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[2023] FCA 400
procedural. Orders made under s 411(1) convening the scheme meeting for 5 June 2023 as a hybrid meeting, approving the scheme booklet and proxy form for dispatch by 5 May 2023 (with differentiated methods for...
In this first court hearing for a scheme of arrangement, Jackman J ordered Vita Group Ltd to hold a hybrid meeting of shareholders to vote on a takeover by a Sonic Healthcare subsidiary offering about 6.255 cents cash per share plus a possible fully franked dividend of up to 6.425 cents if the deal completes by 30 June 2023. The judge confirmed that making the dividend conditional on timing does not prevent the meeting proceeding provided shareholders are clearly told about it in the booklet and will learn the board's final decision before they must lodge proxies. He made a special order so that shareholders logging in online do not accidentally cancel their proxies. Importantly, Jackman J used the case to overhaul inefficient practices that had grown up around scheme applications. He criticised voluminous ASIC correspondence bundles, unnecessary expert affidavits, detailed break-fee negotiation evidence and routine requests for Court pre-approval of shareholder calls or presentations. Instead he insisted on the statutory overarching purpose in s 37M – quick, cheap and efficient justice – and showed by example that a short formal affidavit, a 10-page chair affidavit, the booklet itself and targeted submissions are enough. The second hearing is listed for 8 June 2023.
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2,041 words · generated 24/04/2026
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.
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 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.
[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.
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.
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.
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.
Re Sienna Cancer Diagnostics Ltd [2020] FCA 899 Re Simavita Holdings Ltd [2013] FCA 1274 Re Spark Infrastructure RE Ltd [2021] NSWSC 1385 Re Spark Infrastructure RE Ltd [2021] NSWSC 1564 Re Tabcorp Holdings Ltd [2022] NSWSC 448 Re Tassall Group Ltd [2022] NSWSC 1414 Re Think Childcare Ltd [2021] FCA 1042 Re Uniti Group Ltd [2022] FCA 671; (2022) 160 ACSR 602 Re Webb; Webb v Rogers (1992) 57 SASR 193 Thomas A. Edison Ltd v Bullock (1912) 15 CLR 679 Walsh & Company Investments Ltd [2020] NSWSC 1746 Damian T and Rich A, Schemes, Takeovers and Himalayan Peaks (4th ed, 2021) Law Council of Australia, Submission in response to Treasury consultation paper "Corporate control transactions in Australia: consultation on options to improve schemes of arrangement, takeover bids, and the role of the Takeovers Panel", 6 June 2022
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
ORDERS NSD 252 of 2023 IN THE MATTER OF VITA GROUP LTD VITA GROUP LTD Plaintiff
order made by: JACKMAN J DATE OF ORDER: 28 APril 2023
Salient Features of the Scheme of Arrangement 1 This is an application for orders to convene a meeting of the members of Vita Group Ltd (Vita) to consider a scheme of arrangement between Vita and its members pursuant to s 411 of the Corporations Act 2001 (Cth) (the Act). 2 Vita was incorporated on 1 March 2005 under the name Fone Zone Group Ltd, and changed its name to Vita Group Ltd on 3 April 2008. The business of Vita involves the sales and marketing of products and services relating to skin health and wellness and operates under a number of brands, including Artisan Aesthetics Clinics. On the last trading day before the proposed scheme was announced to the ASX on 15 March 2023, the market capitalisation of Vita was approximately $14 million and is currently approximately $24 million. 3 Under the terms of the proposed scheme of arrangement (Scheme), Practice Management Pty Ltd (Bidder), a subsidiary in the group of companies controlled by Sonic Healthcare Ltd, will acquire all of the issued Vita shares on the Implementation Date for total cash consideration of approximately $11 million. The Scheme Consideration is $0.06255 per Vita share. In addition, Vita is permitted by the Scheme Implementation Deed to declare and pay a fully franked dividend of up to $0.06425 per Vita share (Permitted Dividend) with no corresponding reduction in the Scheme Consideration. 4 The board of directors of Vita has announced an intention to declare a fully franked Permitted Dividend of up to $0.06425 per share if the scheme becomes effective no later than 30 June 2023. If the Permitted Dividend is declared and paid, the overall transaction will provide shareholders with a total value of $0.12680 per Vita share, comprising the Scheme Consideration of $0.06255 per share and the expected Permitted Dividend of $0.06425 per share. The letter from the Chairman included in the draft scheme booklet goes on to say that if the Vita board determines not to declare the Permitted Dividend or if the Permitted Dividend is declared but is lower than $0.06425 per share, Vita intends to seek Court approval for the release of a supplementary scheme booklet disclosing the implications of this for Vita shareholders. Such a supplementary disclosure is expected to include any changes to the recommendation of the Vita board on the Scheme as well as any changes to the opinion of the Independent Expert on the scheme. If that occurs, the Chairman says that it is likely that the scheme meeting would need to be postponed to a date determined by the Court. Further, the Chairman's letter states that if there are any delays in the scheme timetable which emerge after the declaration of the Permitted Dividend (expected to be on or before 29 May 2023) and which would result in the Effective Date of the Scheme falling after 30 June 2023, the Vita Board will assess the implications of that delay in the context of the Permitted Dividend at that point in time having regard to the then prevailing circumstances. Any decision of the Vita Board in relation to the Permitted Dividend in that scenario may also be subject to supplementary disclosure with the approval of the Court. 