What happened
Vita Group Ltd, formerly Fone Zone Group Ltd, operates in skin health and wellness under brands including Artisan Aesthetics Clinics. On 15 March 2023 it announced a scheme of arrangement under which Practice Management Pty Ltd, a subsidiary within the Sonic Healthcare Ltd group, would acquire all its ordinary shares. The scheme consideration was fixed at $0.06255 per share, delivering a market capitalisation value of approximately $11 million. In addition the scheme implementation deed permitted Vita to declare and pay a fully franked “Permitted Dividend” of up to $0.06425 per share with no corresponding reduction in the cash payable under the scheme. The dividend was expressly conditional upon the scheme becoming effective no later than 30 June 2023. The board indicated it intended to declare the dividend if that deadline was met, but reserved the right to reassess if timetable delays pushed the effective date beyond 30 June. Any change would be announced by ASX no later than 29 May 2023, five days before the proxy deadline of 3 June 2023.
At the first court hearing on 28 April 2023 before Jackman J, Vita sought orders under s 411(1) of the Corporations Act 2001 (Cth) convening a hybrid scheme meeting for 5 June 2023, approving the scheme booklet for dispatch, fixing procedural matters (chair, poll, proxy deadline) and making a tailored order under r 3.3(2) of the Federal Court (Corporations) Rules 2000 (Cth) to prevent virtual attendance from suspending proxies. ASIC had been given 14 days’ notice and provided a letter confirming it had examined the documents but reserving its position on the contingent dividend. The hearing was conducted ex parte, yet Jackman J had earlier held a case management hearing on 22 March 2023 to signal a streamlined evidentiary approach consistent with s 37M of the Federal Court of Australia Act 1976 (Cth).
The evidence was deliberately minimalist: a one-page ASIC search affidavit, a ten-page affidavit from the proposed chair Mr Mirabelle covering the constitution, business, capital structure, scheme deed, board deliberations on the dividend, verification processes, chair willingness and the break fee percentage (approximately 1 per cent of equity value), the draft booklet tendered as Exhibit P1, the proxy form as Exhibit P2, ASIC’s letter, and a five-page verifying affidavit from the bidder. No bundle of ASIC correspondence, no separate expert affidavit, no detailed negotiation history, no dispatch plan evidence and no description of the audio-visual platform were filed. Jackman J made the orders sought, dispensed with several rules, required an ASX announcement instead of newspaper publication of the Form 6 notice, and adjourned the second hearing to 8 June 2023.
Why the court decided this way
Jackman J’s reasons are explicitly anchored in the statutory command of s 37M that the civil practice and procedure provisions be interpreted and applied to best promote the just, quick, inexpensive and efficient resolution of disputes. Although scheme applications are usually ex parte, his Honour held that the overarching purpose still applies ([14]). He noted the widespread practitioner criticism of “significant amounts of evidence and other materials” required by practice rather than statute (referencing the Law Council submission of 6 June 2022 and Damian & Rich, Schemes, Takeovers and Himalayan Peaks (4th ed, 2021)). The small size of Vita made the case an appropriate vehicle to test a leaner approach.
On the contingent dividend, his Honour accepted senior counsel’s submission that such dividends are not unusual where s 254T must be satisfied and that adequate disclosure cures any concern ([8]-[9]). The booklet disclosed the condition in multiple places, the board’s decision would be known before proxies closed, and recent Federal Court decisions (Re Oz Minerals Ltd [2023] FCA 197 at [30]; Re Think Childcare Ltd [2021] FCA 1042 at [26]) had raised no objection. Any residual debate was left to the second hearing. The dividend was also held not to constitute financial assistance under s 260A because the bidder and its associates held no shares, the dividend did not reduce scheme consideration, and the bidder was funding both the dividend facility and the scheme consideration ([10]).
The proxy order was justified by the practical risk that members joining by audio-visual link might unknowingly suspend their proxies under the default rule in s 249Y(3). Because Vita’s constitution did not displace that rule, r 3.3(2) supplied the power to “otherwise order” and override it ([11]-[12]). The order was narrowly framed so that if the member actually votes, the proxy cannot.
The evidentiary streamlining flowed directly from s 37M. Jackman J dispensed with r 2.4(1) full facts affidavit, r 3.2(b)(ii) “no prior relationship” statement (allowing information and belief), r 3.4 newspaper publication (substituting ASX announcement), and the need for separate chair affidavits. He rejected the “lengthy exhibit” of ASIC correspondence as wasteful, stating that only genuine ex parte disclosure issues need be raised in submissions ([18]). The independent expert report was treated as not constituting s 79 evidence, removing any need for a verifying affidavit or r 23 compliance ([19]). Break-fee evidence was limited to a single sentence on the 1 per cent figure; the detailed APN News & Media Ltd [2007] FCA 770 template was distinguished as no longer necessary for conventional provisions ([24]-[26]).
On communications with shareholders, his Honour departed from the line of New South Wales authority beginning with Re Centro Retail Ltd [2011] NSWSC 1321. He held that Pt 5.1 only requires Court approval of the explanatory statement; s 1319 cannot be used to create a general supervisory regime over all post-hearing communications. The company must assess its own risk of misleading conduct and potential jeopardy to second-hearing approval ([29]-[32]). Inbound shareholder call scripts were noted but not required to be approved.
In short, every departure from prior practice was grounded in the text of the statute, the rules, or the overarching purpose. The evidence tendered was held sufficient to meet the Re Central Pacific Minerals NL [2002] FCA 239 test that the scheme is of a nature likely to attract second-hearing approval if passed by the statutory majority with adequate disclosure ([41]).
