Fraser v NRMA Holdings Ltd - [2022] FCA 1259 - FCA 2022 case summary — Zoe

CTHFCA

Fraser v NRMA Holdings Ltd

[2022] FCA 1259

Federal Court of Australia|2022-10-13|Before: Mr J, Cheeseman J

View original source

At a glance

Source facts

Court

Federal Court of Australia

Decision date

2022-10-13

Before

Mr J, Cheeseman J

Source

Original judgment source is linked above.

Judgment (81 paragraphs)

[1]

THE COURT ORDERS THAT:

Pursuant to s 411(1) and 1319 of the Corporations Act 2001 (Cth) (the Act): a. the Plaintiff convene: i. a meeting (General Scheme Meeting) of its ordinary shareholders excluding Elabrook Pty Ltd and Current Employee Scheme Participants (defined below); and ii. a meeting (Employee Scheme Meeting) of its ordinary shareholders who hold 3Q shares pursuant to the terms of the Employee Share Ownership Plan and remain current employees or contractors (Current Employee Scheme Participants), together (Scheme Shareholders) for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement between 3Q and the Scheme Shareholders (Scheme), the terms of which are set out in Annexure D of the document which has been tendered and marked Exhibit 1 (Scheme Booklet); b. the General Scheme Meeting be held at 10:00am AEDT on 4 November 2022 at Computershare, Level 3, 60 Carrington Street, Sydney, New South Wales 2000; c. the Employee Scheme Meeting be held immediately after the General Scheme Meeting, but no earlier than 10:30am AEDT, on 4 November 2022 at Computershare, Level 3, 60 Carrington Street, Sydney, New South Wales 2000; d. Scheme Shareholders be permitted to attend and vote at the General Scheme Meeting and the Employee Scheme Meeting: i. in person; or ii. by way of online (internet) attendance through the Computershare Meeting Platform at https://meetnow.global/MN7VZCT. e. provisions of the Plaintiff's Constitution as to quorum be taken to be satisfied provided that two Scheme Shareholders present and entitled to vote attend the meeting in person or online or by proxy or or by an attorney under power or by a corporate representative (if applicable); f. the chairperson of the Scheme Meetings be Kristy Dixon or, failing her, Giselle Finnane; g. at the General Scheme Meeting and the Employee Scheme Meeting, each Scheme Shareholder, present and entitled to vote, be entitled to one vote for each fully paid ordinary share in the capital of the Plaintiff that the Scheme Shareholder is registered as holding at 7:00pm (AEDT) on 2 November 2022; h. at the General Scheme Meeting and the Employee Scheme Meeting, the resolution to approve the Scheme be decided by way of a poll; and i. the explanatory statement substantially in the form of the Scheme Booklet and including amendments raised during the hearing on 13 October 2022 be approved for distribution to Scheme Shareholders.

[3]

