ASC v Marlborough Gold Mines Ltd

Federal Court of Australia|2019-08-12|Before: O'Bryan J

A. The Court notes that the Australian Securities and Investments Commission (ASIC) was provided with at least 14 days' notice of the hearing of this application. B. The Court is satisfied that ASIC has had a reasonable opportunity to: a. examine the terms of the proposed scheme of arrangement to which the application relates and a draft explanatory statement relating to that arrangement; and b. make submissions to the Court in relation to the proposed scheme of arrangement and the draft explanatory statement. C. The Court notes the letter from ASIC to the Directors of Legend Corporation Limited ACN 102 631 087 dated 5 July 2019 produced at the hearing.

Pursuant to rule 2.13(1) of the Federal Court (Corporations) Rules 2000 (Cth) (Rules), Greenland BidCo Pty Ltd ACN 633 363 096 has leave to be heard in the proceeding without becoming a party to it.
Until further order, pursuant to section 37AF of the Federal Court of Australia Act 1976 (Cth) and on the ground that the order is necessary to prevent prejudice to the proper administration of justice, Confidential Exhibit BH2 to the affidavit of Bruce Eric George Higgins sworn on 2 July 2019 (Higgins Affidavit) shall be made confidential and prohibited from disclosure to any person other than ASIC, the Judge hearing the matter and the Judge's staff and assistants.
Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (Act), the Plaintiff, Legend Corporation Limited ACN 102 631 087 (Legend) convene and hold a meeting (Scheme Meeting) of holders of fully paid ordinary shares in Legend (Legend Shareholders): (a) to consider and, if thought fit, to approve (with or without modification) the scheme of arrangement (Scheme) proposed to be made between Legend and Legend Shareholders, the terms of which are set out in Annexure B to these orders; (b) to be held at 2.00pm (Adelaide time) on Friday, 9 August 2019 at the Adelaide Pavilion Restaurant in the Veale Gardens, corner South Terrace and Peacock Road, Adelaide, South Australia.

TO all the members of Legend Corporation Limited (ACN 102 631 087) (Legend) TAKE NOTICE that at 12.00pm on 16 August 2019 the Federal Court of Australia (Victorian Registry) at 305 William Street, Melbourne, Victoria 3000 will hear an application by Legend seeking the approval of a compromise or arrangement between Legend and its members if agreed to by a resolution to be considered, and, if thought fit, passed at a meeting of such members to be held on 9 August 2019 at the Adelaide Pavilion Restaurant in the Veale Gardens, corner South Terrace and Peacock Road, Adelaide, South Australia 5000, commencing at 2.00pm (Adelaide time). If you wish to oppose the approval of the compromise or arrangement, you must file and serve on Legend a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on Legend at its address for service by 5.00 pm on 15 August 2019. The address for service of Legend is: MinterEllison, Rialto Towers, 525 Collins Street, Melbourne, Victoria 3000, Attention: Alberto Colla.

[The Order entered is available on the Commonwealth Courts Portal, which attaches the Scheme.]

A. Introduction 1 By originating application dated 17 June 2019, the plaintiff (Legend) seeks orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act) convening a meeting of the holders of its fully paid ordinary shares for the purposes of them considering and, if thought fit, agreeing to a proposed scheme of arrangement (Scheme) between them and Legend. 2 Legend is admitted to the official list of the Australian Securities Exchange (ASX) and its shares are quoted for trading on the stock market conducted by the ASX. As at 2 July 2019, the number of Legend shareholders on the register was 1,182 and the directors of Legend hold or control in aggregate around 30.83% of all the ordinary shares. 3 The Scheme, if implemented, will result in the acquisition of all of the shares in Legend by Greenland BidCo Pty Ltd ACN 633 363 096 (BidCo), an Australian proprietary company controlled by funds advised by Adamantem Capital Management Pty Ltd ACN 616 283 124 (Adamantem Capital) and the subsequent delisting of Legend. BidCo has been established for the purposes of acquiring all of the shares in Legend under the proposed Scheme. 4 The scheme meeting is proposed to be held at 2.00pm (Adelaide time) on Friday, 9 August 2019 at the Adelaide Pavilion Restaurant, in the Veale Gardens, corner South Terrace and Peacock Road, Adelaide, South Australia. It is proposed that Mr Bruce Higgins, the non-executive chairman of Legend, will chair the meeting unless he is unable to do so, in which case Mr Ian Fraser, a non-executive director of Legend, will chair. 5 On 5 July 2019, I made orders convening the scheme meeting. These are my reasons for making those orders.

