1300 Smiles Limited, in the matter of 1300 Smiles Limited [2021] FCA 1287

Federal Court of Australia|2021-10-12|Before: Farrell J

Pursuant to ss 411(1) and 1319 of the Corporations Act 2001 (Cth): (a) the plaintiff convene a meeting (General Scheme Meeting) of the holders of its fully paid ordinary shares (other than Daryl Shane Holmes, Daryl Holmes as trustee for the TFD Hybrid Fixed Trust and Golden Arch (Qld) Pty Ltd as trustee for the Whistler Discretionary Trust (Founder Entities)) for the purpose of considering, and if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement to be made between the plaintiff and its shareholders (Scheme) substantially in the form of that contained in Annexure B to the explanatory statement in relation to the Scheme which has been tendered and marked Exhibit 1 in these proceedings (Scheme Booklet); (b) the plaintiff convene a meeting (Founder Scheme Meeting) of the Founder Entities as holders of its fully paid ordinary shares for the purpose of considering, and if thought fit, agreeing (with or without modification) to the proposed Scheme; (c) the General Scheme Meeting be held on Friday, 12 November 2021 by video-conferencing technologies commencing at 9.00 am (Brisbane time); (d) the Founder Scheme Meeting be held on Friday, 12 November 2021 by video-conferencing technologies commencing at 9.30 am (Brisbane time); (e) the time for determining eligibility to vote at the General Scheme Meeting be fixed at 7.00 pm (Sydney time) on Wednesday, 10 November 2021; (f) the time for determining eligibility to vote at the Founder Scheme Meeting be fixed at 7.00 pm (Sydney time) on Wednesday, 10 November 2021; (g) the chairperson of the General Scheme Meeting be Robert Francis Jones, or failing him, Jason Terence Smith; (h) the chairperson of the Founder Scheme Meeting be Robert Francis Jones, or failing him, Jason Terence Smith; (i) the chairperson appointed to the General Scheme Meeting has the power to adjourn or postpone the General Scheme Meeting in his absolute discretion for such time and to such date as the chairperson considers appropriate; (j) the chairperson appointed to the Founder Scheme Meeting has the power to adjourn or postpone the Founder Scheme Meeting in his absolute discretion for such time and to such date as the chairperson considers appropriate; (k) the chairperson appointed to the General Scheme Meeting be permitted to attend and chair the meeting by video-conferencing technologies; (l) the chairperson appointed to the Founder Scheme Meeting be permitted to attend and chair the meeting by video-conferencing technologies; (m) at the General Scheme Meeting, the resolution to approve the Scheme be decided by way of a poll; (n) at the Founder Scheme Meeting, the resolution to approve the Scheme be decided by way of a poll; and (o) the Scheme Booklet and the proxy forms for the General Scheme Meeting and the Founder Scheme Meeting (substantially in the form of the pro forma copy which is Annexure RFJ-6 to the Second Affidavit of Robert Francis Jones affirmed 8 October 2021 in these proceedings) (Proxy Forms) be approved for distribution to shareholders.

FARRELL J: 1 These are reasons for orders made on 12 October 2021 under ss 411(1) and 1319 of the Corporations Act 2001 (Cth) in relation to convening and conduct of two meetings between different groups of shareholders of 1300 Smiles Limited (ONT) for the purpose of considering, and if thought fit, approving a scheme of arrangement between ONT and its members (scheme meetings) effecting a takeover by Adams Aus Bidco Pty Limited (BidCo) and approving a scheme booklet in the form of Exhibit 1 for despatch to ONT shareholders.

Introduction 2 On 24 August 2021, ONT announced to the Australian Securities Exchange (ASX) that, on 23 August 2021, it had entered into a scheme implementation agreement with BidCo with respect to the proposed scheme (SIA). 3 It is intended that, upon implementation of the scheme, BidCo will acquire approximately 84.4% of ONT's 23,678,384 issued shares and ONT will be delisted from the ASX. BidCo's ultimate parent, Adams Group Aus Holdings Pty Limited (HoldCo), will have the option (but not the obligation) to acquire the balance of the ONT shares (being the Retained ONT shares discussed at [23]-[24] below) within 24 months of the implementation of the scheme.

