Re Sienna Cancer Diagnostics Limited

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FEDERAL COURT OF AUSTRALIA

Sienna Cancer Diagnostics Limited, in the matter of Sienna Cancer Diagnostics Limited [2020] FCA 899

File number: VID 339 of 2020
Judge: MOSHINSKY J
Date of judgment: 10 June 2020
Catchwords: CORPORATIONS – members’ scheme of arrangement – first court hearing – orders sought under s 411(1) of the Corporations Act 2001 (Cth) – order made for convening of shareholders’ meeting
Legislation:

Corporations Act 2001 (Cth), ss 9, 249S, 249Y, 411, 412, 602, 1319

Corporations Regulations 2001 (Cth), Sch 8, reg 5.1.01

Federal Court (Corporations) Rules 2000 (Cth), rr 2.4, 3.2, 3.3

Securities Act 1933 (US), s 3
Cases cited:

Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485

FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69

Re Amcom Telecommunications Ltd (No 3) [2015] FCA 596

Re APN News & Media Ltd (2007) 62 ACSR 400

Re Arthur Yates & Co Ltd (2001) 36 ACSR 758

Re Avita Medical Ltd [2020] FCA 592

Re AXA Asia Pacific Holdings Ltd [2011] VSC 4

Re Bank of Adelaide (1979) 22 SASR 481

Re BigAir Group Ltd [2016] FCA 1296

Re Biosceptre International Limited [2013] FCA 1429

Re Coles Group Ltd (2007) 25 ACLC 1380

Re Consolidated Media Holdings Ltd [2012] FCA 1186

Re CSR Ltd (2010) 183 FCR 358

Re Cytopia Ltd [2009] VSC 560

Re DuluxGroup Ltd (2019) 136 ACSR 546

Re Foundation Healthcare Ltd (2002) 42 ACSR 252

Re Healthscope Ltd [2010] VSC 367

Re Little World Beverages Ltd [2012] FCA 1057

Re Lonsdale Financial Group Ltd [2007] VSC 394

Re Macquarie Private Capital A Ltd (2008) ACLC 366

Re NRMA Ltd (No 1) (2000) 156 FLR 349

Re Opes Prime Stockbroking Ltd (No 2) (2009) 179 FCR 20

Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525

Re Strategic Energy Resources Ltd (No 2) [2012] VSC 75

Re Toll Holdings Limited [2015] VSC 123

Re Verdant Minerals Ltd [2019] FCA 556

Re Wridgways Australia Ltd [2010] FCA 1187

Date of hearing: 10 June 2020
Registry: Victoria
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 119
Counsel for the Plaintiff: Mr CT Möller
Solicitor for the Plaintiff: K&L Gates
Counsel for the Interested Party: Mr M Oakes SC
Solicitor for the Interested Party: MinterEllison

ORDERS

VID 339 of 2020

IN THE MATTER OF SIENNA CANCER DIAGNOSTICS LIMITED
BETWEEN:

SIENNA CANCER DIAGNOSTICS LIMITED

Plaintiff

JUDGE:

MOSHINSKY J

DATE OF ORDER:

10 JUNE 2020

THE COURT NOTES:

A.The letter dated 9 June 2020 from the Australian Securities and Investments Commission (ASIC) to the directors of the plaintiff.

B.That ASIC was provided with at least 14 days’ notice of the first hearing of the plaintiff’s originating process dated 20 May 2020 (Originating Process).

C.That the Court is satisfied that ASIC has had a reasonable opportunity to:

(a)examine the terms of the proposed scheme of arrangement to which the application relates and…

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Details
Case
[2020] FCA 899
Decision Date

CaseChat Overview and Summary

Sienna Cancer Diagnostics Limited, a medical technology company, and BARD1, another public company, were involved in a merger scheme that required approval by Sienna's shareholders. Sienna sought orders under the Corporations Act 2001 (Cth) to convene a shareholders' meeting to consider the merger scheme. The primary legal issue was whether the court should exercise its discretion to order a meeting for shareholders to consider the scheme of arrangement. The court had to determine if the scheme was in a conventional form, if it was likely to be approved at the second hearing, if shareholders would receive an independent expert's assessment, and if the draft scheme booklet met statutory requirements.

The court found that the scheme was fit for consideration by Sienna's shareholders. It was noted that the scheme was in a conventional form for a merger scheme with scrip consideration, and there was no reason to believe it would not be approved by the court at the second hearing. The scheme booklet contained a recommendation from Sienna's directors, a statement that all directors who held shares in Sienna intended to vote in favour of the scheme, and an independent expert's report that the scheme was in the best interests of Sienna's shareholders. The court also considered the impact of the COVID-19 pandemic and decided to allow a virtual shareholders' meeting. The court concluded that the scheme was appropriate for the exercise of its discretion to make the orders sought by Sienna.

