Australian Securities Commission v Marlborough Gold Mines Ltd

Solicitors: Herbert Smith Freehills (Plaintiff) Corrs Chambers Westgarth (Acquirer) File Number(s): 2021/314615

Background

1. By Originating Process filed on 5 November 2021 the Plaintiff, iCar Asia Ltd ("iCar") seeks an order, under s 411 of the Corporations Act 2001 (Cth) that it convene a meeting of its members (other than Excluded Shareholders, as defined) to consider a scheme of arrangement and associated directions under s 1319 of the Corporations Act as to the manner in which the meeting would be held. The Excluded Shareholders (as defined) are Carsome Group Pte Ltd ("Carsome"), an unlisted company incorporated in Singapore, Catcha Group Pte Ltd ("Catcha"), also incorporated in Singapore, and ICQ Holdings BHD ("ICQ") which is a subsidiary of Catcha incorporated in Malaysia. The proposed transaction involves an all cash acquisition of iCar by Carsome.
2. By way of background, iCar is an Australian public company limited by shares, which is admitted to the official list conducted by Australian Securities Exchange ("ASX") and shares in which are quoted for trading on ASX, and it owns and operates car sale websites with a focus on markets in Malaysia, Indonesia and Thailand. On 30 October 2020, iCar announced to ASX that it had received a non-binding indicative proposal from Autohome Inc ("Autohome") for the acquisition of iCar for $0.50 per iCar share by way of a scheme of arrangement. iCar's engagement with Autohome was on a non-exclusive basis and iCar and its advisers then explored with a number of parties whether they could propose a superior change of control proposal for iCar. Autohome's proposal was subsequently withdrawn on 20 July 2021, after the announced noted below.
3. iCar then announced to ASX on 13 July 2021 that it had received a conditional, non-binding indicative proposal from Carsome for the acquisition of iCar shares, which also disclosed the existence of a sale agreement between Carsome, Catcha and ICQ dated 11 July 2021 and a joint bid agreement between Carsome and Catcha dated 11 July 2021, which were in turn annexed to a notice of initial substantial holder released to ASX on 13 July 2021. The sale agreement relevantly provided for Carsome to acquire nearly 89.5 million fully paid ordinary iCar shares held by Catcha and ICQ, conditional on Carsome and Catcha obtaining joint bid relief from the Australian Securities and Investments Commission ("ASIC"). The joint bid agreement provided for Carsome and Catcha to cooperate with respect to the scheme, again conditional on joint bid relief. ASIC granted joint bid relief in relation to the sale agreement and joint bid agreement on 12 August 2021 and Carsome subsequently acquired nearly 89.5 million fully paid ordinary iCar shares from Catcha and ICQ, representing approximately 19.9% of iCar's ordinary shares on issue, on 31 August 2021.
4. iCar then announced to ASX on 18 October 2021 that it had entered into a scheme implementation deed ("SID") under which iCar and Carsome agreed to implement the scheme, by which Carsome would acquire all of the issued fully paid iCar shares held by scheme participants, for a consideration of $0.53 in cash per iCar share. iCar's independent board committee (which excludes certain directors associated with Carsome) has unanimously recommended that scheme participants vote in favour of the scheme, conditional on no superior proposal and the independent expert concluding that the scheme is in the best interests of scheme participants.
5. I made the orders sought by iCar at the end of the first Court hearing in respect of the matter. These are my reasons for doing so. I have drawn on the helpful submissions of Mr Jackman, who appeared for iCar in the application, and on my recent summaries of the applicable principles in Re Australian Leisure and Entertainment Property Management Ltd [2021] NSWSC 1421 and Re Intega Limited [2021] NSWSC 1434 and Re Afterpay Ltd [2021] NSWSC 1435 in this judgment.

Affidavit evidence

1. iCar reads the affidavit dated 5 November 2021 of Mr Luke Hastings, a solicitor in the firm acting for it in the scheme, which sets out several matters which I have noted above. iCar also reads the affidavit dated 3 December 2021 of Mr Georg Chmiel, who is executive chair of iCar's board and a member of its independent board committee formed to consider the proposed acquisition by Carsome. Mr Chmiel indicates his consent to act as chair of the proposed virtual scheme meeting. By his affidavit dated 4 December 2021, Mr Richard Kuo, who is also a non-executive director of iCar Asia, consents to act as chair of the virtual scheme meeting if Mr Chmiel is unable to do so.