ONT 4 ONT is a public company, registered in Queensland. Its shares were listed on the ASX in 2005. 5 ONT owns and operates full-service dental facilities across Australia, with its corporate and administrative offices located in Townsville, Queensland. ONT enables the delivery of services to patients by offering the use of dental surgeries, practice management and other services to self-employed dentists who carry on their own dental practices. ONT currently operates 34 dental practices providing over 600,000 items of care to over 180,000 patients each year: scheme booklet at section 4. 6 The Board of ONT comprises Dr Daryl Holmes (Managing Director) and two non-executive directors, Robert Francis Jones (Chairman) and Jason Terence Smith. They have the following relevant interests in ONT shares: Dr Holmes has a relevant interest in 14,711,729 ONT shares (approximately 62.13%). Of these ONT shares, Ashbourne Park Pty Ltd holds 550,702 ONT shares (approximately 2.3% of ONT shares); Mr Jones has a relevant interest in 37,521 ONT shares; and Mr Smith has a relevant interest in 2,068 ONT shares. 7 The ONT Board formed an "Independent Board Committee" (IBC) comprising Messrs Jones and Smith to consider the merit of the proposed scheme.

HoldCo, the Abano Group and associated entities 8 HoldCo was established as the investment vehicle to aggregate the interests of BGH Capital Fund and Ontario Teachers' Pension Plan Board (OTPP) in the Abano Group. The Abano Group is one of the largest dental support groups across Australia and New Zealand, with over 200 practice locations which are more concentrated in higher population areas. It operates under the 'Lumino' brand in New Zealand and 'Maven' in Australia. 9 BGH Capital was established in 2017 as an independent private investment firm, owned and managed by its founding partners being Robin Bishop, Ben Gray and Simon Harle. In May 2018, BGH Capital had a final close on the BGH Capital Fund of approximately AUD$2.6 billion. 10 OTPP is Canada's largest single-profession pension plan with CAD$227.7 billion in net assets as at 30 June 2021. It was incorporated by the Teachers' Pension Act (Ontario) in the province of Ontario, Canada. Under that Act, it is jointly sponsored by the Ontario Teachers' Federation, a professional organisation which represents teachers in publicly-funded schools in the province of Ontario, and the Ontario Government. It is a corporation without share capital.

First court hearing 11 Both ONT and BidCo were represented by counsel at the first court hearing. No one appeared to oppose the orders sought. 12 In its "usual letter" dated 11 October 2021, the Australian Securities and Investments Commission (ASIC) indicated that it did not intend to attend the first court hearing to make submissions or intervene to oppose orders being made but it asked that certain matters relating to the proposed Special Dividend discussed below be brought to the Court's attention: see [17]-[19] below.

Founder Shareholders 13 Founder Shareholders will comprise: Dr Holmes; Dr Holmes as trustee of the TFD Hybrid Fixed Trust; and Golden Arch (Qld) Pty Ltd as trustee of the Whistler Discretionary Trust. In written submissions, senior counsel for ONT explained that "Dr Holmes in his personal capacity is currently not a shareholder and was included in the definition of Founder Shareholders at the request of the proposed acquirer for completeness".

Scheme meetings 14 There will be two scheme meetings convened, a Founder Scheme Meeting and a General Scheme Meeting. 15 The Founder Scheme Meeting will be a meeting of: Dr Holmes as trustee of the TFD Hybrid Fixed Trust; and Golden Arch (Qld) Pty Ltd as trustee of the Whistler Discretionary Trust. Together they hold 14,161,027 ONT shares, being approximately 59.8% of all ONT shares. 16 The General Scheme Meeting will be a meeting of all shareholders other than the Founder Shareholders (non-Founder Shareholders). Although it is an associate of Dr Holmes, Ashbourne Park Pty Ltd is not a Founder Shareholder and it will be entitled to vote at the General Scheme Meeting. Senior counsel for ONT advised that Ashbourne Park's votes will be tagged in reporting of results of the General Scheme Meeting.