The court made orders for Sienna to convene a shareholders' meeting to consider the scheme of arrangement. The meeting was to be held virtually on 15 July 2020 at 11.00 am (AEST). The court also provided directions for convening, holding, and conducting the Scheme Meeting, including the manner in which the meeting was to be held, the persons to act as chairperson and alternative chairperson, and the time and manner in which the Scheme Meeting was to be held. The further hearing of the originating process was adjourned to 9.30 am (Melbourne time) on 17 July 2020.

Orders

Orders of the court

1. Pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act), the plaintiff is to convene and hold a meeting (Scheme Meeting) of the holders of ordinary shares in the plaintiff (Members) to consider, and, if thought fit, to approve (with or without any alterations or conditions) the scheme of arrangement (Scheme) proposed to be made between the plaintiff and the Members, the terms of which are set out at pages 499 to 520 of Exhibit CSS1 to the affidavit of Carl Stephen Stubbings filed on 3 June 2020 (first Stubbings affidavit), which terms will be annexed as Annexure E of the scheme booklet annexed at pages 119 to 229 of the further affidavit of Carl Stephen Stubbings filed on 9 June 2020 (Scheme Booklet).

2. The Scheme Meeting is to be convened by sending on or before 12 June 2020:

(a) in the case of Members who have elected to receive shareholder communications electronically by way of email (Email Members), an email substantially in the form of Tab 13 of Exhibit CSS1 to the first Stubbings affidavit, and which contains links to:

(i) an electronic copy of a document substantially in the form of the Scheme Booklet, which contains, among other things, the Notice of Scheme Meeting at Attachment F to the Scheme Booklet (Notice of Scheme Meeting); and

(ii) an online portal or website that is accessible by the Email Member and which enables the Email Member to lodge their proxy for the Scheme Meeting online; and

(b) in the case of Members who are not Email Members and whose registered address is in Australia, the following documents by pre-paid post addressed to the relevant address(es) recorded in the plaintiff’s register:

(i) a document substantially in the form of the Scheme Booklet, which contains, among other things, the Notice of Scheme Meeting at Attachment F to the Scheme Booklet; and

(ii) a proxy form for the Scheme Meeting, substantially in the form at Tab 7 of Exhibit CSS1 to the first Stubbings affidavit (Scheme Proxy Form); and

(iii) a reply paid envelope for the return of the Scheme Proxy Form; and

(c) in the case of Members who are not Email Members and whose registered address is outside Australia, the following documents by FedEx International Priority or FedEx International First courier service (or an equivalent service) addressed to the relevant address(es) recorded in the plaintiff’s register:

(i) a document substantially in the form of the Scheme Booklet, which contains, among other things, the Notice of Scheme Meeting at Attachment F to the Scheme Booklet; and

(ii) a Scheme Proxy Form; and

(iii) a return envelope for the return of the Scheme Proxy Form; and

(iv) a Foreign Resident Declaration Form.

3. Pursuant to ss 411(1) and 1319 of the Act, the Scheme Meeting is to be conducted as follows:

(a) The Scheme Meeting is to be held at 11.00 am (Melbourne time) on 15 July 2020, using the website specified in the Notice of Meeting and without Members being physically present in the same place.

(b) Geoffrey James Cumming, or failing him, Helen Elena Fisher, is to be the Chair of the Scheme Meeting.

(c) The Chair of the Scheme Meeting shall have the power to adjourn the meeting to such time, date and place as they consider appropriate.

(d) Members and proxyholders be given access to the Scheme Meeting via the website specified in the Notice of Meeting, using the registration procedures set out in that notice.

(e) The plaintiff may provide access to the Scheme Meeting for such other persons as it thinks fit.

(f) A proxy form in respect of the Scheme Meeting will be valid and effective if, and only if, it is completed and received in accordance with its terms by 11.00 am (Melbourne time) on Monday, 13 July 2020.

(g) Members and proxyholders are to be permitted to participate in discussion and voting at the Scheme Meeting through the website as follows:

(i) Members and proxyholders are to be permitted to submit questions in the manner provided on the website, subject to the functions and powers of the Chair under the plaintiff’s Constitution and the general law.

(ii) Voting on any resolution, including the resolution to approve the Scheme, is to be conducted by way of a poll using the voting procedures on the website.

