the cancellation deeds is the value of the Options. As such, counsel contended that these payments did not provide a material benefit to the option holders, including the independent directors.
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.[77] As has been noted in many of these decisions, a divergence in views has emerged. In Re Wellcom Group Ltd,[78] O'Bryan J summarised the recent authorities and expressed the view that this divergence may be more apparent than real. I agree with his Honour's observation.
[77] See for example, Re SMS Management & Technology Ltd [2017] VSC 257; Re Gazal Corporation Ltd [2019] FCA 701; Re Ruralco Holdings Ltd [2019] FCA 878; (2019) 136 ACSR 628; Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd [2019] WASC 189; Re Kidman Resources Ltd [2019] FCA 1226; Re Villa World Ltd [2019] NSWSC 1207.
[78] Re Wellcome Group Ltd [2019] FCA 1655 [51] - [60].
In Re Mod Resources Ltd,[79] Vaughan J observed that, in his view, the issue is fact sensitive. I agree with his Honour's view.
[79] Re Mod Resources Ltd [2019] WASC 326 [86].
In my view, in considering whether it is appropriate for a director to make a recommendation to shareholders to vote in favour of the scheme proposal, it is relevant to consider:
(a)the nature and extent of the additional payment to be received by the director;
(b)whether the additional payment to be made to the director is out of the ordinary or is within the scope of what might be considered commercial and not unreasonable;
(c)whether the payment arises in respect of a pre‑existing contract executed well before the SID;
(d)whether there is a commercial rationale for the payment;
(e)whether the total consideration to be received is not excessive or unwarranted;
(f)whether the scheme booklet makes appropriate and prominent disclosure of the director's interests.
For the reasons set out below, it is not necessary for me on this occasion to address the apparently divergent views as to whether it is appropriate for the independent directors who will receive an additional financial benefit if the Scheme is approved to make a recommendation to shareholders.[80]
[80] See for example Re Wellcom Group Ltd [2019] FCA 1655 [51] - [60] and the cases referred to therein.
First, the additional amount payable to the independent directors is not out of the ordinary and is in accordance with a valuation that had been obtained from an independent expert. Second, the payments arise as a result of the cancellation of options which were granted well before the SID was entered into. Third, importantly, the amounts payable to the Independent Directors are fully disclosed in the Scheme booklet.[81]
[81] Scheme Booklet, para 10.1(b).
For these reasons, it was and is my view that the additional payments to be received by two of the independent directors for cancellation of their options did not make it inappropriate for the independent directors to make a recommendation in respect of the Scheme.
Other matters
Counsel for Dreamscape and Web.com drew my attention to the 'deemed warranty' provision in the proposed Scheme.[82] The warranty provision is disclosed in the scheme booklet.[83] Deemed warranty clauses are not unusual and are acceptable provided there is adequate disclosure that it is a condition.[84]
[82] Second Affidavit of Evan George Cross filed 16 August 2019, 'EGC-10', cl 9.4, p 170.
[83] Scheme Booklet, 'Frequently Asked Questions'; Annexure '3'.
[84] 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]; Re Macquarie Private Capital A Ltd [2008] NSWSC 323 [13] - [14]; Re Doray Minerals Ltd; Ex Parte Doray Minerals [2019] WASC 57 [71].
In addition, the Scheme provides that, to the extent permitted by law, the Dreamscape shares will transfer free from encumbrances and restrictions on transfer of any kind.[85] 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.[86]
[85] Scheme, cl 9.5.
[86] 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 pursuant to s 1319 of the Act for electronic dispatch of the scheme booklet. I note that these orders are now common.[87] Details were provided as to the terms of the proposed electronic notification.[88] 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.
[87] See, for example, Re SRG Ltd, [48]; Re Doray Minerals; Ex parte Doray Minerals [72].
[88] Affidavit of Evan George Cross filed 13 August 2019, par 73; 'EGC-7'.
Taking into account all of these matters, I considered that there was no apparent reason why the Scheme should not, if the necessary special resolution of shareholders is passed, receive the Court's approval.
Conclusion on First Hearing
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 Scheme was fit for consideration by Dreamscape's members.