B. Overview of the Scheme 6 Legend is an Australian engineering products business operating in a range of end markets including electrical, rail, power, mining, semiconductor, information technology, telecommunications, medical, defence and industrial and commercial gas markets. For the financial year ended 30 June 2018, Legend generated revenue of approximately $115 million and recorded earnings before interest, tax, depreciation and amortisation of approximately $12.5 million. For the half year ended 31 December 2018, Legend generated revenue of approximately $68 million and recorded earnings before interest, tax, depreciation and amortisation of approximately $8 million. As at 2 July 2019, Legend had on issue 216,723,693 fully paid ordinary shares and 1,100,000 performance rights. Legend's market capitalisation on 22 May 2019 (being the last trading day before the Scheme was announced to the ASX on 24 May 2019) was approximately $66 million (represented by 216,723,693 shares multiplied by the $0.305 closing share price on that date). Legend's market capitalisation as at 2 July 2019 was approximately $80 million (based on the closing price of $0.37 per share on the ASX on 1 July 2019). 7 BidCo was registered in Victoria as proprietary company limited by shares on 9 May 2019. It is an unlisted private Australian company and has not undertaken any trading activities. Adamantem Capital is an Australian private equity firm focused on investing in mid-market opportunities in Australia and New Zealand. Adamantem Capital was founded in October 2016 and is based in Sydney. The Adamantem Fund has committed capital of approximately $590 million. 8 On 24 May 2019, Legend entered into a Scheme Implementation Agreement with BidCo. The Scheme Implementation Agreement provides that Legend is to propose and implement the Scheme subject to the terms of the agreement. The Scheme provides for the transfer of all of the shares in Legend to BidCo in consideration for a cash payment by BidCo of $0.365 per share, less the cash amount of any special dividend declared and paid by Legend. If the Scheme is implemented, Legend will become a wholly-owned subsidiary of BidCo and will be delisted from the ASX. Subject to the required Court and shareholder approvals, it is anticipated that the Scheme will be implemented on 30 August 2019. 9 BidCo is not a party to the Scheme and cannot be directly bound by it (relevantly, under s 411 of the Act, a scheme is between a company and its members). The established practice in these circumstances is to require the entity providing the Scheme consideration to execute a Deed Poll in favour of Scheme shareholders. That practice has been followed in this case. The Scheme Implementation Agreement requires BidCo to execute a Deed Poll in a prescribed form prior to the dispatch of the Explanatory Booklet to shareholders. Under the Deed Poll, BidCo covenants in favour of Scheme shareholders to perform the actions attributed to it under the Scheme and otherwise to comply with the Scheme as if BidCo were a party to it and covenants in favour of each Scheme shareholder to provide the Scheme consideration to each of them in accordance with the terms of the Scheme. 10 The Scheme Implementation Agreement permits Legend to declare and pay a fully franked special dividend of up to $0.07 per share at any time prior to the implementation of the Scheme. If declared and paid, the special dividend will operate to reduce the Scheme consideration by the corresponding amount of the special dividend. Mr Higgins gave evidence that, subject to the Scheme becoming effective, the Board of Legend currently intends to declare the special dividend. The final decision whether or not to declare the special dividend will be made by the directors (and will be communicated to Legend shareholders by way of an ASX announcement) immediately after the meeting to approve the Scheme. If declared, holders of Legend shares as at the record date for the special dividend (currently proposed to be 7.00pm on Wednesday, 21 August 2019) will be entitled to receive the special dividend, which will be paid on the implementation date for the Scheme (which, as noted above, is currently proposed to be 30 August 2019). Legend does not have sufficient cash resources to pay a special dividend of up to $0.07 per share. To fund payment of the special dividend, Legend has entered into a facility agreement with BidCo under which BidCo has agreed to make available to Legend an unsecured and interest free loan of up to $15,265,159 for that purpose. 11 The Scheme Implementation Agreement also contemplates that certain performance rights issued by Legend will convert into Legend shares prior to the Scheme record date and that the Legend shares issued in respect of those performance rights will constitute "Scheme shares" for the purposes of the Scheme. The proposed treatment of the performance rights is considered further below. 12 The Scheme is conditional on the satisfaction of the following conditions precedent (as set out in cl 3 of the Scheme): (a) all the conditions precedent in cl 3.1 of the Scheme Implementation Agreement (other than the condition precedent relating to Court approval of the Scheme) have been satisfied or waived in accordance with the terms of the Scheme Implementation Agreement by no later than 2 hours before the commencement of the second court hearing (currently proposed to be Friday, 16 August 2019); (b) neither the Scheme Implementation Agreement nor the Deed Poll have been terminated as at 2 hours before the commencement of the second court hearing; (c) the Court has approved the Scheme pursuant to s 411(4)(b) of the Act, including any alterations made or required by the Court under s 411(6) of the Act as are agreed to in writing by Legend and BidCo; (d) such other conditions imposed by the Court under s 411(6) of the Act, as are acceptable to Legend and BidCo, have been satisfied or waived; and (e) the Court orders made under s 411(4)(b) of the Act (and, if applicable, s 411(6) of the Act) approving the Scheme have come into effect, pursuant to s 411(10) of the Act on or before the End Date (which is defined to mean 31 October 2019 or such other date and time agreed in writing between BidCo and Legend). 13 The draft Explanatory Booklet (which includes the explanatory statement required by s 412 of the Act) provides a description of the Scheme and its advantages and disadvantages. It has been provided to and reviewed by the Australian Securities and Investments Commission (ASIC). On 5 July 2019, ASIC provided Legend with a letter in the usual form, known as a "preliminary no objection letter". The letter stated that, based on ASIC's examination of the terms of the Scheme and the Explanatory Booklet, ASIC does not currently propose to appear to make submissions or intervene to oppose the Scheme at the first court hearing. Consistently with the terms of the letter, ASIC did not appear at the first court hearing. 14 The Explanatory Booklet records the recommendation of all the Legend directors that shareholders vote to approve the Scheme, in the absence of a superior proposal, and that all Legend directors intend to vote in favour of the Scheme. 15 An independent expert's report has been obtained from Lonergan Edwards & Associates Limited (Lonergan Edwards), which is to be included as an annexure to the Explanatory Booklet. In the opinion of Lonergan Edwards, the Scheme is fair and reasonable and in the best interests of the Legend shareholders.

C. Power to make orders under section 411 16 Part 5.1 of the Act provides a procedure whereby an arrangement between a company and its members (a scheme) can be made binding on all members. Section 411 is the principal provision. The procedure involves three main steps: (a) an application to the Court for orders to convene a meeting or meetings of members to consider a resolution approving the scheme (s 411(1)); (b) if such an order is made, the holding of the meeting or meetings of members (s 411(4)(a)); and (c) if the resolution is passed by the requisite majority, an application to the Court for an order approving the scheme (ss 411(4)(b) and 411(6)). 17 In terms of the first step of obtaining orders to convene a scheme meeting, s 411(1) of the Act confers a discretion on the Court to make such an order if the following requirements are satisfied: (a) an arrangement is proposed between a Part 5.1 body and its members (or any class of them): see s 411(1); (b) an application for the order is made in a summary way by that body: see s 411(1); (c) 14 days' notice of the hearing of the application has been given to ASIC (or such lesser period as the Court or ASIC permits): see s 411(2)(a); and (d) the Court is satisfied that ASIC has had a reasonable opportunity to: (i) examine the terms of the proposed arrangement to which the application relates and a draft explanatory statement relating to the proposed arrangement; and (ii) make submissions to the Court in relation to the proposed arrangement and the draft explanatory statement: see s 411(2)(b). The explanatory statement referred to is that required by s 412: s 411(3). 18 In addition to these requirements of s 411, the procedure is regulated by s 412 and reg 5.1.01 and Schedule 8 to the Corporations Regulations 2001 (Cth) (the Regulations), and by the Federal Court (Corporations) Rules 2000 (Cth) (Rules). The Regulations and the Rules prescribe certain information which is required to be sent to the members about the Scheme. 19 I am satisfied that these requirements are met and that the Court's power to make the convening orders is enlivened. 20 First, Legend, being a company registered under the Act, is a "Part 5.1 body". It is well established that a scheme designed to effect an acquisition by one company of the shares in another may be an "arrangement" for the purposes of s 411(1) of the Act: see Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at 264 [39] per French J. 21 Second, Legend has made this application to the Court. 22 Third, Legend lodged a draft Explanatory Booklet (which included the explanatory statement for the Scheme required by s 412(1) of the Act) with ASIC on 19 June 2019. A stamped copy of the originating process was also sent to ASIC on 19 June 2019. Accordingly, the 14 day notification requirement has been met. As noted above, on 5 July 2019, ASIC provided Legend with a "preliminary no objection letter" stating that ASIC considers that it has had a reasonable opportunity to examine the terms of the proposed Scheme and the draft explanatory statement and to make submissions to the Court. 23 Fourth, as to compliance with the Rules: (a) in evidence is a search of Legend from the records of ASIC conducted on 17 June 2019, being no earlier than 7 days before the originating process was filed as required by r 2.4(2) of the Rules; (b) the chairman and the alternate chairman nominated for the proposed scheme meeting have each made an affidavit containing the matters required by r 3.2 of the Rules; and (c) the proposed draft order for the convening of the scheme meeting identifies the Scheme as required by r 3.3(1) of the Rules.

