Chequepoint Securities Ltd v Claremont Petroleum NL

Transaction booklet

1. The proposed transaction booklet in its final version (Ex 3) (as amended as set out in MFI-2 and further amended at the hearing on 4 May 2022) provides an overview of the Scheme and the CapVest Takeover, in the form of a relatively complex diagram, which indicates the alternatives that the Scheme is approved by members and by the Court, and Virtus shareholders receive $8.15 in cash per Virtus share (assuming the shareholder holds Virtus shares on the Special Scheme Dividend Record Date, as defined); or the Scheme is not approved by Virtus shareholders or the Court, and the CapVest Takeover proceeds; and its conditions then either are or are not satisfied. It indicates that, if CapVest BidCo receives acceptances of at least 50.1% (unless that minimum acceptance condition is waived) and other conditions to the CapVest Takeover are satisfied or waived, Virtus shareholders would receive $8.10 cash for the Virtus share, including any Special Takeover Dividend (as defined) and a capital return ("Capital Return") (again assuming the shareholder holds Virtus shares on the Capital Return Record Date and the Special Takeover Dividend Record Date, as defined). Notes to that information deal with, inter alia, a condition requiring a Positive Tax Ruling (as defined) in respect of the Capital Return and the alternative available to Virtus shareholders to accept the BGH Takeover.
2. A further table summarises the consideration that Virtus shareholders can receive and other key features of the Scheme and CapVest Takeover. As noted above, the scheme consideration is $8.15 per Virtus share, consisting of a Special Scheme Dividend (as defined) of up to $0.44 and cash payable by CapVest BidCo. The CapVest Takeover consideration is $8.10, consisting of a Special Scheme Dividend of up to $0.44, the Capital Return of $3.11 (less the amount of any Special Takeover Dividend). That table also indicates the Virtus board's recommendation that Virtus shareholders vote in favour of the Scheme, and accept the CapVest Takeover if the Scheme is not approved by Virtus shareholders or by the Court, implicitly after that is known, in the absence of a Superior Proposal (as defined) and subject to the independent expert continuing to provide a positive opinion on the CapVest Transaction (as defined).
3. A letter from the chair of Virtus describes the terms of the proposed CapVest Transaction and its origin in a bidding contest between CapVest and BGH that began in mid-December 2021 when the Virtus board received an unsolicited non-binding indication of interest from BGH to acquire Virtus by way of scheme of arrangement for a significantly lower price. That letter points out that the cash consideration payable in respect of the Scheme is a significant premium to Virtus share prices on several bases. That letter also describes the CapVest Takeover, which is an alternative proposal to the Scheme. That letter also indicates the recommendation of Virtus directors, and outlines the key reasons for that recommendation, and points to the independent's expert's conclusion that the Scheme is in the best interests of Virtus shareholders and the CapVest Takeover is fair and reasonable, in the absence of a Superior Proposal (as defined) and the Capital Return does not materially prejudice Virtus' ability to pay its existing creditors. The transaction booklet also includes a letter from a senior partner and founding member of CapVest relating to the terms of the offer under the Scheme or the alternative CapVest Takeover offer.
4. The transaction booklet in turn contains a section headed "Your Key Decisions" and a relatively complex decision tree, which may assist shareholders in reaching decisions on whether to accept the Scheme or the CapVest Takeover, and a section headed "Key Considerations in relation to the CapVest Transaction" which includes a further comparison of the position under the Scheme and under the CapVest Takeover. The transaction booklet also discloses, in common form, a benefit which would be obtained by the chief executive officer and managing director of Virtus, Ms Kathryn Munnings, by reason of the vesting of performance rights issued to her under an executive option plan and specialist option plan. The transaction booklet also includes a section dealing with "Frequently Asked Questions", an overview of the Scheme and the CapVest Takeover, and a section describing the Capital Return. That section outlines the requirements under the Corporations Act for a capital reduction and identifies several conditions to the Capital Return proceeding, including that it be paid by 30 September 2022, persons nominated by CapVest BidCo being appointed as directors of Virtus to reconstitute its board with a majority of directors appointed by CapVest BidCo, a Positive Tax Ruling becomes available, and the payment of the Capital Return continues to satisfy the requirements of s 256B of the Corporations Act at the time it is made. I address the significance of those conditions below.
5. The transaction booklet includes information concerning Virtus and CapVest and indicates, in section 8.6, the equity commitments and third-party debt funding by which CapVest BidCo would fund the Scheme and the CapVest Takeover. Section 9 deals with risks in respect of the CapVest Transaction, including risks as to the Virtus business, the risk that BGH (which had voting power of 20.02% of Virtus shares at the date of the transaction booklet) would vote against the Scheme, the risks of a shareholder retaining a minority interest in Virtus after the CapVest Takeover, and risks associated with the Capital Return, including the fact that a Positive Tax Ruling is a condition to payment of the Capital Return. The transaction booklet also refers to deemed warranties to be given by scheme shareholders, in common form, and exclusivity provisions, with each of the "no talk" and "no due diligence" provisions being subject to fiduciary carveouts. A break fee is also payable by Virtus and a reverse break fee is payable by CapVest BidCo, in each case within the 1% guideline published by the Takeovers Panel. The transaction booklet also provides an overview of refinancing facilities which are relevant to a Refinancing (as defined) and the Capital Return, and would be of significance to shareholders if the Scheme does not proceed and who did not choose to accept the CapVest Takeover.
6. An independent expert's report contained in the transaction booklet expresses the independent expert's opinion that the Scheme is fair and reasonable to, and therefore in the best interests of shareholders; the CapVest Takeover is fair and reasonable to shareholders; and the Capital Return does not materially prejudice Virtus' ability to pay its existing creditors. The independent expert also indicates that the consideration being offered by CapVest under the relevant offers is above the mid-point of their estimate of the market value of a Virtus share, supporting their opinion that the Scheme and CapVest Takeover are both fair.