5 Apart from the Permitted Dividend, the proposed scheme is an entirely conventional share acquisition scheme between the scheme company and its members. The terms of the Scheme and the content and format of the draft explanatory statement follow longstanding and conventional practice. 6 As I have indicated above, the Permitted Dividend is conditional on the Scheme becoming effective no later than 30 June 2023, but will not reduce the Scheme Consideration payable. The decision whether or not to declare the Permitted Dividend will be made by the Vita board and will be communicated to Vita shareholders by way of an ASX announcement in late May 2023 and by no later than 29 May 2023, which is five days prior to the last day on which proxies must be lodged for the scheme meeting. The Permitted Dividend will be partially funded by the Bidder under the terms of an agreed facility agreement dated 15 March 2023, representing $5,600,000 out of the amount of approximately $11,300,000 required to pay the Permitted Dividend. 7 In ASIC's letter of 27 April 2023 confirming that it has received at least 14 days' notice of the hearing of this application and has had a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement, ASIC has said that it wishes to reserve its position regarding the contingent nature of the Permitted Dividend. In that letter, ASIC says that under the proposed timetable, shareholders of Vita will be asked to vote on the Scheme before the Permitted Dividend has been paid. ASIC is concerned that this may result in shareholders not receiving the Permitted Dividend where there are delays in the Scheme timetable which emerge after the declaration of the Permitted Dividend, and which would result in the Effective Date of the Scheme falling after 30 June 2023. ASIC says that this would occur where the Vita board determines that it would not be appropriate to declare the Permitted Dividend having regard to the then prevailing circumstances. ASIC says that it understands that there are legal reasons, namely ensuring compliance with s 254T of the Act, for the conditionality of the Permitted Dividend. ASIC says that should the scheme be approved by shareholders, and should it appear that there may be delays in the Scheme timetable that result in the Effective Date of the Scheme falling after 30 June 2023, ASIC will consider what impact this may have had on voting on the Scheme. 8 As Mr Thomas SC, who appears for Vita, submits, the payment of contingent or conditional dividends in the context of members' schemes of arrangement is not unusual, and is consistent with the constraints imposed by s 254T of the Act. Mr Thomas submits that where, as here, the contingent nature of the dividend is adequately disclosed to shareholders, the contingency is not a reason not to convene a scheme meeting. Mr Thomas points out that a large part of the contingency will be removed prior to the meeting given that the board's decision to declare, or not declare, the Permitted Dividend will be communicated by an ASX announcement by no later than 29 May 2023, being five days before the closure of proxies. Mr Thomas points out that the contingent nature of the Permitted Dividend, being conditional upon the scheme becoming effective before 30 June 2023, is disclosed in multiple places in the scheme booklet. Mr Thomas also draws the Court's attention to recent decisions in this Court which record without concern a Special Dividend or Permitted Dividend which is conditional upon the Scheme becoming effective: Re Oz Minerals Ltd [2023] FCA 197 at [30] (Beach J); Re Think Childcare Ltd [2021] FCA 1042 at [26] (O'Callaghan J). 9 I agree with those submissions. 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. Any further argument on the issue can occur at the second court hearing. 10 For completeness, Mr Thomas submits, and I accept, that the Permitted Dividend does not give rise to any issue of financial assistance for the purpose of s 260A of the Act being provided by Vita to assist the Bidder in acquiring the Vita shares. In the first place, neither the Bidder nor any of its associates has a relevant interest or voting power in any Vita shares and therefore will not receive the Permitted Dividend. Second, if Vita declares and pays the Permitted Dividend to its shareholders, it is not giving financial assistance to the Bidder to acquire the Scheme shares as the Bidder will be funding the Scheme Consideration and, in any event, no reduction in that amount will occur by reason of any Permitted Dividend being made. Accordingly, there will not be any benefit to the Bidder or any assistance in any form being provided by Vita to the Bidder in this instance. The Permitted Dividend therefore does not constitute financial assistance for the purposes of s 260A. Even where a permitted dividend or special dividend reduces the scheme consideration payable by the bidder, Beach J has held in a series of cases that there is no financial assistance for the purposes of s 260A: see Re Citadel Group Ltd [2020] FCA 1580; (2020) 148 ACSR 598 at [47]-[53]; Re RXP Services Ltd [2021] FCA 38 at [49]-[57]; Re Uniti Group Ltd [2022] FCA 671; (2022) 160 ACSR 602 at [50]-[61]; Re Oz Minerals Ltd [2023] FCA 197 at [7] and [18]. The present case is a fortiori as the Permitted Dividend will not reduce the Scheme Consideration. 11 On a separate matter, Vita proposes that an order be made to deal with the case where a Vita shareholder appoints a proxy, but then attends the meeting in person. Section 249Y(3) of the Act provides that a company's constitution may provide for the effect that the member's presence at a meeting has on the authority of a proxy appointed to attend and vote for the member, but if the constitution does not deal with this matter, a proxy's authority to speak and vote for a member at a meeting is suspended while the member is present (Default Rule). Vita seeks an order overriding the Default Rule to reduce the risk that shareholders might unknowingly preclude their own proxy or attorney from voting simply because the shareholder is observing the conduct of the scheme meeting remotely by way of the audio-visual link. Such an order was made in Re Sienna Cancer Diagnostics Ltd [2020] FCA 899 at [112]-[115] (Moshinsky J) and Re GetSwift Ltd [2020] FCA 1382 at [10]-[15] (Yates J). However, in both those cases the company's constitution did deal with the effect that the member's presence at the meeting has on the authority of a proxy appointed to attend and vote for the member, and thus the Default Rule did not apply by force of s 249Y(3). In the present case, the constitution of Vita does not deal with that matter. Accordingly, the Default Rule under section 249Y(3) comes into operation. 