2. By his affidavit dated 4 December 2021, Mr Steven Hodkin, who is the head of listed client services employed by Boardroom Pty Ltd gives evidence that Boardroom maintains iCar's share register and outlines the process which will be adopted for the dispatch of materials to scheme participants in electronic and hard copy form and the conduct of the virtual scheme meeting, using the Lumi platform.
3. By his affidavit dated 6 December 2021, Mr Nathan Toscan, who is a director of Lonergan Edwards & Associates Ltd ("LEA") refers to the preparation of an independent expert's report in respect of the scheme, and confirms that he and Mr Jorge Resende of LEA hold the opinions set out in that report and have complied with the expert witness code of conduct and prepared their report having regard to regulatory guidance, including ASIC Regulatory Guides 111 and 112. That report in turn expresses the view that the scheme is fair and reasonable and in the best interests of scheme shareholders. That report also indicates that the implied value received by the Catcha entities for their sale of an interest in iCar was greater than the scheme consideration of $0.53 cash per iCar share, although it also notes that the Catcha entities have foregone a strategic shareholding in iCar; are exposed to transaction risk and, so far as they have been issued preference shares in Carsome, are subject to ongoing economic, general business and strategy execution risk; and that the shares issued to them will be illiquid and there is uncertainty as to how, when and at what price they will be able to realise their investment in those shares.
4. By an affidavit dated 3 December 2021, Mr Hamish Stone, who is managing director and chief executive officer of iCar, outlines iCar's capital structure and the background to the transaction and identifies the considerations noted by the independent expert as relevant to the value of the preference shares issued by Carsome to Catcha in respect of Carsome's acquisition of shares in iCar. Mr Stone refers to the view formed by iCar's independent board commission that the scheme is in the best interests of scheme participants and its unanimous recommendation that they vote in favour of the scheme, conditional on there being no superior proposal and the independent expert continuing to conclude that the scheme is in the best interests of scheme participants. Mr Stone also refers to several conditions precedent to the scheme and to a relatively modest reimbursement fee and reverse reimbursement fee negotiated between the parties to the scheme, and to exclusivity provisions contained in cl 10 of the SID. Mr Stone also outlines the way in which incentives offered to executives and senior employees, including options held by Mr Chmiel and entitlements to the issue of iCar shares held by Mr Stone, will be treated under the scheme. Mr Stone also notes the arrangements that are proposed in respect of payment of board remuneration for 2021 and 2022. Mr Stone identifies a loan agreement dated on or about 15 November 2017 ("Catcha Loan Agreement") between iCar Asia Pte Ltd, a wholly owned subsidiary of iCar as borrower ("iCar Asia") and Catcha as lender, and refers to the terms of that loan agreement which I will address below. Mr Stone also addresses the process adopted for verification of the scheme booklet and the manner in which it is proposed that the scheme meeting will be conducted.
5. By his affidavit dated 6 December 2021, Mr Cheng Kee Choon, who is a director of Carsome, refers to Carsome's entry into the SID with iCar and the execution of a deed poll in respect of Carsome's obligations under the scheme, and addresses the verification of information relating to Carsome contained in the scheme booklet and the entry into exclusivity provisions and a reimbursement fee, and he notes the reimbursement fee represents approximately 0.7% of the equity value of iCar implied by the scheme.
6. By an affidavit dated 6 December 2021, Mr Andrew Rich, who is a partner in the firm of solicitors acting for iCar in respect of the scheme, addresses correspondence with ASIC in respect of the scheme, and the iCar board's approval of the scheme. He also exhibits a copy of the scheme booklet, to which I was taken in the course of the scheme hearing. By her affidavit dated 6 December 2021, Ms Sheila Ng, a legal practitioner practising in Singapore, addresses the validity of execution and enforceability of the deed poll executed by Carsome under Singapore law. By a letter dated 7 December 2021, ASIC noted that it had been given at least 14 days of the Court hearing and considered that it had had a reasonable opportunity to examine the scheme and the draft explanatory statement, and that it did not propose to make submissions or intervene to oppose the scheme at the first Court hearing. It reserved its position in respect of s 411(17)(b) of the Act to the second Court hearing in accordance with its usual practice.

