SCHROLE GROUP LIMITED
[2024] WASC 515
•4 FEBRUARY 2025
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE SCHROLE GROUP LIMITED; EX PARTE SCHROLE GROUP LIMITED [2024] WASC 515
CORAM: STRK J
HEARD: 16 AUGUST 2024 (FIRST COURT HEARING)
DELIVERED : 16 AUGUST 2024
PUBLISHED : 4 FEBRUARY 2025
HEARD: 19 SEPTEMBER 2024 (SECOND COURT HEARING)
DELIVERED : 19 SEPTEMBER 2024
PUBLISHED : 4 FEBRUARY 2025
FILE NO/S: COR 122 of 2024
MATTER: IN THE MATTER OF SCHROLE GROUP LIMITED
EX PARTE
SCHROLE GROUP LIMITED
Plaintiff
TES AUS GLOBAL PTY LIMITED
Interested Party
Catchwords:
Corporations law - Scheme of arrangement - Proposed share acquisition - First court hearing - Application for orders convening a scheme meeting under Corporations Act 2001 (Cth) s 411(1) - Whether requirements to order scheme meeting had been satisfied - Orders made convening scheme meeting - Distribution of scheme booklet containing the explanatory statement required by the Corporations Act 2001 (Cth) s 412(1)(a) approved at the first court hearing - Ancillary orders
Corporations law - Scheme of arrangement - Second court hearing - Whether statutory and procedural requirements had been satisfied - Discretionary considerations - Orders made approving the scheme - Ancillary orders
Legislation:
Corporations Act 2001 (Cth)
Corporations Regulations 2001 (Cth)
Supreme Court (Corporations) (WA) Rules 2004 (WA)
Result:
First court hearing: Application granted; orders made convening scheme meeting
Second court hearing: Orders made approving the scheme of arrangement
Category: B
Representation:
Counsel:
| Plaintiff | : | AJ Papamatheos SC |
| Interested Party | : | CE McKay (Second court hearing) |
Solicitors:
| Plaintiff | : | Hamilton Locke |
| Interested Party | : | DLA Piper Australia (Second court hearing) |
Cases referred to in decision:
Allkem Limited, in the matter of Allkem Limited [2023] FCA 1397
Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341
Andean Resources Limited, in the matter of Andean Resources Limited [2010] FCA 1190
Australian Securities Commission v Marlborough Gold Mines Limited [1993] HCA 15; (1993) 177 CLR 485
Centro Retail Limited and Centro MCS Manager Limited in its capacity as Responsible Entity of Centro Retail Trust [2011] NSWSC 1321
Creso Pharma Limited [2019] WASC 472
DDH1 Limited, in the matter of DDH1 Limited [2023] FCA 982
Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 1101
Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 240
Excelsior Gold Limited, in the matter of Excelsior Gold Limited [2018] FCA 2064
Firefly Resources Limited [2021] WASC 376
First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 320 FLR 78
Gazal Corporation Limited, in the matter of Gazal Corporation Limited [2019] FCA 701
In the matter of Investa Listed Funds Management Limited as responsible entity for the Armstrong Jones Office Fund and the Prime Credit Property Trust [2018] NSWSC 1369
In the matter of InvoCare Limited [2023] NSWSC 1180
In the matter of Link Administration Holdings Limited [2022] NSWSC 650
In the matter of ResApp Health Ltd [2022] NSWSC 1090
In the matter of TASK Group Holdings Limited [2024] NSWSC 821
Newcrest Mining Limited, in the matter of Newcrest Mining Limited [2023] FCA 1080
Pacific Energy Ltd [2019] WASC 443
PR Finance Group Limited, in the matter of PR Finance Group Limited (No 2) [2013] FCA 633
Re Advance Bank Australia Ltd (1997) 136 FLR 281
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re Coles Group (No 2) [2007] VSC 523; (2007) 215 FLR 411
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re Dreamscape Networks Ltd; Ex Parte Dreamscape Networks Ltd [2019] WASC 412
Re Exore Resources Ltd; Ex Parte Exore Resources Ltd [2020] WASC 285
Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252
Re Galaxy Resources Ltd; Ex Parte Galaxy Resources Ltd [2021] WASC 277
Re Healthscope Ltd [2019] FCA 542; (2019) 139 ACSR 608
Re HIH Casualty and General Insurance Ltd (2006) 57 ACSR 791
Re K2fly Ltd; Ex Parte K2fly Ltd [No 2] [2024] WASC 351
Re Kangaroo Resources Ltd; Ex Parte Kangaroo Resources Ltd [2018] WASC 327
Re Metropolitan Fuel Pty Ltd [1962] VR 675
Re Mod Resources Ltd; Ex Parte Mod Resources Ltd [2019] WASC 326
Re NRMA Insurance Ltd [No 1] (2000) 156 FLR 349; (2000) 34 ACSR 261
Re NTM Gold Ltd; Ex Parte NTM Gold Ltd [2021] WASC 22
Re Nusantara Resources Ltd; Ex Parte Nusantara Resources Ltd [2021] WASC 334
Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd (No 2) [2009] FCA 813; (2009) 179 FCR 20
Re Ozgrowth Ltd; Ex Parte Ozgrowth Ltd [No 2] [2022] WASC 167
Re Seven Network Ltd (ACN 052 816 789) (No 3) [2010] FCA 400; (2010) 267 ALR 583
Re Swick Mining Services Ltd; Ex Parte Swick Mining Services Ltd [2022] WASC 79
Re Valmec Ltd; Ex Parte Valmec Ltd [2021] WASC 420
Re Vimy Resources Ltd [No 2] [2022] WASC 257
Re Vimy Resources Ltd; Ex Parte Vimy Resources Ltd [2022] WASC 233
Re Vita Group Ltd [2023] FCA 400; (2023) 165 ACSR 576
Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308
Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [2018] WASC 357
Re Western Areas Ltd; Ex Parte Western Areas Ltd [2022] WASC 193
Re Western Areas Ltd; Ex Parte Western Areas Ltd [No 2] [2022] WASC 198
Re Zenith Energy Ltd; Ex Parte Zenith Energy Ltd [2020] WASC 266
Redflex Holdings Limited, in the matter of Redflex Holdings Limited (No 2) [2021] FCA 474; (2021) 152 ACSR 557
Seven Network Limited (ACN 052 816 789), in the matter of Seven Network Limited [2010] FCA 220
SRG Limited, in the matter of SRG Limited [2018] FCA 1092
Talon Energy Ltd, in the matter of Talon Energy Ltd [2023] FCA 1362
Tawana Resources NL, in the matter of Tawana Resources NL (No 3) [2018] FCA 1952
Tawana Resources NL, in the matter of Tawana Resources NL [2018] FCA 1456
Technology Metals Australia Limited v Australian Vanadium Limited [2024] WASC 26
Zenyth Therapeutics Ltd v Smith (2006) 60 ACSR 548
Table of Contents
Introduction
Evidence for the first court hearing
First affidavit of Deanna Jayne Carpenter
Affidavit of Mr Graham
First affidavit of Mr Hardcastle
Affidavit of Mr Adams
Affidavit of Ms Wright
Second affidavit of Ms Carpenter
Third affidavit of Ms Carpenter
Other materials
The scheme booklet
The proposed transaction - overview
Conditions precedent
The independent expert's report
Legal principles
Disposition
Principal matters - s 411(1)
Consideration by ASIC
The explanatory statement
Discretion enlivened - no reason not to convene the Scheme meeting
Despatch of the scheme booklet and proxy form
Conclusion and orders made at the first court hearing
The second court hearing
Further evidence for the second court hearing
Second affidavit of Mr Hardcastle
Fourth affidavit of Ms Carpenter
Affidavit of Jack Edison Rosagro
Fifth affidavit of Ms Carpenter
Other materials
Legal principles
Disposition
Compliance with statutory and procedural requirements
Matters brought to the court's attention
Good faith and proper purpose
Fairness and reasonableness
Full and fair disclosure
Oppression of minorities
Conditions precedent
Voting intention statement
Public policy
Exemption from s 411(11) of the Corporations Act
Section 411(17) of the Corporations Act
Conclusion and orders made at the second court hearing
Sch A - Orders made on 16 August 2024
Sch B - Orders made on 19 September 2024
STRK J:
Introduction
Schrole Group Ltd was incorporated on 15 May 2008 and is a public company based in Western Australia. Schrole Group is a global online education company which provides a complete human resources software‑as‑a‑service solution, targeting teachers and educational organisations.[1]
[1] Affidavit of RN Graham pars 8 - 9.
The directors of Schrole Group are Matthew John Adams (non‑executive chairman), Caroline Emily Brokvam (non‑executive director), Colm John O'Brien (non‑executive director), Guy Perkins (non‑executive director), and Rob Graham (managing director).[2] Jack Rosagro is the company secretary.[3]
[2] Affidavit of RN Graham par 12; fourth affidavit of DJ Carpenter, DJC-21 (final scheme booklet registered with ASIC on 16 August 2024, corporate directory).
[3] Fourth affidavit of DJ Carpenter, DJC-21 (final scheme booklet registered with ASIC on 16 August 2024, corporate directory).
The TES group of companies is comprised of TES Global Limited (an unlisted company incorporated in the United Kingdom) and its related bodies corporate which include TES Aus Global Pty Limited. In Australia, TES Global operates through its wholly owned subsidiary, TES Aus Global (an Australian proprietary company limited by shares incorporated and registered in Queensland on 5 July 2005).[4]
[4] Affidavit of KL Wright pars 11 - 15.
In Australia, TES Aus Global works with approximately 1,300 schools providing timetabling solutions, software to support individual learning plans in schools, and teaching resources.[5] TES Aus Global operates from offices in Sydney, Brisbane and Melbourne, employing 70 staff before the first court hearing.[6]
[5] Affidavit of KL Wright par 13.
[6] Affidavit of KL Wright par 13.
The directors of TES Aus Global are Kayleigh Louise Wright, Kerrie Ann Goddard, Brett David Engeman, and Roderick John Williams.[7] Mr Engeman is also the company secretary.[8]
[7] Fourth affidavit of DJ Carpenter, DJC-21 (final scheme booklet registered with ASIC on 16 August 2024, s 6.3).
[8] Fourth affidavit of DJ Carpenter, DJC-21 (final scheme booklet registered with ASIC on 16 August 2024, s 6.3).
On and subject to the terms of a scheme implementation deed entered into on 16 June 2024, Schrole Group and TES Aus Global agreed to implement a scheme of arrangement under pt 5.1 of the Corporations Act 2001 (Cth) between Schrole Group and the shareholders of Schrole Group (Scheme).[9] On 17 June 2024 Schrole Group announced the same to the Australian Securities Exchange (ASX).[10]
[9] First affidavit of DJ Carpenter par 9.
[10] First affidavit of DJ Carpenter par 10.
The proposed Scheme contemplated that each shareholder of Schrole Group would receive $0.4852 in cash as consideration for each share held (other than excluded shares) (Scheme consideration).[11] The total consideration for the share acquisition was $18.15 million in cash.[12] The closing price for Schrole Group shares on 14 June 2024 was $0.16.[13]
[11] First outline of submissions par 7; first affidavit of DJ Carpenter par 9(a), DJC-03.
[12] First outline of submissions par 2.
[13] Second affidavit of DJ Carpenter, DJC-12 (final version of the draft scheme booklet provided to ASIC).
By an originating process filed on 31 July 2024, Schrole Group sought orders under s 411 of the Corporations Act in relation to the proposed Scheme. The first court hearing took place on 16 August 2024. After hearing counsel for Schrole Group, I ordered a scheme meeting be convened and held. Orders were made approving for distribution a scheme booklet which comprised the explanatory statement required by s 412(1)(a) of the Corporations Act and the proxy form in respect of the Scheme meeting. I also made ancillary orders as to the convening and conduct of the Scheme meeting. The orders made on 16 August 2024 are reproduced at sch A to these reasons, and set out below are my reasons for granting the ex parte application.
The second court hearing took place on 19 September 2024. With leave, counsel for TES Aus Global appeared in support of the application. An order was made approving the Scheme between Schrole Group and Schrole Group shareholders, and I made ancillary orders as to Schrole Group's obligations. The orders made on 19 September 2024 are reproduced at sch B to these reasons, and set out below are my reasons for approving the Scheme.
