Australian Securities and Investments Commission v Wellington Capital Limited

Introduction 1 By an originating process filed on 29 April 2022, the plaintiff (Humm) seeks orders pursuant to ss 411(1) and 1319 of the Corporations Act 2001 (Cth) (Act) convening a meeting of the ordinary shareholders of Humm for the purpose of considering, and, if thought fit, agreeing to a proposed scheme of arrangement between Humm and its ordinary shareholders under Pt 5.1 of the Act (Scheme). 2 The Scheme forms one component of a broader transaction involving the sale of one of Humm's businesses and a return of capital to shareholders. 3 Humm has entered into a share sale agreement with Latitude Group Holdings Limited (Latitude) for the proposed sale of Humm's consumer finance business (HCF), which comprises Humm's buy now pay later (BNPL) and instalments and credit card operations, to Latitude (HCF Sale). The consideration for the HCF Sale comprises the issue to Humm of 150 million Latitude shares (at an assumed issue price of $2.00 per share) and the payment of $35 million cash, giving an aggregate value of $335 million. The Australian Securities Exchange (ASX) has confirmed that the HCF Sale will be a significant change to the scale of Humm's activities and disposal of its main undertaking. Accordingly, Humm requires shareholder approval for the HCF Sale pursuant to ASX Listing Rule 11.2 (the Chapter 11 Resolution), which it proposes to seek at a general meeting to be convened and held on 23 June 2022 (General Meeting). 4 If the Chapter 11 Resolution is passed by Humm shareholders and completion of the HCF Sale occurs, Humm intends to distribute the sale proceeds of the HCF Sale to Humm shareholders by way of an equal capital reduction (Capital Return). Under the Capital Return, eligible Humm shareholders will receive, for each Humm share held, 0.303 Latitude shares and $0.07 in cash. The Capital Return must be approved by a separate ordinary resolution pursuant to ss 256B and 256C of the Act (Capital Return Resolution) which Humm proposes to seek at the General Meeting. 5 By virtue of s 231(b) of the Act, a person cannot become a member of a company unless they agree to do so. Accordingly, Humm cannot transfer the Latitude shares to individual Humm shareholders pursuant to the Capital Return unless the individual Humm shareholder has agreed to the transfer. To obtain the necessary agreement of all Humm shareholders, Humm has proposed the Scheme by which each shareholder entitled to receive a transfer of Latitude shares pursuant to the Capital Return consents, for the purposes of s 231(b) of the Act, to become a member of Latitude, to have their name and address entered into the Latitude share register and to be bound by the constitution of Latitude. Humm proposes to seek the agreement of Humm shareholders to the Scheme at an extraordinary meeting of shareholders, to be held immediately after the General Meeting on 23 June 2022 (Scheme Meeting), provided that completion of the HCF Sale has occurred and the Capital Return Resolution has been passed. The orders sought by Humm in respect of the Scheme Meeting recognise that the Scheme will not proceed unless these two conditions are satisfied. 6 Accordingly, Humm seeks the Court's order for the convening of the Scheme Meeting, to be held at 10.30am (Australian Eastern Standard Time) or at the conclusion or adjournment of the General Meeting (whichever is later) on Thursday, 23 June 2022, for the purpose of considering a resolution to approve the proposed Scheme. 7 It is proposed that both the Scheme Meeting and the General Meeting will be conducted as hybrid meetings with each meeting being conducted in two parts simultaneously with the physical venue at MinterEllison, Level 40, Governor Macquarie Tower, 1 Farrer Place, Sydney and by an online platform that allows for remote participation. 8 It is proposed that Ms Christine Christian, Independent Non-Executive Director and Chair of Humm, will be the chair of the Scheme Meeting and the General Meeting. Ms Christian proposes to be present at the physical venue of the meetings. Ms Carole Campbell, Independent Non-Executive Director, will be the chairperson if Ms Christian is not available. Ms Christian and Ms Campbell have confirmed that they are willing to act as chair of both meetings and are not conflicted in doing so. 9 On 17 May 2022, I made orders convening the Scheme Meeting. These are my reasons for making those orders.

