Clean Seas Seafood Limited, in the matter of Clean Seas Seafood Limited (No 2) [2025] FCA 729 (18 June 2025)

Re Citect Corporation Ltd [2006] NSWSC 143; (2006) 56 ACSR 663

Snowside Trust v Boart Longyear Ltd [2017] NSWCA 215; (2017) 122 ACSR 291

IN THE MATTER OF CLEAN SEAS SEAFOOD LIMITED ACN 094 380 435

1. Pursuant to r 2.13(1) of the Federal Court (Corporations) Rules 2000 (Cth) (Rules), Yumbah Aquaculture Limited ACN 082 219 636 (Yumbah) has leave to be heard in the proceeding without becoming a party to it.
2. The proposed Scheme of Arrangement between the Plaintiff (Clean Seas) and its members, referred to in Order 2(a) of the orders made by the Honourable Justice O'Sullivan J on 12 May 2025, and attached as Annexure A to the Previous Orders, be amended in accordance with Annexure A to these orders (Amended Proposed Scheme).
3. The scheme meeting to be held on Monday, 23 June 2025, pursuant to Order 2(b) of the orders made by the Honourable Justice O'Sullivan on 12 May 2025 be adjourned to Tuesday, 8 July 2025 at 12.00pm (Adelaide time) (Adjourned Scheme Meeting) and that it be held for the purpose of considering and, if thought fit, agreeing (with or without modification) to the Amended Proposed Scheme.
4. A Supplementary Scheme Booklet in substantially the form of the document which is Annexure RJG-6 of Affidavit of Robert John Gratton affirmed on 17 June 2025 filed in this proceeding, be approved for distribution to the shareholders of the plaintiff.
5. The Supplementary Scheme Booklet, including the Notice of Adjourned Scheme Meeting, be dispatched to all shareholders appearing on the plaintiff's register of shareholders as at 7.00pm on 18 June 2025 by sending on or before 20 June 2025:

(a) in the case of each shareholder of the plaintiff for whom the plaintiff has an email address on record or who has elected to receive email communications (Email Member), an email containing:

(i) (a hyperlink which enables the Email Member to access, view and download an electronic copy of the Supplementary Scheme Booklet, including the Notice of Adjourned Scheme Meeting; and

(ii) a direction to contact the share register provider of Clean Seas if they want to vary their proxy and / or election (if already submitted) or submit an election.

(b) in the case of each shareholder of the plaintiff who is not an Email Member and has elected to receive hard copy communications (Hardcopy Members):

(i) an access letter setting out:

1. a URL addresses from which the Hardcopy Member can view and download an electronic copy of the Supplementary Scheme Booklet, including the Notice of Adjourned Scheme Meeting; and
2. a direction to contact the share register provider of Clean Seas if they want to vary their proxy and / or withdraw an election (if already submitted) or submit an election,

(ii) a hardcopy of the Supplementary Scheme Booklet; and

(iii) a direction to contact the share register provider of Clean Seas if they want to vary their proxy and / or withdraw an election (if already submitted) or submit an election.

1. If Clean Seas receives (through its share register provider, Boardroom), a notification that the email sent to the Email Member was not delivered (Bounce Back), Clean Seas is to send those Email Members the Adjourned Notice and Access Letter in hard copy by prepaid post (for Email Members whose address on the Register is in Australia) or prepaid airmail (for Email Members who address on the Register is outside Australia) within 2 business days of receiving the Bounce Back.
2. The documents referred to in order 5(b) be sent by prepaid ordinary post to the Clean Seas Member's address recorded on the Clean Seas' register of members.
3. If the plaintiff receives (through its share register provider, Boardroom), a notification that a shareholder wishes to vary their submitted proxy or withdraw an election, then Clean Seas is to send copies of the proxy or election form to the shareholder by the relevant format provided for in Order 5 if they are an Email Member or Hardcopy Member.
4. The plaintiff publish a notice of hearing of any application to approve the Scheme of Arrangement at least five days before the date fixed for the hearing of the application, by publishing an announcement via Clean Seas' Australian Securities Exchange announcements platform and its website which sets out the details for the adjourned second Court hearing and the process for any person wishing to appear at that hearing to oppose the approval of the Scheme, together with an address for service of Clean Seas.
5. The Plaintiff have leave to file forthwith a copy of the Affidavit of Nicholas Karagiannis, affirmed on 13 June 2025, redacting paragraphs 10 and 11 (Redacted Karagiannis Affidavit).
6. The unredacted Affidavit of Nicholas Karagiannis, affirmed on 13 June 2025, be marked confidential.
7. Order 11 of the orders made by the Honourable Justice O'Sullivan J on 12 May 2025 listing the matter on 4 July 2025, is vacated and the proceeding are stood over to the Honourable Justice O'Sullivan at 10.00am (ACST) on Tuesday, 15 July 2025 with half a day set aside (Second Court Hearing).
8. Leave for the counsel of Yumbah to be heard at the Second Court Hearing without being a party to it and to appear by telephone.