(iii) Any vote cast by a Member who has appointed a proxy is to be excluded, unless the Member has notified the registrar of the Scheme Meeting, before the commencement of the meeting, of the revocation of the proxy.

(h) Subject to the sub-paragraphs above, the provisions of Pt 2G.2 of the Act (save for any replaceable rule) that apply in relation to meetings of the plaintiff’s members, and the provisions plaintiff’s Constitution that apply in relation to meetings of its members and are not inconsistent with Pt 2G.2, will apply to the conduct of the Scheme Meeting.

4. Compliance with r 2.15 of the Federal Court (Corporations) Rules 2000 (Rules) is dispensed with, except insofar as it operates to apply r 75-15(2) of the Insolvency Practice Rules (Corporations) 2016 (Cth) to the Scheme Meeting.

5. Notice of the hearing of an application pursuant to subsection 411(4) of the Act for an order approving the Scheme is to be published once in “The Australian” newspaper by an advertisement substantially in the form of Annexure A to these orders, such advertisement to be published on or before five days prior to the Scheme Meeting, and the plaintiff be otherwise exempted from compliance with r 3.4 of the Rules.

6. The further hearing of the Originating Process be adjourned to 9.30 am (Melbourne time) on 17 July 2020.

7. There be liberty to apply.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Annexure A

Notice of Second Court Hearing

Notice of hearing to approve compromise or arrangement

TO all the members of Sienna Cancer Diagnostics Limited (ACN 099 803 460) (Sienna)

TAKE NOTICE that at 9.30 am on 17 July 2020 the Federal Court of Australia (Victorian Registry) at Owen Dixon Commonwealth Law Courts Building, 305 William Street, Melbourne, will hear an application by Sienna seeking the approval of a compromise or arrangement between Sienna and its members if agreed to by a resolution to be considered, and, if thought fit, passed at a virtual (online) meeting of such members to be held on 15 July 2020 at 11.00 am (Melbourne time).

If you wish to oppose the approval of the compromise or arrangement, you must file and serve on Sienna 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 Sienna at its address for service by 5.00 pm on 13 July 2020.

The address for service of Sienna is: c/o K&L Gates, Level 25 South Tower, 525 Collins Street, Melbourne VIC 3000 [Ref: Alysha Tuziak].

Background

Background to the litigation

At the hearing today, Mr CT Möller of counsel appeared for Sienna and made submissions in support of the application. Detailed written submissions were also provided in advance of the hearing. Mr M Oakes SC appeared, with leave, on behalf of BARD1. He supported the application.Background Sienna is a medical technology company that develops and commercialises diagnostic tests to assist in the early and accurate diagnosis of cancer. It is a public company, with its head office in Melbourne, Australia and in-country operations in Australia and the United States. Sienna seeks to develop and commercialise innovative products that address unmet clinical needs for characterising or evaluating samples that are being investigated for the presence of cancer, to aid in the diagnosis or monitoring of disease. Sienna’s board of directors comprises Dr Cumming, Mr Stubbings, Ms Fisher and Mr Di Pietro. As at 29 May 2020, Sienna had 395,132,839 fully paid ordinary shares on issue which were held by 825 members. Except for the unlisted options discussed below, Sienna had no other securities on issue. Sienna had 11,636,666 unlisted options on issue (of which 6,093,333 have vested) (Sienna Options), which are held by 16 optionholders (Sienna Optionholders). BARD1 is a public company. Its registered office and its principal place of business is at Echelon Building, unit 202, level 2, 39 Mends Street, South Perth in Western Australia. BARD1’s board of directors of comprises Peter Lynton Gunzburg (non-executive director and chairman), Irmgard Irminger-Finger (executive director and chief scientific officer), Philip John Powell (non-executive director), Robert Maxwell Johnston (non-executive director) and Allan William Cripps (non-executive director). On 8 April 2020, Sienna and BARD1 entered into a Merger Implementation Agreement. Subsequently, they agreed to vary the terms of the Merger Implementation Agreement and, on 12 May 2020, executed an Amendment and Restatement Deed which amended and restated the terms of the Merger Implementation Agreement. If the Scheme is approved and implemented:(a)BARD1 will acquire all of the Scheme Shares, being all the shares in Sienna on issue as at the Scheme Record Date (as that term is defined in the glossary in section 11 of the proposed booklet for the Scheme (Scheme Booklet)). The Scheme Record Date is expected to be 7.00 pm (AEST) on 23 July 2020. Sienna will then become a wholly-owned subsidiary of BARD1;(b)Sienna members will receive 13 new BARD1 shares for every five Sienna shares held on the Scheme Record Date (Scheme Consideration). Any Sienna Members who are Ineligible Foreign Shareholders (as that term is defined in the glossary in section 11 of the Scheme Booklet) will not be issued new BARD1 shares. Instead, the new BARD1 shares to which they would otherwise be entitled will be issued to a Sale Agent and sold through a Share Sale Facility (as those terms are defined in the glossary in section 11 of the Scheme Booklet), with the proceeds remitted to those Sienna members.