Matters relevant to convening the scheme meeting

1. The Court will order the convening of the scheme meeting and approve the draft explanatory statement for the scheme if it is satisfied that iCar is a Part 5.1 body; the proposed scheme is an arrangement within the meaning of s 411 of the Act; the scheme booklet will provide proper disclosure to members; the scheme is bona fide and properly proposed; ASIC has had a reasonable opportunity to examine the terms of the scheme and the explanatory statement and make submissions and has had 14 days' notice of the proposed hearing date; the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) have been met; and there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of votes is achieved: Re Staging Connections Group Ltd [2015] FCA 1012 at [19]-[20]; Re Atlas Iron Ltd (2016) 112 ACSR 554; [2016] FCA 366 at [30]; Re DUET Finance Ltd [2017] NSWSC 415 at [15]; Re BIS Finance Pty Ltd [2017] NSWSC 1713 at [20]; Re Afterpay Ltd above at [12]ff.
2. The Court will not ordinarily summon a meeting unless a scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed, although it "does not ordinarily go very far" into that question at the first Court hearing: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, approved in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504; (1993) 112 ALR 627; (1993) 10 ACSR 230; [1993] HCA 15; Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742 at [36] and [44]; Re CSR Ltd (2010) 183 FCR 358; (2010) 265 ALR 703; (2010) 77 ACSR 592; [2010] FCAFC 34 at [58]. The Court will assess at the first Court hearing whether the scheme is one which is adequately explained to those who have a financial interest in it, and whether there is any obvious flaw in the scheme, such that it would be inappropriate even for it to be submitted for consideration: Re Abacus Funds Management Ltd (2006) 24 ACLC 211; [2005] NSWSC 1309 at [23]; Re Ellerston Global Investments Ltd [2020] NSWSC 879 at [25]-[27]. The Court is not required to be satisfied that no better scheme could have been proposed, and the question is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed is of benefit to members: Re Centrebet International Ltd [2011] FCA 870 at [29]; Re DUET Finance Ltd above at [14].
3. I am satisfied that iCar is a Part 5.1 body, the proposed scheme is an arrangement within the meaning of s 411 of the Act, there is no reason to doubt that the scheme booklet provides proper disclosure to iCar shareholders, and there has been a verification and due diligence process. Subject to the particular issues which I address below, there is no reason to doubt that the proposed scheme is bona fide and properly proposed and could be approved at the second Court hearing if it receives the requisite shareholder approvals. Although ASIC has reserved its position as to s 411(17)(b) in accordance with its usual practice, the Court can address that question at the second Court hearing. Again subject to the particular issues which I address below, I am satisfied that the orders sought should be made in respect of the proposed scheme.

Specific issues arising in respect of the proposed scheme

1. Consistent with the Court's expectations noted by Barrett J in Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at 603; [2002] NSWSC 1177, Mr Jackman draws attention to several aspects of the scheme. He submits that none of these matters should be of concern to the Court to prevent the grant of an order to convene the scheme meeting.
2. First, Mr Jackman notes that, as disclosed in sections 1.2(a), 2 and 6.5 of the scheme booklet, the independent expert has expressed the view that the Carsome shares issued pursuant to the Sale Agreement (and to be issued pursuant to the Joint Bid Agreement) imply a value per iCar share of $0.61 based on the issue price of the Carsome shares issued. This implied value exceeds the scheme consideration of $0.53 of iCar share and, Mr Jackman recognises, the equality of opportunity principle in s 602(c) of the Corporations Act and the minimum bid price rule in s 621(3) of the Corporations Act may have been relevant if the acquisition of iCar shares occurred under a takeover bid. Mr Rich's affidavit refers to correspondence between iCar's solicitors and ASIC addressing that matter. On 3 December 2021, ASIC advised iCar's solicitors that: "Following on from our queries regarding the differences in consideration identified in the Scheme Booklet between iCar Shareholders and Catcha, we advise that we have no further comments in relation to the submissions provided. However, we consider that iCar should also address this point in its submissions to the court."
