Avita Medical Limited, in the matter of Avita Medical Limited (No 3) [2020] FCA 896

JAGOT J: 1 The plaintiff (Avita Australia) now seeks orders pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (the Act) approving the scheme of arrangement which was agreed to at a meeting of shareholders held on 15 June 2020 (the scheme meeting) by voting exceeding the majority prescribed by s 411(4)(a)(ii) of the Act. 2 The scheme meeting was convened pursuant to orders of the Court made at the first court hearing on 11 May 2020. The scheme, if approved, will give effect to a transaction between Avita Australia and Avita Therapeutics Inc. (Avita US), a corporation incorporated in the State of Delaware in the United States of America. 3 The relevant legal principles applicable to the approval of a scheme of arrangement at a second court hearing have been identified in a number of cases, including, in part, Re APN Outdoor Group Limited (No 2) [2018] FCA 1633 at [4], in which Markovic J observed: The role of the Court in approving a scheme of arrangement is supervisory. The Court has a discretion whether to approve a scheme pursuant to s 411(4)(b) of the Act. It is not bound to approve it merely because it previously made orders for the convening of a meeting or because the statutory majorities have been achieved. However, the Court will usually approach its task on the basis that members are better judges of what is in their own commercial interests than the Court: see Re Seven Network Ltd (ACN 052 816 789) (No 3) (2010) 267 ALR 583; [2010] FCA 400 at [31]-[32] (per Jacobson J). 4 Further, in Re Opus Group Limited (No 2) [2018] FCA 1413, Banks-Smith J stated principles that apply to the role of the Court in approving a scheme of arrangement at [6] and [7] as follows: [6] The considerations relevant to the Court's decision to approve a scheme pursuant to s 411(4)(b) of the Act are well established. Where a majority of members have approved a scheme, the Court is not bound to approve it, however the Court should be slow to conclude that a scheme is unreasonable or unfair, provided that the members have been properly informed of matters relevant to the making of their decision, as that would otherwise involve the Court substituting its commercial judgment for that of the body of members: [7] The matters the Court must take into account in deciding whether to approve the scheme include whether: (a) the orders of the Court convening the scheme meeting were complied with; (b) the resolution to approve the scheme was passed by the requisite majority, and whether other statutory requirements have been satisfied; (c) all conditions to which the scheme is subject (other than Court approval and lodgement of the Court's orders with ASIC) have been met or waived; (d) the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it; (e) there was full and fair disclosure to shareholders of all information material to the decision whether to vote for or against the scheme; (f) [the plaintiff] has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion; and (g) the Court is satisfied under s 411(17) that the scheme has not been proposed to avoid Chapter 6 of the Act, or that [the plaintiff] has a statement from ASIC that it has no objection to the scheme. 5 The plaintiff has provided comprehensive written submissions supplemented by oral submissions. The written submissions confirm by reference to the evidence tendered at this second court hearing that there has been full compliance with the orders made by the Court for the convening of the scheme meeting at the first court hearing. 6 In accordance with order 1 of those orders, the scheme meeting was held on 15 June 2020, commencing at 9am AEST as a wholly virtual meeting by means of audio-visual technology with no physical assembly and otherwise in accordance with the orders of the Court. 7 In accordance with the orders, voting on the resolution to approve the scheme was conducted by way of a poll. Mr Bampfield of Lumi calculated the results of the poll and provided a poll report to Mr McIntyre setting out the results of the votes taken by poll. 8 As at 22 April 2020, there were 15,291 shareholders eligible to vote on the scheme resolution holding 2,133,434,899 shares. The number of shareholders who had voted on the resolution either in person or by proxy was 1,499 or 9.8 per cent of the total shareholders holding 947,855,871 shares, or 44.5 per cent of the total shares. Of those shareholders, 1345 or 89.73 per cent of the shareholders present and voting in person or by proxy voted in favour of the resolution, and 150 shareholders, or 10.27 per cent of those present and voting in person or by proxy voted against the resolution. Accordingly, the voting majority required by s 411(4)(a)(ii)(A) of the Act was satisfied. 