Evidence

Evidence Before The Court

For the reasons that follow, I consider it appropriate to make orders substantially in the terms sought by Sienna, including an order that a meeting of Sienna shareholders be convened for the purposes of considering and, if thought fit, agreeing to the Scheme.The application, evidence and hearing The proceeding was commenced by originating process. By that document, Sienna applied for orders including:(a)an order under s 411(1) of the Corporations Act that Sienna convene a meeting of its members for the purpose of considering, and if thought fit, agreeing (with or without alterations or conditions) to the Scheme; and(b)directions under s 1319 of the Corporations Act as to the convening, holding and conduct of the Scheme Meeting, the time at and manner in which the Scheme Meeting is to be held, and the persons to act as chairperson and alternative chairperson at the Scheme Meeting. In support of the application for these orders, Sienna relies on the following affidavits:(a)an affidavit of Alysha Maria Tuziak, a solicitor employed by K&L Gates, Sienna’s solicitors, dated 20 May 2020;(b)an affidavit of Carl Stephen Stubbings, Sienna’s chief executive officer and managing director, filed on 3 June 2020 (first Stubbings affidavit);(c)an affidavit of Andrew Michael Gaffney, a partner of K&L Gates, filed on 3 June 2020;(d)an affidavit of Geoffrey James Cumming, a non-executive director of Sienna and chairman of its board of directors, filed on 3 June 2020 (Cumming affidavit);(e)an affidavit of Helen Elena Fisher, another non-executive director of Sienna, filed on 3 June 2020 (Fisher affidavit);(f)an affidavit of Sean Philip Collins, of KPMG Australia (KPMG), annexing an independent expert’s report prepared by KPMG concerning the proposed scheme, dated 3 June 2020;(g)a second affidavit of Mr Stubbings, filed on 9 June 2020 (second Stubbings affidavit);(h)a second affidavit of Mr Gaffney, filed on 9 June 2020 (second Gaffney affidavit);(i)an affidavit of Tony Di Pietro, Sienna’s chief financial officer and company secretary, filed on 9 June 2020; and(j)a third affidavit of Mr Gaffney, also filed on 9 June 2020. Consistently with the Court’s practice guidelines during the current COVID-19 pandemic, several of the affidavits were not sworn or affirmed when they were filed. During the hearing today, which took place by video using Microsoft Teams software, the relevant deponents adopted their affidavits. BARD1 has filed an affidavit, made by its chief executive officer, Leearne Hinch, on 2 June 2020 (Hinch affidavit). At the hearing today, Mr CT Möller of counsel appeared for Sienna and made submissions in support of the application. Detailed written submissions were also provided in advance of the hearing. Mr M Oakes SC appeared, with leave, on behalf of BARD1. He supported the application.Background Sienna is a medical technology company that develops and commercialises diagnostic tests to assist in the early and accurate diagnosis of cancer. It is a public company, with its head office in Melbourne, Australia and in-country operations in Australia and the United States.