Evidence for the first court hearing
Seven affidavits were made and filed prior to the first court hearing,[14] which evidence was read and is summarised below.
First affidavit of Deanna Jayne Carpenter
[14] ts 2 (16 August 2024).
Deanna Jayne Carpenter is a solicitor employed by the firm Hamilton Locke, which firm acts on behalf of Schrole Group in relation to the Scheme. On 31 July 2024 Ms Carpenter affirmed the first of three affidavits made by her in advance of the first court hearing, and attached to her first affidavit documents marked DJC‑01 to DJC‑06.
In her first affidavit, Ms Carpenter described Schrole Group; deposed that on 16 June 2024 Schrole Group and TES Aus Global entered into a scheme implementation deed; deposed to the release of an announcement by Schrole Group to the ASX concerning the same; and deposed that on 30 June 2024 the draft notice of the Scheme meeting and accompanying explanatory memorandum (that is, the scheme booklet) was lodged with Australian Securities and Investments Commission (ASIC) (which date in her second affidavit at par 9 was corrected to 16 July 2024).
Ms Carpenter attached to her affidavit a copy of an ASIC search in relation to Schrole Group conducted on 31 July 2024; a copy of the scheme implementation deed dated 16 June 2024; a copy of the proposed Scheme; a copy of the ASX announcement released by Schrole Group on 17 June 2024; a copy of the proposed timetable which included the key dates for the Scheme; and a copy of the draft scheme booklet.
Affidavit of Mr Graham
As noted above, on 5 August 2024 Mr Graham was the managing director of the Schrole Group and affirmed an affidavit in support of the application, to which he attached documents marked RNG‑01 to RNG‑08.
In his affidavit, Mr Graham gave an overview of the corporate history of Schrole Group; deposed to the members of Schrole Group's board of directors; deposed to the number of Schrole Group shares and performance rights on issue as at the date of his affidavit; deposed that the Schrole Group shares were to be the subject of the Scheme; described what was proposed with respect to the Schrole Group performance rights; deposed that other than the performance rights, Schrole Group had no options or other securities convertible into Schrole Group shares on issue; deposed to Schrole Group and TES Aus Global having entered into the scheme implementation deed on 16 June 2024; deposed to the announcement of the scheme implementation deed to the ASX on 17 June 2024; described the Scheme consideration; deposed that the Scheme was subject to and conditional upon the satisfaction of the conditions precedent set out at cl 2.1 of the Scheme and cl 3.1 of the scheme implementation deed; and deposed that as at the date of his affidavit, he was not aware of any fact, matter or circumstances that had resulted in, or was likely to result in, the failure of any of the conditions precedent.
Mr Graham also deposed to the board of Schrole Group having considered the Scheme and the board's unanimous recommendation in relation to the Scheme; deposed to him not being aware of any basis to believe that any superior proposal concerning ownership of Schrole Group would be forthcoming from any other party at this time; described the interests of the Schrole Group directors in the outcome of the Scheme; described the exclusivity provisions and break fee provided for in the scheme implementation deed; deposed to TES Aus Global and Schrole Group having entered into an 'Alliance Agreement', by which Schrole Group agreed to use reasonable endeavours to complete certain agreed tasks, and that TES Aus Global and Schrole Group would collaborate and share information.
Further, Mr Graham described the proposed method by which shareholders would receive notice of the Scheme meeting; deposed to the proposed time and place for the Scheme meeting; deposed that it was proposed that Shaun Andrew Hardcastle would chair the Scheme meeting, and that Jeremy Alan Thomas Newman would be alternate chairperson to chair the Scheme meeting if Mr Hardcastle was unable to attend or chair the Scheme meeting; deposed that Ms Carpenter had overseen the drafting of the scheme booklet; deposed to the process by which the scheme booklet had been verified, and that Schrole Group would continue to ensure that the scheme booklet remained correct; deposed to the engagement of Automic Pty Ltd, Schrole Group's share registry, to be the point of contact for Schrole Group shareholders; deposed that it was not intended that an outbound telephone campaign encouraging shareholders to vote be conducted; and deposed to the steps that Schrole Group intended to take if an order was made directing it to convene a Scheme meeting.
To his affidavit Mr Graham attached a copy of Schrole Group's constitution; a copy of Schrole Group's annual report for the period ending 31 December 2023; a copy of the top 20 Schrole Group shareholders as at 15 July 2024; a copy of the register of Schrole Group's performance rights holders as at 1 August 2024; a copy of the Alliance Agreement dated 16 June 2024; a copy of the verification report accepted by Schrole Group's board on 26 July 2024; a copy of the executed circular resolution of the board of Schrole Group dated 26 July 2024 approving the lodgment of the scheme booklet with ASIC; and a copy of Schrole Group's intended announcement to the ASX of the second court hearing.
First affidavit of Mr Hardcastle
Mr Hardcastle is a partner at Hamilton Locke and on 15 August 2024 he affirmed an affidavit in support of the application.
Mr Hardcastle deposed that he had been nominated as chairperson for the Scheme meeting and that he had consented to act as chairperson, and to the nomination of Mr Newman (also a partner at Hamilton Locke) as alternate chairperson for the Scheme meeting, who had consented to act as chairperson in Mr Hardcastle's place should Mr Hardcastle be unable to act as chairperson.
As to his background, Mr Hardcastle deposed that he was previously appointed as a non‑executive director of Schrole Group on 5 October 2017 and had resigned from that role on 18 May 2021.
Mr Hardcastle further deposed that as at the date of his affidavit, he held no securities in Schrole Group including any Schrole Group shares or Schrole Group performance rights; deposed that while Hamilton Locke had been engaged as legal advisors to Schrole Group in relation to the Scheme for which Hamilton Locke was receiving professional fees at commercial rates, neither he nor Mr Newman had been involved in the conduct of the matter; deposed that he had no previous relationship or dealing with Schrole Group, or any other person interested in the proposed Scheme, except as disclosed in his affidavit; and deposed that he had no interest or obligation that may give rise to a conflict of interest or duty except as disclosed in his affidavit.
Affidavit of Mr Adams
On 13 August 2024 Mr Adams affirmed an affidavit in support of the application, to which he attached one document marked MJA‑01.
As noted above, Mr Adams was the non-executive chairman of Schrole Group, and he deposed that he had held the position since 30 May 2023.
In his affidavit Mr Adams recorded that by cl 6.6(n) of the scheme implementation deed, Schrole Group was obliged to use all reasonable endeavours to procure, within 15 business days of execution of the scheme implementation deed, the delivery of statements from holders of Schrole Group shares to the effect that they intend to vote in favour of the Scheme in the absence of a superior proposal from one or more of Schrole Group's substantial shareholders not associated with any director of Schrole Group, collectively holding not less than 15% of the Schrole Group shares on issue at the date of execution of the scheme implementation deed (defined as the Voting Intention Obligation).
Mr Adams further deposed that as a result of Schrole Group's Voting Intention Obligation, on behalf of the board of Schrole Group, on or around 28 June 2024 he had engaged with Toronga Pty Ltd; deposed that Toronga was then a substantial shareholder of Schrole Group, holding approximately 19.47% of all Schrole Group shares as at 15 July 2024, and that he had provided a voting intention statement prepared by Hamilton Locke which was subsequently signed by Toronga (defined as the Voting Intention Statement); and deposed that from his engagement with Toronga and otherwise to the best of his knowledge, information and belief, there had been no inducements, promises, or any other beneficial means applied by Schrole Group, or anyone associated with Schrole Group, in order to obtain the Voting Intention Statement from Toronga.
Mr Adams attached to his affidavit a copy of the Voting Intention Statement from Toronga dated 9 July 2024.
Affidavit of Ms Wright
As noted above, Ms Wright is a director of TES Aus Global. She is also the chief financial officer and a director of TES' parent company, TES Global.
On 14 August 2024 Ms Wright affirmed an affidavit in support of the application, to which she attached documents marked KLW‑1 to KLW‑3.
Among other things, Ms Wright deposed that by emails from TES Aus Global's solicitors, DLA Piper, of further updates that had been made to the draft scheme booklet by Schrole Group and TES Aus Global after a draft version of the scheme booklet was submitted to ASIC on 30 July 2024; and that an updated version of the scheme booklet was provided to ASIC on 14 August 2024 for review in response to ASIC's queries.
Ms Wright deposed to the corporate history of TES Aus Global; to the means by which it was intended that the Scheme consideration be funded and that TES Global had access to readily available funds (via cash and/or credit facilities) that was well in excess of the Scheme consideration; and to the cash reserves of TES Global.
As to the scheme implementation deed, Ms Wright deposed to it having been entered into on 16 June 2024, and that as at the date of her affidavit, she was not aware of any reason why any of the conditions precedent to the Scheme (referred to at cl 3.1 of the scheme implementation deed) would not, at or by the requisite time, be satisfied or waived.
In her affidavit, Ms Wright also deposed to the preparation of the Scheme booklet, and to the roles taken by Schrole Group, TES Aus Global and their respective legal representatives, and to the verification of the 'TES Information'; deposed that on 16 June 2024 TES Aus Global had executed the deed poll in favour of the Scheme shareholders, under which TES Aus Global covenanted in favour of the Scheme shareholders to perform the obligations attributed to TES Aus Global under the Scheme; and deposed to her belief that on 8 August 2024 a copy of the executed deed poll was provided to Schrole Group's legal representatives.
Ms Wright deposed to receipt on 10 July 2024 of a voting intention statement addressed to Schrole Group from Toronga indicating an intention to vote in favour of the Scheme in the absence of a superior proposal and subject to the independent report concluding that the Scheme was in the best interests of the shareholders. Ms Wright also deposed that she had not had any engagement with Toronga with respect to its voting intention statement or the Scheme and was not aware of any employee or representative of TES Aus Global or TES Global having any similar engagement with Toronga; and that to the best of her knowledge, information and belief, neither TES Aus Global nor TES Global had provided any advantage, benefit, promise or inducement to Toronga to elicit the voting intention statement, or to vote in the way described.
Ms Wright attached to her affidavit a copy of the verification certificates, the circular resolution of the board of TES Aus Global dated 14 August 2024, and the deed poll dated 16 June 2024.
Second affidavit of Ms Carpenter
On 15 August 2024 Ms Carpenter affirmed a second affidavit in support of the application, to which she attached documents marked DJC‑07 to DJC‑17.
By her second affidavit, Ms Carpenter deposed among other things to the lodgement of the originating process, her first affidavit and the scheme booklet with ASIC; to the receipt of queries raised by ASIC in relation to the draft scheme booklet and to how those queries were addressed; and that by an email communication on 14 August 2024, ASIC had confirmed that it had no further comments on the scheme booklet at that stage.
Ms Carpenter also noted in her second affidavit that among other things the Scheme was conditional upon TES Aus Global having received, or having waived the requirement for, written notice under the Foreign Acquisitions and Takeovers Act 1975 (Cth) that the Commonwealth Government has no objections to the Scheme (FIRB approval). As to this condition precedent, Ms Carpenter deposed that TES Aus Global had waived this condition of the scheme implementation deed on the basis TES Aus Global was not required to submit an application to obtain FIRB approval, as was disclosed in s 8.7(c) of the scheme booklet and s 4 of the independent expert's report.
Ms Carpenter also deposed to the proposed method by which Schrole Group shareholders would receive notice of the Scheme meeting; to the obligation of Schrole Group to prepare audited or reviewed half‑year accounts for the period ended 30 June 2024; in the event that Schrole Group were to finalise its half-year report prior to the Scheme meeting, the intention of Schrole Group to seek the opinion of the independent expert on whether there was any change to the (then) current conclusion that the Scheme was fair and reasonable and therefore in the best interests of the shareholders of Schrole Group taken as a whole and in the absence of a superior proposal; and the intention of Schrole Group to make an announcement to the ASX if the court were to order the Scheme meeting be convened, which was intended among other things to provide details and notice of the second court hearing.
Ms Carpenter attached 11 documents to her second affidavit which included various lodgement forms and communications with ASIC; a copy of the final version of the draft scheme booklet provided to ASIC; written confirmation that FIRB approval was not required; proposed communications to shareholders of the Schrole Group; and a copy of Schrole Group's updated intended announcement of the second court hearing.