9 The total number of shares voted in favour of the resolution was 926,498,581, being 97.25 per cent of the total number of shares voted. The number of shares voted against the resolution was 31,257,290, or 2.25 per cent of the total number of shares voted. Accordingly, the voting majority required by s 411(4)(a)(ii)(B) of the Act was also satisfied. 10 Avita Australia submitted that the relatively small number of the shareholders who voted in person or by proxy (being 9.8 per cent of the total number of shareholders) should not discourage the Court from making orders. Avita Australia referred to the judgment of Farrell J in Re TriAusMin Limited (No 2) [2014] FCA 833 at [10]-[12], where her Honour stated the following: [10] Although the statutory requirement under s 411(4)(a)(ii) has been satisfied, it is the usual practice of the Court at the second court hearing to consider the number of shareholders who attended the Scheme Meeting in person or by proxy. Low shareholder turnout may be an indication that some procedural irregularity occurred. It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme: Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [7] and Re Seven Network Limited (No 3) (2010) 267 ALR 583 (Re Seven Network Ltd) at [61] per Jacobson J; apathy should not be presumed to be antagonism: Re Matine Limited (1998) 28 ACSR 268 at 295 per Santow J. [11] Nonetheless it does call for consideration to ensure that the vote not unrepresentative, since the court retains the discretion to withhold its approval in that case: see Re Seven Network Ltd at [61] and Re BTR plc [2000] 1 BCLC 740 at 747. It is relevant to consider whether members have been deterred from attending or voting at the meeting: Re Cape plc [2006] EWHC 1446 at [20] per David Richards J. [12] Relatively low shareholder turnout did not prevent orders being made in Re Avoca Resources Limited [2011] FCA 208 (11.49% of shareholders holding 72.38% of shares) or Re Cortona Resources Limited (No 2) [2013] FCA 302 (17.5% of shareholders holding 45.2% of shares); see also Re Redcape Property Fund Limited and The Trust Company (RE Services) Limited [2012] NSWSC 486 per Black J at [6]. In Re Auzex Resources Limited (No 2) [2012] QSC 101 at [18] Applegarth J noted that a turnout of 9.75% of shareholders representing 42.3% of votes was substantially higher than at annual general meetings of the company. In Re Osiris Insurance Ltd [1999] 1 BCLC 182 only 35 of 971, scheme creditors with claims worth approximately 41% of the total value attended the meeting and Re British Aviation Insurance Co Ltd [2006] 1 BCLC 665, creditor turnout was 15% representing approximately 50% of claims. See Damian T and Rich A, Schemes, Takeovers and Himalayan Peaks (3rd edition, 2013, University of Sydney) at 4.4.2 for a full discussion of this issue. (Original emphasis.) 11 This exposition has been cited with approval in Re SRG Limited (No 2) [2018] FCA 1424 at [16] and Re Gindalbi Metals Limited (No 2) [2019] FCA 1066 at [5]. 12 I accept the submission for Avita Australia as set out in [45] of the written submissions in the following terms: In the present case: (a) there is no evidence before the Court of procedural irregularity, or lack of notice, or that the vote was not representative of the membership as a whole, or that there was any deterrence from attending the Scheme Meeting; (b) the shareholders who did vote in person or by proxy voted overwhelmingly to approve the Scheme; (c) the approximately 9.8% of shareholders who did vote held 44.5% of the shares, a scenario similar to that before her Honour Justice Farrell in Re Sundance Energy Australia Limited [2019] FCA 1944, where a turn-out of 7.2% of shareholders held 48.08% of shares (see [47] - [50] of that case); (d) at the latest annual general meeting of Avita Australia, held on 24 November 2019, voting turnout was lower than at the Scheme Meeting: Computershare's figures for voting totals based on the first resolution considered by the meeting (to adopt the remuneration report) were that 625,231,665 shares were voted (29.53% of the Company's issued shares), and 458 shareholders voted in person or by proxy (5.88% of the Company's registered shareholders); (e) the fact that 9.8% of the shareholders cast votes for 44.5% of the shares on the Scheme Resolution suggests that many of the non-voting shareholders must have held relatively small holdings so that the scheme may have been of minor interest, particular given that the scheme involves a 'top-hatting' redomiciliation that does not affect the economic interests of shareholders, in contrast with a control transaction; (f) the Court's orders for convening of the Scheme Meeting and despatch of the Scheme Booklet to shareholders were complied with; and (g) there was an ASX Announcement by Avita Australia on 10 June 2020, reminding shareholders of the procedures for participating in and voting at the Scheme Meeting. 