Special Dividend 17 The ONT Board currently intends to declare and pay, before the scheme implementation date, a Special Dividend of up to $0.80 per ONT share (which may be increased to $1.10 per ONT share) if the scheme is approved by ONT shareholders and the Court. This means that, depending on the individual circumstances of an ONT shareholder, each Australian resident ONT shareholder may receive a franking credit of up to approximately $0.27 per ONT share. 18 Factors relevant to the ONT Board's decision whether and for how much to declare the Special Dividend include the need to comply with ss 260A and 254T of the Corporations Act. Based on the information currently available, the ONT directors expect to be able to determine that paying a Special Dividend is in the best interests of ONT and does not materially prejudice the interests of ONT or ONT shareholders or ONT's ability to pay its creditors. ONT will announce the ONT Board's determination regarding the payment of the Special Dividend to the ASX before the second court hearing. This is disclosed in the Chairman's letter and sections 1.1(e) and 1.2(e) (key voting considerations), section 2 (frequently asked questions) and section 3.3 (Special Dividends) of the scheme booklet. 19 In its "usual letter" ASIC said: ASIC notes that the contingent nature of the Special Dividend is disclosed in the draft explanatory statement. ASIC understands that there are commercial reasons (namely, taxation consequences for shareholders) for the timing of the Special Dividend determination. ASIC further understands that, for some shareholders, inclusion of the Special Dividend may have favourable taxation consequences compared to receiving only Scheme consideration. ASIC is concerned that, for some shareholders, a determination not to declare the Special Dividend may impact the shareholders' vote on the Scheme, were the vote to occur after the determination were made. Should the Scheme be approved by shareholders and should the Special Dividend not be declared, ASIC will consider what impact this may have had on voting on the Scheme. Having regard to these concerns, ASIC is reserving its position at this time regarding this matter. ASIC notes that the proposed timetable provides for the second court hearing to occur after determination of the Special Dividend. Although ASIC does not seek to alter the proposed timetable at this stage, if considered necessary, ASIC may request the date of the second court hearing be postponed to provide sufficient time for ASIC, or other interested parties, to decide whether to appear and make submissions at the second court hearing. For the reasons above, I set out our position below in relation to the hearing on 12 October 2021. However, our position does not limit our discretion to factor concerns in relation to the above matters into our consideration of whether to provide a letter of no objection for the purposes of paragraph 411(17)(b) of the Act or to take any other action.

Scheme consideration 20 Scheme consideration will be as follows: Non-Founder Shareholders will receive $8.00 for each ONT share less the amount of any Special Dividend; and Founder Shareholders will receive up to $6.33 for each ONT share they hold comprising: (a) an amount of $5.52 cash, less the cash amount of any Special Dividend; and (b) one Contingent Note which will confer the right to receive up to $0.81. 21 The Contingent Note is explained in the scheme booklet at section 8.3(b)(v) and (vi) as follows (footnotes inserted into text): ... On the Implementation Date, the Founder Shareholders will each receive 1 Contingent Note for each ONT Share transferred by the Founder Shareholders under the Scheme. The Founder Shareholders will receive up to $0.81 cash for each Contingent Note (Contingent Scheme Consideration), subject to ONT completing the sale of its investments in Investors Central Limited ACN 143 097 385 [comprising redeemable preference shares having a face value of $6.25 million] and its real property located at 361 Flinders Street, Townsville (Contingent Events). The actual cash amount to be received by the Founder Shareholders for each Contingent Note depends on the aggregate proceeds (after-Tax and transaction costs) received by ONT in relation to the Contingent Events. As at the date of this Scheme Booklet, the sale of the Flinders Street real property has occurred. The sale of the investments in Investors Central Limited has not occurred but is expected to occur and the Contingent Scheme Consideration to be received by the Founder Shareholders is expected to be $0.81, and, on that basis, the Founder Shareholders are expected to receive in aggregate cash proceeds of $6.33 for each ONT Share transferred under the Scheme. … The ONT IBC reserves the right to sell ONT's redeemable preference shares in Investors Central Limited to, and borrow funds on an unsecured basis from, entities associated with Dr Daryl Holmes on reasonable commercial arm's length terms and to use the funds raised to pay the Special Dividend. The ONT IBC considers that a sale of the Investor Central Limited shares for their face value would be reasonable in the circumstances if ONT and Dr Holmes were dealing at arm's length or would be less favourable to Dr Holmes than such terms and conditions. 22 ONT says that the differential consideration to be provided to the Founder Shareholders unlocks additional value for the non-Founder Shareholders. This is because the scheme consideration when taken overall implies a valuation of $7.00 per ONT share (blended consideration). By adopting the differential pricing structure, BidCo is able to make an $8.00 cash offer to the non-Founder Shareholders.