Affidavit and other evidence

1. Virtus relies on the affidavit dated 6 April 2022 of its solicitor, Ms Colleen Platford, which refers to the nature of its business and to an announcement made by Virtus on 14 March 2022 that it had entered into the TID. By her affidavit dated 22 April 2022, Ms Sonia Petering, who is the chair of the board of directors of Virtus, consents to act as chair of the scheme meeting. By his affidavit dated 22 April 2022, Mr Gregory Couttas, who is a non-executive director of Virtus, consents to act as chair of that meeting if Ms Petering is unable or unwilling to do so.
2. By her affidavit dated 28 April 2022, Ms Munnings, who is (as I noted above) the group chief executive officer and managing director of Virtus, refers to the nature of Virtus' business, the terms of the Scheme and competing proposals which had been received for Virtus, and to the conditions precedent to the transaction. She outlines the exclusivity provisions and break fees payable in respect of the proposed transaction, and provides evidence as to the circumstances in which agreement was reached as to those break fees and the basis on which the Virtus board considered it to be in Virtus' best interests to agree to the exclusivity provisions and break fees. Ms Munnings also refers to the position in respect of Virtus performance rights, and to the steps which were taken in respect of verification of the transaction booklet. By a further affidavit dated 1 May 2022, Ms Munnings led evidence of a modification to the script of an audio-visual recording to be made by Ms Briant, which it was then proposed would be distributed to Virtus shareholders, although that proposal was ultimately not pressed.
3. By an affidavit dated 27 April 2022, Mr Tapan Parekh, who is a partner of Deloitte Touche Tohmatsu and an authorised representative of Deloitte Corporate Finance Pty Ltd, refers to his independent expert's report and confirms that he holds the opinions contained in the draft report as at the date of that report; he has read the Expert Witness Code of Conduct and agrees to be bound by that code; his draft report has been prepared by reference to applicable Australian Securities and Investments Commission ("ASIC") Regulatory Guidelines; and he has not become aware of any facts and circumstances since the date of his draft report which would cause him to change the opinions which he expressed in it.
4. By an affidavit dated 27 April 2022, Mr Costas Condoleon, who is a partner in the firm of solicitors acting for Virtus in the transaction, also refers to the background to the transaction, the transaction booklet and to correspondence with the solicitors for BGH and ASIC in respect of the transaction. The exhibit to Mr Condoleon's affidavit includes a letter dated 27 April 2022 from ASIC which referred to correspondence from BGH to ASIC and to objections raised by BGH in respect of the Scheme. That letter noted that representatives of ASIC would attend the first Court hearing to observe the proceedings and raise any objections and would decide whether to provide its customary "indication of intent" letter after observing the proceedings and those objections and, if possible, prior to the conclusion of the first Court hearing. ASIC ultimately took no active step to oppose the Scheme at the first Court hearing.
5. By an affidavit dated 28 April 2022, Mr Sumit Singh, who is a client relationship manager at Link Market Services Ltd ("Link") outlined the share registry services provided by Link to Virtus and addressed the manner in which Scheme documents would be dispatched and an online platform would be provided for a virtual scheme meeting to be held on 2 June 2022. By a further affidavit dated 29 April 2022, Mr Singh provided further evidence as to the proposal that Virtus shareholders who are Postal Recipients and Airmail Recipients (as defined) will be sent a letter from the chair of Virtus advising how they can access the transaction booklet through a URL address.
6. By her affidavit dated 27 April 2022, Ms Penelope Briant, who is a director of CapVest BidCo and a senior partner with CapVest, outlined the verification process adopted by CapVest BidCo in respect of information concerning it in the transaction booklet, and also addressed the process by which exclusivity provisions and a break fee had been negotiated, and outlined the nature of the costs incurred by CapVest which would be compensated by that break fee, if the transaction did not proceed.
7. Oceania in turn relied at the hearing on 2 May 2022 on the affidavit dated 27 April 2022 of Ms Haroula Morfis, who is general counsel, a partner and company secretary of BGH. Exhibits to Ms Morfis' affidavit included correspondence between BGH and its solicitors and between Virtus, Virtus' solicitors and ASIC. That affidavit referred to BGH's and Oceania's estimate, based on information contained in the TID and Virtus' ASX release made on 14 March 2022, that Virtus' net debt on a pro forma basis as at 31 December 2022 would significantly increase after the proposed refinancing of Virtus and payment of the Permitted Special Dividend and Permitted Capital Return. Ms Morfis also referred to proceedings before the Takeovers Panel in respect of a takeover bid announced by BGH to Virtus on 6 April 2022. It appears the Takeovers Panel made a decision in respect of that application; a review application was then made in respect of that decision; and a review panel has yet to be appointed in respect of that review application. The correspondence exhibited to Ms Morfis' affidavit also included a letter dated 26 April 2022 from the solicitors for BGH to the solicitors for Virtus, attaching a copy of a letter from the solicitors for BGH to ASIC dated 25 April 2022 ("BGH 25 April Letter") advancing numerous criticisms of the CapVest Transaction and the reply dated 27 April 2022 from Virtus' solicitors ("Virtus 27 April Letter"). I will refer to several issues agitated in that correspondence and in this hearing below.
8. At the hearing on 2 May 2022, Oceania also tendered a letter dated 29 April 2022 from Ernst & Young to BGH (Ex O1) which expressed the view that there was less than a 50% prospect of Virtus obtaining a favourable tax ruling as to the Capital Return, and that prospect would reduce as the Capital Return component of the aggregate distribution increased. That letter was admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as a submission only, and not proof of the asserted facts, where its author had not complied with the Expert Witness Code of Conduct. It is not necessary to express any view as to the prospects of obtaining that ruling in order to determine the application.
9. Virtus read additional evidence at the further hearing on 4 May 2022. By a further affidavit dated 4 May 2022, Mr Singh updated the position as to the date of dispatch of scheme materials in circumstances where that would be delayed because of the need for the further hearing on that date. By an affidavit dated 4 May 2022, Mr Parekh addressed a further draft of his expert report, which had been updated because a target statement was lodged on 3 May 2022 in respect of a takeover bid made by entities related to BGH, and Deloitte had prepared an independent expert report in respect of that takeover. The amendments made in that updated draft report also addressed criticisms which had been made by Oceania as to the earlier version of that report, including addressing an ambiguity in that earlier report as to whether Deloitte was concluding only that the proposed Capital Return was unlikely to materially prejudice Virtus' ability to pay its existing creditors, or that it would not do so, by confirming the latter position. I bear in mind, in that respect, that the amendments reflected in the transaction booklet also narrowed the time period in which any capital return would take place, and as to which that opinion was directed, so that it could only be paid before 30 September 2022.
10. By a further affidavit dated 4 May 2022, Mr Condoleon updated the position as to verification, in respect of changes made to the transaction booklet between the version provided to the Court on 28 April 2022 and the version provided on 4 May 2022 (Ex 3). An affidavit dated 4 May 2022 of CapVest 's solicitor, Ms Sharon Liu, updated the position as to verification by CapVest BidCo of statements relating to it in the revised transaction booklet. By a second affidavit dated 4 May 2022, Ms Munnings referred to further meetings of the Virtus board held on 3 May 2022 and on the morning of 4 May 2022, and to amendments which were to be made to the amended TID, and to the board's "sign-off" of the revised transaction booklet (Ex 3).
11. The amendments made to the further amended TID included changes to the conditions to the Permitted Capital Return and the deletion of any right on the part of CapVest BidCo to defer the payment of the permitted Capital Return and the conditions to the permitted Capital Return were further amended in the course of the hearing on 4 May 2022as I will note below. The exhibit to Ms Munnings' second affidavit also annexed draft minutes of a meeting of the directors of Virtus held on 4 May 2022, which resolved to implement the Capital Return on the terms described in the revised transaction booklet, subject to the requirements of s 256B of the Corporations Act continuing to be met, the necessary shareholder approval and the Capital Return Conditions, then expressed as being that the Capital Return was paid no later than 30 September 2022; the Virtus board was reconstituted with a majority of directors nominated by CapVest BidCo; a Positive Tax Ruling became available; and the Virtus board "continu[ed] to be satisfied" that, at the time for payment of the Capital Return, it was fair and reasonable to Virtus' shareholders as a whole and did not materially prejudice Virtus' ability to pay its creditors. The board minutes indicated that Virtus' directors then expected that the Virtus board, at the time of payment of the Capital Return, would need to be satisfied as to those matters.
12. That last condition as to the satisfaction of the Virtus board was further amended, with the approval of a further board meeting held during the course of the hearing on 4 May 2022, to refer to the fact of compliance with the requirements of s 256B of the Corporations Act, which was not a matter that was dependent on the future satisfaction of the Virtus board. Mr Condoleon, who had attended that further board meeting, gave oral evidence at the 4 May 2022 hearing as to the resolution passed at that hearing; his file note of that board meeting was tendered by Oceania (Ex O2); and he was cross-examined by Mr Crutchfield, with whom Mr Rudd appears for Oceania, although that cross-examination did not impeach his evidence as to the passage of that resolution. The effect of the amendment made at the hearing and approved at that meeting was to remove any requirement as to the satisfaction of the Virtus board at a future date, because the amended condition was dependent on the fact of compliance with s 256B of the Corporations Act, not the board's satisfaction as to that fact. I explored with Mr Jackman, with whom Ms Ng appeared for Virtus, whether the Virtus board had recognised the distinction, when that further amendment was made. I proceeded on the basis that the board knew of that matter, accepting the position put by Mr Jackman, and that it was not necessary to further adjourn the hearing to ensure they were made aware of that matter. Although the further amended TID had not been executed at the time of the hearing on 4 May 2022, each of Virtus and CapVest BidCo gave an undertaking to do so before I made orders at that hearing.

