86 400 Holdings Ltd, in the matter of 86 400 Holdings Ltd (No 2) [2021] FCA 524

86 400 Holdings Ltd, in the matter of 86 400 Holdings Ltd (No 2) [2021] FCA 524 - FCA 2021 case summary — Zoe

[11]

EVIDENCE 5 86 400 relies upon the following affidavit evidence: (a) the scheme booklet which was annexure "JDL-12" to the third affidavit of James David Lonie sworn on 26 March 2021 (Scheme Booklet); (b) affidavit of James David Lonie sworn on 6 May 2021 (Fourth Lonie Affidavit). Mr Lonie is a Partner at HWL Ebsworth Lawyers, solicitors for 86 400, and he gives evidence concerning the registration of the scheme booklet with the Australian Securities and Investments Commission (ASIC) prior to its dispatch. He also gives evidence concerning the advertisement of the second court hearing, and the fact that HWL Ebsworth Lawyers has not received any notice from any person wishing to oppose approval of the Scheme; (c) affidavit of Christina May Seppelt affirmed on 6 May 2021 (Seppelt Affidavit). Ms Seppelt is the General Counsel and Company Secretary of 86 400, and she gives evidence concerning the dispatch of the scheme booklet to 86,400 shareholders; (d) affidavit of Paul Alan Lahiff affirmed on 9 May 2021 (Second Lahiff Affidavit). Mr Lahiff is a non-executive director of 86 400 and has been the chair of 86 400 since 30 April 2021. He is also chair of the Independent Board Committee established by 86 400 to evaluate the proposal received from NAB to acquire all of the shares in 86 400 that NAB did not already own. Mr Lahiff was chair of the Scheme Meeting, and he was also chair of the general meeting held by 86 400 which also considered a resolution to agree to the Scheme (General Meeting). Mr Lahiff gives evidence concerning the conduct of the Scheme Meeting and the General Meeting, including the voting results of each meeting; (e) affidavit of Deborah Elsie Austin affirmed on 9 May 2021 (Austin Affidavit). Ms Austin is Head of Meetings at Link Market Services Limited (Link), which was engaged by 86 400 to assist in the conduct of the Scheme Meeting and the General Meeting. Ms Austin was the returning officer of both meetings, and she gives evidence as to the conduct of each meeting and the voting results. She also gives evidence about the receipt and recording of proxy votes prior to the meetings; and (f) affidavit of James David Lonie sworn on 11 May 2021 (Fifth Lonie Affidavit). The Fifth Lonie Affidavit annexed certificates from 86 400 and NAB confirming that all conditions precedent have been satisfied or waived, as well as a letter from ASIC stating that it has no objection to the Scheme for the purposes of s 411(17)(b) of the Corporations Act 2001 (Cth) (Act).