12 There seems to me to be a difficulty in using s 1319 of the Act to override the Default Rule in that the power conferred by s 1319 is expressed to be "subject to this Act". Accordingly the Default Rule under s 249Y(3) is paramount to the power under s 1319. However, there is an alternative source of power to make the order conferred by r 3.3(2) of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules), which provides relevantly that, unless the court otherwise orders, a meeting of members ordered under s 411 of the Act must be convened, held and conducted in accordance with the provisions of Pt 2G.2 of the Act that apply to the members of a company. Section 249Y(3) falls within Pt 2G.2 of the Act. Accordingly, r 3.3(2) of the Corporations Rules confers a power on the Court to "otherwise order" by making an order which would override the Default Rule. I propose to make that order, so as to prevent the risk of a member inadvertently becoming disenfranchised where a proxy has been appointed by the member who decides to attend the meeting online, but then the member neglects to vote personally. 13 The present application is notable for the efficient approach which has been taken to the evidence for the first court hearing. The legal representatives for Vita and the Bidder have made a fresh start to the approach taken to the preparation of evidence for members' schemes of arrangement, and it is to that topic that I now turn.
The Overarching Purpose 14 Section 37M of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes according to law, and as quickly, inexpensively and efficiently as possible. Section 37M(3) provides that the civil practice and procedure provisions must be interpreted and applied in the way that best promotes that overarching purpose. The reference to "civil practice and procedure provisions" includes not only the Federal Court Rules 2011 (Cth), but also the Corporations Rules. Although scheme of arrangement applications are usually conducted on an ex parte basis, without a contradictor, and thus may not in the typical case be regarded as "disputes", I regard the overarching purpose identified in s 37M of the Federal Court Act as being equally applicable to the present context. Subsequent to the case management hearing in this matter to which I refer below, the Court has announced that it intends to publish a practice note or other communication concerning scheme of arrangement applications after consultation with various bodies. However, in the meantime, I am bound by s 37M(3) to apply the civil practice and procedure provisions in the way that best promotes the overarching purpose. The obligation in s 37M is expressed in language which is imperative and immediate. Part VB of the Federal Court Act does not contain empty rhetoric: Kumova v Davison (No 2) [2023] FCA 1 at [86] (Lee J). 15 There has been considerable criticism in recent years by legal practitioners, and others professionally involved in corporate control transactions in Australia, concerning the evidentiary requirements at court hearings for schemes of arrangement. While much of that criticism has been informally expressed, it has occasionally been given more formal expression. For example, in the submission prepared by the Corporations Committee of the Business Law Section of the Law Council of Australia dated 6 June 2022, in response to a consultation paper published by the Department of Treasury in April 2022, entitled "Corporate control transactions in Australia: consultation on options to improve schemes of arrangement, takeover bids, and the role of the Takeovers Panel", the point was made (at p 30) that there is a significant amount of evidence and other materials required to be prepared and delivered to the Court ahead of the first and second court hearings, as described in Tony Damian and Andrew Rich's comprehensive work, Schemes, Takeovers and Himalayan Peaks (4th ed, 2021) at [5.11]. The Law Council's submission went on to say that this was not a legislative requirement, but rather a result of the practice and procedure that has emerged over many years, which should be streamlined. It was said that this would result in cost saving and the removal of unnecessary (and immaterial) materials having to be reviewed by the Court (p 30). It may be inferred from the contact details stated in the Law Council's paper (on p 6) for any queries to be directed to two members of the committee, Mr Guy Alexander of Allens and Mr Andrew Rich of Herbert Smith Freehills, that those highly experienced practitioners in the field of schemes of arrangement were primarily responsible for the preparation of that submission. 16 In light of those concerns and the obligation on the Court under s 37M of the Federal Court Act, I took the unusual step of conducting a case management hearing in this matter on 22 March 2023, shortly after the originating application was filed. On that occasion, I outlined the manner in which the first and second court hearings might be approached, in a manner consistent with the overarching purpose of the civil practice and procedure provisions referred to above. It is fundamental to the rule of law that judicial decision-making be predictable, and the case management hearing provided an appropriate opportunity in advance of the first and second court hearings for that desideratum to be satisfied. The fact that the scheme company is relatively small by comparison with many other scheme companies makes that approach particularly appropriate in the present case. I have divided the issues which arise in terms of evidentiary requirements into three sections below, dealing in turn with requirements under the Act, requirements under the Corporations Rules and requirements imposed by the Courts themselves.
