- Australian Securities Commission v Marlborough Gold Mines Ltd

Other aspects of the scheme

Mr Izzo also recognises Damstra's ex parte disclosure obligation and draws several aspects of the scheme to the Court's attention.
First, he draws attention to the fact that Damstra operates employee incentive plans under which long-term and short-term incentives in the form of options, conditional rights and cash incentives are granted or issued, as disclosed in section 7.4 of the scheme booklet, and that, broadly, the conditions precent to the scheme require that those incentives be cancelled or extinguished. Mr Izzo also notes that the manner in which Damstra intends to satisfy this condition is set out in section 11.3 of the scheme booklet. Mr Izzo recognises that, if the scheme becomes effective, each of Damstra's directors (or entities associated with them) will receive a cash payment as consideration when the options and cash incentives held by those entities are cancelled or extinguished. Mr Izzo draws attention to the case law that has recognised that, where a director will receive a substantial benefit in relation to a scheme which other shareholders will not receive, that benefit should be disclosed as a matter for shareholders to take into account when considering that director's recommendation, and that directors are not generally prevented from making a recommendation if such disclosure is made, and directors and employees who receive consideration in respect of the cancellation or extinguishment of their cash incentives are not for that reason alone to be placed in a separate class: Re Kidman Resources Ltd [2019] FCA 1226 at [115]; Re DWS Ltd [2020] FCA 1590 at [41]-[49]; Re Oz Minerals Ltd [2023] FCA 197 at [10], [18]; Re Healthia Ltd [2023] NSWSC 1296 at [21]. I accept that the interests of the Damstra directors are sufficiently disclosed in the chairman's letter and in section 11 of the scheme booklet and these matters provide no reason not to convene the first Court hearing.
Second, Mr Izzo points out that, as I noted above, entities associated with Messrs Risseeuw and Damstra have each entered into call option deeds with Ideagen by which Ideagen can acquire a total of 15.3% of the issued Damstra shares. Mr Izzo points out that those call options deeds are disclosed in the chairman's letter and sections 5 and 8.6(a) of the scheme booklet and, if Ideagen exercises its right under the call option deeds, it is precluded from voting those Damstra shares in favour of the scheme. Mr Izzo also notes that the call options are exercisable if there is a public announcement of a competing proposal, or an intention to undertake a competing proposal, before 25 September 2024, and their exercise price is $0.24 per Damstra share, which is the same as the scheme consideration. Mr Izzo submits and I accept that the case law indicates that call options to acquire shares at a price equivalent to the scheme consideration, which are triggered by the emergence of a competing proposal, do not give rise to different interests that require Messrs Risseeuw and Damstra or their associated entities to vote in a separate class at the scheme meeting: Re Mitchell Communication Group Ltd [2010] VSC 423 at [35]-[38]; Re MAC Services Group Ltd (2010) 80 ACSR 390; [2010] NSWSC 1316 at [16]; Re Aston Resources Ltd [2012] FCA 229 at [47]. Mr Izzo also submits and I accept that such call options may be regarded as a form of exclusivity provision, but no issue of fiduciary carve out arises and they are sufficiently addressed by disclosure: Re Aston Resources Ltd above at [46]. He also points out that the maximum length of the option period of nine months in this case is equivalent to the period considered in Re Mitchell Communication Group above.
Third, Mr Izzo notes that, in reviewing the scheme booklet, ASIC raised some questions with respect to the due execution and enforceability of the deed poll provided by Ideagen in favour of scheme shareholders. Mr Izzo points out that Ideagen is a company incorporated in accordance with the laws of the United Kingdom and, on 6 March 2024, Ideagen executed the deed poll covenanting and undertaking in favour of scheme shareholders that it will, amongst other things, observe and perform its obligations under the scheme. Mr Izzo notes that, consistent with the approach contemplated in Practice Note SC EQ 4 - Corporations List [28(a)] and with case law including Re Blackmores Ltd [2023] FCA 624 at [18]-[19] and [22] and Re Chesser Resources Ltd [2023] FCA 1021, Ideagen has not led evidence of English law as to the due execution of the deed poll by Ideagen. Mr Izzo points out that the case law indicates that, where a deed poll in respect of a scheme contains a jurisdiction clause in favour of an Australian jurisdiction (as it does in the present case) evidence of the enforceability of the deed poll in the relevant jurisdiction is not required: Re BIS Finance Ltd [2017] NSWSC 1713 at [45]; Re Sundance Energy Aus Ltd [2019] FCA 1944 at [46]. I accept that, consistent with the Practice Note, evidence of due execution of a deed poll should only be necessary if a real uncertainty or issue exists in that respect. I proceed on the basis that Damstra and Ideagen do not consider such an uncertainty exists here; there is no reason to think that there is any uncertainty as to the requirements of English law for execution of a deed poll, and I note that Damstra has responded to ASIC's questions as to this matter and ASIC has now provided the letter to which I referred above. This matter does not give rise to any reason not to convene the scheme meeting.
