Australian Securities Commission v Marlborough Gold Mines Ltd

Introduction 1 The plaintiff (Sienna) applies for orders under s 411(1) of the Corporations Act 2001 (Cth) that, among other things, a meeting (Scheme Meeting) of the holders of ordinary shares in Sienna be convened for the purposes of considering and, if thought fit, agreeing to a scheme of arrangement proposed to be made between Sienna and its members (the Scheme). 2 Sienna is a public company limited by shares. It is listed on the Australian Securities Exchange (ASX). It conducts a business developing and commercialising diagnostic tests to assist in the early and accurate diagnosis of cancer. 3 The proposed scheme is a merger scheme under which all the shares in Sienna will be acquired by another company, also listed on the ASX, BARD1 Life Sciences Limited (BARD1), in exchange for shares in BARD1. If the scheme is approved and implemented: (a) all the ordinary shares in Sienna at the "Record Date" will be transferred to BARD1; (b) Sienna's shareholders will receive 13 shares in BARD1 for every five Sienna shares; and (c) Sienna will become a subsidiary of BARD1. 4 For the reasons that follow, I consider it appropriate to make orders substantially in the terms sought by Sienna, including an order that a meeting of Sienna shareholders be convened for the purposes of considering and, if thought fit, agreeing to the Scheme.

The application, evidence and hearing 5 The proceeding was commenced by originating process. By that document, Sienna applied for orders including: (a) an order under s 411(1) of the Corporations Act that Sienna convene a meeting of its members for the purpose of considering, and if thought fit, agreeing (with or without alterations or conditions) to the Scheme; and (b) directions under s 1319 of the Corporations Act as to the convening, holding and conduct of the Scheme Meeting, the time at and manner in which the Scheme Meeting is to be held, and the persons to act as chairperson and alternative chairperson at the Scheme Meeting. 6 In support of the application for these orders, Sienna relies on the following affidavits: (a) an affidavit of Alysha Maria Tuziak, a solicitor employed by K&L Gates, Sienna's solicitors, dated 20 May 2020; (b) an affidavit of Carl Stephen Stubbings, Sienna's chief executive officer and managing director, filed on 3 June 2020 (first Stubbings affidavit); (c) an affidavit of Andrew Michael Gaffney, a partner of K&L Gates, filed on 3 June 2020; (d) an affidavit of Geoffrey James Cumming, a non-executive director of Sienna and chairman of its board of directors, filed on 3 June 2020 (Cumming affidavit); (e) an affidavit of Helen Elena Fisher, another non-executive director of Sienna, filed on 3 June 2020 (Fisher affidavit); (f) an affidavit of Sean Philip Collins, of KPMG Australia (KPMG), annexing an independent expert's report prepared by KPMG concerning the proposed scheme, dated 3 June 2020; (g) a second affidavit of Mr Stubbings, filed on 9 June 2020 (second Stubbings affidavit); (h) a second affidavit of Mr Gaffney, filed on 9 June 2020 (second Gaffney affidavit); (i) an affidavit of Tony Di Pietro, Sienna's chief financial officer and company secretary, filed on 9 June 2020; and (j) a third affidavit of Mr Gaffney, also filed on 9 June 2020. 7 Consistently with the Court's practice guidelines during the current COVID-19 pandemic, several of the affidavits were not sworn or affirmed when they were filed. During the hearing today, which took place by video using Microsoft Teams software, the relevant deponents adopted their affidavits. 8 BARD1 has filed an affidavit, made by its chief executive officer, Leearne Hinch, on 2 June 2020 (Hinch affidavit). 9 At the hearing today, Mr CT Möller of counsel appeared for Sienna and made submissions in support of the application. Detailed written submissions were also provided in advance of the hearing. Mr M Oakes SC appeared, with leave, on behalf of BARD1. He supported the application.

