Fowler v Lindholm, re Opes Prime Stockbroking Ltd

GLEESON J: 1 On 31 July 2017, I made orders, including orders pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) ("Act"), approving two inter-connected members' schemes of arrangement. These are my reasons for making those orders.

Background 2 The details of the schemes are described in EcoBiotics Ltd, re EcoBiotics Ltd [2017] FCA 643. 3 The purpose of the schemes is to merge the businesses of EcoBiotics Limited ("Ecobiotics") and QBiotics Limited ("QBiotics"). The merger is sought to be achieved through the consolidation of the ownership of Ecobiotics and QBiotics into a new entity, QBiotics Group Limited ("QGL"). 4 Under the EcoBiotics scheme, each member of EcoBiotics who holds shares as at the record date for the EcoBiotics scheme was to be issued shares in QGL at a ratio of one EcoBiotics share to 0.21 QGL shares. 5 Under the QBiotics scheme, each member of QBiotics (other than EcoBiotics) was to be issued shares in QGL at a ratio of one QBiotics share to one QGL share. 6 On 5 May 2017, EcoBiotics, QBiotics and QGL entered into a scheme implementation agreement under which those parties agreed to implement the schemes of arrangement annexed to that agreement. 7 On 11 May 2011, QGL entered into separate deeds poll in favour of the participating members in the two schemes under which it bound itself to provide the scheme consideration (namely the issue of shares in accordance with the schemes) if the conditions precedent were satisfied including, relevantly, court approval of the proposed schemes. 8 Senior counsel for EcoBiotics and QBiotics, Mr Jackman SC, provided a document entitled "Plaintiffs' Road Map for Scheme Approval Hearing" which sets out the matters to be proved and the affidavit evidence supporting each matter. All of the affidavits referred to in that document were read. 9 No representative of the Australian Securities and Investments Commission ("ASIC") and no creditor or shareholder of EcoBiotics or QBiotics appeared at the second court hearing. Thomson Geer, the solicitors for EcoBiotics and QBiotics received no notice of any intention on the part of any creditor or shareholder to appear at the second court hearing. 10 The evidence included letters from ASIC dated 28 July 2017, by which it advised that it had no objection to the proposed schemes pursuant to s 411(17)(b) of the Act.

Formal and structural matters 11 I was required to be satisfied for each scheme that: (1) at a scheme meeting convened in accordance with the Court's orders under s 411(1) of the Act, resolutions in favour of the scheme were passed in accordance with the statutory majority required for a members scheme by s 411(4)(a)(ii) of the Act; (2) there has been compliance with the orders made at the first hearing; and (3) ASIC had indicated that it has no objections to the scheme under s 411(17).

Statutory majorities 12 The scheme meetings were held on 6 July 2017. The affidavit evidence of Michael Johannes Wenzel (Chief Financial Officer of EcoBiotics and QBiotics), Roderic Holliday-Smith (a non-executive director and chairman of the board of QBiotics), Graham Caldwell (a non-executive director of EcoBiotics) and Steven Ogbourne (a non-executive director of and shareholder in EcoBiotics) proved that the meetings were convened regularly and proceeded in accordance with the orders made on 17 May 2017 and the constitutions of QBiotics and EcoBiotics respectively. 13 Pursuant to s 411(4)(a)(ii), to be eligible for approval by the Court, the scheme must have been approved at the scheme meeting by the following different majorities: (a) a majority in number of the members present and voting in person or by proxy; and (b) 75% of the votes cast present and voting in person or by proxy. 14 Mr Holliday-Smith acted as chairman of the QBiotics scheme meeting. He gave evidence that 240 members of QBiotics were present at the scheme meeting in person and by proxy. The resolution to approve the scheme was passed by 94.2% of persons present and 93.2% of votes cast and at the meeting. 226 members by headcount voted in favour of the resolution and thirteen members by headcount against the resolution. There was one abstention. 15 Mr Caldwell acted as chairman of the EcoBiotics scheme meeting. He gave evidence that 121 members of EcoBiotics were present at the scheme meeting in person and by proxy. At the meeting of EcoBiotics shareholders, the resolution to approve the scheme was passed by 66.9% of persons present and 78% of votes cast and at the meeting. 81 members by headcount voted in favour of the resolution and 40 members by headcount against the resolution. There were no abstentions. 16 Thus, the statutory majorities in favour of the schemes have been obtained.

Voter turnout 17 In Avoca Resources Ltd, re Avoca Resources Ltd [2011] FCA 208 at [20], Gilmour J referred to Lion Nathan Ltd, re Lion Nathan Ltd (No 2) [2009] FCA 1261 where, at [6] Emmett J noted that 64% of eligible shares had been represented and voted at the scheme meeting, and Re MB Group plc [1989] BCLC 672 at 675 where Harman J described a turnout of 52% of scheme shares as "a high turn-out". 18 At [21], Gilmour J noted that, since these cases, this Court has expressed an interest in knowing the turnout percentage of eligible shares (both for and against), and more recently of shareholders. His Honour noted that these percentages have no statutory significance, but a low turnout percentage might suggest a flaw in the convening procedure. 19 Prior to the QBiotics scheme meeting, the register of members of QBiotics disclosed that there were: (a) 306,972,954 fully paid ordinary shares on issue (274,055,765 fully paid ordinary shares on issue excluding the shares held by EcoBiotics); and (b) 2017 members (2016 members excluding EcoBiotics). 20 Accordingly, the voter turnout percentages for the QBiotics scheme meeting were 38.5% of votes and 11.9% of shareholders. 21 Prior to the EcoBiotics scheme meeting, the register of members of EcoBiotics disclosed that there were: (a) 262,641,408 fully paid ordinary shares on issue; and (b) 570 members. 22 Accordingly, the voter turnout percentages for the EcoBiotics scheme meeting were 69.4% of votes and 21.2% of shareholders. 23 I identified no basis for concern about the procedure for convening the scheme meetings on the basis of these voter turnout percentages.