Corporations Act Requirements 17 Section 411(2) of the Act provides as follows: The Court must not make an order pursuant to an application under subsection (1) or (1A) unless: a) 14 days notice of the hearing of the application, or such lesser period of notice as the Court or ASIC permits, has been given to a ASIC; and b) the Court is satisfied that ASIC has had a reasonable opportunity: i) to examine the terms of the proposed compromise or arrangement to which the application relates and a draft explanatory statement relating to the proposed compromise or arrangement; and ii) to make submissions to the Court in relation to the proposed compromise or arrangement and the draft explanatory statement. 18 Ordinarily, as in the present case, ASIC provides a letter shortly before the first court hearing stating that it has had a reasonable opportunity to consider the explanatory statement and, in the usual case, does not raise any objections to the draft explanatory statement. From time to time, the letter will contain a statement of objection or other issue raised by ASIC to be resolved by the Court. That letter is typically sufficient to comply with the statutory requirement in s 411(2) to which I have referred. A practice has developed in recent years of providing a lengthy exhibit to a solicitor's affidavit containing all the correspondence between the plaintiff's solicitors and ASIC concerning the draft statement. I consider that practice to be wasteful and I commend the plaintiff in the present case for not following it. If there is a genuine issue which remains at the time of the first court hearing which must be brought to the Court's attention pursuant to the plaintiff's ex parte disclosure obligations, then that should be done by way of written or oral submissions. The issue concerning the Permitted Dividend, to which I have referred above, provides a good example, and it was properly raised by Vita's legal representatives in their written submissions before they had received ASIC's letter of 27 April 2023. 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. 19 An independent expert's report is routinely required under the Corporations Regulations 2001 (Cth), reg 5.1.01 and Sch 8, cll 8303 and 8306. This report appears sufficiently as an attachment to the draft explanatory statement. The independent expert's report is not expert opinion evidence under s 79 of the Evidence Act 1995 (Cth): Re Beyond International Ltd [2022] NSWSC 1649 at [20]-[23] (Black J). As such, there is no need for a separate affidavit from the independent expert verifying that report, nor is there any need to comply with r 23 of the Federal Court Rules 2011 (Cth) concerning expert evidence. In this application, the plaintiff has departed from what has become the usual practice in recent years of obtaining such an affidavit from the independent expert, and again the plaintiff is to be commended for omitting that unnecessary aspect of the evidence. I note that the position may be different in some creditors' schemes of arrangement where the expert's report is also deployed to prove certain facts or opinions established by it, such as the impending insolvency of the scheme company and the likelihood of solvency after the scheme is implemented.