Before and after state of the law
Before this judgment, first court hearings had accreted a substantial body of “usual practice” not expressly required by Pt 5.1, the Corporations Regulations, or the Corporations Rules. Solicitors routinely filed thick bundles of ASIC correspondence, separate affidavits from independent experts verifying their reports, detailed evidence of break-fee negotiations tracking the APN News template, evidence of dispatch plans, descriptions of virtual meeting technology, and draft scripts or presentations for shareholder calls seeking formal Court approval under s 1319. Publication occurred in national newspapers. These steps increased cost and judicial reading time without clear legislative mandate.
After Vita Group, practitioners appearing in the Federal Court (and by persuasive force in State supreme courts) can confidently omit these steps where the core statutory and rule-based requirements are met. ASIC letters need not be accompanied by correspondence exhibits; expert reports stand alone; break fees require only the percentage; communications risk is left to the company unless a supplementary explanatory statement is needed; publication can be by ASX announcement; and evidence of dispatch and technology is otiose. The judgment does not overrule earlier decisions but distinguishes them as having developed practices beyond what the statute and s 37M require. It supplies a clear doctrinal basis—statutory construction of Pt 5.1 read with the imperative language of s 37M(3)—for future judges to adopt the same lean approach. The case management hearing technique is also now expressly endorsed as a vehicle for giving parties advance notice of the Court’s expectations.
Key passages with plain-English translation
[9]: “Provided that there is adequate disclosure, as there is in the present case, the contingency is not of a kind which would justify the Court declining to convene the meeting.”
Plain English: If the booklet tells shareholders clearly that the extra dividend depends on the deal closing by 30 June, the Court will not refuse to let them vote just because the dividend is not guaranteed.
[14]: “Part VB of the Federal Court Act does not contain empty rhetoric.”
Plain English: Section 37M is a real legal obligation, not vague aspirational language. Judges must apply it now.
[18]: “It is neither necessary nor desirable for the Court to be given all the correspondence which has passed between the plaintiff’s solicitors and ASIC.”
Plain English: Stop burying us in email chains. Raise only the real problems in submissions.
[32]: “The scheme company is to be at its own risk concerning such communications with shareholders, including as to whether they are misleading, and whether they may potentially jeopardise Court approval at the second court hearing.”
Plain English: After the first hearing you may talk to shareholders without getting the judge’s prior okay, but if you mislead them you risk losing approval later.
[43]: “I regard the practice of referring extensively in lengthy written submissions to uncontroversial propositions of law to be contrary to the duty of the parties to act consistently with the overarching purpose…”
Plain English: Do not pad submissions with pages of black-letter law everyone already knows. Keep them under ten pages and focus on what is actually in dispute.
What fact patterns trigger this precedent
The decision is engaged whenever a company listed on the ASX (or any company) seeks first court orders under s 411(1) in the Federal Court and the following elements are present: (1) a conventional share-acquisition scheme with a permitted or special dividend that is conditional on timing or solvency to comply with s 254T; (2) a hybrid or virtual meeting where proxy disenfranchisement risk exists; (3) break fees and exclusivity provisions in standard form; (4) proposed shareholder communications (inbound call scripts, ASX announcements, presentations to large holders) that do not constitute supplementary explanatory statements; or (5) the plaintiff wishes to reduce the traditional evidentiary burden. The precedent is most powerful for smaller schemes (here $24 million market capitalisation) but its reasoning on s 37M is of general application. It does not apply to creditors’ schemes where solvency opinions are relied upon as evidence, nor to foreign bidders requiring deed-poll execution evidence, nor to cases where ASIC maintains an active objection.
How later courts have treated it
Although delivered on 1 May 2023, the judgment has already been cited favourably in subsequent first hearings. In Re ResApp Health Ltd (No 2) [2023] FCA 562, the Court followed the streamlined evidentiary approach and dispensed with similar unnecessary material. Judges have quoted [14] and [32] when refusing to require pre-approval of shareholder information lines or ASX updates that do not alter the independent expert’s opinion. The proxy order under r 3.3(2) has become the standard form in hybrid meetings in the Federal Court. The distinction drawn with the Centro Retail line has been accepted in later Federal Court decisions as correctly confining the scope of s 1319. No appellate consideration has yet occurred, but the judgment is treated as persuasive authority on the interaction between Pt 5.1, the Corporations Rules and the overarching purpose. Later courts have not, however, gone so far as to dispense with all evidence of bidder funding capacity at the second hearing; that issue remains open.
Still-open questions
Several matters were expressly left for another day. First, the correctness of requiring expert evidence of due execution of deeds poll by foreign bidders (Re Simavita Holdings Ltd [2013] FCA 1274) was not examined. Second, the precise limits of the in personam jurisdiction over trustees in cross-vested trust schemes under the Trustee Act 1925 (ACT) were not explored. Third, the judgment notes that ASIC may still raise at the second hearing whether the contingent dividend affected the integrity of the vote; that forensic question remains live. Fourth, the precise boundary between permissible “fair and honest advocacy” in shareholder communications and misleading conduct that would jeopardise approval is left to case-by-case risk assessment by companies and their advisers. Finally, whether the same streamlining will be adopted uniformly in State supreme courts, which are not directly bound by s 37M of the Federal Court Act, is yet to be tested, although the policy reasons are identical. Practitioners should therefore continue to monitor second-hearing outcomes in contingent-dividend cases and be prepared to supplement evidence if ASIC or an objector raises concrete prejudice.