Humm 10 Humm is an Australian public company limited by shares admitted to the official list of the ASX, trading under the security code "HUM". It was incorporated (under a different name) on 14 November 2006 and listed on the ASX in 2006. Its registered office is in Victoria. As at 11 May 2022, Humm had 495,268,318 fully paid ordinary shares on issue, 15,128,816 options on issue and 602,886 performance rights on issue. As at 11 May 2022, Humm had 16,586 registered shareholders. 11 As at 11 May 2022, Humm's substantial shareholders were: (a) The Abercrombie Group Pty Ltd ATF the Philadelphia Trust (an entity controlled or associated with Andrew Abercrombie) which holds 66,683,314 Humm shares being 13.46% of the share capital; (b) Tefig Pty Ltd ATF AJ Abercrombie Superannuation Fund (an entity controlled or associated with Andrew Abercrombie) which holds 33,316,686 Humm shares being 6.73% of the share capital; and (c) Tanarra Capital Australia Pty Ltd (an entity controlled or associated with John Wylie AC) which holds 27,321,525 Humm shares being 5.52% of the share capital. 12 Humm is a diversified financial services group offering BNPL, credit cards and business financing products. Humm's market capitalisation on 17 February 2022 (being the last trading day before the HCF Sale was announced to the ASX on 18 February 2022) was approximately $426 million (represented by 495,268,318 issued Humm shares at a closing share price on that date of $0.86). 13 The directors of Humm are: Ms Christian (Independent Non-Executive Director and Chair of Humm), Andrew Abercrombie (Non-Executive Director), Ms Campbell (Independent Non-Executive Director), Rajeev Dhawan (Independent Non-Executive Director); Alistair Muir (Independent Non-Executive Director), and John Wylie AC (Non- Executive Director). All of the Humm Directors, with the exception of Mr Abercrombie, are referred to as the Majority Directors in these reasons. 14 Mr Abercrombie (a non-executive director of Humm, the former chair of Humm and founder of Humm) has a relevant interest in 100 million shares in Humm being approximately 20.2% of the total share capital. The Humm shares held by or on behalf of each of the other directors of Humm are detailed at Section 4.8.3 of the explanatory booklet which is to be provided to the Humm shareholders (Explanatory Booklet).

The proposed sale 15 Humm entered into the share sale agreement with Latitude for the proposed HCF Sale on 18 February 2022. 16 The share sale agreement contemplates Humm implementing a pre-sale restructure involving the transfer of certain assets, contracts, shares and employees to and from, and the assumption of certain liabilities by, certain members of the Humm Group so that, immediately prior to completion of the HCF Sale, Humm SPV Pty Ltd will be the holding company for the corporate entities holding and operating the HCF business (the restructure). The HCF Sale involves Latitude acquiring Humm SPV Pty Ltd. 17 Following completion of the HCF Sale, Humm will retain ownership of the various controlled entities operating Humm's commercial business, flexicommercial, and will operate as a commercial asset finance business. Humm intends to remain listed on the ASX and will be renamed Flexi Capital Group Limited, subject to Humm shareholder approval by way of special resolution. 18 The conditions for completion of the HCF Sale are summarised in Section 3.6.1 of the draft Explanatory Booklet. These conditions include that the Chapter 11 Resolution is passed at the General Meeting as well as various regulatory approvals. 19 Under the share sale agreement, subject to certain exceptions, completion of the HCF Sale must occur on the last business day of the month in which the last of the conditions for the HCF Sale has been satisfied or waived or, if that date is less than 10 business days before the end of that month, the last business day of the following month, unless otherwise agreed by Humm and Latitude. It is currently proposed that completion of the HCF Sale will occur on Thursday, 30 June 2022, or if not on that day, the last business day of July 2022.

