Symbiosis Group Ltd, Re

[2008] QSC 297

[2008] QSC 297

SUPREME COURT

CIVIL JURISDICTION

McMURDO J

No 7705 of 2008

RE: SYMBIOSIS GROUP LIMITED Applicant

BRISBANE

..DATE 12/09/2008

ORDER

HIS HONOUR: This is the first Court hearing of an application by Symbiosis Group Limited for approval of a scheme of arrangement under Section 411 of the Corporations Act 2001.

The applicant is an unlisted public company and is described as an investment and intellectual property development company.  It was established in 2004 to invest in life-science technology, and in particular in innovations in that field emanating from the University of Queensland.

In December 2004 it entered into an agreement with Uniquest Pty Ltd for a term of five years with an option to renew for a further term of five years by which, broadly speaking, Uniquest gave the company the right to receive certain proposals from Uniquest in life-science technology projects.

The company has a total of 47,820,011 fully paid shares on issue.  Uniquest holds a relevant interest in 12,434,000 or 26 per cent of those shares.  Uniquest is a wholly owned subsidiary of the University of Queensland.

The proposal is for Uniquest to acquire the remainder of the shares in Symbiosis Group Limited.  Under the proposed arrangement Symbiosis shareholders will transfer their shares for a cash consideration of 25 cents per share, of which 15 cents per share is to be paid on the so-called implementation date, and the remaining 10 cents per share on the 1st of May 2009. 

The implementation date would be within a few days after the second Court hearing;  that is a hearing to approve the scheme.  Under the proposed timetable that would occur on 17 October 2008 and, according to the terms of the scheme, it must be finalised by 30 October 2008.  In other words, the initial tranch of 15 cents per share would be paid some time within that second half of October next.

On the 11th of August 2008 the company and Uniquest entered into a merger implementation agreement, described in the material as the MIA, by which the parties agreed to implement this scheme.  The companies are separately advised and represented by different firms of solicitors.

A draft Scheme Booklet has been prepared by the company and that was lodged with ASIC on the 12th of August 2008.  Within the Scheme Booklet is, amongst other things, a report by Ernst and Young appointed as independent accountants to assist the scheme and, in the course of that, to value the shares.  The report is exhibited to an affidavit by Mr Murdoch from Ernst and Young, who swears to its accuracy and as to the opinions expressed within it.

According to Ernst and Young the shares have a value of 10 to 11 cents and, in their opinion, the proposed scheme is in the interests of shareholders and that, absent some superior offer, shareholders should vote in favour of it.  The Board of

Symbiosis has unanimously recommended that shareholders vote in favour of the scheme, again, absent some superior offer.

Some particular elements of the scheme should be noted.  One relates to the so-called performance risk.  Part of the proposal is that Uniquest will execute a deed poll in favour of shareholders by which shareholders would be given rights to enforce the obligation of Uniquest to pay the 25 cents per share. 

As I have mentioned, most of that consideration would be paid very soon after approval of the scheme at the second Court hearing.  And the first tranche would be paid coincidentally with a transfer of the shares.  So far as the second tranche is concerned, as I have mentioned, Uniquest is a wholly owned subsidiary of the University of Queensland.  Moreover, there is evidence from Mr Henderson of Uniquest as to its ability to perform its obligations in this respect.  It is unnecessary to detail that but the evidence refers to the accounts of Uniquest at 31 December last to the substantial cash reserves held by Uniquest and to the absence of any material change to its circumstances since those accounts.

The MIA contains so-called "no shop" and "no talk" obligations whereby Symbiosis agrees not to solicit, invite, facilitate, encourage or initiate any discussions with a view to obtaining a proposal in relation to a competing transaction and agrees that subject to fiduciary duties of its directors, it will not participate in negotiations or discussions regarding a competing transaction.  The period in which it is subject to those obligations commenced on 11 August and ends on the termination of the MIA or the 30th of October next, whichever is the earlier. 

The scheme provides for a warranty to be given by each shareholder that that shareholder's shares are transferred free of encumbrance.  Such a warranty is, it seems, often included within such schemes and I was referred to reported cases in that respect.  I find it unnecessary to explore whether that warranty is in all respects effective, a matter which has been discussed in some of the cases.  It does seem to me to be appropriate to include it within this scheme and there will be specific disclosure of this in the explanatory statement.

The evidence satisfies me of each of the matters which has to be proved according to section 411 at a first Court hearing. In particular, the applicant company is a part 5.1 body; the proposed scheme is an arrangement within the meaning of section 411; the scheme has been bona fide and properly proposed and there will be, by the scheme booklet, proper disclosure to members.

I am also satisfied that ASIC has had a reasonable opportunity to examine the proposed scheme and to make submissions about it. In that respect, ASIC, in a letter dated 10 September 2008, has written that ASIC has had such a reasonable opportunity to examine the terms of the scheme and the final draft statement as required by section 411(2)(b)(1). The letter continues that ASIC's policy in relation to statements under section 411(17)(b) of the Act is not to provide such a statement until the second Court hearing. The letter continues that this policy in ASIC's view is consistent with the wording of the section, a statement with which I agree. The letter then continues that ASIC "does not currently propose to appear to make submissions or intervene to oppose the proposed scheme, the subject of the final draft statement at the hearing on 12 September 2008".

As to section 411 subsection 17, with respect, I would not accept the view which was that of Fryberg J in Re: Mincom Number One [2007] QSC 37, that at the first Court hearing under section 411, the Court must have evidence that goes to section 411(17)(a). But in any case, there is evidence here as to why the transaction is being implemented as a scheme and not as a takeover under Chapter 6.

The scheme booklet should be approved.  Mr Massey, for Symbiosis, and Mr Henderson, for Uniquest, have each sworn to the facts in the scheme booklet, so far as those facts relate to his company, as being true and correct.  As I have mentioned, Mr Murdoch, has sworn to the Ernst and Young Report.  I am also satisfied that regulations 5.6.12 and 5.6.14 through 5.6.36A of the Corporations Regulations should not apply. 

Accordingly, I am persuaded to make orders in terms of the draft which has been provided to me.  That provides for a meeting to be held on Monday 13 October 2008.  The draft also provides for the adjournment of the application to Friday 17 October at 9.30.  There will be an order in terms of that draft which I will initial and place with the file.

MR BLOEMENDAL:  No, thank you, your Honour, I may have misheard your Honour but just in terms of the reasons for judgment, your Honour, may have stated Uniquest as a public company limited as opposed to a Pty Ltd but‑‑‑‑‑

HIS HONOUR:  Did I?

MR BLOEMENDAL:  That is just a note in case.

HIS HONOUR:  I will correct that but thank you for that.  We will adjourn.

‑‑‑‑‑