3. Mr Jackman submits, by reference to the position taken by iCar in correspondence with ASIC, that it is not appropriate to "rigidly" apply s 602 of the Corporations Act to schemes of arrangement. He points out that the, Corporations and Markets Advisory Committee, in its report "Members' schemes of arrangement", December 2009, at 107, expressed the view that it was not necessary to require the application of the Eggleston principles in s 602 of the Act to schemes, noting that: "These principles were developed in the context of Chapter 6 bids, to protect shareholders where a bidder can bypass the directors of the target company and make an offer directly to them. They are not necessarily appropriate in the context of schemes, even where control may be at stake. A scheme proposal comes from the company itself, whose directors have a duty to act in the best interests of the company in putting forward the scheme, and both the court and ASIC have a protective role. The fact that a scheme and a bid may have a similar ultimate outcome does not necessarily mean that the same form of protection is required." He points out that the cases have recognised that, obviously enough, s 602 of the Act has no direct application to schemes of arrangement and is found in Ch 6 of the Act which is concerned with takeovers: Re NetComm Wireless Ltd (No 2) [2019] FCA 1109 at [50]. He fairly accepts that the policies of s 602 may nonetheless be a relevant consideration for the Court when considering a scheme of arrangement and that, in assessing the fairness of a scheme of arrangement, the Court is entitled to have regard to, inter alia, the policy of the equality of opportunity principle in s 602(c). He submits and I accept that, if features of a scheme of arrangement are inconsistent with s 602(c), that would be one factor for the Court to consider and weigh up as part of its fairness discretion, along with the protections and safeguards available under the scheme process, which he addresses at some length. He also draws attention to the observation of Farrell J in Re David Jones Ltd (No 3) [2014] FCA 753 that: "The relevance [in a scheme of arrangement] of the principles set out in s602 goes to the question of fairness and the desirability of there being, so far as relevant and possible, neutrality between "acquisition" schemes and Chapter 6 takeovers."
4. The case law has generally accepted, and I also accept, that an issue as to the price at which the scheme company's shares were acquired by the acquiring party in the period prior to the scheme may be addressed by appropriate disclosure in the scheme booklet and with an independent expert's report which contains an opinion on the value of the scheme consideration: Re Ranger Minerals Ltd (2002) 42 ACSR 582 at 592; [2002] WASC 207; Re Anzon Australia Ltd [2008] FCA 309 at [14]; Re Goodman Fielder Ltd [2014] FCA 1449 at [19]-[20]. Mr Jackman also points to a, possibly somewhat distant, analogy with the approach taken under the shareholder approval regime in item 7 of s 611 of the Corporations Act, which allows disinterested shareholders, with full disclosure, to approve a proposed acquisition of a substantial interest although they will not receive an offer for their own shares.
5. Mr Jackman points out that, here, details of Carsome's pre-bid acquisition of iCar shares under the Sale Agreement and proposed acquisition of iCar shares under the Joint Bid Agreement, and the independent expert's assessment of the implied value of the consideration (being $0.61 per iCar Share), are disclosed in the scheme booklet, consistent with the approach contemplated by Re Ranger Minerals Ltd above), and that will allow independent iCar shareholders to assess the relevance of the pre-scheme acquisitions on their decision as to whether to vote in favour of the scheme. He also points out that details of the Sale Agreement and Joint Bid Agreement are disclosed in the independent expert's report and that expert has concluded that the scheme is fair and reasonable and therefore in the best interests of independent iCar shareholders, despite assessing the value of the consideration under the Sale Agreement and Joint Bid Agreement at $0.61 per iCar share; and iCar's independent board committee had regard to the Sale Agreement and Joint Bid Agreement when forming its recommendation to shareholders vote in favour of the scheme, in the absence of a superior proposal and subject to the independent expert continuing to conclude that the scheme is in the best interests of independent iCar shareholders. Importantly, the iCar shares acquired under the Sale Agreement or to be acquired under the Joint Bid Agreement cannot be voted on at the scheme meeting, because the holder of those shares will fall within the definition of "Excluded Shareholders" for the purposes of the scheme, and the outcome of the scheme will be determined by a vote of independent iCar shareholders only. Mr Jackman also points to the matters noted by the independent expert in respect of the form of the consideration under the Sale Agreement and Joint Bid Agreement, which involves risks to which shareholders receiving cash consideration under the scheme are not exposed. I have also had regard to ASIC's ultimate position, after considering the submissions for iCar's solicitors, that it does not intend to appear and make submissions at the first Court hearing, which was treated as a relevant consideration in Re Anzon Australia Ltd [2008] FCA 309 at [14]. Consistent with the case law to which I have referred above, I am satisfied that this matter does not give rise to any reason not to convene the scheme meeting and approve the scheme booklet for distribution to iCar shareholders.