BACKGROUND 3 3Q is a public company incorporated in Australia. The 3Q Directors are Alan Treisman, Shaun Rosen and David Rosen. 3Q delisted from the Australian Securities Exchange (ASX) on 12 February 2013 following an on-market buyback of approximately 20% of the issued share capital. 4 Elabrook Pty Limited is 3Q's largest shareholder, holding approximately 38.632% of the issued share capital of 3Q. Elabrook is jointly and indirectly controlled by two of 3Q's three directors, namely Shaun and David Rosen, the Elabrook Shareholders. 5 The 3Q Group operates business as a software and service provider for retail businesses. The 3Q Group provides point of sale software, including for multi-store retailers, EFTPOS hardware and till hardware, software used in managing store operations, planning for seasonality, merchandising and analysis, and an eCommerce website software for sales, online marketing, channel integrations and support. 6 The proposed acquirer of 3Q Shares is Vela Software Group Pty Ltd ACN 117 660 849. Vela Software is a wholly owned subsidiary of Constellation Software Inc. (CSI). CSI is a Canadian public company incorporated on 23 August 1995. It publicly listed on the Toronto Stock Exchange on 18 May 2006. As at 20 August 2022, CSI's market capitalisation was approximately CAD $45,338,218,858 (AUD $50,595,043,922). 7 Vela Software acquires, manages and builds industry specific software for businesses which provide what is described as specialised, mission-critical software solutions. Vela Software has a portfolio of wholesale and distribution, agribusiness, industry association, fashion and general retail, insurance and workplace health and safety, manufacturing and government and enterprise asset management software businesses, with presences in Australia, New Zealand and the Asia Pacific. 8 On 17 March 2022, two agreements were entered into to facilitate Vela Software acquiring, directly and indirectly, 100% of the shares in 3Q. 9 First, 3Q entered into a Scheme Implementation Deed with Vela Software and CSI under which it is proposed that Vela Software will acquire the Scheme Shares, being 100% of the ordinary shares on issue in 3Q held by shareholders other than Elabrook, by way of the Scheme. 10 Secondly, the Elabrook Shareholders, and two companies acting as trustees for David Rosen and the Rosen Family Trust respectively, entered into the Elabrook Share Sale Deed with Vela Software to acquire all of the Elabrook Shares. The term Elabrook Shares is used in the Scheme Booklet to mean the 3Q Shares owned by Elabrook. In these reasons, I will refer to these shares as the Elabrook 3Q Shares to avoid confusion with the Elabrook Shares, that is the shares in Elabrook itself which are the subject of the Elabrook Share Sale Deed. CSI is named as the guarantor under the Elabrook Share Sale Deed. The only assets of Elabrook are its 3Q Shares and it has no debt. The consideration received for the sale of the Elabrook Shares will be the same value as the aggregate value of the Elabrook 3Q Shares that Elabrook would have received if it participated in the Scheme. The consideration for each Elabrook Share is calculated by reference to the value per share that a General Shareholder (that is a 3Q Shareholder who is not a current employee) will receive in respect of Scheme Shares. 11 On 18 March 2022, 3Q announced to its shareholders that it had entered into the Scheme Implementation Deed with Vela Software for the acquisition by Vela Software of all the issued shares in 3Q for a minimum of $0.155 per share and that the acquisition was to be given effect by way of the Scheme and the Elabrook Share Sale Deed. 12 The Elabrook Share Sale Deed was amended by a variation deed on 28 April 2022.

[9]