For these reasons, at the conclusion of the hearing on 30 August 2019, I made orders in terms of Annexure 'A' to this judgment in respect of the Scheme.
Meetings
Both the extraordinary general meeting of Dreamscape and the Scheme meeting were convened and held on 7 October 2019.
At each of these meetings, the resolution was passed by the requisite statutory majority.
At the extraordinary general meeting of PML, 99.95% of the shareholders present in person and by proxy voted in favour of the resolution.[89]
[89] Second Affidavit of Michael Phillip Bowen filed 10 October 2019, par 14, 'MPB-2'.
In respect of the Scheme meeting, 89 shareholders were present in person and by proxy, which met the quorum set out in my orders made 30 August 2019. 93.26% of shareholders who voted at the meeting were in favour of the resolution, which by number of votes was 99.97% in favour.[90] 265,153,752 of the 389,653,332 Dreamscape voting shares on issue were cast in favour of the resolution, which is approximately 68.05% of the total number of voting shares.[91]
[90] Second Affidavit of Michael Phillip Bowen filed 10 October 2019, par 26, 'MPB-4'.
[91] Second Affidavit of Michael Phillip Bowen filed 10 October 2019, par 24.
At both the general meeting and Scheme meeting, as had been agreed with ASIC, Mr Evans and Cloudsafe did not vote.[92] As required by ASIC, a number of shareholders also had their votes tagged separately to other votes in the Scheme meeting. These shareholders included the independent directors and their related entities[93] as well as Bluegeko and represented approximately 38.34% of the total number of shareholders of Dreamscape.[94] If these votes were excluded on the resolution, 92.41% of shareholders who voted at the meeting were in favour of the resolution, which by number of votes was 99.93% in favour.[95]
[92] Affidavit of Rodney Rex Somes filed 9 October 2019, par 59 - 60.
[93] Affidavit of Rodney Rex Somes filed 9 October 2019, par 61.
[94] Second Affidavit of Michael Phillip Bowen filed 10 October 2019, par 30.
[95] Second Affidavit of Michael Phillip Bowen filed 10 October 2019, par 33.
Approval of Scheme
This matter came back before me for the second court hearing on 14 October 2019.
In addition to the affidavits that were relied upon at the first hearing, Dreamscape and Web.com relied on the following additional affidavits:
(a)an affidavit of Suzanne Zollo sworn 13 September 2019, the manager of Specialist Mail Services, a print and mail house, in relation to the printing of the scheme booklet and its dispatch and the preparation of a notice of general meeting and proxy form for shareholders and its dispatch. Ms Zollo's affidavit annexed the final documents that were mailed to shareholders of Dreamscape;
(b)an affidavit of Rodney Rex Somes sworn 9 October 2019, the Senior Relationship Manager of Computershare Investor Services Pty Limited (Computershare), the share registry of the plaintiff. Mr Somes' affidavit confirmed the total number of shareholders of the plaintiff, the sending of an 'email broadcast' to those shareholders who had elected to receive the Scheme information electronically, vote exclusion and tagging of shareholders for both meetings, the tallying of the votes for both meetings either by shareholder or by proxy and the creation of a poll report for the plaintiff's solicitors. The affidavit annexed the email broadcast sent, sample voting cards and the poll reports for both meetings;
(c)a second affidavit of Michael Phillip Bowen sworn 10 October 2019, the chairperson of the Scheme meeting and the extraordinary general meeting, providing a report on each of the meetings. The affidavit annexed the minutes of both meetings and the poll reports prepared by Computershare;
(d)a fifth affidavit of Kirsty Jayne Hall sworn 10 October 2019, in relation to the lodgement with ASIC of the orders from the first court hearing, the registration of the scheme booklet and publication of notices of the second court hearing;
(e)a sixth affidavit of Kirsty Jayne Hall sworn 14 October 2019, annexing correspondence received from ASIC confirming that ASIC had no objection to the proposed Scheme under s 411(17)(b) of the Act, the certificates issued by Dreamscape and Web.com confirming that all conditions precedent (apart from the orders sought at the second court hearing) had been satisfied and a letter from BDO confirming that nothing had come to their attention that would lead them to change their Independent Expert opinion on the Scheme.