Compliance with 17 May 2017 orders 24 I am satisfied that: (1) scheme booklets and proxy forms were dispatched to members of EcoBiotics and QBiotics in accordance with the Court's orders by Link Market Services Limited ("Link"), which provides share registry services to EcoBiotics and QBiotics, and (for dispatch of electronic scheme documents) by Michael James Baillie, a contractor engaged by EcoBiotics and QBiotics; and (2) the date of the second court hearing was advertised in the newspaper The Australian on 17 July 2017 by advertisements substantially in the form annexed to the 17 May 2017 orders.

Conditions precedent 25 The evidence included four conditions precedent certificates dated 31 July 2017. The certificates certified that EcoBiotics, QBiotics and QGL (for each scheme) were satisfied that the conditions precedent to the schemes had been satisfied or waived in accordance with the scheme implementation agreement. Mr Jackman SC confirmed that the conditions precedent referred to in the certificates comprised all of the conditions precedent referred to in the scheme implementation agreement (other than court approval of the scheme).

General principles 26 The general principles which guide the Court's discretion at the second court hearing are very well established. 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: In Seven Network Ltd (ACN 052 816 789); re Seven Network Ltd (ACN 052 816 789) (No 3) [2010] FCA 400; (2010) 267 ALR 583 ("Re Seven Network") at [31], citing NRMA Ltd (Application of) [2000] NSWSC 408; (2000) 156 FLR 412 ("Re NRMA Ltd") at [22]. 27 The Court will usually approach the task upon the basis that the members are better judges of what is in their commercial interests than the Court: Re Seven Network at [32] and [33]. 28 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 whether or not to approve a scheme: (1) whether the shareholders have voted in good faith and not for an improper purpose: Re Foundation Healthcare Ltd ACN 002 611 507 (No 2) [2002] FCA 973; (2002) 43 ACSR 680; (2) whether the proposal is fair and reasonable so that an intelligent and honest man or woman who was a member of the relevant class, properly informed and acting alone, might approve it: Fowler v Lindholm, re Opes Prime Stockbroking Ltd [2009] FCAFC 125; (2009) 178 FCR 563 at [79]; (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] NSWSC 1177; (2002) 43 ACSR 601 at [7]; (4) whether there has been full and fair disclosure of all information material to the decision: Re NRMA Ltd at [30]; (5) whether minority shareholders would be oppressed by the scheme: Re Ranger Minerals Ltd; Ex parte Ranger Minerals Ltd [2002] WASC 207; (2002) 42 ACSR 582; and (6) whether the scheme offends public policy. See, for example, CSR Ltd, re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [51]-[56].

Have the shareholders voted in good faith and not for an improper purpose? 29 These were uncontested proposals and those shareholders who attended the meetings voted to the requisite majorities in their favour. There was nothing to suggest that members voted other than in good faith, or that they cast their votes for an improper purpose, or that any member has been treated in way that might be characterised as oppressive.

Are the proposals fair and reasonable? 30 I was satisfied that the proposals were fair and reasonable, by reference to the following matters: (a) No one came forward to EcoBiotics, QBiotics or the Court to oppose the schemes. ASIC has not raised an objection to the schemes. (b) The schemes were supported to the requisite majorities by those shareholders who attended the meetings and there was substantial attendance at the meetings. (c) The expert report of Ross Walker, a director of Pitcher Partners Corporate Finance Limited expresses an independent opinion that the schemes are fair and reasonable and are therefore in the best interests of the members of EcoBiotics and QBiotics. There was no contrary evidence. (d) The content of the explanatory statement was verified on oath. The independent board committees of EcoBiotics and QBiotics unanimously recommended that the participants in the schemes vote to approve them in the absence of a superior proposal. No superior proposal was forthcoming.

Have EcoBiotics and QBiotics brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's jurisdiction? 31 This has been done by: (1) isolating the standard matters necessary to be proved in the "road map"; and (2) providing evidence about voter turnout.

Has there been full and fair disclosure to shareholders of all information material to their decision to approve or reject the schemes? 32 There is no criticism of the substance of the disclosure by any member or by ASIC. Nothing has been brought to my attention which would lead me to think that EcoBiotics or QBiotics shareholders might have been provided with inadequate information.

Would minority shareholders be oppressed under the schemes? 33 There is nothing to suggest that minority shareholders would be oppressed under the schemes.

Do the schemes offend public policy? 34 Nothing has been brought to my attention which suggests that the schemes may offend public policy in any way.

Conclusion 35 For those reasons, I was satisfied that I should approve the schemes and made the other orders that I made on 31 July 2017. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.