Background 10 Sienna is a medical technology company that develops and commercialises diagnostic tests to assist in the early and accurate diagnosis of cancer. It is a public company, with its head office in Melbourne, Australia and in-country operations in Australia and the United States. 11 Sienna seeks to develop and commercialise innovative products that address unmet clinical needs for characterising or evaluating samples that are being investigated for the presence of cancer, to aid in the diagnosis or monitoring of disease. 12 Sienna's board of directors comprises Dr Cumming, Mr Stubbings, Ms Fisher and Mr Di Pietro. 13 As at 29 May 2020, Sienna had 395,132,839 fully paid ordinary shares on issue which were held by 825 members. Except for the unlisted options discussed below, Sienna had no other securities on issue. 14 Sienna had 11,636,666 unlisted options on issue (of which 6,093,333 have vested) (Sienna Options), which are held by 16 optionholders (Sienna Optionholders). 15 BARD1 is a public company. Its registered office and its principal place of business is at Echelon Building, unit 202, level 2, 39 Mends Street, South Perth in Western Australia. 16 BARD1's board of directors of comprises Peter Lynton Gunzburg (non-executive director and chairman), Irmgard Irminger-Finger (executive director and chief scientific officer), Philip John Powell (non-executive director), Robert Maxwell Johnston (non-executive director) and Allan William Cripps (non-executive director). 17 On 8 April 2020, Sienna and BARD1 entered into a Merger Implementation Agreement. Subsequently, they agreed to vary the terms of the Merger Implementation Agreement and, on 12 May 2020, executed an Amendment and Restatement Deed which amended and restated the terms of the Merger Implementation Agreement. 18 If the Scheme is approved and implemented: (a) BARD1 will acquire all of the Scheme Shares, being all the shares in Sienna on issue as at the Scheme Record Date (as that term is defined in the glossary in section 11 of the proposed booklet for the Scheme (Scheme Booklet)). The Scheme Record Date is expected to be 7.00 pm (AEST) on 23 July 2020. Sienna will then become a wholly-owned subsidiary of BARD1; (b) Sienna members will receive 13 new BARD1 shares for every five Sienna shares held on the Scheme Record Date (Scheme Consideration). 19 Any Sienna Members who are Ineligible Foreign Shareholders (as that term is defined in the glossary in section 11 of the Scheme Booklet) will not be issued new BARD1 shares. Instead, the new BARD1 shares to which they would otherwise be entitled will be issued to a Sale Agent and sold through a Share Sale Facility (as those terms are defined in the glossary in section 11 of the Scheme Booklet), with the proceeds remitted to those Sienna members. 20 Sienna has, with the assistance of its solicitors (K&L Gates), the independent expert (KPMG) and BARD1, caused the Scheme Booklet to be prepared, which contains the explanatory statement that s 412(1) of the Act requires to be provided to the Sienna members, along with a notice of the Scheme Meeting. A copy of the Scheme Booklet (without the annexures) is annexed to the second Stubbings affidavit. The annexures to the Scheme Booklet are annexed to the first Stubbings Affidavit. If approved by the Court, the Scheme Booklet will be dispatched to the Sienna members. The Scheme Booklet includes copies of the following documents as annexures: (a) Document outlining the taxation implications of the Scheme for Sienna members; (b) Draft signed independent expert's report prepared by KPMG dated 12 May 2020; (c) Merger Implementation Agreement (as amended and restated on 12 May 2020); (d) signed deed poll in favour of each Sienna member executed by BARD1 and dated 12 May 2020 (Deed Poll); (e) proposed scheme of arrangement in relation to the Scheme; (f) proposed notice of scheme meeting (Notice of Scheme Meeting); and (g) Link Market Services Virtual Scheme Meeting Online Guide. 21 When dispatched to the Sienna members, the Notice of Scheme Meeting and the Scheme Booklet will be accompanied by an appointment of proxy form for the Scheme Meeting (Proxy Form). 22 The terms of the Scheme are set out in the scheme of arrangement, a copy of which is Annexure E to the Scheme Booklet. That document is substantially in the form of Annexure 2 to the Merger Implementation Agreement (as amended and restated). 23 On the Implementation Date (as that term is defined in the glossary in section 11 of the Scheme Booklet), which is anticipated to be 28 July 2020, and subject to issue of the Scheme Consideration, all of the Scheme Shares will be transferred to BARD1 and Sienna will become a wholly-owned subsidiary of BARD1. Further details of how the transfer of Scheme Shares will be effected are set out in section 9.5(h) of the Scheme Booklet. 24 The essential mechanism of the Scheme is as follows: (a) if the Scheme is to proceed, all conditions precedent (other than Court approval) must be either satisfied or waived on the date on which the application for approval comes before the Court (which is anticipated to occur on 17 July 2020); (b) if the Scheme is agreed to by shareholders and approved by the Court, it becomes effective on the lodging of an office copy of the Court's approval order (made under s 411(4)(b)) with the Australian Securities and Investments Commission (ASIC) (which is anticipated to occur on 21 July 2020); and (c) if the Scheme becomes effective then, on the Implementation Date (anticipated to be 28 July 2020): (i) BARD1 must provide the Scheme Consideration to the Scheme Participants (except Ineligible Foreign Shareholders). The Scheme Consideration is to be provided in the form of New Bidder Shares, being 13 ordinary shares in BARD1 in exchange for every five ordinary shares in Sienna as at the Scheme Record Date (expected to be 23 July 2020), to be quoted on ASX; and (ii) subject to the provision of the Scheme Consideration, all the shares in Sienna held on the Scheme Record Date (i.e. the Scheme Shares) must be transferred to BARD1 and BARD1 will enter Sienna's name in its share register in respect of the Scheme Shares. 25 As discussed in section 9.19 of the Scheme Booklet, Sienna and BARD1 have entered into agreements with each Sienna Optionholder to cancel their respective Sienna Options in consideration for the issue of options in BARD1 at the offer ratio of 13 BARD1 options for every five Sienna Options (and corresponding reduction in exercise price) and otherwise on comparable terms to the existing Sienna Options. These agreements are conditional on implementation of the Scheme. 26 In November 2019, Sienna agreed and announced the proposed issue to Mr Stubbings of 2,900,000 options in Sienna in connection with his new employment contract with Sienna. However, those options have not been issued since they were subject to approval of Sienna members in accordance with the ASX Listing Rules, which approval has not yet been obtained. 27 In consideration for Sienna and Mr Stubbings agreeing to abandon the proposed issue of those options to Mr Stubbings, BARD1 intends to issue to Mr Stubbings BARD1 options under the BARD1 Incentive Option Plan dated 19 October 2019 as though he held 2,900,000 Sienna Options (adjusted for the offer ratio as described above). The issue of such options is conditional on implementation of the Scheme and Mr Stubbings entering into a new employment agreement with BARD1 as its chief operating officer. 28 In total, on implementation of the Scheme, 37,795,332 options in BARD1 will be issued to Sienna Optionholders (including Mr Stubbings) under the above agreements. 29 It is proposed that, once the Scheme is implemented: (a) Mr Stubbings will become the chief operating officer of the merged group (i.e. the combination of BARD1 and Sienna following the implementation of the Scheme); and (b) Mr Di Pietro will become the chief financial officer and company secretary the merged group. It is also proposed that they will enter into new employment agreements with BARD1, effective as soon as practicable after the implementation of the Scheme. 30 Three other current Sienna directors, Mr Di Pietro, Ms Fisher and Dr Cumming, are also Sienna Optionholders. They will have their Sienna Options cancelled and be issued with BARD1 options in accordance with the agreements referred to above. 31 Sienna provides fees and remuneration to the Sienna directors, as disclosed in its 2019 annual report. In addition, Sienna has agreed to pay Ms Fisher compensation (based on customary hourly rates) for additional work undertaken outside her role as a director in assisting with the preparation of documents in connection with the Scheme. The payment of the remuneration is not conditional on the outcome of the Scheme. The additional remuneration is not expected to exceed the range of $25,000 to $30,000. 32 Other than as set out above and agreements with its professional advisers and share registry, there are no agreements or arrangements that have been made - or are proposed to be made - between Sienna and any Sienna director or any other person in connection with, or conditional on, the outcome of the Scheme. 33 Clause 4.6 of the Merger Implementation Agreement (as amended and restated) requires BARD1 to execute a deed poll under which it undertakes to provide the Scheme Consideration to each Scheme Participant (as that term is defined in the Merger Implementation Agreement), and do all actions attributed to it under the Scheme. A copy of the Deed Poll executed by BARD1 and dated 12 May 2020 appears as Annexure D to the Scheme Booklet. The Deed Poll is in typical form. It binds BARD1 in favour of each Scheme Participant to issue (or procure the issue of) the New Bidder's Shares that the Scheme Participants are entitled to receive as the Scheme Consideration, subject to and in accordance with the terms of the Scheme (clause 3.2). BARD1 also covenants in favour of each Scheme Participant to perform all other actions attributed to it under, and otherwise comply with, the Scheme as if were party to the Scheme (clause 3.1).