13 I am otherwise satisfied that all other statutory and procedural requirements have been met, including the satisfaction of all relevant conditions precedent. 14 In addition, I am satisfied that there has been full and fair disclosure to shareholders of all information material to the decision whether to vote for or against the scheme, as set out in the explanatory statement. I also have evidence that it was in the best interests of shareholders as a whole in the absence of an alternative proposal or any further information to approve the scheme as one which is fair and reasonable such that an intelligent and honest shareholder, properly informed and acting alone, would approve it. 15 The only other matter which requires comment is that Avita Australia and Avita US intend to rely on the Court's approval of the scheme for the purpose of qualifying for the exemption under s 3(a)(x) of the Securities Act of 1933 (US) (the US Securities Act) from American registration/prospectus requirements in connection with the implementation of the scheme. A similar exemption was obtained in reliance on the approval of the scheme of arrangement in Re Amcor Limited (No 2) [2019] FCA 842 at [33] (Re Amcor) in which Beach J described doing so as "common practice in schemes of arrangement". 16 In Re Amcor at [37] Beach J applied the approach of Jacobson J in Re Atlantic Gold NL (No 2) [2014] FCA 869 at [8]. Consistent with those principles, I confirm the following: (1) The Court has been advised before the commencement of the approval hearing that the plaintiff intended to rely on the exemption under s 3(a)(x) of the US Securities Act on the basis of the Court's approval of the scheme. (2) The Court has been sufficiently informed of the manner in which the scheme consideration will be calculated in order to determine the value of the securities to be offered and surrendered. (3) The Court has held a hearing to consider the fairness and reasonableness of the proposed scheme. (4) The hearing has been open to everyone to whom the securities would be issued, and notice of the hearing in appropriate terms has been provided in a timely manner so that those to whom the new securities are to be issued have had opportunity to oppose or otherwise raise any objection to the scheme. 17 Otherwise, I am satisfied that all relevant matters have been brought to my attention, and that orders should be made approving the scheme, and also an order pursuant to s 411(12) of the Act that Avita Australia be exempted from compliance with s 411(11) of the Act. Section 411(11) requires that a copy of the Court's order approving a scheme of arrangement be annexed to every copy of a company's constitution issued after the order is made, whereas s 411(12) allows the Court to exempt a body from compliance with this provision, or to determine the period during which it shall apply. 18 In Re Equinox Resources Limited [2004] WASC 143; (2004) 49 ACSR 692 at [22] EM Heenan J indicated the purpose of s 411(11), namely: to ensure that any modification of the rights of shareholders of the company which is the subject of the scheme or any other provision in the scheme which may affect the interests of persons dealing with the company, such as prospective creditors or purchasers of shares, will be sure to have the opportunity of seeing what the exact rights of shareholders in the company or of its creditors are, as modified, if at all, by the scheme which has been approved. 19 I accept the submissions of Avita Australia that exemption from compliance with s 411(11) is appropriate given that the scheme will not alter the constitution of Avita Australia or the rights of shareholders, creditors or other persons dealing with the company. As such, an order under s 411(12) should be made. Accordingly, I make orders in accordance with the short minutes of order, as proposed by the plaintiff. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.

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