ASC v Marlborough Gold Mines Ltd

This proceeding 9 This proceeding concerns the Share Scheme and the Option Scheme. 10 SMX seeks, under subsection 411(1) of the Act, orders (amongst others): (a) convening a meeting of SMX's shareholders to consider the Share Scheme; and (b) convening a meeting of the relevant option-holders to consider the Option Scheme; and (c) concerning the dispatch of the scheme booklet.

PROCEDURAL HISTORY AND EVIDENCE 11 The proceeding was commenced by an originating process filed on 23 December 2022, supported by an affidavit of SMX's solicitor, Nadav Prawer of Mann Lawyers Pty Ltd (first Prawer affidavit). 12 Since then, SMX has filed the following further affidavits: (a) an affidavit made on 5 January 2023 by Everardus Hofland, an executive director and the chairman of SMX - regarding his consent to act as chairperson of the scheme meetings (first Hofland affidavit); (b) an affidavit made on 2 January 2023 by Amir Bader, a non-executive director of SMX - confirming his consent to act as alternate chairperson of the meetings (first Bader affidavit); (c) an affidavit made on 6 January 2023 by Haggai Alon, an executive director and the chief executive officer of SMX - which describes SMX, the proposed schemes, the negotiations between SMX and Lionheart that preceded the proposed transaction, preparation of the scheme booklet and how the booklet will be dispatched to members and option holders (first Alon affidavit); (d) an affidavit made on 5 January 2023 by Doron Afik, who is the managing partner of Afik & Co Law (the Israeli legal advisors to SMX) and SMX's general counsel - explaining how the scheme booklet was approved and verified (Afik affidavit); (e) a second affidavit of SMX's solicitor, Dr Prawer, made on 6 January 2023 (second Prawer affidavit), explaining the lodgment of notice with ASIC, ASIC's feedback about the scheme booklet, the waiver of certain ASX listing rules and certain requirements under Schedule 8 of the Corporations Regulations 2001 (Cth) (Corporations Regulations); (f) an affidavit made on 5 January 2023 by Connor Manning of Arthur Cox LLP, an Irish solicitor - which provides an opinion on questions of Irish law about the deed poll (Manning affidavit); (g) an affidavit made on 5 January 2023 by Brent Goldman - annexing his independent expert's report about whether the schemes are fair and reasonable (Goldman affidavit); and (h) a third affidavit of Dr Prawer - exhibiting the latest draft of the scheme booklet (incorporating the most recent amendments, requested by ASIC) and dealing with ASIC's attitude to the application (third Prawer affidavit). 13 Prior to the hearing, Lionheart filed an affidavit made on 6 January 2023 by Paul Howard Rapisarda, the Chief Financial Officer of Lionheart which deposed to: (a) the verification of information in the draft scheme booklet; (b) the execution of a deed poll in favour of the Scheme Participants and the Option Scheme Participants; and (c) information about negotiations regarding exclusivity and break fee provisions.

THE PROPOSED SCHEME 14 On 26 July 2022, SMX, Lionheart and Empatan entered a scheme implementation deed (SID), by which SMX agreed to propose and implement the schemes and undertake the capital reduction. 15 On the same day, the parties entered a business combination agreement under which Empatan would become the parent of Lionheart and SMX (the business combination) and list on the NASDAQ. The business combination is subject to the terms and conditions set out in the business combination agreement, including the approval of Lionheart's shareholders (who will receive new shares in Empatan, while Lionheart's existing warrant-holders will have their warrants automatically adjusted to become exercisable in respect of shares in Empatan). 16 Prior to the hearing, on 7 January 2023, SMX, Empatan, and Lionheart undertook the process of finalising a deed of variation to amend the SID, so as to update the number of shares, options and other securities in SMX to which it refers (Deed of Variation). The Deed of Variation was then finalised and amendments were made to the SID. The Deed of Variation is annexed to the third Prawer affidavit at annexure NP-10. The variations made to the SID, updated the number of shares, options and other securities to which the deed refers. On 9 January 2023, Mr Prawer subsequently provided a revised draft scheme booklet to ASIC which, among other things, provided the insertion of the Deed of Variation alongside the SID.

What is a SPAC? 17 A SPAC is essentially a shell company, established for the sole purpose of raising money through an initial public offering so as eventually to acquire another company. A SPAC has no commercial activities, and its only assets are typically the money raised in its own Initial Public Offering (IPO). 18 On 25 May 2021, the US Securities and Exchange Commission (SEC) published an Updated Investor Bulletin about SPACs entitled - "What You Need to Know About SPACs". The SEC, in the Updated Investor Bulletin explains that investors in a SPAC: ... are relying on the management team that formed the SPAC, often referred to as the sponsor(s), as the SPAC looks to acquire or combine with an operating company. That acquisition or combination is known as the initial business combination. A SPAC may identify in its IPO prospectus a specific industry or business that it will target as it seeks to combine with an operating company, but it is not obligated to pursue a target in the identified industry. Once the SPAC has identified an initial business combination opportunity, its management negotiates with the operating company and, if approved by SPAC shareholders (if a shareholder vote is required), executes the business combination. This transaction is often structured as a reverse merger in which the operating company merges with and into the SPAC or a subsidiary of the SPAC. While there are various ways to structure the initial business combination, the combined company following the transaction is a publicly traded company and carries on the target operating company's business. 19 As the Updated Investor Bulletin explains: (a) a SPAC will typically have a two-year period to identify and complete an initial business combination transaction; (b) typically the SPAC's IPO proceeds (less proceeds used for certain fees and expenses) are held in a trust account and earn interest; (c) when the SPAC identifies a business combination, it provides its investors with the opportunity to redeem their shares rather than become a shareholder of the combined company; and (d) if the SPAC does not complete a business combination, "shareholders are beneficiaries of the trust and entitled to their pro rata share of the aggregate amount then on deposit in the trust account."

The schemes of arrangement 20 The terms of the Share Scheme and the Option Scheme are contained in Annexure 1 and Annexure 2 of the SID. They are also reproduced in Annexures G and Annexure H of the draft scheme booklet.

The share reduction and cancellation resolution 21 A reduction of a company's share capital requires a resolution of its members: s 256B of the Act. 22 On 3 January 2022, SMX sent a notice of meeting to its shareholders, convening a general meeting to be held on 1 February 2023 to consider such a resolution. 23 As explained below, SMX seeks orders convening the scheme meetings on 1 February 2023, shortly after the general meeting.

Operation of the schemes 24 A transaction that involves both a share scheme and an option scheme is not unusual. In several cases, this Court has considered transactions involving both types of scheme: for instance, Re Foundation Healthcare Ltd (2002) 42 ACSR 252 (Re Foundation Healthcare); Re Sino Gold Mining Ltd (ACN 093 518 579) (2009) 74 ACSR 647, Re Talison Lithium Ltd [2012] FCA 1422, Re Coventry Resources Ltd [2012] FCA 1252, Re Atlassian Corporation Pty Limited [2013] FCA 1451, Re Ecosave Holdings Ltd [2015] FCA 1121, Re Anatolia Energy Limited [2015] FCA 1134 and Re Xplore Wealth Ltd [2020] FCA 1868 (Re Xplore Wealth). 25 The relevant steps are as follows: (a) the Court, if it deems it appropriate, will order that each scheme meeting be convened; (b) shareholders and option-holders will meet to consider the Share Scheme and the Option Scheme respectively; (c) if the conditions precedent for each scheme (including the necessary statutory majorities at the meetings) are satisfied or waived by the time the schemes come before the Court for approval at the second hearing; (i) the Court, if it deems it appropriate, will make orders approving each scheme; (ii) SMX will lodge the orders with ASIC; (d) under the Share Scheme, all SMX shares are cancelled in return for Empatan shares according to the ratio set out in the scheme (currently expected to be one new Empatan share for every 10.3490 SMX shares); and (e) under the Option Scheme, all SMX options (other than those excluded from the scheme) will be deemed to have been exercised on a cashless basis in exchange for SMX shares in accordance with a Black Sholes Model calculation, which shares will then be cancelled in return for Empatan shares according to the same ratio as the Share Scheme. 26 Two categories of options in SMX are excluded from - and will therefore not be affected by - the Option Scheme. These are the "ESOP Options" and "Legacy Performance Options". (a) The "ESOP Options" are options issued to SMX employees under its employee share and option plan (ESOP). Holders of ESOP Options have entered private agreements within Empatan, under which their options will be cancelled in exchange for the issue of options in Empatan (as explained in section 15.7(e) ("Employee, service provider and founder options") of the draft scheme booklet). Thus, the ESOP Options are excluded from the Option Scheme. (b) The "Legacy Performance Options" were granted to entities associated with SMX's CEO, Mr Alon, and its chairman, Mr Hofland, at the time of SMX's initial public offering in October 2018. SMX, Empatan and the holders of these options have agreed (subject to the schemes becoming effective) to cancel the options, in consideration for payment of nominal consideration (AUD 10.00 to each of the holders). Because the consideration for the cancellation of the Legacy Performance Options is nominal (approximately AUD 0.000002 per option), ASX has waived the operation of Listing Rule 6.23.2. The issue is also explained in section 5.18 "Legacy Performance Options" of draft scheme booklet.