These additional affidavits addressed the matters that Dreamscape was required to establish at the second hearing.
Legal Principles in respect of the Scheme Approval
The approval of the proposed Scheme pursuant to s 411(4)(b) of the Act, or the second court hearing, is the third stage of the process of the approval of a scheme of arrangement. As noted above, the second stage is the approval of the Scheme by the requisite statutory majorities, which occurred at the Scheme meeting.
At the second court hearing, the court has two tasks:[96]
(a)to ensure that all statutory and procedural requirements have been satisfied. This includes confirming that:[97]
(i)the meeting was convened and held in accordance with the Court's earlier orders,
(ii)the resolution was passed with the requisite statutory majorities; and
(iii)the plaintiff otherwise complied with the Court's earlier orders;
(b)to determine, in the exercise of the court's discretion, whether to approve the proposed arrangement.
[96] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [2018] WASC 357 [12].
[97] Re International Goldfields Ltd [2004] WASC 112 [7].
The court has a discretion to approve a scheme under s 411(4)(b) and is not bound to approve a scheme just because the court previously made orders for the convening of a meeting or because the statutory majorities have been achieved.[98] That said, the court will usually approach the task on the basis that shareholders are better judges of what is in their commercial interests than the court.[99]
[98] Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583 [31].
[99] Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd [No 3] [32] - [33].
The factors that are commonly taken into account in informing the court's discretion whether or not to approve the scheme are:[100]
(a)whether the members have voted in good faith and not for an improper purpose;
(b)whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it;
(c)whether the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion;
(d)whether there has been full and frank disclosure of all information material to the members' decision;
(e)whether minority shareholders would be oppressed by the scheme;
(f)whether the Court is satisfied that the scheme has not been proposed to avoid Chapter 6 of the Act;
(g)whether ASIC has no objection to the scheme; and
(h)whether the scheme offends public policy.
[100] Re Seven Network Ltd [No 3] [35] - [40].
Disposition
Compliance with statutory and procedural requirements
I am and was satisfied, on the basis of the additional affidavits that were filed by Dreamscape that:
(a)a copy of the court's orders made on 30 August 2019 were lodged with ASIC that day;[101]
(b)subject to the comments below, a copy of the scheme booklet that was approved for distribution by the court was lodged with ASIC and registered on 30 August 2018;[102]
(c)subject to the comments below, the scheme booklet was dispatched to shareholders in accordance with my orders of 30 August 2019;[103]
(d)the Scheme meeting was convened and held on 7 October 2019 in accordance with my orders of 30 August 2019;[104]
(e)the Siteplus resolution and Scheme were approved by the requisite statutory majorities;
(f)the votes of the directors of Dreamscape, shareholders of Dreamscape who were also option holders and Bluegeko were tagged;
(g)notice of the second court hearing was given by way of advertisement in The West Australian and The Australian newspapers on 7 October 2019;[105] and
(h)ASIC informed DLA Piper on 11 October 2019 that, pursuant to s 411(17)(b) of the Act, it had no objection to the proposed scheme.[106]
[101] Fifth Affidavit of Kirsty Jayne Hall filed 10 October 2019, par 3, 'KJH-14'
[102] Fifth Affidavit of Kirsty Jayne Hall filed 10 October 2019, par 7, 'KJH-15'.
[103] Affidavit of Suzanne Zollo filed 13 September 2019, par 5 - 22; Affidavit of Rodney Rex Somes filed 9 October 2019, par 9 - 20.
[104] Second affidavit of Michael Phillip Bowen filed 10 October 2019, par 6 - 33.
[105] Fifth Affidavit of Kirsty Jayne Hall filed 10 October 2019, par 9 - 10, 'KJH-16' and 'KJH-17'.
[106] Sixth Affidavit of Kirsty Jayne Hall filed 14 October 2019, par 2, 'KJH-18'.
I am satisfied that even if the tagged votes were not included in the calculation of the statutory majorities, the requisite statutory majorities would still have been obtained.
