Cellnet Group Limited, in the matter of Cellnet Limited (No 2) [2023] FCA 973

ROLE OF THE COURT 6 Section 411(4) of the Corporations Act provides that a scheme of arrangement is binding if, at a meeting of members, it is passed by a majority of members present and voting (in person or by proxy) and by 75% of votes cast, and it is subsequently approved by order of the Court. 7 On an application to approve a scheme, the Court must ensure that all statutory and procedural requirements in relation to the convening and conduct of the meeting have been observed. This requires the Court to conclude that the meeting was properly convened and held in accordance with the convening orders, that the resolution to agree to the scheme was duly passed, and that all relevant requirements of the Corporations Act and the Federal Court (Corporations) Rules 2000 (Cth) have been complied with. Once satisfied of these matters, the Court has a discretion to approve the scheme pursuant to s 411(4)(b). In approving a scheme of arrangement, the Court is exercising its supervisory jurisdiction: Re ResApp Health Ltd [2022] NSWSC 1353 (Black J) (Re ResApp Health) at [23]; Re AusNet Services Ltd (No 2) [2022] NSWSC 79 (Black J) at [9]; Re Tabcorp Holdings Ltd (No 2) [2022] NSWSC 725 (Black J) (Re Tabcorp) at [3]; Re Crown Resorts Limited (No 2) [2022] FCA 710 (Anderson J) (Re Crown Resorts) at [11]. See also Re Afterpay Limited [2021] NSWSC 1709 (Black J) (Re Afterpay) at [14] and Re Isentia Group Limited [2021] NSWSC 1069 (Black J) (Re Isentia) at [9]. 8 The considerations relevant to the exercise of the Court's discretion are well established and have been considered in a number of decisions: Re Healthscope Ltd (2019) 136 ACSR 259 (Beach J) at [6]-[14] (Re Healthscope); Re Amcor (No 2) [2019] FCA 842 (Beach J) (Re Amcor) at [7] to [11]; Re Japara Healthcare Limited [2021] FCA 1150 (Moshinsky J) (Re Japara) at [11]-[13]; Re ResApp Health at [23]-[24]; Re Afterpay at [14]-[18]; Re Isentia at [8]-[15]; Re Vocus Group Limited [2021] NSWSC 843 at [9] (Black J); Re Verdant Minerals Ltd (No 2) [2019] FCA 841 (Moshinsky J) at [6] and Re Sienna Cancer Diagnostics Limited (No 2) [2020] FCA 1088 (Re Sienna Cancer Diagnostics) (Moshinsky J) at [10]-[11]. By way of example, in Re Amcor at [7]-[11], Beach J stated that: 7. In essence, my role at the second court hearing is to assess the Scheme taking into account whether the Scheme is sufficiently fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it. Of course, I can only approve a scheme of arrangement if the requisite majority of shareholders vote in favour of it, but I am not bound to approve the Scheme simply because I previously made orders for the convening of a Scheme meeting and subsequently the requisite majority agreed to it. But I accept that shareholders voting collectively at the Scheme meeting are better judges than I of what is to their commercial advantage and in their interests and accordingly, absent good reason, I should give effect to their intentions. … 11. Now as I have said, my task is to consider whether the Scheme is fair and reasonable with the test of fairness and reasonableness including a consideration of whether "an intelligent and honest [shareholder], properly informed, acting alone, might approve [the scheme]" (Fowler v Lindholm (2009) 178 FCR 563 at [79] per Emmett, Gordon and Jagot JJ). But the Scheme shareholders' vote in favour of the Scheme is evidence of its inherent fairness. Put another way, if a majority of the Scheme shareholders have approved the Scheme, it is unlikely that the Scheme would be unreasonable. Further, I do not have to be satisfied that no better Scheme could have been devised. 9 In summary, the Court's role is to assess the scheme taking into account whether it is sufficiently fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it: Re Amcor at [7]-[11]. 10 Although the Court is not bound to approve a scheme simply because it has previously made orders for the convening of a scheme meeting and the statutory majorities have been achieved, the Court will recognise that shareholders are generally the best judges of whether an arrangement is to their commercial advantage, and accordingly, absent good reason, will give effect to their intentions as manifested in the voting at the scheme meeting: Re Crown Resorts at [11] and [12]; Re ResApp Health at [23]; Re Tabcorp at [3]; Re Vocus at [9]; Re Amcor at [7]-[11]; Re Seven Network Ltd (No 3) (2010) 267 ALR 583 (Re Seven Network) at 588; Re Coca-Cola Amatil Ltd [2021] NSWSC 489 (Black J) (Re Coca-Cola) at [7]. 11 In this respect, the Court accepts that the shareholders' vote in favour of a scheme is evidence of its inherent fairness. Put another way, if a majority of the shareholders approve a scheme, it is unlikely that the scheme would be considered unreasonable: Re Crown Resorts at [11] and [12]; Re Amcor at [11]. 12 In deciding whether to give final approval to a scheme of arrangement, the Court will typically wish to be satisfied that: (a) all relevant procedural requirements in relation to the convening and conduct of the meeting have been satisfied; (b) the scheme was approved by shareholders in the requisite majorities, acting in good faith and for proper purposes, and there is no suggestion of oppression of any minority; (c) there was full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme; (d) the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it; (e) all matters that could be considered relevant to the exercise of the Court's discretion have been drawn to the Court's attention, and that ASIC has been given the opportunity to draw the Court's attention to any relevant matter; (f) the conditions precedent to the scheme have been satisfied or waived, save for Court approval; and (g) under s 411(17) of the Corporations Act, the scheme has not been proposed to avoid Chapter 6 of the Corporations Act, or there is a statement from ASIC that it has no objection to the scheme. See Re Crown Resorts at [13]-[14]; Re Amcor at [8] and [9]; Re Japara at [13]; Re Isentia at [9]; Re Afterpay at [14]; Re ResApp Health at [24]; Re Coca-Cola at [8]-[9]; Re Opticomm Limited [2020] FCA 1679 at [14]; Re Sienna Cancer Diagnostics at [12] and the authorities cited therein; Re Wesfarmers (No 2) [2018] WASC 357 at [14]; Re Seven Network Ltd (No 3) (2010) 267 ALR 583 at [35]-[40]; Re Tatts Group Limited (No 2) [2017] VSC 770 at [32]; Re Westfield Corporation Limited (No 2) [2018] NSWSC 921 at [7]. 13 In Re Vita Limited (No 2) [2023] FCA 623, Jackman J stated that , ordinarily, it would not be necessary for a plaintiff to file evidence of: (a) an explanatory statement and accompanying material having been dispatched in accordance with the Court's orders at the first Court hearing (at [4]); (b) whether notice had been received by the morning of the second Court hearing of any intention to appear by any party objecting to approval of the scheme (at [5]); (c) shareholder participation in the scheme meeting (at [6]); (d) receipt of proxy forms and the collation of proxies unless there was a significant issue which must be brought to the Court's attention (at [7]); (e) what was said at the scheme meeting (at [8]). 14 The matters which the Court must consider are grouped under two headings: (a) firstly, the satisfaction of all statutory and procedural requirements; and (b) secondly, the exercise of the Court's discretion to approve the Scheme.