Deeds poll 27 Although Lionheart is to become a wholly-owned subsidiary of Empatan, and Empatan is to provide the Empatan shares under the schemes, neither Lionheart nor Empatan are a party to either of the schemes. In such circumstances, the established practice is to require the entity providing the scheme consideration to execute a deed poll in favour of members and creditors. 28 That practice has been adopted here: each of Empatan and Lionheart has made a deed poll in favour of the participants in each scheme. Copies of the deeds poll for the Share Scheme are at Annexure E of the draft scheme booklet and those for the Option Scheme are at Annexure F.

Relevant provisions 29 Part 5.1 of the Act sets out the procedure by which an arrangement between a company and its members or creditors can be made binding. The procedure involves three main steps: (a) first, an application to the Court for an order that the company convene a meeting (or meetings, as the case may be) of its members (the first hearing): s 411(1); (b) second, if the order is made, the convening of the meeting at which a resolution that the scheme to be agreed to is considered (the meeting): s 411(4)(a); and (c) third, if the resolution is passed by the prescribed majorities, a further application to the Court for approval of the scheme (the second hearing): ss 411(4)(b) and 411(6). 30 The Court's discretion to make orders for the convening of a meeting is enlivened if: (a) an arrangement is proposed between a Part 5.1 body and its members or creditors (as the case may be), or any class of members or creditors: s 411(1); (b) application for the order is made in a summary way by the body or any of its members: 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): 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 compromise or arrangement and a draft explanatory statement relating to the terms of the proposed compromise or arrangement; and (ii) make submissions to the Court about the proposed compromise or arrangement and the draft explanatory statement: s 411(2)(b). 31 The procedure is also regulated by: (a) s 412 of the Act and Reg 5.1.01 and Schedule 8 of the Corporations Regulations, which set out information that is required to be sent to the members and creditors about the scheme; and (b) the Rules. 32 For the reasons set out below, each of these requirements has been satisfied, and I find that the meeting may be convened.

Compliance with ss 411 and 412 and the Rules 33 An arrangement is proposed between a Part 5.1 body and its members and a class of its creditors. 34 SMX is a company registered under the Act and is therefore a "Part 5.1 body" as defined under s 9 of the Act. 35 Each scheme is an arrangement contemplated by s 411(1): (a) The Share Scheme is an arrangement between SMX and its members. (b) The Option Scheme is an arrangement between SMX and relevant option-holders. The authorities establish that option-holders are treated as creditors for the purposes of s 411 of the Act: see e.g. Re Coventry Resources Ltd [2012] FCA 1252 at [18] (Barker J), referring to Re Westgold Resources Ltd [2012] WASC 301 at [16] (Hall J) and other cases; Re Doray Minerals Ltd; Ex Parte Doray Minerals [2019] WASC 57 at [40] (Vaughan J); Re Mia Group Ltd (2004) 50 ACSR 29 at [3]-[9] (Barrett J) referring to Re Kaz Group Ltd [2004] FCA 738 at [2]-[3] (Gyles J) and other cases - applied in Re Sino Gold Mining Ltd (ACN 093 518 579) (2009) 74 ACSR at [4] (Lindgren J) and Re Xplore Wealth at [25(2)] (Markovic J). Accordingly, the Option Scheme is a creditors' scheme. 36 SMX is the plaintiff and is proposing the schemes. That is consistent with the requirements of s 411(1). 37 The Court must not make an order under s 411(1) unless 14 days' notice of the hearing of the application (or such lesser period as the Court or ASIC permits) has been given to ASIC: s 411(2)(a). 38 ASIC was given notice of the hearing on 23 December 2022 which was more than 14 days before this hearing, as required by s 411(2)(a). Further, there has been correspondence between ASIC and SMX's solicitors about various matters including the hearing and the contents of the draft scheme booklet. 39 ASIC was first provided with a copy of the draft scheme booklet, including all annexures, in the middle of 2022s. The initial draft has been revised several times. 40 A further draft of the scheme booklet was provided to ASIC on 3 January 2023. In subsequent correspondence and meetings with the lawyers for SMX and Lionheart, ASIC raised various queries about the schemes, the scheme booklet, and the overall transaction (which, as ASIC has noted, is the first to involve a SPAC and an Australian public company). ASIC also requested various amendments and additions to the draft scheme booklet. A further draft of the scheme booklet, containing the changes requested by ASIC, was provided to ASIC on the morning of 6 January 2023. On 9 January 2023, the Court received the third Prawer affidavit which, at NP-8, annexed ASIC's indication of intent letter in which ASIC gave its indication that it did not wish to be heard at this first hearing of the scheme. 41 The requirements of s 412 of the Act and the Corporations Regulations were detailed in a "disclosure checklist" that was provided shortly before the hearing. Counsel for SMX, Mr Moller SC, indicated at the hearing that all of the statutory requirements were satisfied and had been duly outlined in the checklist. 42 The Rules impose three relevant requirements, each dealt with below. A further requirement is imposed by the Court's practice note. 43 First, r 2.4(2) requires that the affidavit in support of an originating process must annex a record of a search of the records maintained by ASIC in relation to the company the subject of the application, carried out no earlier than 7 days before the originating process is filed. 44 Such a search was annexed to the first Prawer affidavit. It was dated 21 December 2022, - two days before the originating process was filed, thereby satisfying r 2.4(2). 45 Second, r 3.2 requires that the plaintiff file an affidavit stating the names of the persons nominated to be the chairperson and alternate chairperson of the meeting, that they are willing to act, and that they have no relevant relationship or dealing, or interest or obligation giving rise to conflict, except as disclosed in the affidavit. 46 It is proposed that the executive chairman of SMX's board, Mr Hofland, will chair the meetings, with Mr Bader (a non-executive director) as the alternative chairperson. Each filed an affidavit dealing with the matters required by r 3.2. 47 Third, r 3.3(1) requires that an order under s 411(1) ordering a meeting in relation to a proposed arrangement must set out in a schedule, or otherwise identify, a copy of the proposed arrangement. 48 The orders proposed by SMX identify the schemes by reference to the relevant annexures of the draft scheme booklet, which contain the terms of the proposed schemes. 49 Finally, the Court's practice when making an order under subsection 411(1) is to require that the explanatory statement prominently displays a notice stating that the fact the Court has made the convening orders and approved the explanatory statement does not mean it has formed any view as to the merits of the scheme or how members should vote or has prepared, or is responsible for, the explanatory statement: see paragraph 20 of Schedule 1 (Corporations and Corporate Insolvency Sub-Area) to the Commercial and Corporations Practice Note (C&C-1). 50 Such a statement is found in the "Important notices" section of the draft scheme booklet.