D. Exercise of the Court's discretion 24 The function of the Court in an application to convene a meeting is supervisory. In Re Amcor Ltd [2019] FCA 346, Beach J described the Court's role at the first court hearing as follows (at [47]): My function on an application to order the convening of a meeting is supervisory. At this stage I should generally confine myself to ensuring that certain procedural and substantive requirements have been met including dealing with adequate disclosure, with limited consideration of issues of fairness. But having said that, it is appropriate to consider the merits or fairness of a proposed scheme at the convening hearing if the issue is such as would unquestionably lead to a refusal to approve a proposed scheme at the approval hearing, that is the proposed scheme appears now to be on its face 'so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further' (Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [44] per French J). 25 Before ordering a meeting, the Court needs to be satisfied of two matters: (a) first, that the scheme is fit for consideration by the proposed meeting in the sense that it is "of such a nature and cast in such terms that, if it achieves the statutory majority at the […] meeting the court would be likely to approve it on the hearing of a petition which is unopposed": FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 per Street CJ; ASC v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504; Re Coles Group Ltd (2007) 25 ACLC 1380 at [29]-[36] per Robson J; and (b) second, that "the members [are to be] properly informed as to the nature of the scheme before the scheme meeting": Re NRMA Insurance Ltd (No 1) (2000) 156 FLR 349 at [30]; 33 ACSR 595; Re Foundation Healthcare (2002) 42 ACSR 252 at [38].

D.1 The Scheme is fit for consideration 26 As I observed recently in Re DuluxGroup Ltd [2019] FCA 961 at [20] in respect of a scheme which was materially the same as the present scheme: The question whether or not to accept particular consideration for shares is quintessentially a commercial matter for the members of DuluxGroup to assess: Re Amcor Ltd [2019] FCA 346 at [50]. Members ought not be prevented from having the opportunity to do so provided that the Court can be satisfied that they are "acting on sufficient information and with time to consider what they are voting about": Re English, Scottish and Australian Chartered Bank [1893] 3 Ch 385 at 409 per Lindley LJ, cited with approval in Re ACM Gold Ltd (1992) 34 FCR 530 at 534 per O'Loughlin J. 27 The Scheme is straightforward. It involves the transfer of all of the shares in Legend to BidCo in return for cash consideration. The Explanatory Booklet sets out reasons why members might vote for or against the Scheme. The Explanatory Booklet also contains: (a) a recommendation from all directors that shareholders vote in favour of the Scheme; (b) a statement that all directors intend to vote in favour of the Scheme; and (c) an independent expert report that the Scheme is fair and reasonable and in the best interests of Legend shareholders. 28 Notwithstanding those recommendations, the Court will also scrutinise the terms of a scheme to satisfy itself that there is no element of unfairness in those terms that would be likely to preclude the approval of the scheme if it came before the Court at a second hearing for approval. 29 In this case, Legend raised the following particular features of the Scheme for the attention of the Court: (a) the funding of the Scheme consideration; (b) performance risk; (c) the exclusivity provisions; (d) the break fee and the reverse break fee; (e) the deemed warranty provision; (f) the performance rights and the associated question of "class" for the purposes of s 411(1) of the Act; (g) the special dividend and the associated question of financial assistance; and (h) section 411(17) of the Act. 30 For the reasons set out below, I am satisfied that none of these matters provide a reason for the Court to refrain from making an order convening the scheme meeting.

D.1.1 Funding of the Scheme consideration by BidCo 31 The maximum Scheme consideration amount is $79,505,648 (on the assumption that no special dividend is declared) based on the amount of $0.365 per share multiplied by the number of Legend shares on issue on 24 May 2019, being 216,723,693, plus the additional 1,100,000 Legend shares expected to be issued in respect of the 1,100,000 performance rights on issue. 32 As noted earlier, BidCo is a proprietary company that has been incorporated to acquire the shares in Legend pursuant to the Scheme. As explained in section 6.2 of the Explanatory Booklet, BidCo is a wholly owned subsidiary, through a chain of companies, of Greenland HoldCo Pty Ltd ACN 633 361 921 (HoldCo), the shares in which are held by a number of corporate entities that comprise the Adamantem Fund (collectively referred to as the Adamantem Investors). As explained in section 6.4 of the Explanatory Booklet, the proposed funding of the Scheme consideration payable by BidCo is through a combination of equity funding and debt facilities. As to the equity funding, BidCo and HoldCo together have a legally binding equity commitment letter from the Adamantem Investors dated 23 May 2019, under which the Adamantem Investors commit to provide cash funding to HoldCo of such amounts as are necessary to enable HoldCo to directly or indirectly fund BidCo to meet its obligations to pay the Scheme consideration less any amount to be drawn down under the debt facilities in connection with implementation of the Scheme. As to the debt facilities, BidCo has executed a senior syndicated facility agreement with Westpac Banking Corporation, Investec Australia Finance Pty Limited and The Hongkong and Shanghai Banking Corporation Limited, Sydney Branch under which debt facilities are provided to BidCo for the purpose of, among other things, funding the acquisition of the Scheme shares, refinancing certain existing debt facilities of the Legend business and paying certain other costs and expenses in connection with the Scheme. The debt facilities have a combined limit of $54,250,000. The debt facilities include conditions precedent to drawdown, representations and warranties, undertakings and events of default. Section 6.4(c) of the Explanatory Booklet states that, as at the date of the Explanatory Booklet, BidCo is not aware of any reason why the debt facilities will not be available to be drawn down for the purpose of the acquisition of the Scheme shares on or prior to the implementation date for the Scheme. 33 On the basis of the evidence before me, I am satisfied that BidCo has entered into commercial arrangements that would, in the ordinary course, enable it to satisfy its obligation to pay the Scheme consideration if the Scheme is approved. While the funding arrangements entered into by BidCo are subject to various conditions and therefore have an element of uncertainty, I consider that the conditions are not unusual for equity commitments and debt facilities. In my view, the funding arrangements have been adequately disclosed in the Explanatory Booklet and are of such a nature that the proposed acquisition of shares is fit to be considered by shareholders as a commercial proposition. Nevertheless, it is necessary to consider the risks faced by shareholders should BidCo be unable to draw down on the equity funding and debt facilities - so called "performance risk".

D.1.2 Performance risk 34 As I observed recently in Re DuluxGroup Ltd [2019] FCA 961 at [25]: As noted above, the entity that will be providing the Scheme Consideration is not party to the Scheme and is not (and cannot be) directly bound by it. As such, its obligations do not depend upon s 411 of the Act, which is confined to the obligations of the plaintiff company and its members: Re Westfield Holdings Ltd (2004) 49 ACSR 734 at 739. In considering whether to approve a scheme involving the participation of a person other than the plaintiff company and its members (here, Nippon Paint), it is important to ensure that that other party is bound to perform the role assigned to it and that its obligations are able to be enforced. In this context, the courts have considered the "performance risk" as regards the obligations to be performed by the non-scheme party: see for example Re Amcor Ltd [2019] FCA 346 at [53]; Re Coles Group Ltd (2007) 25 ACLC 1380 at 1386 [38]; Re Lonsdale Financial Group Ltd [2007] VSC 394 at [42]; Re KAZ Group Ltd [2004] FCA 738 at [4]-[5]; Re Healthscope Ltd [2010] VSC 367 at [31]-[32]; Re Mitchell Communication Group [2010] VSC 423 at [30]-[31]; Re AWB Ltd [2010] VSC 456 at [16]; and Re AXA Asia Pacific Holdings Ltd [2011] VSC 4 at [21]-[25]. 35 The "performance risk" associated with the present Scheme is heightened by the fact that BidCo is a newly incorporated company and is reliant on equity funding and debt facilities with third parties to meet its obligation to pay the Scheme consideration. The Scheme involves a number of safeguards to address the performance risk arising from the obligation of BidCo to pay the Scheme consideration. 36 First and foremost, the terms of the Scheme are such as to prevent any transfer of shares to BidCo unless and until the Scheme consideration has been paid to Legend and received by Scheme shareholders. The Scheme requires the following steps to be taken: (a) BidCo must, by no later than the business day before the implementation date for the Scheme, deposit (or procure the deposit) in cleared funds into a trust account operated by Legend as trustee for the benefit of Scheme shareholders the total Scheme consideration payable to all Scheme shareholders, with such amount to be held by Legend on trust for the Scheme shareholders and for the purpose of sending the aggregate Scheme consideration to the Scheme shareholders (except that any interest on the amount will be for the account of BidCo) (cl 5.2(a) of the Scheme); (b) on the implementation date and subject to funds having been deposited in accordance with cl 5.2(a) of the Scheme, Legend must pay or procure the payment of the Scheme consideration to each Scheme shareholder from the trust account by doing either of the following at Legend's election: (i) sending (or procuring the Legend Registry to send) it to the shareholder's registered address by cheque in Australian currency; or (ii) depositing (or procuring the Legend Registry to deposit) it into an account with any Australian ADI (as defined in the Act) notified to Legend (or the Legend Registry) by an appropriate authority from the shareholder, (cl 5.2(b) of the Scheme); (c) on the implementation date, subject to payment by Legend of the Scheme consideration to each Scheme shareholder in the manner contemplated by cl 5.2(b) of the Scheme (being the actual dispatch of the Scheme consideration to the shareholder), the Scheme shares will be transferred to BidCo (cl 4.2 of the Scheme); and (d) immediately after payment by Legend of the Scheme consideration to each shareholder in the manner contemplated by cl 5.2(b), BidCo will be beneficially entitled to the Scheme shares pending registration by Legend of BidCo in the share register as the holder of the shares (cl 8.5(b) of the Scheme). 37 Second, the Scheme Implementation Agreement reinforces the provisions of the Scheme: (a) clause 9.1 of the Scheme Implementation Agreement provides that, on the implementation date and subject to the Scheme consideration having been paid in full by BidCo to Legend, Legend must take all actions necessary to appoint the persons nominated by BidCo as new Legend Directors; and (b) clause 9.2 of the Scheme Implementation Agreement provides that, on the implementation date, the transactions which form part of the Scheme will be implemented in the following sequence: (i) BidCo will provide the Scheme consideration to Legend in accordance with the Scheme; (ii) Legend will disburse the Scheme consideration to Scheme shareholders in accordance with the Scheme; (iii) the Legend Board and the board of each subsidiary of Legend will be reconstituted in accordance with cl 9.1; and (iv) BidCo will acquire all of the Scheme shares in accordance with the Scheme. 38 In my view, the Scheme and the Scheme Implementation Agreement contain effective provisions to ensure that any transfer of shares to BidCo will not take place unless and until the Scheme consideration has been received by Legend and paid to Scheme shareholders. Such provisions eliminate the primary source of performance risk for shareholders: a transfer of shares without receiving the required consideration. 39 There remains, though, the risk that BidCo becomes unable to draw down on the equity commitments and debt facilities and defaults on its obligation to pay the Scheme consideration. If that were to occur, the share transfers would not occur and the transaction would not proceed. In that event, the ability of Legend or its shareholders to require BidCo to pay the Scheme consideration is limited by practical and legal considerations. Although, as note earlier, BidCo has executed a Deed Poll under which it covenants, in favour of Scheme shareholders, to pay the Scheme consideration to Scheme shareholders, the commercial value of the Deed Poll is reduced by the fact that BidCo is a newly incorporated company and is reliant on equity commitments and debt facilities to meet its obligation to pay the Scheme consideration. Any enforcement of the Deed Poll by Scheme shareholders would be dependent on the ability to enforce the equity commitments and debt facilities held by BidCo. Further, and in any event, the Scheme Implementation Agreement limits BidCo's liability to Legend and Scheme shareholders for a failure to pay the Scheme consideration to the payment of a break fee of $1,030,000. Clause 15.1 of the Scheme Implementation Agreement provides that: BidCo is liable to pay the break fee to Legend if it fails to pay the Scheme consideration (paragraph (a)); if the break fee becomes payable and is paid by BidCo, it will be the sole remedy of Legend and Legend Shareholders against BidCo (paragraph (e)); and payment by BidCo of the break fee represents the sole and absolute liability of BidCo under or in connection with the Scheme Implementation Agreement (paragraph (f)). 40 The chairman of Legend, Mr Bruce Higgins, gave evidence about the risk of BidCo defaulting on its obligation to pay the Scheme consideration. In his affidavit, Mr Higgins stated that: [65] Given BidCo's status as a special purpose proprietary company which has been established by Adamantem Capital to act as the acquiring entity of the Legend Shares if the Scheme becomes Effective, the Board had initially requested that an entity of financial substance within the Adamantem group enter the Scheme Implementation Agreement to guarantee the performance of BidCo under the Scheme Implementation Agreement. [66] The inclusion of a guarantor was resisted by Adamantem Capital for the primary reason that it is private equity group of which Adamantem Capital is a manager of various funds and there is no particular entity of financial substance within the Adamantem group which had the financial capacity to act as a guarantor for BidCo's obligations and thus no particular entity which could become a party to the Scheme Implementation Agreement as a guarantor. [67] This position during the negotiations was eventually accepted by the Board as being commercially acceptable having regard to the following reasons: (a) for the reasons set out in paragraphs 59 to 62 above, the terms of the Scheme provide for dispatch of the Scheme Consideration to the Legend Shareholder prior to the transfer of the Legend Shares to Bid Co taking place; (b) Bid Co provides warranties in the Scheme Implementation Agreement that: (i) BidCo has entered into an Equity Commitment Letter and a Debt Commitment Letter as at the date of Scheme Implementation Agreement; and (ii) BidCo has a reasonable basis to expect that it will, by the Implementation Date, have available to it sufficient cash amounts (whether from internal cash resources or external funding arrangements (including debt and equity financing) or a combination of both) to satisfy BidCo's obligation to pay the Scheme Consideration in accordance with its obligations under Scheme Implementation Agreement, the Scheme and the Deed Poll; (c) the Board (with the assistance of its legal and financial advisers) took comfort from the fact that the vast majority of the private equity scheme transactions since January 2018 did not contain guarantor provisions in favour of the target company; and (d) the risk of BidCo, as Adamantem's Capital special purpose company for the Scheme, defaulting on a payment obligation is likely to be low, having regard to the potential reputational damage and adverse implications for Adamantem Capital's business model if it defaulted on a payment obligation on a publicly announced takeover where Adamantem Capital is named as the acquirer. 41 In my view, having regard to the evidence given by Mr Higgins, the arrangements that have been negotiated by Legend are commercially reasonable. They do not provide absolute certainty that BidCo will be able to complete the transaction should it be approved by shareholders and the Court, but the funding arrangements that have been put in place provide a suitable commercial basis for the Scheme to be considered by shareholders and there is no risk that shareholders will be required to transfer their shares without receiving the promised consideration. Accordingly, I do not consider that performance risk is a reason for the Court to refrain from making an order convening the scheme meeting.

D.1.3 Exclusivity arrangements 42 The Scheme Implementation Agreement contains various exclusivity provisions which Legend has granted in favour of BidCo. These are set out in cl 16 of the Scheme Implementation Agreement and comprise: (a) a "no shop" restriction (cl 16.1); (b) a "no talk" restriction (cl 16.2); (c) a "no due diligence" restriction (cl 16.3); (d) the "notification" right (cl 16.6); and (e) the "matching" right (cl 16.7). 43 As noted by Robson J in Re Toll Holdings [2015] VSC 123 at [36] and in Re Skilled (No 1) (2015) 113 ACSR 525 at [50], such provisions are now ordinarily found in merger implementation agreements. In Re Arthur Yates & Co Ltd (2001) 36 ACSR 758 at [9], Santow J said that an exclusivity clause should meet the following criteria: (a) it should be for no more than a reasonable period which is capable of precise ascertainment; (b) it must be framed so that it is subject to an overriding obligation not to breach the directors' fiduciary duties or be otherwise unlawful; and (c) the exclusivity clause should be given adequate prominence in the explanatory statement sent to shareholders. 44 A "no shop" clause need not be subject to a fiduciary "carve-out": Re Healthscope Ltd [2010] VSC 367 at [19]-[22] per Davies J. 45 For the following reasons, I am satisfied that the exclusivity arrangements are reasonable and do not prevent the Court from making an order to convene a meeting of members to vote on the Scheme. 46 First, each of the exclusivity provisions is summarised at section 2.5(d) of the Explanatory Booklet. 47 Second, Mr Higgins gave evidence that the exclusivity provisions were the outcome of commercial negotiations which took place between Legend and BidCo in which Legend was assisted by external legal and financial advisers to ensure that the terms of the Scheme Implementation Agreement (including the exclusivity clauses) were in the best interests of Legend. 48 Third, the period of exclusivity is not unreasonable, being around 5 months from the period commencing on the date of the Scheme Implementation Agreement (24 May 2019) and ending on the earlier of the End Date and the date that the Scheme Implementation Agreement is terminated in accordance with its terms: cf Re APN News & Media Limited (2007) 62 ACSR 400 at [31]; Re Veda Advantage Limited [2007] FCA 822 at [26]; Re Cytopia Ltd [2009] VSC 560 at [21]; Re Healthscope Ltd at [20]; Re AWB Ltd [2010] VSC 456; Re AXA Asia Pacific Holdings Ltd [2011] VSC 4 at [30(a)]. 49 Fourth, the "no talk" restriction and the "no due diligence" restrictions are subject to a "fiduciary carve out". Although there is no "fiduciary carve out" to the "notification" right or the "matching" right, Mr Higgins gave evidence that this was considered reasonable by the Board because Legend had already tested the market during the second half of 2018 when Legend engaged with around 45 parties and a confidential information memorandum was provided to 18 parties over the course of that process. Accordingly, the Board concluded that the likelihood of a superior proposal emerging was low. 50 Fifth, the "matching" right provides that BidCo will have 5 business days to match or better any competing proposal. The Takeovers Panel considered the potential anti-competitive effects of matching rights in Ross Human Directions Ltd [2010] ATP 8 at [27]-[28] and [53]-[54] and concluded that a matching right with a duration of five business days was acceptable.

D.1.4 Break Fees 51 Legend and BidCo have agreed the payment to each other of break fees in certain circumstances. 52 Clause 15.1 of the Scheme Implementation Agreement provides that BidCo must pay Legend a break fee of $1.03 million (exclusive of GST) in the following circumstances: (a) Legend terminates the Scheme Implementation Agreement as a result of a material breach by BidCo of its obligations under the Scheme Implementation Agreement or a material breach by BidCo of a warranty, where BidCo has not remedied the breach within 10 business days of receiving notice from Legend of the breach; or (b) BidCo does not pay the Scheme consideration in accordance with the terms and conditions of the Scheme Implementation Agreement and the Deed Poll. 53 As referred to above in connection with the issue of performance risk, the Scheme Implementation Agreement also provides that the break fee payable by BidCo to Legend will be the sole remedy of Legend and Legend Shareholders against BidCo. For the reasons given above, and having regard to the evidence of Mr Higgins, I do not believe that the break fee payable by BidCo and the limitation of BidCo's liability for default to the payment of the break fee, is commercially unfair to shareholders such that the Court should refrain from making an order convening the scheme meeting. 54 Clause 14.3 of the Scheme Implementation Agreement provides that Legend must pay BidCo a break fee of $1.03 million (exclusive of GST) in the following circumstances: (a) a competing proposal is publicly announced before 31 October 2019 and within 9 months of that announcement the competing proposal is implemented or the proponent of the proposal acquires a relevant interest in at least 50% of the Legend shares; (b) at any time before the second court date, any member of the Legend Board withdraws or adversely modifies their recommendation of the Scheme or supports a competing proposal, does not recommend in the Explanatory Booklet that Legend Shareholders approve the Scheme or makes any public statement to the effect that the Scheme is not recommended, except where that act is: (i) as a result of the independent expert opining that the Scheme is not in the best interests of Legend shareholders (other than where the reason for the opinion is a superior proposal); or (ii) as a result of a failure of certain of the conditions precedent to the Scheme; or (c) BidCo terminates the Scheme Implementation Agreement as a result of a material breach by Legend of its obligations or a material breach by Legend of a warranty, where Legend has not remedied the breach within 10 business days of receiving notice from BidCo of the breach. 55 Importantly, cl 14.4(c) of the Scheme Implementation Agreement provides that the break fee is not payable by Legend merely because the Scheme is not approved by the requisite majorities of Legend shareholders at the scheme meeting. 56 The Scheme Implementation Agreement also provides that the break fee payable by Legend to BidCo will be the maximum liability of Legend to BidCo and payment by Legend of the break fee represents the sole and absolute liability of Legend under or in connection with the Scheme Implementation Agreement. 57 Under the Scheme Implementation Agreement, Legend acknowledges that if the Scheme is not implemented, BidCo will incur significant costs; BidCo would not have entered into the agreement without provision being made for the payment of the break fee; and because the Scheme will provide benefits to Legend shareholders, the Legend Board believes that it is appropriate to agree to pay the break fee to secure BidCo's participation in the transaction. 58 Mr Higgins gave the following evidence about the break fee payable by Legend to BidCo and the above provisions of the Scheme Implementation Agreement: [95] The Board (with assistance from its legal advisors and reference to the Takeover Panel guidance on break fees being in the order of 1% of equity value) during the negotiations with Adamantem Capital initially proposed that the Legend Break Fee amount be set at $795,000 (exclusive of GST), being approximately 1% of the equity value of Legend on a fully diluted basis based on the scheme consideration of $0.365. [96] In the negotiations that followed, Adamantem Capital requested that the amount of the Legend Break Fee be increased to $1,030,000 (exclusive of GST) on the basis that the initially proposed figure of $795,000 would not cover Adamantem's reasonable costs. [97] The Legend Break Fee amount of $1,030,000 (which is exclusive of GST) represents: (a) 1.30% of the equity value of Legend (being $79,104,148) based on amount of $0.365 per Legend Share multiplied by the number of Legend Shares on issue on 24 May 2019 (being 216,723,693); and (b) 1.295% of the equity value of Legend (being approximately $79,596,898) based on amount of $0.365 per Legend Share multiplied by the number of Legend Shares on issue on 24 May 2019 (being $79,104,148) plus the amount of $0.365 per Share in respect of the additional 1,100,000 Legend Shares expected to be issued in respect of the 1,100,000 Legend performance rights on issue (being $492,750). [98] The Board ultimately determined that the break fee amount of $1,030,000 (exclusive of GST) was reasonable and appropriate in the circumstances. The Board made this decision with the assistance of its legal advisers and reference to other change of control transactions which involved a break fee in excess of 1% of equity value including where the target's equity value is relatively low and where the break fee amount is unlikely to be coercive to Legend Shareholders or to deter a competing proposal. Accordingly, the Board believes that the implementation of the Scheme will provide benefits to Legend and its Shareholders and that it was appropriate for Legend to agree to the Legend Break Fee to secure BidCo's participation in the Scheme and to enable the Scheme to be submitted to Legend Shareholders for their consideration. 59 As I recently observed in Re DuluxGroup Ltd at [31]: Break fees have become a common feature of commercial transactions of this nature. The effect of such fees on the interests of shareholders has been considered by the courts in connection with schemes of arrangement and by the Takeovers Panel in connection with share acquisitions, the control of companies and the purposes of Chapter 6 of the Act. In general terms, the courts and the Takeovers Panel accept that break fees can be justified by reference to the costs incurred by the offeror and the benefit that an offer may confer on the members of the target company by increasing its value. However, such fees may adversely affect the interests of shareholders if the amount of the fee is such that it is likely to coerce shareholders into agreeing to a scheme or to deter the making of a competing offer for the company's shares: see Re SFE Corporation Ltd (2006) 59 ACSR 82 at [7] per Gyles J; Re APN News & Media Ltd (2007) 62 ACSR 400 at [37]-[55] per Lindgren J; Re Toll Holdings Ltd [2015] VSC 123 at [27]-[30] per Robson J; Takeovers Panel, Guidance Note 7 - Lock Up Devices (Issue 4, 11 February 2010) at [7]. In its current Guidance Note, the Takeovers Panel has stated that, in the absence of other factors, a break fee not exceeding 1% of the equity value of the target is generally not unacceptable. The 1% guideline is not, of course, decisive and courts have ordered a meeting to consider a scheme notwithstanding a break fee that exceeds that level: Re Cytopia Ltd [2009] VSC 560 at [12]-[18] per Davies J (in that case, the fee of $500,000 was approximately 4.57% of the equity value of the target). 60 I am satisfied that the terms of the break fee payable to BidCo are not such as to render the Scheme unfair to members. On the evidence, the fee has a commercial basis (to recover costs). Importantly, payment of the fee is not triggered if the Scheme is rejected by Legend shareholders and therefore the fee should not influence their decision. Further, as the fee is about 1.3% of the equity value of Legend, it would not be expected to deter a competing offer being made for the shares.

D.1.5 Shareholder warranties 61 Clause 8.4 of the Scheme provides that each Scheme shareholder is taken to have warranted to Legend, in its own right and for the benefit of BidCo, that as at the implementation date of the Scheme: (a) all of its shares which are transferred to BidCo under the Scheme will be free from all encumbrances and restrictions on transfers of any kind; (b) all of its shares which are transferred to BidCo under the Scheme will be fully paid; (c) it has full power and capacity to transfer its shares to BidCo together with any rights attaching to those shares; and (d) it has no existing right to be issued any shares, options or any other Legend securities, other than, in the case of any Scheme shareholder who is also the holder of performance rights, the right to be issued shares on the exercise of those performance rights before the Scheme record date in accordance with their terms. 62 The warranties are in the usual form for a transaction of this nature and are acceptable as long as the warranties are sufficiently disclosed in the explanatory statement to shareholders: Re Hostworks Group Ltd (2008) 26 ACLC 137; Re Macquarie Private Capital A Ltd (2008) 26 ACLC 366; Re Dyno Nobel Ltd [2008] VSC 154; Re Biosceptre International Limited [2013] FCA 1429 at [22]. I am satisfied that the warranties have been sufficiently disclosed in section 1.7 of the Explanatory Booklet.

D.1.6 Performance rights 63 Legend has issued a total of 1,100,000 performance rights to the following persons: (a) Mr Hamish McEwin (Chief Financial Officer of Legend) - 600,000 performance rights (of which 100,000 have vested but have not been exercised); and (b) Mr Mathew Wegener (founding director and former shareholder of the Celemetrix and CommsForce businesses which were acquired by Legend in February 2018) - 500,000 performance rights (none of which have vested). 64 As at 2 July 2019, Mr McEwin was also a Legend shareholder with a shareholding of 219,338 shares. 65 The performance rights are not quoted on the ASX or any other financial market. The performance rights are governed by the terms which accompanied the performance rights when they were issued. In essence, if the performance rights vest in the holder (which is dependent on satisfaction of stipulated vesting conditions), they entitle the holder to acquire a fully paid ordinary share in Legend on a one for one basis. 66 The performance rights issued to Mr McEwin were issued in connection with his employment as CFO. While the performance rights were subject to stipulated vesting conditions (some of which are yet to be satisfied), the terms of issue also provided that the rights would automatically vest if there was a change in ownership or control of Legend. The Scheme causes such a change. 67 Under the Scheme Implementation Agreement, Legend and BidCo have agreed that, subject to the Scheme being approved by shareholders, the holders of the performance rights will be entitled to exercise those rights and to be issued shares in Legend prior to the Scheme becoming effective and thereby to participate in the Scheme in respect of the newly issued shares. 68 Mr McEwin is entitled to vote on the Scheme (as a shareholder) and will also receive an additional benefit if the Scheme is approved through the acceleration of the vesting of his performance rights. A question arises whether Mr McEwin should be treated as a separate "class" to other shareholders by reason of the additional benefit he will receive if the Scheme is approved. The same question does not arise for Mr Wegener because he is not a shareholder and will not, therefore, vote on the Scheme (although he will participate in the Scheme in respect of the shares issued to him under the performance rights if the Scheme is approved by shareholders). 69 Sub-sections 411(1) and (4) of the Act refer to a compromise or arrangement between, relevantly, members or a class of members. The word "class" is not defined in s 411. As observed by Bowen LJ in Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583: The word 'class' is vague, and to find out what is meant by it we must look at the scope of the section, which is a section enabling the court to order a meeting of a class of creditors to be called. It seems plain that we must give such a meaning to the term 'class' as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to a common interest. 70 In my view, s 411 does not require Mr McEwin to be treated as a separate class of shareholder by reason of the additional benefit he will receive through the accelerated vesting of his performance rights if the Scheme is approved. The shares to which he will become entitled are not of a different type than those of other shareholders and he will receive the same consideration for his shares pursuant to the Scheme as will be received by every other shareholder. While the vesting of the performance rights held by Mr McEwin will be accelerated if the Scheme is approved, the acceleration is consistent with the terms of issue of the performance rights (which provide for vesting if there is a change in the ownership or control of Legend). For those reasons, I do not consider that the acceleration of the vesting is sufficient to place Mr McEwin into a different class: see for example Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [82] and Re Healthscope Limited [2019] FCA 542 at [166]-[167].

D.1.7 Special dividend and financial assistance 71 A question arises whether the anticipated payment of the special dividend by Legend to its shareholders, reducing the amount of the Scheme consideration that will be payable by BidCo for the acquisition of Legend shares, breaches the implied prohibition against financial assistance in s 260A of the Act. 72 Sub-section 260A(1) of the Act provides that a company may financially assist a person to acquire shares in the company only if: (a) giving the assistance does not materially prejudice (i) the interests of the company or its shareholders, or (ii) the company's ability to pay its creditors; (b) the assistance is approved by shareholders under s 260B; or (c) the assistance is exempt under s 260C. 73 The words "financial assistance" have no technical meaning; the statutory task is to examine the commercial realities of the transaction to determine whether it can properly be described as the giving of financial assistance by the company: see Charterhouse Investment Trust Ltd v Tempest Diesels Ltd [1986] BCLC 1 at 10 per Hoffmann J; Milburn v Pivot Ltd (1997) 78 FCR 472 at 501-503 per Goldberg J. 74 A number of decisions concerning proposed schemes of arrangement have considered whether the payment of a special dividend by the target company - in addition to the payment of the scheme consideration by the bidder - infringes the implied prohibition in s 260A of the Act. These cases have considered the "material prejudice" exception in s 260A(1)(a), without deciding the threshold question as to whether payment of the special dividend amounts to "financial assistance": see Re Lion Nathan Limited [2009] FCA 870 at [16]-[17] per Emmett J; Re Ventura Investment Management Ltd [2011] FCA 721 at [14]-[15] per Jacobson J; Re ITX Group Pty Ltd [2010] FCA 1241 at [11] and [28] per Emmett J; Re RP Data Ltd [2011] FCA 228 at [30] per Stone J. 75 In my view, payment by Legend of the special dividend will not constitute financial assistance to acquire the Scheme shares. BidCo is not currently a shareholder of Legend and therefore will not receive the special dividend. The effect of the payment of the special dividend is merely to reduce the consideration payable for shares pursuant to the Scheme in a manner that reflects the cash outflow from the company and the consequential reduction in the net assets of Legend. While the Scheme Implementation Agreement anticipates the payment of the special dividend, the Scheme does not require the dividend to be paid (declaration of the dividend is at the election of Legend). The proper characterisation of these arrangements is that the consideration for the acquisition of the Scheme shares will be reduced to reflect the reduction in net assets of Legend resulting from payment of the dividend. 76 In any event, I accept the submission of Legend that the payment of the special dividend will not prejudice Legend, its shareholders or its ability to pay its creditors for the purposes of s 260A(1)(a) of the Act. Mr Higgins gave evidence that, in his view, the financial position of Legend generally and its asset and liability position is such that Legend's net asset position is more than sufficient to meet the payment of the special dividend of up to $0.07 per share and that the payment would not materially prejudice Legend or its members or the ability of Legend to pay its creditors. Mr Higgins also deposed that he is informed by Mr McEwin that he is of the same view.

D.1.8 Section 411(17) of the Corporations Act 77 The Court's power to approve a scheme is restricted by s 411(17) of the Act. This is a matter which affects the Court's discretion to ultimately approve the Scheme, rather than the discretion to order a meeting: Re Macquarie Private Capital A Ltd (2008) 26 ACLC 366 at 370 [27]. At the Scheme approval stage, the Court must be satisfied that there is no proscribed purpose as described in s 411(17)(a) or there must be produced to the Court a statement in writing by ASIC that it has no objection to the arrangement as per s 411(17)(b): Re Coles Group Ltd (No 2) (2007) 65 ACSR 494 at [16]-[24]. 78 ASIC's Regulatory Guide 60 - Schemes of arrangement (RG 60) states (at [104]) that ASIC will provide a statement under s 411(17)(b) if: (a) all material information relating to the proposed scheme has been disclosed to ASIC; (b) the standard of disclosure to all members fulfils the requirements under reg 5.1.01 and Schedule 8 of the Regulations; (c) the standard of disclosure to, and treatment of, all members is equivalent to the standard that would be required by the disclosure requirements and the principles in s 602 of the Act relating to the target securities in a takeover bid; and (d) there are no other reasons to oppose the scheme (e.g. public policy grounds) and the other matters referred to in RG 60 have been complied with. 79 If such a statement is provided by ASIC, it will not be provided until the second Court hearing: RG 60 at [106]. 80 Sub-section 411(17) does not present a bar to a meeting being convened if it seems likely that ASIC will produce the relevant statement at the second court hearing. Where (as here) ASIC has indicated that it does not oppose the application for convening the meeting, it is appropriate to proceed on the basis that an application for approval would be unopposed by ASIC and that, in due course, ASIC will provide a statement for the purpose of s 411(17)(b): Re Lonsdale Financial Group Ltd [2007] VSC 394 at [31]-[40] per Robson J.

D.2 Will Legend shareholders be properly informed? 81 The second matter relevant to the exercise of the Court's discretion to convene the Scheme meeting is the adequacy of the information to be provided to shareholders. There are three aspects to the requirements of s 412(1) of the Act: (a) First, the explanatory statement must explain the effect of the compromise or arrangement and, in particular, state any material interest of the directors and the effect on those interests of the compromise or arrangement in so far as it is different from the effect on the like interests of other persons: see s 412(1)(a)(i). These matters are addressed in sections 10.2 to 10.6 of the Explanatory Booklet. (b) Second, the explanatory statement must set out the prescribed information. That prescription is in reg 5.1.01 and Schedule 8 (Part 3) of the Regulations. Mr Colla, a solicitor acting for Legend, adduced in evidence a checklist that was provided to ASIC showing the specific requirements of the Act, the Regulations and Part D of RG 60 and the location in the Explanatory Booklet of the statements which comply with those requirements. (c) Third, the explanatory statement must set out any other information that is material to the making of a decision whether or not to agree with the compromise or arrangement, being information which is within the knowledge of the directors and has not previously been disclosed: see s 412(1)(a)(ii). 82 As to the third aspect, Mr Higgins gave evidence concerning the verification procedures undertaken by Legend to ensure that the information in the Explanatory Booklet concerning Legend is complete and accurate in all material respects, is not misleading or deceptive in any material respect and that there is no material omission which renders that information misleading or deceptive in any material respect. Mr Condoleon, a solicitor acting for BidCo, gave similar evidence in relation to the information in the Explanatory Booklet concerning BidCo. 83 Legend proposes to send the Explanatory Booklet by hard copy post to shareholders. None of the current shareholders have elected to receive notices of meeting and other shareholder communications by email. As at 2 July 2019, there were 30 shareholders (together holding 132,135 shares representing 0.0006% of the shares currently on issue) who are "return mail" shareholders, being Legend shareholders to whom mail sent to them is returned to Legend and for whom Legend does not have current contact or address details. Legend intends to dispatch a copy of the Explanatory Booklet to all shareholders, including the return mail shareholders. 84 As the Scheme is purely a members' scheme, it is necessary that the explanatory statement be registered by ASIC before the notice of meeting is sent to Legend shareholders: see s 412(6). Before registering the statement, ASIC must conclude that it appears to comply with the requirements of the Act and must form the opinion that the statement does not contain any matter that is false in a material particular or materially misleading in the form and context where it appears: see ss 412(7) and 412(8). Legend has provided the draft Explanatory Booklet to ASIC, together with all amendments. 85 Schemes of arrangement are not required to be the subject of a report by an independent expert unless the parties have a common director or the acquiring company controls 30% of the scheme company: see reg 5.1.01 and Sch 8, cl 8303 of the Regulations. Neither is applicable to the Scheme in this case. Nevertheless, Legend has obtained a report from an independent expert, Lonergan Edwards, as to whether, in its opinion, the Scheme is in the best interests of Legend shareholders. Lonergan Edwards opines that the Scheme is fair and reasonable and in the best interests of Legend shareholders. 86 Sub-section 411(1) provides that, if the Court has made an order convening a meeting or meetings of members or creditors, the Court "may approve the explanatory statement." The practice of courts varies in this respect. Consistent with recent practice in this Court, I have not made an order approving the Explanatory Booklet: see Re Amcor Ltd [2019] FCA 346 at [114]-[115]; Re Verdant Minerals Ltd [2019] FCA 556 at [84]; Re Healthscope Ltd [2019] FCA 542 at [189]; Re DuluxGroup Ltd [2019] FCA 961 at [63].

E. Conclusion 87 In conclusion, I am satisfied that the Scheme is of such a nature and cast in such terms that, if it achieves the statutory majorities at the scheme meeting, the Court would be likely to approve it and that it is therefore appropriate to make the orders sought by Legend. I certify that the preceding eighty-seven (87) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Bryan.

Corporations Act 2001(Cth)ss 411(1), 411(17), 412(1)

Corporations Regulations 2001(Cth)reg 5.1.01, Sch

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