Requirements under the Corporations Rules 20 The plaintiff has filed a short formal affidavit accompanying the originating process, containing a recent ASIC search (carried out within 7 days before the originating process was filed), as required by r 2.4(2) of the Corporations Rules. Although r 2.4(1) requires an originating process to be supported by an affidavit stating the facts in support of the process, that is preceded by the words "Unless the Court otherwise directs". I have directed that the initial formal affidavit need not go beyond annexing the recent ASIC search, given that later affidavits filed before the first Court hearing contain the facts in support of the originating process, and I otherwise dispense with compliance with r 2.4(1). 21 Rule 3.2 of the Corporations Rules requires the plaintiff to file an affidavit stating the names of the persons who have been nominated to be the chairperson and alternate chairperson of the scheme meeting, and that each person nominated: i) is willing to act as chairperson; and ii) has had no previous relationship or dealing with the body, or any other person interested in the proposed compromise or arrangement, except as disclosed in the affidavit; and iii) has no interest or obligation that may give rise to a conflict of interest or duty if the person were to act as chairperson of the meeting, except as disclosed in the affidavit. 22 Contrary to the usual practice in recent years, r 3.2 does not require an affidavit by each of the proposed chairperson and alternate chairperson themselves. There is no reason why the evidence required by r 3.2 cannot be given on information and belief in either the main affidavit or in a separate affidavit relied upon at the first court hearing, that hearing being interlocutory in nature. It has frequently been a considerable inconvenience for the proposed chairperson and alternate chairperson to make affidavits themselves in relation to those matters, rather than simply providing information and belief to another person to make the relevant affidavit. Further, pursuant to r 1.3 of the Corporations Rules, I dispense with the unnecessary (and sometimes onerous) requirement under r 3.2(b)(ii) that the affidavit must state that those nominated have had no previous relationship or dealing with the body, or any other person interested in the proposed compromise or arrangement, except as disclosed in the affidavit. In the present case, the main affidavit is made by the proposed chairperson, Mr Mirabelle, who has deposed to his own willingness and lack of conflicts in acting as chairperson of the meeting, and has also proved by way of information and belief that the proposed alternate chairperson, Mr Towell, is willing to act and does not have any conflict. 23 Rule 3.4 of the Corporations Rules requires that the plaintiff must publish a notice of the hearing of the application for an order approving a proposed compromise or arrangement in the form of Form 6. The rule does not in terms require publication in a newspaper, although the practice has continued to be followed of publishing such a notice in a newspaper which is circulated throughout Australia. In my opinion, a much more appropriate means of publication of such a notice would be by way of ASX announcement (or by announcement on the company's website if the company is not listed). I have indicated to the plaintiff that I am prepared to dispense with compliance with r 3.4 (pursuant to the power conferred by r 1.3), provided that the details for the second court hearing and for the process of opposing the approval of the compromise or arrangement, together with the name and address for service of the plaintiff as contemplated by Form 6, are set out in the ASX announcement. There is no need to follow the linguistic style of Form 6 in doing so.
Break Fees and Exclusivity Provisions 24 The evidence for the plaintiff in recent years has included evidence concerning the negotiations for break fees and exclusivity provisions to the effect required by the judgment of Lindgren J in Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 at [55] as follows: (a) that the no-shop and break fee provisions are the result of normal commercial negotiation, and explaining, at least briefly and in general terms, the factual basis for that statement; (b) the directors of the target company, or at least those directors of it who are not affiliated with the offeror, believe that the provisions do not operate against the interests of offeree shareholders, and that in fact it was in the interests of such shareholders that the directors agreed to the inclusion of the provisions in the merger implementation agreement; and (c) in the case of the break fee, explaining, by reference to calculations based on the evidence before the court, the percentage that the break fee represents (i) of the "equity value" of the target company, calculated in accordance with para 7.18 of the Takeovers Panel's Guidance Note 7, and (ii) of the scheme consideration (although Lindgren J said that that explanation may be conveyed in a submission by reference to evidence before the court). 25 With the passage of time over the last fifteen years or so since that judgment was given, break fee provisions and exclusivity provisions have become so conventional that it is unlikely that they are heavily negotiated. In the usual circumstances where both the target and the bidder are represented by experienced lawyers, there may be no resistance to the first draft put forward of such provisions, in circumstances where they follow conventional language. In terms of the quantum of the break fees, the Takeovers Panel's rule of thumb (that 1% of the value of the plaintiff's shares implied by the scheme consideration is not coercive) has actually served to keep break fees down, and to protect the target against much larger demands for break fees from bidders, who often enjoy superior bargaining power in that regard. It is not typically a case of break fees increasing to the 1% ceiling by reason of the guidance provided by the Takeovers Panel, but rather the figure of 1% serving to reduce break fees by arming the target with an effective and self-sufficient response to higher demands by the bidder. In this regard, I do not see any justification for requiring evidence from the bidder giving a breakdown of out-of-pocket expenses to justify the break fee. 26 In the present application, the plaintiff has not given the kind of evidence which was once thought desirable by Lindgren J, nor has it provided a breakdown of costs in order to justify the break fee. I do not regard the omission of such evidence as presenting any difficulty in making orders at this first court hearing. It is sufficient for the main affidavit to indicate in a single sentence the percentage which any break fee payable by the scheme company to the bidder represents of the value of the company's shares implied by the scheme consideration. Mr Mirabelle has done that, proving that the break fee of $110,000 which may become payable by Vita is approximately 1% of the total equity value of Vita of approximately $11 million implied by the scheme consideration.
