Diversa Limited, in the matter of Diversa Limited [2016] FCA 1137

(REVISED FROM THE TRANSCRIPT) RARES J: 1 Diversa Limited, a public listed company, has applied, under s 411 of the Corporations Act 2001 (Cth), for orders that a meeting of its members be convened to consider a scheme and, if thought fit, agreeing, with or without modification, to a scheme of arrangement proposed between Diversa and its members. Under the scheme, Diversa proposes that its members transfer their shareholdings in consideration of two alternate offers made by OneVue Limited, another public listed company. The alternative offers are for each Diversa share to be sold for either 1.2375 OneVue shares or, alternatively, for 10 cents cash and 1.073 OneVue shares, with roundings up or down to the nearest whole number of shares and in the case of a midpoint number of shares to the next highest number. There are currently 59,768,607 ordinary shares issued by Diversa. 2 Under the proposed scheme, if a shareholder does not elect to take one or other of the alternate considerations, the shareholder will be paid using the cash and scrip method of payment. If implemented, the scheme will result in OneVue acquiring all of the issued shares in Diversa. 3 There are also currently about half a million options over unissued Diversa shares, but the evidence is that arrangements have been made, in accordance with a scheme implementation deed, made on 14 June 2016 between Diversa and OneVue, for each of the option holders to sell their rights to OneVue conditionally on the scheme being approved.

Background 4 Diversa's principal activity is provision of superannuation trustee and administration services, as well as promotion and investment services, to superannuation fund sponsors and promotors. It uses those services to provide superannuation and insurance products directly to its retail clients. 5 OneVue's business has some apparent commonalities with that of Diversa. OneVue provides a broad range of services in the superannuation investment management sector including unit registry, responsible entity and trustee services, as well as services to investors for investment administration, tax and other reporting services. 6 The directors of Diversa, with the assistance of advisors, unanimously recommended that all of its shareholders vote in favour of the scheme in the absence of a superior proposal. They agreed with OneVue that they will not solicit any other proposals. However, the directors of Diversa have also agreed with OneVue that if another proposal is received, then consistently with their fiduciary duties, they will be free to deal with that proposal, subject to offering OneVue the opportunity to match or better the proposal within five business days of being informed of its terms. 7 On 14 June 2016, Diversa and OneVue entered into a deed and also announced to the market the proposal for the scheme. On the same day, OneVue executed a deed poll under which it covenanted to perform its obligations that the scheme contemplated, if approved, that it would have to pay the consideration and perform the terms of the deed.

The nature of the proposed scheme 8 The proposed scheme appears to be in a form that is not unusual. It includes mechanisms for the satisfaction of conditions precedent prior to it coming into operation and for the payment of the consideration to Diversa's shareholders if it does. This includes making provision for overseas shareholders of Diversa who are ineligible to receive the consideration for the acquisition of their shares otherwise than in cash. 9 The deed has a provision for the payment by Diversa of a break fee of $400,000 to OneVue where Diversa accepts or offers to accept a competing arrangement or recommends a takeover offer from another person. The fee is payable where OneVue is entitled to terminate the deed because of some breach, relevantly, on the part of Diversa, or any of its directors, or were the independent expert's report to have concluded that the scheme is not in the best interests of Diversa shareholders. Correspondingly, OneVue is obliged to pay Diversa $400,000 if, in effect, the scheme does not go ahead as a direct result of OneVue's failure to perform or satisfy any of its material obligations under the deed. 10 The evidence discloses that each of OneVue and Diversa had invested considerable money and internal resources in progressing the proposal to implement a scheme of arrangement. There is some material to suggest that the two break fees are capable of being viewed as genuine pre-estimates of loss. 11 The proposed scheme booklet contains an independent expert's report prepared by Andrea De Cian, a director of Grant Thornton Corporate Finance Pty Limited. The report concluded that: the proposed scheme is fair and reasonable and in the best interests of Diversa shareholders having regard to both the forms of proposed consideration; and based on analyses performed by Grant Thornton, that both forms of consideration fell within most of the three different assessed ranges that the expert had used for determining the value of Diversa shares on a transfer-of-control basis before the announcement of the proposed scheme to the market.