Role of the Court at the first Court hearing

1. Mr Jackman addressed the role of the Court at the first Court hearing, in submissions of a kind that are commonly made at scheme hearings. He observed that: "The Court's role at a first Court hearing in respect of a scheme is primarily to determine, in the exercise of its discretion, whether to approve the convening of a scheme meeting and the explanatory statement if it is satisfied of the following matters: (a) The plaintiff is a "Part 5.1 body"; (b) The proposed scheme is an "arrangement" within the meaning of s 411 of the [Act]; (c) There has been proper disclosure to members; (d) The scheme is bona fide and properly proposed; (e) ASIC has had reasonable opportunity to examine the proposed scheme and explanatory statement, to make submissions and has had 14 days' notice of the proposed hearing date of the first Court hearing (that is, s 411(2) of the [Act]); (f) The procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) (Rules) have been met; and (g) there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of votes is achieved. (see Re Ellerston Global Investments Ltd [2020] NSWSC 879 at [25] ["Ellerston"] and the authorities cited therein; referred to in Re Vocus Group Limited [2021] NSWSC 630 at [12]). The factors relevant to the exercise of that discretion are summarised by Farrell J in Re Associated Advisory Practices Limited [2013] FCA 761 at [22]: The Court will not ordinarily convene a meeting of members to consider a scheme of arrangement unless the Court is satisfied that the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting of members, the Court would be likely to approve the scheme on the hearing of an unopposed application: Re Central Pacific Minerals NL [2002] FCA 239 at [8]; Re CSR Ltd (2010) 183 FCR 358 at [12]; Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 504. By granting leave to convene the meeting, the Court does not give its imprimatur to the proposed scheme or foreshadow its approval at the second court hearing for the purposes of s 411(4)(b): Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [36]; Australian Securities Commission v Marlborough Gold Mines Limited at 504-505. The question for the Court is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed as being beneficial to members: In re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213 at 243; Re CSR Ltd at [80]. The Court does not need to be satisfied that no better scheme could have been proposed: Re Foundation Healthcare Ltd at [44]. Ultimately, the question is for the members themselves: see FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72. As French J (as his Honour then was) said in Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [36] and [44] (in a passage cited with apparent approval in Re CSR Ltd (2010) 183 FCR 358 at [58]): [36]… It is however important to bear in mind that, by granting leave to convene the meeting, the court does not give its imprimatur to the proposed scheme. If the arrangement is one that seems fit for consideration by the meeting of members or creditors and is a commercial proposition likely to gain the court's approval if passed by the necessary majorities, then leave should be given: Re ACM Gold Ltd (1992) 34 FCR 530; 107 ALR 359; 7 ACSR 231; 10 ACLC 573 (O'Loughlin J). The court is not required to give close consideration to the effects of the scheme upon individual members of the classes of members or creditors affected. So to do would be to "introduce burdensome and to a large extent ineffectual consideration at this interlocutory stage": Re Jax Marine Pty Ltd [1967] 1 NSWR 145 at 148 (Street J). … [44] The court at the stage of ordering a meeting to approve a scheme does not ordinarily go very far into the question of whether the arrangement is one which warrants the approval of the court: Re NRMA Ltd at FLR 359; ACSR 605. That question is to be answered when the scheme returns to the court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further. The court is not required to be satisfied either at the convening or approval stage that no better scheme could have been devised. […]. At the first Court hearing, the Court is concerned not with whether final approval should be given to the scheme, but whether the scheme is one which is adequately explained to those who have a financial interest in it, and whether there is any obvious flaw in the scheme, such that it would be inappropriate even for it to be submitted for consideration: Re Abacus Funds Management Ltd (2006) 24 ACLC 211 at [23] (Campbell J) referred to in Ellerston at [27]. The Court is not required to be satisfied that no better scheme could have been proposed. The question is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed is of benefit to members or creditors. The Court's function is to consider the scheme put forward in the relevant application and not to speculate whether any other compromise or arrangement might also have been devised: Centrebet International Ltd [2011] FCA 870 at [29] (Emmett J); Re BIS Finance Pty Ltd [2017] NSWSC 1713 at [22] referred to in Ellerston at [27]; Re Boart Longyear (2017) 121 ACSR 328 at [28] …"
2. Mr Jackman in turn addressed matters which he submitted supported the making of orders convening the scheme meeting, and submitted the transaction booklet contained extensive and detailed disclosure about the Scheme. I will return below to the question of the adequacy of disclosure as to the Capital Return so far as it is relevant to shareholders' decision-making concerning the Scheme. Mr Jackman also addressed several particular issues arising in respect of the Scheme, including CapVest BidCo's funding arrangements for the scheme consideration.