6. Second, Mr Jackman addresses Court's approach to recommendations by interested directors in scheme booklets. Mr Jackman refers to my decisions addressing this issue in Re Villa World Ltd [2019] NSWSC 1207; Re GBST Holdings Ltd [2019] NSWSC 1280; Re Windlab Ltd [2020] NSWSC 571; Re Coca-Cola Amatil Ltd [2021] NSWSC 270 and Re BINGO Industries Ltd [2021] NSWSC 798 and the decisions of Beach J in Re DWS Ltd [2020] FCA 1590 and Re RXP Services Ltd [2021] FCA 38 at [48] and of Perram J in Re Mainstream Group Holdings Ltd [2021] FCA 948 taking the same approach. Certain benefits that Messrs Chmiel and Stone may be entitled to receive if the scheme becomes effective are disclosed in the Chairman's letter and in the sections entitled "Key considerations relevant to your vote" and "Frequently Asked Questions" and in greater detail in sections 9.1-9.3 of the scheme booklet. Mr Jackman submits and I accept that, where these benefits are prominently disclosed in the scheme booklet, then iCar shareholders can take them into account in determining the weight to be given to the directors' recommendation, and the fact that Messrs Chmiel and Stone provide a recommendation in relation to the scheme does not give rise to any reason not to convene the scheme meeting or approve the materials to be dispatched to shareholders.
7. Third, Mr Jackman notes that iCar's chair, Mr Chmiel, holds 1,000,000 iCar options which vested on 31 December 2019 and will expire on 31 December 2021. Sections 9.1 and 9.2(b) of the scheme booklet disclose that iCar, Carsome and Mr Chmiel have entered into a tripartite deed dated 15 November 2021 under which, in consideration of Mr Chmiel not exercising those options, Carsome has agreed to pay him cash consideration on the Implementation Date for those options in the amount of $0.13 for each iCar option, being the equivalent of the scheme consideration less the exercise price of $0.40 for each iCar option (with a corresponding adjustment if the scheme consideration is increased), totalling $130,000. Those iCar options will then be cancelled and extinguished on the Implementation Date, subject to the scheme becoming effective. That deed nonetheless also provides that Mr Chmiel may exercise the iCar options on or before their expiry date of 31 December 2021 and provides that, if he does so, the tripartite deed will automatically terminate and be of no further force or effect. Mr Jackman submits that this approach places Mr Chmiel in the same economic position as he would have been in had he exercised his options, and the treatment of these options is disclosed in the scheme booklet. I accept that, consistent with the approach taken, albeit not on precisely the same facts, in Re Wameja Ltd [2021] FCA 878, this matter does not give rise to any reason not to convene the scheme meeting and approve the scheme booklet.
8. Fourth, Mr Jackman notes that iCar is obliged to pay any outstanding remuneration to iCar's directors in respect of the period prior to implementation of the scheme, in accordance with its remuneration arrangements in the ordinary course, and that, prior to entry into the SID, the iCar board determined the amount of remuneration payable to each iCar director for the full year of 2021 and the portion of 2022 prior to implementation of the scheme, and that that remuneration would be paid both by the issue of iCar shares and in cash, in accordance with iCar's remuneration arrangements in the ordinary course. The share component of that remuneration payable to each iCar director is set out in section 9.3(a) of the scheme booklet and, as contemplated by cl 4.4(a)(3) of the SID, iCar and Carsome have agreed that, instead of iCar issuing the iCar shares to which each iCar director would otherwise be entitled, iCar will, on the Implementation Date, pay cash consideration to each iCar director in the amount of $0.53 for each iCar share to which he or she would have been entitled (with an adjustment if the scheme consideration is increased). The cash amounts to which each iCar director are also disclosed in section 9.3(b) of the scheme booklet.