ANNEXURE A

Scheme of Arrangement

[The Order entered is available on the Commonwealth Courts Portal, which attaches the Scheme of Arrangement]

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

1. On 12 May 2025, I made orders under ss 411(1) and 411(4)(b) of the Corporation Act 2001 (Cth) for the convening of a meeting of the holders of fully paid ordinary shares in Clean Seas Seafood Limited ACN 094 380 435 to consider, and if thought fit, approve a proposed Scheme of Arrangement between Clean Seas and its members: Clean Seas Seafood Limited, in the matter of Clean Seas Seafood Limited [2025] FCA 502.
2. The proposed Scheme meeting was to be held in person at 11.00am (ACST) on 23 June 2025.
3. On 6 June 2025, Clean Seas applied to the Court seeking orders adjourning the Scheme meeting and authorising the dispatch of a supplementary scheme booklet. Yumbah appeared as an interested non-party and supported the application.
4. On 18 June 2025, pursuant to s 1319 of the Act, I made orders adjourning the Scheme meeting and granting approval for dispatch of a supplementary Scheme booklet to Clean Seas Shareholders.
5. These are the reasons for those orders.
6. Under the proposed Scheme, Yumbah Aquaculture Ltd would acquire all of the issued shares in Clean Seas for a consideration of AUD$0.14 per Clean Seas share, unless a Shareholder had made a valid Scrip Election. In that event, Shareholders could elect to receive 1 Yumbah share for each 3.1428 Clean Seas shares.
7. On 17 June 2025, Clean Seas made an announcement to the Australian Securities Exchange (ASX). In its announcement, Clean Seas said relevantly:

Yumbah Scrip Alternative Ratio

Clean Seas advises that Yumbah has proposed a change to the ratio of the number of New Yumbah Shares offered for the number of Clean Seas Shares held by Clean Seas Shareholders ("Yumbah Scrip Alternative"), under the Scheme to one (1) New Yumbah Share for every 2.8571 Clean Seas Shares held on the Scheme Record Date.

The revised ratio reflects Yumbah's revised internal valuation. Yumbah has advised that it intends to recognise non-cash impairments to its balance sheet reflecting the impact of certain industry factors, the past summer and internal structuring of Yumbah. The possibility of these impairments was disclosed in the Scheme Booklet, however, the extent of impairment was not apparent at that time. Yumbah has determined an estimate of likely impairments to be made to the carrying value of its abalone assets of between $23 million to $28 million. As a result, Yumbah has revised its internal valuation from $0.44 to between $0.44 and $0.40. For the purposes of the Yumbah Scrip Alternative, Yumbah has determined to adopt the lower end of its valuation range, being $0.40.

It is important to note that if the Scheme is approved and implemented, each Clean Seas Shareholder will continue to receive $0.14 in cash for each Clean Seas Share that they own ("Default Cash Consideration:), unless they make a valid Election to receive the unlisted scrip alternative of New Yumbah Shares.

The Independent Board Committee Recommends Voting in FAVOUR of the Scheme

The Clean Seas Independent Board Committee ("IBC") continues to unanimously recommend that, based on the Default Cash Consideration, Clean Seas Shareholders vote in favour of the Scheme in the absence of a Superior Proposal and subject to the Independent Expert continuing to conclude that the Scheme is in the best interests of Clean Seas Shareholders. Subject to the same qualifications, each member of the IBC intends to vote all Clean Seas Shares held or controlled by them in favour of the Scheme.

The IBC makes no recommendation to Clean Seas Shareholders in relation to the Yumbah Scrip Alternative due to the highly speculative nature of the New Yumbah Shares and the fact that deciding whether the New Yumbah Shares are appropriate for an individual Clean Seas Shareholder will depend on the characteristics and risk profile of that particular shareholder.

Supplementary Scheme Booklet

The SID has been amended to reflect the change to the ratio of the Yumbah Scrip Alternative. A copy of the Second Amendment and Restatement Deed to amend the SID is attached to this announcement. Clean Seas currently anticipates that a Supplementary Scheme Booklet will be released to the ASX and sent to CSS Shareholders on or around 18 June 2025.

1. Attached to the announcement was a copy of a Second Amendment and Restatement Deed dated 16 June 2025, executed on behalf of both parties to take effect as an amendment to the Scheme Implementation Deed dated 31 March 2025, as varied on 15 April 2025 which provides relevantly:

2.1 Amendment

On and from the date of this deed, the parties agree in accordance with clause 18.1 (Amendment) of the Scheme Implementation Deed that the Scheme Implementation Deed is amended and restated to read as follows:

(a) Replacing the definition of the term "New Yumbah Shares or Scrip Consideration" in clause 1.1 of the Scheme Implementation Deed with the following: "New Yumbah Shares or Scrip Consideration means Yumbah Shares to be issued as Scheme Consideration under the Scheme, calculated on the basis of 1 Yumbah Share for each 2.8571 Scheme Shares held by the relevant Scheme Shareholder."