Proposed Communications by Scheme Company to Shareholders 27 An important issue has emerged in recent years concerning formal Court approval being given in relation to proposed communications by the scheme company with its shareholders after the first court hearing and before the scheme meeting. The line of cases began unexceptionally with Emmett J's reasons in Re Coates Hire Ltd (No 2) [2007] FCA 2105 at [6], where his Honour held that where the Court orders that an explanatory statement in a particular form be sent to shareholders, the document should not be accompanied by any further document that has not itself been approved by the Court. That reasoning, with respect, is undoubtedly correct, because such an additional document is part of the same dispatch as the explanatory statement. 28 However, in Re Centro Retail Ltd [2011] NSWSC 1321 at [11], Barrett J extended that reasoning to include any proposal for later supplementation of the approved explanatory statement. Barrett J treated Emmett J's statement in Re Coates Hire Ltd (No 2), which was concerned only with the initial dispatch of the explanatory statement, as applying with equal force to any proposal for later supplementation of the approved explanatory statement. His Honour stated: "Because the meeting is convened in accordance with an order of the court and the court has approved the explanatory statement, the court-approved 'message' should not be interfered with by unilateral supplementation by the company." Barrett J observed that s 411(1) of the Act did not confer power to deal with such later material (at [13]-[14]), but found that s 1319 was an available source of power: [15]-[16]. In the earlier case of Re Hills Motorway Ltd [2002] NSWSC 897; (2002) 43 ACSR 101 at [15], Barrett J said that it was a fundamental premise of Pt 5.1 of the Act that the documents ordered by the Court to go to shareholders should be the only vehicle for communicating the substantive message relevant to members' decision making. 29 I accept that s 1319 could be used for this purpose, but in my view the fact that it is only the explanatory statement which is referred to in s 411(1) and (1A) is significant. Part 5.1 does not, as Barrett J acknowledged, deal with or even confer power on the Court to approve, other communications. For that purpose, the Court needs to have resort to s 1319, which appears in Pt 9.5 of the Act. 30 The practice has developed of the plaintiff putting before the Court for formal approval any documents proposed to be used in communications with shareholders (and others such as proxy advisers), so that the Court maintains oversight of such communications, consistently with the reasoning of Barrett J in Re Centro Retail Ltd. A useful list of such cases is provided by Black J in Re Tassall Group Ltd [2022] NSWSC 1414 at [32]. That case dealt with the script for a proposed outbound call campaign, which Black J regarded as requiring Court approval, as distinct from a shareholder information line taking incoming calls, in that the scheme company seeking to initiate an engagement with a shareholder which has not sought to engage appeared to his Honour to involve a greater practical risk of distorting, or distracting attention from, the information provided in the scheme booklet than a response to incoming shareholder questions. His Honour had decided in Re ResApp Health Ltd [2022] NSWSC 1353 that approval was unnecessary in relation to a shareholder information line receiving inbound calls. In the event, Black J approved the outbound call script in circumstances where it did not travel beyond the information in the scheme booklet, presented information in a balanced manner, drew attention to advantages and disadvantages of the scheme and encouraged shareholders to read the scheme booklet in its entirety. 31 In Re Tabcorp Holdings Ltd [2022] NSWSC 448 at [22], Black J approved a presentation to be given to some of Tabcorp's larger shareholders and released on the ASX. In Re Investa Listed Funds Management Ltd [2016] NSWSC 344, Brereton J approved an ASX announcement for a trust scheme between the first and second court hearings, applying Re Centro Retail Ltd by reason of the close analogy between trust schemes and company schemes under s 411; see to similar effect Walsh & Company Investments Ltd [2020] NSWSC 1746 at [66] (Black J). However, Court approval has not usually been sought for ASX announcements between the first court hearing and the scheme meeting, even where they contain updated financial statements, unless the independent expert has changed his or her opinion: see Re Andean Resources Ltd [2010] FCA 1190 at [26] (Jagot J). 32 It is difficult to reconcile all these decisions with the strictness of the reasoning of Barrett J. However, that reasoning is open to a more fundamental objection. If there is a principle that the documents ordered by the Court to go to shareholders should be the only vehicle for communicating the substantive message relevant to members' decision-making, then that principle must find its source, whether expressly or impliedly, in Pt 5.1 of the Act. In my view, the question ought to be approached as a matter of statutory construction of Pt 5.1, in which, as I have said, the only document identified for approval by the Court is the explanatory statement, and by implication any supplementary explanatory statement if one is required. Even if one reads Pt 5.1 brimful with spirit and intent, in my opinion, there is nothing in Pt 5.1 which requires the scheme company to seek Court approval for its communications with shareholders and others between the first court hearing and the scheme meeting unless a supplementary explanatory statement is required. 