Counsel drew my attention to one matter in respect of the compliance with my previous orders. The scheme booklet that was approved for dispatch to shareholders was in colour.[107] In fact, a black and white copy of the scheme booklet was registered with ASIC and dispatched to shareholders.[108]
[107] Fourth Affidavit of Kirsty Jayne Hall filed 29 August 2019, 'KJH13'.
[108] Fifth Affidavit of Kirsty Jayne Hall filed 10 October 2019, par 4.
I was and am satisfied that there was substantial compliance with the orders of the court of 30 August 2019. As noted in Ms Hall's fifth affidavit, there is no discernible difference between the colour and black and white versions of the scheme booklet.[109] The interpretation of text and images within the scheme booklet are the same in both instances. For this reason, it is my view that any deficiency was no more than a procedural irregularity.
[109] Fifth Affidavit of Kirsty Jayne Hall filed 10 October 2019, par 6.
Out of an abundance of caution, Dreamscape sought relief pursuant to s 1322 of the Act as a result of any non-compliance with orders 8(b) and (c) of my orders dated 30 August 2019. Counsel submitted that this was a procedural irregularity which, due to a lack of substantial injustice, would be automatically cured unless the court orders otherwise pursuant to s 1322(2) of the Act.[110]
[110] Re Wesfarmers [No 2] [31].
I accept that the dispatch of a black-and-white copy of the scheme booklet was inadvertent and did not cause any substantial injustice to the plaintiff's shareholders. In relation to the exercise of discretion, it was and is my view that the order was appropriate to remove any doubt as to the effectiveness of the scheme meeting and to provide commercial certainty to all those concerned. For this reason, it was and remains my view that it was appropriate to make the orders sought by Dreamscape.
Accordingly, I was and am satisfied that all statutory pre-conditions have been met. I now turn to consider the discretionary considerations.
Good faith and proper purpose
There is no evidence that the shareholders voted for an improper purpose. I am satisfied on the evidence that has been filed by Dreamscape that the members voted in good faith and for a proper purpose as:
(a)the purpose of the proposed Schemes is to effect the acquisition by Web.com of all of Dreamscape's issued fully paid shares, such that Dreamscape will become a wholly owned subsidiary of Web.com. Transactions such as this are of a kind ordinarily approved by the courts and one that sensible business people might consider of benefit to members;
(b)the independent expert opined that in the absence of a superior proposal (and none has emerged), the Scheme is fair and reasonable and in the best interests of shareholders; and
(c)neither ASIC nor any shareholder appeared at the second court hearing to object to approval of the proposed Scheme.
Fairness and reasonableness
At the first hearing, based on the evidence before the court, I was satisfied that the proposed Scheme was of such a nature that there was no apparent reason that it should not receive approval if the requisite voting majority was achieved at the Scheme meeting.
Nothing has occurred since the date of the first hearing to change this view. Since that date, there are two additional matters that support this conclusion being made. First, the majority of shareholders who voted at the meeting supported the proposed Scheme, and second, no shareholder appeared to oppose the orders sought at the second court hearing. I was and am satisfied that the proposed Scheme is fair and reasonable and is a Scheme that sensible business people might consider to be of benefit to shareholders.
All relevant matters brought to the court's attention
At the first court hearing, counsel for Dreamscape and Web.com drew my attention to a number of matters. These are summarised in these reasons at paragraphs 55 to 87.
There were two further matters that counsel drew my attention to at the second court hearing. First, Dreamscape sought an exemption from s 411(11) of the Act. In my view, there is no utility in requiring the court's orders approving the Scheme to be annexed to Dreamscape's constitution. As counsel for the plaintiff noted, this exemption has become ordinary practice for transactions of this kind.[111] I considered it was and is appropriate in the circumstances of this case to make the orders sought under s 411(12) of the Act. Second, the conditions precedent to the Scheme were satisfied or waived, as evidenced by the certificates from Dreamscape and Web.com put before me.[112]
Full and fair disclosure
[111] Submissions for second court hearing, par 50.
[112] Sixth Affidavit of Kirsty Jayne Hall filed 14 October 2019, par 4 - 6, 'KJH-19' and 'KJH-20'.
At the first court hearing, based on the evidence before the court, I was satisfied that the draft scheme booklet would provide full and fair disclosure to shareholders.
