Diverger Limited, in the matter of Diverger Limited (No 2) [2024] FCA 143

background 3 The details of the Scheme are described in Diverger (No 1) at [7]-[11]. 4 On 15 January 2024 Diverger announced the indicative outcome as at 12 January 2024 of the Diverger Shareholders' elections in relation to the form of Scheme Consideration as described at [7] of Diverger (No 1). Based on the indicative results: (1) 26 out of 48 Diverger Shareholders who made an election wish to receive the Maximum Scrip Consideration. Scale back will apply to Maximum Scrip Elections with an outcome after scale back of Maximum Scrip Consideration for 26.6% of those shareholders' Diverger Shares and Default Scheme Consideration for the remaining 73.4%; and (2) 22 out of 48 Diverger Shareholders who made an election wish to receive Maximum Cash Consideration. Based on these results, no scale back will apply to Maximum Cash Elections. 5 As set out in the explanatory booklet two dividends were declared on 18 January 2024: an interim dividend of $0.02 per share and a permitted dividend of $0.10 per share. If the Scheme becomes effective, the latter will be paid on its implementation. 6 In accordance with the Convening Orders the Scheme Meeting was held on 23 January 2024 as a hybrid meeting conducted in two parts. At that meeting the resolution to approve the Scheme was passed by the requisite majorities of Diverger Shareholders: (1) 82.83% of Diverger Shareholders present and voting (either in person or by proxy, attorney or corporate representative) cast votes in favour of the resolution; and (2) 99.97% of Diverger Shareholders present and voting (either in person or by proxy, attorney or corporate representative) cast votes in favour of the resolution.

Legal principles 7 Section 411(4) of the Corporations Act relevantly provides that a compromise or arrangement is binding on a body's members if and only if: (a) at a meeting convened in accordance with an order of the Court under subsection (1) or (1A): … (ii) in the case of a compromise or arrangement between a body and its members or a class of members - a resolution in favour of the compromise or arrangement is: (A) unless the Court orders otherwise - passed by a majority in number of the members, or members in that class, present and voting (either in person or by proxy); and (B) if the body has a share capital - passed by 75% of the votes cast on the resolution; and (b) it is approved by order of the Court. 8 In Dragontail Systems Limited, in the matter of Dragontail Systems Limited (No 2) [2021] FCA 1109 Halley J conveniently summarised the principles relevant to the exercise of the Court's discretion to grant approval of a scheme after it has received approval at a meeting of its members as follows, at [9]-[11]: 9 The Court has a discretion whether to approve a scheme and is not bound to approve it merely because it has previously made orders for the convening of meetings or because the statutory majorities have been achieved: Seven Network Limited, in the matter of Seven Network Limited (No 3) (2010) 77 ASCR 701; [2010] FCA 400 (Re Seven Network) at [31] (Jacobson J), citing NRMA Limited (Application of); NRMA Insurance Limited (Application of) (2000) 34 ACSR 261; [2000] NSWSC 408 (Re NRMA) at [22] (Santow J). 10 The Court will usually approach the task on the basis that the members are better judges of what is in their commercial interests than the Court: Re Seven Network at [32]-[33]. 11 At [35] to [40] of Re Seven Network, Jacobson J set out the following six matters which courts have taken into account as informing their discretion regarding whether or not to approve a scheme: (1) whether the shareholders have voted in good faith and not for an improper purpose: In the matter of Foundation Healthcare Limited (No 2) (2002) 43 ACSR 680; [2002] FCA 973 at [27] (French J, as his Honour then was); (2) whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it: Fowler v Lindholm, in the matter of Opes Prime Stockbroking Limited (2009) 178 FCR 563; [2009] FCAFC 125 at [79] (Emmett, Gordon and Jagot JJ); (3) whether the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion: Permanent Trustee Company (2002) 43 ACSR 601; [2002] NSWSC 1177 at [7] (Barrett J); (4) whether there has been full and fair disclosure of all information material to the decision: Re NRMA at [30]; (5) whether minority shareholders would be oppressed by the scheme: Re Ranger Minerals Ltd; Ex parte Ranger Minerals Ltd (2002) 42 ACSR 582; [2002] WASC 207 at [39] (Parker J); and (6) whether the scheme offends public policy: see for example CSR Limited, in the matter of CSR Limited (2010) 183 FCR 358; [2010] FCAFC 34 at [51]-[56] (Keane CJ and Jacobson J).