(b) Deleting the table in Schedule 4 of the Scheme Implementation Deed and replacing it with the following... [table omitted]

(c) Replacing the definition of the term "New Yumbah Shares or Scrip Consideration" in clause 1.1 of the Scheme of Arrangement pursuant to section 411 of the Corporations Act 2001 (Cth) set out in Annexure 1 of the Scheme Implementation Deed with the following:

"New Yumbah Shares or Scrip Consideration means Yumbah Shares to be issued as Scheme Consideration under 5.3(a)(ii), calculated on the basis of 1 Yumbah Share for each 2.8571 Scheme Shares held by the relevant Scheme Shareholder."

(d) Replacing the definition of the term "Scheme Consideration" in clause 1.1 of the Scheme of Arrangement pursuant to section 411 of the Corporations Act 2001 (Cth) set out in Annexure 1 of the Scheme Implementation Deed with the following:

"Scheme Consideration means the cash amount of $0.14 per Scheme Share, unless a Scheme Shareholder has made a valid Scrip Election to be issued Scrip Consideration under clause 5.3(a)(ii), then 1 Yumbah Share for each 2.8571 Scheme Shares."

1. The parties confirmed that the terms of the Scheme Implementation Deed otherwise remained unchanged. Yumbah also confirms and undertakes to Shareholders that if the Scheme Consideration becomes payable under the Scheme, the Deed Poll in favour of the Shareholders will continue to bind Yumbah to satisfy its obligations under the Deed Poll, including the issue of Scrip in the event a Scrip election is made.

1. The Court's jurisdiction to make the orders sought is well-established. Under s 411(6) of the Act, the Court has the power to approve amendments and supplementary material to ensure that the Scheme continues to be presented fairly to Shareholders.
2. In Billabong International Ltd, in the matter of Billabong International Ltd (No 2) [2018] FCA 496, Yates J made orders allowing a revised Scheme of Arrangement. The revisions included modifications to the annexure to the scheme booklet pursuant to ss 411(4)(b) and 411(6) of the Act and changing the scheme consideration from $1.00 to $1.05 per share. In his Honour's reasons at [13]-[26], Yates J affirmed that the Court's power to grant approval to a compromise or arrangement, subject to alterations or conditions, is intentionally framed in board terms, granting the Court a wide remit to approve alterations or conditions to Schemes of Arrangement as the Court thinks fit. This discretion is not confined by narrow statutory constraints or limited only to alterations of a technical or minor nature.
3. Yates J referred to Black J's analysis of the character of the discretion under s 411(6) in Re Boart Longyear Ltd (No 2) [2017] NSWSC 1105; (2017) 122 ACSR 437 at [92]. His Honour noted that in Snowside Trust v Boart Longyear Ltd [2017] NSWCA 215; (2017) 122 ACSR 291 at [22], the New South Wales Court of Appeal agreed with Black J's analysis of the character of the discretion saying that the Court should not approach the discretion on the presumption that it may only be exercised in pre-defined or previously tested circumstances. Rather, it is a power that can be applied, even in novel contexts, provided the exercise of that discretion aligns with the statutory purpose. See also Barrett J in Re Citect Corporation Ltd [2006] NSWSC 143; (2006) 56 ACSR 663 at [13], [16].
4. In this matter, the Shareholders may elect to receive cash consideration in the form of a payment per Clean Seas share of $0.14. That amount has not changed. What has changed is the ratio of Clean Seas shares to Yumbah shares. Whereas originally framed, in the event a Clean Seas shareholder elected to receive Yumbah Scrip in lieu of a cash payment, the rate was 1 Yumbah share for every 3.1428 Clean Seas shares - that has now changed to 1 Yumbah share for every 2.8571 Clean Seas shares held. That change in ratio reflects a review by Yumbah of the value of its shares, with the ratio reflecting the lower end of the range of value for Yumbah shares.
5. Whilst the authorities cited primarily involved changes to the cash component of a scheme consideration, rather than adjustment to the offer ratio within the context of Scrip Election, the underlying legal principle remains consistent. In both situations, the Court is concerned with whether the change is materially beneficial or neutral to Shareholders and whether it can be properly accommodated within the framework of ss 411(4)(b) and 411(6) of the Act. The essential issue is ensuring that Shareholders are given accurate and timely information and that the Scheme, as modified, remains fair and capable of approval by the requisite majorities.

1. I am satisfied the Shareholders will be given accurate and timely information and that the Scheme, as modified, remains fair and capable of approval by the Clean Seas members should they choose to do so.

1. In all the circumstances, it is both appropriate and necessary for the Scheme meeting to be adjourned and for a supplementary scheme booklet to be dispatched.

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Sullivan.