Fowler v Lindholm, in the matter of Opes Prime Stockbroking Limited

order made by: HALLEY J DATE OF ORDER: 26 OCTOBER 2022

1. Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the plaintiff and its shareholders, in the form contained at Annexure A to the orders made in these proceedings on 19 September 2022, be approved.
2. The plaintiff lodge with the Australian Securities and Investments Commission a copy of the approved scheme of arrangement at the time of lodging a copy of these orders.
3. Pursuant to s 411(12) of the Act, the plaintiff be exempted from compliance with s 411(11) of the Act in relation to Order 1 above. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 On 19 September 2022, following the first court hearing in this matter, I made orders under ss 411(1) and 1319 of the Corporations Act 2001 (Cth) (Act) that the plaintiff, Dealt Holdings Limited (ACN 605 935 153) (Dealt) convene a meeting of the holders of its fully paid ordinary shares (Scheme Meeting) for the purpose of considering, and if thought fit, agreeing to a proposed scheme of arrangement to be made between Dealt and its shareholders (Scheme) and approving a scheme booklet to be distributed by Dealt to its shareholders (Scheme Booklet): see Dealt Holdings Ltd, in the matter of Dealt Holdings Ltd [2022] FCA 1104. 2 On 24 October 2022, I made orders under s 411(4)(b) of the Act approving the Scheme, which will result in the acquisition of all the shares in Dealt by 360 Capital Property Limited (TGP) that it and its related entity, TGP TOT JV Pty Limited (TGP TOT), do not own, in return for a cash payment. 3 These are my reasons for making those orders.

Background 4 The Scheme Meeting was held on 19 October 2022. The statutory majorities required by s 411(4)(a)(ii) of the Act were attained at the meeting, as follows: (a) shares present and voting in favour, 99.45%; and (b) members present and voting in favour, 93.07%. 5 The application by Dealt for the approval of the proposed Scheme was uncontested. 6 The plaintiff relied on the following affidavits at the second court hearing (Second Court Hearing): (a) an affidavit of Philip John Raff, a non-executive director of Dealt, affirmed 21 October 2022. Mr Raff gives evidence of the Scheme Meeting, resolution and voting at the Scheme Meeting, that Dealt shareholders were notified of the Second Court Hearing in this matter, and that ASX announcements were made as requested by the Australian Securities and Investments Commission (ASIC). Mr Raff annexes to his affidavit a copy of the notice of the Second Court Hearing published in The Australian newspaper. He also gives evidence that on 4 October 2022 he instructed Mr Joglekar of Boardroom Limited (Boardroom) to send an email to Dealt shareholders on his behalf to provide Dealt shareholders with a copy of the Dealt annual report for the year ended 30 June 2022 (2022 Annual Report) and to remind Dealt Shareholders to vote on the Scheme (Reminder Notice); (b) an affidavit of Glenn Kevin Butterworth, the CFO and Company Secretary of TGP, affirmed 21 October 2022. Mr Butterworth gives evidence of the preparation of the 2022 financial statements of Dealt lodged with ASIC on 30 September 2022 (Dealt FY22 Financial Statements) and the Dealt 30 September 2022 management accounts (Dealt September Management Accounts) and the registration of the Scheme Booklet with ASIC; (c) two affidavits of Andrew Mutton, a director of Andrews & Holm Lawyers Pty Ltd and the solicitor for Dealt, affirmed on 21 and 24 October 2022. Mr Mutton gives evidence that confirms that no notice to appear at the Second Court Hearing had been received and annexes the usual letter from ASIC stating that it had no objection to the proposed Scheme and notices confirming that all conditions precedent to the Scheme had been satisfied or waived; (d) an affidavit of Nakul Joglekar, a client services manager of Boardroom, affirmed 24 October 2022. Mr Joglekar gives evidence that Boardroom maintains the share register of Dealt. He further gives evidence of Boardroom's engagement by Dealt to facilitate the Scheme Meeting, including creating a data file of Dealt shareholders, despatching electronic copies of the Scheme Booklet, verifying attendees at the Scheme Meeting, tallying the vote undertaken at the Scheme Meeting, creating a report of the voting result and recording voter turnout; and (e) an affidavit of Andrea De Cian, a director of Grant Thornton Corporate Finance Pty Limited, affirmed 21 October 2022. Mr De Cian gives evidence that he has reviewed the Dealt FY22 Financial Statements and the Dealt September Management Accounts and confirms that nothing has come to his attention that would cause Grant Thornton to withdraw or qualify their opinion in his independent expert report (Grant Thornton Report) that the Scheme was fair and reasonable to Dealt shareholders and that he continued to believe that the Scheme was fair and reasonable to Dealt shareholders and in their best interest.