Third affidavit of Ms Carpenter
On 16 August 2024 Ms Carpenter affirmed a third affidavit in support of the application, to which she attached documents marked DJC‑18 and DJC‑19.
In her third affidavit Ms Carpenter deposed to the amendment to the scheme implementation deed (particularly to the defined term 'TES' in that deed) by a letter deed of acknowledgment and agreement executed on 15 August 2024 (letter deed), which amendment had previously been informally agreed by the parties to that deed; brought the court's attention to an error made in her first affidavit; deposed to the amendment to the scheme implementation deed (particularly to the defined term 'Implementation Date' in that deed) by the letter deed, which amendment also had previously been informally agreed by the parties to that deed; and deposed that on 16 August 2024 ASIC had provided Hamilton Locke with a letter stating that ASIC did not intend to appear before the court at the first court hearing.
Ms Carpenter attached to her third affidavit a copy of the letter deed and ASIC's letter to Hamilton Locke dated 16 August 2024.
Other materials
In addition to the affidavits, at the first court hearing Schrole Group relied upon a written outline of submissions filed on 15 August 2024 and a minute of proposed orders filed on 15 August 2024.
The scheme booklet
The documents before the court at the first court hearing included the final version of the draft scheme booklet which was provided to ASIC on 14 August 2024.[15] The scheme booklet addressed or included:
[15] Second affidavit of DJ Carpenter par 11(b), DJC-12.
(a)reasons to vote in favour of or against the Scheme;
(b)important dates and times;
(c)an overview of the scheme booklet;
(d)what the shareholders should do next;
(e)a letter from Schrole Group;
(f)key considerations relevant to the shareholders' vote;
(g)'questions and answers';
(h)instructions on how to vote;
(i)information about Schrole Group and TES Aus Global;
(j)'risks';
(k)implementation of the scheme of arrangement; and
(l)additional information.
The following documents were annexed to the scheme booklet:
(a)the taxation implications of the transaction;
(b)the independent expert's report;
(c)the scheme implementation deed;
(d)the scheme of arrangement;
(e)the deed poll; and
(f)the notice of Scheme meeting.
An earlier version of the scheme booklet had been amended so as to address ASIC's queries.[16]
[16] Second affidavit of DJ Carpenter pars 9 - 11.
The proposed transaction - overview
As noted above, on 16 June 2024 Schrole Group and TES Aus Global entered into the scheme implementation deed which was announced to the ASX the next business day.[17] It contemplated that if the Scheme were implemented, TES Aus Global would acquire all shares in Schrole Group on the Schrole Group share register at the 'Record Date' (which was defined to be 7.00 pm AWST on the second business day following the date on which the Scheme becomes effective).[18]
[17] First affidavit of DJ Carpenter pars 8 - 10; affidavit of RN Graham par 18.
[18] In the scheme implementation deed, 'Effective' was defined to mean 'the coming into effect pursuant to section 411(10) of the Corporations Act of the order of the court made under section 411(4)(b) in relation to the Scheme, but in any event at no time before an office copy of the order of the court is lodged with ASIC'; see the first affidavit of DJ Carpenter, page 81, DJC-02 (scheme implementation deed dated 16 June 2024).
By cl 3.2, cl 4.2 and cl 8.2 of the Scheme, if made effective, all ordinary shares in Schrole Group (other than 'Excluded Shares') were to be transferred to TES Aus Global for the Scheme consideration, irrespective of whether a Scheme shareholder did not attend the Scheme meeting, did not vote at that meeting, or voted against the Scheme at that meeting.[19]
[19] First outline of submissions par 9; first affidavit of DJ Carpenter, DJC-03 (proposed Scheme).
It was proposed that Schrole Group shareholders would receive $0.4852 in cash as consideration for each share held, so that in effect, if the Scheme was implemented, it was anticipated that TES Aus Global would acquire Schrole Group for $18.15 million in cash.[20]
[20] First outline of submissions par 2.
As at 5 August 2024, Schrole Group had 35,955,048 Schrole Group shares and 1,447,639 Schrole Group performance rights on issue.[21] It was intended that the Schrole Group shares would be the subject of the Scheme. As to the performance rights, it was intended that all performance rights would either lapse in accordance with their terms, or vest and be converted into Schrole Group shares prior to the Scheme 'Record Date'.[22]
[21] Affidavit of RN Graham par 13.
[22] Affidavit of RN Graham par 13; first affidavit of DJ Carpenter, DJC-02 (scheme implementation deed dated 16 June 2024, cl 4.4).
There were no common directors of Schrole Group and TES Aus Global, nor was there any party to the Scheme that held 30% or more of Schrole Group.
As was observed by Mr Graham in his affidavit, other than the performance rights, Schrole Group had no options or other securities convertible into Schrole Group shares on issue.[23] In this regard, the Scheme was a relatively straightforward one.
Conditions precedent
[23] Affidavit of RN Graham par 16.
The scheme implementation deed provided that the Scheme would not be effected unless and until certain conditions precedent were satisfied or waived.[24] Among other things, the Scheme was conditional upon court approval in accordance with s 411(4)(b) of the Corporations Act, and such other conditions made or required by the court under s 411(4)(b) in relation to the Scheme as acceptable to Schrole Group and TES Aus Global, being satisfied.[25]
The independent expert's report
[24] First affidavit of DJ Carpenter, DJC-02 (scheme implementation deed dated 16 June 2024, cl 2.1, cl 3.1).
[25] First affidavit of DJ Carpenter, DJC-02 (scheme implementation deed dated 16 June 2024, cl 3.1(b), cl 2.6).
Schrole Group had engaged BDO Corporate Finance (WA) Ltd to provide an independent expert's report in relation to the proposed Scheme.
The independent expert considered the terms of the Scheme as outlined in the body of the report dated 29 July 2024, and concluded that, in the absence of an alternative offer, the Scheme was fair and reasonable to shareholders, and therefore, the Scheme was in the best interests of the shareholders in the absence of a superior proposal.[26]
[26] Second affidavit of DJ Carpenter, DJC-12 (draft scheme booklet, annexure B); first outline of submissions par 30(b).
Legal principles
In Re Western Areas Ltd; Ex Parte Western Areas Ltd [2022] WASC 193, Hill J succinctly summarised the legal principles to be applied at a first court hearing, which I reproduce below and I applied in determining Schrole Group's application:
[26]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.
[27]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.[27]
[27] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7].
[28]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 it is satisfied that:[28]
[28] SRG Limited, in the matter of SRG Limited [2018] FCA 1092 [11]; Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308 [60].
(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[29] and provides proper disclosure;[30]
(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;[31]
(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.
[29]Any issue about classes of members is usually determined at the first hearing.[32] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[33]
[30]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 businesspeople might consider is of benefit to its members.[34] 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.[35]
[29] Corporations Act s 412(1)(a)(ii); Corporations Regulations 2001 (Cth) reg 5.1.01, sch 8 cl 8301 ‑ cl 8310.
[30] Corporations Act s 412(1)(a)(i).
[31] Corporations Act s 411(2)(b).
[32] Re CSR Ltd [73].
[33] Re Opes Prime Stockbroking Ltd (No 2) [2009] FCA 813; (2009) 179 FCR 20 [20].
[34] Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 [10].
[35] SRG Limited, in the matter of SRG Limited [12]; Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [72] ‑ [76].
Disposition
Principal matters - s 411(1)
The formal matters that Schrole Group was required to establish were satisfied. They were comprehensively addressed in the outline of submissions filed on behalf of Schrole Group in advance of the hearing. I address them briefly below.
Part 5.1 body
The term 'Part 5.1 body' is defined in s 9 of the Corporations Act to mean, relevantly, a company. The term 'company' is defined in s 9 to mean, relevantly, a company registered under the Corporations Act. Schrole Group is a public company registered under the Corporations Act.
An arrangement within the meaning of s 411
The proposed participants in the Scheme were members of Schrole Group. The term 'member' is defined in s 9 of the Corporations Act to mean, in relation to a company, a person who is a member under s 231. I accepted that the proposed Scheme, if approved, would be between Schrole Group and its shareholders as shown on its register of members.
The proposed Scheme was an 'arrangement' of a type that has been accepted by courts on numerous occasions. Further, for the reasons set out below, I was satisfied that the Scheme meeting would be convened between members of the same class.
Members of the same class
An arrangement to which s 411(1) of the Corporations Act applies is one between a company and its members or creditors, or any class of them.
Section 411 does not define the term 'class'. In determining whether a new or separate class is required, the following threefold test is to be applied:[36]
(a)What are the rights which existing members have against the company and to what extent are they different?
(b)To what extent are those rights affected by the scheme?
(c)Does the different treatment of rights make it impossible for the members in question to consider the scheme as one class?
[36] First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 320 FLR 78 [77] ‑ [81]; Re Zenith Energy Ltd; Ex Parte Zenith Energy Ltd [2020] WASC 266 [36]; Re Vimy Resources Ltd; Ex Parte Vimy Resources Ltd [2022] WASC 233 [46].
The orders sought on behalf of Schrole Group assumed that the Schrole Group shareholders formed only one class for purposes of voting on the proposed Scheme.
I accepted that all Schrole Group shareholders had the same rights in the Scheme as they had the right to receive the Scheme consideration for their Schrole Group shares.
Schrole Group performance rights were not being dealt with by a separate scheme of arrangement as between Schrole Group and the holders of that class of securities. Instead, it was intended that Schrole Group performance rights would either lapse in accordance with their terms, or vest and be converted into Schrole Group shares prior to the Scheme 'Record Date', and then would be dealt with by the Scheme.[37]
[37] Affidavit of RN Graham par 13; first affidavit of DJ Carpenter, DJC-02 (scheme implementation deed dated 16 June 2024, cl 4.4).
I was satisfied that the holders of Schrole Group performance rights were not in a separate class by reason of holding two different securities (being ordinary shares and Schrole Group performance rights) in circumstances where the Schrole Group board intended to accelerate the vesting of the performance rights, as they would not be treated differently under the proposed Scheme on account of holding these two different securities.[38]
Proposed chair
[38] See SRG Limited, in the matter of SRG Limited [18], [29] - [33]; Tawana Resources NL, in the matter of Tawana Resources NL [2018] FCA 1456 [40] ‑ [43]; Excelsior Gold Limited, in the matter of Excelsior Gold Limited [2018] FCA 2064 [36]; Firefly Resources Limited [2021] WASC 376 [68]; Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 240 [38] ‑ [39]; In the matter of InvoCare Limited [2023] NSWSC 1180 [20].
The proposed and alternative chair of the Scheme meeting had provided confirmations in accordance with Supreme Court (Corporations) (WA) Rules 2004 (WA) r 3.2.[39]
Consideration by ASIC
[39] First outline of submissions par 15; first affidavit of SA Hardcastle pars 3 - 12.
Section 411(2) of the Corporations Act requires that before making an order, the court be satisfied of two matters. First, that ASIC has been given 14 days' notice of the hearing, or such lesser period of notice as the court or ASIC permits: s 411(2)(a). Secondly, that ASIC has had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement, and to make submissions to the court: s 411(2)(b).
ASIC considers that its role is to assist the court by, among other things, reviewing the content of the scheme's documents; reviewing the nature and function of the scheme; representing the interests of investors and creditors; and bringing all relevant matters to the court's attention before it orders a scheme meeting or confirms a scheme.[40]
[40] ASIC, Regulatory Guide 60: Schemes of arrangement [60.4].
The role of ASIC has been referred to by the High Court, which observed that its predecessor, the Australian Securities Commission, had an obligation to assist the court by presenting argument if it deems that course necessary or desirable.[41] In an application such as this, the court relies on ASIC, as it is not for the court to fulfil the role of contradictor.[42]
[41] Australian Securities Commission v Marlborough Gold Mines Limited [1993] HCA 15; (1993) 177 CLR 485, 506; Re Advance Bank Australia Ltd (1997) 136 FLR 281, 287, cited in Seven Network Limited (ACN 052 816 789), in the matter of Seven Network Limited [2010] FCA 220 [15].
[42] Re Seven Network Ltd (ACN 052 816 789) (No 3) [2010] FCA 400; (2010) 267 ALR 583 [43].
