By Originating Process filed on 16 November 2022, the Plaintiff, MSL Solutions Ltd ("MSL"), applies in the first instance under ss 411 and 1319 of the Corporations Act 2001 (Cth) ("Act") to convene a meeting of its members to consider and, if thought fit, approve a scheme of arrangement by which by Plutus Bidco Pty Ltd ("Pemba Bidco") would acquire all the shares in MSL and associated orders. If the scheme is approved at a meeting of members, MSL will seek further orders at a second Court hearing.
By way of background, MSL is a public company and a "software as a service" (SaaS) technology provider to the sports, leisure and hospitality sectors, providing point of sale platforms, technology platforms and other digital solutions. MSL primarily earns revenue from three operating divisions, dealing with point of sale platforms, golf technology platforms and other mobile applications. On 14 November 2022, MSL entered into a binding agreement with Pemba Bidco, an entity that is indirectly managed and advised by Pemba Capital Partners Pty Ltd, providing for Pemba Bidco to acquire all of the shares in MSL under a scheme of arrangement. The proposed scheme was announced to the Australian Securities Exchange on 15 November 2022, and MSL's directors unanimously recommended the scheme in the absence of a superior proposal and subject to the independent expert concluding (and continuing to conclude) that the scheme is in MSL shareholders' best interest.
I made the orders sought by MSL at the first Court hearing on 13 December 2022 and these are my reasons for doing so. I have drawn on the submissions made by Mr Oakes, who appears for MSL, in this judgment.
[3]
Affidavit evidence
MSL relies on the affidavit dated 9 December 2022 of its solicitor, Mr Tim Sayer, who refers to lodgement of a draft scheme booklet and associated documents with the Australian Securities and Investments Commission ("ASIC") and correspondence with ASIC concerning the proposed scheme. By his second affidavit dated 12 December 2022, Mr Sayer exhibits a letter dated 12 December 2022 from ASIC, which confirms that ASIC has been given at least 14 days' notice of the hearing of the application and considers it has had a reasonable time to examine the terms of the scheme and the explanatory statement and make submissions to the Court, and indicates that ASIC does not propose to appear to make submissions or intervene to oppose the scheme at the first Court hearing. ASIC reserves its position s 411(17) of the Act to the second Court hearing in accordance with its usual practice.
By his affidavit dated 9 December 2022, Mr Anthony Toohey, who is the executive chairman and a director of MSL, describes the nature of MSL's business, to which I have referred above. Mr Toohey refers to his holding of MSL performance rights and to the fact that he would be entitled to early vesting of those performance rights if the scheme was approved at the scheme meeting. That matter is disclosed in the scheme booklet, including in his letter to shareholders, in connection with his recommendation as a director of MSL that its shareholders vote in favour of the scheme. Mr Toohey also refers to the details of the scheme and to the negotiation of a break fee and exclusivity provisions, and to the MSL board's unanimous recommendation that MSL shareholders approve the scheme resolution, again in the absence of a superior proposal and provided that the independent expert's report concludes (and continues to conclude) the scheme is in MSL shareholders' best interests. Mr Toohey also addresses the reasons for that recommendation, as set out in section 3.1 of the scheme booklet. Mr Toohey consents to act as chair of the scheme meeting and refers to the appointment of Computershare Investor Services Pty Ltd ("Computershare") to dispatch communications to shareholders in respect of the scheme. Mr Toohey also notes MSL's proposal to conduct a shareholder information line and exhibits the script prepared for that purpose, and a revised script was marked for identification. It is not necessary for the Court to approve that script, although I have had regard to it in determining this application. Mr Toohey also addresses the verification process adopted in respect of the scheme booklet and the steps which will be taken by MSL if the Court makes orders to convene the scheme meeting.
By his affidavit dated 8 December 2022, Mr David Usasz, who is a non-executive director of MSL, consents to act as chair of the scheme meeting if Mr Toohey is unable to do so.
By his affidavit dated 9 December 2022, Mr David Pearson, who is a chartered accountant and director and authorised representative of Leadenhall Corporate Advisory Pty Ltd, addresses his preparation of the independent expert's report in respect of the scheme. Mr Pearson confirms that he holds the opinions set out in that report; he has not become aware of any facts or circumstances since preparing the report that would cause him to change the opinions; he has reviewed and agrees to be bound by the witness code of conduct contained in Sch 7 to the Uniform Civil Procedure Rules 2005; and he has made all inquires that he believes are desirable and appropriate to prepare his report. I was also taken through that report in the course of Mr Oakes' submissions.