Applicable principles 34 In Re Verdant Minerals Ltd [2019] FCA 556, I summarised the applicable principles at [20]-[30]. For ease of reference I set out below those paragraphs of that judgment. 35 Part 5.1 of the Corporations Act provides a procedure whereby an arrangement between a company and its members (a scheme) can be made binding on all members. 36 The procedure involves three main steps: (a) an application to the Court for an order that the company convene a meeting of its members; (b) if such an order is made, the convening of such a meeting at which a resolution agreeing to the scheme is considered, and perhaps passed; and (c) if the resolution is passed by the necessary majority (see s 411(4)), an application to the Court for approval of the Scheme. 37 The hearing today was concerned with the first stage of that process. 38 This procedure is regulated by s 412 of the Corporations Act and reg 5.1.01 of, and Sch 8 to, the Corporations Regulations 2001 (Cth), each of which relates to the information about the scheme that is required to be sent to the members. 39 The Scheme is also regulated by the Federal Court (Corporations) Rules 2000 (Cth) (Rules). 40 Section 411(1) of the Corporations Act confers a discretion on the Court to make an order if: (a) a compromise or arrangement is proposed between a Part 5.1 body and its members (or any class of them); (b) an application for the order is made in a summary way by the body; (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); and (d) the Court is satisfied that ASIC has had a reasonable opportunity to: (i) examine the terms of the proposed compromise or arrangement to which the application relates and a draft explanatory statement relating to the proposed compromise or arrangement; and (ii) make submissions to the Court in relation to the proposed compromise or arrangement and the draft explanatory statement. 41 It is well established that a scheme designed to effect an acquisition by one company of the shares in another may be an "arrangement" for the purposes of s 411(1) of the Corporations Act: Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [39]; Re BigAir Group Ltd [2016] FCA 1296 at [33]. 42 A "Part 5.1 body" is defined in s 9 of the Corporations Act in terms that include a company registered under the Corporations Act. 43 Section 411 of the Corporations Act does not state the criteria that must be satisfied before a meeting is ordered, but it is clear that the court has a discretion to exercise in relation to whether the first meeting should be ordered: Re CSR Ltd (2010) 183 FCR 358 at [8]. 44 As explained by Davies J in Re Cytopia Ltd [2009] VSC 560 at [3], in a passage relied on in Re AXA Asia Pacific Holdings Ltd [2011] VSC 4 at [11]: The authorities make it clear that the Court's role at this stage is not to express a view on whether the proposed scheme should be approved. It is also clear that it is not the Court's role to usurp the shareholders' decision, by attempting to intrude its own commercial judgment. The Court is to be concerned with whether there is adequate disclosure to the shareholders in the Scheme Booklet (or explanatory memorandum), whether the legal requirements otherwise have been complied with and whether the scheme, on its face, is one that is sufficiently "fair and reasonable" to be capable of being put to shareholders for their approval or rejection. (Footnotes omitted.) 45 This requires the Court to be satisfied of two matters: (a) 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 [members'] 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 (see also Re Bank of Adelaide (1979) 22 SASR 481 at 494-495 per Wells J; Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504; Re Coles Group Ltd (2007) 25 ACLC 1380 at [29]-[36] per Robson J); and (b) that "the members [are to be] properly informed as to the nature of the scheme before the scheme meeting": Re NRMA Ltd (No 1) (2000) 156 FLR 349 at [30] (see also Re Foundation Healthcare Ltd at [38]; Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [27]).

The requirements of s 411(1) 46 The evidence establishes that each of the requirements set out in s 411(1) is satisfied. Accordingly, the Court's discretion to make the orders sought is enlivened.

An arrangement is proposed between a Part 5.1 body and its members 47 Sienna is a company registered under the Corporations Act and therefore a Part 5.1 body. Thus, the requirement that a compromise or arrangement is proposed between a Part 5.1 body and its members is satisfied.

Application by Sienna 48 Sienna is the plaintiff in this application and is proposing the Scheme. Thus, the requirement that the application for the order be made in a summary way by the body or any of its members is satisfied.

14 days' notice to ASIC of first Court hearing 49 ASIC was given notice of the hearing on 27 May 2020. Accordingly, it had 14 days' notice.

ASIC has had a reasonable opportunity to consider the explanatory memorandum and to make submissions to the Court 50 ASIC was provided with a draft of the Scheme Booklet and the independent expert's report on 22 May 2020. Sienna has received a letter from ASIC dated 9 June 2020 stating that it does not currently propose to appear to make submissions or intervene to oppose the Scheme at the first Court hearing. ASIC's letter confirmed that it has had sufficient notice of the first Court hearing and has had a reasonable opportunity to examine the terms of the proposed Scheme and the draft Scheme Booklet.