STATUTORY AND PROCEDURAL REQUIREMENTS 15 As to the task of ensuring that the statutory and procedural requirements have been satisfied, Cellnet, consistently with the Jackman J's reasons in Re Vita Limited (No 2) [2023] FCA 623, read into evidence the material summarised at [2] above. 16 Section 411(4)(a)(ii) of the Corporations Act provides that a scheme of arrangement must be passed by: (a) a majority in number of the members present and voting (either in person or by proxy); and (b) 75% of the votes cast on the resolution. 17 Relevantly, the Third Pearson Affidavit recorded that the scheme resolution was passed by the requisite statutory majorities outlined in s 411(4)(a)(ii) of the Corporations Act, with: (a) 88.6% of Cellnet shareholders present and voting (either in person or by proxy) in favour of the resolution (i.e. a majority in number of shareholders voting on the resolution); and (b) 97.4% of the votes cast at the meeting (i.e. 75% or more of the votes cast on the resolution): Third Pearson Affidavit at [5]-[6] and Annexure TMP-10. 18 Notice of the second Court hearing was published by Cellnet by way of ASX announcement on 3 August 2023: Third Pearson Affidavit at [7] and Annexure TMP-11. Cellnet submitted that it had not received notice by any member or other party of an intention to appear at the second Court hearing, including to oppose the approval of the Scheme. 19 Cellnet and the Bidder also provided to the Court the conditions precedent certificates relevant to their application for approval, as summarised at [2(a)(a)(iii)] and [2(c)] above. The only conditions that remained outstanding at the time of the hearing were Court approval and lodgement of the Court's orders approving the scheme with ASIC. I was therefore satisfied that all relevant conditions precedent had been satisfied. 20 Finally, Cellnet provided relevant material to ASIC and sought a "no objection" statement from it pursuant to s 411(17)(b) of the Corporations Act. On 9 August 2023, ASIC advised by letter that it had no objection to the Scheme. 21 Having regard to the matters referred to above, I was satisfied, on the evidence, that the statutory and procedural requirements for approval of the Scheme had been met.