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. Accordingly, in my opinion it is neither necessary nor desirable for the Court to consider whether it should approve such subsequent communications, unless a supplementary explanatory statement is required. 33 Despite the fact that I have taken a different view from some distinguished company judges of the Supreme Court of New South Wales in relation to this issue, the judgments of that Court on the point do contain very useful guidance for the scheme company in terms of the approach that should be taken to subsequent communications with shareholders in order to minimise or negative the risk of misleading conduct which might jeopardise Court approval at the second court hearing. Black J, in particular, has usefully stated that no difficulty arises where the content of the proposed presentation largely mirrors that contained, in more detail, in the scheme booklet and where it prominently directs recipients to read the scheme booklet before making any voting decision in respect of the proposed merger: Re Tabcorp Holdings Ltd at [22]. Further, a degree of advocacy is permissible in communications with shareholders given that the explanatory statement invariably contains a recommendation, provided that such advocacy is fair and honest: Re Investa Listed Funds Management Ltd [2016] NSWSC 344 at [5] (Brereton J); Re AGL Ltd [2022] NSWSC 576 at [42] (Black J). Those statements in my opinion contain valuable guidance for scheme companies in deciding for themselves what communications should be made with scheme shareholders and others in advance of the scheme meeting. 34 Mr Mirabelle's affidavit proves that Vita has engaged a shareholder services advisory firm to act as the point of contact for any Vita shareholders who have questions or complaints about the Scheme or disclosure in the scheme booklet. That firm has been engaged to provide information which reflects the information contained in the Frequently Asked Questions section in the scheme booklet, and the employees of that firm will be instructed not to depart from the information in the scheme booklet in any material way during those inbound calls. In my opinion, that evidence constitutes sufficient disclosure to the Court. Vita has not sought formal Court approval or orders for those communications and, as set out above, I regard that as the correct approach to adopt. 35 For completeness, the same approach should be followed in trust schemes (such as Re Investa Listed Funds Management Ltd), in which the trustee of a managed investment scheme proposes an amendment to the constitution of the trust by way of a two-stage process closely modelled on s 411 scheme procedure: see Re Mirvac Ltd [1999] NSWSC 457; (1999) 32 ACSR 107 at [34]-[49] (Austin J). The Federal Court has jurisdiction to give judicial advice under s 63 of the Trustee Act 1925 (ACT), pursuant to s 4(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1993 (ACT). That is so irrespective of whether the proper law of the trust is the law of the Australian Capital Territory: Re Webb; Webb v Rogers (1992) 57 SASR 193 at 195-6 (King CJ); Permanent Trustee Co Ltd v National Australia Managers Ltd (unreported, Sup Ct, NSW, McLelland CJ in Eq, 3033 of 1994, 5 August 1994); Re BTA Institutional Services Australia Ltd [2009] NSWSC 1294 at [5] (Brereton J); and Re Dion Investments Pty Ltd [2013] NSWSC 1941 at [32]-[37] (Young AJ). (The point was not the subject of comment by the Court of Appeal in the last case: Re Dion Investments Pty Ltd [2014] NSWCA 367; (2014) 87 NSWLR 753.) Typically in the case of the listed managed investment schemes which are likely to be the subject of trust schemes, there will be a significant number of members who are resident in the ACT, and there may also be business operations conducted by the responsible entity and trustee of the managed investment scheme in the ACT. There will therefore typically be the kind of connection with the ACT to which King CJ referred in Re Webb at 195. There is also a line of authority to the effect that, as a matter of general principle, the Court has in personam jurisdiction over any trustee which comes before it, whether by submitting to its jurisdiction or by being served in proceedings before it: Ewing v Orr Ewing (1883) 9 App Cas 34 at 40-41 (Lord Selborne LC), 45-46 (Lord Blackburn); Chellaram v Chellaram [1985] Ch 409 at 426-7 (Scott J); National Commercial Bank v Wimborne (1978) 5 BPR 11,958 at 11,982 (Holland J); Re Constantinou [2012] QSC 332; [2013] 2 Qd R 219 at [11] (Dalton J); Re Dion Investments Pty Ltd at [34]-[36]. This is not the appropriate occasion to explore the outer limits of that principle, or how it operates in the context of cross-vested jurisdiction.