The Capital Return 20 The Capital Return is proposed as an equal capital reduction under s 256B of the Act. 21 The Capital Return is conditional on completion of the HCF Sale occurring and Humm shareholders passing the Capital Return Resolution. The record date for the Capital Return is proposed to be 7.00pm (Australian Eastern Standard Time) on Monday, 25 July 2022. 22 The terms of the Capital Return Resolution are that Humm reduce its share capital (without cancelling any shares or creating or increasing any unpaid amount in respect of any shares) by an amount equal to the "Capital Reduction Amount" (being the value of the proceeds of the HCF Sale) in the following manner: (a) creating a debt due by Humm to each shareholder equal to the shareholder's proportionate share of the Capital Reduction Amount; and (b) satisfying that debt in one of two ways depending upon whether the Scheme is approved and the status of the shareholder: (i) distributing and transferring to the shareholder their proportionate share of the cash consideration and the Latitude shares; or (ii) distributing to the shareholder their proportionate share of the cash consideration and the proceeds of the sale of their proportionate share of the Latitude shares. 23 The method of distribution is discussed further below.

The Scheme 24 The Scheme between Humm and its shareholders is being proposed to facilitate the distribution and transfer of Latitude shares to Humm shareholders under the Capital Return, satisfying the requirement of s 231(b) of the Act that a person not become a member of a company unless they have agreed to do so. 25 On 18 February 2022, Humm and Latitude entered into the Scheme Implementation Deed in order to govern the implementation of the proposed Scheme. On 26 April 2022, Humm and Latitude entered into an amending deed to amend the Scheme Implementation Deed and the draft Scheme. The amendments made to these documents were primarily related to ensuring that, under the Scheme, any Humm shareholders who would receive less than a marketable parcel of Latitude shares under the Capital Return would be treated as ineligible Humm shareholders. 26 If the Scheme becomes effective, it will constitute a binding arrangement between Humm and each Humm shareholder on the Record Date for the Scheme, pursuant to which: (a) each eligible Humm shareholder, by operation of the Scheme, will, for the purposes of s 231(b) of the Act, consent to become a member of Latitude, to have their name and address entered into the Latitude Register, to be bound by the constitution of Latitude on and from the implementation date of the Scheme (Implementation Date) and to receive a distribution and transfer of Latitude shares under the Capital Return, without the need for any further act by the Humm shareholder; and (b) each eligible Humm shareholder who will receive a distribution and transfer of Latitude Shares, without the need for any further act by that shareholder, irrevocably appoints Humm and all of its directors, secretaries and officers (jointly and severally) as its attorney and agent for the purpose of executing on that scheme shareholder's behalf an agreement under s 231(b) of the Act to become a member of Latitude, to have their name and address entered into the Latitude share register and to be bound by the constitution of Latitude on and from the Implementation Date and to receive a distribution and transfer of Latitude shares under the Capital Return. 27 Under the Scheme, Latitude shares will not be transferred to ineligible Humm shareholders, being "foreign shareholders" (shareholders with an address on the Humm share register that is outside Australia and its territories and New Zealand) and "small shareholders" (shareholders entitled to receive less than a marketable parcel of Latitude shares). As at 11 May 2022: (a) there are 50 foreign shareholders collectively holding 910,286 Humm shares (being 0.18% of the shares in Humm); and (b) 3,720 small shareholders collectively holding 1,709,387 Humm shares (being 0.35% of the shares in Humm). 28 The Latitude shares that would otherwise be transferred to ineligible Humm shareholders will be sold pursuant to a sale facility. Under the sale facility, the sale agent will sell the shares on-market in such manner, at such price and on such other terms as the sale agent determines in good faith. Promptly after the last sale of the Latitude shares by the sale agent and receipt of the net sale proceeds, Humm must procure that the Humm share registry pays to each ineligible Humm shareholder their proportionate share of the net sale proceeds.

Capital Return if the Scheme is not approved 29 If completion of the HCF Sale occurs and the Capital Return Resolution is passed by Humm shareholders, but the Scheme is not approved by the requisite majorities of Humm shareholders or the Court, then the Capital Return will still proceed. However, in those circumstances, eligible Humm shareholders will only receive a transfer of Latitude shares if they have signed and returned an election form which accompanies the Explanatory Booklet (or is subsequently provided) or if they have completed an election form online. By signing and returning an election form or completing an online election form, an eligible Humm shareholder confirms that they agree to become a member of Latitude and that they authorise Humm to execute on their behalf a transfer of Latitude shares to be distributed and transferred to that eligible Humm shareholder under the Capital Return. 30 If an eligible Humm shareholder does not complete and return an election form or complete an election form online, then that Humm shareholder would not receive a transfer of the Latitude shares to which they are entitled under the Capital Return. Rather, Humm would hold the relevant Latitude shares on trust for each such eligible Humm shareholder in accordance with arrangements under a Trust Deed executed by Humm as trustee. The Trust Deed makes provision for Humm either to transfer the Latitude shares held on trust for an eligible Humm shareholder to that shareholder if they return an election form or complete an online election form, or, after one month from the record date for the Capital Return, to procure the sale of the remaining Latitude shares held on trust and pay the relevant Humm shareholders the net sale proceeds. 31 In respect of ineligible Humm shareholders (foreign shareholders and small shareholders, as referred to above), the Trust Deed provides for the same sale process for the Latitude shares outlined above save that the sale process would commence as soon as practicable after the record date for the Capital Return.