The draft scheme booklet was lodged with ASIC on 30 July 2024,[43] and a copy of the sealed originating process and notification of the first court hearing date was given to ASIC on 2 August 2024.[44] I was satisfied that ASIC had been given 14 days' notice of the first court hearing and a reasonable opportunity to examine the terms of the proposed Scheme and the draft scheme booklet. ASIC confirmed the same in a letter sent on 16 August 2024 to the directors of Schrole Group.[45] In the same letter, ASIC confirmed that it did not intend to appear at the first court hearing.[46]
[43] First affidavit of DJ Carpenter par 13; second affidavit of DJ Carpenter par 9.
[44] Second affidavit of DJ Carpenter par 7(b).
[45] Third affidavit of DJ Carpenter, DJC-19.
[46] Third affidavit of DJ Carpenter par 13, DJC-19; ts 3 (16 August 2024).
The evidence also revealed that ASIC had communicated its queries and comments with respect to the proposed scheme booklet.[47] There had been engagement with ASIC, and changes were made to the scheme booklet as a result. Counsel for Schrole Group explained in the course of the first court hearing that the matters raised by ASIC were addressed by discussion and clarification, and were not matters which raised cause for concern.[48]
[47] Second affidavit of DJ Carpenter pars 10 - 11.
[48] ts 4 (16 August 2024).
The final version of the scheme booklet was provided to ASIC on 14 August 2024.[49] Then as requested by ASIC, on 16 August 2024 a copy of the same was provided to ASIC by email.[50] ASIC confirmed on the same date by email that the scheme booklet had been registered by ASIC pursuant to s 412(6) of the Corporations Act.[51]
The explanatory statement
[49] Second affidavit of DJ Carpenter par 11(b), DJC-12.
[50] Fourth affidavit of DJ Carpenter par 10.
[51] Fourth affidavit of DJ Carpenter par 10.
I had regard to whether the scheme booklet contained the prescribed information and provided proper disclosure.
The outline of submissions filed in advance of the first court hearing helpfully attached a checklist which identified where each of the prescribed disclosure requirements had been addressed in the draft scheme booklet.[52]
[52] First outline of submissions par 19.
The explanatory statement had been registered with ASIC and ASIC had had a reasonable opportunity to examine the draft explanatory statement in accordance with s 412(6) of the Corporations Act. There was correspondence before the court between ASIC and Hamilton Locke (on behalf of Schrole Group) that indicated that ASIC had reviewed the proposed disclosure.[53] I took comfort from ASIC's engagement.
[53] Second affidavit of DJ Carpenter, DJC-10, DJC-11; third affidavit of DJ Carpenter, DJC-19.
As to the standard of disclosure required by the explanatory statements, it was submitted on behalf of Schrole Group that the emphasis was on ensuring full disclosure so that the members would be properly informed in their consideration of the proposed Scheme.[54] Further, it was noted that the court would have regard to established considerations about the need for all of the main facts and a fair and balanced picture to be presented, such that it was satisfied, to a prima facie level, that there had been proper disclosure and there was nothing misleading or deceptive in any material sense.[55]
[54] First outline of submissions par 20, citing Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [54].
[55] First outline of submissions par 20, citing Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [54] ‑ [58]. See also Re NRMA Insurance Ltd [No 1] (2000) 156 FLR 349; (2000) 34 ACSR 261 [16].
Counsel further noted that this assessment was fact sensitive, with due regard to what was practical and commercially realistic, having regard to the complexity of the proposed Scheme and striking a balance between sufficiency of information and overwhelming information resulting in a loss of intelligibility or comprehensibility.[56]
[56] First outline of submissions par 21, citing Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [54] ‑ [58].
It was submitted on behalf of Schrole Group that the scheme booklet had been drafted, with the usual important components of a scheme booklet, to satisfy the statutory disclosure requirements, referring to ASIC's Regulatory Guide 60, and as to the independent expert's report to be annexed to the scheme booklet, ASIC's Regulatory Guides 111 and 112; s 411(3) and s 412 of the Corporations Act; and pt 3 of sch 8 to the Corporations Regulations 2001 (Cth).[57]
[57] First outline of submissions pars 19, 22.
Having considered the proposed scheme booklet and after hearing counsel for Schrole Group on 16 August 2024, I formed the view that there would be proper disclosure as to the effect of the proposed Scheme and the material considerations for shareholders of Schrole Group.
Further, I was satisfied that there was nothing apparently misleading or deceptive. There was evidence before me as to the due diligence and verification process that had been undertaken by both Schrole Group, and by TES Aus Global in the preparation of the draft scheme booklet. There was evidence before the court that:
(a)Schrole Group had undertaken a process of due diligence and verification to verify the accuracy of statements attributable to Schrole Group in the scheme booklet;[58]
(b)the board of directors of Schrole Group had resolved to adopt each statement attributable to them, in the context in which those statements appeared, in the verification of the scheme booklet and had confirmed by resolution their satisfaction with the verification process;[59]
(c)TES Aus Global had undertaken a similar process to verify the statements and information attributable to it;[60] and
(d)the directors of Schrole Group had resolved to approve the scheme booklet.[61]
Discretion enlivened - no reason not to convene the Scheme meeting
[58] Affidavit of RN Graham affirmed 5 August 2024 pars 53 - 55.
[59] Affidavit of RN Graham affirmed 5 August 2024 par 57(a) and (b).
[60] Affidavit of KL Wright affirmed 14 August 2024 pars 31 - 40.
[61] Affidavit of RN Graham affirmed 5 August 2024 par 57(c).
Having found that the formal and procedural matters had been satisfied, the court's discretion as to whether to convene the Scheme meeting had been enlivened.[62] I then turned to consider whether the proposed Scheme was not inappropriate and whether the Scheme was of such a nature that sensible business people might consider to be of benefit to its members.[63] Further, whether it offered a commercial proposition likely to gain the court's approval if passed by the necessary majority.[64]
[62] In the matter of InvoCare Limited [16]; Technology Metals Australia Limited v Australian Vanadium Limited [2024] WASC 26 [34], cited in the first outline of submissions par 25.
[63] Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [10].
[64] SRG Limited, in the matter of SRG Limited [12]; Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [72] ‑ [76].
As the application was made ex parte, counsel for Schrole Group properly raised and addressed a number of matters. I did not consider them, when considered separately and together, to warrant the refusal of the application. They are discussed below.
Whether the Scheme was fit for consideration and bona fide
Counsel noted that it was not the court's role to assess the commercial advantages and disadvantages of the Scheme, or to consider if some other or better transaction might be available or to make a business decision (which was for the members), or to prevent the members from having the opportunity to do so as an incident of their valuable property rights (their shares).[65] The court would only intervene if a proposed scheme on its face was 'so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further'.[66]
[65] First outline of submissions par 28, citing Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [72] ‑ [74]; Newcrest Mining Limited, in the matter of Newcrest Mining Limited [2023] FCA 1080 [30]; Technology Metals Australia Limited v Australian Vanadium Limited [37].
[66] First outline of submissions par 29, citing Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 [44].
The proposed Scheme was an acquisition scheme, by which a substantial premium was proposed to be paid.[67]
[67] ts 2 (16 August 2024); first outline of submissions par 30(d).
Counsel for Schrole Group submitted that the proposed Scheme was for a proper purpose given the proposed acquisition was 100% by an outsider for value and the proposed Scheme was within the power of Schrole Group to propose as it was not contrary to any provision of Schrole Group's constitution.[68] I accepted the same.
[68] First outline of submissions par 30(a).
Counsel further submitted that there was no reason to deny shareholders of Schrole Group the opportunity to consider the proposal in circumstances where:[69]
(a)the proposed Scheme had been recommended by the directors of Schrole Group in the absence of a superior proposal and subject to the independent expert continuing to conclude that the Scheme was in the best interests of Schrole Group shareholders;
(b)the independent expert had concluded that the Scheme was fair and reasonable and in the best interests of Schrole Group shareholders;
(c)the proposed Scheme involved various premiums to the share prices at which Schrole Group shares had traded prior to announcement of an earlier related transaction; and
(d)there was nothing in the method of proposing the transactions or the scheme implementation deed that warranted denial.
Conditions precedent
[69] First outline of submissions par 30(b) - (e).
Counsel emphasised that implementation of the Scheme was subject to the satisfaction of conditions precedent.[70]
[70] First outline of submissions pars 31 - 33; ts 5 (16 August 2024).
As is noted at [54] above, the scheme implementation deed provided that the Scheme would not be effected unless and until certain conditions precedent were satisfied or waived.[71] The Scheme also provides that its force and effect was subject to conditions precedent.[72]
[71] First affidavit of DJ Carpenter, DJC-02 (scheme implementation deed dated 16 June 2024, cl 2.1, cl 3.1).
[72] First affidavit of DJ Carpenter, DJC-03 (proposed Scheme, cl 2.1).
Counsel noted that by cl 6.6(p)(ii) of the scheme implementation deed,[73] Schrole Group will, at the second court hearing, provide to the court certificates in the form of deeds, set out in Appendix 3,[74] confirming whether or not all the conditions precedent had been satisfied or waived (other than the condition of court approval under s 411(4)(b) of the Corporations Act).
[73] First outline of submissions par 32, first affidavit of DJ Carpenter, DJC-02 (scheme implementation deed dated 16 June 2024).
[74] First affidavit of DJ Carpenter, DJC-02 (scheme implementation deed dated 16 June 2024).
In the papers filed in advance of the first court hearing, it was disclosed that the requirement for FIRB approval, which was a condition precedent, had already been waived.[75]
[75] Second affidavit of DJ Carpenter pars 12 ‑ 14, DJC-13.
It was further noted that the evidence before the court confirmed that the managing director of Schrole Group, Mr Graham, and a director of TES Aus Global, Ms Wright, were not aware of any reason why any of the conditions precedent would not be satisfied or waived within the applicable timeframes;[76] and that the key conditions precedent that remained outstanding had been disclosed prominently in the scheme booklet at s 2 under the heading 'What are the key conditions to be satisfied before the transaction can proceed', with the full list of outstanding conditions set out at s 8.7(c).[77]
[76] First outline of submissions par 33; affidavit of RN Graham par 23; affidavit of KL Wright par 23.
[77] First outline of submissions par 33; second affidavit of DJ Carpenter, DJC-12 (page 103).
On balance, having regard to all of the circumstances, I accepted that uncertainty as to the satisfaction of the conditions precedent did not warrant withholding approval to convene the Scheme meeting.
Performance risk
As was observed by counsel, performance risk or credit risk concerns the risk that after transferring shares, securityholders in a target will be left with no scheme consideration and no capacity to sue the acquirer to recover their shares or damages, or delay the provision of the scheme consideration with the only remedy being to sue on a deed poll.[78]
[78] First outline of submissions par 34; citing Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400[23].
In this case, I was satisfied that the nature and terms of the proposed Scheme were such that the performance risk to Schrole Group shareholders was minimal and consistent with other cases,[79] and was not a basis to refuse to convene the Scheme meeting.
[79] First outline of submissions par 37; citing Re Healthscope Ltd [2019] FCA 542; (2019) 139 ACSR 608 [131] ‑ [136]; Re NTM Gold Ltd; Ex Parte NTM Gold Ltd [2021] WASC 22 [54] ‑ [57]; Re Galaxy Resources Ltd; Ex Parte Galaxy Resources Ltd [2021] WASC 277 [49] ‑ [51]; Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 240 [49] ‑ [55] Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 1101 [42] ‑ [44].
First, the transaction had been structured to ensure that TES Aus Global paid the aggregate amount of Scheme consideration into a trust account operated by Schrole Group by no later than 5.00 pm on the date that was two business days before the 'Implementation Date'.[80]
[80] First outline of submissions par 35; first affidavit of DJ Carpenter, DJC-03 (proposed Scheme, cl 5.1), DJC‑02 (scheme implementation deed dated 16 June 2024, cl 6.7(h), (j)); affidavit of KL Wright, KLW-3 (deed poll, cl 4.2).
Secondly, Schrole Group disclosed in the scheme booklet that the trust account would be an Australian deposit‑taking institution established and operated by Automic on behalf of Schrole Group.[81]
[81] First outline of submissions par 35; first affidavit of DJ Carpenter, DJC-06 (scheme booklet, s 8.4(e)(i)).