Scheme Consideration 25 If the Scheme is implemented, Scheme Shareholders will receive Scheme Consideration for each ordinary 3Q share they hold on the Record Date (as defined in the Scheme Implementation Deed). The Scheme Consideration will be paid in two steps. The first step requires Vela Software to make payments on the Implementation Date. The second step requires Vela Software to make payments on the Holdback Release Date. 26 If the Scheme is approved and implemented, Scheme Shareholders (and Elabrook Shareholders under the Elabrook Share Sale Deed) will receive the following consideration: (1) a minimum amount of about $0.1575 per 3Q Share in two tranches: (a) an Initial Amount of approximately $0.1552 per 3Q Share on the Implementation Date, which represents the pro-rata share of $23,400,000 divided by the total 3Q Shares (which is the total number of Scheme Shares and Elabrook 3Q Shares); and (b) a further sum of approximately $0.002 per 3Q Share (the Distributed ESOP Loan Amount) on the Holdback Release Date; and (2) depending on the net asset position of 3Q as disclosed in the Closing Statement, there is potential for further amounts to be payable in respect of 3Q Shares on the Holdback Release Date, being: (a) a Holdback Amount of between zero and $0.017 per 3Q share is payable if certain of 3Q's net tangible assets exceed certain of 3Q's net tangible liabilities by $400,000 as at the date on which the Scheme becomes Effective (relevantly referred to as the Closing Date in the Scheme Implementation Deed); and (b) an Excess Amount is payable if 3Q's tangible assets exceed its tangible liabilities by more than $400,000 and will be calculated on a pro rata basis in respect of any such excess. 27 The circumstances in which the Holdback Amount is payable are set out in sch 4 to the Scheme Implementation Deed. Vela Software is required to prepare a written Closing Statement setting out its calculation of Adjustment Tangible Assets and Adjustment Tangible Liabilities as at the date the Scheme becomes Effective. The Holdback Amount is payable if the aggregate of 3Q's Adjustment Tangible Assets (accounts receivable and cash at the bank) exceed certain of its Adjustment Tangible Liabilities (bank debt, accounts payable and taxes) by more than $400,000 as at the date the Scheme becomes Effective. If Adjustment Tangible Assets do not exceed Adjustment Tangible Liabilities then the Holdback Amount may reduce to zero. 28 If 3Q's Adjustment Tangible Assets exceed Adjustment Tangible Liabilities by more than $400,000 as at the date the Scheme becomes Effective then Scheme Shareholders will receive a further payment being a pro-rata distribution of the Excess Amount. 29 As noted, the Scheme Consideration in respect of or relating to each 3Q Share is different as between General Shareholders (and indirectly Elabrook Shareholders), on the one hand, and Current Employee Shareholders, on the other hand. That difference arises as a result of the manner in which the ESOP Loan Amount owed by a 3Q Shareholder in respect of their 3Q Shares acquired under the ESOP is distributed if the Scheme is implemented. 30 Under the ESOP, employees of 3Q purchased 3Q shares at their then current trading or valuation price using loans advanced for that purpose by 3Q (ESOP Loans). There remain ESOP Loan Amounts owing by 3Q Shareholders who include Current Employee Shareholders and former employees who continue to hold shares acquired under the ESOP (ESOP Shares). The ESOP Loan Amounts in respect of the ESOP Shares range in value depending on the price at which the shares were acquired, being between $0.05, $0.07, $0.10, $0.13 and $0.17 per ESOP Share. Under the Scheme, part of the Scheme Consideration is applied to repay to 3Q all outstanding ESOP Loan Amounts. The result is that on the Implementation Date, all employee shareholders (that is both current and past employees with ESOP Shares) will receive the difference between the Initial Amount and the ESOP Loan Amount for each ESOP Share that they hold. Where an employee's ESOP Loan Amount exceeds the Initial Amount, that employee will receive nothing and their shares will be cancelled. Such an employee will cease to have any liability to 3Q for the (unpaid) portion of the ESOP Loan Amount that exceeds the Initial Amount. The aggregate of the sums applied to repay to 3Q the ESOP Loan Amounts is then redistributed by 3Q. It is in respect of that distribution that Current Employee Shareholders are treated differently to other Scheme Shareholders, including former employees who hold ESOP Shares. Current Employee Shareholders will receive an amount equal to the ESOP Loan Amount discharged or repaid on their behalf (ESOP Distribution Bonus). Non-Current Employee Shareholders will not. Instead, the aggregate of ESOP Loan Amounts repaid to 3Q in respect of the ESOP Loan Amounts of former employees will be redistributed to all 3Q Shareholders on a pro rata basis. This last amount is the further tranche of minimum consideration of $0.002, referred to above at paragraph 26(1)(b), and is described as the Distributed ESOP Loan Amount. 31 Current Employee Shareholders receive additional consideration under the Scheme that no other shareholder receives, namely the ESOP Distribution Bonus. It is for this reason that it is proposed that Current Employee Shareholders will form a separate class and vote at the Employee Scheme Meeting. 32 The Scheme Booklet includes worked examples of the different Scheme Consideration to be received by Scheme Shareholders. There is a comparison of the minimum consideration which will be received by a Current Employee Shareholder per ESOP Share (where the ESOP Loan is $0.05, $0.07, $0.10, $0.13 or $0.17) to that which will be received by a General Shareholder per non-ESOP Share. There is also a comparison of the minimum consideration which will be received by Non-Current Employee Shareholders per ESOP Share compared to that which will be received by a General Shareholder per non-ESOP Share. 33 As mentioned, Scheme Consideration is to be paid to Scheme Shareholders in two steps. (1) On the Implementation Date, Vela Software must pay: (a) to each Scheme Shareholder the Initial Amount (less any outstanding ESOP Loan Amount (up to a maximum of the Initial Amount); and (b) to 3Q an amount equivalent to the aggregate of all amounts deducted from the Initial Amount payable to Current Employee Shareholders and Non-Current Employee Shareholders which are applied towards repayment of their ESOP Loan Amounts (Aggregate Implementation Loan Amount). (2) On the Holdback Release Date, Vela Software must pay: (a) to Current Employee Shareholders only, the ESOP Distribution Bonus; (b) to all Scheme Shareholders the Distributed ESOP Loan Amount (being the additional amount of $0.002 referred to at paragraph 26(1)(b) above); (c) the Holdback Amount (if any); and (d) the Excess Amount (if any). 34 Non-Current Employee Shareholders who hold shares with a 17c ESOP Loan will receive the Distributed ESOP Loan Amount, any Holdback Amount and any Excess Amount less the residual 1.25c owing on their ESOP Loan. 35 Any ESOP Loan Amount payable by Employee Shareholders will be deemed to have been satisfied in full on the Implementation Date but the cash they receive will be reduced by any outstanding ESOP Loan Amount. 36 If the General Scheme Meeting and Employee Scheme Meeting result in the requisite majorities of shareholders approving the Scheme, a second court hearing will be held on 9 November 2022 to consider whether to approve the Scheme under s 411(4)(b) of the Act.