Relationship between the HCF Sale, the Capital Return and the Scheme 32 The inter-relationship between the three key components of the proposed transactions can be summarised as follows: (a) the HCF Sale is subject to the passing of the Chapter 11 Resolution, together with the satisfaction or waiver of the remaining conditions precedent for the HCF Sale; (b) the Capital Return is subject to completion of the HCF Sale occurring and Humm shareholders passing the Capital Return Resolution; and (c) the Scheme is subject to completion of the HCF Sale occurring, Humm shareholders passing the Capital Return Resolution and approving the Scheme, and the Court approving the Scheme. 33 If completion of the HCF Sale occurs but the Capital Return Resolution is not passed by Humm shareholders, the Capital Return and the Scheme will not proceed. Humm will then look to realising the Latitude shares and exploring other means of returning the net proceeds of the HCF Sale through alternative capital management initiatives.

Explanatory Booklet 34 Humm has prepared an Explanatory Booklet which explains the proposed transaction involving the HCF Sale, the Capital Return and the Scheme. The Explanatory Booklet contains a notice of meeting for the General Meeting (at which the Chapter 11 Resolution approving the HCF Sale and the Capital Return Resolution approving the Capital Return will be put to Humm shareholders) and a notice of meeting for the Scheme Meeting. The Explanatory Booklet is intended to be provided to Humm shareholders to satisfy the requirements of s 412 of the Act. 35 Amongst other things, the Explanatory Booklet contains an Independent Expert Report prepared by Kroll Australia Pty Ltd (Kroll). In the opinion of Kroll, the HCF Sale is fair and reasonable and, as such, the HCF Sale is in the best interests of shareholders of Humm in the absence of a superior proposal. Kroll does not express an opinion on the Capital Return Resolution or the Scheme Resolution. 36 The Explanatory Booklet records the recommendation of the Humm directors in respect of the Chapter 11 Resolution, the Capital Return Resolution and the Scheme Resolution. The Majority Directors (being all the Humm directors other than Mr Abercrombie) recommend to Humm shareholders that they vote in favour of the overall proposal in the absence of a superior proposal and subject to the Independent Expert continuing to conclude that the HCF Sale is in the best interests of Humm shareholders. The Majority Directors also indicate that each of them intends to vote in accordance with their recommendation. In contrast, Mr Abercrombie opposes the HCF Sale. If the Chapter 11 Resolution is passed by the Humm shareholders, Mr Abercrombie reserves the right to vote in favour of or against the Capital Return Resolution, and makes no recommendation to other Humm shareholders in relation to that resolution.