The additional affidavit evidence filed by Dreamscape established that the scheme booklet dispatched to shareholders was in the form approved for distribution by the court, save for the discrepancy noted above. Nothing has arisen to suggest that there has not been full and fair disclosure of all information that was material to the decision of shareholders prior to them voting on the Scheme.
Oppression of minorities
There was no evidence that any minority has been oppressed.
Satisfaction of s 411(17) and ASIC's view
ASIC has provided a written statement to the effect that it did not object to the Scheme pursuant to s 411(17)(b) of the Act. As a result, the requirements of s 411(17) have been satisfied.
Production of this written statement is not conclusive; the court still has a discretion whether to approve the Scheme.[113] However, the court should take a liberal and practical approach, not an excessively rigid view, in considering the matter.[114] Where the Scheme provides certainty of outcome by way of a single process, this is a commercially rational reason to choose a scheme of arrangement over a takeover.
[113] Re Macquarie Private Capital A Ltd [2008] NSWSC 323 [29]; Re Coles Group [No 2] [2007] VSC 523; (2007) 65 ACSR 494 [75] - [80].
[114] Re ACM Gold Limited; Re Mt Leyshon Gold Mines Ltd (1992) 34 FCR 530, 538.
In this case, I was and am satisfied that it was commercially rational for Dreamscape to proceed in the manner it chose.
Public Policy
There was no evidence before the Court that the proposed Scheme offends any aspect of public policy.
Conclusion and Orders
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 I should approved the proposed Scheme.
For these reasons, at the conclusion of the hearing on 14 October 2019, I made orders in terms of Annexure 'B' to this judgement in respect of the Scheme.
Annexure 'A' to Reasons
1.Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (Corporations Act) the Plaintiff convene a meeting of holders of fully paid ordinary shares in the capital of the Plaintiff (Shareholders), to be held at HLB Mann Judd, Level 4, 130 Stirling Street, Perth, Western Australia, on 7 October 2019 at 10:30am (AWST) (Scheme Meeting) for the purpose of approving (with or without amendment) a scheme of arrangement proposed to be made between the Plaintiff and its Shareholders (Scheme), being the Scheme substantially in the form set out in Annexure 3 of the scheme booklet attached as KJH-13 to the fourth affidavit of Kirsty Hall filed with the Supreme Court on or around 29 August 2019 (Scheme Booklet).
2.Subject to these orders and pursuant to section 1319 of the Corporations Act, the Scheme Meeting is to be:
(a)convened, held and conducted in accordance with the provisions of Part 2G.2 of the Corporations Act that apply to members of a company, and the provisions of the Plaintiff's constitution that are not inconsistent therewith and that apply to meetings of members;
(b)convened using the notice of meeting substantially in the form of the notice contained in Annexure 5 of the Scheme Booklet; and
(c)convened, held and conducted as if rule 2.15 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) does not apply.
3.Michael Phillip Bowen or, failing him, Scott Douglas Gibson, is to be appointed to act as chairperson of the Scheme Meeting (Chairperson) and report the result of the Scheme Meeting to this Court.
4.Two Shareholders present in person or by proxy, corporate representative or attorney under power and entitled to vote shall constitute a quorum for each of the Scheme Meeting.
5.Voting on the resolution to approve the Scheme is to be conducted by way of poll.
6.At the Scheme Meeting each Shareholder present and entitled to vote, will be entitled to one vote for each fully paid ordinary share in the capital of the Plaintiff that the Shareholder is registered as holding at 5:00pm (AWST) on 5 October 2019.
7.The Scheme Booklet with the explanatory statement required by section 412(1)(a) of the Corporations Act, be and is approved for distribution to members, subject to:
(a)the correction of any minor typographical errors or grammatical errors and final typesetting and formatting;
(b)any minor amendments required or approved by the Australian Securities and Investments Commission (ASIC); and
(c)correction or update of any relevant date references or last trading prices.