By an affidavit dated 12 December 2022, Mr Jonathan Grant, who is a partner in the firm of solicitors which act for Pemba Bidco, addresses the process adopted for verification of information concerning Pemba Bidco in the scheme booklet and the negotiation of exclusivity and break fee provisions and also exhibits a deed poll given by Pemba Bidco in favour of registered holders of ordinary shares in MSL. MSL also tenders the final version of the scheme booklet (Ex 1) and Mr Oakes took me through that booklet in submissions.
[4]
Applicable principles
Mr Oakes points out that s 411(1) of the Act confers a power on the Court to order a meeting of members to be convened, where, relevantly, a compromise or arrangement is proposed between a Pt 5.1 body and its members or any class of them; application for that order is made in a summary way by the body or by a creditor or member of the body; 14 days' notice of the hearing of the application, or such lesser period of notice as the Court or ASIC permits, has been given to ASIC; and the Court is satisfied that ASIC has had a reasonable opportunity to examine and to make submissions regarding the terms of the proposed compromise or arrangement and the accompanying explanatory statement. Mr Oakes also submits and I accept that each of these matters has been satisfied with respect to the scheme. MSL is a Pt 5.1 body for the purposes of s 411 of the Act and Pemba Bidco's proposed acquisition of its shares is an "'arrangement" within the meaning of s 411 of the Act. The relevant documents have been provided to ASIC which, as I noted above, advised that it did not seek to appear to make submissions or intervene to oppose the scheme. Mr Oakes submits and I accept that the Court has power to convene the scheme meeting.
Mr Oakes recognises that it remains for the Court to determine whether the power to convene a meeting under s 411 of the Act should be exercised. He submits that the Court will not ordinarily convene a scheme meeting unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting, the Court would be likely to approve it on the hearing of an application that is unopposed: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72. He draws attention to the frequently cited observation of French J (as his Honour was then) in Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [36] and [44] that:
"… 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 ... 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" ...
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 … 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." (citations omitted)
Mr Oakes points out that MSL's directors have, as I noted above, unanimously recommended that MSL shareholders vote in favour of the scheme at the scheme meeting in the absence of a superior proposal; the independent expert has concluded that the scheme is fair and reasonable and therefore in the best interests of MSL shareholders in the absence of a superior proposal; and the independent expert's report has been verified by affidavit. He submits and I accept that the proposed scheme is fit for consideration by a meeting of MSL shareholders and reflects a commercial proposition that, if passed by the requisite majorities, is likely to be approved by the Court on an uncontested application, and there are no discretionary matters warranting a refusal by the Court to convene the scheme meeting.
[5]
Particular issues
Mr Oakes rightly recognises that an applicant for ex parte orders under s 411(1) of the Act has "the responsibility of bringing to the court's attention all matters that could be considered relevant to the exercise of discretion": Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [7].
First, Mr Oakes briefly addresses several matters where he submits that the practice in respect of schemes is now settled in the case law. He points to the conventional form of cl 5.2(a) of the scheme, dealing with "performance risk", which requires Pemba Bidco to provide the scheme consideration before any share transfer occurs. He points to the exclusivity provisions in cl 9.5 of the Scheme Implementation Agreement, which are subject to a conventional "fiduciary carveout", and I have also considered the scope of and length of those provisions and whether they have been sufficiently disclosed in the scheme booklet. He notes that cl 10 of the Scheme Implementation Agreement provides for a "break fee" payable in connection with the scheme, which is less than 1% of the scheme consideration and, consistently with the case law, is not payable merely because MSL shareholders do not approve the proposed scheme. He also points to the affidavit evidence that the exclusivity provisions and the break fee have been the subject of arm's length negotiations. Mr Oakes also points out that a deemed warranty, which is now invariably adopted in schemes, is included in cl 5.6 of the scheme and is disclosed in section 4.8 of the scheme booklet. None of these matters gave rise to any reason not to convene the scheme meeting.
Second, Mr Oakes notes that MSL has issued 13,969,998 performance rights which entitle the holders to acquire one fully paid MSL share for each performance right. It is proposed that the performance rights will not have vested by the time of the scheme meeting, so that their holders will not exercise any voting power at that meeting, but will vest and be exercised prior to 8.00am on the Second Court Date (as defined) and MSL shares will be issued in respect of those performance rights at such time. Mr Oakes submits and I accept that performance rights do not give any additional entitlement other than the ability to obtain one MSL share with the same rights attaching to it as any other MSL share, and all scheme shareholders receive the same benefit for their MSL shares under the scheme. Mr Oakes also points out that information about the performance rights is contained in section 4.11 of the scheme booklet.