Virtus' submissions as to several aspect of the Scheme

1. Mr Jackman, noted that, due to the inter-related nature of the Scheme and the CapVest Takeover, Virtus proposes to send a single integrated transaction booklet to Virtus shareholders. I recognise that that approach was accepted in Re Healthscope Ltd (2019) 139 ACSR 608 at [40], where Beach J indicated that Healthscope proposed to take that course and recorded, without further explanation, that he agreed with it. A similar approach appears to have been accepted, again without analysis, in Re Huon Aquaculture Group Ltd [2021] FCA 1170. I proceed on the basis that this approach is permissible, where Oceania did not contend to the contrary, and I am conscious of the desirability of consistent decision-making in respect of matters arising under national legislation, here the Corporations Act, particularly in commercial transactions such as schemes where predictability is an important value. Having said that, this matter highlights the complexities that may arise, where a transaction booklet seeks to deal with a proposed scheme, a contested takeover bid and, here, also a proposed capital return, at the same time. It also highlights the risk that collateral challenges to the information provided as to a takeover bid or associated transactions may then complicate the process of approval of the scheme. It seems to me that scheme proponents and their advisers, and possibly ASIC, may be well advised to give further thought to the desirability of this approach.
2. Mr Jackman also addressed matters which would ordinarily be addressed in respect of a scheme, and which are uncontroversial here, including the conditions precedent to the implementation of the Scheme and exclusivity provisions and break fees in respect of the Scheme. I now address these issues before turning to matters that gave rise to greater controversy. Statutory requirements to convene a scheme meeting
3. Mr Jackman submits and I accept that the statutory requirements to convene a scheme meeting are satisfied. Virtus is a Pt 5.1 body and the Scheme is an arrangement between Virtus and its members by which Virtus proposes that shares held by its members at the Scheme Record Date (as defined) will be transferred to CapVest BidCo in exchange for cash in the amount of $8.15 per Virtus share. I am also satisfied that ASIC has had a reasonable opportunity to examine the terms of the Scheme and the transaction booklet and it attended, although it did not formally appear at, at least the first day of the hearing. The transaction booklet contains detailed disclosures about the Scheme and there is evidence that the transaction booklet has been verified to ensure the material contained in the transaction booklet is not misleading. There is no reason to doubt that the Scheme is bona fide and properly proposed for the purpose of CapVest BidCo acquiring all of the share capital of Virtus such that Virtus will become a wholly owned subsidiary of CapVest BidCo. I will address particular issues that arose, and which were ultimately resolved, in respect of the Capital Return below. Directors' recommendation and Ms Munnings' interest
4. As I noted above, the Virtus Board unanimously recommended that Virtus shareholders vote in favour of the Scheme in the absence of a Superior Proposal (as defined) and subject to the Independent Expert continuing to conclude that the Scheme is in the best interests of Virtus shareholders (Munnings 28.4.22 [47]). Mr Jackman points out that Ms Munnings has been issued with Virtus Performance Rights (as defined) and will receive a benefit if the Scheme proceeds, namely in the treatment of those rights (Munnings 28.4.22 [43]-[46]). The quantum of that benefit to Ms Munnings if the Scheme proceeds is disclosed in the Chair's Letter in the Transaction Booklet as follows: "…you should note that Ms Kate Munnings is a Director of Virtus and has previously been issued Virtus Performance Rights under the Virtus Health Limited Executive Option Plan and Specialist Option Plan. If the Scheme is implemented or the CapVest Takeover is declared or becomes unconditional, the Board has determined that, as is customary, the Virtus Performance Rights will vest and, as a result, Virtus Shares will be acquired by Ms Munnings as a result of the vesting and exercise of her Virtus Performance Rights in connection with the CapVest Transaction. This would mean that Ms Munnings would receive a maximum amount of $3,008,882.20 if the Transaction is implemented. …"
5. A footnote to subsequent references to the directors' recommendation in turn refers to the disclosure of directors' interests set out in section 11.1 of the transaction booklet (Munnings 28.4.22 [50]). Ms Munnings gives evidence (Munnings 28.4.22 [49]-[50] of her and the Virtus Board's view that she should provide a recommendation in relation to the Scheme despite the benefits to her if the Scheme proceeds, given the importance of the Scheme and her role as chief executive officer and managing director.
6. I am satisfied that, where the benefit to Ms Munnings is sufficiently disclosed in the transaction booklet, she should not be prevented from making her recommendation to Virtus shareholders in relation to the Scheme: Villa World at [38]-[40]; Re Afterpay Ltd [2021] NSWSC 1435 at [40]-[43]; Re Ausnet Services Ltd [2022] NSWSC 21 at [28]-[30]. Conditions precedent
7. The implementation of the Scheme is subject to several conditions precedent as set out in clause 3.1 of the further amended TID and summarised at section 4.2 of the transaction booklet. Ms Munnings's evidence is that she is not aware of any fact, matter or circumstance that has resulted in, or is likely to result in, the failure of the Scheme due to any condition precedent not being satisfied or waived (Munnings 28.4.22 [25]). I bear in mind, of course, that there is a real risk, as disclosed in the transaction booklet, that the Scheme may not be approved at the scheme meeting by reason of Oceania's interest in Virtus. Exclusivity provisions
8. Clause 10 of the further amended TID provides for several exclusivity restrictions, dealing with "no existing discussions" (clause 10.1), "no shop" (clause 10.2), "no talk" (clause 10.3), and "no due diligence" (clause 10.4) and Virtus is also subject to the obligations relating to "notification of approaches" (clause 10.5), and a "matching right" (clause 10.6). I accept that exclusivity provisions in the form of clause 10 of the further amended TID are now commonplace in schemes of arrangement and are not inconsistent with the Takeovers Panel's Guidance Note 7: Lock-up Devices: Re Villa World Ltd (2019) 139 ACSR 550 at [23] ("Villa World"). I am satisfied that the exclusivity period is here for no more than a reasonable period capable of precise ascertainment; the exclusivity clauses dealing with unsolicited alternative proposals are subject to a fiduciary carve out; and the provisions are sufficiently disclosed in the explanatory statement sent to shareholders: Re TPG Telecom Ltd [2020] NSWSC 772 at [22] ("TPG Telecom"). Ms Munnings' evidence also addresses the circumstances in which those provisions were agreed in negotiations with CapVest (Munnings 28.4.22 [30]-[36]) and those provisions were disclosed as part of the ASX announcement made on 14 March 2022 and in section 11.10(a) of the transaction booklet. I accept that these provisions do not provide any reason not to convene the scheme meeting or approve the transaction booklet for despatch. Oceania did not contend to the contrary. Break fees
9. Clause 11.3 of the further amended TID provides for Virtus to pay to CapVest BidCo the "Virtus Break Fee" of $7,192,147 in specified circumstances and clause 12.2 of the further amended TID provides for CapVest BidCo to pay Virtus the "Bidder Break Fee" of the same amount in specified circumstances. The Virtus Break Fee and the Bidder Break Fee and the circumstances in which they are to be paid are disclosed in sections 11.10(c) and (d) of the transaction booklet. I accept that break fees are common features in schemes of arrangements and will generally be permitted unless the amount of the break fee is such that it could influence voting at the meeting to be convened or if there are some other unusual circumstances: Villa World at [24]; TPG Telecom at [24]. I accept, for the reasons set out in Mr Jackman's submissions, that neither the Virtus Break Fee nor the Bidder Break Fee provide any reason not to convene the scheme meeting or approve the transaction booklet for despatch and Oceania did not contend to the contrary. Deemed warranties
10. Clause 9.4(a) of the Scheme contains a deemed warranty by each Scheme shareholder in conventional terms. The effect of that clause is disclosed in section 11.9 of the transaction booklet. I accept that provisions of this character are also commonplace in schemes as a device directed to ensuring that a scheme shareholder whose shares are subject to an encumbrance is not unfairly advantaged and provide no reason not to convene the scheme meeting or approve the transaction booklet: Re APN News & Media Ltd (2007) 62 ACSR 400; [2007] FCA 770 at [59]-[60]; Re DUET Management Company 1 Ltd (2013) 95 ACSR 34; [2013] NSWSC 817 at [23]; Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26]. Performance risk and CapVest funding
11. Mr Jackman recognises that binding a non-party to the Scheme to perform its obligations under the Scheme by way of deed poll is an important element of managing performance risk: Re Simavita Holdings Ltd [2013] FCA 1274 at [43]-[44]. He points out that the Scheme imposes obligations on CapVest BidCo, an Australian proprietary company, which are supported by a Deed Poll in favour of each Scheme Shareholder (as defined) executed by CapVest BidCo (Exhibit PKB-1, 28-35).
12. As I noted in Ellerston at [29], a practice has also developed to address performance risk, by which the transfer of target shares to an acquirer is conditional on the payment of the consideration to target shareholders. That practice has been followed in this scheme. Mr Jackman points out that, by cl 5.2 of the Scheme, Virtus Shares will only be transferred to CapVest BidCo following the deposit of the scheme consideration in cleared funds into the Trust Account (as defined) in accordance with clause 6.2(a) of the Scheme. I accept that this provision sufficiently addresses performance risk.
13. The transaction booklet discloses that CapVest BidCo intends to fund the scheme consideration through a combination of equity commitments (as described in section 8.6(c) of the transaction booklet) and third party debt financing (as described in section 8.6(d) of the transaction booklet). As to the equity commitments, CapVest Private Equity V S.a.r.l acting in its own capacity and as general partner of CapVest Fund V has executed legally binding equity commitment letters in favour of CapVest BidCo and Virtus under which it undertakes to, among other things, have available and commits to provide specified funding to CapVest BidCo prior to the Implementation Date. CapVest BidCo has also entered into a number of Scheme Facilities (as defined) for up to $485,000,000 with third party lenders. Ms Briant's evidence is that, as at the date of the transaction booklet, CapVest BidCo is not aware of any reason why any of the conditions precedent to the Scheme Facilities will not be satisfied, and is confident they will be satisfied in time to allow payment in full of the scheme consideration as and when due under the terms of the Scheme (Briant [9]). These matters give rise to no reason not to convene the scheme meeting or approve the transaction booklet, where performance risk is addressed in the manner noted above. Despatch of scheme meeting materials and conduct of scheme meeting
14. I have referred above to the evidence as to the despatch of materials relating to the Scheme, including the transaction booklet, to Virtus shareholders. As has been common since the COVID-19 pandemic, Virtus proposes that the scheme meeting will be held virtually only, using an online platform which will be provided and administered by Link (Singh 28.4.22 [14]; Munnings 28.4.22 [68]-[70]). I accept that the courts have made orders for virtual scheme meetings, under temporary powers available under the Corporations Act and since those powers have lapsed: Re Spark Infrastructure RE Limited [2021] NSWSC 1385 at [47]; Re Redflex Holdings Ltd [2021] FCA 417 at [43]-[44]; Re Asaleo Care Ltd [2021] FCA 406 at [76]-[77]; Re Crown Resorts Ltd [2022] FCA 367 at [91]. I also note the application of ss 249R-249S of the Corporations Act and the passage of the Corporations Amendment (Meetings and Documents) Act 2022 (Cth). I recognise that Virtus' constitution does not specifically permit it hold meetings virtually only, although it permits the use of technology to facilitate holding a meeting if held in two or more places (Munnings 28.4.22 [66]; Ex KMM-1 at page 274) and I note Mr Singh's evidence as to the use of Link's online platform to host virtual shareholder meetings (Singh 28.4.22 [15]) and his evidence that platform provides an accurate, reliable and secure process to record and tally votes at a virtual meeting (Singh 28.4.22 [25]). I will, to the extent it is necessary to do so, make an order under s 1319 of the Corporations Act for the scheme meeting be held virtually only, for at least the following reasons. Section 411(17) of the Corporations Act
15. Mr Jackman also submits and I accept that it is now settled that the appropriate occasion for the Court to address the question posed by s 411(17) of the Corporations Act is on the application to approve the scheme at the second Court hearing: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [23]-[31]; Re Mosaic Oil NL (No 2) (2010) 80 ACSR 281 at [31]; TPG Telecom at [31]; Ellerston at [35]. I will defer that question to that time. Video presentations
16. For completeness, Mr Jackman also referred to a novel proposal that Virtus would provide separate video presentations, recorded by each of Ms Briant of CapVest and Ms Petering of Virtus, to Virtus shareholders, which was ultimately not pressed.