Relevant principles 51 Given the matters set out above, the Court's discretion under subsection 411(1) to make an order convening a meeting is enlivened. Thus, it is necessary to consider the matters relevant to the exercise of that discretion. 52 The Court's role on an application to convene a meeting is supervisory. As the New South Wales Court of Appeal stated, "[w]hat has repeatedly been emphasised is the limited function of the Court on the hearing of a summons to convene a meeting under s 411": First Pacific Advisors LLC v Boart Longyear Ltd (2017) 121 ACSR 136 at [40] (Bathurst CJ; Beazley P and Leeming JA agreeing). 53 In Re CSR Ltd (2010) 183 FCR 358 at 379-380 [71]-[76], Finkelstein J explained how a court should approach an application for orders convening a scheme meeting. His Honour approved the approach adopted by Santow J in Re NRMA Ltd (2000) 33 ACSR 595 at 606-607 [32]-[40] (Re NRMA) and French J (as he then was) in Re Foundation Healthcare Ltd, and said: (a) at the first court hearing, the Court should generally confine itself to ensuring that certain procedural and substantive requirements are met (for example, that there will be adequate disclosure), with limited consideration of issues of fairness; and (b) the Court should only consider the merits or fairness of a proposed scheme at the convening hearing if the issue would "unquestionably" lead to a refusal to approve the scheme at the approval hearing. Put another way, the scheme must appear on its face "so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further". That test has been cited and applied often, including in relation to transactions that (like the present) have concerned both a share scheme and an option scheme: see eg Re Spicers Limited [2019] FCA 731 at [15] (Anderson J); Re 86 400 Holdings Ltd [2021] FCA 311 at [6] (Anderson J); Re Huon Aquaculture Group Ltd [2021] FCA 1170 at [21] (O'Callaghan J). 54 In this case, there is no issue that would lead the Court to refuse to approve the proposed schemes at the second hearing. Nor is there anything to suggest that either of the schemes is on its face "so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further". 55 Thus, the Court must determine whether the procedural and substantive requirements for the calling and conduct of the meetings will be met. That requires the Court to be satisfied: (a) first, that the schemes are fit for consideration by the proposed meetings in the sense that each scheme is "of such a nature and cast in such terms that, if [they] achieve the statutory majority at the [members'] meeting the court would be likely to approve [them] 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 (Street CJ); ASC v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504 (the Court); Re Coles Group Ltd (2007) 25 ACLC 1380 at 1385-1386 [29]-[36] (Robson J); Re Sino Gold Mining Ltd (2009) 74 ACSR 647 at [10] (Lindgren J); Re Talison Lithium Limited [2012] FCA 1422 at [7] (Siopis J); Re Coventry Resources Ltd [2012] FCA 1252 at [9], [38] (Barker J); Re Xplore Wealth at [24] (Markovic J); and (b) second, that "the members [are to be] properly informed as to the nature of the scheme[s] before the scheme meeting[s]": Re NRMA Ltd at 605 [30]. See also Re Foundation Healthcare, at 263 [38]; Re Talison Lithium Limited [2012] FCA 1422 at [7] (Siopis J); Re Xplore Wealth at [23] (Markovic J).

Schemes are fit for consideration 56 The question of whether to accept particular consideration for their shares or options is a commercial matter for SMX's members and option-holders to assess. They ought not to be prevented from having the opportunity to do so, provided 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 (Lindley LJ), cited with approval in Re ACM Gold Ltd (1992) 34 FCR 530 at 534 (O'Loughlin J) and applied in Re Coventry Resources Ltd [2012] FCA 1252 at [9] (Barker J); Re Anatolia Energy Limited [2015] FCA 1134 at [8] (McKerracher J); Re Tronox Ltd (2019) 135 ACSR 343 at [101] (O'Callaghan J). 57 In that context, it is relevant that the draft scheme booklet contains: (a) an independent expert's report stating that (in the absence of any other information or a superior proposal) the proposed transaction is fair and reasonable, and in the best interests of shareholders and option-holders; (b) a recommendation from all SMX's directors that members and option-holders vote in favour of the relevant scheme (in the absence of a superior proposal and subject to the independent expert continuing to conclude the schemes are in the best interests of SMX members and option-holders); and (c) a statement that all SMX's directors intend to vote their own shares and options in favour of the schemes (subject to the same qualifications about any superior proposal or any change in the independent expert's view). 58 ASIC has suggested, and SMX has agreed, that SMX should provide an updated report from the independent expert in time for the shareholders and option-holders to consider it before their respective scheme meetings. The independent expert, Mr Goldman, has been engaged to prepare the updated report, which he expects will be ready by 20 January 2023. 59 The Court will scrutinise the terms of a scheme to satisfy itself that there is no element of unfairness that would be likely to preclude its approval: Re Amcor Limited [2019] FCA 346 at [50] (Beach J); Re Tronox Ltd (2019) 135 ACSR 343 at [103] (O'Callaghan J). In that regard, SMX raises the following features of the proposed scheme for the Court's attention: (a) reduction of capital; (b) class issues; (c) waivers by ASX and ASIC; (d) equity incentives and convertible notes; (e) the interests of Messrs Alon and Hofland (directors of SMX); (f) performance risk; (g) the deemed warranty by SMX's members and option-holders; (h) exclusivity provisions; (i) the "Lionheart break fee" and "SMX break fee"; (j) date of the scheme meetings; and (k) the purpose of the schemes (i.e. not to avoid Chapter 6 of the Act). 60 For the reasons discussed below, none of these matters is unusual nor provides a reason for the Court to refrain from making an order convening the scheme meetings.

Reduction of capital 61 It is not unusual for a scheme of arrangement to be accompanied by a reduction of capital: see for example Re Humm Group Ltd [2022] FCA 614, Re Virtus Health Ltd [2022] NSWSC 597, Re Publishing and Broadcasting Ltd [2007] FCA 1610, Re Tiger Investment Company (1999) 33 ACSR 438, Re Watermark Market Neutral Fund Limited [2019] FCA 315, Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308. A reduction of capital is common in demerger schemes (where shares in the demerged entity are distributed to shareholders - see: Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 and the cases cited at [37]) but also under cancellation schemes, where a reduction of capital can be used to effect a change of control transaction. Further, a "top-hatting" structure can involve a capital reduction. As Renard and Santamaria explain in Takeovers & Reconstructions in Australia (online edition, at [1303]): A members' scheme of arrangement may involve the incorporation of a new company, its acquisition of shares in an existing company, the cancellation of all existing shares in that company so that the old company becomes a wholly-owned subsidiary of the new company, and the issue of shares by the new company to the shareholders of the old company so that the proprietors of the old company become proprietors of the new (this type of transaction is commonly known as a "top-hatting" structure). The cancellation of shares in the old company is a reduction of capital. Many different forms of members' schemes of arrangement have been approved over the years which provide for the cancellation of shares without the repayment of any capital whatsoever. 62 The schemes in this case are predicated on a reduction of SMX's capital. The reduction will be an equal reduction, in that it relates only to ordinary shares in SMX, applies to each holder of ordinary shares in proportion to the number of ordinary shares they hold, and the terms of the reduction are the same for each holder of ordinary shares: see s 256B of the Act. An equal reduction must be approved by a resolution passed at a general meeting of the company: s 256C(1) of the Act. 63 SMX has convened such a meeting to be held on 1 February 2023. 64 At present, Empatan does not hold any shares in SMX, and will not hold any until the schemes are implemented. Further, the structure of the transaction means that, for an instant in time, SMX will have no shares on issue (i.e. after its shares are cancelled and before a share in it is issued to Empatan). 65 The issue arose in Re Watermark Market Neutral Fund Limited [2019] FCA 315, which involved a scheme of arrangement under which the assets of a listed company (WMK) would be transferred to a managed investment scheme, its capital reduced to zero and all its shares cancelled (followed immediately by the issue of one share in WMK to another company) and the issue of units in the managed investment scheme to WMK's members. The Court (Yates J) was untroubled that, for a moment, WMK would have no share capital, saying (at [16]). The capital reduction resolution contemplates the momentary reduction of the share capital to zero and the cancellation of all issued shares. Clause 4.2(r) of the scheme implementation deed then contemplates the issue of a share to the fund manager. This means that for a moment of time the scheme company is without capital. This is within existing authority: Re MB Group plc [1989] BCLC 672 at 680 per Harman J; Re Anglo American Insurance Co Ltd [1991] BCLC 564 per Harman J; Re Northern Engineering Industries plc [1994] 2 BCLC 704 at 709 per Millett LJ (Leggatt and Neill LJJ agreeing); Re Watermark Market Neutral Fund Ltd [2019] FCA 315 at [16] per Yates J.

