FEDERAL COURT OF AUSTRALIA
Security Matters Limited, in the Matter of Security Matters Limited (No 3) [2023] FCA 140
File number(s): VID 777 of 2022 Judgment of: O’CALLAGHAN J Date of judgment: 28 February 2023 Catchwords: CORPORATIONS – schemes of arrangement – second court hearing – where plaintiff sought to merge with NASDAQ-listed “special purpose acquisitions company” – where independent expert report opined that schemes of arrangement were not fair and not reasonable and not in the best interests of security holders – where security holders overwhelmingly approved schemes – where the Australian Securities and Investments Commission (ASIC) opposed the approval of the schemes of arrangement on process and public policy grounds – where Board of Directors resolved to support schemes of arrangement – where Board of Directors recommended that security holders vote in favour of the schemes of arrangement – whether experts retained to advise Board of Directors needed to comply with ASIC Regulatory Guides or Federal Court Expert Evidence Practice Notes including the Federal Court Harmonised Expert Witness Code of Conduct – orders sought under s 411(4)(b) of the Corporations Act 2001 (Cth) for approval of schemes of arrangement – order sought under s 411(12) for exemption from compliance with s 411(11) – orders made Legislation: Corporations Act 2001 (Cth) ss 411(4), (11), (12), 412(1), 411(17)
Corporations Regulations 2001 (Cth) regs 5.1.01, sch 8 cl 8303
Federal Court (Corporations) Rules 2000 (Cth) r 3.5(b)
Cases cited: In the matter of ResApp Health Ltd [2022] NSWSC 1353
Limited (No 2) [2017] VSC 770
Phosphate Co-Operative Co of Australian Pty Ltd [1989] VR 665
Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213
Re Amcor Limited (No 2) [2019] FCA 842
Re AXA Asia Pacific Holdings Ltd (No 2) (2011) 82 ACSR 501; [2011] VSC 102
Re Coca-Cola Amatil Ltd [2021] NSWSC 489
Re Coles Group Ltd (No 2) (2007) 65 ACSR 494; [2007] VSC 523
Re Equinox Resources Ltd (2004) 49 ACSR 692; [2004] WASC 143
Re Hostworks Group Ltd (No 2) [2008] FCA 248
Re NRMA Ltd (No 1) (2000) 33 ACSR 595; [2000] NSWSC 82
Re Opes Prime Stockbroking Ltd (No 2) (2009) 73 ACSR 411; [2009] FCA 864
Re Seven Network Ltd (No 3) (2010) 267 ALR 583; [2010] FCA 400
Re Skilled (No 2) [2015] VSC 805
Re SMS Management & Technology Ltd [2017] VSC 257
Re Think Childcare Ltd (No 2) [2021] FCA 1228
Re Vocus Group Ltd [2021] NSWSC 843
Re Wesfamers Ltd (No 2) [2018] WASC 357
Re Westgold Resources Ltd (No 2) [2012] WASC 395
Security Matters Limited, in the matter of Security Matters Limited [2023] FCA 19
Security Matters Limited, in the matter of Security Matters Limited (No 2) [2023] FCA 40
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 162 Date of hearing: 24 February 2023 Counsel for the Plaintiff: Mr CT Möller SC with Mr OK…
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- AGLC
- Security Matters Limited, in the Matter of Security Matters Limited (No 3) [2023] FCA 140
- Case
- [2023] FCA 140
- Decision Date
CaseChat Overview and Summary
The court held that the experts retained to advise the Board of Directors did not need to comply with the regulatory guidelines and practice notes as the schemes would not alter the corporation's constitution or the rights of shareholders, creditors, or other persons dealing with it. The court also found that current members were fully informed of the schemes and would be informed if the court approved them. Furthermore, the court held that there was no ongoing purpose to be served by requiring the orders approving the schemes to be annexed to the corporation's constitution once it becomes a wholly-owned subsidiary of Empatan.