Oceania's challenge to the structure of the Capital Return as formulated at the 2 May 2022 hearing

1. The Capital Return, as formulated as at the 2 May 2022 hearing, was described in section 6 of the amended transaction booklet tendered at that hearing (Ex P2). Virtus there noted at section 6.1 that CapVest had required that Virtus propose the Capital Return resolution and observed that the purpose of the Capital Return and a Special Takeover Dividend was: "to enable CapVest to distribute surplus capital to Virtus Shareholders as a result of the Refinancing of the Virtus Group … and to ensure that the Virtus Group has an appropriate level of debt to maximise returns to equity holders, commensurate for a CapVest portfolio company". It is, of course, implicit in that proposition that the significant part of the Capital Return would be paid to Oceania or CapVest, so far as it took place after the CapVest Takeover had become unconditional.
2. The transaction booklet in turn noted that: "The amount of the Capital Return payable per Virtus Share will be between $2.67 and $3.11 (inclusive), and will be equal to: ● If a Special Takeover Dividend of $0.44 per Virtus Share is paid or payable, $2.67 per Virtus Share; ● If no Special Takeover Dividend is paid or payable, $3.11 per Virtus Share; or ● If a Special Takeover Dividend of less than $0.44 is paid or payable, $2.67 plus such amount that is the difference between $0.44 and the amount of the Special Takeover Dividend, and will be paid subject to the Capital Return Conditions being satisfied and in accordance with the terms of the Capital Return Resolution (if approved at the Extraordinary General Meeting)."
3. The transaction booklet there noted that the payment of the Capital Return was subject to the "Capital Return Conditions" as defined, then formulated as: (a) the CapVest Takeover is declared or becomes unconditional; (b) CapVest BidCo acquires a Relevant Interest in at least 50.1% of all Virtus Shares; (c) the "Refinancing" is "completed"; and (d) the reconstituted Virtus board determines to pay the Capital Return. The third of these conditions had the consequence that whether the Capital Return would be payable, and when it would be payable, depended upon the "Refinancing" being completed, and the term "Refinancing" is described at length in section 11.12 of the transaction booklet. Mr Jackman submitted that the Refinancing would be completed when the Refinancing Facilities (as defined) were drawn down, and that may have been the effect of that description. The fourth of these conditions had the result that any present intention to implement a Capital Return, if it had been formed by the present Virtus board, would have had limited effect, where the decision whether to implement that Capital Return will be made by any reconstituted Virtus board in the future, in an amount within the relevant range, and only after Virtus shareholders had approved a Capital return that might never occur, because the reconstituted Virtus board might simply determine not to proceed with it.
4. The transaction booklet then stated that payment of the Capital Return depended on the delivery of a "Positive Tax Ruling" (as defined), although that was not then a condition to the Capital Return specified in the proposed shareholder resolution, and then sought to confine the way in which a reconstituted Virtus board under CapVest's control will exercise a future discretion as to that payment. Section 6.3 of the transaction booklet provided that: "If a Positive Tax Ruling has not been received for the Capital Return before the time the CapVest Takeover becomes or is declared unconditional, it is proposed that the payment of the Capital Return will be deferred, with the result that the Capital Return will be paid after the CapVest Takeover Offer Period closes and will not be deducted from the CapVest Takeover Consideration. In this situation it is proposed that the Capital Return would be paid on a date to be determined by the Virtus board if and when a Positive Tax Ruling is obtained for Virtus shareholdings (including CapVest BidCo). If payment of the Capital Return is deferred in this way the Virtus board reserves the right to reconsider the nature and form of the distribution to be made to Virtus shareholders. However any such right is intended to be used in a limited manner, for example if a simple change was required in order to satisfy the ATO."
5. Mr Jackman initially described the Capital Return as follows: "If the Scheme is not approved by Virtus Shareholders or the Court or is otherwise not implemented, CapVest BidCo will proceed with the Takeover Bid. As part of the Takeover Bid, a capital return to Virtus Shareholders, funded by borrowings, is proposed. Details of the proposed capital return is set out in section 6 of the Transaction Booklet (pages 94 to 102). The proposed capital return is not part of the Scheme. While the capital return is referred to within the Transaction Booklet as part of the proposed Takeover Bid, if the Scheme is approved by the statutory majorities, no capital return will occur and the Court will not be required to consider the fairness of the capital return as part of its approval of the Scheme at the second hearing ... Mr Parekh was asked to opine in the IER on whether the capital return proposed by CapVest BidCo (together with the Permitted Special Dividend, the Proposed Capital Return) does not materially prejudice the ability of Virtus to pay its creditors (IER page 1). Mr Parekh's analysis on the Proposed Capital Return is at section 6 of the IER. In undertaking his analysis on whether the Proposed Capital Return does not materially prejudice the ability of Virtus to pay its creditors, Mr Parekh has had regard to Virtus' existing creditors (IER, section 6.3.1, pages 41 to 42). Based on his analysis, Mr Parekh opines that the Proposed Capital Return does not materially prejudice the ability of Virtus to pay its existing creditors (IER page 2, 45-46 (section 6.4))."
6. Mr Jackman also rightly pointed out that a company may reduce its share capital under s 256A of the Corporations Act if the reduction is fair and reasonable to the company's shareholders as a whole and does not materially prejudice the company's ability to pay its shareholders and, importantly, the "reduction" is approved by shareholders under s 256C of the Corporations Act. Section 256C(1) provides that, if a reduction is an equal reduction, it must be approved by a resolution passed at a general meeting of shareholders. Section 256C(4) requires that a company include with the notice of the meeting a statement "setting out all information known to the company that is material to the decision as to how to vote on the resolution", other than information that it would be unreasonable to require the company to provide because it has previously disclosed the information to its shareholders.
7. BGH and Oceania raised several issues in respect of the Capital Return as it was formulated as at the 2 May hearing in the BGH 25 April Letter and at that hearing. Mr Crutchfield submitted that the structure of the Capital Return in its initial form, and the disclosure in respect of it, had the consequence that: "The Scheme in its current form would not be likely to be approved at the second Court hearing even if it obtained the requisite statutory majorities, and Virtus shareholders will not be properly informed of the nature of the Scheme and overall CapVest Transaction ahead of consideration of the Scheme. …"
8. First, Mr Crutchfield attacked a suggested uncertainty of the Capital Return and the shareholder approval for it. In the BHG 25 April Letter, BGH had questioned the suggested uncertainty arising from the tax ruling sought in respect of the Capital Return and also contended that Virtus shareholders would be "coerced" by the Capital Return to vote in favour of the Scheme. By the Virtus 27 April Letter, Virtus' solicitors responded that the Capital Return would be deferred until after the relevant tax ruling was received and that there was no uncertainty for Virtus shareholders who might receive the return as to its likely tax treatment, and contested BGH's contention that Virtus shareholders would feel "coerced" to vote in favour of the Scheme.
9. In reply submissions for the hearing on 2 May 2022, Mr Crutchfield pointed to what he described as "fundamental defects" and "structural flaws" in the CapVest Transaction as revealed by the transaction booklet, and placed particular emphasis on the position of Virtus shareholders who may wish to remain a minority shareholder in Virtus if it comes under CapVest's control following the CapVest Takeover. He submitted that the Capital Return (as defined) is not a "defined and concrete concept" and that "the timing, amount, nature and form of the Permitted Capital Return are all susceptible to unknowable variation", and also identified a suggested risk that that Capital Return may be made, after being deferred, "notwithstanding the prospect of any adverse taxation or other financial consequences for any minority Virtus shareholders". He also submitted that the current Virtus board "has not even determined to pay" the Capital Return, which is a matter for a future Virtus board controlled by CapVest, but the Virtus board: "proposes and recommends that Virtus shareholders approve a resolution to make a future capital reduction in uncertain, illusory and largely unconfined terms".