Thirdly, the transaction had been structured so that TES Aus Global would not obtain a transfer of the Scheme shares unless it had first paid in the aggregate Scheme consideration and paid the Scheme consideration.[82] As was further noted by counsel, TES Aus Global would only obtain beneficial entitlement to the Scheme shares upon the provision of the Scheme consideration in the manner contemplated by cl 5.1 and cl 5.2 of the Scheme.[83]
[82] First outline of submissions par 36; first affidavit of DJ Carpenter, DJC-03 (proposed Scheme, cl 4.2(a)).
[83] First outline of submissions par 36; first affidavit of DJ Carpenter, DJC-03 (proposed Scheme, cl 4.4).
Fourthly, the performance by TES Aus Global of its obligations under the Scheme was supported by the deed poll which was executed by TES Aus Global on 16 June 2024.[84] By cl 4.1 of the deed poll, TES Aus Global undertook in favour of each Scheme shareholder to pay the Scheme consideration and undertake all other actions attributed to it under the proposed Scheme.[85]
[84] First outline of submissions par 36; affidavit of KL Wright par 42, KLW-3.
[85] First outline of submissions par 10.
Fifthly, counsel noted that TES Aus Global was not a newly incorporated special purpose vehicle, and evidence had been led of the capacity of TES Aus Global to fund the Scheme consideration from parent support.[86]
Exclusivity provisions and break fee
[86] First outline of submissions par 38; affidavit of KL Wright pars 16 - 21.
Schrole Group and TES Aus Global had agreed to the inclusion of terms in the scheme implementation deed which contemplated the payment of a break fee in certain circumstances, exclusivity obligations, and a matching right. I considered the appropriateness of the same.
Exclusivity provisions
In considering whether an exclusivity provision may impact on the completion of the transaction and the duties of directors, the court will have regard to the period of exclusivity, which should be no more than a reasonable period and capable of precise ascertainment; whether the provision is subject to an overriding obligation that the directors not breach their fiduciary duties or is otherwise unlawful; and whether there is adequate prominence given to the provision in the scheme booklet.[87]
[87] Re APN News & Media Ltd [29] - [35]; Re Kangaroo Resources Ltd; Ex Parte Kangaroo Resources Ltd [2018] WASC 327 [57] - [61]; Pacific Energy Ltd [2019] WASC 443 [58].
In this case, the scheme implementation deed at cl 10 prescribed exclusivity obligations in the form of 'cessation of existing discussions', 'no shop restriction', 'no talk restriction', 'notification' obligations, and 'matching right' provisions.[88]
[88] Affidavit of RN Graham par 30.
I accepted the submission made on behalf of Schrole Group that the exclusivity provisions in the scheme implementation agreement were common and acceptable,[89] and gave particular regard to the fact that the exclusivity provisions were subject to fiduciary and statutory carve outs in cl 10.4 and cl 10.6 of the scheme implementation agreement; that the exclusivity period was a reasonable period capable of precise ascertainment;[90] and that the exclusivity provisions had been sufficiently disclosed to Schrole Group shareholders in s 8.7(a) of the scheme booklet.[91]
[89] First outline of submissions par 41, citing Re APN News & Media Ltd [23], [29] ‑ [35], [49] ‑ [55]; Talon Energy Ltd, in the matter of Talon Energy Ltd [2023] FCA 1362 [17(8)]; Allkem Limited, in the matter of Allkem Limited [2023] FCA 1397 [80] ‑ [81].
[90] First outline of submissions par 40.
[91] First outline of submissions par 41; second affidavit of DJ Carpenter, DJC‑12.
Having regard to the terms of the scheme implementation agreement, and weighing in the balance the submissions made, I was satisfied that the exclusivity provisions were within bounds and were not a reason to refuse to convene the Scheme meeting.
Break fee
The scheme implementation deed also contained a provision with respect to the payment of a break fee at cl 11.3. Schrole Group's obligation was to pay a break fee to TES Aus Global in the amount of $181,000 or $400,000 depending on the circumstances as prescribed in cl 11.3. I also considered the appropriateness of the same.
I noted that a fee would not be payable in circumstances where the proposed Scheme was voted against at the Scheme meeting.[92]
[92] ts 3 - 4 (16 August 2024).
In his affidavit, Mr Graham deposed that the fee of $181,000 represented 1% of the implied equity value of the Scheme (approximately $18,147,784), and that the fee of $400,000 represented 2.2% of the same implied equity value.[93]
[93] Affidavit of RN Graham pars 93 ‑ 94.
With respect to the $181,000 fee, Mr Graham deposed that:[94]
TES agreed with [Schrole Group's] position that a lower break fee of $181,000 ought to apply if the [scheme implementation deed] is terminated by TES as a consequence of [Schrole Group] committing a material breach of the [scheme implementation deed], as in that circumstance [Schrole Group] would most likely be required to fund the payment of the break fee itself.
[94] Affidavit of RN Graham par 34.
With respect to the $400,000 fee, Mr Graham deposed to his understanding that the board of Schrole Group had considered it reasonable for the following reason:[95]
The [Schrole Group] Board considered it reasonable to agree to the $400,000 break fee in the circumstances proposed, as in those circumstances it is most likely that a Competing Proposal has emerged and any such third‑party acquirer will be required to absorb the $400,000 expense, which was not considered excessive.
[95] Affidavit of RN Graham par 34.
Counsel for Schrole Group submitted a break fee over 1% might be reasonable where a competing proposal had emerged as the acquirer would then have to deal with the same.[96] It was submitted that the break fee was not excessive in this case.[97] I accepted the same.
Interests of Schrole Group directors in the outcome of the Scheme and recommendation
[96] ts 3 (16 August 2024); first outline of submissions par 43.
[97] First outline of submissions par 43.
Mr Graham deposed that the board of Schrole Group had formed the view that the Scheme was in the best interests of its shareholders and had unanimously recommended to the shareholders that they vote in favour of the Scheme in the absence of a superior proposal or the independent expert concluding that the Scheme was not in the shareholders' best interests.[98] That recommendation was recorded in the scheme booklet, including prominently on the first page.[99]
[98] Affidavit of RN Graham par 24.
[99] Second affidavit of DJ Carpenter, DJC-12 (page 77).
As to the interests of the directors of the Schrole Group in the outcome of the Scheme, Mr Graham deposed that as at 5 August 2024:[100]
[100] Affidavit of RN Graham par 29.
(a)[He held] a relevant interest in 3,632,371 [Schrole Group] Shares and 828,000 Performance Rights.
(b)It is my intention to recommend to [Schrole Group] Shareholders, in my capacity as a [Schrole Group] Director, and to vote as a [Schrole Group] Shareholder, in favour of the Scheme provided no Superior Proposal is received by [Schrole Group] in the interim and subject to the Independent Expert continuing to conclude that the Scheme is in the best interests of [Schrole Group] Shareholders.
(c)If the Scheme is implemented, I am expected to benefit as follows:
(i)I will receive Scheme Consideration in the amount of $2,164,172; and
(ii)Pursuant the terms of my existing employment agreement with [Schrole Group], I will be entitled to receive a lump sum payment of $321,439, comprising 12 months' base salary.
(d)The relevant interests of the other [Schrole Group] Directors in [Schrole Group] Shares and their entitlement to Scheme Consideration in consideration for those [Schrole Group] Shares is as follows:
(i)Matthew John Adams: 21,406 [Schrole Group] Shares, entitling Mr Adams to Scheme Consideration in the amount of $10,386;
(ii)Caroline Emily Brokvarri: 50,000 [Schrole Group] Shares, entitling Ms Brokvam to Scheme Consideration in the amount of $24,260;
(iii)Colm John O'Brien: 20,000 [Schrole Group] Shares, entitling Mr O'Brien to Scheme Consideration in the amount of $9,704; and
(iv)Guy Perkins: 240,000 [Schrole Group] Shares, entitling Mr Perkins to Scheme Consideration in the amount of $116,448.
(e)No other [Schrole Group] Director holds a relevant interest in any Performance Rights.
As was helpfully summarised by counsel, subject to the Scheme becoming effective, Mr Graham will receive an aggregate $723,185 in additional benefits. This was comprised of having 828,000 performance rights vest into 828,000 Schrole Group shares valued at approximately $401,746 (under the terms of the scheme implementation deed and subject to Schrole Group shareholders approving the Scheme), and a lump sum gross payment of $321,439 comprising 12 months' base salary as a result of the change of control (under the terms of his existing employment agreement, in the event Schrole Group shareholders were to approve the Scheme).[101]
[101] First outline of submissions par 47.
The appropriateness of a recommendation by directors with an interest in the outcome of a proposed scheme has been considered on a number of occasions by this court.[102]
[102] See for example Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd [2019] WASC 189 [72] ‑ [89]; Re NTM Gold Ltd; Ex Parte NTM Gold Ltd [64] ‑ [69]; Re Dreamscape Networks Ltd; Ex Parte Dreamscape Networks Ltd [2019] WASC 412 [78] ‑ [83]; Creso Pharma Limited [2019] WASC 472[57] ‑ [68]; Re Zenith Energy Ltd; Ex Parte Zenith Energy Ltd [66] ‑ [88]; Re Exore Resources Ltd; Ex Parte Exore Resources Ltd [2020] WASC 285 [62] ‑ [69]; Re Western Areas Ltd; Ex Parte Western Areas Ltd [62] ‑ [70]; Firefly Resources Limited [92] ‑ [96]; Re Swick Mining Services Ltd; Ex Parte Swick Mining Services Ltd [2022] WASC 79 [69] ‑ [76].
In Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd, Vaughan J considered the appropriateness of director recommendations, drawing from the observations made by Farrell J in Gazal Corporation Limited, in the matter of Gazal Corporation Limited [2019] FCA 701. His Honour observed:
[84][In Gazal Corporation Limited, in the matter of Gazal Corporation Limited] Farrell J assessed the appropriateness of a recommendation by directors with an interest in the outcome of a scheme. One of the executive directors was to receive a $1.7 million bonus if the scheme became effective. Her Honour stated:
[D]irectors who are interested in the outcome of the scheme because they stand to receive a bonus or benefit (other than as a shareholder) only if the scheme proceeds should exercise caution in making recommendations and, in my view, generally should not do so.
[85]Farrell J had earlier observed that it would have been better practice for the executive director to adopt the 'common practice' of declining to make a recommendation and to explain that the reason for this was that he stood to receive a substantial benefit (depending on the outcome of the scheme) that other shareholders would not receive. As to the practical necessity for such a recommendation - the circumstance that the scheme implementation agreement required it - Farrell J observed that the question of whether it is appropriate for all directors to make a voting recommendation should be considered at the time that the agreement was negotiated and conditions crafted appropriately. I respectfully agree.
[86]In [Gazal Corporation Limited, in the matter of Gazal Corporation Limited] Farrell J approved the scheme, despite the interested director's recommendation, but offered the caution that scheme proponents cannot count on that always being the outcome when an interested director elects to make a recommendation. (Footnotes omitted)
In Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd, Vaughan J concluded that it was appropriate to make orders convening the scheme meeting and approving the scheme booklet for distribution, despite the fact that two executive directors of the company would obtain a collateral benefit should the company's shareholders vote to approve the scheme of arrangement. His Honour did so for reasons expressed as follows:[103]
•The additional and different interest held by the executive directors was not out of the ordinary and within the scope of what might be considered commercially not unreasonable, ie one year's salary.
•The additional and different interest held by the executive directors arose under pre-existing contracts executed well before the [scheme implementation deed].
•The additional and different interest held by the executive directors was linked to the possibility that their employment might be terminated immediately after the scheme becomes effective: the executive directors are not entitled to notice of termination or payment in lieu of notice if terminated within six months after the change in control. Accordingly, there is a not unreasonable commercial rationale for the bonus payment.
Most importantly, however, the scheme booklet made fulsome and prominent disclosure of [the executive directors'] additional and different interests. That disclosure was amplified after I, through chambers, brought the decision of Farrell J in [Gazal Corporation Limited, in the matter of Gazal Corporation Limited] to the attention of Nzuri's legal representatives.
[103] Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd [87] - [88].