Mr Oakes also draws attention to the observation of Ferguson J in Re Foster's Group Limited (No 2) [2011] VSC 547 at [42] that:
"There may be a number of benefits to shareholders that are peculiar to them because of some personal arrangements that they have. In this regard, the scheme may be more commercially advantageous for them than for other shareholders. However, that does not mean that they cannot consult with other shareholders who are in a different position. Information about the performance rights is contained in the explanatory memorandum".
Mr Oakes submits that holders of performance rights who are also MSL shareholders should not be considered a separate class of members for the purposes of the scheme meeting, since the existence of performance rights does not give rise to any relevant distinction between the rights of MSL shareholders or any inability to consult together in determining whether or not to approve the scheme. I accept that submission, but note that MSL proposes that the votes cast by any shareholders who also hold performance rights will in any event be tagged and reported to the Court at the second court hearing.
Third, Mr Oakes notes that MSL has 4,500,000 convertible notes on issue which can be converted into 21,655,438 fully paid MSL shares and that information about those convertible notes is disclosed in section 4.11 of the scheme booklet. He points out that the convertible notes will, subject to the scheme being approved at the scheme meeting, convert into MSL shares before 8.00am on the Second Court Date and that holders of convertible notes will not hold any voting power at the scheme meeting. Mr Oakes submits that the convertible notes, after they are converted into MSL shares, will have the same rights attaching to them as any other MSL shares and will be acquired on the same terms as ordinary MSL shares if the scheme is approved. Mr Oakes also submits, and I accept, that holders of convertible notes who are also shareholders should not be considered a separate class of members for the purposes of the scheme meeting as the convertible notes do not give rise to any relevant distinction between the rights of the scheme shareholders or any inability to consult together in determining whether or not to approve the scheme. MSL also proposes that the votes cast by any shareholders who also hold convertible notes will be tagged and reported to the Court at the second Court hearing.
Fourth, Mr Oakes addresses the question whether an interested director can properly make recommendations in respect of a scheme, which has been addressed in case law including Re Villa World Ltd [2019] NSWSC 1207; Re GBST Holdings Ltd [2019] NSWSC 1280 at [24]-[30]; Re DWS Ltd [2020] FCA 1590 at [41]-[49]; Re BINGO Industries Ltd [2021] NSWSC 798; Re RXP Services Ltd [2021] FCA 38; Re Mainstream Group Holdings Ltd [2021] FCA 948; Re MyDeal.com.au Ltd [2022] NSWSC 1094 at [43] and Re Tassal Group Ltd [2022] NSWSC 1414 at [27]. Mr Oakes points out that MSL's executive chairman, Mr Toohey, holds 2,341,667 performance rights which will be subject to early vesting prior to the Second Court Date, and stands to gain by the implementation of the scheme. Mr Oakes points out that Mr Toohey's interests in this regard are fully and prominently disclosed to MSL shareholders in the scheme booklet as a matter for them to take into account when considering his recommendation. I accept that his making a recommendation in relation to the scheme does not give rise to any reason not to approve the scheme.
Fifth, Mr Oakes notes that MSL proposes to hold the meeting as hybrid meeting, with shareholders being able to attend in person and by an online platform. I accept that the facility provided by Computershare should give all persons entitled to attend a reasonable opportunity to participate, vote, speak, and appoint a proxy and that form of meeting is permitted under s 249R(2)(b) of the Act.
[6]
Determination and orders
In summary, Mr Oakes submits and I accept that the Court can be satisfied that the scheme is of such a nature and cast in such terms that, if it achieves the statutory majorities at the scheme meeting, the Court would be likely to approve it. He relies, in that respect, on the fact that the structure and terms of the scheme is of a common character; the independent expert has provided his report as to the proposed transaction, to which I referred above; the scheme is unanimously recommended by MSL directors; and the scheme booklet meets all of the statutory requirements and has been subject to verification. I accept that it is appropriate to convene the scheme meeting on that basis and make the necessary ancillary orders.
For these reasons, I made the orders sought by MSL at the conclusion of the first Court hearing on 13 December 2022.
[7]
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Decision last updated: 27 December 2022