Retained ONT shares 23 It is a condition of the scheme that the Founder Shareholders elect to retain 26.227% of their ONT shares (Retained ONT shares) and enter into a Retention and Co-Investment Deed. The Founder Shareholders have confirmed to ONT that they intend to make the election necessary to satisfy that condition. 24 Under the Retention and Co-Investment Deed, at any time within 24 months after the implementation date of the scheme, HoldCo may (but is not obliged to) acquire the Retained ONT shares (to be valued in the same way as ONT shares held by Founder Shareholders which are transferred to BidCo under the scheme) in consideration for the issue of HoldCo shares at an issue price of $1.30 per HoldCo share (HoldCo replacement shares).

Conditions of the scheme 25 The conditions of the scheme which must be satisfied or waived before the scheme becomes effective are summarised in sections 2 and 3.7 of the scheme booklet. In addition to conditions that have become customary, they include: Obtaining required approval of the implementation of the scheme from the Foreign Investment Review Board; The Founder Shareholders making a valid election with respect to the Retained ONT shares by the election time, which is expected to be 5 pm on Monday, 8 November 2021; and Certain documents (including the Retention and Co-Investment Deed) being entered into before 8 am on the day of the second court hearing; and No Material Adverse Effect occurring before 8 am on the day of the second court hearing.

IBC recommendation 26 The Chairman's letter notes that $8.00 per ONT share payable to non-Founder Shareholders represents: A 14% premium to ONT's closing share price on the ASX of $7.02 per share on Friday, 20 August 2021, being the last trading day prior to the announcement of the scheme; A 14% premium to ONT's VWAP over the last 30-day period ($6.99 per share) prior to Friday, 20 August 2021; An 18% premium to ONT's VWAP over the last 12 months ($6.79 per share) prior to Friday, 20 August 2021; and An implied EV/EBITDA multiple of 15.5x for non-Founder Shareholders, based on FY21 underlying EBITDA pre AASB 16 of $12.2 million. That is on the basis that the enterprise value implied by the non-Founder scheme consideration of $188 million includes net cash of $1 million as at 30 June 2021 as described in footnote 6. 27 Messrs Jones and Smith consider the scheme to be in the best interests of ONT and ONT shareholders and unanimously recommend that non-Founder Shareholders vote in favour of the scheme in the absence of a superior proposal and subject to the independent expert (as defined at [30] below) continuing to hold the view that the scheme is in the best interests of ONT shareholders. 28 Subject to the same qualifications: Messrs Jones and Smith intend to vote ONT shares in which they have a relevant interest in favour of the scheme; and Dr Holmes intends to vote all of the ONT shares held by the Founder Shareholders in favour of the scheme. 29 The IBC has formed its view based on: The independent expert's conclusions; The implied EV/EBITDA multiple of 15.5x based on FY21 EBITDA pre AASB 16 of $12.2 million of the scheme consideration payable to non-Founder Shareholders which represents an attractive valuation by reference to comparable transactions; The cash consideration payable to non-Founder Shareholders which provides them with certainty of value and the opportunity to realise their investment in full; and The IBC's belief that the Abano Group will be excellent custodians of ONT's business going forward "in terms of continuing strong dentist and patient outcomes and growing the business".