In Re Mod Resources Ltd; Ex Parte Mod Resources Ltd [2019] WASC 326 at [86], Vaughan J observed that, in his view, the issue is fact sensitive.
In Re Dreamscape Networks Ltd at [79], Hill J indicated that she agreed with his Honour's view as expressed in Re Mod Resources Ltd; Ex Parte Mod Resources Ltd. Further, her Honour found that 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 [scheme implementation deed];
(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.
I agreed with and adopted the views expressed by Vaughan J and Hill J.
In all of the circumstances of this case, having given careful consideration to the directors' interests, I was satisfied that it was not inappropriate for the directors to make recommendations in respect of the Scheme.
First, as to the shares held by the directors, the interests of the directors were aligned to the interests of all shareholders.
Secondly, as deposed to by Mr Graham, the directors held additional interests. As to those interests, I had noted that the existence and ownership of Schrole Group performance rights had arisen as part of shareholder approved remuneration packages for the directors which were in place prior to the entry into the scheme implementation deed.[104] These were announced in the previous annual report and, therefore, put before the previous annual general meeting.
[104] First outline of submissions par 48; affidavit of RN Graham, RNG-02 (pages 78 ‑ 80, 82, 84 ‑ 93).
Thirdly, I accepted that the directors' additional interests were of a value that was not excessive, extravagant or out of the ordinary.
Fourthly, the recommendation of the directors of Schrole Group was contingent upon the independent expert continuing to conclude that the Scheme was in the best interests of the shareholders of Schrole Group,[105] and I accepted that this mechanism served as an important cross‑check.
[105] First outline of submissions par 51; affidavit of RN Graham par 42.
Finally, the directors' interests had been prominently disclosed in the scheme booklet.[106]
[106] Second affidavit of DJ Carpenter, DJC-12 (page 77).
While there may be circumstances where a recommendation by a director will be inappropriate despite fulsome and prominent disclosure in a scheme booklet, in this case in all of the circumstances and for the reasons above, I was satisfied that the recommendation made was not inappropriate.
Alliance Agreement
As noted above, Mr Graham had deposed to TES Aus Global and Schrole Group having entered into an Alliance Agreement, by which Schrole Group agreed to use reasonable endeavours to complete certain agreed tasks, and that TES Aus Global and Schrole Group would collaborate and share information.
Counsel also expressly addressed the Alliance Agreement, submitting as follows:[107]
Finally, the Alliance Agreement entered into between TES Global Ltd and [Schrole Group] does not contain any provisions which may constitute a lock up device as may impermissibly diminish the market for control of Schrole Group. Courts will analyse other agreements between target and acquirer, such as loans or other operations instruments, for direct or indirect parallel exclusivity arrangements or mechanisms that may reasonably be said to have a coercive effect on shareholders to vote in favour of a scheme.
The fact of the Alliance Agreement being entered into was announced with the [scheme implementation deed] on 17 June 2024 and a summary of its terms is set out in the Scheme Booklet at section 9.7. Relevantly, a breach of the Alliance Agreement does not create a right to terminate the [scheme implementation deed], nor does the Alliance Agreement include any obvious forfeiture or penalty which could coerce a shareholder vote. The subject matter is simply to cooperate in developing integrated software and for [Schrole Group] to upgrade its security system, prior to contemplated implementation of the Scheme.
[107] First outline of submissions pars 44 ‑ 45.
Having weighed these matters in the balance, I was satisfied that entry into the Alliance Agreement was not a reason to refuse to convene the Scheme meeting.
Voting intention statement
The scheme booklet contained a voting intention statement (to vote in favour of the proposed Scheme) given by Toronga, which held 19.47% of Schrole Group shares as at 15 July 2024. I had regard to the same and was satisfied that it met the requirements of disclosure as to the identity of the holder, the holding, and the qualifications of the statement. Further, there had been no evidence any inducement or benefit had been offered to obtain it.[108]
[108] First outline of submissions par 52; affidavit of MJ Adams par 10; affidavit of KL Wright par 47.
Indeed, as noted at [26] above, Mr Adams deposed that from his engagement with Toronga and otherwise to the best of his knowledge, information and belief, there had been no inducements, promises, or any other beneficial means applied by Schrole Group, or anyone associated with Schrole Group, in order to obtain the voting intention statement from Toronga.
Collateral benefit
It was submitted on behalf of Schrole Group that there was nothing in the evidence that may be viewed as a benefit given to any shareholder of Schrole Group so as to induce them to vote in favour of the proposed Scheme.[109]
[109] First outline of submissions par 53.
As was noted by Hill J in Re Galaxy Resources Ltd; Ex Parte Galaxy Resources Ltd at [57]:[110]
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. 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. If no net benefit is present, then, prima facie, the equality principle under s 602(c) of the Act is satisfied.
[110] See also Talon Energy Ltd, in the matter of Talon Energy Ltd [17(10)]; Technology Metals Australia Limited v Australian Vanadium Limited [75] ‑ [76].
On the evidence before me there were no apparent collateral benefits to shareholders to induce them to vote in favour of the proposed Scheme.
Common scheme clauses
Counsel also appropriately drew to the court's attention that the proposed Scheme contained a number of common clauses which, suitably framed or disclosed, courts have been content to approve.[111] I considered the following to be common, adequately disclosed and suitably framed in the circumstances.
[111] First outline of submissions par 54.
First, the deemed warranties provisions by which the securityholders of Schrole Group warranted that their shares and options (as applicable) were fully paid and free from encumbrances.[112] I was satisfied that the deemed warranties were permissible as they had been properly disclosed in the scheme booklet.[113]
[112] First outline of submissions par 54(a); first affidavit of DJ Carpenter, DJC-03 (page 183).
[113] First outline of submissions par 54(a), citing Tawana Resources NL, in the matter of Tawana Resources NL [28] - [29]; Re NTM Gold Ltd; Ex Parte NTM Gold Ltd [76]; Re Galaxy Resources Ltd; Ex Parte Galaxy Resources Ltd [79]; In the matter of Link Administration Holdings Limited [2022] NSWSC 650 [38]; DJC-06 (page 183).
Secondly, the clear title provisions which recorded that the shareholders of Schrole Group agreed to provide clear title to their shares and options on transfer, as applicable.[114] I accepted that the provision was suitably framed as it was expressed to be 'to the extent permitted by law'.[115]
[114] First outline of submissions par 54(b); first affidavit of DJ Carpenter, DJC-03 (page 183). Scheme cl 8.3.
[115] First outline of submissions par 89(b).
Thirdly, the no liability in good faith provision, by which liability was excluded for things done or omitted to be done in performance of the Scheme or deed polls and in good faith.[116] I accepted that the inclusion of such a clause was not problematic as its ambit was limited so as to not extend to the failure to implement the Scheme at all, nor would it protect any act done other than in good faith.[117]
Proposed shareholder communications outside of the scheme booklet
[116] First outline of submissions par 89(c); first affidavit of DJ Carpenter, DJC-03 (page 184). Scheme cl 9.5.
[117] First outline of submissions par 89(c) citing Re Galaxy Resources Ltd; Ex Parte Galaxy Resources Ltd [71] ‑ [72]; Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 240 [86]; Technology Metals Australia Limited v Australian Vanadium Limited [34].
I was interested to understand whether it was proposed that there would be additional communications by Schrole Group with its shareholders about the proposed Scheme between the first hearing and the Scheme meeting, so as to ensure that any intended communications would not undermine the court‑approved disclosure in the explanatory statement.
In this case, as was deposed by Mr Graham, no outbound call campaign was proposed.[118] It was only intended by Schrole Group that Automic address any inbound questions from shareholders, which would be answered by reference to a script that has been prepared based on the scheme booklet.[119]
[118] Affidavit of RN Graham par 67.
[119] First outline of submissions par 58.
Counsel also noted that the half‑year report for Schrole Group was due to be released with the ASX by end of August 2024, and if the results did not affect the scheme booklet information, an announcement could be made without court approval in the usual way, but if there was change, then supplementary disclosure could be put before the court.[120]
[120] First outline of submissions par 59; citing Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 1101.
Not all new information requires supplementary disclosure and court approval has not usually been sought for ASX announcements between the first court hearing and the scheme meeting, even where the announcements contain updated financial statements, unless the independent expert has changed his or her opinion.[121]
[121] Andean Resources Limited, in the matter of Andean Resources Limited [2010] FCA 1190 [26].
In circumstances where by the scheme booklet, Schrole Group shareholders would be informed of the impending results and would know to look for them on the ASX platform,[122] I had no difficulty with Schrole Group's proposed course.
(d)the chairperson voted all undirected proxies allocated to him in favour of the resolution approving the Scheme (Scheme resolution);[153]
(e)after confirming that all shareholders present and entitled to vote on the Scheme resolution had been given the opportunity to do so, the chairperson declared the poll closed;[154] and
(f)the chairperson explained to the Scheme meeting attendees that the poll results would be announced after the Scheme meeting by announcement on the ASX, consistent with established practice.[155]
[150] Second affidavit of SA Hardcastle par 8.
[151] Second affidavit of SA Hardcastle pars 9(b), 11.
[152] Second affidavit of SA Hardcastle par 12.
[153] Second affidavit of SA Hardcastle par 9(f).
[154] Second affidavit of SA Hardcastle par 13.
[155] Second affidavit of SA Hardcastle pars 13, 14; Re Ozgrowth Ltd; Ex Parte Ozgrowth Ltd [No 2] [2022] WASC 167 [23].
As noted above, the requisite majorities were achieved for the Scheme:[156]
[156] Second outline of submissions par 27.
No votes were directed by proxy to abstain from voting.[157]
Voter turnout and turnout on votes
[157] Second affidavit of SA Hardcastle, SAH-01.
Counsel addressed the voter turnout and turnout on votes at the Scheme meeting. As to voter turnout, counsel noted that 108 eligible Schrole Group shareholders of 979 (that is, about 11.03% of eligible shareholders) attended the Scheme meeting in person or by proxy.[158]
[158] Second outline of submissions par 30; second affidavit of SA Hardcastle par 5(e), SAH-01; affidavit of JE Rosagro par 42.
For context, counsel noted that this voter turnout was consistent when compared to previous Schrole Group annual general meetings, as:[159]
(a)at Schrole Group's 2024 annual general meeting, 25 out of 1,131 shareholders attended and voted. That is, approximately 2.21% of the Schrole Group shareholders as at the date of the 2024 annual general meeting; and
(b)at Schrole Group's 2023 annual general meeting, 25 out of 1,193 shareholders attended and voted. That is, approximately 2.09% of the total number of Schrole Group shareholders as at the date of the 2023 annual general meeting.
[159] Second outline of submissions par 31; affidavit of JE Rosagro par 42, JER-09, JER-10.
Indeed, the voter turnout was higher than when compared to the two previous annual general meetings.
Further, as to the turnout on votes at the Scheme meeting, counsel noted that the Schrole Group shares voted were 23,661,510 of the 35,955,048 shares on issue, with no votes being directed by proxy to abstain from voting. That is, approximately 65.81% of the Schrole Group shares on issue were voted.[160] Counsel submitted that this turnout was within the range of what is acceptable.[161]
[160] Affidavit of JE Rosagro par 40.
[161] Second outline of submissions par 32, citing Re Ozgrowth Ltd; Ex Parte Ozgrowth Ltd [No 2] [19] ‑ [21].
Further, for context, counsel noted that the turnout on votes at the Scheme meeting exceeded the turnout at Schrole Group's two previous annual general meetings, as:[162]
(a)at the 2024 annual general meeting, 13,136,440 Schrole Group shares were voted out of 35,955,048 Schrole Group shares on issue, representing approximately 36.54% of the total number of voting Schrole Group shares on issue as at the 2024 annual general meeting; and
(b)at the 2023 annual general meeting, 10,590,413 Schrole Group shares were voted out of 35,667,586 Schrole Group shares on issue, representing approximately 29.69% of the total number of voting Schrole Group shares on issue as at the 2023 annual general meeting.
[162] Second outline of submissions par 33; affidavit of JE Rosagro par 41, JER-09, JER-10.
I was and am satisfied that there was sufficient turnout at the Scheme meeting. It was submitted, and in all of the circumstances I accepted, that there was no indication that shareholders of Schrole Group had been excluded or prevented from attending the Scheme meeting.