8.Subject to registration of the Scheme Booklet with ASIC pursuant to section 412(6) of the Corporations Act, the Plaintiff is to dispatch on or before 4 September 2019 the Scheme Booklet, substantially in the form of the document referred to in paragraph 7 above, and the proxy form to the Shareholders who appear on the register of members by:
(a)in the case of each Shareholder who has nominated an electronic address for the purposes of receiving notifications of notices of any meeting, by email (on the first day on which dispatch of the Scheme Booklet is initiated, or such other date as directed by the Court) to the nominated email address, with such email to contain a link to a website at which those Shareholders can access the relevant documents, and lodge a proxy form on the Scheme;
(b)in the case of each other Shareholder who has a registered address in Australia, ordinary pre-paid post; or
(c)in the case of each other Shareholder who has a registered address outside Australia, prepaid airmail or air courier, and dispatch on or before 4 September 2019 is to be taken to be sufficient notice of the Scheme Meeting.
9.If it comes to the attention of the plaintiff that any email dispatched in accordance with order 8(a) above has returned an undeliverable or undelivered receipt for a shareholder's nominated email address, then in respect of that shareholder the plaintiff is to dispatch within a reasonable time thereafter a document substantially in the form of the scheme booklet and any applicable proxy form in accordance with 8(b) or 8(c) as is applicable.
10.Shareholders must return their proxy forms for the Scheme Meeting by 10:30am (AWST) on 5 October 2019.
11.The matter be relisted at 2:15pm (AWST) on 14 October 2019 following the Scheme Meeting for an application under section 411(4) and 411(6) of the Corporations Act for approval of the Scheme.
12.If the matter is relisted, the Plaintiff is to give notice of the hearing of the application pursuant to section 411(4)(b) of the Corporations Act by placing an advertisement in the "The Australian" and "The West Australian" newspapers, substantially in the form annexed to these orders and marked 'A' (which form departs from the wording in Form 6 of the Supreme Court (Corporations) WA Rules 2004 (Rules) (including by not stating the outcome of the Scheme Meeting), such advertisement to be published at least five days before any date allocated for the hearing and the Plaintiff is otherwise exempted from compliance with rule 3.4 of the Rules.
13.There be liberty to the Plaintiff to apply upon the giving of 24 hours' notice to ASIC.
14.These orders be entered forthwith.
15.An office copy of these orders shall be lodged with ASIC as soon as practicable after these orders are made.
ANNEXURE A
Notice of hearing to approve arrangement
TO all members of Dreamscape Networks Limited (ACN 612 069 842) (Dreamscape). TAKE NOTICE that at 2:15pm (Perth time) on 14 October 2019 at the Supreme Court of Western Australia, 28 Barrack Street, Perth, Western Australia, the Supreme Court of Western Australia will hear an application by Dreamscape Networks Limited seeking the approval of an arrangement between the abovenamed company and its members, if agreed to by resolution to be considered by the members of Dreamscape at a meeting of such members to be held on 7 October 2019 at HLB Mann Judd, Level 4, 130 Stirling Street, Perth, Western Australia at 10:30am (WST).
If you wish to oppose the approval of the arrangement, you must file and serve on the plaintiff 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 the plaintiff at its address for service at least one day before the date fixed for the hearing of the application.
The address for service of the plaintiff is DLA Piper Australia, Level 31, 152-158 St Georges Terrace, Perth, Western Australia.
Annexure 'B' to Reasons
1.Pursuant to section 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the Plaintiff and its members, in the form of annexure EGC-10 to the second affidavit of Mr Evan George Cross sworn 16 August 2019 in this proceeding is approved.
2.Pursuant to s 411(12) of the Act, the Plaintiff be exempt from compliance with section 411(11) of the Act, in relation to the scheme of arrangement referred to in order 1.
3.Pursuant to s 1322(4)(a) of the Act, the court declares that, with effect nunc pro tunc from the time they occurred, the following acts, matters and things, namely:
(a)the scheme meeting; and
(b)the resolution passed at the scheme meeting, are not invalid by reason of any contravention of s 412(1) of the Act insofar as the Plaintiff dispatched a black and white version of the scheme booklet to members on or before 4 September 2019 rather than a colour version.
4.These orders be entered forthwith.
5.An office copy of these orders is to be lodged with the Australian Securities and Investments Commission on 15 October 2019.
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 Hill13 NOVEMBER 2019
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