By Originating Process filed on 10 November 2022, the Plaintiff, ELMO Software Ltd ("ELMO") applies for an order under s 411 of the Corporations Act 2001 (Cth) convening scheme meetings (with shareholders voting in two classes) concerning a proposed scheme of arrangement relating to the proposed acquisition of all of ELMO's shares by Manhattan Bondi Hold Co Inc ("MBH") or its nominated affiliate, the aptly named Cookie Monster AcquireCo Pty Ltd ("CMA").
By way of background, ELMO is a public company limited by shares and is listed on Australian Securities Exchange ("ASX") and its shares are quoted on ASX. ELMO provides human capital management solutions to small business and mid-market organisations, primarily in Australia, New Zealand and the United Kingdom. On 13 October 2022, ELMO announced to ASX that it had received approaches expressing interest in acquiring it from various parties. The ELMO board then established an independent board committee ("IBC") comprising all of its directors, other than its chief executive officer and co-founder, Mr Danny Lessem, to consider acquisition proposals in respect of ELMO and engage with counterparties as required. On 26 October 2022, ELMO announced to ASX that it had entered into a scheme implementation deed ("SID") with K1 Investment Management LLC ("K1") under which MBH, a wholly owned subsidiary of funds advised or managed by K1, agreed to acquire (or nominate an affiliate to acquire) all of the issued shares in ELMO under a scheme of arrangement. CMA, an entity controlled by investment funds advised or managed by K1, has now been nominated to acquire all of the ELMO shares under the scheme.
The proposed scheme provides for ELMO shareholders, other than the Rollover Shareholders (as defined), to receive cash consideration of $4.85 per scheme share ("Cash Consideration"). The Rollover Shareholders are several members of ELMO's senior executive management team and certain ELMO shareholders controlled by them and may elect to receive Series A units in CMH ("Scrip Consideration") in place of the cash consideration they would otherwise be entitled to receive for their scheme shares. The Scrip Consideration is only offered to those Rollover Shareholders and a maximum number of Series A units be issued to Rollover Shareholders is specified. MBH and Mr Lessem and an affiliate vehicle have entered into a Voting and Rollover Agreement by which they have agreed to elect to receive Scrip Consideration in respect of approximately 70% of the ELMO shares held or controlled by them and the Cash Consideration in respect of the remainder of the ELMO shares held or controlled by them. The position in respect of Rollover Shareholders is disclosed in clause 11.1 of the scheme booklet.
The IBC has unanimously recommended that ELMO shareholders vote in favour of the scheme at the scheme meetings in the absence of a Superior Proposal (as defined) and subject to the independent expert continuing to conclude that the scheme is in the best interests of ELMO shareholders. The IBC makes this recommendation only in respect of the Cash Consideration and not in respect of the Scrip Consideration and the IBC also does not make any recommendation in relation to whether the Rollover Shareholders should make an election to receive Scrip Consideration. Section 1.1 of the scheme booklet also notes that ELMO shareholders should have regard to the ELMO shares held by the directors comprising the IBC when considering their recommendation as to the scheme (limited to the Cash Consideration, as noted above) and also notes that the IBC considers that, notwithstanding their interests in ELMO shares, it is appropriate for the IBC to make such a recommendation, given the importance of the scheme and their role as directors of ELMO. One ELMO director, Ms Catherine Hill, also holds ELMO Equity Incentives and ELMO Restricted Shares, and I address ELMO's submissions as to that matter below. Mr Lessem also recommends that ELMO shareholders vote in favour of the scheme, in the absence of a Superior Proposal (as defined) and subject to the independent expert continuing to conclude that the scheme is in the best interests of ELMO shareholders, and I also address ELMO's submissions as to that matter below.
Leadenhall Corporate Advisory Pty Ltd ("Leadenhall"), the independent expert appointed by the IBC to assess the scheme, has prepared an independent expert's report which is included at Annexure A to the scheme booklet. Leadenhall has concluded that the scheme is fair and reasonable and in the best interests of the ELMO Shareholders in the absence of a Superior Proposal, where the scheme consideration of $4.85 per share is within and "towards the high end" of Leadenhall's valuation range for an ELMO share.
I made the orders sought by ELMO at the conclusion of the hearing on 16 December 2022. These are my reasons for doing so. I have drawn on the helpful submissions of Mr Izzo, with whom Ms Bathurst appears, in this judgment.
[3]
Affidavit and other evidence
ELMO reads the affidavit dated 9 November 2022 of Mr Stephen Lloyd, a partner in the firm of solicitors acting for ELMO in respect of the scheme, which exhibited, inter alia, an announcement made by ELMO in connection with the scheme to ASX on 26 October 2022.
ELMO also reads the affidavit dated 14 December 2022 of Mr James Haslam, who is the chief financial officer and company secretary of ELMO, which referred to the nature of ELMO's business; outlined the steps to be taken to implement the scheme and the nature of the scheme consideration; and referred to the terms of the scheme and a deed poll which provide, in customary terms, a mechanism for provision of the scheme consideration. He also addressed the position in relation to ELMO equity incentives and outlined the content of the scheme booklet and the means by which documents would be provided to scheme shareholders. He also outlined the process for drafting and verification of the scheme booklet, which was in common form, and referred to the negotiation of exclusivity provisions and a break fee.
ELMO read the affidavit dated 14 December 2022 of Mr Barry Lewin, an independent non-executive chair of ELMO who consents to act as chair of the scheme meeting. By her affidavit dated 14 December 2022, Ms Catherine Hill, who is an independent non-executive director of ELMO, consents to act as chair of the scheme meeting if Mr Lewin was unable to do so.
By her affidavit dated 14 December 2022, Ms Kirsten O'Hara, who is a client relationship manager at Link Market Services Ltd ("Link"), outlined the scope of the services provided by Link to ELMO and indicated the process which would be adopted for the dispatch of scheme documents to ELMO shareholders and addressed the proposed use of the Link platform in respect of a hybrid scheme meeting and the steps which would be taken for registration of ELMO shareholders and proxy holders and to generate poll reports in respect of the meeting.
By his affidavit also dated 14 December 2022, Mr David Pearson, who is a chartered accountant and director at Leadenhall Corporate Advisory Pty Ltd, addressed his independent expert's report in respect of the scheme.
ELMO also read the affidavit dated 14 December 2022 of Mr Roy Liao, who is a principal at K1, a director of MBH, an officer of Cookie Monster GP, LLC, the general partner of CMH, and a director of CMA. Mr Liao refers to MBH's entry into the SID with ELMO on 26 October 2022 and to the incorporation of CMA as a special purpose vehicle to acquire ELMO's shares under the scheme. Mr Liao also addresses the scheme consideration, including the Cash Consideration and the Scrip Consideration available to Rollover Shareholders; refers to equity financing committed by K5 Private Investors LP ("K5 Fund") (a fund advised and managed by K1) to fund the Cash Consideration, and refers to a legally binding commitment letter dated November 2022 from K5 Fund in respect of the Cash Consideration and any break fee required to be paid by CMA to ELMO under cl 12.2 of the SID. Mr Liao also addresses the conditions precedent to implementation of the scheme; the process for verification and board approval of the scheme booklet in respect of CMA and its associated entities; the execution of a deed poll by CMA, CMH and MBH in favour of scheme shareholders; and the negotiations regarding the exclusivity and break fee provisions of the SID and he outlines, in general terms, the costs incurred by MBH that support that break fee. ELMO also tendered the commitment letter provided by K5 Fund in favour of CMA, and noted that ELMO was a third party beneficiary of the commitment letter for the purposes of CMA enforcing or seeking specific performance of its rights under that agreement, and is entitled to cause CMA to specifically enforce those obligations, subject to specified terms (Ex A1).
ELMO also read the affidavit dated 13 December 2022 of Ms Melissa Stubenberg, who is a legal practitioner practising in Delaware in the United States of America. She there addressed her report in relation to a deed poll executed by MBH and Cookie Monster Holdings LP ("CMH"), an affiliate of CMA, and an equity commitment letter issued by K5 Fund in favour of CMA. She confirmed that she held the opinions contained in her report, subject to the relevant assumptions, qualifications, limitations and exceptions set out in it.
By an affidavit dated 15 December 2022, Mr Gavin Hammerschlag, who is a partner in the firm of solicitors acting for ELMO in respect of the scheme, addressed regulatory relief obtained by ELMO from ASX in respect of the scheme, the provision of materials concerning the scheme to the Australian Securities and Investments Commission ("ASIC") and the entry into the deed poll by CMA, MB and CMH in favour of scheme shareholders. Mr Hammerschlag's affidavit also exhibited the scheme booklet, and Mr Izzo took me through that scheme booklet in the course of his submissions.
ELMO also tendered a letter dated 15 December 2022 from ASIC, in customary form, which indicates that ASIC has been given sufficient notice of the hearing and a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement; does not currently propose to appear to make submissions or intervene to oppose the scheme at the first hearing, and reserves its position under s 411(17)(b) of the Act in the usual way.
[4]
Issues to be addressed at the first Court hearing
Mr Izzo submits, uncontroversially, that the Court will order the convening of the scheme meetings and approve the proposed scheme booklet if it is satisfied that ELMO is a Part 5.1 body; the proposed scheme is an arrangement within the meaning of s 411; the explanatory memorandum will provide proper disclosure to ELMO shareholders; the scheme is bona fide and properly proposed; ASIC has had a reasonable opportunity to examine the terms of the scheme and the explanatory memorandum and make submissions and has had 14 days' notice of the proposed hearing date of the first Court hearing; the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) (Corporations Rules) 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 Wiggins Island Coal Export Terminal Pty Ltd [2018] NSWSC 1342 at [17].
Mr Izzo submits, also uncontroversially, that "the court will not ordinarily summon a meeting unless the scheme is of such a nature case on 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": F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 (Street CJ with whom Hutley and Samuels JJA agreed); Australian Securities Commissions v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504; Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [36], [44]; Re CSR Ltd (2010) 183 FCR 358 at [58]. Mr Izzo rightly recognises that, as the application is brought ex parte, ELMO must bring to the court's attention all matters that could be considered relevant to the exercise of the discretion to convene the scheme meetings: Re Permanent Trustee Company Ltd (2002) 43 ACSR 601 at [7].
Each of the procedural requirements for the scheme are satisfied. ELMO is a Pt 5.1 body for the purposes of s 411 of the Act. The proposed change of control transaction under the scheme is an "'arrangement" within the meaning of s 411 of the Act. ELMO has applied, by way of the Originating Process, for an order under s 411(1) of the Act. The SID provides prima facie evidence that ELMO has committed itself to propounding the scheme and that accordingly the scheme is bona fide and has been properly proposed: Re Viralytics Ltd [2018] FCA 637 at [22]. The Originating Process and a draft of the scheme booklet were provided to ASIC more than 14 days before the first Court hearing and, as I noted above, ASIC has provided its usual letter indicating that it does not currently propose to appear to make submissions or intervene to oppose the scheme. Accordingly, the Court has power to convene the scheme meeting.
Mr Izzo submits, and I accept, that ss 411 and 412(1) of the Act require the disclosure of information explaining the "effect" of the scheme as well as information that is material to a shareholder's decision whether or not to agree to it, and that information must be presented in a form that is intelligible to reasonable members of the class to whom it is directed, and should contain information that is realistically useful having regard to the complexity of the proposal: Re HIH Casualty and General Insurance Ltd (2006) 200 FLR 243 at [81]-[83]. He submits and I accept that the scheme booklet meets these requirements, where the advantages and disadvantages of the scheme are summarised in section 2 of the scheme booklet; a set of "Frequently Asked Questions" in section 3 directs attention to the sections of the scheme booklet in which particular matters are elaborated upon in greater detail; section 4 provides information concerning the scheme meetings and the voting process; section 5 provides an overview of the scheme; and the scheme booklet also provides information concerning ELMO (section 6), the bidder (section 7), risk factors (section 8), taxation implications (section 9) and additional matters (section 10).
As I noted above, the IBC has unanimously recommended (in respect of the Cash Consideration) that ELMO shareholders vote in favour of the scheme at the scheme meetings in the absence of a Superior Proposal; the independent expert has concluded that the scheme is fair and reasonable and therefore in the best interests of ELMO shareholders in the absence of a Superior Proposal; and the independent expert's report has been verified by affidavit. I am satisfied that, subject to the particular matters addressed below, the proposed scheme is fit for consideration by a meeting of ELMO shareholders and reflects a commercial proposition that, if passed by the requisite majorities at the scheme meetings, is likely to be approved by the Court on an uncontested application, and there are no discretionary matters warranting a refusal by the Court to convene the scheme meetings.
[5]
Particular issues
Mr Izzo recognises that several aspects of the transaction should be brought to the Court's attention in accordance with the disclosure obligation noted in Re Permanent Trustee above at 603 and submits that none of these matters should be of concern to the Court.
First, Mr Izzo notes that Rollover Shareholders have the option to elect to receive their scheme consideration partly in the form of Scrip Consideration and partly in the form of Cash Consideration, and other shareholders only receive the Cash Consideration. ELMO recognises that, given the different treatment of the Rollover Shareholders from other shareholders, the Rollover Shareholders should form a separate class for the purposes of considering and agreeing to the scheme. Mr Izzo submits and I accept that it is appropriate for the Court to order the convening of two separate meetings, one comprising the Rollover Shareholders and one comprising all other members, adopting the approach also taken in Re QMS Media Ltd [2019] FCA 2172 at [80]; Re Zenith Energy Ltd [2020] WASC 266 at [42] and Re Uniti Group Ltd (2022) 160 ACSR 602; [2022] FCA 671 at [27]-[36].
Second, Mr Izzo notes that Mr Lessem, has agreed to work exclusively with K1 to seek to implement the scheme, subject to his directors' duties and employment agreement with ELMO, in accordance with the terms of the Voting and Rollover Agreement entered into by him with MBH and others, which I noted above; and he has also agreed to vote all of the ELMO shares held or controlled by him, being approximately 11.04% of all ELMO shares on issue as at the Last Practicable Date (as defined) in favour of the scheme, subject to the terms of the Voting and Rollover Agreement. Mr Izzo also notes that Mr Lessem and an entity that he controls are Rollover Shareholders, and are eligible to receive some or all of their scheme consideration as Scrip Consideration rather than Cash Consideration; and (as I noted above), Mr Lessem has also agreed, under the Voting and Rollover Agreement, to elect to receive Scrip Consideration in respect of approximately 70% of the ELMO shares held or controlled by him (representing Scrip Consideration of approximately $37 million in value) and would receive Cash Consideration in respect of the remaining approximately 30% of the ELMO shares held or controlled by him (representing Cash Consideration of approximately $16 million). Mr Izzo notes that these matters are disclosed in the scheme booklet, including in the Chairman's letter. Mr Izzo submits and I accept that these matters do not mean that Mr Lessem cannot make a recommendation about voting in favour of the scheme, provided appropriate disclosure is made in respect of his interests: Re DWS Ltd (2020) 148 ACSR 616; [2020] FCA 1590 at [42]-[49]; Uniti Group at [46]; Re Pendal Group Ltd (No 2) [2022] NSWSC 1648 at [25]. Mr Izzo submits and I accept that Mr Lessem's interests are sufficiently disclosed in the scheme booklet so that ELMO shareholders may take them into account in determining the weight to be given to Mr Lessem's recommendation.
Third, Mr Izzo notes that, as contemplated by cl 5.8 of the SID, the IBC's unanimous recommendation that ELMO shareholders vote in favour of the scheme is only made in respect of the Cash Consideration and not in respect of the Scrip Consideration, and the IBC does not make any recommendation in relation to whether the Rollover Shareholders should elect to receive Scrip Consideration. Mr Izzo points out that the scheme booklet outlines (in section 2.5) the reasons for the IBC's not making a recommendation in respect of Rollover Shareholders and sets out (in section 7.9) risk factors that Rollover Shareholders should take into account, and encourages Rollover Shareholders to seek independent advice before deciding whether to receive the Scrip Consideration. Mr Izzo also submits that adequate information is provided for the Rollover Shareholders (which he points out are sophisticated or professional investors) to come to a fully informed decision as to whether it is in their interests to accept the scheme proposal. Mr Izzo submits and I accept that a similar course has been followed in other schemes involving rollover shareholders, and this gives rise to no reason not to convene the scheme meetings: Uniti Group at [43]; Re Navitas Ltd [2019] WASC 180 at [76].
Fourth, Mr Izzo notes that ELMO operates two equity incentive plans, the ELMO Equity Plan and the ELMO NED Equity Plan, and ELMO equity incentives are offered to ELMO directors, senior executives and key employees under these two equity incentive plans. As at the Last Practicable Date (as defined), ELMO had on issue 514,840 vested (but unexercised) ELMO options; 511,956 unvested ELMO performance rights; and 6,037 unvested ELMO NED share rights. Under cl 5.10(a) of the SID, conditional upon the scheme becoming effective, ELMO may take such action as is necessary to ensure that, prior to the scheme record date, all ELMO equity incentives will vest in accordance with their terms and be exercised (if applicable), have any applicable restrictions removed (if applicable) and/or be cash settled. Under clause 5.10(b), ELMO must notify CMA of the number of ELMO shares that have or will be used in accordance with clause 5.10(a) (if any), by no later than two business days before the Effective Date (as defined). The manner in which the ELMO equity incentives will be treated is set out in section 10.4(a) of the scheme booklet. Mr Izzo submits and I accept that these arrangements do not have the result that holders of ELMO options or ELMO performance rights who are (or will become) ELMO shareholders are in a separate class of members by reason only that they also hold incentive rights: Re Cashcard Australia Ltd (2004) 48 ACSR 738; Re Foster's Group Ltd (No 2) [2011] VSC 547 at [38]-[43]; Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525; [2015] VSC 789 at [82]; Pendal Group at [22]. As Mr Izzo points out, the rights of the holders of those incentive rights are the same as those of other shareholders so far as concerns the shares they hold; the additional rights they obtain by reason of the proposed treatment of their incentive rights does not put them in such a different position that it would be impossible for them to consult together with other ELMO shareholders with a view to their common interest; and no issue arises in respect of the holders of the ELMO NED share rights, where the vesting of those rights will not be accelerated.
Fifth, Mr Izzo addresses the treatment of ELMO Restricted Shares, which are ordinary ELMO shares that are subject to disposal restrictions. He notes that, as at the Last Practicable Date (as defined), 27,934 of the ELMO shares held by one of ELMO's directors, Ms Hill, are ELMO Restricted Shares; and Ms Hill will receive another 6,037 ELMO Restricted Shares when her ELMO NED Share Rights vest on 1 January 2023. Mr Izzo notes that section 10.4(b) of the scheme booklet records that the ELMO board intends to take such actions as are necessary to remove the disposal restrictions that apply to ELMO Restricted Shares, with effect on the Effective Date, and that Ms Hill may receive a benefit if the scheme proceeds, so far as the disposal restrictions applying to her ELMO Restricted Shares will then be removed. Mr Izzo also notes that the practical effect of this is limited where that benefit will exist only for the short period between the Effective Date and the Implementation Date (as defined), when ELMO shares will be suspended from trading. That benefit is disclosed in sections 1.2 and 10.4(b) of the scheme booklet and I am satisfied that it does not prevent Ms Hill (as a member of the IBC) from making a recommendation about voting in favour of the scheme and does not require that she vote in a separate class where she will receive the same consideration for her ELMO Restricted Shares as other shareholders receive for their ELMO shares.
Sixth, Mr Izzo addresses the question of performance risk. He notes that cl 6.4 of the scheme requires CMA to provide, or procure the provision of, the Cash Consideration to scheme shareholders in accordance with the scheme and the deed poll, by depositing, or procuring the deposit, into the Trust Account (defined as an Australian dollar denominated trust account held with an Australian bank operated by ELMO as trustee for the scheme shareholders), of an amount in cleared funds equal to the aggregate amount of the Cash Consideration payable to all scheme shareholders, and provision of the Cash Consideration in this way is a precondition to the transfer of scheme shares to CMA. Mr Izzo submits and I accept that this structure, which is in conventional form, is a sufficient safeguard against the risk that scheme shareholders will suffer delay or default in the provision of the Cash Consideration after their ELMO shares have been transferred to CMA, and scheme shareholders will not be left to the remedy of suing on the deed poll: Re APN News & Media Ltd (2007) 62 ACSR 400 at [23]; Re Signature Gold Ltd [2017] FCA 766 at [66]; Re DUET Finance Ltd [2017] NSWSC 415 at [47]; Pendal Group at [26].
Mr Izzo also recognises that a deed poll is another means of managing performance risk; where the deed poll is executed by a foreign company, there is a practice of providing an affidavit from an appropriate lawyer in the jurisdiction of incorporation proving due execution; and, where the deed poll contains a jurisdiction clause in favour of an Australian jurisdiction, evidence of enforceability of the deed poll in the jurisdiction of incorporation is ordinarily not required: Re Simativa Holdings Ltd [2013] FCA 1274 at [43]; Re Veda Group Ltd [2015] FCA 1506 at [32]-[33]; Re BIS Finance Pty Ltd [2017] NSWSC 1713 at [45]; Re Sundance Energy Australia Ltd [2019] FCA 1944 at [46]; Re Afterpay Ltd [2021] NSWSC 1435 at [45]. Mr Izzo points out that, here, the deed poll (Annexure C to the scheme booklet) contains a non-exclusive jurisdiction clause in favour of New South Wales, and the Ms Stubenberg's opinion as to Delaware law proves due execution of the deed poll. As Mr Izzo points out, in Re Spark Infrastructure RE Ltd (2021) 156 ACSR 257 at [31]-[32], I noted the issues that may arise where the party to the deed poll is a special purpose vehicle which does not have the capacity to perform its obligations under that deed poll without financial support from a holding company, where funding from third party lenders is presently conditional. Mr Izzo submits and I accept that those issues do not arise in the same way here where, although CMA is a special purpose vehicle, it has the benefit of an equity commitment letter from the K5 Fund sufficient to cover provision of the scheme consideration, and that commitment is only conditional on the conditions in the SID and deed poll and on the scheme becoming effective.
Seventh, Mr Izzo addresses the question of "deal protection clauses". Clause 11 of the SID includes "no shop", "no due diligence", "no talk", "notification of approaches" and "matching right" obligations, and the "no due diligence and no talk restrictions" in cl 11.3 are subject to "fiduciary carve outs" in cl 11.5. Mr Izzo submits and I accept that the Court will consider whether any exclusivity period is for no more than a reasonable period capable of precise ascertainment; whether any exclusivity clause directed at dealing with an unsolicited alternative merger proposal is subject to a fiduciary carve out; and whether the provision is clearly disclosed in the explanatory statement sent to shareholders: Re TPG Telecom Ltd [2020] NSWSC 772 at [22]; Pendal Group at [30]. Mr Izzo submits and I also accept that those requirements are satisfied here, where the "Exclusivity Period" is defined in the SID and is capable of precise ascertainment; it continues for a maximum of 9 months after the date of the SID, or until such other date as is agreed in writing between CMA and ELMO; and exclusivity periods of 9 months have previously been accepted in comparable transactions: Re Vocus Group Ltd [2021] NSWSC 630 at [17]; Re iSelect Ltd [2022] FCA 1329 at [58]. As Mr Izzo also points out, the "no shop" restriction is not included in the fiduciary carve outs, and that position is Accepted in the case law: Re Macquarie Private Capital A Limited (2008) 26 ACLC 366; [2008] NSWSC 323 at [19]; Re DUET Management Company I Ltd [2013] NSWSC 817 at [24]; Re Aveo Group Ltd and Aveo Funds Management Ltd [2019] NSWSC 1348 at [44]; Pendal Group at [31]. These provisions are sufficiently disclosed in section 5.3 of the scheme booklet.
Clause 12.2 of the SID provides for ELMO to pay a break fee if the scheme does not proceed in specified circumstances, including in the event of termination of the SID for material breach of specified obligations under the SID. That break fee is an amount of $4,859,760, which is approximately 1% of the fully diluted equity valuation of ELMO. Mr Izzo submits and I accept that the amount of the break fee is consistent with the guidance provided in Guidance Note 7 on Lock-up Devices issued by the Takeovers Panel and that break fees of this magnitude are now commonplace in schemes of this kind: TPG at [24]; Pendal Group at [32]. He points out that the break fee is not payable only because ELMO shareholders do not approve the scheme by the requisite majority at the scheme meeting and it does not operate as a disincentive to a decision of ELMO shareholders not to approve the scheme: Re Adelaide Bank Limited [2007] FCA 1582 at [31]; Re Westfield Corporation Ltd [2018] NSWSC 584 at [35]; Pendal Group at [32].
Mr Izzo also refers to Mr Haslam's evidence that the break fee and exclusivity provisions were included in the SID following, and as a result of, commercial negotiations between ELMO and MBH, in which ELMO received legal advice from its solicitors and financial advice from its external financial advisers; from the outset of the negotiations, it was a condition of MBH's willingness to enter into the scheme that ELMO agree to these exclusivity and break fee provisions; and the IBC also considered the break fee did not operate to the detriment of ELMO shareholders and that it was in ELMO shareholders' interests to enter into the SID in the form executed by ELMO and MBH. Mr Liao's evidence is also that MBH requested the break fee and that it would not have entered into the SID without it and that the amount of the break fee was calculated to compensate MBH for its costs and expenses incurred in pursuing the scheme. I am satisfied that the exclusivity provisions and break fee do not give rise to any reason not to convene the scheme meetings.
Eighth, Mr Izzo notes that cll 9.4 and 9.5 of the scheme provide for a "deemed warranty" that the ELMO shares are fully paid and free of encumbrances. I accept that the inclusion of clauses of this kind will not prevent the making of orders under s 411(1) of the Act, provided the clause is properly disclosed in the scheme booklet: APN News & Media at [57]-[63]; Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26]; Re rhipe Ltd [2021] NSWSC 1170 at [26]; Pendal Group at [34]. These provisions are sufficiently disclosed in section 5.5 of the scheme booklet and give rise to no reason not to convene the scheme meetings.
Ninth, ELMO seeks an order approving the proposed script for an outbound call campaign to ELMO Shareholders to be conducted by a third party, Morrow Sodali. I accept that order is properly sought where the Court should approve any proposed supplementary disclosure in circumstances where it has approved the explanatory material in respect of the scheme: Re Walsh & Company Investments Ltd [2020] NSWSC 1746 at [66]; Re Tassal Group Ltd [2022] NSWSC 1414 at [34]; Pendal Group at [28]. As Mr Izzo points out, that script reflects the information contained in the scheme booklet, and the Morrow Sodali staff operating the telephone information line will be instructed to follow the scripts and to notify their supervisor and/or make a written record if they depart from the script in a material manner during any of the calls. I am satisfied that there is no reason not to approve that script. Tenth, ELMO also draws to the Court's attention to an inbound call script for a shareholder information line. It is not necessary for ELMO to seek an order approving the form of that script and it does not do so: Tassal Group at [33], [35]. I note that that script does not travel beyond the information in the scheme booklet and it appears to present information in a balanced manner, and draws attention to the advantages and disadvantages of the scheme and encourages shareholders to read the scheme booklet in its entirety. These matters also do not give rise to any reason not to convene the scheme meetings.
Eleventh, Mr Izzo draws attention to the evidence as to the process for despatch of the scheme booklet and notice of scheme meetings, and the manner in which the scheme meetings will be conducted as a virtual meeting, which raise no novel or controversial issues.
Twelfth, Mr Izzo rightly recognises that the question posed by s 411(17) of the Act is properly addressed on the application to approve the scheme at the second Court hearing: Re Macquarie Private Capital A Ltd at [23]- [31]; TPG at [31].
[6]
Orders
For these reasons, I made the orders sought by ELMO at the conclusion of the first Court hearing on 16 December 2022.
[7]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 24 January 2023