[10]

RELEVANT PRINCIPLES 37 Part 5.1 of the Act provides a procedure whereby an arrangement between a company and its members can be made binding on all members. Section 411 is the principal provision. The procedure involves three main steps: (1) an application to the Court for an order to convene a scheme meeting; (2) if such an order is made, the convening of a meeting at which a resolution to agree to the scheme is considered, and perhaps passed; and (3) if the resolution is passed by the necessary majorities, an application to the Court for approval of the scheme. 38 This application concerns the first stage, being an application to the Court for an order to convene the Scheme Meeting. 39 Courts have commonly applied the approach described by Street J (with whom Hutley and Samuels JJA agreed) in FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 (at 72) in deciding whether to convene a scheme meeting (including in respect of a scheme between a company and its members): …The approach taken upon a summons is that the court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the creditors' meeting the court would be likely to approve it on the hearing of a petition which is unopposed… 40 The principles which apply at this first stage of the scheme of arrangement procedure are well-known and have recently been summarised by Beach J in a number of decisions including Re PM Capital Asian Opportunities Fund Limited [2021] FCA 1380 at ([39]-[40]): 39 …my function on an application to order the convening of a meeting is supervisory. At this stage I should generally confine myself to ensuring that certain procedural and substantive requirements have been met including dealing with adequate disclosure, but with limited consideration of issues of fairness. But having said that, it is appropriate to consider the merits or fairness of a proposed scheme at the convening hearing if the issue is such as would unquestionably lead to a refusal to approve a proposed scheme at the approval hearing, that is, the proposed scheme appears now to be on its face "so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further" (Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [44] per French J). 40 Clearly, my role is not to usurp the shareholders' decision whether to agree to a scheme by attempting to intrude my own commercial judgment. The question whether to accept particular consideration for shares is a commercial matter for the members to assess, and they ought not to be prevented from having the opportunity to do so provided that I am satisfied that they are acting on sufficient information and with time to consider what they are voting on. If the arrangement is one that seems fit for consideration by the meeting of members and is a commercial proposition likely to gain my approval if passed by the requisite majorities, then orders should be made to convene the meeting. 41 The relevant discretionary considerations are primarily whether the scheme is fit for consideration by the members (such that if agreed to at the scheme meeting, it would be likely to be approved if unopposed at the second court hearing) and whether the members are properly informed of the nature of the scheme: Re PM Capital at [43]. 42 In considering whether the Scheme is fit for consideration by shareholders, it is not necessary for the Court to be satisfied that no better scheme could have been proposed: Re Foundation Healthcare Ltd [2002] FCA 742; 42 ACSR 252 at [44]. By granting leave, the Court does not give its imprimatur to the proposed scheme: Re Capilano Honey Ltd [2018] FCA 1568; 131 ACSR 9 at [33].