Legal Principles 7 In Dragontail Systems Limited, in the matter of Dragontail Systems Limited (No 2) [2021] FCA 1109 (Dragontail), I summarised at [8]-[11] the principles relevant to the exercise of the discretion to grant approval to a scheme after it has received the consideration and approval of a meeting of the members or creditors under s 411(4)(b) of the Act. For ease of reference, I set out below those paragraphs of that judgment. 8 Insofar as discretionary considerations are concerned, the general principles which guide the Court's discretion are well established and are helpfully summarised by Gleeson J in EcoBiotics Limited, in the matter of EcoBiotics Limited (No 2) [2017] FCA 1031 at [26]-[28], which I respectfully adopt. 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).

Satisfaction of standard requirements 12 I am satisfied that the evidence relied upon by the plaintiff establishes all of the procedural matters that are necessary to permit me to approve the Scheme. 13 The resolution seeking approval of the Scheme was passed by the requisite statutory majorities of 75% by votes cast and 50% by members voting at a duly convened meeting of Dealt shareholders and those shareholders of Dealt excluded from the Scheme, namely TGP and TGP TOT and shareholders not eligible to vote by reason of their relationship to TGP and TGP TOT did not vote their shares at the Scheme Meeting. 14 Further, 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.

Discretionary considerations 15 As to fairness, the Grant Thornton Report concluded that the Scheme is fair and reasonable and in the best interests of Dealt shareholders, a conclusion reaffirmed by Mr De Cian in his affidavit affirmed 21 October 2022 in the light of the Dealt FY22 Financial Statements and the Dealt September Management Accounts. I am satisfied that there is no evidence to the contrary and nothing in the Grant Thornton Report, on its face, that suggests that the opinion should not be accepted. 16 Further, I observe that the reasonableness of the Scheme was established, at least on a prima facie basis, at the first court hearing pursuant to the principle in FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 (Street CJ, with whom Hutley and Samuels JJA agreed), subject to any new matters being brought to the Court's attention at the Second Court Hearing. 17 There is nothing before me to suggest that the relevant Dealt shareholders voted other than in good faith, that they cast their votes for an improper purpose or that any member had been treated in a way that may be characterised as oppressive. Nor is there anything that materially casts doubt on the procedural integrity of the processes followed for the Scheme Meeting. 18 Further I note that no notice has been received of any opposition to the Scheme, no shareholders appeared to oppose the Scheme being approved at the Second Court Hearing and ASIC has provided a statement pursuant to s 411(17)(b) of the Act stating that it has no objections to the Scheme. 19 I am satisfied that fairness can be inferred in all the circumstances including the obtaining of the statutory majorities in the Scheme Meeting in a context where I was satisfied that there was adequate and verified disclosure and those who voted did so as the best judges of their own interests.