Independent expert 30 The ONT Board also appointed an independent expert, Grant Thornton Corporate Finance Pty Ltd to provide an independent expert's report in relation to the proposed scheme and it is Annexure A in the scheme booklet. 31 The independent expert formed the view that the scheme is in the best interests of all ONT shareholders and fair and reasonable to the non-Founder Shareholders in the absence of a superior proposal. It did not form an opinion as to the fairness and reasonableness of the cash consideration that a Founder Shareholder might receive under the scheme and the HoldCo replacement shares the Founder Shareholders might receive if HoldCo exercises its option to acquire the Retained ONT shares (referred to as Total Founder Consideration). 32 In forming its opinion, the independent expert considered: Whether the scheme consideration payable to non-Founder Shareholders is fair and reasonable to them; Whether the blended consideration was fair and reasonable to ONT shareholders; Whether the Total Founder Consideration provides the Founder Shareholders with a net benefit compared with the scheme consideration payable to non-Founder Shareholders; and Other qualitative and quantitative considerations. 33 The independent expert assessed the value of an ONT share on a control basis (and without attributing value based on franking credits that might be derived from a Special Dividend) as being between $6.65 and $7.75. This valuation was assessed by adopting the future maintainable earnings approach and the independent expert cross checked the valuation by reference to the capitalisation of cash flows method. 34 As the scheme consideration payable to non-Founder Shareholders is just above the high-end of the assessed valuation range and the blended consideration falls within the assessed valuation range of ONT on a control basis, the independent expert concluded that the scheme is fair to non-Founder Shareholders and ONT shareholders as a whole. 35 Having accepted that it was reasonable to assume that HoldCo would exercise the option to acquire Retained ONT shares under the Retention and Co-Investment Deed, the independent expert made a "desk-top" assessment of the HoldCo replacement shares which the Founder Shareholders would receive upon exercise of HoldCo's option after taking into account cash consideration received by Founder Shareholders (less any Special Dividend). The independent expert: Noted that the valuation of the Abano Group had not been disclosed in the independent expert's report because of the commercial sensitivity of that information, disclosure of which may harm the ability of HoldCo's shareholders to maximise the value of their investment; Applied a marketability and liquidity discount to the HoldCo replacement shares of 20% to 30% (having regard to the likelihood that HoldCo shareholders will seek to maximise the value of their investment in the short to medium term by a liquidity event); and Concluded that the Total Founder Consideration was below the value of the scheme consideration payable to non-Founder Shareholders so that it did not confer a net benefit on Founder Shareholders compared to non-Founder Shareholders. 36 In determining that the proposed scheme is reasonable, the independent expert took into account: The following perceived advantages of the scheme: (a) The premiums that the $8.00 scheme consideration imply as set out at [26] above which it considered unlikely to be available to the non-Founder Shareholders in the absence of the scheme or a superior proposal and the benefit to non-Founder Shareholders "unlocked" by the structure of the scheme including the Special Dividend; (b) The benefit of the certainty delivered to non-Founder and Founder Shareholders by the cash consideration having regard to risks including the impact of the COVID-19 pandemic, industry competition, shortages of dentists and increased labour costs and key person risks; and (c) Founder Shareholders may benefit from their participation in the HoldCo group; The perceived disadvantages that: (a) Non-Founder Shareholders will not be able to participate in any future upside potential of ONT; (b) Limited opportunity to invest in other "pure play" dental service providers as there is only one other provider listed on the ASX; and (c) Founder Shareholders receive a lower consideration; Other factors: (a) ONT shares have traded substantially in line with the scheme consideration since its announcement which would indicate that there is a perceived low risk of the scheme not being implemented; (b) The transaction process may operate as a catalyst to other offers; (c) Although the directors intend to continue to trade ONT as a stand-alone entity if the scheme is not implemented, it is likely that ONT shares will trade below the scheme consideration at least in the short term; (d) The existence of the break fee; (e) Some other acquisitions in the dental services industry have been subject to unsuccessful integration and "debt overhang"; and (f) The IBC's recommendation.