Finding
I was and am satisfied that all statutory and procedural preconditions to the court's approval were satisfied. I so concluded having regard to the additional matters properly brought to the court's attention by counsel. I then turned to consider the discretionary considerations.
Good faith and proper purpose
There was no evidence that the Schrole Group shareholders voted for an improper purpose. I was and am satisfied on the evidence that the members voted in good faith and for a proper purpose as:[163]
(a)the Scheme was for an acquisition transaction of a kind ordinarily approved by courts, did not involve any novel treatment of rights and, as such, voting in favour was unlikely to be motivated by some improper purpose;
(b)the independent expert had opined that in the absence of any other relevant information or alternate proposal (and none was on offer), the Scheme was in the best interests of Schrole Group shareholders; and
(c)neither ASIC nor any shareholder appeared so as to object to approval at the second court hearing.
Fairness and reasonableness
[163] Second outline of submissions par 36.
I also considered whether the Scheme was 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.
As was noted by counsel, the court generally takes the view that the members are the best judges of whether an arrangement is to their commercial advantage, and will be reluctant to make a decision contrary to the views expressed at a meeting of the members. Further, the court's approach has been not to assess the commerciality of the scheme overall or whether it is the best outcome, but rather to check whether it is one that sensible business people might consider to benefit members.[164]
[164] Second outline of submissions pars 37 - 38.
Based on the evidence before the court at the first court hearing, 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 majorities were achieved at the Scheme meeting. Nothing had occurred since the date of the first court hearing to change this view. Further, I was cognisant that the independent expert had opined that in the absence of a superior proposal, the Scheme was in the best interests of Schrole Group shareholders and no superior proposal had emerged; that the majority of shareholders of Schrole Group who voted at the meeting supported the proposed Scheme; that proof of the statutory majorities is prima facie evidence of the fairness and reasonableness of the proposed Scheme;[165] that no Schrole Group shareholder appeared to oppose the orders sought at the second court hearing; that ASIC did not appear to be heard in opposition or in relation to the Scheme at the second court hearing; and that the Scheme was intended to yield commercial benefits for shareholders, making the Scheme fair and reasonable from the viewpoint of an intelligent and honest person.[166]
[165] Second outline of submissions par 39(a), citing Tawana Resources NL, in the matter of Tawana Resources NL (No 3) [2018] FCA 1952 [37]; Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [2018] WASC 357 [41].
[166] Second outline of submissions par 39(d), citing Re Seven Network Ltd (ACN 052 816 789) (No 3) [36].
I was satisfied at the first court hearing that the proposed Scheme was fit for consideration by Schrole Group's members. My conclusion had not altered. I was satisfied that the proposed Scheme was fair and reasonable and was one that sensible business people might consider to be of benefit to the shareholders of Schrole Group.
Full and fair disclosure
In determining whether to exercise discretion to approve the Scheme, I also considered whether there had been full and fair disclosure. Despite the requisite statutory majority having been achieved, I was cognisant that a scheme may be rejected on fairness grounds including by reason of there having been disclosure deficiencies.[167]
Scheme booklet
[167] Re Metropolitan Fuel Pty Ltd [1962] VR 675; Zenyth Therapeutics Ltd v Smith (2006) 60 ACSR 548; Re HIH Casualty and General Insurance Ltd (2006) 57 ACSR 791; (2006) 200 FLR 243; PR Finance Group Limited, in the matter of PR Finance Group Limited (No 2) [2013] FCA 633; Re NRMA Insurance Ltd [No 1], as discussed in Damian T & Rich A, Schemes, Takeovers and Himalayan Peaks (2021, 4th edition) (pages 344 ‑ 347, 359).
As noted above, based on the evidence before the court at the first court hearing, I was satisfied the proposed scheme booklet contained the prescribed information and provided proper disclosure to Schrole Group shareholders.
The additional affidavit evidence read by Schrole Group established that the scheme booklet that was despatched to shareholders, and made available at Schrole Group's registered office and on its website, was in the form approved for distribution by the court. As noted above, no errors in the scheme booklet were subsequently identified following registration of the scheme booklet with ASIC on 16 August 2024.[168]
Announcements to the ASX
[168] Second outline of submissions par 20.
It was also brought to the court's attention that following the first court hearing, Schrole Group had made six announcements to the ASX in relation to the Scheme and had released its half‑year report for the half‑year ending 30 June 2024. In addition to the announcements referred to at [174(d)] and [174 (j)] above:
(a)on 16 August 2024 Schrole Group announced to the ASX the registration of the final scheme booklet, which was accompanied by a copy of the scheme booklet (including the notice of Scheme meeting at annexure F);[169]
(b)on 19 August 2024 Schrole Group announced to the ASX the despatch of the final scheme booklet to shareholders;[170]
(c)on 27 August 2024 Schrole Group announced to the ASX its half‑yearly report for the period ending 30 June 2024, which included references to the Scheme and the scheme booklet;[171]
(d)following consultation with ASIC (as discussed below) on 13 September 2024 Schrole Group announced to the ASX that there had been no change to the opinion of the independent expert upon their review of the half‑yearly report;[172] and
(e)on 16 September 2024 Schrole Group announced an extract from the chairperson's address to Schrole Group shareholders at the Scheme meeting.[173]
The half-year report
[169] Fourth affidavit of DJ Carpenter par 12(b), DJC-25.
[170] Fourth affidavit of DJ Carpenter par 12(c), DJC-26.
[171] Fourth affidavit of DJ Carpenter par 13, DJC-30.
[172] Fourth affidavit of DJ Carpenter pars 129(d), 19, DJC-27.
[173] Fourth affidavit of DJ Carpenter par 12(e), DJC-28.
As noted at the first court hearing, Schrole Group was listed on the ASX and was a disclosing entity for the purposes of s 111AC of the Corporations Act, and was therefore required to prepare audited or reviewed half‑year accounts for the period ended 30 June 2024 in accordance with s 302 of the Corporations Act. In her second affidavit, Ms Carpenter deposed that in the event Schrole Group was to finalise its half‑year report prior to the Scheme meeting, Schrole Group would seek the independent expert's opinion as to whether there was any change to the independent expert's conclusion.[174]
[174] Second affidavit of DJ Carpenter par 19.
As recorded above, at the first court hearing counsel had noted that the half‑year report for Schrole Group was due to be released with the ASX by end of August 2024, and if the results did not affect the scheme booklet information an announcement could be made without court approval in the usual way, but if there was change, then supplementary disclosure could be put before the court.[175]
[175] Outline of submissions par 59; citing Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 1101 [72] - [75].
In her fourth affidavit, Ms Carpenter deposed to Schrole Group having released its half‑year report on 27 August 2024,[176] and to Mr Stuart Carmichael (a corporate advisor to Schrole Group) having sought the opinion of the independent expert as to whether there was any change to the expert's conclusion concerning the Scheme.[177]
[176] Fourth affidavit of DJ Carpenter par 13, DJC-30.
[177] Fourth affidavit of DJ Carpenter par 14.
The directors' report to the half‑year report included the following passage concerning the Scheme:[178]
Proposed Scheme of Arrangement with TES Aus Global
On 17 June 2024, Schrole announced that it had entered into a Scheme Implementation Deed with TES Aus Global Pty Limited (TES), a subsidiary of TES Global Limited under which it is proposed TES will acquire 100% of Schrole for 48.52 cents per Schrole share by way of a scheme of arrangement (Scheme).
The Scheme is subject to several conditions, including shareholder and Court approval, together with other customary conditions. The Schrole Board unanimously recommends that you vote in favour of the Scheme, in the absence of a superior proposal and subject to the independent expert continuing to consider the Scheme to be in the best interests of Schrole shareholders. Subject to those qualifications, each of the Schrole directors intends to vote, or cause to be voted, all Schrole shares held by or controlled by them in favour of the Scheme.
After Court approval on 16 August 2024, a Scheme Booklet was provided to Schrole shareholders. The Scheme Booklet contains important information relating to the Scheme, the reasons for the Schrole Board's unanimous recommendation and reasons why shareholders may vote against the Scheme, details of the Scheme meeting as well as an Independent Expert's Report providing an assessment as to whether the Scheme is in the best interests of Schrole shareholders. Schrole shareholders will have the opportunity to vote on the Scheme at a Court-convened Scheme meeting, which will be held on 16 September 2024. When considering how to vote, Schrole shareholders should carefully read the Scheme Booklet in its entirety and take into account the matters set out in the Scheme booklet, including the reasons to vote for and against the Scheme.
The interests of the Schrole Board are detailed in section 9 of the Scheme Booklet. The interests include the aggregate relevant interest of the Schrole Board in 4,460,371 Schrole shares, equating to approximately 12.85% of Schrole shares on a fully diluted basis. In addition, if Schrole shareholders approve the Scheme, a lump sum gross payment of $321,439 to Mr Rob Graham (comprising 12 months' base salary) will be made in accordance with the terms of Mr Graham's employment agreement (which was agreed on 29 February 2016 and preceded any negotiations in relation to the Scheme). Subject to Mr Graham remaining employed by the Schrole Group until the effective date for the Scheme, 828,000 performance rights will automatically vest and will convert into 828,000 Schrole shares. Schrole shareholders should have regard to these interests when considering how to vote on the Scheme.
[178] Fourth affidavit of DJ Carpenter, DJC-30 (pages 372 - 373).
On 5 September 2024 ASIC raised with Schrole Group the following queries and request in respect of the half‑year report:[179]
(a)if the Independent Expert had been provided a copy of the Half Year Report and that the Independent Expert would be furnishing [Schrole Group] shareholders with an updated Independent Export Report confirming whether Independent Expert's opinion on the Scheme had changed;
(b)whether [Schrole Group] intended to dispatch a supplementary Scheme Booklet to [Schrole Group] shareholders annexing the Half Year Report and updated Independent Expert Report; and
(c)if submissions could be provided addressing why [Schrole Group] considers that [Schrole Group] shareholders will have had adequate time to consider the supplementary information prior to the Scheme Meeting on 16 September 2024.
[179] Fourth affidavit of DJ Carpenter par 15.
On 9 September 2024 Schrole Group received a signed letter from the independent expert, which recorded as follows:[180]
[O]ur opinion on the Scheme as detailed in our [independent expert's report] dated 29 July 2024 remains unchanged and we consider that, in the absence of a superior proposal, the Scheme is fair and reasonable to Shareholders. Therefore, in the absence of a superior proposal, we consider the Scheme to be in the best interests of the Shareholders.
[180] Fourth affidavit of DJ Carpenter pars 14, 16, DJC-31.
As at 13 September 2024, it had not been the intention of Schrole Group to release an announcement to the ASX as to the position of the independent expert following receipt of the letter dated 9 September 2024 described above.[181] However, after ASIC:[182]
(a)referred Schrole Group to the decision of Black J in In the matter of TASK Group Holdings Limited [2024] NSWSC 821; and
(b)indicated that if Schrole Group did not release such an announcement to the ASX, ASIC would consider whether its notice of no objection to the Scheme would need to be withdrawn,
Schrole Group informed ASIC that it would release to the ASX an announcement that the opinion of the independent expert in respect of the Scheme remained unchanged upon review of the half‑year report for the half‑year ending 30 June 2024.[183]
[181] Fourth affidavit of DJ Carpenter par 18(b)(ii).
[182] Fourth affidavit of DJ Carpenter par 18(b)(iii).
[183] Fourth affidavit of DJ Carpenter par 18(c)(i).
Upon receipt of that response, ASIC informed Schrole Group that if such announcement was released that day (that is, on 13 September 2024), that would likely be the end of ASIC's comments in respect to the matter.[184] Schrole Group then proceeded to make the announcement.[185]
Finding
[184] Fourth affidavit of DJ Carpenter par 18(c)(ii).
[185] Fourth affidavit of DJ Carpenter pars 12(d), 19, DJC-27.
Schrole Group did not seek the court's approval of the passage concerning the Scheme in the directors' report before releasing to the ASX its half‑year report, nor of the announcement to the ASX made on 13 September 2024. At the second court hearing, counsel for Schrole Group submitted that it was within usual practice to make such an announcement without court approval.[186] Indeed, it had been Schrole Group's position that the announcement made to the ASX on 13 September 2024 was unnecessary given the opinion expressed by the independent expert after having considered the half‑year report.