Voter turnout 20 The concept of voter turnout at a scheme meeting has no statutory basis, but as a matter of practice, the Court has (since the decision of Emmett J in Lion Nathan Limited, in the matter of Lion Nathan Limited (No. 2) [2009] FCA 1261 (Lion Nathan)) requested and had regard to such evidence for the purpose of assessing the integrity of the process. As Farrell J observed TriAusMin Limited, in the matter of TriAusMin Limited (No 2) [2014] FCA 833 (TriAusMin) at [10]: Although the statutory requirement under s 411(4)(a)(ii) has been satisfied, it is the usual practice of the Court at the second court hearing to consider the number of shareholders who attended the Scheme Meeting in person or by proxy. Low shareholder turnout may be an indication that some procedural irregularity occurred. It is inappropriate to assume (in the absence of complaint) that shareholders did not vote either did not have notice of the meeting or were silent in protest of the scheme: Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [7] and Re Seven Network Ltd (No 3) (2010) 267 ALR 583 … at [61] per Jacobson J; apathy should not be presumed to be antagonism: Re Matine Ltd (1998) 28 ACSR 268 at 295 per Santow J. 21 Voter turnout percentages at the Scheme Meeting were as follows: Number of votes cast (for or against) As a % of total voting shares Number of members who voted (for or against) or abstained As a % of total shareholders 3,895,275 34.43% 101 9.71%

22 If the percentages of voting shares and numbers of shareholders voting are adjusted to only include shareholders eligible to vote, namely shareholders other than the bidder and associates of the bidder, the percentages increase to approximately 40% by voting shares and 10% by total shareholders. 23 These voter turnout percentages are at the lower end of voter turnout percentages noted by Courts in approving schemes of arrangement. 24 They are lower than the percentages noted in: Lion Nathan at [6] (Emmett J), 64% of shares participating; Avoca Resources Limited, in the matter of Avoca Resources Limited [2011] FCA 208 at [25] (Gilmour J), 72.38% by shares participating and 11.49% by persons participating; Re Auzex Resources Ltd (No 2) [2012] QSC 101 at [18] (Applegarth J) 42.3% by shares participating and 9.75% by persons participating; TriAusMin at [9] (Farrell J) 52.9% by shares participating and 10.94% by persons participating; Dragontail at [20] (Halley J) 78.7% by shares participating and 24.1% by members participating; and Over the Wire Holdings Limited, in the matter of Over the Wire Holdings Limited (No 2) [2022] FCA 181 at [19] (Halley J) 69.6% by shares participating and 18.1% by members participating. 25 They are broadly consistent, however, with the voter turnout percentages noted in: Re Western Areas Ltd; Ex Parte Western Areas Ltd [No 2] [2022] WASC 198 of approximately 54% by shares participating and 9% by members participating and in In the matter of Quantum Health Group Limited (No 2) [2022] NSWSC 74 of 42.3% by shares participating and 9.75% by members participating. 26 The percentages achieved at the Scheme Meeting were broadly consistent with the maximum number of shares voted at Dealt's 2021 annual general meeting of 2,741,196 shares (after excluding the shares voted by TGP TOT given that company was not eligible to vote at the Scheme Meeting) and the maximum number of shares voted at Dealt's 2020 annual general meeting of 3,782,222 shares. 27 I am satisfied, however, that given the evidence as to the despatch of the Scheme Booklet and the voter turnout percentages at the Scheme Meeting, there is nothing to suggest that there was any flaw in the procedure for convening the Scheme Meeting.