Power to make orders under section 411 37 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)). 38 In terms of the first step of obtaining orders to convene a scheme meeting, s 411 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 Pt 5.1 body and its members (or any class of them): s 411(1); (b) an application for the order is made in a summary way by that body: s 411(1); (c) 14 days' notice of the hearing of the application has been given to the Australian Securities and Investments Commission (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 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 required by s 412: ss 411(2)(b) and 411(3). 39 In addition to these requirements of s 411, the procedure is regulated by s 412 of the Act and reg 5.1.01 and Sch 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. 40 I am satisfied that these requirements are met and that the Court's power to make the convening orders is enlivened. 41 First, Humm, being a company registered under the Act, is a "Part 5.1" body and I am satisfied that the proposed Scheme is an "arrangement" between Humm and its shareholders for the purpose of s 411 of the Act. 42 The term "arrangement" in s 411 should be construed liberally: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 (Marlborough Gold Mines) at 501, citing Re International Harvester Co of Australia Pty Ltd [1953] VLR 669 (Re International Harvester) at 675 per Smith J. The term implies "some element of give and take" (Re NFU Development Trust Ltd [1972] 1 WLR 1548 at 1555 per Brightman J) or some bargain giving benefit to both sides (Fowler v Lindholm (2009) 178 FCR 563 at [67] per Emmett, Gordon and Jagot JJ). A scheme cannot authorise something which is contrary to law or beyond the power of the company: see Re Opes Prime Stockbroking Ltd (2009) 179 FCR 20 (Opes Prime) at [30] per Finkelstein J and the cases there cited. However almost any arrangement, otherwise legal, which touches and concerns the rights and obligations of the company or its members may be given effect under s 411: see Opes Prime at [29] quoting Re International Harvester at 672 per Lowe ACJ. 43 In the present circumstances, the effect of the Scheme will be that the eligible Humm shareholders will consent to becoming a shareholder of Latitude for the purposes of s 231(b) of the Act and, in return, will be transferred their proportionate entitlement to Latitude shares through the Capital Return rather than receive the net proceeds of the sale of the Latitude shares. It has long been recognised that such an arrangement may be implemented pursuant to a scheme approved in accordance with Pt 5.1 of the Act: see Re Hunter Resources Ltd (1992) 34 FCR 418 at 443-444 per Lockhart J; Australian Securities and Investments Commission v Wellington Capital Limited [2013] FCAFC 52; 94 ACSR 293 at [75]-[79] per Jacobson, Gordon and Robertson JJ; Re Texon Petroleum Ltd [2013] FCA 29 at [21] per Farrell J; Re Nine Entertainment Group Ltd (No 1) (2012) 211 FCR 439 at [31]-[52] per Jacobson J; Re Victorian Grain Services Ltd [2000] VSC 334; 35 ACSR 198 at [18] per Warren J; Westchester Financial Services Pty Ltd v Acclaim Exploration NL [1999] WASC 87; 32 ACSR 499 at [6] per Owen J; and Re ETRADE Australia Ltd [1999] NSWSC 254; 30 ACSR 516 (Re ETRADE) at [2] per Santow J. 44 Second, Humm has made this application to the Court. 45 Third, Humm gave ASIC notice of the first court hearing date on 1 May 2022, satisfying the requirement of 14 days' notice of the hearing of the application. ASIC was first provided with a draft of the Explanatory Booklet on 1 May 2022. It was subsequently provided with further revised drafts on 13 May and 17 May 2022. ASIC has confirmed that it has no further comments on the final draft of the Explanatory Booklet and has provided Humm with a "preliminary no objection" letter indicating that it does not propose to make submissions or intervene to oppose the Scheme at the first court hearing. I am satisfied that ASIC has had reasonable opportunity to consider the proposed Scheme and the Explanatory Booklet. 46 Fourth, as to compliance with the Rules: (a) in evidence is the results of a search of the records maintained by ASIC in relation to Humm, conducted on 29 May 2022, being no earlier than 7 days before the originating process was filed as required by r 2.4(2) of the Rules; (b) the chairperson and the alternate chairperson 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 rule 3.3(1) of the Rules. 47 Fifth, as to compliance with the Regulations, 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 3, 4 and 5 of the Explanatory Booklet. (b) Second, the explanatory statement must set out the prescribed information, being the information set out in reg 5.1.01 and Sch 8 (Pt 3) of the Regulations. In her affidavit to the Court, Ms Christian adduced in evidence a schedule showing the specific requirements of the Act, the Regulations and Part D of ASIC's Regulatory Guide 60 - Schemes of arrangement 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). In this respect, I consider that the Explanatory Booklet is clear and comprehensive.

Exercise of the Court's discretion 48 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], emphasis in original): 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). 49 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; Marlborough Gold Mines at 504; Re Coles Group Ltd [2007] VSC 389; 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] NSWSC 82; 156 FLR 349 per Santow J at [30]; see also Re Foundation Healthcare Ltd [2002] FCA 742; 42 ACSR 252 at [38] per French J.