Miscellaneous Matters 36 The plaintiff has departed from another practice which has developed recently, namely to give evidence of the plan for dispatch of the explanatory statement and other materials once they are approved at the first court hearing. In my opinion, such evidence is otiose. The orders made at the first court hearing are self-explanatory, and do not need evidence of the proposed procedures to be followed by the scheme company or its share registry. 37 A further topic concerns the proposed manner of conducting the scheme meeting. This became common practice during the Covid-19 pandemic, given the novelty of the technology which was typically adopted for scheme meetings during that period. In my opinion, there is no longer any need for such evidence, given the familiarity which is now widely enjoyed in relation to that technology, and the plaintiff has not provided such evidence in relation to the hybrid scheme meeting, which will be held both in person in Brisbane and also remotely by way of audio-visual link. 38 I note that the Bidder in the present case is an Australian company. Accordingly, this application is not the appropriate occasion to consider the correctness or otherwise of the practice of proving by way of expert evidence the due execution of the deed poll by a foreign bidder required by Re Simavita Holdings Ltd [2013] FCA 1274 at [44] (Farrell J). 39 The cash required by the Bidder to pay the Scheme Consideration is the subject of an unconditional and irrevocable undertaking by the Bidder's parent company to make that cash available from its existing cash reserves. Accordingly, these proceedings do not raise for consideration the correctness or otherwise of the proposition that evidence is required at the second court hearing concerning the likelihood of the bidder satisfying any remaining conditions between the second court hearing date and the implementation date to fund the payment of the scheme consideration: see Re Isentia Group Ltd [2021] NSWSC 910 at [14] and [2021] NSWSC 1069 at [13]-[14]; Re Spark Infrastructure RE Ltd [2021] NSWSC 1385 at [31]-[33] and [2021] NSWSC 1564 at [16]-[29].
Sufficiency of the Plaintiff's Evidence in the Present Case 40 Having departed from much of the unnecessary and inefficient practice which has developed in recent years, the evidence adduced by the plaintiff consisted of the following: (a) a short formal affidavit annexing the ASIC company search; (b) the main affidavit of Mr Mirabelle (of about 10 pages) giving evidence of the constitution (with a copy annexed), the business and the capital structure of Vita, the scheme implementation deed (with a copy annexed), the board's deliberations and decision-making concerning the Permitted Dividend, the process of verifying the information provided by Vita contained in the explanatory statement, the date when the draft explanatory statement was provided to ASIC, the willingness and ability of the chairperson and alternate chairperson to act at the scheme meeting, and the percentage of the break fee in relation to the implied value of the company's shares; (c) the tender of the draft scheme booklet, together with all its appendices, and the proxy form; (d) the tender of the letter from ASIC confirming that it has had a reasonable opportunity to consider the terms of the scheme and the draft explanatory statement (and also raising the issue referred to above concerning the Permitted Dividend); and (e) an affidavit from the Bidder (of about 5 pages) proving the process of verifying the information in the draft explanatory statement which was provided by the Bidder, and also proving execution of the deed poll by the Bidder. 41 In my opinion, that evidence is sufficient for the court to convene the scheme meeting and approve the dispatch of the explanatory statement. The question which the court must deal with is whether the arrangement proposed is of such a nature and is cast in such terms that, if the arrangement receives approval by the statutory majority at the relevant meeting, the Court would be likely to approve the arrangement on the hearing of any application that is unopposed, including the need to ensure that there is sufficient disclosure to those who will be affected by the arrangement of its details and effect: Re Central Pacific Minerals NL [2002] FCA 239 at [8] (Emmett J); cited with approval by the Full Court in Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [12] (Keane CJ, Finkelstein and Jacobson JJ). 42 In other cases, there may be a need for further evidence in order to fully discharge the responsibility of the plaintiff in an ex parte hearing of bringing to the Court's attention all matters that are material to the exercise of its discretion: Re Permanent Trustee Co Ltd [2002] NSWSC 1177 at [7] (Barrett J), citing Thomas A. Edison Ltd v Bullock (1912) 15 CLR 679; and see International Finance Trust Co Ltd v NSW Crime Commission (2009) 240 CLR 319 at [131]-[133] (Hayne, Crennan and Kiefel JJ). Often, however, such matters would not require further evidence but merely reference in written or oral submissions by the plaintiff at the hearing. 43 Finally, I note that the written submissions for the plaintiff were commendably succinct (being about 7 pages), focusing on topics where a significant issue arose. In nearly all scheme applications, those submissions should not exceed 10 pages. 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 imposed by section 37M of the Federal Court Act.
Orders 44 Accordingly, I make orders convening the scheme meeting, approving the explanatory statement, and other related matters in accordance with the draft orders provided to me. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.
Chellaram
Chellaram
[2012] QSC 332
(2009) 240 CLR 319
(2010) 183 FCR 358
(2014) 87 NSWLR 753
(1992) 57 SASR 193
(1912) 15 CLR 679
Orders made under s 411(1) convening the scheme meeting for 5 June 2023 as a hybrid meeting, approving the scheme booklet and proxy form for dispatch by 5 May 2023 (with differentiated methods for email, Australian postal and international shareholders), appointing chair, requiring poll, fixing proxy deadline, ordering under r 3.3(2) that virtual attendance does not revoke proxies, dispensing with rr 2.4(1), 2.15, 3.2(b)(ii), 3.4 and Form 6 (substituting ASX announcement), publishing Form 6 substance by 5 June 2023, and adjourning second hearing to 8 June 2023.