9. Mr Jackman submits that these arrangements are not "benefits" to be received in connection with the scheme as the iCar directors would be entitled to same value in accordance with iCar's remuneration arrangements in the ordinary course, regardless of whether the scheme was implemented. In any event, as he points out, the scheme booklet discloses these arrangements as a matter for shareholders to take into account when considering the directors' recommendation. I am satisfied that this matter also does not give rise to any reason not to convene the scheme meeting and approve the scheme booklet
10. Fifth, Mr Jackman refers to the Catcha Loan Agreement which I noted above, by which Catcha agreed to lend a total of $15 million in two tranches to iCar Singapore to fund the general working capital purposes of the iCar Group and any other purpose approved by Catcha. Mr Jackman also notes that the Catcha Loan Agreement is secured by a first ranking security over all of the assets of the iCar Group in favour of Catcha, and that "Tranche A" of the Catcha Loan Agreement is interest free; an interest rate of 12% per annum applies to amounts outstanding under "Tranche B" of the Catcha Loan Agreement; and outstanding amounts under the Catcha Loan Agreement must be repaid on 30 June 2023. He notes that iCar Singapore has drawn down the full $5 million available under "Tranche A" of the Catcha Loan Agreement and has drawn down $1 million under "Tranche B" of the Catcha Loan Agreement, which will be repaid out of funds loaned under a further loan agreement dated 23 November 2021 between iCar Singapore (as borrower) and Carsome (as lender) ("Carsome Loan Agreement"), to which I refer below. Details of the Catcha Loan Agreement are disclosed in section 9.5 of the scheme booklet.
11. Mr Jackman also notes that, under the Carsome Loan Agreement, Carsome has agreed to lend iCar Singapore US$12 million to fund the payment of costs, fees or expenses incurred by the iCar Group in connection with the acquisition of iCar by Carsome or as expressly contemplated in the SID (including certain fees payable to an investment bank in connection with the acquisition of iCar by Carsome); the repayment or prepayment of amounts outstanding under "Tranche B" of the Catcha Loan Agreement and the repayment or prepayment of amounts outstanding under "Tranche A" of the Catcha Loan Agreement; general working capital purposes of the iCar Group; and any other purpose approved by Carsome. The Carsome Loan Agreement is unsecured and an interest rate of 6% per annum applies to amounts outstanding under that agreement. Mr Jackman also address the scope of an "Event of Default" under that Agreement which relevantly provides that, if the Effective Date (as defined) for the scheme has not occurred, or will not occur, on or before the End Date (as defined), or if the SID is terminated, Carsome may, by written notice to iCar Singapore, immediately cancel any undrawn commitment under the Carsome Loan Agreement and require iCar Singapore to repay to Carsome outstanding amounts under the Carsome Loan Agreement by the date that is 6 months after the date of receipt of that written notice. Outstanding amounts under the Carsome Loan Agreement must otherwise be repaid 24 months after the date of signing. As at 2 December 2021, US$1.5 million (approximately AUD$2.11 million as at that date) had been drawn down under the Carsome Loan Agreement. Details of that Loan Agreement are disclosed in section 9.6 of the scheme booklet.
12. Mr Jackman submits and I accept that the Carsome Loan Agreement would not coerce target members into approving the proposed scheme of arrangement and does not operate as a lock-up device that would deter other potential bidders from making a competitive offer, by reference to relevant matters identified in Re Cortona Resources Ltd [2012] FCA 1295 at [43]; Re Anatolia Energy Ltd [2015] FCA 1134 at [44]; Re Black Range Minerals Ltd [2015] FCA 1162 at [18] and Re Decimal Software Ltd [2018] FCA 1647 at [43]. Importantly, that loan is not immediately repayable if members do not approve the proposed scheme and would likely allow sufficient time for the target company to refinance the loan: Re Anatolia Energy Ltd above at [45]; Re Beadell Resources Ltd (No 2) [2019] WASC 53 at [54]; Re Nzuri Copper Ltd [2019] WASC 189 at [70]; Re Creso Pharma Ltd [2019] WASC 472 at [92]. I also have regard to other relevant matters addressed in the case law, including the amount unpaid under the loan as at the date of the scheme meeting and the extent to which additional disclosures have been made about the loan agreement before the scheme meeting.