The Scheme is fit for consideration 50 In in the matter of Re OPUS Group Limited [2018] FCA 959, Banks-Smith J described the Court's approach as follows (at [14]): … the standard of review is whether the Proposed Scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members. If the proposed arrangement is one that seems fit for consideration by a meeting of members and is a commercial proposition likely to gain the Court's approval if passed by the necessary majority, then leave should be given to convene the meeting. 51 As explained above, the proposed Scheme will only take effect if the HCF Sale has reached completion and the Capital Return has been approved by Humm shareholders. If those conditions are satisfied, I consider that sensible business people would see the benefit to eligible Humm shareholders of the approval of a scheme which enables the Latitude shares to be distributed in specie to eligible Humm shareholders pursuant to the Capital Return. 52 As noted above, the Explanatory Booklet will include an Independent Expert Report prepared by Kroll which expresses the opinion that the HCF Sale is fair and reasonable and, as such, the HCF Sale is in the best interests of shareholders of Humm in the absence of a superior proposal. The Independent Expert's Report does not extend to consideration of the Scheme. Humm submitted that this is appropriate, given the limited scope of the proposed Scheme. I accept that submission. The question whether to approve the Scheme, facilitating the in specie distribution of the Latitude shares, is a question that is capable of consideration by Humm shareholders without the assistance of an expert opinion. 53 The Explanatory Booklet also sets out reasons why members might vote for or against the Scheme and contains a recommendation from all directors other than Mr Abercrombie that shareholders vote in favour of the Scheme and a statement that all of the Majority Directors intend to vote in favour of the Scheme. The Explanatory Booklet contains a recommendation from Mr Abercrombie that shareholders vote against the Chapter 11 Resolution (the HCF Sale) but Mr Abercrombie expressly makes no recommendation in respect of the Capital Return Resolution or the Scheme Resolution. 54 A specific matter that arises for consideration is the treatment of ineligible Humm shareholders, who comprise "foreign shareholders" and "small shareholders" (as defined earlier). The ineligible Humm shareholders are to be treated differently under the Capital Return in that they will not receive an in specie distribution of their proportionate entitlement to Latitude shares but will receive the net proceeds of the sale of that number of Latitude shares. Humm submitted that this does not alter the character of the Capital Return such that it is a selective reduction of capital rather than an equal reduction of capital within the meaning of s 256B of the Act, relying on Re Tabcorp Holdings Limited [2022] NSWSC 448 at [26] per Black J, Re ETRADE at [3]-[4]; and Re Wesfarmers Limited [2018] WASC 308 at [106] per Vaughan J. I accept that submission. The Scheme only applies to eligible Humm shareholders who are entitled (subject to s 231(b) of the Act) to receive an in specie distribution of Latitude shares pursuant to the Capital Return. As such, the Scheme does not affect ineligible Humm shareholders and does not operate unfairly toward them. In my view, there is no reason why all Humm shareholders are unable to meet together to consider the Scheme.

Will Humm shareholders be properly informed? 55 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; namely, the adequacy of the disclosure in the Explanatory Booklet. 56 I am satisfied that the Explanatory Booklet discloses all matters material to the decision of its members as to whether they will approve the proposed Scheme, taking into account the following considerations. 57 First, I am satisfied that appropriate verification procedures have been implemented. Ms Isobel Rogerson, Company Secretary and Executive Vice-President Operations (Canada) of Humm, gave evidence of the verification procedures implemented to ensure that all statements of fact contained in the Explanatory Booklet in relation to Humm are true and accurate in all respects and are not misleading or deceptive; and that all information material for disclosure has been fully and accurately disclosed and is contained in the Explanatory Booklet. Further, Mr Adrian Wong, General Counsel and Company Secretary of Latitude, gave evidence of the verification process regarding the information pertaining to Latitude contained in the Explanatory Booklet. 58 Second, there is no evidence to suggest that any of the Humm directors is in a position of actual or potential conflict of interest or conflict of duty. 59 Third, as stated above, the evidence demonstrates that ASIC has had a reasonable opportunity to examine the proposed Scheme and the Explanatory Booklet, and all issues raised by ASIC have been addressed.