[186] Second outline of submissions par 43, citing Andean Resources Limited, in the matter of Andean Resources Limited [26]; Re Vita Group Ltd [2023] FCA 400; (2023) 165 ACSR 576 [31]; Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 1101 [72] ‑ [75].
In its communications with Schrole Group, ASIC had referred to the decision of Black J in In the matter of TASK Group Holdings Limited. His Honour's decision concerned an application for supplementary disclosure following release of the annual results of TASK. His Honour's reasons record that the application had been made on behalf of TASK in circumstances where:[187]
[187] In the matter of TASK Group Holdings Limited [1] - [4].
(a)on 28 May 2024 Gleeson J had made orders in the proceeding for TASK to convene a meeting of its members for the purpose of considering a proposed scheme of arrangement, and associated orders, which orders contemplated that a scheme meeting would take place on 28 June 2024;
(b)on 31 May 2024 TASK published an Appendix 4E and annual report for the financial year ended 31 March 2024 to the ASX;
(c)on same day TASK published a media release on the ASX, an investor presentation and held an investor conference call. Those communications generally expressed the view that the financial report result was a strong one, and also referred to the recommendation made by TASK's directors in respect of the scheme;
(d)as was accepted by TASK, the communications had two potential difficulties:
(i)whatever the position would have been had they only related to TASK's financial results, they also potentially affected the information conveyed by the scheme booklet and likely required the court's approval to make them;[188] and
(ii)while it was relevant for TASK to draw attention to the directors' recommendation in respect of the scheme, where TASK shareholders might well wonder whether the financial report and TASK's results affected that recommendation, the reference to that recommendation did not then draw attention to the fuller outline of the scheme and its advantages and disadvantages as contained in the scheme booklet; and
(e)the difficulties noted above were recognised by TASK on 26 June 2024, prior to the scheme meeting and prior to the second court hearing.
[188] In the matter of TASK Group Holdings Limited [3], citing Centro Retail Limited and Centro MCS Manager Limited in its capacity as Responsible Entity of Centro Retail Trust [2011] NSWSC 1321 [11]; In the matter of Investa Listed Funds Management Limited as responsible entity for the Armstrong Jones Office Fund and the Prime Credit Property Trust [2018] NSWSC 1369; Redflex Holdings Limited, in the matter of Redflex Holdings Limited (No 2) [2021] FCA 474; (2021) 152 ACSR 557; In the matter of ResApp Health Ltd [2022] NSWSC 1090.
After the difficulties were identified, TASK promptly prepared proposed supplementary disclosure to TASK shareholders, for which it then sought the court's approval; adjourned the scheme meeting, to allow these issues to be addressed before shareholders voted upon the scheme; and drew these matters to the attention of ASIC.[189]
[189] In the matter of TASK Group Holdings Limited [5].
As to the proposed supplementary disclosure, it had been deposed that it:[190]
[D]raws attention to the proposed form of supplementary disclosure to be published on ASX, which discloses the time, date and location for the adjourned scheme meeting, which it is now proposed would take place on 4 July 2024, in three days' time; discloses that the independent expert who had expressed a view in respect of the scheme has reviewed TASK's financial results and confirmed that they do not change the opinions expressed in the independent expert's report contained in the scheme booklet; emphasises that TASK shareholders should read the information and statements recently released by TASK in the context of the disclosure in the scheme booklet; and draws attention to TASK's intention to reopen proxy voting, for a little more than a day, to allow TASK shareholders to change their vote if they wish to do so in light of the supplementary disclosure. That proposal, as I understand it, recognises the possibility that shareholders, might change their votes in response to TASK's financial results, although the independent expert has not changed its view. It is appropriate for TASK to recognise that possibility, although this perhaps is not the most likely case for that to occur.
[190] In the matter of TASK Group Holdings Limited [6].
In this case, in order to be satisfied at the second court hearing whether there had been full and fair disclosure, I did not consider it necessary to make any comment or finding as to whether:
(a)the passage concerning the Scheme in the directors' report to the half‑year report and/or the announcement made to the ASX on 13 September 2024 required the court's approval to make them; or
(b)the announcement made to the ASX on 13 September 2024 was in fact required (which appeared to have been the position adopted by ASIC).
It was however a matter for the second court hearing to consider whether there had been full and fair disclosure. It was necessary to consider the information conveyed (or omitted); how it was conveyed; and when. As to these matters, I noted as follows:
(a)neither the passage concerning the Scheme in the directors' report to the half‑year report, nor the announcement made to the ASX on 13 September 2024 contained information that was misleading or inaccurate;
(b)both documents drew attention to the scheme booklet, and in the directors' report, attention was particularly drawn to the advantages and disadvantages of the Scheme contained in the scheme booklet; and
(c)in all of the circumstances of this case, I did not consider the fact that Schrole Group did not issue a supplementary explanatory statement, annexing a copy of the half‑year report and independent expert's opinion of 9 September 2024, to be a matter for concern or a matter which weighed against the exercise of discretion on the ground of fairness.
As to timing, the ASX notice which concerned the Schrole Group's half‑year report was issued at the request of ASIC on 13 September 2024 (that is, only one business day prior to the Scheme meeting), and counsel for Schrole Group acknowledged that it had been made late.[191]
[191] Second outline of submissions par 44.
It was submitted on behalf of Schrole Group that the timing caused no problem and did not warrant refusing approval of the Scheme because:[192]
[i]t was not accompanied by any unbalanced material and the Half Yearly Report itself directed attention to the Scheme Booklet with prominent and strong statements to read the Scheme Booklet, that there are advantages and disadvantages and an independent expert report to read. There was no opinion change, strong majorities were attained on the Scheme Meeting, no one has objected or raised concern and the independent expert and the [Schrole Group] board recommend the Scheme as in the best interests, as fair and reasonable (subject to a superior proposal) and it could not sensibly have altered the opinion of Shareholders.
[192] Second outline of submissions par 44.
Counsel's submission was persuasive. Having given careful consideration to all of the facts, in the circumstances of this case, I was satisfied that nothing had arisen (including the late announcement to the ASX) to suggest there has not been proper disclosure of all information which was material to the decision of Schrole Group shareholders prior to voting on the Scheme.
Oppression of minorities
As counsel noted in the written submissions, there was no evidence before the court that any minority had been oppressed.[193]
[193] Second outline of submissions par 47.
Counsel further submitted and I accepted that there was unlikely to be oppression in circumstances where shareholders were provided with the scheme booklet on which they made an informed decision; were afforded ordinary procedural rights in a democratic meeting process, subject to a commonly undertaken change of corporate control procedure; and were intended to take the benefit of the transaction which the independent expert had concluded was in their best interests absent a superior proposal.[194]
Conditions precedent
[194] Second outline of submissions par 46.
Counsel noted that the Scheme had been subject to the satisfaction or waiver of various conditions precedent which had to be satisfied or waived before the Scheme would become effective in accordance with its terms. By the provision of conditions precedent certificates executed by both Schrole Group and TES Aus Global, and by the grant of court approval, I was satisfied all conditions precedent had been met.[195]
Voting intention statement
[195] Fifth affidavit of DJ Carpenter pars 10 - 12, DJC‑34, DJC‑35, DJC‑36; second outline of submissions pars 45 ‑ 46; ts 12 ‑ 14 (19 September 2024).
At the first court hearing, it was noted that the scheme booklet contained a voting intention statement (to vote in favour of the proposed Scheme) given by Toronga, which held 19.47% of Schrole Group shares as at 15 July 2024. At the first court hearing, I was satisfied that the voting intention statement met the requirements of disclosure as to the identity of the holder, the holding, and the qualifications of the statement. Further, I had noted that there had been no evidence any inducement or benefit had been offered to obtain it.[196]
[196] First outline of submissions par 52; affidavit of MJ Adams par 10; affidavit of KL Wright par 47.
At the second court hearing, I had understood that the requisite statutory majorities would have been met even if all of the Toronga votes had been excluded.
In all the circumstances, the voting intention expressed by Toronga was not a reason to exercise the court's discretion to not approve the proposed Scheme.
Public policy
The Scheme did not give rise to any public policy grounds that needed to be weighed in the balance.
Exemption from s 411(11) of the Corporations Act
I noted that the draft orders proposed by Schrole Group provided for an exemption from compliance with s 411(11) of the Corporations Act. This exemption has become ordinary practice for transactions of this kind.[197]
[197] Re Nusantara Resources Ltd; Ex Parte Nusantara Resources Ltd [2021] WASC 334 [103]. See also Re K2fly Ltd; Ex Parte K2fly Ltd [No 2] [2024] WASC 351 [26]; Re Valmec Ltd; Ex Parte Valmec Ltd [2021] WASC 420 [113]; Re Vimy Resources Ltd [No 2] [2022] WASC 257 [104].
Overall, I was satisfied there was no utility in requiring the court's orders approving the Scheme to be annexed to Schrole Group's constitution. It was appropriate in the circumstances to make the orders sought pursuant to s 411(12) of the Corporations Act.
Section 411(17) of the Corporations Act
Section 411(17) of the Corporations Act makes the court's approval conditional on satisfaction of one of two alternative conditions. Section 411(17) provides as follows:
(17) The Court must not approve a compromise or arrangement under this section unless:
(a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or
(b) there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement;
but the Court need not approve a compromise or arrangement merely because a statement by ASIC stating that ASIC has no objection to the compromise or arrangement has been produced to the Court as mentioned in paragraph (b).
As noted by counsel, it was observed by Vaughan J in Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] that production of a 'no objection' letter from ASIC pursuant to s 411(17)(b) is usually the end of the issue; the court then does not need to consider the s 411(17)(a) issue. However, a 'no objection' letter does not bring to the end the court's discretion.[198]
[198] Second outline of submissions par 53, citing Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [18].
As to the court's discretion, his Honour observed that if for example the court were to find that a scheme had been proposed for the purpose of avoiding the operation of provisions within ch 6 of the Corporations Act, that might be considered in the exercise of the discretion to approve the scheme under s 411(4)(b).[199]
[199] Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [18], citing Re Coles Group (No 2) [2007] VSC 523; (2007) 215 FLR 411 [75] ‑ [78].
I also noted that it was well accepted that significance ought to be attached to the ASIC 'no objection' letter given in the terms of ASIC Regulatory Guide 60: Schemes of Arrangement. The Regulatory Guide confirms that a primary consideration for ASIC is whether, having regard to the principles in s 602 of the Corporations Act, shareholders are adversely affected by the takeover being implemented by a scheme of arrangement rather than a takeover bid.[200] ASIC will only issue a 'no objection' letter if satisfied as to the disclosure and that there are no other reasons to oppose the scheme.[201]
[200] ASIC Regulatory Guide 60: Schemes of Arrangement [60.17]; as noted in Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [19].
[201] ASIC Regulatory Guide 60: Schemes of Arrangement [60.106]; as noted in Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [19].
ASIC provided a written statement on 19 September 2024 that it did not object to the Scheme pursuant to s 411(17)(b) of the Corporations Act. A copy of ASIC's communication of 19 September 2024 was before the court.[202] As a result, the requirements of s 411(17) were satisfied. ASIC did not appear at the second court hearing.
[202] Fifth affidavit of DJ Carpenter pars 6 - 7, DJC-32.
In any event, for the reasons outlined by counsel in written submissions, having regard to the nature of the proposed transaction, I was satisfied that it could not be said the Scheme was proposed to avoid the operation of ch 6 of the Corporations Act.[203]
[203] Second outline of submissions pars 54 ‑ 56.
Conclusion and orders made at the second court hearing
I was satisfied that all statutory and procedural preconditions to the court's approval had been satisfied. I so concluded having regard to the matters properly brought to the court's attention by counsel.
Upon considering the additional affidavit evidence filed and read in support of the application, upon considering the submissions made by counsel at the second court hearing and the matters already addressed at the first court hearing, I was satisfied that I should approve the proposed Scheme. The orders made at the conclusion of the second court hearing are reproduced at sch B to these reasons.
Sch A - Orders made on 16 August 2024
Sch B - Orders made on 19 September 2024
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CR
Associate to the Honourable Justice Strk
4 FEBRUARY 2025
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