13. Mr Jackman points to Mr Stone's evidence that the Carsome Loan Agreement was negotiated between the parties in arm's length negotiations in which all parties were independently represented by experienced legal advisers; and he submits that the agreed interest rate of 6% per annum on amounts outstanding under the loan is an ordinary commercial rate and not unduly onerous or oppressive, although I give limited weight to interest rates accepted in other cases where such rates will very over time; the interest rate payable under that agreement is not affected by whether or not the scheme is approved and there is no financial penalty payable on the non-completion of the scheme; there is no requirement for the amounts outstanding under the Carsome Loan Agreement to be repaid immediately, if the scheme is not implemented or the SID is terminated; and he submits that the Carsome Loan Agreement does not operate to deter other potential bidders from making a competitive offer, where it is on arm's length terms and a long period has elapsed for a competing proposal to emerge, since the Autohome proposal was announced on 30 October 2020; and details of the Carsome Loan Agreement, including the amounts unpaid under the loan, are disclosed in section 9.6 of the scheme booklet. I am satisfied that this matter also does not give rise to any reason not to convene the scheme meeting and approve the scheme booklet.
14. Sixth, Mr Jackman addresses reimbursement (or "break") fees payable by Carsome and iCar. The case law has accepted reimbursement fees that are a genuine pre-estimate of the internal and external costs that would be incurred by an acquirer in respect of a scheme, including opportunity costs, and that are not payable if the shareholders did not vote in favour of the scheme and are unlikely to be a matter which could influence voting at the scheme meeting: Re Cytopia Ltd [2009] VSC 560; Re Webcentral Group Ltd [2020] NSWSC 1279 at [30]; Re Coca-Cola Amatil Ltd above at [24]. Mr Jackman points out that cl 11.2(a) of the SID provides that a reimbursement fee of $1,700,000 (including GST) ("Reimbursement Fee") may be payable by iCar to Carsome under specified circumstances, and that fee is not triggered by the failure of conditions precedent to be satisfied or waived (if capable of waiver), including the Court's not approving the scheme or independent iCar shareholders not approving the scheme at the scheme meeting. He submits and I accept that fee is not a disincentive to iCar shareholders in their consideration of the proposed scheme: Re Adelaide Bank Ltd [2007] FCA 1582 at [31]. The components of the out of pocket and opportunity costs that support the amount of the Reimbursement Fee is in turn addressed in Mr Cheng Kee Choon's affidavit, which I have addressed above. Carsome has agreed to pay an expense reimbursement amount of the same amount to iCar where iCar terminates the SID pursuant to clauses 12.1(a)(1) or 12.2(b) of the SID and the scheme is not implemented. These amounts represent approximately 0.7% of the equity value of iCar based on the scheme consideration offered to independent iCar shareholders of $0.53 per iCar Share, which is significantly less than the guideline figure indicated by the Takeovers Panel in Guidance Note 7. This matter also does not give rise to any reason not to convene the scheme meeting and approve the scheme booklet.
15. Seventh, Mr Jackman notes that cl 10 of the SID imposes "no talk", "no shop", "no due diligence", notification right and matching right obligations on iCar, and the "no talk" and "no due diligence" obligations are subject to a fiduciary exception as set out in cl 10.2 of the SID. Mr Jackman refers to my observation in Re TPG Telecom Ltd [2020] NSWSC 772 at [22] that: "the Court will be concerned to ensure that any exclusivity period should be for no more than a reasonable period capable of precise ascertainment; an exclusivity clause directed at dealing with an unsolicited alternative merger proposal should be subject to a fiduciary carve out; and the provisions must be clearly disclosed in the explanatory statement sent to shareholders."