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ROLE OF THE COURT 10 In its essential respects, s 411(4)(a)(ii) of the Act provides that a scheme of arrangement is binding on members and the plaintiff company if: (a) at a meeting of members, it is passed by a majority of members present and voting (in person or by proxy) and by 75% of votes cast; and (b) it is approved by order of the court. 11 The role of the Court at the approval stage was summarised by Beach J in Amcor Limited, in the matter of Amcor Limited (No 2) [2019] FCA 842 (Re Amcor (No 2)) at [7] to [11] as follows: 7. … In essence, my role at the second court hearing is to assess the Scheme taking into account whether the Scheme is sufficiently fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it. Of course, I can only approve a scheme of arrangement if the requisite majority of shareholders vote in favour of it, but I am not bound to approve the Scheme simply because I previously made orders for the convening of a Scheme meeting and subsequently the requisite majority agreed to it. But I accept that shareholders voting collectively at the Scheme meeting are better judges than I of what is to their commercial advantage and in their interests and accordingly, absent good reason, I should give effect to their intentions. … 11. Now as I have said, my task is to consider whether the Scheme is fair and reasonable with the test of fairness and reasonableness including a consideration of whether "an intelligent and honest [shareholder], properly informed, acting alone, might approve [the scheme]" (Fowler v Lindholm (2009) 178 FCR 563 at [79] per Emmett, Gordon and Jagot JJ). But the Scheme shareholders' vote in favour of the Scheme is evidence of its inherent fairness. Put another way, if a majority of the Scheme shareholders have approved the Scheme, it is unlikely that the Scheme would be unreasonable. Further, I do not have to be satisfied that no better Scheme could have been devised. 12 I respectfully agree with, and adopt, Beach J's above statement of principle as to the role of the Court at the approval stage of a scheme of arrangement. 13 In Re Amcor (No 2) at [8] and [9], Beach J described the matters to which the Court will ordinarily have regard at the approval stage as follows: 8 Now whilst there is no exhaustive statement of the matters as to which I must be satisfied before granting approval, it is not in doubt that in exercising my power under s 411(4)(b), I should be satisfied that: (a) the Scheme complies with the law, including the relevant procedural requirements; (b) the Scheme was approved by shareholders acting in good faith and for proper purposes; (c) there has been an accurate and comprehensive disclosure of the details of the Scheme and its effect to those voting on it; (d) there is no suggestion of oppression of any minority; (e) there is no evidence that any third parties will be disproportionately adversely affected by the operation of the Scheme; (f) the Scheme does not offend against any aspect of public policy; and (g) all matters that could be considered relevant to the exercise of my discretion have been drawn to my attention. 9 I also need to be satisfied that the conditions precedent to the Scheme have been met, save for Court approval, and that ASIC has been given the opportunity to draw to my attention any relevant matter(s). 14 I also respectfully agree with, and adopt, Beach J's above statement of principle on the matters to which a Court will ordinarily have regard at the approval stage. 15 It is convenient to group the matters to which the Court will ordinarily have regard into the following two categories. First, the Court must ensure that all statutory and procedural requirements in relation to s 411 of the Act have been observed. Second, the Court must determine, in the exercise of its discretion, whether to approve the scheme. 16 86 400 submits that it has satisfied all relevant statutory and procedural requirements, and that it is appropriate for the Court to exercise its discretion to approve the Scheme. That submission should be accepted for the following reasons.

[18]

Scheme Booklet and notices of meeting provided to shareholders 24 Order 4 of the Convening Orders required that the Scheme Meeting be convened by providing various documents to 86 400 shareholders on or before 6 April 2021. The principal document was the scheme booklet, which comprised the explanatory statement required by s 412(1) of the Act, and which annexed the notices of meeting for the Scheme Meeting and the General Meeting, and related documents. 25 I am satisfied that the evidence establishes that the requirements of the Convening Orders in relation to dispatch were complied with. The table below sets out the requirements of the Convening Orders and refers to the evidence which establishes that those requirements were satisfied. Requirement of Convening Orders Evidence that requirement satisfied An email substantially in the form of pages 441-443 of annexure PAL-1 to the affidavit of Paul Alan Lahiff affirmed on 25 March 2021 (Email) be sent by 6 April 2021 to all shareholders who had nominated an electronic address for the purposes of receiving communications from 86 400. Seppelt Affidavit at [13] to [17]. The Email was required to contain a link to an electronic copy of the Scheme Booklet. Seppelt Affidavit at [10] to [12] and [16]. The Email was required to contain a link to an online portal or website that was accessible by the shareholder and which enabled the shareholder to complete and lodge their proxy and voting instructions for the Scheme Meeting online. Seppelt Affidavit at [14] and [16].

[19]

Receipt and recording of proxy votes 26 Order 7 of the Convening Orders provided that a proxy in respect of the Scheme Meeting will be valid and effective, if, and only if, a proxy is lodged via the online portal or website in accordance with the instructions appearing on the portal or website by 10.20am on Tuesday, 4 May 2021 (being 48 hours in advance of the Scheme Meeting). 27 86 400 has raised two matters in relation to Order 7 of the Convening Orders. First, the order inadvertently failed to refer to the cut-off time for proxies lodged in hard copy or by email. In particular, the notice of meeting for the Scheme Meeting (Notice of Scheme Meeting) stated that a proxy could be lodged either online, or by completing and returning the proxy form annexed to the Notice of Scheme Meeting by mail, email, fax, or hand delivery (Hard Copy/Email Proxies). The order only referred to online lodgement. 28 Second, the proxy-cut off time set out in the Notice of Scheme Meeting differed from the time set out in the Convening Orders. That is, the Notice of Scheme Meeting specified a cut-off time of 10.00am for both online and Hard Copy/Email Proxies, whereas the Convening Orders specified 10.20am (in each case on 4 May 2021). 29 86 400 submits that any confusion was likely caused by the fact that the Scheme Meeting was to commence after the conclusion of the General Meeting, and the General Meeting was scheduled to commence at 10.00 am. The proxy cut-off time for the General Meeting was specified as 10.00am in the notice of meeting for the General Meeting. That notice of meeting and the Notice of Scheme Meeting both stated that shareholders wishing to appoint a proxy would need to appoint a proxy for the General Meeting as well as for the Scheme Meeting, as the appointment of a proxy for one meeting would not be effective as an appointment of a proxy for the other meeting. Both notices of meeting therefore had a common cut-off time for receipt of proxies, being 10.00am on 4 May 2021. 30 86 400 submits that the evidence is that the proxy cut-off time in fact applied was 10.20am on 4 May 2021, for both online proxies and Hard Copy/Email Proxies. 86 400 submits that this is consistent with s 250B(1) of the Act, which provides that, in relation to a general meeting, for an appointment of proxy to be effective, a proxy appointment must be received at least 48 hours before the time for which the meeting was called. Whilst this 48 hour period may be extended by the constitution of a company or by the notice of meeting, it cannot be reduced. The objective of requiring that the 48 hour period for return of proxies may not be reduced is to ensure that shareholders are not given less time to exercise their rights to vote by proxy. The 86 400 Constitution is consistent with s 250B, as it specifies the relevant period as 48 hours (in relation to a general meeting). 31 86 400 submits that, as a consequence, in specifying 10.20am on 4 May 2021 as the proxy cut-off time for the receipt of online proxies, the Convening Orders were accurate but incomplete, whereas the cut-off time specified in the Notice of Scheme Meeting was inaccurate, in that it ought to have specified 10.20am and not 10.00am on 4 May 2021. 32 86 400 submits that the fact that the Notice of Scheme Meeting specified 10.00am rather than 10.20am amounts to a procedural irregularity that did not cause any substantial injustice. 86 400 submits that the proceedings at the Scheme Meeting are therefore automatically validated by reason of s 1322 of the Act. The evidence in support of this submission is as follows: (a) shareholders received more than 28 days' notice of the Scheme Meeting, including receiving the detailed Scheme Booklet which included the Notice of Scheme Meeting and information concerning the return of proxies; (b) as noted above, the proxy cut-off time that in fact applied for both online proxies and Hard Copy/Email Proxies was 10.20am on 4 May 2021; (c) 157 shareholders returned proxies by 10.20am on 4 May 2021: 116 proxy forms were received via email, and none were received by fax, mail or by hand, and 41 online proxy voting instructions were received. This represented 90.2% of the total number of 86 400 shareholders entitled to vote at the Scheme Meeting (being 174 shareholders); (d) the total number of shares represented by the proxies received was 84,185,267, being 77.2% of the total issued