Fourth, Mr Izzo draws attention to cl 6 of the Scheme Implementation Deed which imposes several restrictions and obligations on Damstra in relation to negotiations with third parties including "no shop", "no talk" and "no due diligence" restrictions, and a "notification of approach" obligation and a "matching right". The "no talk" and "no due diligence" restrictions and the "matching right" are subject to Damstra Board's fiduciary or statutory obligations. Mr Izzo submits and I accept that exclusivity provisions broadly in the form of this clause are now conventional (or at least commonplace) in schemes of arrangement and are not inconsistent with the Takeovers Panel's Guidance 7: Lock-up Devices; Re Villa World Ltd (2019) 139 ACSR 550 at [23] ("Villa World"). Mr Izzo also draws attention to matters to which the Court will have regard in assessing such provisions, including 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 proposal should be subject to a fiduciary carve out; and the provisions must be clearly disclosed in the explanatory statement sent to shareholders: Re Asaleo Care Ltd [2021] FCA 406 at [55]. Mr Izzo points out that the exclusivity period here has an End Date (as defined) of 24 July 2024. He submits and I accept that a maximum exclusivity period of about six months is not unreasonable in the relevant circumstances, and I recognise that Courts have previously approved schemes with longer exclusivity periods: Re Tatts Group Ltd [2017] VSC 552 at [36]; Re Sirtex Medical Ltd [2018] FCA 1315 at [37]; Re Trust Co (RE Services) Ltd as responsible entity of VitalHarvest Freehold Trust [2021] NSWSC 108 at [38]-[40]. The exclusivity provisions are prominently disclosed in the section titled "Frequently Asked Questions" and section 11.9(a) of the scheme booklet. Again, the matters do not provide any reason not to convene the scheme meeting.
Fifth, Mr Izzo points out that cl 7.2 of the Scheme Implementation Deed provides for Damstra to pay to Ideagen a Break Fee, defined as $690,000, in specified circumstances, provided that Ideagen has validly terminated the Scheme Implementation Deed in accordance with cl 10.2 of the Scheme Implementation Deed ("Damstra Break Fee"); and cl 7.3 of the Scheme Implementation Deed provides for Ideagen to pay to Damstra a Reverse Break Fee, also defined as $690,000, in specified circumstances, provided that Damstra has validly terminated the Scheme Implementation Deed in accordance with clause 10.1(c) of the Scheme Implementation Deed ("Ideagen Break Fee"). Mr Izzo also points out that both the Damstra Break Fee and the Ideagen Break Fee and the specified circumstances in which they are to be paid are disclosed in the "Frequently Asked Questions" and sections 11.9(b) and 11.9(c) of the scheme booklet. Mr Izzo submits and I accept that break fees are common features in schemes of arrangement and will be permitted unless the amount of the break fee is such that it could influence voting at the meeting to be convened or if there are some unusual circumstances: Villa World at [24]. He points out that the Damstra Break Fee and Ideagen Break Fee represent approximately 1% of the total implied equity value of Damstra on a fully diluted basis based on the scheme consideration which accords with the 1% guideline in Takeover Panel Guidance Note 7. This matter does not give rise to any reason not to convene the scheme meeting.
Sixth, Mr Izzo notes that Damstra has engaged a third party ("Automic") to coordinate the despatch of the scheme materials to Damstra shareholders, conduct the scheme meeting and engage in other communications with Damstra shareholders. He refers to Ms Blakiston's evidence that Automic will operate an in-bound information line for Damstra shareholders to call if they have questions in relation to the scheme and to the script prepared for use by Automic representatives operating the shareholder information line. As I noted above, consistent with the approach in recent case law, Damstra does not seek the Court's approval of that script, although I have would drawn any concerns that I had with it to its attention: Re Essential Metals Ltd [2023] FCA 240 at [87]-[105]; Re DDH1 Ltd [2023] FCA 982; Invocare at [23]-[26]. This matter also does not give rise to any reason not to convene the scheme meeting.

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Cases Cited (25)

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