The explanatory material 12 The report and the scheme booklet deal with both factors in favour of, and risks associated with, the acceptance of the scheme proposal, including the facts that the value of both companies' shares is subject to market forces and, that both forms of consideration involve a premium, in the order of 20% over the Diversa share price when the market closed on 10 June 2016, if Diversa shareholders decide to sell their shares. 13 Diversa's non-executive chairman, Ronald Dewhurst, will become a director of OneVue if the scheme is implemented. He holds one million shares in Diversa. He proposes to accept the offer. The other directors of Diversa will not become directors of OneVue. Another non-executive director, Stephen Bizzell of Diversa, who holds six million shares, owns and controls, Centec Securities Pty Ltd. Centec will be the vendor for sale of the shares of foreign shareholders who are ineligible to receive shares in consideration of their divesting their interest in Diversa shares. That company will receive a fixed fee of $5,000 as consideration for its role in arranging for the sale of the OneVue share component for ineligible overseas shareholders. Centec's sale of those shares will realise cash for payment to the ineligible overseas shareholders who cannot take part in the scheme. 14 In addition, Diversa has resolved to pay its non-executive directors additional fees for the work they carried out in the period leading up to the proposal for the scheme and its progression through the Court. Those fees appear to be payable in any event. 15 The managing director of Diversa, Vincent Parrott, will become a senior employee of OneVue, although not a director, and receive an equivalent remuneration to that which he currently receives. Two other shareholders who are also senior employees of Diversa, namely, Angus Craig, its current company secretary and chief financial officer, and Andrew De Vries, its head of superannuation, will become redundant if the proposal is accepted. It is proposed that Mr Craig will receive an additional 17 weeks salary on termination of his employment, equivalent to about $72,000 before tax, and Mr De Vries, $75,000, in addition to what would otherwise have been their entitlements. On the evidence before me, each of Mr Craig and Mr De Vries has participated actively in his duties to Diversa in seeking to implement the proposal for the scheme. 16 Mr De Cian, has today opined that the additional payments or remuneration to the non-executive directors and to Mr Craig and Mr De Vries, on the material known to him, including his own interactions during the time of his preparation of the report, are not unreasonable. 17 Diversa has also disclosed that Thorney Opportunities Limited, a shareholder holding 18.66% of issued capital in Diversa, and one of its subsidiaries, which holds about 4.96% of the issued capital of OneVue, has publicly stated that it intends to vote in favour of the scheme in the absence of a superior proposal.

Consideration 18 In my opinion, in the circumstances, which I discussed with senior counsel for Diversa in the course of argument, on the material in evidence, each of the Diversa directors, senior employees and Thorney does not appear to have a sufficiently different interest to that of Diversa's other shareholders to warrant the recognition of a separate class in respect of any of those persons whose position I have mentioned. As Emmett J held in CCI Holdings Limited [2007] FCA 832 at [19]: The aim, ultimately, of a separate meeting of shareholders, who have a different interest, is to ensure that the Court will be satisfied that members whose interests do not coincide will be given the opportunity of expressing support or opposition to the scheme separately. 19 In that case, Emmett J expressed a reservation as to whether a single shareholder could be treated as a separate class in respect of some, but not all, of its shareholding. He convened two meetings, on the application of the company and the particular shareholder. However, his Honour said that he would have been disposed to hold only one meeting so long as it was possible to establish at the second hearing called to approve the scheme under s 411 what shares that shareholder had voted in favour and what against the proposal to agree to the scheme: CCI Holdings at [20]. 20 Diversa intends to record how each of its directors, Mr Craig, Mr De Vries and Thorney voted on all resolutions at the meeting on the poll that I will order, so that any effect of their votes can be ascertained. 21 The Australian Securities and Investments Commission wrote to Diversa on 9 August 2016 saying it did not currently propose to appear to make submissions or intervene today to oppose the calling of the scheme meetings. 22 I am satisfied that the proposal in the scheme appears, on the material in evidence, to be at least fair and reasonable from the viewpoint of an intelligent and honest person, that is, a person who might approve it, so as to justify the calling of a meeting of the shareholders of Diversa under s 411(1) in order that they may consider their commercial future: Re Permanent Trustee Co (2002) 43 ACSR 601 at 604 [10] per Barrett J, approving what RD Nicholson J had said in Re Challenge Bank Limited (1995) 19 ACSR 421. Accordingly, I will make the orders sought by Diversa to convene a meeting of its shareholders to consider the proposed scheme under s 411(1). I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.