Decision

Reasons for decision

Consistent with its usual practice for sending correspondence to members and giving them notice of meetings, Sienna proposes to send the Scheme Booklet electronically to shareholders who have nominated to receive shareholder materials electronically, and by hard copy to those shareholders who have not so nominated, at their postal addresses (using FedEx International Priority or FedEx International First courier service (or an equivalent service)).Conclusion regarding exercise of the discretion On the basis of the above matters, I am satisfied that this is an appropriate case for the exercise of the discretion to make orders convening a meeting of Sienna’s shareholders. I am satisfied that the Scheme is of such a nature and cast in such terms that, if it achieves the statutory majorities at the Scheme Meeting, the Court would be likely to approve it, and that it is therefore appropriate to make the orders sought by Sienna. In particular, I note the following matters:(a)the terms of the proposed Scheme are in a conventional form for a merger scheme with scrip consideration;(b)there is no reason the Scheme, if considered and adopted by the members, would not likely be approved by the Court at the second hearing;(c)the Sienna shareholders will receive a careful analysis and assessment by an independent expert of the transaction and its advantages and disadvantages, and have the recommendation of Sienna's directors; and(d)the draft Scheme Booklet meets all of the statutory requirements, has been carefully prepared and verified by Sienna, and has been examined by ASIC.Scheme Meeting and issues relating to COVID-19 I accept that there is only one class of shareholder, being all Sienna Shareholders. Given the COVID-19 pandemic and restrictions on physical gatherings, it is proposed that the Scheme Meeting will be a virtual meeting. The meeting is proposed to be held on Wednesday, 15 July 2020 at 11.00 am (AEST). Sienna’s share registry, Link, has the facility under which the meeting can be webcast and members are able to participate (as they would in a normal meeting), including by asking questions and voting. That the meeting will be virtual is disclosed in various places in the draft Scheme Booklet: see e.g. on the first page of the “Important notices” (under the heading “Notices of Scheme Meeting”: page 1), section 1.5 (“Scheme Meeting”), section 3.4 (part of section 3, “What to do and how to vote”). Section 1.5, for instance, states (emphasis in original):In response to the global COVID-19 pandemic and government restrictions on physical gatherings, the Scheme Meeting will be held as a virtual meeting at 11:00 am (Melbourne time) on Wednesday, 15 July 2020. There will be no physical meeting where Sienna Shareholders and proxies can attend in person. Section 3.4 of the draft Scheme Booklet states (emphasis in original):In response to the global COVID-19 pandemic and government restrictions on physical gatherings, the Scheme Meeting will be held as a virtual meeting at 11:00 am (Melbourne time) on Wednesday, 15 July 2020.There will be no physical meeting where Sienna Shareholders and proxies can attend in person. A virtual Scheme Meeting has been authorised by the Court at the First Court Hearing.You can participate in the virtual Scheme Meeting by logging in online at Please refer to Sections 3.7 and 3.8 below for further details on how to participate in the Scheme Meeting.

Ratio Decidendi

Legal Principle Established

The matters relevant to the exercise of the Court’s discretion are considered below.The Scheme is fit for consideration In my view, the Scheme is fit for consideration by Sienna’s shareholders at the Scheme Meeting. It is relevant in this respect that the Scheme Booklet contains:(a)a recommendation from all Sienna’s directors that shareholders vote in favour of the Scheme;(b)a statement that all directors who hold shares in Sienna intend to vote their shares in favour of the Scheme; and(c)an independent expert’s report that the Scheme is in the best interests of Sienna’s shareholders (Annexure B to the draft Scheme Booklet). The Court will scrutinise the terms of a scheme to satisfy itself that there is no element of unfairness that would be likely to preclude its approval. In that regard, Sienna raises the following features of the proposed scheme for the Court’s attention:(a)performance risk;(b)the deemed warranty by Sienna’s shareholders;(c)exclusivity provisions;(d)the “break fee”;(e)how the options in Sienna will be dealt with; and(f)the purpose of the Scheme (i.e. not to avoid Ch 6 of the Corporations Act). For the reasons discussed below, in my view none of these matters is unusual for a scheme of this type, or provides any reason for the Court to refrain from making an order convening the scheme meeting.Performance risk In considering whether to approve a scheme involving the participation of a person other than the plaintiff company and its members (here, BARD1), the Court will want to ensure that the other person is bound to perform its assigned role and that its obligations are capable of enforcement. This is because the other party’s obligations do not depend upon s 411, which is confined to the obligations of Sienna and its members. Courts have therefore considered the issue of “performance risk” in relation to the obligations of the non-scheme party. It is submitted, and I accept, that Scheme effectively eliminates any performance risk. In particular:(a)clause 4.2(a) of the proposed Scheme provides that the transfer of the Scheme Shares to BARD1 on the implementation date is subject to BARD1’s obligations to provide the Scheme Consideration to the Scheme Participants; and(b)by reason of the Deed Poll, BARD1 is bound to perform the roles assigned to it, and its obligations are capable of enforcement. In particular, in the event that the Scheme becomes effective, BARD1:(i)covenants in favour of each Scheme Participant to “perform all actions attributed to it under, and otherwise comply with, the Scheme as if it were a party to the Scheme” (clause 3.1); and(ii)undertakes to provide, or procure the provision of, the New Bidder’s Shares to each Scheme Participant (clause 3.2(a)).Deemed warranty provisions Clause 7.10(b) of the proposed Scheme provides that each Scheme Participant is taken to have warranted to BARD1 that all of their Scheme Shares (i.e. those to be transferred to BARD1 under the Scheme) will, at the date of transfer, be fully paid and free from all security interests, interests of third parties, and from any restrictions on transfer, and that the Scheme Participant has full power and capacity to sell and transfer the shares together with any rights and entitlements attaching to them.