Exclusivity provisions and break fee 37 ONT's obligations under cll 9 and 10 of the SIA are summarised in section 3.7 of the scheme booklet. 38 Clause 9 of the SIA contains exclusivity provisions including "no shop", "no talk" and "no due diligence" restrictions. The "no talk" and "no due diligence" obligations are subject to an exception having regard to performance of ONT directors' fiduciary obligations. Clause 9 also confers matching rights in favour of BidCo where the directors receive a superior proposal during the exclusivity period. 39 Clause 10 of the SIA provides for ONT to pay BidCo a break fee of AUD$1.7 million if BidCo validly terminates the SIA, a director changes or withdraws his recommendation (unless the independent expert changes its view that the scheme is in the best interests of ONT shareholders or ONT validly terminates the SIA for a material breach by BidCo) or where a competing transaction is announced before 31 March 2022 (End Date) and that transaction completes or the party announcing the competing transaction or its associates acquire more than 50% of ONT within 12 months after the End Date. The break fee represents approximately 1.024% of the equity value of ONT (AUD$166 million) implied by the blended scheme consideration. The break fee will not be payable merely because ONT shareholders do not approve the scheme.

Evidence 40 ONT relied on written submissions dated 11 October 2021 prepared by its senior counsel and the following evidence which was read and exhibits tendered at the hearing. 41 Affidavits of Melanie Louise Mitchell sworn on 20 September 2021, 7 October 2021 and 11 October 2021 were read. Ms Mitchell is a solicitor employed by Thomson Geer, the solicitors to ONT in these proceedings. Annexures to those affidavits include: An historical and current search of the records maintained by ASIC in relation to ONT. This evidence establishes that ONT is a Part 5.1 body; Correspondence with ASIC concerning the draft scheme booklet; ASIC's "usual letter" dated 11 October 2021; The circulating resolution of the IBC signed on 11 October 2021 approving the draft scheme booklet provided to ASIC and the Court. In the resolution, the IBC confirms its belief that the scheme is in the best interests of ONT shareholders for the reasons set out in the scheme booklet in the absence of a superior proposal, and it confirms its voting recommendation; and Copies of the following documents: the Retention and Co-Investment Deed dated 11 October 2021 between HoldCo, Golden Arch (Qld) Pty Ltd as trustee of the Whistler Discretionary Trust, Dr Holmes as trustee of the TFD Hybrid Fixed Trust and Dr Holmes; a Consultancy Agreement between Golden Arch (Qld) Pty Ltd and Maven Dental Group Pty Ltd dated 11 October 2021 pursuant to which Dr Holmes will be remunerated for providing senior advisory services to BidCo's personnel, and a Contingent Note Deed Poll executed by BidCo on 11 October 2021 in favour of each Contingent Note holder. 42 An affidavit sworn by Andrea de Cian on 8 October 2021 was read. Mr de Cian is a partner of Grant Thornton Australia Limited and a director of Grant Thornton Corporate Finance Pty Ltd. Mr de Cian was responsible for the preparation of the independent expert's report contained in annexure ADC-2 and Annexure A in the scheme booklet. 43 Two affidavits affirmed by Mr Jones on 8 October 2021 were read. In the first affidavit Mr Jones affirms that he is a non-executive director and chairman of ONT. He deposes that he has relevant interests in 37,521 ONT shares. He consents to act as chairman of both of the scheme meetings. In his second affidavit, Mr Jones addresses the following matters: The announcement made on 24 August 2021 and the negotiation of the terms of the SIA, including the conditions precedent, exclusivity provisions and the break fee; The membership of the IBC being Messrs Jones and Smith; ONT's capital structure. Mr Jones notes that there are 245,895 ONT shares which are subject to a Loan Share Plan. He deposes that the ONT Board intends to waive all disposal restrictions on those ONT shares if the scheme becomes effective and provided that each of the four participants in the plan executes a payment direction or sells the shares to secure payment. These matters relating to the treatment of shares subject to the Loan Share Plan are disclosed in section 8.2 of the scheme booklet; The execution of a deed poll by BidCo in favour of ONT shareholders on 7 October 2021. I note that the deed poll is relevantly usual in form; The nature of the scheme consideration; The interests and benefits of ONT directors including the Retention and Co-Investment Deed, the Consultancy Agreement, Founder Entity Lease Amendments under which certain leases of Founder Shareholders will be extended to expire on 30 June 2026, a Facilities and Services Agreement under which Dr Holmes will practise dentistry in a practice operated by BidCo on no less favourable terms to his existing services agreement with ONT and the Contingent Note Deed Poll. I note that all of these agreements are disclosed in section 8.3 of the scheme booklet; Instructions to the independent expert; Matters relating to the timing of the declaration of the Special Dividend; Implementation of the scheme; The proposed scheme meetings; Due diligence and verification of the content of the scheme booklet; A resolution of the IBC passed on 7 October 2021 (which I note has been superseded by the evidence given by Ms Mitchell having regard to a revised scheme booklet); and Despatch of the scheme booklet. Mr Jones notes that as at 6 October 2021, ONT had 1,451 shareholders of which 1,011 had elected to receive electronic notifications, 61 had elected to receive hard copy documents and 379 shareholders had made no election. 44 An affidavit sworn by Mr Smith on 7 October 2021 was read. In it, Mr Smith deposed that he is a non-executive director of ONT, he consents to act as chairman of the scheme meetings if Mr Jones is unable to do so and he has relevant interests in 2,068 ONT shares. 45 An affidavit sworn by Lee Dominic Horan on 8 October 2021. Mr Horan is a partner at King & Wood Mallesons, the solicitors acting for the Abano Group including BidCo and HoldCo. He deposes to: The verification process undertaken in relation to the Abano Group in the scheme booklet and that, in relation to that material, he is not aware of any statement which is false, misleading or deceptive or any material omission; The exclusivity and break fee provisions of the SIA and that they were the result of "normal arm's length commercial negotiations"; and The execution of the deed poll on 7 October 2021.