Orders for convening and conducting the Scheme Meeting

Use of methods of electronic communication 60 Humm sought orders to convene and conduct the Scheme Meeting using methods of electronic communication. The provisions of the Act concerning the use of methods of electronic communication to convene and conduct shareholder meetings were amended by the Corporations Amendment (Meetings and Documents) Act 2022 (Cth) with effect from 1 April 2022. 61 In order to limit the physical documents sent to Humm shareholders in light of the COVID-19 pandemic, Humm proposed the following notice arrangements: (a) for shareholders who have elected to receive notices of meeting electronically by email, Humm will send an email communication which includes access by an embedded link to all the documentation for the overall proposal; (b) for Humm shareholders who have elected to receive notices of meeting in hard copy, Humm will send a printed hard copy of the Explanatory Booklet, personalised proxy and election forms and two self-addressed envelopes for the return of proxy forms and election forms; and (c) for Humm shareholders who have not elected to receive notices of meeting electronically or in hard copy, Humm will send a hard copy letter which sets out the details of the Meetings, personalised proxy and election forms, and the address of a website which will provide access to the Explanatory Booklet and voting instructions for the virtual meetings, as well as a website or online portal to lodge their proxies online. 62 A copy of the Explanatory Booklet will also be able to be obtained by anyone entitled to attend the meetings from Humm's website, or by contacting the Humm shareholder information line. 63 I am satisfied that those methods of sending the meeting documents to Humm shareholders comply with the requirements of Div 2 of Pt 1.2AA of the Act, and specifically s 110D. 64 As noted above, Humm proposes to conduct a hybrid Scheme Meeting by holding the meeting at a physical venue but also using an online platform that allows for remote participation. Section 249R(b) of the Act permits a meeting to be held in this manner. Section 249S(1) stipulates that a company that holds a meeting of its members must give the members entitled to attend the meeting, as a whole, a reasonable opportunity to participate in the meeting and s 249S(7) stipulates that: (7) If the meeting is held using virtual meeting technology (whether or not it is held at one or more physical venues), that virtual meeting technology must: (a) be reasonable; and (b) allow the members who are entitled to attend the meeting, and do attend the meeting using that virtual meeting technology, as a whole, to exercise orally and in writing any rights of those members to ask questions and make comments. 65 In that respect, Humm read an affidavit of Deborah Austin who holds the position of Head of Meetings at Link Market Services Limited. Ms Austin deposed that Link carries on the business of maintaining registers of members of client companies listed on the ASX and provides such services to Humm. Link has been engaged by Humm to provide share registry services in connection with the General Meeting and the Scheme Meeting, including the dispatch of notices of meeting and accompanying documents, the receipt and collation of proxy forms and the hosting of the online platform for the conduct of the virtual meeting. Ms Austin gave evidence about the Link platform and its functionality. Having regard to that evidence, I am satisfied that the proposed conduct of the Scheme Meeting is in compliance with the requirements of s 249S of the Act.

Prospect of delay between the date of the Scheme Meeting and the Second Court Hearing 66 The approval court hearing for the Scheme is scheduled to be held approximately three and a half weeks after the Scheme Meeting, as opposed to the typical period of approximately one week. Humm submitted that the reason for this is to allow the restructure and the other conditions precedent to completion of the HCF Sale to be satisfied and for completion itself to occur, noting that it is a condition of the proposed Scheme that completion has occurred. 67 If a significant amount of time passes between the date of the Scheme Meeting and the approval hearing, the Court may have concerns that the resolution to approve the Scheme has become stale. In certain circumstances, the Court may consider it desirable to obtain refreshed shareholders' approval of a scheme on the basis of supplementary information: see for example Re Boart Longyear Ltd [2019] FCA 62; 370 ALR 30; Re Nzuri Copper Ltd [No 4] [2020] WASC 10. 68 I accept Humm's submission that, in the circumstances, and given the nature of the Scheme proposed, a three and a half week period (or alternatively, a six week period if completion occurs only on the last business day of July 2022) is not a significant delay.

Conclusion 69 In conclusion, I am satisfied that it is appropriate to make the orders sought by Humm. I certify that the preceding sixty-nine (69) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan.