Biosceptre International Limited, in the matter of Biosceptre International Limited [2013] FCA 1429

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2367 of 2013

JUDGE: YATES J DATE: 6 February 2014 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This is an application made under s 411(1) of the Corporations Act 2001 (Cth) (the Act) for the convening of a meeting of the members of the plaintiff, Biosceptre International Limited (Biosceptre Australia), who hold ordinary shares in its issued capital, to consider and, if thought fit, approve (with or without modification) a scheme of arrangement. 2 The proposed scheme is directed to a redomiciliation by "top-hatting" a United Kingdom company, also called Biosceptre International Limited (Biosceptre UK), which will become the holding company of a corporate group of which Biosceptre Australia is currently the holding company. 3 Functionally, the proposed scheme is an acquisition scheme.

Background 4 Biosceptre Australia is a public, unlisted biotechnology company based in Sydney that is developing and commercialising antibody technologies to address a wide range of applications in the diagnosis and treatment of cancer. Biosceptre Australia is currently the holding company for Biosceptre (UK) Limited, which operates the group business in the United Kingdom. Biosceptre Australia also has a number of dormant subsidiaries. 5 Biosceptre Australia's directors have expressed the view that redomiciling Biosceptre Australia to the United Kingdom will assist in developing a strong presence for the business in key European markets, centring in Cambridge, England. They believe that this will give the corporate group substantially increased access to potential development partners and capital markets. They also believe that it may provide a significantly greater investment platform for new investors as the group's financial requirements increase, particularly at a time when its work commences to move into larger clinical trials. 6 Redomiciling Biosceptre Australia to the United Kingdom will also potentially permit access to: the Enterprise Investment Scheme, which is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax relief to United Kingdom resident investors who purchase new shares in those companies; the United Kingdom's "patent box" tax regime, which is designed to incentivise businesses with patented products, resulting in qualifying income arising in these companies being subject to an effective United Kingdom statutory tax rate of 10%; and certain United Kingdom tax incentives in respect of expenditure on qualifying research and development, further reducing the overall effective tax rate. 7 In short, the Biosceptre Australia board believes that the growth opportunities available to the corporate group if based in the United Kingdom would outweigh those available to the group currently based in Australia. 8 As at 16 December 2013, Biosceptre Australia had: 31,528,532 fully-paid ordinary shares on issue, held by 216 members; 200,000 partly-paid ordinary shares on issue, held by one member; and 2,085,802 options on issue, held by four optionholders. 9 It is anticipated that, by 18 January 2014, the 200,000 partly-paid ordinary shares will be paid in full and converted to 200,000 fully-paid ordinary shares. 10 Biosceptre Australia also has convertible notes on issue to the value of $3,700,000. They are held by one noteholder, The Car Finance Company (2007) Limited, a company incorporated in England and Wales.