Compliance with s 412 and the Corporations Regulations 51 The requirements of s 412 of the Corporations Act and the Corporations Regulations are dealt with in the "disclosure checklist", filed on 4 June 2020. A copy is included in the annexures to the second Gaffney affidavit.

Compliance with the Rules 52 The first Stubbings affidavit annexes the results of a search of the records maintained by ASIC in relation to Sienna. The search was conducted on 19 May 2020, which was one day before the originating process was filed, thus satisfying r 2.4(2) of the Rules. 53 As required by r 3.2 of the Rules, the matters regarding nomination of the Chairperson are dealt with in the Cumming affidavit and the Fisher affidavit. It is proposed that the chair of Sienna's board, Dr Cumming, will chair the Scheme Meeting, with Ms Fisher as the alternate chairperson. 54 The orders proposed by Sienna identify the Scheme by reference to Annexure E of the draft Scheme Booklet, which contain the terms of the proposed Scheme. Thus, the requirements of r 3.3(1) of the Rules are satisfied.

Exercise of the Court's discretion 55 The matters relevant to the exercise of the Court's discretion are considered below.

The Scheme is fit for consideration 56 In my view, the Scheme is fit for consideration by Sienna's shareholders at the Scheme Meeting. It is relevant in this respect that the Scheme Booklet contains: (a) a recommendation from all Sienna's directors that shareholders vote in favour of the Scheme; (b) a statement that all directors who hold shares in Sienna intend to vote their shares in favour of the Scheme; and (c) an independent expert's report that the Scheme is in the best interests of Sienna's shareholders (Annexure B to the draft Scheme Booklet). 57 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. In that regard, Sienna raises the following features of the proposed scheme for the Court's attention: (a) performance risk; (b) the deemed warranty by Sienna's shareholders; (c) exclusivity provisions; (d) the "break fee"; (e) how the options in Sienna will be dealt with; and (f) the purpose of the Scheme (i.e. not to avoid Ch 6 of the Corporations Act). 58 For the reasons discussed below, in my view none of these matters is unusual for a scheme of this type, or provides any reason for the Court to refrain from making an order convening the scheme meeting.

Performance risk 59 In considering whether to approve a scheme involving the participation of a person other than the plaintiff company and its members (here, BARD1), the Court will want to ensure that the other person 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 Sienna and its members. Courts have therefore considered the issue of "performance risk" in relation to the obligations of the non-scheme party. 60 It is submitted, and I accept, that Scheme effectively eliminates any performance risk. In particular: (a) clause 4.2(a) of the proposed Scheme provides that the transfer of the Scheme Shares to BARD1 on the implementation date is subject to BARD1's obligations to provide the Scheme Consideration to the Scheme Participants; and (b) by reason of the Deed Poll, BARD1 is bound to perform the roles assigned to it, and its obligations are capable of enforcement. In particular, in the event that the Scheme becomes effective, BARD1: (i) covenants in favour of each Scheme Participant to "perform all actions attributed to it under, and otherwise comply with, the Scheme as if it were a party to the Scheme" (clause 3.1); and (ii) undertakes to provide, or procure the provision of, the New Bidder's Shares to each Scheme Participant (clause 3.2(a)).

Deemed warranty provisions 61 Clause 7.10(b) of the proposed Scheme provides that each Scheme Participant is taken to have warranted to BARD1 that all of their Scheme Shares (i.e. those to be transferred to BARD1 under the Scheme) will, at the date of transfer, be fully paid and free from all security interests, interests of third parties, and from any restrictions on transfer, and that the Scheme Participant has full power and capacity to sell and transfer the shares together with any rights and entitlements attaching to them. 62 Such clauses will be acceptable, as long as the warranty is sufficiently disclosed in the explanatory statement: see Re Biosceptre International Limited [2013] FCA 1429 at [22]. 63 In sections 1.6 ("Warranties and releases provided by Sienna Shareholders") and 9.16 ("Warranties by Scheme Participants") of the draft Scheme Booklet, Sienna Shareholders are informed of the deemed warranties. Given that disclosure, the deemed warranty clause is acceptable.