16. Mr Jackman points out that the exclusivity period is here defined in the SID and capable of precise ascertainment, and lasts from and including the date of the SID to the earlier of specified dates, including the End Date, being the date which is 6 months after the date of the SID or such other date as agreed in writing by the parties. He submits and I accept that the exclusivity period of 6 months between the date of the SID and the "End Date" is a reasonable period and comparable with exclusivity periods in other schemes that have previously been accepted by the Courts. As I noted above, the "no talk" and "no due diligence" restrictions are subject to a fiduciary exception and the exclusivity provisions are clearly disclosed in the scheme booklet. I accept that similar provisions have been accepted in the case law including Re TPG Telecom Ltd above at [22] and Re Windlab Ltd above at [18].
17. Eighth, Mr Jackman points out that, having regard to the uncertainty and potential health risks associated with large gatherings during the COVID-19 pandemic, it is proposed that the scheme meeting be held virtually. He submits and I accept that s 249R of the Corporations Act permits meetings of members to be held, if virtual meeting technology is used in holding the meeting, in accordance with s 253Q of the Act; s 253Q of the Act provides that virtual meeting technology may be used in holding a meeting of a company's members, provided the technology gives the persons entitled to attend the meeting, as a whole, a reasonable opportunity to participate without being physically present in the same place; and nothing in iCar's constitution would prohibit iCar from convening a scheme meeting in this manner. Virtual meetings are now commonplace in company and trust schemes, and give rise to no reason not to approve the schemes for the reasons noted in Re Vocus Group Ltd [2021] NSWSC 630 at [21]. The procedures for voting and participation in the meetings are disclosed in the scheme booklet.
18. Ninth, Mr Jackman addresses performance risk. He notes that scheme participants' ability to enforce their entitlements under a scheme is relevant to the Court's discretion whether to convene the scheme meeting and approve the scheme, and a similar consideration can arise in a trust scheme where a third party provides the consideration: Re SFE Corporation Ltd [2006] FCA 670 at [4]; Re Mirvac Funds Management Ltd [2014] NSWSC 1569 at [7]; Re Villa World Ltd above at [22]. He refers to my observation in Re Ellerston Global Investments Ltd above at [29] that a practice has developed to address performance risk, by which the transfer of target shares to an acquirer is conditional on the payment of the consideration to target shareholders, and there are numerous cases which have endorsed that practice.
19. Mr Jackman points out that, pursuant to cl 5.1(a) of the scheme, an amount equal to the aggregate amount of the scheme consideration payable to all scheme participants must be deposited, or procured to be deposited, by Carsome into an Australian dollar denominated trust account with an authorised deposit-taking institution operated by iCar as trustee for the scheme participants and, under cl 5.1(b) of the scheme, on the Implementation Date (as defined), iCar must pay, or procure to pay, each scheme participant such amount as is due to the scheme participant in respect of all of their iCar shares. He submits and I accept that these provisions sufficiently address performance risk.
20. Tenth, Mr Jackman addresses the means by which scheme documents will be sent to iCar shareholders. Eleventh, Mr Jackman points out that cl 8.2(b) of the scheme provides that each scheme participant is deemed to have given various warranties to iCar and Carsome, including that on the Implementation Date all their iCar shares are free from encumbrances and interests of third parties of any kind. As I have noted in earlier cases, the case law has recognised the legitimacy of deemed warranty provisions, provided that appropriate disclosure is made, since their purpose and effect is to ensure that a scheme participant whose shares are subject to an encumbrance is not unfairly advantaged: Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26]; Re Villa World Ltd above at [25], Re Windlab Ltd above at [21]; Re Spark Infrastructure RE Ltd [2021] NSWSC 1385 at [34]. The deemed warranties of the scheme shareholders are here appropriately disclosed in the scheme booklet.
21. Twelfth, Mr Jackman notes that s 411(17) of the Act provides that the Court must not approve a scheme unless satisfied it is not proposed for the purpose of enabling avoidance of the takeovers provisions in Chapter 6 of the Act or ASIC provides a statement that it has no objection. I accept that this matter is properly deferred to the second court hearing: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [23]-[31]; Re Ellerston Global Investments Limited above at [25]; Re Spark Infrastructure RE Ltd above at [48].

Orders

1. For these reasons, I made the orders sought by iCar at the conclusion of the first Court hearing.

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