Alchemia Limited, in the matter of Alchemia Limited (No 2) [2012] FCA 1136

REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) 1 The plaintiff, Alchemia Limited (Alchemia), seeks orders pursuant to s 411(4)(b) and s 411(6) of the Corporations Act 2001 (Cth) (the Act) that a scheme of arrangement between itself and its ordinary shareholders be approved. The scheme of arrangement effects a separation of Alchemia's oncology business and its licensed drug discovery business from its Fondaparinux business by way of a demerger of its wholly owned subsidiary, Audeo Oncology Inc (AO), into a separately listed company on NASDAQ and the ASX. 2 On 24 August 2012 I made orders pursuant to s 411(1) of the Act providing (amongst other things) for the holding of a scheme meeting. My reasons for making those orders are to be found in Alchemia Limited, in the matter of Alchemia Limited [2012] FCA 927 (my earlier reasons). In these reasons I will adopt, where appropriate, the same terms and expressions used in my earlier reasons. These reasons should also be read with my earlier reasons. 3 In support of the orders it seeks, Alchemia relies upon the following evidence: (a) the affidavit of Melvyn Bridges affirmed 15 October 2012; (b) the affidavit of Juanita Rosita Rayson affirmed 12 October 2012; (c) the affidavit of Matthew Kesson Foster affirmed 16 October 2012; (d) the affidavit of Bruce Alexander Irwin affirmed 15 October 2012; (e) the affidavit of Damien John McNamara affirmed 16 October 2012; (f) the affidavit of Stanley Robert Lewis affirmed 16 October 2012; and (g) the affidavit of Stanley Robert Lewis affirmed 17 October 2012. 4 The affidavits in (b) to (e) above concern the procedures in relation to the finalisation and printing of the scheme booklet, the printing of the proxy forms and election forms, and the dispatch of those documents to shareholders. The affidavits in (a) and (c) concern the procedures in relation to the receipt of proxy forms, the collation of proxies, the preparation of a proxy report and the registration, voting and poll procedures at the scheme meeting on 15 October 2012. The affidavit in (f) concerns, amongst others things, the advertising of the scheme approval application. The affidavit in (g) concerns amendments to the Demerger Implementation Agreement in respect of the obtaining of Demerger Tax Relief, the public ruling given by the Australian Taxation Office in respect of Demerger Tax Relief (CR 2012/90), certificates regarding conditions precedent, a written statement from ASIC for the purposes of s 411(17)(b) of the Act, and the fact that no notice of appearance or other notice has been given by any person seeking to appear at this hearing. 5 I have been provided with written submissions. They have been marked for identification: see MFI 3. Written submissions had earlier been provided in relation to the convening of the scheme meeting. They were also marked for identification: see MFI 2. 6 The scheme meeting was originally convened to be held on 5 October 2012. It was, however, reconvened to be held on 15 October 2012. At the scheme meeting on that day a total of 172,199,254 votes were cast, of which 170,498,478 votes (99.01% of all votes cast) representing 845 shareholders (95.91% of all shareholders present and voting) were in favour of the resolution to approve the scheme, and 1,700,776 votes (0.99% of all votes cast) representing 36 shareholders (4.09% of all shareholders present and voting) were against the resolution. It follows that the resolution for approval of the scheme was passed by the majority of shareholders and percentage of votes prescribed by s 411(4)(a)(ii) of the Act. 7 In [38] of my earlier reasons I referred to the fact that Alchemia proposed to tag all votes cast at the scheme meeting by shareholders to whom it proposed that Audeo Oncology Warrants will be issued, so that the effect of that voting could be considered at the time that the Court's approval to the scheme was sought. A total of 45,323,311 untagged votes were cast in respect of which 43,622,545 votes (96.25%) representing 812 shareholders (95.76% of the relevant shareholders present and voting) were in favour of the resolution to approve the scheme and 1,700,766 votes (3.75% of those votes) representing 36 shareholders (4.24% of those shareholders present and voting) were against the resolution. 8 At the general meeting held after the scheme meeting on the same day, Alchemia shareholders passed the ordinary resolution approving the capital reduction under s 256C(1) of the Act (see [16]-[26] of my earlier reasons) and the special resolution pursuant to the ASX Listing Rules: see [39]-[41] of my earlier reasons. As noted in my earlier reasons, the capital reduction resolution is conditional on Alchemia's shareholders agreeing to the scheme (which has occurred), the Court approving the scheme, and the satisfaction of the Condition Subsequent, referred to in [27]-[31] of my earlier reasons. 