[16]

Explanatory statement (Scheme Booklet) 48 Sections 411(3) and 412(1) of the Act require the disclosure of information explaining the "effect" of the scheme, as well as information "material" to a member's decision whether or not to agree to it. The information must be presented in a form that is intelligible to reasonable members of the class to whom it is directed and should contain information that is realistically useful having regard to the complexity of the proposal: Re HIH Casualty and General Insurance Ltd [2006] NSWSC 485; 200 FLR 243 at [81]-[83]. In Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 468 the Full Court observed that information regarding a scheme which is presented to members must balance full and fair disclosure with the need for intelligibility in order to assist rather than confuse them. 49 The explanatory statement must explain the effect of, relevantly, the arrangement, and in particular state any material interest of the directors, and the effect on those interests of the compromise or arrangement in so far as that effect it is different from the effect on the like interests of other persons: s 412(1)(a)(i) of the Act. The effect of the Scheme is addressed in section 8.1(d) of the Scheme Booklet. Information in relation to the interests of directors is addressed in sections 11.1 to 11.4 of the Scheme Booklet. The explanatory statement must also set out the prescribed information, being the information set out in reg 5.1.01 and Schedule 8 of the Corporations Regulations 2001 (Cth): s 412(1)(a)(ii) of the Act. The Scheme Booklet discloses the information specifically required to be disclosed by s 412(1)(a) of the Act, reg 5.1.01 and Schedule 8 of the Regulations. 50 Finally, as mentioned, the explanatory statement must set out any other information that is material to the decision whether to agree to the scheme. That information appears to be set out in the Scheme Booklet. The advantages and disadvantages of the Scheme are addressed in section 1 of the Scheme Booklet. A high-level summary of the Independent Expert's Report is included at section 2.5 and the report itself is annexed. A set of Frequently Asked Questions is included in section 3, which direct attention to the sections of the Scheme Booklet in which particular matters are elaborated in greater detail. An overview of the Scheme is provided in section 2. A detailed overview of how to vote at the Scheme Meeting is in section 4. There are also sections of the Scheme Booklet which provide information in respect of 3Q (section 5) and Vela Software (section 6). The Scheme Booklet includes information on Risks (section 7); Implementation of the Transaction and Scheme (section 8); Implications if the Scheme is not implemented (section 9); Tax implications of the Scheme (section 10) and miscellaneous additional information (section 11). 51 The information contained in the Scheme Booklet has been subject to a verification process by both 3Q and Vela Software. In his affidavit affirmed 12 October 2022, David Rosen on behalf of 3Q deposed to being satisfied that all statements were verified, are true and complete, are not misleading or deceptive, and that the information contained in the Scheme Booklet does not omit any material information (excluding bidder provided information, the Independent Expert's Report and a letter on the tax implications of the Scheme provided by Baskin Clarke Pty Ltd at section 10 of the Scheme Booklet). In his affidavit affirmed 8 September 2022, Ian Clive Whiting, a director of Vela Software, deposed to the verification process conducted by Vela Software, assisted by its Australian legal advisers, with respect to material statements and information in the Scheme Booklet relating specifically to, or containing statements attributable to Vela Software, or that have otherwise been primarily drafted on behalf of Vela Software for inclusion in the Scheme Booklet. Verification certificates have been signed by Mr Whiting and another director of Vela Software, Tyler James O'Hagan, confirming the verification of information regarding Vela Software. 52 It is necessary for the Scheme Booklet (which serves as the explanatory statement) to be registered by ASIC before being sent to 3Q Shareholders: s 412(6) of the Act. Before registering the Scheme Booklet, ASIC must conclude that it appears to comply with the requirements of the Act, and must form the opinion that the Scheme Booklet does not contain any matter that is false in a material particular or materially misleading in the form or context where it appears: s 412(8) of the Act. The Scheme Booklet in its current form is the product of an iterative process in which ASIC has been repeatedly consulted. Assuming the Scheme Booklet is registered, that will provide further assurance that the Scheme Booklet satisfies the relevant disclosure requirements: see Re 5G Networks Limited [2021] FCA 1189 at [55].