Class issues 66 The schemes in this case do not raise any class issues. As Markovic J stated in Re Xplore Wealth (a case that also involved a share scheme and an option scheme) at [35]: The test for whether separate classes are required involves three questions: what are the rights which existing members or creditors have against the company and to what extent are they different; to what extent are those rights differently affected by the proposed scheme; and does the difference in rights or different treatment of rights make it impossible for the members or creditors in question to consider the scheme as one class: see First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 121 ACSR 136 (Boart Longyear) at [80].

Share Scheme 67 The rights attaching to the SMX options are not affected by the Share Scheme. Those rights are only affected by the Option Scheme. 68 Nor does the Share Scheme treat shareholders who also hold options any differently to how it affects the rights of shareholders who do not hold options. As Markovic J stated in Re Xplore Wealth Limited (at [37]): Scheme Shareholders who also hold Scheme Options may have different commercial interests to those shareholders who do not. However, that circumstance is not class creating. The existence of different commercial interests which is likely to be the case for all Scheme Shareholders, each of whom will face their own unique commercial circumstances, does not of itself mean that the Scheme Shareholders are "so dissimilar as to make it impossible for them to consult together with a view to their common interest": Sovereign Life Assurance Company v Dodd [1892] 2 QB 573 at 583; Re Nine Entertainment Group Ltd (No 1) (2012) 211 FCR 439 at [53]; see also Boart Longyear at [78]-[83].

Option Scheme 69 The Option Scheme does not affect rights attaching to shares in SMX. Only the Share Scheme affects SMX shares, and the "Scheme Shares" it affects are the SMX Shares on issue as at the "Record Date" (which is two business days after the Share Scheme becomes effective, or such other business day as is agreed). 70 The Share Scheme does not provide any additional incentive or benefits to option-holders who also hold shares in SMX. The number of Empatan shares that will be issued to SMX's shareholders and option-holders will be in ratio to the number of SMX shares they hold, and the formula for calculating the ratio is identical for both schemes. 71 It is true that the number of SMX shares to be issued to option-holders will be determined under the Option Scheme, specifically, by the value of their options. It is also true that SMX options have been issued in tranches and have different expiry dates and exercise prices. 72 But neither matter is class-creating because, first, all the options are "out of the money" and second, they will all be valued the same way (using the Black Scholes Model). Again, Markovic J's approach in Re Xplore Wealth is illustrative. Her Honour stated (at [40]): Here, there is no difference in the manner in which the options have been valued. Rather, the same methodology has been used for all options, the "Black-Scholes option pricing model", which takes into account the particular characteristics of each tranche of options. Accordingly, community of interest is not lost and separate classes are not required. The same conclusion was reached by Barker J in Coventry Resources Limited, in the matter of Coventry Resources Limited [2012] FCA 1252 at [23] where his Honour said: Notwithstanding different characteristics of the options in terms of exercise price and expiry, the experts have used a consistent and indiscriminate application of the same pricing or valuation methodology for all the options. Consequently, notwithstanding the different characteristics of the options, there is sufficient community of interest between optionholders so that it is appropriate that a single meeting of all optionholders be convened: Re MIA Group at [14]; Warwick Resources Limited, in the matter of Warwick Resources Limited [2009] FCA 1231 (Re Warwick Resources Limited) at [9] (Siopis J); Re Sino Gold Mining Ltd (ACN 093 518 579) [2009] FCA 1277; (2009) 74 ACSR 647 at [40]-[58] (Lindgren J).

ASX 73 Listing Rule 6.23.2 provides that a change that has the effect of cancelling an option for consideration can only be made if holders of ordinary securities approve the change. 74 By letter dated 17 August 2022, SMX sought a waiver of this rule in respect of the Option Scheme (if ASX determined that Listing Rule 6.23.2 applied for the implementation of the Option Scheme), the cancellation of the ESOP Options, the cancellation of the Legacy Performance Options, and the conversion of the Convertible Notes. 75 On 3 January 2023, ASX granted a waiver of: (a) Listing Rule 6.23.2 to permit SMX, without shareholder approval, to cancel for consideration the ESOP Options and the Legacy Performance Options; and (b) Listing Rule 6.23.4 to permit, without shareholder approval, amendment of the terms of the SMX options to permit their cashless exercise, subject to conditions as to details of scheme booklet, as well as the approval of the schemes by SMX's shareholders and option-holders and by the Court.

ASIC 76 Regulation 5.1.01 of the Corporations Regulations requires that, unless ASIC allows otherwise, the explanatory statement for: (a) a proposed scheme of arrangement between a company and its creditors (or a class of its creditors) must contain all matters set out in Part 2 of Schedule 8 of the Corporations Regulations; and (b) a proposed scheme of arrangement between a company and its members must contain all matters set out in Part 3 of Schedule 8. 77 SMX requested that ASIC waive the requirements of: (a) paragraphs 8201 and 8203 of Part 2 of Schedule 8, which require the scheme booklet to set out various matters in connection with the Option Scheme, including the names of all option-holders; and (b) paragraph 8302(h) (which requires that the explanatory statement set out whether, within the knowledge of SMX's directors, its financial position has materially changed since the date of the last balance sheet laid before an annual general meeting or sent to SMX shareholders and option-holders and if so, full particulars of any change) and paragraph 8305 (which requires ASIC's consent to the inclusion in the explanatory statement of a report that contains a statement about the market value of an asset or assets of the company that differs from the amount shown in the books of the company) of Part 3 of Schedule 8.

Equity, options and convertible notes 78 As at the "Last Practicable Date", SMX had 167,854,581 ordinary shares on issue, held by approximately 850 shareholders. Additionally, it has the following options and convertible notes on issue: (a) 32,422,957 options (excluding those issued under the ESOP and the Legacy Performance Options); (b) 13,410,782 options issued under the ESOP; (c) 10,000,000 Legacy Performance Options; and (d) AUD 828,240 worth of convertible notes. 79 On the implementation of the schemes: (a) the options will be deemed to have been exercised on a cashless basis in exchange for SMX shares, resulting in the issue of an estimated further 24,715,584 ordinary shares, which will be cancelled; (b) each ESOP option will be cancelled in consideration for one new option in Empatan on fundamentally the same terms, except for a change in the exercise price to reflect the price uplift associated with the transaction; (c) the Legacy Performance Options will be cancelled for nominal consideration; and (d) the convertible notes will be cancelled in exchange for the issue of 1,000,000 ordinary shares that will participate in the Share Scheme. 80 As a result of the foregoing, SMX is expected to have 193,570,165 shares on issue at the "Record Date": 81 All these matters are disclosed in the draft scheme booklet. Aside from the interests of SMX directors (dealt with below), they do not raise any issues for the Court's consideration. Nor do they create any separate class of participants in the Share Scheme. This is because, as I previously stated in Re iSelect Ltd: courts have consistently held that members (including directors) with existing performance rights or options which are to be cancelled in return for a cash payment or converted into shares which will participate in the Scheme do not constitute a separate class for the purposes of voting on the Scheme…