Reminder Notice and 2022 Annual Report 28 The Reminder Notice and the 2022 Annual Report were distributed to Dealt shareholders between the First Court Hearing and the Scheme Meeting without any prior approval of the Court. 29 In the usual course, in order to maintain the integrity of the "message" in the Scheme Booklet which has been approved by the Court, supplementary information or explanatory material in respect of a Scheme should not be sent to shareholders in advance of the Scheme Meeting without first obtaining approval from the Court: see generally Re White Horses Pty Ltd [2016] 2 Qd R 422; [2016] QSC 282 at [76] to [92] (Bond J); Xplore Wealth Limited, in the matter of Xplore Wealth Limited (No 2) [2021] FCA 166 (Re Xplore) at [14]-[15] (Markovic J). 30 However, where communications with shareholders occur between the first court hearing and the Scheme Meeting which are not the subject of approval from the Court, the question at the second court hearing is whether the integrity of the voting process is compromised by the communication: In the matter of MyDeal.com.au Limited [2022] NSWSC 1317 (MyDeal) at [18] (Black J). This in turn raises questions of materiality and propensity to mislead. 31 It is not apparent why it was considered necessary to add the Reminder Notice to the notification to Dealt shareholders providing them with an electronic link to the 2022 Annual Report. The Reminder Notice was essentially a "mechanical" reminder to Dealt shareholders to attend the Scheme Meeting and instructions on how to attend the Scheme Meeting. That information had already been provided to shareholders in the Scheme Booklet. The Reminder Notice did not contain any recommendation to shareholders nor any additional or supplementary information that could be considered to have any propensity to influence how a shareholder might vote at the Scheme Meeting. Further, it provided members with a link to the Scheme Booklet. 32 I was therefore satisfied that the distribution of the Reminder Notice did not raise any concern that supplementary or additional explanatory information has been distributed to Dealt shareholders without the approval of the Court that was material or had the propensity to mislead shareholders. 33 The 2022 Annual Report comprised the Dealt FY22 Financial Statements and a "Directors' report" section. The Directors' report provided a brief update on the proposed Scheme. As a public company, Dealt was required to issue the 2022 Annual Report within four months of the end of the relevant financial year, namely 31 October 2022. Mr Raff gives evidence that he was not aware of the general requirement to obtain Court approval in these circumstances. 34 I was satisfied that the provision of the 2022 Annual Report to shareholders was not such as to compromise the integrity of the voting process. The description of the Scheme at pages 6 and 42 of the 2022 Annual Report does not attempt to advocate for any particular outcome and with one minor exception does not give rise to any concern that a shareholder may be misled. The exception is the reference on page 6 of the 2022 Annual Report to obtaining, as at the date of the report, the "required approval from ASIC" in relation to the Scheme. While perhaps literally true it might be thought that this rather overstates the significance of any "approval" provided by ASIC to the Scheme. It underlines the desirability of communications to shareholders between the First and Second Court Hearings being approved by the Court to reduce the risk of any inadvertent misconceptions being created in the minds of shareholders. 35 Further, I note that a comparison of the financial position disclosed in the Dealt FY22 Financial Statements and that considered in the Grant Thornton Report shows that the net tangible assets of Dealt had decreased by some $200,000 ($4.77m down to $4.55m) and no further revenue has been derived from the CRE Platform. Whilst such financial information is material, it does not create any propensity to mislead given the supplementary opinions expressed by Mr De Cian in his affidavit affirmed on 21 October 2021 and in circumstances where, if anything, it would reduce, not increase, the value of shareholder's interests in Dealt and therefore make it more likely that the Scheme was fair and reasonable and in the best interests of Dealt shareholders. 36 In MyDeal at [17], Black J accepted that disclosure of such financial information in circumstances where, as in this case, the expert has confirmed that the information makes no difference to their opinion, did not give rise to any cause for concern.

Section 411(11) exemption 37 Section 411(11) of the Act provides that copies of all orders made by the Court for approving a scheme pursuant to s 411(4)(b) of the Act must be annexed to every copy of the company's constitution issued after the approval of the scheme. Section 411(12) of the Act provides that the Court may exempt a company from complying with s 411(11) of the Act. 38 I am satisfied that it is appropriate to make an order pursuant to s 411(12) of the Act exempting Dealt from compliance with s 411(11) of the Act, in circumstances where the Scheme will not amend the constitution of Dealt and Dealt will become a wholly owned subsidiary of the acquirer upon implementation of the Scheme: Re Toll Holdings Limited (No 2) [2015] VSC 236 at [18]-[19] (Robson J); In the matter of BINGO Industries Limited [2021] NSWSC 911 at [13] (Black J).

Disposition 39 In all the circumstances I was satisfied, for the reasons outlined above, that orders be made approving the Scheme and exempting Dealt from compliance with s 411(11) of the Act. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.