[20]

Debenture 57 The first question to which 3Q draws attention is whether the obligation on Vela Software to make the second tranche of payments on the Holdback Release Date results in the issue of debentures for the purposes of the Act. This is relevant because, amongst other things, s 283AA of the Act requires that before a company issues debentures under a scheme of arrangement, the body must enter into a complying debenture trust deed. Vela Software does not propose to issue a complying debenture trust deed if the Scheme is approved. In my view, this issue, while properly raised at the first court hearing, is an issue that is best deferred for consideration at the second court hearing. My reasons for reaching that conclusion focus on the effect of the arrangements that are to be put in place in respect of the deferred payments comprising the Holdback Amount, the ESOP Distribution Bonus and the Distributed ESOP Loan Amount. David Rosen has given evidence that he is negotiating with Vela Software and Computershare for Computershare to be the escrow agent and expects to cause 3Q to enter into the escrow agreement shortly before the second court hearing. Counsel for 3Q informed the Court that the escrow agreement had not been signed but that it would be signed prior to the second court hearing. In addition, ASIC was sent a copy of 3Q's submissions on this issue only shortly before the first court hearing. If ASIC wishes to be heard in relation to the issue of whether a complying debenture trust deed is necessary that will not be known until the time of the second court hearing. 58 On the assumption that the escrow agreement is put in place, 3Q submits that the result is that on the Implementation Date (and prior to the transfer of the shares), Vela Software's obligation to pay the Holdback Amount will have been satisfied by the deposit on escrow for the Scheme Shareholder, such that it cannot be said that an undertaking to pay the Holdback Amount at the later date was truly "issued" under the Scheme. 3Q submits that the true characterisation is that the Scheme Consideration comprising the Holdback Amount will be paid by Vela Software on the Implementation Date. 59 In relation to the Excess Amount, 3Q submits that on the Implementation Date, there will be no presently existing obligation to pay any such amount. 3Q submits that while there is a contractual obligation to pay in aggregate the amount, if any, by which Adjustment Tangible Assets exceed Adjustment Tangible Liabilities by more than the target excess of $400,000, whether any Excess Amount is payable and, if so, how much will only be known after the Closing Statement is given. Any dispute arising in respect of the Closing Statement is to be determined in accordance with the process in sch 4 to the Scheme Implementation Deed. 3Q submits that for this reason the obligation in relation to the Excess Amount does not involve a conditional but unavoidable obligation to pay a sum of money as a debt under the Scheme. 60 Accordingly, 3Q submits that the Court should be satisfied at the level of principle that the deferred receipt of part of the Scheme Consideration by the shareholders on the Holdback Release Date does not have the effect that debentures are issued under the Scheme. 61 The issue of whether deferred payment of Scheme Consideration constituted a debenture giving rise to an additional structural requirement under the Act, was raised in In the matter of Link Administration Holdings Limited [2022] NSWSC 650. In that case, Black J was of the view that that question was properly deferred to the second court hearing: Link at [25]. The arrangements in that case were not directly analogous to those in the present case. In the circumstances of this case, I have reached a similar view. 3Q was correct to raise the issue but given the considerations involved including that the escrow agreement is not yet in place and that ASIC may seek to be heard on this issue at the second court hearing I will defer consideration of this issue to the second court hearing.