Interests of SMX directors 82 SMX's directors have unanimously recommended that members and option-holders vote in favour of the schemes. Given that the directors themselves have interests in SMX shares and options, their recommendation might be regarded as being influenced by their personal interests. 83 Although differing views have been expressed (in Re Japara Healthcare Ltd (2021) 156 ACSR 695, [2021] FCA 1150 at [71], Moshinsky J explained the differing approaches and identified the principal cases), the courts' consistent approach is that ordinarily it will be appropriate for a director who is to receive a financial benefit to make a recommendation, provided the benefit is disclosed in the scheme booklet. As O'Callaghan J explained in Re Huon Aquaculture Group Ltd [2021] FCA 1170 at [35]: Shareholders would ordinarily expect directors to make a recommendation, even when that stand to gain a substantial financial benefit. As Robson J said in Re SMS Management & Technology Ltd [2017] VSC 257 (at [26]), "I think it is important that the managing director, who in this case is the main moving force behind the company, give his reasons for putting forward the scheme". See generally Re Kidman Resources Ltd [2019] FCA 1226; (2019) 375 ALR 760 at 778 -782 [99]-[115]; Re Villa World Ltd [2019] NSWSC 1207; (2019) 139 ACSR 550 at [38]-[40] ; Re GBST Holdings Ltd [2019] NSWSC 1280 at [24] -[30]; and Re ERM Power Ltd [2019] NSWSC 1502 at [16] -[18] . The question is, rather, one of disclosure. Here, the relevant performance rights and the special dividend are fully disclosed in the acquisition booklet. 84 In respect of the recommendation by SMX's directors, the chairman's letter and section 5.13 of the draft scheme booklet disclose important information about the directors' interests. Most notably, they disclose that: (a) if the Schemes, Capital Reduction and Business Combination are implemented: (i) Mr Hofland's 167,000 SMX ESOP Options with an exercise price of $0.70 and expiry date of 15 August 2026 will be cancelled and Mr Hofland will receive one new option in Empatan (New ESOP Option) with a new exercise price of US$5.12; (ii) Mr Hofland will retire as a director of SMX and will be entitled to receive a termination payment equal to ILS264,000 (approximately US$79,332); (iii) Mr Hofland will be entitled to receive, prior to his retirement an increase of his base remuneration to ILS22,000 per month (ILS264,000 per year, equating to approximately US$79,332 per year); (iv) Mr Alon's 5,135,949 SMX Shares will be converted to 496,275 Empatan shares with an expected valuation of US$4.96million; (v) Mr Alon's 500,000 SMX ESOP Options with an exercise price of $0.70 and expiry date of 15 August 2026 will be cancelled and Mr Alon will receive 1 New ESOP Option with a new exercise price of US$5.12. The benefit raised from the conversion of the options amounts to US$235,771; and (vi) Mr Alon will be employed by Empatan as the Chief Executive Officer and an executive director and will be entitled to receive as compensations as Chief Executive Officer of ILS 960,000 per annum (approximately US$295,000 per annum); (b) in light of the importance of the schemes, and their respective roles at SMX (chief executive officer and executive chairman) and in facilitating the proposed transaction, each of Messrs Alon and Hofland considered it appropriate that they make a recommendation on the schemes. 85 To the extent that the issue is fact sensitive (see eg Re ThinkSmart Ltd [2022] FCA 1314 at [52], and the cases there cited: Re Mod Resources Ltd [2019] WASC 326 at [86] (Vaughan J); Re Wellcome Group Ltd [2019] FCA 1655 at [59] (O'Bryan J)), there are no unusual facts in that case that would make that approach inappropriate. 86 Accordingly, it was appropriate that Messrs Alon and Hofland made recommendations.

Performance risk 87 In considering whether to approve a scheme involving the participation of a person other than the plaintiff company and its members or creditors, the Court is concerned to ensure that the other party is bound to perform its assigned role and that its obligations are capable of enforcement. This is because the other party's obligations do not depend upon s 411, which is confined to the obligations of the company and its members. Courts have therefore considered the issue of "performance risk" concerning the obligations of the non-scheme party: see for example 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]. 88 In Re Anatolia Energy Ltd [2015] FCA 1134 at [31]-[34], (with reference to Re APN News & Media Ltd (2007) 62 ACSR 400 at [23] (Lindgren J)), McKerracher J considered the issue in the context of a merger with a NASDAQ listed company registered in Delaware, where the scheme consideration comprised the issue of shares and options by the acquiring entity. The performance risk was "not unacceptable" because the sequence of events required the acquirer to issue the scheme consideration before it received the target shares. Similarly, in Re Coventry Resources Ltd [2012] FCA 1252 at [46]-[48] (Barker J), (with reference to Re APN News & Media Ltd (2007) 62 ACSR 400 at [23] (Lindgren J)), where the scheme consideration involved the issue of shares and options in a company incorporated in British Columbia Canada, Barker J held that there was no significant performance risk because the consideration had to be provided before the target shares were transferred. 89 In this case, the proposed schemes entail the same protective sequence. Specifically: (a) as soon as the schemes become effective, Empatan must apply for its shares to be listed on NASDAQ; (b) the operative steps in each scheme (i.e. the capital reduction and share cancellation and issue of Empatan shares under the Share Scheme; and the cashless exercise and issue of SMX shares, and the capital reduction and share cancellation and issue of Empatan shares under the Option Scheme) is subject to completion of the merger of Lionheart and Empatan); (c) SMX's obligation to issue a share to Empatan is subject to the completion of those operative steps; and (d) the scheme consideration (namely shares in Empatan) is provided, and the merger must be in effect, before any SMX options are deemed to have been exercised and before any SMX share is cancelled. 90 By reason of the deeds poll, Empatan and Lionheart are bound to perform the roles assigned to them, and their obligations are capable of enforcement. In particular, if the schemes become effective: (a) Empatan covenants in favour of each participant in each scheme to comply with the scheme as if it were a party to the scheme and to issue the scheme consideration; and (b) Lionheart covenants in favour of each participant in each scheme to comply with the scheme as if it were a party to the scheme and to procure the filing of the certificate of merger with the Secretary of State of Delaware, and not withdrawing the certificate, so that the merger is effective.

Deemed warranty provisions 91 Clause 7.9(a) of the Share Scheme provides that each Scheme Participant is taken to have warranted to Empatan that: (a) all of their Scheme Shares will, at the date of their cancellation, be fully paid and free from encumbrances and interests of third parties and from any restrictions on cancellation; and (b) they have no existing right to be issued any shares, options, performance rights, convertible notes or other SMX securities other than in accordance with the Option Scheme. 92 Similarly, clause 7.8(a) of the Option Scheme provides that each Option Scheme Participant is taken to have warranted to Empatan that: (a) all of their Scheme Options will, at the date of their exercise, be free from encumbrances and interests of third parties and from any restrictions on cancellation; and (b) they have no existing right to be issued any shares, options, performance rights, convertible notes or other SMX securities other than in accordance with the Option Scheme. 93 Deemed warranties are common in schemes of arrangement and will be acceptable if sufficiently disclosed in the explanatory statement: Re Kidman Resources Ltd (2019) 139 ACSR 122 at [70] (O'Callaghan J) (Re Kidman Resources): see eg 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. In Re Biosceptre International Limited [2013] FCA 1429 at [22], the Court noted that: The prevailing view is that such provisions are not objectionable provided that the attention of members has been drawn to them: see, for example, Re APN News & Media Ltd (2007) 62 ACSR 400 [at [57]-[63]; Re Sino Gold Mining Ltd (ACN 093 518 579) (2009) 74 ACSR 647 at [29]-[31]. Here, the deemed warranty has been specifically and clearly drawn to the attention of members in the Scheme Booklet. 94 The draft scheme booklet sets out the deemed warranties in sections 11.20 ("Warranties by Scheme Participants") and 12.13 ("Warranties by Option Scheme Participants").

Provisions of the SID 95 Under clause 10 of the SID (headed "Exclusivity"), each of SMX and Lionheart have: (a) represented and warranted that it is not in any current negotiations or discussions with any person in respect of any "Lionheart Competing Transaction" (in respect of Lionheart) or a "SMX Competing Transaction" (in respect of SMX), and it has ceased any existing negotiations or discussions, in respect of any such transaction (termination of existing discussions clause) (clause 10.1); (b) agreed that, during the Exclusivity Period, it will abide by a "no shop restriction" (set out in clause 10.2); (c) agreed that, during the Exclusivity Period and subject to a fiduciary exemption that is set out in clause 10.5, it will abide by a "no talk restriction" (set out in clause 10.3); and (d) agreed that, during the Exclusivity Period, and subject to a fiduciary exemption that is set out in clause 10.5, it will abide by a "no due diligence restriction" (set out in clause 10.4). 96 The "Exclusivity Period" is until the earliest of the termination of the SID, or the Implementation Date of the Scheme. 97 Each of SMX and Lionheart has also agreed that, during the Exclusivity Period, it will notify the other party if it becomes aware of any actual, proposed or potential bona fide "Lionheart Competing Transaction" (in respect of Lionheart) or a "SMX Competing Transaction" (in respect of SMX) (notification requirement) (clause 10.7). Such notice must include all material details including the identity of the person making the relevant proposal, material terms including price, and the nature of information requested or provided. SMX is also required, during the Exclusivity Period, to provide Lionheart with a copy or written statement of information provided to the person proposing a SMX Competing Transaction that differs from the information provided to Lionheart and keep Lionheart reasonably informed of material developments. 98 Finally, SMX has agreed that, during the Exclusivity Period, it will give Lionheart a repeatable matching right in respect of competing proposals (matching right) (clause 10.8). 99 The "no talk restriction" and "no due diligence restriction" are subject to clause 10.5 (fiduciary exemption), so that (provided there is no breach of the termination of the "no shop restriction", "no talk restriction" or the "no due diligence restriction"), those restrictions do not prohibit or require any action by SMX in relation to a SMX Competing Transaction if SMX's board determines, acting in good faith, that: (a) after consultation with its advisers, the SMX Competing Transaction is an "SMX Superior Proposal" or could reasonably be expected to become an SMX Superior Proposal; and (b) after receiving legal advice, failing to respond to the SMX Competing Transaction would or would be reasonably likely to constitute a breach of any of the fiduciary or statutory duties of the members of SMX's board.