Consideration 9 I was satisfied, based on the evidence relied on by Diverger, that all procedural matters had been satisfied: (1) the explanatory booklet and a copy of the Convening Orders were lodged with the Australian Securities and Investments Commission (ASIC); (2) the explanatory booklet was dispatched to Diverger Shareholders in accordance with the Convening Orders; (3) the Scheme Meeting was held on the date, at the time and in the manner specified in the explanatory booklet and in accordance with the Convening Orders; (4) an announcement giving notice of the second court hearing was published on the Australian Stock Exchange on 8 February 2024; (5) as set out above, the statutory majorities were obtained at the Scheme Meeting; (6) each of the conditions precedent to the Scheme had been satisfied or waived, other than final Court approval and lodgement of the order approving the Scheme with ASIC; (7) by letter dated 14 February 2024 ASIC informed the directors of Diverger that, pursuant to s 411(17)(b) of the Corporations Act, it has no objection to the Scheme; and (8) senior counsel appearing for Diverger informed me that the solicitors for Diverger had not received any communication from any party notifying an intention to appear at the second court hearing and, upon the matter being called three times outside the courtroom, there was no appearance by any other party. 10 I also considered the following further matters in making the orders sought by Diverger. 11 First, I was satisfied that the Scheme is fair and reasonable. At the first court hearing Diverger relied on a draft independent expert report prepared by Lonergan Edwards & Associates Limited. In that report the independent expert expressed the opinion that the Scheme is fair and reasonable and in the best interests of Diverger Shareholders, in the absence of a superior proposal. There was no evidence before me to suggest that the independent expert's opinion was not valid at the time it was given and that it did not remain so. 12 Secondly, I was satisfied that there has been adequate and full disclosure by Diverger to the Diverger Shareholders. The evidence before me established that: (1) both in its engagement with Diverger Shareholders in its "Inbound Campaign" and in its "Outbound Campaign", the persons responsible for receiving inbound calls from, or making outbound calls to, Diverger Shareholders did not depart from the relevant scripts provided to them for that purpose; and (2) during the relevant engagement campaigns there were no instances of communications which went beyond the scripts provided or of any complaint by any Diverger Shareholder in relation to the Scheme. 13 Thirdly, I was satisfied that the Diverger Shareholders voted in good faith. There was nothing in the evidence before me to suggest that those members who attended and voted in person or by proxy at the Scheme Meeting voted other than in good faith or cast their votes for an improper purpose. Nor was there any evidence to suggest that any Diverger Shareholder was treated in a way that could be characterised as oppressive or which would cast doubt on the procedural integrity of the Scheme Meeting. 14 Fourthly, there was no evidence and nothing to suggest that the Scheme was contrary to public policy. 15 Finally, the voter turnout figures provided by Diverger suggest that there was no flaw in the procedure adopted to convene the Scheme Meeting or in its integrity. Relevantly, 99 or 18.27% of Diverger Shareholders, representing 68.10% of total voting shares, voted at the Scheme Meeting. This was better than the turnout at Diverger's last two annual general meetings (AGMs) and approximately double the percentage of all shareholders on the register who attended Diverger's 2023 AGM. 16 Diverger also sought an order pursuant to s 411(12) of the Corporations Act exempting it from compliance with s 411(11) which requires that copies of all orders made by the Court under s 411(4)(b) (see [7] above) must be annexed to every copy of the company's constitution issued after approval of the Scheme. I was satisfied that it was appropriate to make the order sought in this case. The Scheme will not amend Diverger's constitution and it will become a wholly owned subsidiary of the bidder upon implementation of the Scheme: see Alloggio Group Ltd, in the matter of Alloggio Group Ltd (No 2) [2023] FCA 1053 at [20].

Conclusion 17 For those reasons I made the orders sought by Diverger at the second court hearing. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.