[21]

ESOP Distribution Bonus 62 The next issue which arises in relation to the Scheme Consideration concerns the payment of the ESOP Distribution Bonus to Current Employee Shareholders. 63 As mentioned, the rationale for the ESOP Distribution Bonus is that the 3Q Directors wanted to reward Current Employee Shareholders for their continued service and loyalty by ensuring that they received the same cash amounts as a shareholder who had no ESOP Loan. 64 The additional consideration which a Current Employee Shareholder will receive may be illustrated as follows: (1) In respect of Scheme Shares that were not purchased under the ESOP and have no associated ESOP Loan Amount, a Scheme Shareholder will receive cash amounts equal to about $0.1575 plus any Holdback Amount and Excess Amount; (2) In respect of ESOP Shares that have an associated ESOP Loan Amount: (a) A Current Employee Shareholder will have the obligation to repay the ESOP Loan Amount discharged but will still receive the same cash amounts as in (1) by reason of the ESOP Distribution Bonus which serves to top up the reduction to the Initial Amount paid to them on the Implementation Date. Such a Current Employee Shareholder will therefore receive additional consideration to that received by other shareholders; (b) A Non-Current Employee Shareholder will have the obligation to repay the ESOP Loan Amount discharged, and thereafter receive only the balance remaining, if any, after the ESOP Loan Amount is deducted from the cash amounts otherwise payable in respect of that employee's ESOP share. Save potentially in respect of shares with an ESOP Loan Amount of 17c (see (c)), such a former employee will therefore receive consideration of the same value as in (1). The only difference is in the form of the consideration: cash only compared to release of an obligation and the balance in cash; (c) A former employee with an ESOP Loan Amount of 17c will receive consideration with a value of $0.17 in the form of the discharge of their liability for that amount. If the cash amounts otherwise payable under the Scheme exceed $0.17 (because a sufficiently large Holdback Amount is payable), then such a former employee will receive consideration of the same value as the consideration under (1). However, if the cash amounts otherwise payable under the Scheme do not exceed $0.17 (because no Holdback Amount or an insufficient Holdback Amount is payable), then such a former employee will receive consideration of a greater value than the consideration under (1). The range of difference in value is between $0 and $0.0125 per share (with $0.0125 being the difference between $0.17 (which is the highest of the per share ESOP Loan Amounts) and the minimum cash amount payable of $0.1575). 65 In URB Investments Limited, in the matter of URB Investments Limited [2019] FCA 1977 at [44] to [46], Markovic J summarised the applicable principles in relation to the identification of separate classes as follows: 44 In David Jones (No 2) at [33] Farrell J noted that the second court hearing is the time for the court to determine whether or not a collateral benefit has been received and, if so, its relevance to the court's discretion to approve the scheme, having regard to the voting at the scheme meeting and the disclosure provided. However, where one or more members of a target receive a net benefit, in addition to full and frank disclosure of the benefit, a related issue arises as to whether it is appropriate for those members to be placed into a separate class. That is an issue properly addressed at the first court hearing: see First Pacific Advisors LLC v Boart Longyear Ltd (2017) 320 FCR 78; [2017] NSWCA 116 at [40]-[41]. 45 In Sovereign Life Assurance Company v Dodd [1892] 2 QB 573 at 583 Bowen LJ set out the test for identifying a class for scheme of arrangement purposes as follows: It seems plain that we must give such a meaning to the term 'class' as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. 