Exclusivity arrangements 64 Under clause 13 of the Merger and Implementation Agreement (headed "Exclusivity"), each of Sienna and BARD1 has agreed that it will not (among other things): (a) solicit, invite, initiate, facilitate or encourage any competing proposal, or any enquiries, negotiations or discussions in relation to or would reasonably be expected to lead to a competing proposal to the Scheme (the "no shop restriction") (clause 13.2); (b) without the other party's consent, enter into or participate in any negotiations or discussions in relation to a possible competing proposal (the "no talk restriction") (clause 13.3); and (c) without the other party's consent, make available to any third party any non-public information relating to it or its business or operations for the purpose of formulating, developing or finalising, or assisting in the formulating, developing or finalising of, a competing proposal (the "no due diligence restriction") (clause 13.4). 65 The restrictions apply during the "Exclusivity Period", that is, until the earliest of the termination of the Merger and Implementation Agreement, the date on which the Scheme becomes effective, or the "Sunset Date" (being 8 August 2020). Further, the "no talk" and "no due diligence" restrictions are subject to a "fiduciary exception" (clause 13.7), which creates a carve-out that allows Sienna or its board to take any action with respect to a competing proposal where taking or failing to take the action would, or would be reasonably likely to, involve a breach of the fiduciary or statutory obligations of a director. 66 Further, Sienna has agreed to notify BARD1 if it receives any approach or attempt to initiate discussions or negotiations regarding a competing proposal (clause 13.5) and not publicly recommend a competing proposal or enter into any binding agreement, arrangement or understanding in respect of it, without giving BARD1 the opportunity to match its terms (clause 13.6). 67 In Re Verdant Minerals Ltd at [50], I stated that exclusivity restrictions of this kind have been accepted in many company schemes of arrangement: see, eg, Re Arthur Yates & Co Ltd (2001) 36 ACSR 758 at [9]-[11]; and Re Wridgways Australia Ltd [2010] FCA 1187 at [13]-[25]. I also stated that the following general principles have emerged from the cases: (a) the exclusivity period should be a reasonable period capable of precise ascertainment (see, eg, Re Toll Holdings Limited [2015] VSC 123 at [38]; Re Skilled Group Ltd (No 1) at [50]; Re Arthur Yates & Co Ltd at [9]; Re Little World Beverages Ltd [2012] FCA 1057 at [19]; Re Consolidated Media Holdings Ltd [2012] FCA 1186 at [13]); (b) there should be fiduciary carve outs in respect of no-talk and no due diligence arrangements (see Re Arthur Yates & Co Ltd at [9]; Re Little World Beverages Ltd at [19]); (c) the exclusivity arrangements and their effect should be adequately disclosed in the scheme booklet (see Re Arthur Yates & Co Ltd at [9]; Re Little World Beverages Ltd at [19]; Re Healthscope Ltd [2010] VSC 367 at [15]); 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 (see Re APN News & Media Ltd (2007) 62 ACSR 400 at [55]). 68 Each of those principles is satisfied here: (a) the exclusivity period in the Scheme is reasonable and ascertainable. It is a defined period (the "Exclusivity Period"), which will subsist only until the earliest of the termination of the Merger and Implementation Agreement, the date on which the Scheme becomes effective, or the Sunset Date (being 8 August 2020); (b) the no-talk and no due diligence restrictions are subject to the fiduciary exception; (c) the exclusivity provisions are disclosed in the draft Scheme Booklet, in section 1.7 ("Exclusivity, competing proposals, break fee arrangements and cost contribution") and section 4.5(a) ("Other relevant considerations … (a) Exclusivity"), as well as in section 2 "Questions and answers"; and (d) Mr Stubbings has given evidence that the exclusivity and break fee provisions (discussed blow) were the outcome of arm's length commercial negotiations between Sienna and BARD1, in which Sienna was assisted by external legal advisers and in relation to which it conducted due diligence. He explains that Sienna determined that acceptance of BARD1's offer (including the exclusivity and break fee provisions) was in the best interests of the Sienna members and represented an attractive premium on the underlying value of the business. 69 Thus, the exclusivity provisions do not prevent the Court from making the convening order.

Break fee 70 Clause 14 of the Merger and Implementation Agreement provides that, if specified circumstances occur, Sienna will pay BARD1 the amount of $250,000. The circumstances are summarised in sections 1.7(b) ("Break fee") and 4.5(b) ("Other relevant considerations … (b) Break Fee") of the draft Scheme Booklet. They include: if Sienna accepts a competing proposal; any member of Sienna's board recommends a competing proposal and the Merger Implementation Agreement is terminated; or if any member of Sienna's board withdraws or adversely modifies their recommendation that shareholders vote in favour of the Scheme (other than if the independent expert changes its recommendation) or makes a public statement indicating that they no longer support the Scheme. Clause 15.2 is concerned with the payment of an equivalent amount by BARD1 to Sienna. 71 The Merger Implementation Agreement records the parties' agreement that the respective amounts are to compensate them for costs and expenses incurred in relation to the transaction contemplated by the Scheme: clauses 14.2 and 15.1(a). 72 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 Scheme: see Re DuluxGroup Ltd (2019) 136 ACSR 546 at [31] per O'Bryan J. His Honour also pointed out 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". See also Re APN News & Media Ltd at [44] per Lindgren J. Justice O'Bryan also highlighted that, in its current guidance note, 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. 73 Here, the break fee does not represent a barrier to the convening of a meeting to consider the Scheme. The evidence establishes that: (a) the amount of the break fee and the obligations to pay it were the subject of arm's length commercial negotiation between the parties; and (b) Sienna considered it appropriate to agree to break fee in order to secure the benefits to it and its shareholders from the Scheme and the merger with BARD1. 74 The evidence also establishes that the fee represents less than 1% of the total equity value of Sienna, having regard to the value of the Scheme Consideration both as at 8 April 2020 when the bid was announced, and as at 2 June 2020. Further, the fee is not payable because Sienna's shareholders reject the Scheme, but only if Sienna or its directors take particular actions. Thus, the fee is not capable of influencing them in deciding whether to accept or reject the Scheme. 75 Finally, apart from the size of the fee, relevant provisions of the Merger Implementation Agreement are consistent with the guidelines published by the Takeovers Panel, 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: see Takeovers Panel, Guidance Note 7 at [9].

Options in Sienna 76 As noted above, Sienna has 11,636,666 unlisted options on issue, of which 6,093,333 have vested. Each option, upon exercise, entitles the holder to receive one fully paid Sienna share, subject to payment of the relevant option exercise price. There is no separate scheme proposed for the holders of options in Sienna. 77 Under the Merger Implementation Agreement, it is a condition precedent to the Scheme becoming effective that all the options in Sienna be cancelled or terminated, with the option holders to be offered replacement options in BARD1 on comparable terms. Further, under clause 5(a) of that agreement, Sienna agreed: (a) to use all reasonable endeavours to obtain the written agreement of each option holder to have their options cancelled and a reasonably equivalent value of options in BARD1 issued, subject to the Scheme becoming effective; and (b) to seek a waiver from ASX Listing Rule 6.23.2 to allow for the cancellation of the options. 78 Accordingly, Sienna and BARD1 have entered into agreements with each holder of Sienna options to cancel the respective options in consideration for the issue of options in BARD1 at the offer ratio under the Scheme (i.e. 13 BARD1 options for every five Sienna options). These agreements are conditional on implementation of the Scheme. Examples of the agreements (each styled an "option cancellation and issue agreement") are in evidence. 79 The ASX has granted a waiver of Listing Rule 6.23.2 to permit the Sienna options to be cancelled, without approval from Sienna's shareholders. 80 These arrangements are similar to those I considered in Re Verdant Minerals Ltd. Further, they are disclosed in section 9.19 of the draft Scheme Booklet. 81 As in Re Verdant Minerals Ltd, the fact of ownership of options by certain Scheme Participants is not class-creating, since those members are not treated differently under the proposed Scheme because they hold options. Further, the options do not create any "collateral benefit" to be considered as part of the fairness of the scheme at the second hearing, that is, the Scheme Participants holding options will not receive any special or additional benefit that other Scheme Participants do not (cf Re Verdant Minerals Ltd at [68]).