EXERCISE OF THE COURT'S DISCRETION 22 I then considered the applicable discretionary matters, namely whether: (a) the Scheme is fair and reasonable such that an intelligent and honest shareholder, properly informed and acting alone, might approve it; (b) shareholders were acting in good faith and for proper purposes when they agreed to the Scheme, and whether there was any suggestion of oppression of any minority; (c) all matters that could be considered relevant to the exercise of the Court's discretion have been drawn to the Court's attention, and whether ASIC has been given the opportunity to draw the Court's attention any relevant matter; (d) whether there has been full and fair disclosure of all information material to the decision whether to vote for or against the scheme; (e) whether minority shareholders would be oppressed by the scheme; and (f) whether the scheme offends public policy. 23 In my reasons for my orders on 4 July 2023 requiring the plaintiff to convene the scheme meeting, I stated that the Scheme was in a conventional form and was cast in such terms as would likely lead to its approval at a subsequent, unopposed hearing, should it receive the requisite statutory majorities, and that shareholders would be properly informed ahead of consideration of it: Reasons at [59(b)]. 24 Cellnet shareholders then voted in favour of the Scheme. Consistent with the reasons of Beach J in Re Amcor at [7], absent good reason, the Court should give effect to Cellnet shareholders' intentions as expressed in their collective vote at the scheme meeting. 25 In this case, I considered that there was no reason disclosed, on the evidence, to contradict the vote of Cellnet's shareholders at the scheme meeting. The shareholders' voted on the basis of a scheme booklet, which I previously observed was detailed and comprehensive, addressed the prescribed requirements and had been through consultation with ASIC: Reasons at [37]. The Scheme Booklet relevantly outlined the information that was material to the decision to accept or reject the Scheme, including the advantages and disadvantages of doing so, and was supported by an independent expert report which concluded that the Scheme was fair and reasonable and in the best interests of shareholders. 26 The transaction itself is a "cash for scrip" acquisition in conventional form. The Court was not made aware of, nor did the evidence disclose, any circumstance which might suggest that the process of consideration of the Scheme by members miscarried in any way. 27 I was therefore satisfied that the factors relevant to the Court's discretion outlined above all supported the Court approving the Scheme. 28 I accepted Cellnet's submissions that the Scheme, in the circumstances, was fair and reasonable and that the shareholders were acting in good faith and for proper purposes when they agreed to the Scheme. I was also satisfied that all matters that could be considered relevant to the exercise of the Court's discretion had been drawn to the Court's attention. 29 The final consideration relevant to the Court's discretion was s 411(17) of the Corporations Act, which provides that the Court must not approve the Scheme unless: (a) it is satisfied that it has not been proposed for the purpose of avoiding Chapter 6 of the Corporations Act (s 411(17)(a)); or (b) a written statement is provided to the Court by ASIC that it has no objection to the Scheme (s 411(17)(b)). 30 On 9 August 2023, ASIC by letter issued a "no objection" statement pursuant to s 411(17)(b) of the Corporations Act. As such there was no need for the Court to consider s 411(17)(a) of the Corporations Act, particularly where no issue had been raised concerning Chapter 6 of the Corporations Act by any person: Re DuluxGroup Limited (No 2) [2019] FCA 1225 (Re DuluxGroup No 2) at [33] (O'Bryan J).

EXEMPTION FROM S 411(11) OF THE CORPORATIONS ACT 31 Cellnet sought an order pursuant to s 411(12) of the Corporations Act exempting it from the requirement in s 411(11) of the Corporations Act to annex a copy of the Court's orders approving the Scheme to Cellnet's Constitution. 32 In this case, the Scheme does not amend Cellnet's Constitution and the effect of implementation of the Scheme is that Cellnet will become a wholly owned subsidiary of the Bidder: Re DuluxGroup No 2 at [35]. I was therefore satisfied that it was appropriate to make the orders sought by the plaintiff.

DISPOSITION 33 For the reasons given above, I made the orders sought by Cellnet approving the Scheme. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anderson.