Principles 100 In Re Anatolia Energy Limited [2015] FCA 1134 at [42] (which also concerned a share scheme and an options scheme), McKerracher J noted that exclusivity restrictions are "customary", and in Re Kidman Resources, O'Callaghan J noted that exclusivity restrictions have been accepted in many schemes of arrangement. In Re Verdant Minerals Ltd [2019] FCA 556 at [50], Moshinsky J identified the following general principles to have emerged from the cases: (a) the exclusivity period should be a reasonable period and capable of precise ascertainment; (b) there should be fiduciary carve-outs in respect of no-talk and no due diligence arrangements; (c) the exclusivity arrangements and their effect should be adequately disclosed in the scheme booklet; and (d) it is desirable that the scheme proponents tender evidence directed to showing that the exclusivity provisions are the result of a normal commercial negotiation. 101 In this case, those principles are satisfied: (a) The exclusivity period is reasonable and ascertainable, and defined. (b) The "no talk" and "no due diligence" restrictions are subject to the fiduciary exemption. (c) The exclusivity provisions are disclosed in the draft scheme booklet: see sections 1.6 ("Exclusivity and competing proposals") and 4.5 ("Other Relevant Considerations … (a) Exclusivity and competing proposals… (b) No-shop … (c) No-talk … (d) Lionheart matching right"), as well as in section 2 ("Questions and answers"). (d) Mr Alon's evidence is that the exclusivity and break fee provisions (discussed further below) were the outcome of commercial negotiations between SMX and Lionheart, in which both parties were assisted by external legal and financial advisers. As Mr Alon has explained, SMX determined that the exclusivity and break fee provisions were commercially appropriate. Mr Alon gave evidence that those terms were negotiated - and required - by Lionheart. The evidence of Lionheart is expected to be to similar effect. 102 Thus, the exclusivity provisions do not prevent the Court from making the convening order.

Break fee and reverse break fee 103 Clause 11 of the SID provides that, in specific circumstances, SMX will pay Lionheart a break fee of US$2,000,000. That amount reflects approximately 0.68% of the equity value of SMX based on the scheme consideration. The circumstances are summarised in section 11.15 ("Break Fee") of the draft scheme booklet. 104 Clause 12 of the SID provides an equivalent "reverse break fee", payable by Lionheart to SMX in the same amount. 105 The SID records the parties' agreement that the respective break fees are to compensate them for advisory costs, costs of management and directors' time, out of pocket expenses, reputational damage associated with a failed transaction, and reasonable opportunity costs: clauses 11.2(a) and 12.2(a). Further, they agree that those costs are of a nature that cannot be accurately quantified, and that the break fee is a genuine and reasonable estimate of their amount: clauses 11.2(b) and (c) and 12.2(b) and (c). 106 The payment of such an amount, often referred to as a "break fee" or "termination fee", is a common feature of commercial transactions like the proposed schemes. As O'Bryan J explained in Re DuluxGroup Ltd (2019) 136 ACSR at [31] (Re DuluxGroup Ltd), "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." But his Honour also observed that such fees may adversely affect shareholders' interests "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". 107 In a case cited by O'Bryan J (Re APN News & Media Ltd (2007) 62 ACSR 400 at 409 [44]), Lindgren J said that: Break fees are justified by reference to: • the costs incurred by the offeror company; • the benefit that that company confers on the members of the target company by increasing its value; and • the desirability, from the viewpoint of those members, that takeover offers be made to them. 108 Justice O'Bryan also highlighted that, in its current guidance note ("Guidance Note 7 - Lock Up Devices" (11 February 2010)), the Takeovers Panel states that, in the absence of other factors, a break fee not exceeding 1% of the equity value of the target is generally not unacceptable: "Guidance Note 7 - Lock Up Devices" (Issue 4, 11 February 2010). 109 Here, the break fee does not represent a barrier to the convening of the meetings to consider the schemes. The evidence shows that: (a) the amount of the break fee and the obligations to pay it were the subject of commercial negotiation between the parties; and (b) SMX considered that it was in the member's best interests that the SID, including the break fee, be executed. 110 Further, the break fee is not payable merely if SMX's members reject the Share Scheme or if option-holders reject the Option Scheme - but only if SMX or its directors take particular actions. Thus, the fee is not capable of influencing SMX's members in deciding whether to accept or reject the Scheme. 111 Finally, apart from the size of the fee, relevant provisions of the SID are consistent with the guidelines published by the Takeovers Panel: Takeovers Panel, Guidance Note 7 at [9], namely, that in the absence of other factors, reasonable triggers for the payment of the fee might include (a) a change of directors' recommendation or (b) a competing transaction that successfully completes. 112 The plaintiff's submissions, noted recent correspondence with ASIC, in which ASIC appeared to take a different view of the break fee: However, we note that the break fee appears to have been calculated based on an agreed pre-transaction valuation amount of US$200 million, which is significantly higher than the [independent expert report] assessment which suggests the Lionheart Break Fee reflects around 5 to 8% of SMX's equity value. While you say the break fee is reciprocal and represents less than 1% of Lionheart's value, that is not Australian market practice and may have coercive effects on target shareholders in voting on the scheme. ASIC considers that SMX should address the Lionheart Break Fee in their submissions to ensure the Court is informed of the matter. 113 The plaintiff submitted that ASIC has not specified how the break fee does not reflect "Australian market practice" or how it "may have coercive effects on target shareholders in voting on the scheme". Nor has ASIC referred to any of the matters (identified in the guidance note, paragraph [9]) to which the Takeovers Panel will have regard in considering whether a break fee gives rise to unacceptable circumstances. Those include: whether the fee is fixed or capped (either in dollar or percentage terms) (which the fee here is); whether the fee (on a cost per share basis) is less than the premium under the bid (which the fee in this case is); the cost, effort or risk involved in making the proposal (about which Mr Alon has given evidence in the first Alon affidavit); and whether the fee reimburses actual expenses (also addressed in the first Alon affidavit). 114 Courts have not generally regarded the fact that a break fee exceeds the 1% guideline as a reason to refuse to make an order convening a scheme meeting. For example, in Re DuluxGroup Ltd, O'Bryan J (at [31]) observed that the 1% guideline is not decisive and that courts have ordered a meeting to consider a scheme notwithstanding a break fee exceeding that level (referring to Re Cytopia Ltd [2009] VSC 560 at [12]-[18] (where the fee of $500,000 was approximately 4.57% of the equity value of the target).