Principles 46 In Capilano Honey Limited, in the matter of Capilano Honey Limited [2018] FCA 1568; (2018) 131 ACSR 9 at [32]-[34], I summarised the well-established principles governing the Court's consideration of whether to make orders under s 411(1) as follows: 32 The Court will order that a scheme meeting be convened and approve a draft explanatory statement to be sent to shareholders if it is satisfied that: (1) The plaintiff is a Pt 5.1 body; (2) The proposed scheme is a compromise or (relevantly) an "arrangement" within the meaning of s 411. …; (3) The scheme booklet will provide proper disclosure to shareholders; (4) The scheme is bona fide and properly proposed; (5) ASIC has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions and it has had at least 14 days' notice of the proposed hearing date; (6) The procedural requirements of the Federal Court (Corporations) Rules 2000 (Cth) have been met; and (7) The scheme is of such a nature and cast in such terms that, if it receives a statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed. 33 The application for leave to summon a scheme meeting is in the nature of an interlocutory proceeding and is a preliminary to the final determination which is to be made when the matter comes back to the Court for approval after the holding of the meetings which have been directed: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504-05. By granting leave, the Court does not give its imprimatur to the proposed scheme. At the stage of ordering a scheme meeting, the Court does not ordinarily go very far into the question of whether the arrangement is one that warrants the approval of the Court; that question is to be answered when the scheme returns to the Court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further: see Re Foundation Healthcare Limited (2002) 42 ACSR 252; [2002] FCA 742 at [36] and [44] per French J, cited with approval in Re CSR Limited (2010) 183 FCR 358; [2010] FCAFC 34 at [58] per Keane CJ and Jacobson J. Chief Justice Keane and Jacobson J went on to say (at [59] and [61]) that the adverb "blatantly" and the term "contrary to public policy" emphasise that the enquiry under s 411(1) is not intended to resolve difficult questions on which reasonable minds may differ, although it has long been recognised that a clear want of utility in putting in train the process of s 411(1) is a good reason to decline to order the convening of the first meeting. 34 At the first court hearing, the Court is concerned with whether the proposed scheme is one which is adequately explained to those who have a financial interest in it and whether there is any obvious flaw in the scheme, such that it would be inappropriate even for it to be submitted for consideration: see Re Abacus Funds Management Ltd (2006) 24 ACLC 211; [2005] NSWSC 1309 at [23]. The Court is not required to be satisfied that no better scheme could have been proposed. The question is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed to be of benefit to members: see Centrebet International Limited [2011] FCA 870 at [29] per Emmett J.