10. Mr Crutchfield also submitted that s 256B of the Corporations Act implicitly requires that any proposal of a company board to make a capital reduction be advanced in a present, defined and certain amount, before it is submitted to shareholders for approval. It is not necessary here to decide whether ss 256B and 256C could be satisfied by a proposal for a capital reduction that is, in substance, proposed to be implemented subject to shareholder approval but involves a confined monetary range, because the proposal put by Virtus is not of that character.
11. Mr Crutchfield also submitted that these aspects of the structure of the CapVest Takeover and Capital Return resolution coerce existing Virtus shareholders into approving the Scheme and accepting the bid. It is not apparent to me that any element of coercion exists, although I recognise that Virtus shareholders might well have preferred the relative certainty of approving the Scheme or accepting the CapVest Takeover to the uncertainty that exists in respect of the Capital Return. I also bear in mind that the Court's role in respect of a scheme is not to determine whether some better scheme might have been proposed, but to address the issues to which I have referred above. The difficulties which then arose, as the Capital Return was formulated at the 2 May 2022 hearing, was its uncertain content and the fact that the Virtus board had, in substance, not yet committed itself to proceeding with the Capital Return which was a matter left to a reconstituted board. That, in my view, had the consequence that the Capital Return was not then capable of approval by CapVest shareholders under ss 256B-256C of the Corporations Act, and this undermined the disclosure made in the transaction booklet and Virtus shareholders' ability to assess the Scheme and its alternatives. Mr Crutchfield also addressed submissions as to whether the Capital Return would be fair and reasonable to Virtus shareholders as a whole. It is not apparent to me that any basis to doubt that proposition, in respect of an equal rather than a selective reduction of capital, had been raised.
12. In submissions in reply to Oceania's submissions for the 2 May 2022 hearing, Mr Jackman contested the proposition that the Capital Return, as formulated at the 2 May 2022 hearing, did not comply with s 256B of the Corporations Act or was not fit for consideration by Virtus shareholders in connection with the CapVest Takeover at an extraordinary general meeting held together with the scheme meeting. He submitted that "any uncertainty as to whether, when, to which Virtus Shareholders, and in what amount and form" (emphasis added) any Capital Return would ultimately be paid would not coerce Virtus shareholders to vote in favour of the Scheme or to accept the CapVest Takeover or otherwise be contrary to public policy. I pause to note that Mr Jackman's formulation implicitly acknowledged the extent of uncertainty which then existed in respect of the Capital Return, to which I return below. Mr Jackman submitted that Virtus shareholders were not being asked to "choose between" the Scheme and the CapVest Takeover. While I accept that that was strictly the case, since Virtus shareholders may vote in favour of or against the Scheme and accept or not accept the CapVest Takeover in various combinations, their assessment of the CapVest Takeover or the alternative of remaining as a Virtus shareholder, was plainly relevant to their assessment whether to vote in favour of or against the Scheme.
13. Mr Jackman also submitted that there was no uncertainty for Virtus shareholders regarding the tax treatment of the Capital Return. That would be the case, if the Capital Return proceeds where a "Positive Tax Ruling" (as defied) is obtained, however, uncertainty arises if a Positive Tax Ruling was not obtained in sufficient time, the Capital Return was then deferred, and a reconstituted Virtus board under the control of members of CapVest BidCo then considered whether to proceed with the Capital Return at large, or in the more confined way suggested by the transaction booklet. Mr Jackman submitted, and I accept, that there was no basis for Oceania to contend that shareholder approval cannot be sought until such time as a "Positive Tax Ruling" is obtained; however, I would have found, as the Capital Return was then constituted, that shareholder approval could not validly be sought until there was a capital return that is, in substance, proposed to be implemented and is put to shareholders for approval, and the Capital Return as it then stood did not have that character.
14. It seemed to me that Virtus did not, as matters stood at the 2 May 2022 hearing, then propose a capital reduction that was, in substance, to be implemented subject to shareholder approval, and was put to Virtus shareholders for approval under ss 256B and 256C of the Corporations Act, as distinct from the possibility of a future transaction of uncertain content, depending on a future decision of the reconstituted Virtus board. Any apparent decision of the present Virtus board to proceed with a Capital Return was then limited in effect by the condition that a reconstituted Virtus board under CapVest's control will determine whether to pay it in the future. Mr Crutchfield submitted, and I would have accepted as matters then stood, that that approach was not consistent with the proper operation of ss 256B and 256C of the Corporations Act which contemplate that a specified capital reduction (and not, I interpolate, a "stalking horse" which the board may or may not take further) be proposed by the directors for shareholder approval. Contrary to Mr Jackman's submission, it seems to me that the reasoning of White J in Re Molopo Energy Ltd; Molopo Energy Ltd v Keybridge Capital Ltd [2014] NSWSC 1864 at [81] indicates not only that a proposal for a capital reduction must originate with directors rather than shareholders, but also that the capital reduction that is put to shareholders for approval be one of substance, rather than one that is no more than a possibility and whose terms remain open.
15. If I had been incorrect in the view that the Capital Return proposal, as then formulated, was not sufficient in its present form to constitute a "transaction" that is presently open to approval by Virtus shareholders under ss 256B-256C of the Corporations Act, I would in any event have concluded that its content was so uncertain that Virtus directors would be unable to provide, and had not provided, adequate information to allow shareholders to make a properly informed decision in respect of the resolution: Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (1985) 9 ACLR 956; 4 ACLC 12; Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 11 ACLR 94 at 96; 4 ACLC 711 at 713; Westchester Financial Services Pty Ltd v Acclaim Exploration NL (1999) 32 ACSR 499; [1999] WASC 87 at [18]; ENT Pty Ltd v Sunraysia Television Ltd (2007) 61 ACSR 626; 25 ACLC 399; [2007] NSWSC 270.
16. That would in turn have had the result that the transaction booklet did not then provide sufficient disclosure to Virtus shareholders in respect of the Scheme, where a decision in respect of the Scheme necessarily required that shareholders also consider the alternatives open to them, including accepting the CapVest Takeover before the scheme meeting, or after the scheme meeting if the resolution did not pass at the scheme meeting or the Court did not approve the Scheme, or rejecting the CapVest Takeover and retaining their shares in Virtus if the Scheme does not proceed. I would have held that shareholders could not fairly make that decision, where the transaction booklet invited them to make it on the basis that the Capital Return may be approved by shareholders for the purposes of ss 456B-456C of the Corporations Act, notwithstanding the uncertainty in its content and as to when or whether it would proceed, and the fact that a further decision of the reconstituted Virtus board would be required before it were implemented, and I would have held that an approval of the Capital Resolution under ss 256B-256C of the Corporations Act would not be effective on that uncertain basis. For this reason only, I would have declined to convene the scheme meeting, as matters stood at the hearing on 2 May 2022. I indicated that view, without proceeding to judgment on that date, and then adjourned the matter at Virtus' request to allow it an opportunity to address these issues.