9 Subject to one matter, the scheme meeting was convened and held in accordance with the Act and the orders made on 24 August 2012. The exception disclosed by the evidence is that, due to an administrative error, the scheme meeting documents (comprising the scheme booklet, a personalised proxy form, a personalised election form, and, in the case of Australian resident shareholders, a reply paid envelope to Link Market Services Limited (Link)) were not sent to 204 shareholders (197 in Australia and 7 overseas) on 4 September 2012, when those documents were sent to Alchemia's remaining 5,561 shareholders. The explanation for this is that the 204 shareholders were identified in Alchemia's share register as "returned mail" shareholders. These are shareholders to whom documents had previously been sent at addresses recorded in Alchemia's share register, but in respect of whom the documents had been returned as "undelivered". The view had been taken, incorrectly by the printing company engaged to arrange for the dispatch of the scheme documents, that it was not necessary to send the scheme documents to those shareholders because of their status as "returned mail" shareholders. This position was rectified. On 8 October 2012 the scheme documents were sent to them at their recorded addresses. I note that, as at 13 October 2012, these shareholders held only 0.51% of the total shares then on issue. Some of these shareholders (18) had provided a contact email address or telephone number to Link. On 11 October 2012 employees of Link contacted these particular shareholders and informed them of the holding of the reconvened scheme meeting. 10 Section 1322(2) of the Act 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. 11 I am satisfied that any deficiency in time in giving notice to the "returned mail" shareholders constitutes a "procedural irregularity" to which s 1322(2) applies. I am satisfied, in all the circumstances, that no substantial injustice has been caused. In this regard I also take into account the fact that Alchemia made an announcement on its website and to the ASX on 10 October 2012 regarding the holding of the reconvened scheme meeting on 15 October 2012 and of the Court hearing seeking approval of the scheme. Alchemia also published a notice of the hearing for Court approval in The Australian newspaper on 11 October 2012. This notice also referred to the meeting that had been reconvened for 15 October 2012. Furthermore a copy of the scheme booklet, which included a notice of the scheme meeting and the explanatory statement, has been available at Alchemia's registered office from 5 September 2012. There is evidence that a small number of the "returned mail" shareholders requested replacement documents. No shareholder has come forward to oppose the granting of approval for want of timely notice of the scheme meeting. 12 I am satisfied that the scheme of arrangement is fair and reasonable having regard to, amongst other things, the voting patterns at the reconvened meeting approving the scheme; the opinions expressed by the independent expert BDO (see [42]-[45] of my earlier reasons); the support of the directors (see [46] and [47] of my earlier reasons) and the fact that no person has come forward to oppose approval being granted. 13 I note that ASIC has provided a letter to the effect that it has no objection to the arrangement to be effected by the scheme: see s 411(17)(b) of the Act. I also note that the scheme booklet was registered with ASIC on 27 August 2012. 14 I note the evidence that all of the relevant conditions precedent to the scheme coming into effect have been satisfied or waived, other than the conditions set out in cl 3.1(j) of the scheme. That condition requires that Demerger Tax Relief be obtained by 8.00 am on the date that the Court's approval is sought. The position is that the Demerger Tax Relief was obtained at approximately 2.00 pm on 17 October 2012. In those circumstances Alchemia requests that the scheme be approved subject to the following amendment to cl 3.1(j): (j) (Demerger Tax relief) before 8.00 am on the Second Court Date, the making of the Scheme Order, Alchemia obtaining Demerger Tax Relief. 15 Alchemia submits, and I accept, that this amendment is of a minor technical nature which does not affect the substance of the scheme and is necessary to make it workable: Re Mosaic Oil NL (No 2) (2010) 80 ACSR 281; Straits Resources Limited, in the matter of Straits Resources Limited (No 2) [2011] FCA 47. The amendment does not disadvantage any shareholder and would not have affected the shareholders' approval by the requisite statutory majorities: Independent Practitioner Network Ltd, in the matter of Independent Practitioner Network Ltd (No 2) (2008) 26 ACLC 1,249 at [10]-[25]. 16 Alchemia seeks to be exempted from compliance with the requirements of s 411(11) of the Act which would require a copy of the Court's order approving the scheme to be annexed to every copy of the constitution of the company issued after the order has been made. Alchemia submits, and I accept, that there is no utility in requiring compliance with this provision. The Court's order does not effect any change to the constitution and does not involve modification of any rights of shareholders or of creditors or of persons dealing with Alchemia. 17 Finally I note that Alchemia and AO intend to rely upon the Court's approval for the purposes of the exemption under s 3(a)(10) of the US Securities Act 1933 in connection with the implementation of the scheme and the issue of the AO shares in accordance with cll 4.2 and 4.6 of the scheme. I record that the Court has been advised, before the hearing approving the scheme, that reliance on the exemption will be sought based on the Court's approval of the scheme: see also in that connection [51] of my earlier reasons. 18 I am satisfied that it is appropriate that the scheme be approved by the Court in the terms sought by Alchemia. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.