Date of the scheme meetings 115 SMX seeks for the scheme meetings to be held on 1 February 2023 - the same day as the general meeting that will consider the capital reduction resolution. There are obvious advantages to having the meetings on the same day. 116 A listed company is required to give at least 28 days' notice of a general meeting: 249HA of the Act. For that reason, SMX has already sent the notice of meeting for the general meeting. But convening the scheme meetings for 1 February 2023 will mean that the shareholders and option-holders will not get 21 days' notice. This raises two issues: (a) first, whether the Court has the power to order that a meeting be convened on less than 21 days' notice; (b) second, whether the Court should do so in this case. 117 The Court has power to order a scheme meeting on shorter notice. Rule 3.3(2) of the Rules provides (emphasis added): Unless the Court otherwise orders, a meeting of members ordered under section 411 of [the Act] must be convened, held and conducted in accordance with: (a) the provisions of Part 2G.2 of [the Act] that apply to the members of a company; and (b) the provisions of the plaintiff's constitution that apply in relation to meetings of members and are not inconsistent with Part 2G.2 of [the Act]. Section 249HA is a provision within Part 2G.2 of the Act. As Rule 3.3(2) makes plain, the Court can "otherwise order". 118 Further, s 1319 of the Act provides: Where, under this Act, the Court orders a meeting to be convened, the Court may, subject to this Act, give such directions with respect to the convening, holding or conduct of the meeting, and such ancillary or consequential directions in relation to the meeting, as it thinks fit. 119 The scheme meetings will be convened by the Court's order. Accordingly, the Court can make such orders in relation to the meeting as it sees fit. In Re Equigold NL (No 2) [2008] FCA 826 (Re Equigold), Emmett J (as his Honour then was) relied on these provisions to amend a convening order, which provided for 28 days' notice, to shorten the period to 24 days after unanticipated difficulties with the printing process delayed the dispatch of the scheme materials. Re Equigold appears to be the only case to have used the provisions. 120 There is also authority that, absent exceptional circumstances, in the usual case, the Court is unlikely to exercise the power to reduce the notice period in the case of a widely-held target company: Re Adelaide Air Conditioning & Domestic Engineers Ltd (In Liq); Re South Pacific Transport Pty Ltd (1972) 6 SASR 603 at 605. 121 By way of contrast, in England, the question of adequate notice for a scheme meeting is made on a case-by-case basis, and a rule-of-thumb of 21 days' notice has emerged: see Re Cardtronics Plc [2021] EWHC 1617 (Ch) at [8] (Norris J). Further, in the case of creditors, schemes of arrangement, s 75-20(1) of the Insolvency Practice Rules (Corporations) 2016 (Cth) prescribes a minimum notice period of 10 business days. However, the practice has been to give creditors a longer notice period, although no clear rule has emerged, and the period can depend (amongst other things) on the urgency of the restructuring in question, the complexity of the scheme, and the sophistication of the creditors involved: see generally Damien and Rich, Schemes, Takeovers and Himalayan Peaks (4th ed, 2021) at 4.3.2 (pages 241-243). 122 In the circumstances of this case, there are good reasons for convening the meetings on shorter than 28 days' notice. First, the schemes were first announced in July 2022, so are unlikely to come as any surprise to SMX's shareholders or option-holders. Second, the schemes - and the prospect of the scheme meetings - were foreshadowed in the notice for the general meeting that has already been sent to shareholders. Third, there is some urgency to the timetable in that, as Dr Prawer explained in the first Prawer affidavit, Lionheart's fixed term has expired and, although monthly extensions are available, each comes with a significant cost, including a requirement for a direct payment by the SPAC founders of US$412,500 plus associated deal costs.

Section 411(17) 123 The Court's jurisdiction to approve a scheme is restricted by s 411(17) of the Act (although that affects the Court's discretion to approve a scheme, rather than order a meeting: Re Macquarie Private Capital A Ltd (2008) 26 ACLC 366 at 370 [27] (Barrett J); Re Verdant Minerals Ltd [2019] FCA 556 at [72] (Moshinsky J)). 124 At the approval stage, the Court must be satisfied there is no proscribed purpose (as described in s 411(17)(a)) or there must be a statement in writing by ASIC that it has no objection to the arrangement (see s 411(17)(b)): see Re Coles Group Ltd (No 2) (2007) 65 ACSR 494 at 497 [16] - 499 [24]. Such a statement will not be provided until the second court hearing: see ASIC, Regulatory Guide 60 (September 2020) at [60.109]. 125 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: Re Lonsdale Financial Group Ltd [2007] VSC 394 at [31]-[40] (Robson J) (Re Lonsdale). Because ASIC has not indicated that it will oppose the application for convening the meeting, it is reasonable to proceed on the basis that ASIC will likewise not oppose an approval application (Re Lonsdale at [38]), and will, in due course, provide a statement under s 411(17)(b). 126 ASIC's Regulatory Guide 60 (RG 60) states 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 regulation 5.1.01 and Schedule 8 of the Corporations 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: RG 60 at [60.107]. 127 Accordingly, in circumstances where: (a) it seems likely that ASIC will produce a statement under s 411(17)(b); and (b) there are no indications suggesting any proscribed purpose, the requirements of s 411(17) do not present a bar to a meeting being convened: Re Lonsdale at [31]-[40]. 128 Given that ASIC made comments about the earlier drafts of the scheme booklet, and that the latest draft was provided, SMX will update the Court about any comments from ASIC about that draft.

SMX's members will be properly informed 129 The second aspect relevant to the exercise of the Court's discretion to make orders convening the meetings is the adequacy of the information to be provided to members. 130 The prescriptions in s 412 of the Act and Schedule 8 to the Corporations Regulations about the contents of the explanatory statement provide guidance in assessing the adequacy of the information: see Re Foundation Healthcare at 263- 264 [38]; Re Opes Prime Stockbroking Ltd (recs and mgrs apptd) (2009) 73 ACSR 385 at 408-409 [94]-[99]. 131 There are three aspects to the requirements of s 412(1), as set out below.

Explanation of the effect of the compromise or arrangement: s 412(1)(a)(i) 132 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 of those interests on the compromise or arrangement so far as it is different from the effect on the like interests of other persons: Act, s 412(1)(a)(i). 133 The draft scheme booklet explains the effect of the schemes in detail: see in particular, the Chairman's letter and sections 1 ("Highlights of the Schemes and the Capital Reduction"), 4 ("Assessment of the Scheme, Option Scheme and Capital Reduction and the reasons it is being proposed"), 8 ("Overview of the Merged Group"), 11 ("Implementation of the Scheme"), 12 ("Implementation of the Option Scheme"). 134 The interests of SMX's directors in the company's shares and options are set out in section 5.13 of the draft scheme booklet. Their interests in equity incentives are set out in sections 5.13 and the chairman's letter. Sections 8.11 and 15.4 set out the additional financial incentives of Messrs Alon and Hofland and Ms Lotker if the schemes are implemented. 135 Section 15 of the draft scheme booklet explains that: (a) the SMX directors do not have any interest in Empatan or Lionheart; (b) the SMX directors do not have any interest in Empatan or Lionheart securities; (c) the SMX directors will not receive any payment or benefit in connection with their retirement from office, other than Mr Hofland; (d) no benefit had been offered by Empatan to SMX directors in connection with their recommendation or their share or option holding that was not offered to all shareholders and option holders; (e) there are no agreements or arrangements between any SMX director and any other person in connection with, or conditional on, the outcome of the schemes or either of them, other than: (i) under Mr Hofland's employment agreement as executive director that entitles him to a salary raise that is triggered by this transaction; (ii) Mr Holfland, who will become entitled to a termination payment equal to ILS264,000 (approximately US$79,332) upon his retirement; and (iii) Mr Alon will become the Chief Executive officer of the Merged Group and be entitled to a salary of ILS 960,000 (about US$295,000) per annum and Ms Limor Moshe Lotker will become the Chief Financial Officer of the Merged Group and be entitled to a salary of ILS 660,000 (about US$203,000) per annum. (f) none of the SMX directors has agreed to receive any benefit from Empatan or Lionheart, which is conditional on or related to the schemes or either of them.

Setting out the prescribed information: s 412(1)(a)(ii) 136 Second, the explanatory statement must set out the prescribed information: reg 5.1.01 and Schedule 8 (part 3) of the Corporations Regulations. 137 The "disclosure checklist" will contain a table showing the specific requirements of the Act and the Corporations Regulations (as well as RG 60), and the location in the draft scheme booklet of statements meeting those requirements.

Setting out any other information that is material: s 412(1)(a)(ii) 138 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 that is within the knowledge of the directors and has not previously been disclosed: Act, subsection 412(1)(a)(ii). 139 The draft scheme booklet is comprehensive and detailed. Further, the independent expert report contains a detailed evaluation of the proposal, presented in a way that enables members to form their own view of the merits of the proposed schemes. 140 If the Court makes the orders sought convening the scheme meetings (and unless any further revisions are required), SMX proposes to dispatch a copy of the scheme booklet (which includes the notices of meeting at Annexures I and J) no later than 9 January 2023.

Other matters 141 It is convenient also to address the following other matters.