Disposition 47 Having regard to the evidence and the principles set out above, I was satisfied that it was appropriate to make the orders sought. 48 It is uncontroversial that the proposed scheme is an "arrangement" and that ONT is a Part 5.1 body. ASIC's "usual letter" indicates that it has had sufficient time to consider the scheme booklet. 49 As indicated above, ASIC was not disposed to press ONT concerning the issue of the timing of the declaration of the Special Dividend. Senior counsel for ONT accepted that, should the Special Dividend not be declared, that will be a matter to be addressed at the second court hearing at which ASIC may then choose to intervene. Senior counsel also accepted that it may be necessary to adduce evidence of the effect that the failure to declare a Special Dividend might have on the integrity of the vote at the scheme meetings. I am satisfied that this issue is not a reason to refuse to make orders under s 411(1) of the Corporations Act because: I accept that ONT directors will be in a better position to know whether the declaration of the Special Dividend will meet the requirements of s 260A of the Corporations Act at a time closer to when it will be paid; There is a commercial basis concerning the benefit that Australian resident shareholders may take in relation to franking credits depending on the timing of the declaration of the Special Dividend; The scheme booklet contains warnings that it remains a matter for the ONT directors' discretion as to whether or not the Special Dividend is ultimately paid and its amount; The independent expert's opinion that the scheme is fair and reasonable and (in the absence of a superior proposal) in the best interests of ONT shareholders was formed without taking into account any taxation benefit that might be derived from the Special Dividend; and The Special Dividend is not in addition to the cash consideration payable to ONT shareholders; it will be deducted from it. Accordingly, non-Founder Shareholders will receive a maximum amount of $8.00 per ONT share and Founder Shareholders will receive a maximum cash amount of $6.33 per ONT share acquired under the scheme, whether or not the Special Dividend is declared and paid. 50 Senior counsel's submissions drew the Court's attention to the fact that the break fee exceeds the 1% maximum amount suggested by the Takeover Panel's guidance by $40,000. In all of the circumstances I accept that this is a de minimis amount and that it would not be a reason to refuse orders. Exclusivity arrangements have been addressed in what has become a usual way and there is evidence that they, and the break fee, were the subject of arms' length negotiation. 51 I am satisfied that Dr Holmes' interest in the outcome of the scheme has been disclosed appropriately. It is appropriate that there be two scheme meetings having regard to the different treatment of the Founder Shareholders' ONT shares and non-Founder Shareholders' ONT shares. It is appropriate that Dr Holmes has refrained from making a recommendation as to how ONT shareholders should vote. Any issues that may arise out of the fact that an associate of Dr Holmes (Ashbourne Park) may vote at the General Scheme Meeting will be a matter for consideration at the second court hearing and votes cast by Ashbourne Park will be tagged for that purpose. 52 Written submissions noted that performance risk has been addressed in the usual way and the existence of the "deemed warranty" by ONT shareholders in the scheme of arrangement and I will make no further comment. I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Farrell.

Corporations Act 2001(Cth)ss 254T, 260A, 411, 1319

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