The proposed scheme 11 Under the proposed scheme, the ordinary shares in Biosceptre Australia held by members at the Implementation Date defined in the scheme document (the scheme shares) will be transferred to Biosceptre UK. Prior to the transfer being made, Biosceptre UK will provide the scheme consideration to each scheme shareholder. Each scheme shareholder will receive one ordinary share in the capital of Biosceptre UK for each ordinary share in the capital of Biosceptre Australia held at the Implementation Date. Biosceptre UK has executed a deed poll in favour of the scheme shareholders with respect to its obligations under the proposed scheme. 12 The effect of the scheme will be that Biosceptre Australia will become a wholly-owned subsidiary of Biosceptre UK and the scheme shareholders will be the members of Biosceptre UK. 13 Each scheme shareholder will be deemed to have warranted to Biosceptre Australia and Biosceptre UK that his, her or its shares to be transferred to Biosceptre UK will be, on the transfer date, free from all mortgages, charges, liens, encumbrances and interests of third parties of any kind whether legal or otherwise, and free of restrictions on transfer of any kind. Each scheme shareholder will also be deemed to have warranted that he, she or it has full power and capacity to sell and to transfer the scheme shares to Biosceptre UK together with any rights attaching to those shares. 14 Associated transactions are proposed. Under a Scheme Implementation Deed executed on 12 December 2013, Biosceptre Australia and Biosceptre UK are required to cooperate to ensure that, before the second court hearing, the options issued by Biosceptre Australia will be cancelled, with new options in Biosceptre UK issued to current optionholders on substantially similar terms as the current options, subject to the requirements of local law affecting Biosceptre UK. Biosceptre Australia and Biosceptre UK are also required to cooperate to ensure that, before the second court hearing, the current convertible notes are cancelled with new convertible notes issued by Biosceptre UK on substantially similar terms as the current notes, subject once again to the requirements of local law affecting Biosceptre UK. A further associated transaction will be the novation in favour of Biosceptre UK of the existing employment contract of Biosceptre Australia's Chief Executive Officer. 15 Biosceptre UK was incorporated on 11 October 2013 in England and Wales for the sole purpose of acting as the holding company for Biosceptre Australia following implementation of the proposed scheme. At the present time, the share capital of Biosceptre UK comprises 2,000 ordinary shares of £0.001 each. These shares have been treated as subscriber shares. They have been issued to two shareholders, each holding a parcel of 1,000 shares each. It is proposed that, on the Implementation Date, Biosceptre UK will facilitate a buyback of these shares or otherwise make similar provision in respect of them. 16 All directors of Biosceptre Australia (including alternate directors) will be appointed as directors (or alternate directors) of Biosceptre UK (subject to receipt of their written consents). There will be no change to either the management or employees of Biosceptre Australia as a result of the proposed scheme being implemented.

The recommendation of directors 17 Biosceptre Australia's directors unanimously recommend that all members vote in favour of the scheme. Each director will vote or cause to be voted all his direct and indirect interests in Biosceptre Australia in favour of the proposed scheme, in the absence of a superior proposal.

Expert report 18 The board has engaged Hall Chadwick Corporate (NSW) Limited (Hall Chadwick) to prepare an independent report to advise members whether the proposed scheme is fair and reasonable and in the best interests of members. Drew Anthony Townsend is a partner in the Corporate Services Division of Hall Chadwick. He is the responsible officer of Hall Chadwick in relation to the making of the report. Hall Chadwick has concluded that the proposed scheme is fair and reasonable and in the best interests of members. Mr Townsend has deposed that the opinions expressed in the report are opinions that he held as at its date. He has deposed that he has not become aware of any facts, matters or circumstances which would cause him to change the opinions expressed in the report.

Specific matters 19 There are some matters to which I should draw particular attention.

Classes 20 Biosceptre Australia has proposed that there be only one class of members for voting purposes. Although there are shareholders with other interests (namely, the options, convertible notes and the employment contract to which I have referred), Biosceptre Australia submits that these circumstances are not class-creating. I accept that submission. Nevertheless, it has been indicated that the votes of scheme shareholders involved in the associated transactions to which I have referred, will be tagged for any relevance those votes might have at the second court hearing on the issue of fairness.

Execution of the deed poll 21 As Biosceptre UK is a foreign corporation, it has adduced evidence from Alexander Robert James Gibson, a partner of K&L Gates LLP based in London, as to the proper execution of the deed poll by Biosceptre UK in the United Kingdom. This course was undertaken following certain observations made by Farrell J in Simavita Holdings Limited in the matter of Simavita Holdings Limited [2013] FCA 1274 (at [43]-[44]) concerning the need for such evidence in cases such as the present, to ensure that the deed poll is enforceable. On the basis of Mr Gibson's evidence, I am satisfied that the deed poll in the present case has been duly executed by Biosceptre UK and is prima facie enforceable.

Deemed warranty 22 I have noted the deemed warranty to be given by scheme shareholders under the proposed scheme: see [13] above. The prevailing view is that such provisions are not objectionable provided that the attention of members has been drawn to them: see, for example, Re APN News & Media Ltd (2007) 62 ACSR 400 at [57]-[63]; Re Sino Gold Mining Ltd (ACN 093 518 579) (2009) 74 ACSR 647 at [29]-[31]. Here, the deemed warranty has been specifically and clearly drawn to the attention of members in the scheme booklet.

Buyback of subscriber shares 23 In the course of this hearing, I raised how, as a matter of obligation, Biosceptre UK would be required to facilitate a buyback of the 2,000 fully-paid ordinary shares that have been treated as subscriber shares. I raised this because the scheme booklet is replete with references to the fact that this (or some analogous process) will be undertaken. There is no covenant in the deed poll relating to that matter. Counsel has informed me that, for the second court hearing, a mechanism will be put in place for the implementation of the buyback or analogous process as represented in the scheme booklet.

Chairman 24 Peter Gavin Currie is the Chief Executive Officer and an Executive Director of Biosceptre Australia. He has been nominated by the directors of Biosceptre Australia to act as chairperson at the scheme meeting. Mr Currie has signified his preparedness to act in that capacity.

Verification 25 Bradley James Miller is the Senior Manager - Legal and Compliance of Biosceptre Australia. He is responsible for overseeing and managing the day-to-day legal issues that arise with the company, including compliance management. 26 Mr Miller has given evidence concerning the verification process that has been undertaken in respect of statements of fact or opinion in the scheme booklet. Mr Miller was responsible for generally coordinating the verification process of statements that had been allocated to Biosceptre Australia for verification. 27 Mr Miller has deposed that, in reliance on the due diligence and verification process described in his affidavit, all reasonable inquiries have been made to verify those statements. He has deposed that, to the best of his knowledge, information and belief, all material statements in the scheme booklet, so far as they relate to Biosceptre Australia, are true and not misleading or deceptive, and that there is no omission of information in the scheme booklet concerning Biosceptre Australia that would be material to the making of a decision in relation to the scheme. 28 Further, at a meeting on 12 December 2013, the directors of Biosceptre Australia unanimously resolved to approve the statements made in the scheme booklet that had been allocated to Biosceptre Australia for verification. 29 Ivan Gunatilleke is a director of Biosceptre UK. He has given evidence with respect to the verification of information in the scheme booklet concerning Biosceptre UK. Mr Gunatilleke has expressed his satisfaction that all material statements contained in the scheme booklet concerning Biosceptre UK are true and complete and not misleading or deceptive. He has deposed that no information concerning Biosceptre UK has been omitted from the scheme booklet that would be material to Biosceptre Australia's members deciding whether or not to vote in favour of the scheme. 30 Further, at a meeting on 12 December 2013, Biosceptre UK's directors approved the scheme booklet.

Australian Securities and Investments Commission (ASIC) 31 Section 411(2)(a) of the Act requires ASIC to be given at least 14 days' notice of the hearing of an application under s 411(1) unless ASIC or the Court permits a shorter period. ASIC has confirmed that this requirement has been satisfied in relation to the present application. 32 Section 411(2)(b) of the Act requires the Court to be satisfied that ASIC has also had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement, and to make submissions to the Court in relation to the scheme and the draft explanatory statement. ASIC has confirmed that it has had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement. Prior to the hearing of the present application, ASIC informed the solicitors acting for Biosceptre Australia that it did not intend to appear at the present hearing to make submissions or intervene to oppose the scheme.

Consideration 33 I am satisfied that Biosceptre Australia is a Part 5.1 body and that the scheme is an "arrangement" for the purposes of s 411(1) of the Act. I am also satisfied that the formal requirements that are preliminary to the Court convening a meeting under s 411(1) of the Act have been satisfied. 34 Further, I am satisfied that the proposed scheme is of such a nature and is cast in such terms that, if it were to receive the requisite statutory majority, the Court would be likely to approve the scheme on the hearing of an unopposed application. 35 Biosceptre Australia has sought exemption from compliance with the requirements of regs 5.6.11, 5.6.12 and 5.6.14 to 5.6.36A of the Corporations Regulations 2001 (Cth). I am satisfied that it is appropriate to grant that exemption. 36 I have been assisted in my consideration of this matter by detailed written submissions prepared by senior counsel for Biosceptre Australia. Those submissions have been marked MFI 1.

Disposition 37 Orders, substantially as sought, should be made. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.