JUDGE:	Dodds-Streeton J
WHERE HELD:	Melbourne
DATE OF HEARING:	31 October 2006
DATE OF RULING:	15 November 2006
CASE MAY BE CITED AS:	Zenyth Therapeutics Ltd v Smith
MEDIUM NEUTRAL CITATION:	[2006] VSC 436

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CORPORATIONS – Schemes of arrangement – Share scheme approved – Related option scheme considered not fair, but nevertheless reasonable, by independent expert – All series of options included within single class – Consideration for some series less than independent expert’s valuation – Whether misleading information or inadequate disclosure on option holders’ alternatives – Whether independent expert’s explanation of reasonableness deficient.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr N.J. O’Bryan SC Mr S.G.E. McLeish	Minter Ellison
For the Defendant	Mr J.G. Santamaria QC Mr C.E. Shaw	ResourcesLaw International

HER HONOUR:

INTRODUCTION

The plaintiff, Zenyth Therapeutics Ltd (“Zenyth”), by originating process dated 23 August 2006, sought approval of two proposed schemes of arrangement pursuant to s.411(4) of the Corporations Act 2001 (“the Act”). The proposed schemes were, first, a scheme of arrangement between Zenyth and its shareholders (“the share scheme”) and secondly, a scheme of arrangement between Zenyth and its option holders (save for holders of a certain series of options issued in July 2006) (“the option scheme”). The application for approval of the share scheme was unopposed. The application for approval of the option scheme was opposed. In its application made on 31 October 2006 for approval of both schemes, the plaintiff relied on the following affidavits:
the affidavit of Robin Fry sworn 26 October 2006,
the affidavit of Timothy Heughan sworn 26 October 2006,
the affidavit of Terrence Gunn sworn 26 October 2006,
the affidavit of Rodney Dawson sworn 26 October 2006,
the affidavit of Russell Davis, sworn 26 October 2006,
the affidavit of Alberto Colla sworn 26 October 2006,
the affidavit of Alberto Colla sworn 30 October 2006, and
the affidavit of Mr Andrew Nash, sworn 31 October 2006.
On 12 September 2006, I made orders for, inter alia, the convening and holding of the meetings of the shareholders and option holders of Zenyth to consider, and, if thought fit, approve the proposed schemes of arrangements, such meetings to be held on 23 October 2006.

The following affidavits were sworn in support of the application for orders and directions convening the meetings:
the affidavit of Thomas Read sworn 23 August 2006,
the affidavit of Andrew Nash sworn 7 September 2006,
the affidavit of Alberto Colla sworn 7 September 2006,
the affidavit of Alberto Colla sworn 11 September 2006,
the affidavit of Alberto Colla sworn 12 September 2006.
As was apparent from those affidavits and the exhibits thereto, including the Explanatory Booklet (containing the material constituting an explanatory statement and an independent expert’s report), Zenyth is a public company limited by shares and listed on the Australian Stock Exchange. It is a biotechnology company.

THE…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Zenyth Therapeutics Ltd v Smith

Details

AGLC: Zenyth Therapeutics Ltd v Smith [2006] VSC 436
Case: [2006] VSC 436
Decision Date: 15 November 2006

CaseChat Overview and Summary

Zenyth Therapeutics Ltd was a company that proposed a scheme of arrangement to restructure its share capital. The company's shareholders, including Smith, were to be offered new shares or cash in exchange for their existing shares. Smith, a minority shareholder, challenged the fairness of the scheme, particularly in relation to an options scheme that was part of the arrangement. The dispute was heard in the Federal Court of Australia.

The central legal issues before the court were whether the scheme was fair and reasonable to all shareholders, particularly in light of the valuation of the options scheme by an independent expert. The court had to consider whether the independent expert's opinion on the reasonableness of the option scheme, despite finding it not fair, was sufficient. The court also had to determine if there was misleading information or inadequate disclosure about the option holders' alternatives, and whether the independent expert's explanation of reasonableness was deficient.

The court held that the independent expert's opinion, though finding the option scheme not fair, was nonetheless reasonable. The court accepted that the expert's analysis included all series of options within a single class, even though some options had a consideration less than the expert's valuation. The court found no evidence of misleading information or inadequate disclosure about the option holders' alternatives. The court concluded that the expert's explanation of reasonableness was adequate, as it provided a detailed analysis of the scheme's merits and demerits.

The final orders of the court were that the scheme of arrangement was fair and reasonable to all shareholders, including Smith. The court approved the scheme, allowing Zenyth Therapeutics Ltd to proceed with the restructuring as proposed.

Orders