Based on the reasoning above, the court granted the orders sought by the plaintiff, approving the share scheme and option scheme under s 411(4)(b) of the Corporations Act 2001 (Cth). The court also exempted the plaintiff from compliance with s 411(11) of the Act in relation to the share scheme and option scheme under s 411(12) of the Act. These orders are to be entered forthwith, as per Rule 39.32 of the Federal Court Rules 2011.
Orders
Orders of the court
1. Pursuant to s 411(4)(b) of the Act, the share scheme is approved.
2. Pursuant to s 411(4)(b) of the Act, the option scheme is approved.
3. Pursuant to s 411(12) of the Act, the plaintiff is exempted from compliance with s 411(11) of the Act in relation to the share scheme and the option scheme.
4. These orders are to be entered forthwith.
Note:
Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANNEXURE A
ANNEXURE B
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
Mr Bongiorno then made the following points about the content of Mr Goldman’s final report:MR BONGIORNO: And then, essentially … two critical things that underlie the … assessment of the fair value of Lionheart on a minority basis is [in that report]: (1) that it’s done on a realisation of assets basis; and (2) that as part of that assessment, the cost of the NASDAQ listing is done on a replacement basis. Now, a shareholder reading this and assessing this transaction will say, “Well, that’s very well, but that assessment does not quantify and does not take into account, on any view, the prospective benefits arising out of the NASDAQ listing itself.” That’s not – to make that submission, we don’t have to be critical of Mr Goldman, we just merely observe this is what was in front of the meeting, and this is what a rational shareholder might do in response to what is in front of the meeting. That is the fairness consideration, and it’s – I’m summarising, but once we get to 11 cents, we then get to the table at 9.1.4 … that leads to the conclusion that the scheme is not fair. And although the scheme – although undoubtedly, this report provides that the scheme is not fair, a reader will, consistent with what I’ve just submitted and taken your Honour through, appreciate that there’s limited or, in fact, [no] countenance of the prospective benefits of the NASDAQ listing in that assessment. And that is not a particularly sophisticated or nuanced understanding of what this report discloses: it just is what it is. They’ve done the NASDAQ listing on a replacement-cost basis, and anyone reading it would understand that that doesn’t take into account the matters that are listed when we get to the reasonableness assessment ……MR BONGIORNO: Yes. So you will see that the – just above the heading 9.2.3, “Listing on the NASDAQ exchange providing for a deeper capital pool for further fundraising”. Potential for further liquidity in shares as a result listed on a larger exchange … …MR BONGIORNO: … so there can be no doubt that Mr Goldman pays attention to the benefits of – so far as the reasonableness assessment is concerned, fairness – in our submission, it has no purchase in his fairness assessment. So far as his reasonableness assessment is concerned, he acknowledges it as a relevant factor and then comes to a conclusion which a reader might consider, but your Honour needn’t determine, is cursory, which is on page 3677, where he reaches his conclusion, because what he does is he also sets out the disadvantages, and as part of one of the disadvantages from 9.2.3, is, obviously, what he has already assessed with respect to fairness, and what he has assessed with respect to share price.So in that regard … I’ve already made plain that the assessment of fairness paid no attention to the benefits arising from the NASDAQ listing, and then the conclusion on fairness is relied on again at the bottom of page 3676, and then he reaches his conclusion. Now, he has undoubtedly weighed various factors in the balance, engaged in an intuitive – or quasi-intuitive assessment and reached a conclusion. Now, it can’t be put any other way – or he has engaged in something that’s more sophisticated than what I’ve just described, your Honour won’t find it on the pages in front of you.HIS HONOUR: You say he has engaged in that analysis, weighed things in the balance, and he reached his conclusion, but there’s enough meat on the bones in the parts of the report you’ve shown me at least to enable a reasonable shareholder to reach another conclusion.MR BONGIORNO: Yes. And if your Honour considers that, then your Honour, in our submission, based on the authorities to which I took you to a moment ago, you should approve the scheme. All the shareholder would do would be engaging in a weighing exercise, an intuitive synthesis of the relevant factors in front of him or her as set out in the report that comes to a different conclusion than Mr Goldman. That’s not to say Mr Goldman is wrong. It’s just simply that a shareholder might come to a different view, and they’re our submissions.CONSIDERATION