Section 411(17) 82 The Court's jurisdiction to approve a scheme is restricted by s 411(17) of the Corporations Act. This is a matter which affects the discretion to approve the scheme, rather than the discretion to order a meeting: see Re Macquarie Private Capital A Ltd (2008) ACLC 366 at [27] per Barrett J; Re Lonsdale Financial Group Ltd [2007] VSC 394 at [35]-[40] per Robson J. Section 411(17) provides that the Court must not approve an arrangement unless: it is satisfied there is no proscribed purpose as described in s 411(17)(a); or ASIC has provided to the Court a statement in writing stating that ASIC has no objection to the arrangement. ASIC's practice is not to provide such statements until the second court hearing: see ASIC, Regulatory Guide 60 (September 2011) (RG 60) at [60.106]. 83 RG 60 states at [60.104] that ASIC will provide a statement under s 411(17)(b) if: (a) all material information relating to the proposed scheme has been disclosed to ASIC; (b) the standard of disclosure to all members fulfils the requirements under reg 5.1.01 and Sch 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 Corporations Act relating to the target securities in a takeover bid; and (d) there are no other reasons to oppose the scheme (eg, public policy grounds) and the other matters referred to in RG 60 have been complied with. 84 Sienna submits that, on the basis of the material presently before the Court, it seems likely that ASIC will produce a statement under s 411(17)(b). Further, Sienna submits that there are no indications suggesting any proscribed purpose. I accept these submissions. In these circumstances, the requirements of s 411(17) do not present a bar to the meeting being convened.

Sienna's shareholders will be properly informed 85 The second principal aspect relevant to the exercise of the Court's discretion is the adequacy of the information to be provided to shareholders.

Information for shareholders 86 The prescription of the contents of the explanatory statement in s 412 of the Corporations Act and Sch 8 to the Corporations Regulations ordinarily provides guidance to the Court in assessing this matter, bearing in mind that these applications are made in a summary way: see Re Foundation Healthcare Ltd at [38]; Re Opes Prime Stockbroking Ltd (No 2) (2009) 179 FCR 20 at [94]-[99]. 87 There are three aspects to the requirements of s 412(1): (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 of those interests on the compromise or arrangement so far as it is different from the effect on the like interests of other persons. The draft Scheme Booklet explains the effect of the Scheme in detail: see in particular, the Chairman's letter and section 1 ("Scheme highlights"), section 2 ("Questions and answers", especially 'What will be the effect of the Scheme on Sienna Shareholders?' and 'Will I be bound by the Scheme even if I vote against the Scheme?'), and section 9 ("Implementation of the Scheme"). The interests of Sienna's directors are set out in section 10.1 of the draft Scheme Booklet. See also sections 10.2, 10.3, 10.4, 10.5, 10.6 of the draft Scheme Booklet which outline the material interests of the directors with respect to the Scheme. (b) Secondly, the explanatory statement must set out the prescribed information: reg 5.1.01 and Sch 8 (part 3) of the Corporations Regulations. The "disclosure checklist" contains a table showing the specific requirements of the Corporations Act and the Corporations Regulations, and the location in the draft Scheme Booklet of statements meeting those requirements. (c) Thirdly, 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. The draft Scheme Booklet is comprehensive and detailed. Further, KPMG's independent expert's report contains a detailed evaluation of the proposal, presented in a way that enables shareholders to form their own view of the merits of the proposed Scheme.

ASIC's role 88 Because the Scheme is a members' scheme, it is necessary that the explanatory statement be registered by ASIC before the notice of meeting is sent to shareholders. Before registering the statement, ASIC must conclude that it appears to comply with the requirements of the Corporations 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. 89 The relevant ASIC regulatory guide, RG 60, describes ASIC's role under Part 5.1 of the Corporations 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 [60.17] and [60.18]) 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. 90 As noted above, Sienna has received a letter from ASIC dated 9 June 2020. The letter states that ASIC has reviewed the draft explanatory statement in accordance with its policy in RG 60. It notes that ASIC has not verified the information in the draft explanatory statement either as to accuracy or as to whether there may be additional information that is relevant to the Scheme that may need to be disclosed in the draft explanatory statement.

Independent Expert's Report 91 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. Neither element applies here. Nevertheless, Sienna has obtained a report from an independent expert as to whether, in its opinion, the Scheme is in the best interest of Sienna's shareholders. 92 The independent expert, KPMG, opines that the Scheme is in the best interests of Sienna shareholders. The opinion is summarised in section 3 of the report, which explains that KPMG assessed whether the Scheme is: (a) fair, by assessing the implied value of the Scheme Consideration based on the assessed value of a Sienna share on a controlling interest basis and the merger ratio; and (b) reasonable, by assessing the implications of the Scheme for Sienna shareholders, the alternatives to the Scheme which are available to Sienna Shareholders, and the consequences for shareholders of not approving the Scheme. 93 The summary includes the following statement at p 3 of the report: The all scrip consideration of the Scheme means Sienna Shareholders will be able to continue to benefit from the development of the Merged Group and therefore the critical issue we have assessed is whether the merger ratio that drives the Scheme Consideration appropriately reflects the value of Sienna. Whilst acknowledging valuing early stage biotechnology companies requires significant judgement given the uncertainties of the research and commercialisation processes, a premium of our assessed value of the Scheme Consideration on a per share basis, to the one month volume weighted average price (VWAP) of 134% and a premium to the 12 month VWAP of 57%, clearly represents a good opportunity for Sienna Shareholders to participate in a transaction that will address a number of the issues that have contributed to Sienna's recent subdued market performance. 94 The report then includes an extensive discussion of the advantages, disadvantages and risks of the Scheme.