share capital of 86 400 (being 109,066,281 shares); (e) all proxy voting instructions received were either in favour of the resolution, or open, and shareholders were informed in the Notice of Scheme Meeting and in the proxy form that any proxies left open would be voted by the chair of the Scheme Meeting in favour of the resolution to agree to the Scheme; (f) 100% of the shares represented by the returned proxies, returned via email and online, were voted in favour of the resolution to approve the Scheme at the Scheme Meeting; (g) no Hard Copy/Email Proxies or online proxy voting instructions were received after 10.20am on 4 May 2021; (h) there is no evidence that any shareholder held any concerns in relation to the proxy cut-off time stated in the Notice of Scheme Meeting, or of any injustice or prejudice having been suffered. 33 86 400 submits that, in the circumstances, it could not be said that there is any realistic possibility that the irregularity could have affected the outcome of the Scheme Meeting: Clough Limited, in the matter of Clough Limited (No 2) [2013] FCA 1346 (Re Clough Limited (No 2)) per Siopis J at [8]. In Re Clough Limited (No 2), Siopis J referred to circumstances in which the relevant Court orders required that the scheme booklet be sent to those shareholders who were registered as such on 11 October 2013, but the scheme booklet and notice of the meeting was in fact sent to the shareholders who were registered as such on 8 October 2013: Re Clough Limited (No 2), [8]. Siopis J stated that this matter impacted only four shareholders, who represented 0.012% of the total shareholding in the relevant company. Siopis J stated at [8]: It is obvious, therefore, that even though there has been an irregularity in relation to the giving of notice of the meeting, it is not an irregularity which could have had any possible impact upon the integrity of the resolution that was passed at the meeting. The defect in giving notice of the meeting is a procedural irregularity for the purpose of s 1322(1)(b)(ii) of the Act. 34 86 400 submits that the objective of requiring at least 48 hours for the return of proxies is to ensure that shareholders are not given less time to exercise their rights to vote by proxy. However, notwithstanding this objective, there are a number of cases where courts have applied the validating effect of s 1322 where less than the required notice of a scheme meeting is given and shareholders accordingly have less time to consider their position and exercise their rights to vote by proxy. 35 86 400 submits that, in Excelsior Gold Limited, in the matter of Excelsior Gold Limited [2018] FCA 2064 (Re Excelsior), the Court considered a number of procedural irregularities, including the late dispatch of the scheme booklet (which included the notice of meeting and proxy form). The Court had ordered that the scheme booklet and proxy forms (or a link to a website for any electronic proxy lodgement) be sent by 15 August 2018 to the shareholders who appeared on the register of members on 10 August 2018 for a scheme meeting to be held on 19 September 2018. The proxy forms specified a proxy cut-off date of 11.00am on 17 September 2017. However, the documents were sent to shareholders appearing on the register as at 8 August 2018, and an additional two shareholders joined the register after that date but before 10 August 2018. The error was not identified until 12 September 2018, one week before the scheme meeting, and those shareholders were sent the scheme booklet and proxy form that day. However, the proxy cut-off date of 17 September 2017 at 11am did not change: when shareholders were sent the relevant of documents, the shareholders were informed of the need for them to lodge a proxy by that time if they wished to vote. The Court held that this was a procedural irregularity, being a deficiency of notice within s 1322(1)(b)(ii) that was validated or cured automatically under s 1322(2) of the Act: Re Excelsior at [102] and [104]. 36 86 400 also relies upon Mosaic Oil NL, in the matter of Mosaic Oil NL (No 2) [2010] FCA 1186; 80 ACSR 281(Mosaic Oil NL (No 2)). In that case, proxy forms initially dispatched erroneously stated that the resolution for the scheme meeting was "to approve the Employee Share Scheme", rather than to "approve the scheme". The company sent out amended proxy forms to correct the error, but the amended proxy form was dispatched to shareholders less than 28 days prior to the meeting. The Court held that this was a procedural error that was validated by s 1322(1)(b)(ii) of the Act. Jacobson J stated at [14]-[15]: 14. The error, or omission, in relation to the invalid proxy form, is a procedural error under s 1322(1)(b)(ii) of the Act. It is a deficiency of notice or time because the amended proxy form was dispatched to shareholders less than 28 days prior to the meeting. However, the deficiency was a matter of only two days and, in my opinion, it is a procedural irregularity which does not invalidate the proceeding unless the Court is of the opinion that it has caused or may cause substantial injustice and declares the proceeding to be invalid. 15. Here, in my view, the deficiency of a matter of only two days is one which has not caused substantial injustice bearing in mind, in particular, the large element of support for the Scheme at the meeting. It is unnecessary for there to be a validating order because validation is brought about by s 1322(2) of the Act: see SGIC Insurance Limited v Insurance Australia Limited (2004) 51 ACSR 593 at [12] - [16]. 37 Although the circumstances of these two cases differ from the present case, 86 400 submits that the conclusions reached apply with at least equal force to the present matter. 38 Accordingly, 86 400 submits that, pursuant to s 1322(2) of the Act, the resolution passed at the Scheme Meeting was not invalid merely because of the procedural irregularity: citing Re QT Mutual Bank Ltd (No 2) [2016] QSC 265 at [25], referring to Re Pembury Pty Ltd [1993] 1 Qd R 125; (1991) 4 ACSR 759. 39 86 400 submits that, because s 1322(2) of the Act provides for automatic validation, no validation order is necessary. In this respect, s 1322(2) provides: A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid. 40 Section 1322(1)(a) of the Act provides that, in s 1322, "a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not". Section 1322(1)(b) of the Act provides that in s 1322: a reference to a procedural irregularity includes a reference to: (i) the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme; and (ii) a defect, irregularity or deficiency of notice or time. 41 86 400 submits that a procedural irregularity is validated or cured automatically under s 1322(2) of the Act, unless the Court is satisfied of substantial injustice and makes an order declaring the proceedings invalid. 86400 submits that, if there is no substantial injustice, s 1322(2) operates in relation to the meeting, such that the meeting and the resolution are valid, notwithstanding any irregularity: see Re Clough Limited (No 2) at [10]. 42 Finally, in light of the evidence referred to above, 86 400 submits that the fact that the Convening Orders inadvertently failed to refer to the cut-off time for Hard Copy/Email Proxies has not caused any prejudice and does not raise any concern with respect to the validity of the proxies returned by email, or of the results of the Scheme Meeting: citing cl 14.3 of the 86 400 Constitution and s 250B of the Act, and r 3.3(2) of the Rules. 43 At the hearing of this matter on 11 May 2021, I enquired of Mr Holmes of counsel about this procedural irregularity. In short, Mr Holmes submitted that the irregularity can be succinctly described in this way. First, the Notice of Scheme Meeting stated that the cut-off time would be 10am, which was 20 minutes earlier than it, in fact, was. Second, it is not the case that this erroneous 20 minutes was, in fact, applied. Rather, the erroneous 20 minutes was incorrectly noted in the Notice of Scheme Meeting. 44 I asked Mr Holmes whether anyone had raised any issue with 86 400's solicitors in respect of this irregularity. Mr Holmes confirmed that no person has raised any such issue and no person has objected or filed any notice or given any notification that they proposed to appear at the hearing on 11 May 2021 to oppose the approval of the Scheme. 45 I accept the submissions of 86 400 that the Notice of Scheme Meeting specifying 10am rather than 10.20am amounts to a procedural irregularity that did not cause any substantial injustice and that the proceedings at the Scheme Meeting are automatically validated by reason of the operation of s 1322 of the Act. I am satisfied, and I find, that the procedural irregularity could not have affected the outcome of the Scheme Meeting.

[29]

Disclosure 66 Having regard to the affidavit material relied on by 86 400, including the material referred to earlier in these reasons, I am satisfied that there has been full and fair disclosure to members of all information material to the decision whether to vote for or against the Scheme. This is so for the following reasons. 67 First, the explanatory statement contained in the Scheme Booklet was registered by ASIC prior to dispatch as required by s 412(6) of the Act. 86 400 submits, and I accept, that such registration by ASIC is evidence of compliance with the disclosure obligations imposed by s 412 of the Act. 68 Second, 86 400 has adduced evidence of the conduct of the Scheme Meeting, including the address given by the chairman: Second Lahiff Affidavit at [25]. 69 Third, Mr Lahiff gives evidence that, since dispatch of the Scheme Booklet, he has not become aware of any new information not otherwise disclosed to shareholders that was material to their decision whether to agree to the Scheme: Second Lahiff Affidavit at [38]. Mr Lahiff does identify one change from what is stated in the Scheme Booklet, which concerns whether the current directors of 86 400 will remain directors as at the Implementation Date. In this respect, the Scheme Booklet states in s 4.7 that, if the Scheme is implemented, NAB intends to replace all, or the majority, of the directors of 86 400 and its subsidiaries with its own nominees, and that, accordingly, it is not possible for the current 86 400 board to provide a written statement to shareholders as to their intentions regarding the 86 400 business. The Second Lahiff Affidavit notes that, on 30 April 2021, NAB notified 86 400 that all current directors of 86 400 (other than Mr Craig Kennedy) would remain directors of 86 400 as at the Implementation Date. 86 400 submits, and I accept, that the fact of this change in intention as to the post-implementation composition of the 86 400 board is not a matter that would have been material to shareholders in deciding whether or not to agree to the Scheme. In this respect, 86 400 noted, and I accept, that NAB's intentions regarding the 86 400 business post-implementation are set out in cl 5.7 of the Scheme Booklet, and have not changed since the dispatch of the Scheme Booklet. 70 In light of these matters, 86 400 submits that, through the Scheme Booklet and further consideration given to the Scheme at the Scheme Meeting, there has been full and fair disclosure to members of all information material to the decision whether to vote for or against the Scheme. I accept that submission.

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EXEMPTION FROM SECTION 411(11) 79 Section 411(11) of the Act requires, subject to s 411(12), that a copy of the Court's order approving a scheme of arrangement be annexed to every copy of the company's constitution issued after the order is made. Section 411(12) allows the Court to exempt a body from compliance with this provision or to determine the period during which it shall comply. 80 In Re Equinox Resources Ltd [2004] WASC 143; 49 ACSR 692, EM Heenan J at [22] indicated that the purpose of s 411(11) was: ... to ensure that any modification of the rights of shareholders of the company which is the subject of the scheme or any other provision in the scheme which may affect the interests of persons dealing with the company, such as prospective creditors or purchasers of shares, will be sure to have the opportunity of seeing what the exact rights of shareholders in the company or of its creditors are, as modified, if at all, by the scheme which has been approved. 81 The above passage has been quoted with approval in a number of subsequent decisions: see eg Re Amcor (No 2) at [40]; Re AXA Asia Pacific Holdings Ltd (No 2) [2011] VSC 102; 82 ACSR 501 at [36]; and Hostworks Group Limited ACN 008 010 820, in the matter of Hostworks Group Limited ACN 008 010 820 (No 2) [2008] FCA 248 at [36]. 82 86 400 submits that exemption from compliance with s 411(11) is appropriate for three reasons. First, 86 400 submits that the Scheme will not alter the constitution of 86 400 or the rights of shareholders, creditors or other persons dealing with the company. 86 400 submits that no ongoing purpose will be served by requiring the orders approving the Scheme to be annexed to 86 400's constitution. Second, 86 400 submits that current shareholders are fully informed of the Scheme and will be informed in the event that the Court approves the Scheme. Third, 86 400 submits that the orders will be irrelevant once the Scheme is implemented and 86 400 becomes a wholly-owned subsidiary of NAB. To support these submissions, 86 400 cited Re Amcor (No 2) at [41]; Healthscope Limited, in the matter of Healthscope Limited (No 2) [2019] FCA 759; 136 ACSR 259 at [41]; Re Lion Selection Ltd [2009] VSC 546 at [24], which was cited with approval in Re Tatts Group at [57], Re Transcomm Credit Co-Operative Ltd [2016] VSC 835 at [33] and Re Skilled Group Limited (No 2) [2015] VSC 805 at [31]. 83 I accept 86 400's submissions in this regard and will make an order exempting 86 400 from compliance with s 411(11) of the Act.

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