Amendments to the structure of the Capital Return as at the 4 May 2022 hearing

1. I have referred above to the further transaction booklet circulated by Virtus on 4 May 2022 (Ex 3). After the receipt of that booklet, my Associate advised the parties at my request that: "His Honour has asked me to indicate that he considers it to be likely to be in the interests of the parties and Virtus shareholders to finalise the matter at the further hearing this afternoon, or any adjournment of that hearing that is agreed between the parties, particularly where the matter was adjourned from Monday to today to allow Virtus to prepare a further revised transaction booklet. In the interests of avoiding surprise to any party, and ensuring that all parties have a fair opportunity to make submissions, his Honour has asked me to advise that his preliminary view is that he would not order a scheme meeting to be convened as the transaction presently stands. The matters relevant to that preliminary view are that: 1. A shareholder assessing the scheme will need to consider whether to support the scheme or accept the Virtus takeover bid or the BGH takeover bid, or to do neither and remain as a shareholder of Virtus. 2. In order to make an informed decision as to that matter, the shareholder would need to understand the status of the Capital Return, where that is proposed as part of the transaction, although not strictly as part of the scheme. In particular that is relevant to a shareholder's decision whether to remain as a shareholder in Virtus. 3. The transaction booklet proceeds on the basis that the shareholder resolution to approve the Capital Return would be valid. His Honour's preliminary view is that that is not the case, because the substantive effect of the condition described in paragraph 6.3(d) of the revised transaction booklet (p 104) is that no operative decision has been made by the current Virtus board to proceed with the Capital Return, subject to shareholder approval and that question will in fact be determined by the reconstituted Virtus board in the future. His Honour does not understand that condition to operate, in substance, any differently from a condition that entirely deprived any present board decision of operative effect, by making the payment of the Capital Return conditional on the reconstituted Virtus board wishing it to be made in the future. His Honour's preliminary view is that the statutory provisions are not directed to approval of a mere possibility of a capital reduction, as distinct from an operative proposal approved by the company's board and intended to take effect, subject to shareholder approval and any exigent circumstances. 4. If His Honour is wrong in the preliminary view expressed in paragraph 3, he would still take the preliminary view that the element of contingency to the Capital Return, such that it is no more than a possibility depending on the decision of a reconstituted Virtus board, is such that the current Virtus board cannot and has not fairly informed shareholders as to the Capital Return proposal for the purposes of the applicable caselaw. His Honour will of course give the parties a full opportunity to make submissions as to these matters."
2. I have referred above to further changes which were made by Virtus to the transaction booklet after that email and prior to the hearing on 4 May 2022 (MFI-2) and then in the course of that hearing, and to the evidence of further board meetings of the Virtus board on 3 and 4 May 2022. Importantly, the structure of the Capital Return was amended, in the course of the hearing, to remove the requirement for a future decision by a future reconstituted board of Virtus in respect of that transaction, with the consequence that the present CapVest board has made the decision to proceed with the Capital Return, although that decision is conditional in character.
3. Mr Crutchfield laboured mightily, at the hearing on 4 May 2022, to seek to establish that that change in the structure of the Capital Return made no substantive difference. It seems to me that the change in structure does make a substantive difference, because I cannot find that a resolution which is passed by the present Virtus board to approve the Capital Return, albeit that that resolution and transaction is conditional in nature, cannot be put to the shareholders of Virtus for approval. Conditional resolutions of this kind are commonplace, including in respect of capital returns contemplated in other contexts in schemes of arrangement, and it cannot be said that the resolution now passed by the CapVest board, although conditional, does not have real operative effect. As I noted above, the amendments have also made clear that the Capital Return would take place within a confined time period, subject to the satisfaction of the conditions, and the expert's report in respect of those matters has been clarified. On that basis, I was satisfied that the concerns as to the structure of the Capital Return and the disclosure about it that would otherwise have led me not to convene the scheme meeting had been addressed.