Verification 95 The first Stubbings affidavit summarises the due diligence and verification process that Sienna implemented to ensure that the draft Scheme Booklet does not contain any misleading or deceptive statements and satisfies the applicable disclosure requirements. The process involved the establishment of a "Sienna Verifying Team", comprising Mr Stubbings, Ms Fisher and Mr Di Pietro, who were responsible for verifying information in the draft Scheme Booklet. 96 The first Stubbings affidavit explains the verification process and says that Mr Stubbings is satisfied that the draft Scheme Booklet includes all information material to the making of a decision by a shareholder whether or not to agree to the Scheme, that each relevant statement is accurate, that no material facts or considerations have been omitted, and that the document is not misleading or deceptive in any material respect (including by reason of any material omission). 97 In the Hinch affidavit, Ms Hinch explains the process by which the information about BARD1 in the draft Scheme Booklet was verified.

Approval of the draft Scheme Booklet by the Court 98 Section 411(1) of the Corporations 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, but the recent approach of this Court has been not to approve the statement. Consistent with the recent approach taken, Sienna does not propose that the Court make orders approving the draft Scheme Booklet if the convening orders that Sienna seeks are made.

Sending the draft Scheme Booklet to Sienna's shareholders 99 If the Court makes orders convening the Scheme Meeting, Sienna proposes to dispatch a copy of the Scheme Booklet (which includes the Notice of Scheme Meeting at Annexure F) on or before 12 June 2020. 100 Consistent with its usual practice for sending correspondence to members and giving them notice of meetings, Sienna proposes to send the Scheme Booklet electronically to shareholders who have nominated to receive shareholder materials electronically, and by hard copy to those shareholders who have not so nominated, at their postal addresses (using FedEx International Priority or FedEx International First courier service (or an equivalent service)).

Conclusion regarding exercise of the discretion 101 On the basis of the above matters, I am satisfied that this is an appropriate case for the exercise of the discretion to make orders convening a meeting of Sienna's shareholders. I am satisfied that the Scheme is of such a nature and cast in such terms that, if it achieves the statutory majorities at the Scheme Meeting, the Court would be likely to approve it, and that it is therefore appropriate to make the orders sought by Sienna. In particular, I note the following matters: (a) the terms of the proposed Scheme are in a conventional form for a merger scheme with scrip consideration; (b) there is no reason the Scheme, if considered and adopted by the members, would not likely be approved by the Court at the second hearing; (c) the Sienna shareholders will receive a careful analysis and assessment by an independent expert of the transaction and its advantages and disadvantages, and have the recommendation of Sienna's directors; and (d) the draft Scheme Booklet meets all of the statutory requirements, has been carefully prepared and verified by Sienna, and has been examined by ASIC.

Scheme Meeting and issues relating to COVID-19 102 I accept that there is only one class of shareholder, being all Sienna Shareholders. 103 Given the COVID-19 pandemic and restrictions on physical gatherings, it is proposed that the Scheme Meeting will be a virtual meeting. The meeting is proposed to be held on Wednesday, 15 July 2020 at 11.00 am (AEST). Sienna's share registry, Link, has the facility under which the meeting can be webcast and members are able to participate (as they would in a normal meeting), including by asking questions and voting. 104 That the meeting will be virtual is disclosed in various places in the draft Scheme Booklet: see e.g. on the first page of the "Important notices" (under the heading "Notices of Scheme Meeting": page 1), section 1.5 ("Scheme Meeting"), section 3.4 (part of section 3, "What to do and how to vote"). Section 1.5, for instance, states (emphasis in original): In response to the global COVID-19 pandemic and government restrictions on physical gatherings, the Scheme Meeting will be held as a virtual meeting at 11:00 am (Melbourne time) on Wednesday, 15 July 2020. There will be no physical meeting where Sienna Shareholders and proxies can attend in person. 105 Section 3.4 of the draft Scheme Booklet states (emphasis in original): In response to the global COVID-19 pandemic and government restrictions on physical gatherings, the Scheme Meeting will be held as a virtual meeting at 11:00 am (Melbourne time) on Wednesday, 15 July 2020. There will be no physical meeting where Sienna Shareholders and proxies can attend in person. A virtual Scheme Meeting has been authorised by the Court at the First Court Hearing. You can participate in the virtual Scheme Meeting by logging in online at https://agmlive.link/SDX20. Please refer to Sections 3.7 and 3.8 below for further details on how to participate in the Scheme Meeting. 106 Other sections of the draft Scheme Booklet explain the mechanisms for the virtual meeting and how to participate. Section 3.7, for instance, explains voting at the meeting and section 3.8 ("Guide to participating in the virtual Scheme Meeting") explains the process for logging in, navigating the site, asking questions and voting, which is explained in even more detail in Annexure G, "Virtual Scheme Meeting Online Guide". 107 In recent months, there have been examples of courts making orders convening virtual meetings to consider schemes of arrangement: see, eg, Re Avita Medical Ltd [2020] FCA 592. Similar orders have been made in voluntary administrations, permitting creditors' meetings to be held virtually. 108 The Corporations Act and Sienna's constitution provide for virtual meetings. Section 249S of the Corporations Act provides that a company may hold a meeting of its members "at two or more venues using any technology that gives the members as a whole a reasonable opportunity to participate." Article 12.23 of Sienna's constitution ("Use of technology") is in an almost identical form, providing: The Company may hold a general meeting at 2 or more venues using any technology that gives Members a reasonable opportunity to participate. 109 Rule 3.3(2) of the Rules provides: Unless the Court otherwise orders, a meeting of members ordered under section 411 of the Corporations Act must be convened, held and conducted in accordance with: (a) the provisions of Part 2G.2 of the Corporations 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 Corporations Act. 110 Further, the Court has ample power under section under s 411(1) of the Corporations Act, as supplemented by s 1319, to make orders concerning how the meeting is to be held. 111 As in Re Avita Medical Ltd, orders allowing the Scheme Meeting to be conducted as a virtual meeting "will facilitate the efficient implementation of a proposed commercial restructuring transaction according to law in the difficult circumstances posed by COVID-19": Re Avita Medical Ltd at [8] per Jagot J. 112 The decision to hold a virtual meeting has implications for Sienna shareholders who lodge proxies, more specifically, for those shareholders who lodge proxies but then seek to attend the meeting and vote themselves. Normally, a shareholder's conduct in attending and voting themselves would have the effect of suspending the power of the proxy. Section 249Y(3) of the Corporations Act, for instance, provides that a company's constitution may provide for the effect that a member's presence at a meeting has on the proxy's authority to attend and vote for the member. It also includes a fall-back: However, if the constitution does not deal with this, a proxy's authority to speak and vote for a member at a meeting is suspended while the member is present at the meeting. 113 Sienna's constitution deals with the issue in Article 12.21(b), which provides: A proxy is not revoked by the principal attending and taking part in the meeting, unless the principal actually votes on the resolution for which the proxy is proposed to be used. 114 A difficulty, however, is that the software system by which the virtual meeting will be conducted will allow a shareholder to vote where that shareholder has previously provided - but not revoked - the proxy. The consequence is that if a shareholder has appointed a proxy and subsequently wants to vote at the Scheme Meeting, the proxy will retain the vote and the shareholder will be unable to vote (unless the shareholder has given notice of the revocation of the proxy before the meeting commences). Given the constraints of the software, there is no means of circumventing this issue. The consequence is disclosed in the draft Scheme Booklet, which provides (in section 3.7(b) "Voting by proxy"): Note, if you have appointed a proxy and subsequently wish to attend the meeting yourself, the proxy will retain your vote and you will be unable to vote yourself unless you have notified the registrar of the revocation of your proxy appointment before the commencement of the meeting. 115 It is submitted, and I accept, that the Court can make orders allowing proxies to be treated in this way. That is because, in making orders convening a scheme meeting, the Court can make directions for how the meeting is to be conducted. The authorities emphasise that a meeting ordered under s 411(1) is not a general meeting but one convened by the Court: see, eg, Re Amcom Telecommunications Ltd (No 3) [2015] FCA 596 at [57]-[63] per McKerracher J. As the cases make clear, the Court's power (including under s 1319) extends to making orders that would otherwise contravene a company's constitution. Although r 3.3(2) provides a scheme meeting must be convened, held and conducted in accordance with the provisions of Pt 2G.2 of the Corporations Act and the provisions of the plaintiff's constitution applying to members' meetings and not inconsistent with Pt 2G.2, the rule also provides for the Court to "otherwise [order]". Thus, the Court can fashion orders to suit the particular needs of the matter. As Davies J explained in Re Strategic Energy Resources Ltd (No 2) [2012] VSC 75 at [7]: … [t]he Court is empowered by [ss 411 and 1319] to give procedural directions for the convening of the meeting which may not correspond with the procedural requirements of Part 2G.2 of the Act and the company's constitution (which would otherwise govern the meeting). 116 The draft Scheme Booklet contains several disclosures relating to COVID-19 including in section 5.6 (Sienna's risk mitigation strategies in response to the COVID‐19 pandemic), section 8.1(h) (risk factor arising from COVID-19 for medical services companies), section 8.2(a) (general risk factor - global impact of COVID-19 pandemic and advice and responses from authorities, and global economic outlook) and section 8.4(j) (BARD1 risk factors). The effect of COVID-19 was also taken into account by KPMG in their independent expert's report (see e.g. page 5 concerning the calculations of the premium under the Scheme and page 12 concerning the effect of the pandemic on global economic activity and equity markets). Importantly, KPMG included the effect of the pandemic in their assessment of the fairness of the Scheme Consideration, stating: Whilst the prevailing market conditions may influence certain economic parameters, we expect the impact on value to be consistent across both parties involved in the Scheme. Consequently, the current market conditions do not impact on our overall conclusion in relation to the fairness of the Proposed Transaction.

US Securities Law Exemption 117 I note for completeness that Sienna's submissions indicate that, if the Court ultimately makes orders approving the Scheme at a second hearing, Sienna and BARD1 intend to rely upon the Court's approval for the purposes of the exemption under section 3(a)(10) of the Securities Act 1933 (US) in connection with the implementation of the Scheme. Section 3(a)(10) of the Securities Act is in the following terms: Except with respect to a security exchanged in a case under title 11 [of the United States Code], any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court, or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval. 118 One of the conditions of the exemption is that the Court be advised, before any hearing at which the Scheme is approved, that the issuer will rely on the section 3(a)(10) exemption based on the Court's approval in the event that the Scheme is in fact approved. The draft Scheme Booklet (page 2, under heading "Notice to Sienna Shareholders in the United States") contains a disclosure in relation to this matter. Sienna's submissions state that BARD1 intends to rely on the exemption based on an order of the Court, and that the matter will be raised again at the approval hearing.

Conclusion 119 For these reasons, I will make orders substantially in the terms proposed by Sienna. I certify that the preceding one hundred and nineteen (119) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.