ASIC's role 142 Because the members' scheme is not with SMX creditors', the explanatory statement must be registered by ASIC before the notice of the meeting is sent to members: s 412(6) of the Act. 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: 412(8) of the Act. 143 RG 60 describes ASIC's role under Part 5.1 of the Act, the matters it considers when reviewing scheme documents and the approach it will take to the provision of a written statement under s 411(17). The essence of ASIC's approach is described (in paragraphs 60.18 and 60.19) as follows: It is not the purpose of the Corporations Act to require persons to follow the takeover procedures set out in Ch 6 in preference to other regulated methods in all transactions involving acquisitions. Shareholders should, however, receive equivalent (although not necessarily identical) treatment and protection, whether an acquisition is made under a scheme of arrangement or by any other type of acquisition (including capital reductions). As long as these protections are equivalent in nature, we do not favour one legal method over another. 144 As discussed above, SMX provided the draft scheme booklet to ASIC (which incorporates revisions based on ASIC's earlier comments), and SMX will update the Court with any comments from ASIC about the latest draft.

Independent expert's role 145 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 Corporations Regulations. That said, it is common practice for a scheme booklet to contain a report by an independent expert as to whether the scheme is in the best interests of the company's members. 146 In this case, a report is required because SMX and Empatan have common directors. SMX has obtained a report from an independent expert - Mr Goldman - as to whether the schemes are in the best interest of SMX's members and option-holders (Independent Expert's Report). The report is dated 7 October 2022 (from the time when the schemes were expected to occur in the final quarter of 2022). 147 The independent expert opines that, at the date of his report: (a) the Share Scheme was fair and reasonable and in the best interests of the SMX Shareholders; and (b) the Option Scheme was fair and reasonable and in the best interests of the SMX Option-holders. 148 Specifically, applying criteria provided by ASIC Regulatory Guide RG 111: Content of Expert Reports, Mr Goldman has assessed that the proposed Share Scheme is: (a) fair, because the fair value of shares on a minority basis that SMX Shareholders will hold in Empatan after the implementation of the Share Scheme is greater than the fair value of a share held in SMX on a control basis; (b) reasonable, because (among other factors) it is fair, it will permit access to capital to continue to develop SMX's technology, listing on the NASDAQ will provide a deeper capital pool for further fundraising and there is potential for future liquidity in shares as a result of being listed on a larger exchange; and (c) in the best interests of SMX's members and option-holders, because it is both fair and reasonable, in the absence of any other information, or a superior proposal. 149 Applying criteria provided by ASIC Regulatory Guide RG 111: Content of Expert Reports, business advisory firm, Nexia, has assessed that the proposed Option Scheme is: (a) fair, in summary because the fair value of Empatan shares on a minority basis held for each option is higher than the fair value of each option subject to the Option Scheme on a control basis; (b) reasonable, because (among other factors) it is fair, and SMX Option-holders receive shares in SMX and Empatan without having to pay for the exercise of the options, and (c) in the best interests of SMX's members and option-holders, because it is both fair and reasonable, in the absence of any other information, or a superior proposal. 150 The Independent Expert Report summarises Mr Goldman's assessment of the fair value of an SMX share (on a control basis and before the implementation of the schemes) and the fair value of a share in Empatan (on a minority basis and after implementation of the schemes) as follows: 151 Because the Independent Expert Report is dated 7 October 2022, ASIC has suggested, and SMX has agreed, that SMX should provide an updated report from the independent expert for the shareholders and option-holders to consider before their respective scheme meetings. As discussed above, Mr Goldman has been engaged to prepare the updated report, which he expects will be ready by 20 January 2023.

Verification of information 152 The first Afik affidavit summarises the due diligence and verification process that SMX implemented to ensure that the draft scheme booklet does not contain any misleading or deceptive statements and satisfies the applicable disclosure requirements. 153 The process involved identifying each of the material statements contained in the Scheme Booklet and each being assigned using verification software known as "Atticus" to at least one of SMX, K&L Gates (SMX's Australian and US legal advisers until December 2022); Afik & Co Law (SMX's Israeli legal advisers), Arthur Cox (SMX's Irish legal advisers), Empatan or Lionheart. Each statement allocated to SMX was then considered by reference supporting documents which were identified and uploaded to Atticus, or in the case of management representations, confirmed orally with the Chief Executive Officer, Mr Alon. 154 Mr Afik confirmed that he is satisfied that all the material statements in the draft scheme booklet, so far as they relate to SMX, are: (a) in the case of statements of fact - true and do not contain any material omissions; (b) in the case of statements of opinion or forward-looking statements - made on fair and reasonable grounds; and (c) not misleading or deceptive.

Approval of the draft scheme booklet by the Court 155 Sub-section 411(1) of the Act 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: see Re DuluxGroup Ltd at [63] (O'Bryan J), but the recent approach of this Court has been not to approve the statement: see e.g. Re Amcor Ltd [2019] FCA 346 at [114]-[115] (Beach J); Re Verdant Minerals Ltd [2019] FCA 556 at [84] (Moshinsky J); Re Healthscope Ltd [2019] FCA 542 at [189] (Beach J); Re DuluxGroup Ltd at [63] (O'Bryan J); Re Wellcom Group Limited [2019] FCA 1655 at [83] (O'Bryan J). 156 Although it is for the Court to decide whether to make an order approving the draft scheme booklet, consistent with the recent approach, SMX does not seek such an order.

Sending the draft scheme booklet 157 If the Court makes orders convening the scheme meetings (and unless any further revisions are required), SMX expects to dispatch the scheme booklet (which includes the notice of meetings at Annexures I and J) no later than 9 January 2023. 158 Consistent with the members' and option-holders' nominated preferences, SMX proposes: (a) for those who have nominated to receive hardcopy communications (eight in total), to send a hardcopy scheme booklet to their nominated postal address; (b) for those who have nominated to receive company materials electronically (409 in total), to send the scheme booklet electronically; and (c) for those who have not nominated a preference (704 in total), to send a letter to their postal address, providing a link at which they can download the notice of scheme meeting and the scheme booklet.

THE HEARING 159 During the hearing on 9 January 2023, I granted leave for Mr Bevins, a solicitor of ASIC, to appear. 160 Mr Bevins sought to provide a brief clarification on ASIC's position, as it was at the time of the first hearing. Mr Bevins noted that Mr Moller SC's representation with respect to ASIC's letter was accurate, but provided further comment with respect to the break fees. Mr Bevins noted that market practice in relation to the break fee is contained within the Takeovers Panel Guidance Note 7, which indicates the figure to be 1%. Paragraph [9] of the Takeovers Panel Guidance Note 7 states that "In the absence of other factors, a break fee not exceeding 1% of the equity value of the target is generally not unacceptable". Mr Bevins noted that the 1% fee is referrable to the equity value of the target company, rather than that of the bidder. 161 Mr Bevins sought to clarify that SMX has around $634,000 in cash currently. Mr Bevins noted that if the transactions were not to go through, it is not clear if SMX would be in a position to pay the break fee as well as the US$2.5 million in fees for lawyers and related legal expenses. Mr Bevins sought to note this practical issue and underscored that ASIC is taking this into consideration.

CONCLUSION ON THE EXERCISE OF DISCRETION 162 The Court can be satisfied that each of the schemes 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 SMX. 163 Stated succinctly, the reasons are as follows: (a) the terms of the proposed schemes are in a conventional form; (b) there is no reason the schemes, if considered and adopted by the members and option holders (as the case might be), would not likely be approved by the Court at the second hearing; (c) the SMX members and option-holders will receive the careful analysis and assessment by an independent expert of the transaction and its advantages and disadvantages - and an updated report, as well as the recommendation of SMX's directors; (d) the draft scheme booklet meets all the statutory requirements, has been carefully prepared and verified by SMX (and Lionheart, where relevant), and has been examined at length by ASIC; and (e) it cannot be said that either of the schemes appears so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further. 164 This is a case for the exercise of discretion to make orders convening the meetings of SMX's members and option-holders to enable them to consider the schemes. 165 For these reasons, I was satisfied that the requirements of the Act, Rules and also the Corporations Regulations have been satisfied which enlivens the jurisdiction of the Court and the discretion of the Court to make the orders that are sought. I made those orders on the basis of the material which I read as well as the checklist which was provided prior to the hearing, and I satisfied myself that the checklist accurately reflects the affidavit material and that it was appropriate to make the orders that were sought. I certify that the preceding one hundred and sixty five (165) numbered paragraph is a true copy of the Reasons for Judgment of the Honourable Justice Anderson.