Other issues raised by Oceania in respect of the Capital Return and the CapVest Transaction

1. I should also address several other matters raised by Oceania, which showed no lack of enthusiasm for seeking to find defects in the Scheme and associated transactions. Mr Crutchfield also addressed a suggested uncertainty regarding the relevance of a Positive Tax Ruling to the Capital Return and noted that the transaction booklet describes the Capital Return as conditional on a Positive Tax Ruling, but noted that the transaction booklet (in its 2 May 2022 version) sought to reserve to the reconstituted Virtus board the ability to reconsider the nature and form of the distribution made to Virtus shareholders if it was delayed by reason of the absence of such a ruling. It seems to me that the defined term "Positive Tax Ruling" is sufficiently certain in its context and the question whether to proceed with the Capital Return is no longer reserved to the reconstituted Virtus board, following the amendments made at the 4 May 2022 hearing.
2. Mr Crutchfield also advanced criticisms of the reasoning of the independent expert as to whether the Capital Return would materially prejudiced Virtus' ability to pay its creditors, or existing creditors, and whether the independent expert was concluding that was not the case, or only that it was "unlikely" that that was the case. That matter was addressed by the amendments made to the independent expert's report in the revised version tendered at the 4 May 2022 hearing. Mr Crutchfield also criticised the focus in that report on Virtus ability to pay the "existing creditors" of Virtus. Mr Jackman responded that the question whether a capital return materially prejudices the company's ability to pay creditors is to be determined by reference to existing creditors, for the purposes of, relevantly, s 256B(1) of the Corporations Act, and referred to the observations of Ball J in DHSE Holdings (recs and mgrs apptd) (admins apptd) v Abboud (No 3) (2021) 155 ACSR 1 ("DHSE") at [455]-[456], where his Honour addressed a somewhat similar issue arising under s 254T of the Corporations Act. Particularly where the Capital Return can only now be made, if the conditions to it are satisfied, by 30 September 2022, it seems to me that the approach taken in the independent expert's report provides no reason not to convene the scheme meeting, although to would be open to Oceania or other Virtus shareholders to return to this question at a second Court hearing seeking approval of the Scheme.
3. I also bear in mind the observation of the Full Court of the Federal Court in Re CSR Ltd (2010) 77 ACSR 592 at [65] that a first Court hearing in respect of a scheme is "ill-suited" to determine whether a proposed capital reduction would have that effect, and (at [67]) that: "There being no sufficient basis for concluding that the scheme could not ultimately be approved, the discretion should have been exercised to allow the shareholders to vote on the proposal and the objectors to mount, if they choose to do so, a better informed and more focused challenge to the reduction of capital by the means open to them, either pursuant to s 1324 of the Act, or by way of opposition on the application for final approval under s 411(4)(b) of the Act".
4. In BGH's 25 April Letter, it also contended that the Refinancing would involve prohibited financial assistance for the purposes of s 260A of the Corporations Act, unless approved by Virtus shareholders under s 260B or exempted under s 260C. By the Virtus 27 April Letter, Virtus responded that the Capital Return or Refinancing (as defined) is not prohibited financial assistance under s 260A of the Corporations Act, because that section permits a company to financially assist a person to acquire shares in the company if giving that assistance does not materially prejudice the interests of the company or its shareholders or the company's ability to pay its creditors. Mr Crutchfield similarly addressed submissions as to whether the Capital Return and proposed Refinancing amounts to prohibited financial assistance under s 260A of the Corporations Act. Mr Jackman also addressed the circumstances in which a company may financially assist a person to acquire shares in the company in opening submissions, and also addressed the nature of the "creditors" who were within the scope of the requirement that the transaction does not materially prejudice the company's ability to pay those creditors, for the purposes of s 260A(1) of the Corporations Act. It seems to me that the independent expert's opinion as to the lack of prejudice to existing creditors, to which I referred above, provides sufficient basis to convene the scheme meeting, although to would again be open to Oceania or other Virtus shareholders to return to this question at a second Court hearing seeking approval of the Scheme.
5. In BGH's 25 April Letter, it also contended that doctors who receive revenue from Virtus by way of provider fees and who also hold shares in Virtus should vote in a separate class at a scheme meeting, because BGH contends that they would have "different economic incentives" relative to other Virtus shareholders. By the Virtus 27 April Letter, Virtus responded that there is no class issue with respect to doctor shareholders, because their rights are not so dissimilar as to make it impossible for them to consult with other Virtus shareholders with a view to a common interest, and the fact that the doctors receive provider fees from Virtus is no more class-creating than the fact that employees of a company receive wages and bonuses in the ordinary course. They also contended that divergent commercial interests extrinsic to share membership are ordinarily not a factor that would differentiate classes. Mr Jackman advanced the same submission and I accept that submission.
6. In BGH's 25 April Letter, it also suggested that the Scheme was likely to be voted down where Oceania then held a 19.99% interest in Virtus. The utility of the meeting will ultimately be established by what occurs there, and the Court need not and should not forecast the likelihood that a scheme will be approved at the members' meeting in order to convene that meeting.
7. In BGH's 25 April Letter, it also raised a suggested uncertainty as to the underlying value of the Permitted Special Dividend, a "potential" non-compliance with directors' duties in respect of the implementation of the Capital Return after the Virtus board is reconstructed, and as to the receipt of payments under the TID. The solicitors for Virtus responded in the Virtus 27 April Letter that, in respect of the value of the Permitted Special Dividend, the transaction booklet contains sufficient disclosure as to the special dividend and its tax treatment, and that position does not differ from the position in respect of schemes generally. They also contended that there is no reason to think that Virtus' directors or CapVest nominees to the Virtus board will not comply with their duties in reaching any further decisions in respect of the Capital Return. So far as the suggested issue of receipt of payments under the TID is concerned, the solicitors for Virtus respond that the position is disclosed in the transaction booklet, and note that persons who bought shares after the relevant record date, and will not receive the Permitted Special Dividend and Capital Return, would have paid less to acquire the shares as prices will have corrected for that matter. I also accept these submissions.
8. Mr Crutchfield also made further submissions, at the 2 May 2022 hearing, as to a suggested contravention of the minimum bid price rule in respect of the CapVest takeover, and the conferral of a power of attorney by shareholders on CapVest where it acquires a 50.1% relevant interest in Virtus shares, but before its bid is unconditional. He fairly accepted that those were matters which could be raised in the Takeovers Panel, if CapVest wished to do so, and Oceania had reserved its ability to bring a further application before the Panel. Mr Crutchfield did not seek to have the Court determine those issues, on that basis, and it is not necessary for me to do so.

Orders

1. For these reasons, I ultimately made the orders sought by Virtus, as amended to confirm the amendments made in the course of the 4 May 2022 hearing and the undertaking to execute the further amended TID, at the conclusion of the hearing on that date.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 May 2022