46 In Perpetual Custodians Ltd (as custodian for Tamoran Pty Ltd as trustee for Crivelli) v IOOF Investment Management Ltd (2013) 304 ALR 436; [2013] NSWCA 231 at [51], Leeming JA (with whom McColl and Gleeson JJA agreed) said: Fourth, the legislation has long contemplated meetings of classes of members. The point of requiring members to vote in separate classes is to ensure that members can consult so as to determine their common interest. That is what drives class definition. Where the interests of members are so different as to make it impossible for them to consult with other shareholders, separate classes may be required: Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583 (Sovereign Life Assurance) per Bowen LJ; Re NRMA Ltd (2000) 33 ACSR 595 ; [2000] NSWSC 82 at [76] per Santow J; Re Cashcard Australia Ltd (2004) 48 ACSR 738 ; [2004] FCA 223 at [5] per Jacobson J; Re Sino Gold Mining Ltd (2009) 74 ACSR 647 ; [2009] FCA 1277 at [52]-[57] per Lindgren J. As Barrett J said in Hills Motorway at [12] after referring to the statements by Lord Esher MR and Bowen LJ in Sovereign Life Assurance: [12] The test is thus not one of identical treatment. It is one of community of interest. The court must ask itself whether the rights and entitlements of the different groups, viewed in the totality of the scheme's context, are so dissimilar as to make it impossible for them to consult together with a view to their common interest. The focus is not on the fact of differentiation but on its effects. The extent and nature of the differentiation must be measured in terms of the effect on the ability to consult together in a common interest or, in other words, the ability to come together in a single meeting and to debate the question of what is good or bad for the constituency as a whole and where the common good lies. Only if the differentiation destroys that ability - the word used by Bowen LJ is "impossible" - does class distinction come to prevail. 66 The orders sought by 3Q treat Current Employee Shareholders who hold any ESOP Shares as a separate class on the basis that they receive consideration of additional value above and beyond that received by other shareholders. 67 Each of the 3Q Directors are current employees of 3Q and each hold 2,000,000 3Q ESOP Shares. If the Scheme is approved, each of the 3Q Directors will receive the additional consideration referred to above because they fall within the class of Current Employee Shareholders. This is disclosed in the Scheme Booklet at sections 3 and 11.1. The 3Q Directors will each receive consideration for their ESOP Shares that is higher than that they would receive for the same number of non-ESOP shares. In Mr Treisman and Shaun Rosen's case, the additional amount is $260,000. In David Rosen's case, the additional amount is $200,000. This is disclosed in the Scheme Booklet at section 11.1. 68 The Current Employee Shareholders interest in receiving the ESOP Distribution Bonus is a significant point of differentiation between them and the General Shareholders which makes it impossible for them to consult together with the General Shareholders with a view to mutual common interest. I am satisfied that it is appropriate to conduct the Scheme Meetings as proposed with separate meetings for the two classes. 69 3Q does not propose to treat Non-Current Employee Shareholders as a separate class. Leaving aside those that hold shares with an ESOP Loan Amount of 17c, Non-Current Employee Shareholders will receive consideration of the same value as a General Shareholder. A difference in the legal form of the consideration - here, a combination of cash and loan discharge compared to cash only - is not class creating. 70 Non-Current Employee Shareholders with an ESOP Loan Amount of 17c are the only non-current employees who may receive additional value compared to the consideration received by General Shareholders. The evidence demonstrates that there are only 170,000 ESOP Shareholders who are non-current employees and who hold ESOP Shares involving ESOP Loans of $0.17 per share. While such shareholders may receive some additional value, the quantum of the greatest possible further value is relatively low - about 1.25c per share, which is less than 10% of the minimum cash consideration and whether any such further value will be received, and if so, its quantum, is contingent on the asset and liability position of 3Q as ascertained post Implementation Date in accordance with sch 4 to the Scheme Implementation Deed and therefore will not be known to shareholders when the Scheme Meetings take place. In those circumstances, 3Q submits that former employees with an ESOP Loan Amount of 17c are able to consult together with General Shareholders in respect of their common interest. I accept that there is a potential for the non-current employee $.017 ESOP Shareholders to receive some additional consideration of relatively small value and that this will necessarily be uncertain at the time of General Scheme Meeting. In these circumstances, I am satisfied that it is not impossible for this subset of the Non-Current Employee Shareholders to consult together with the General Shareholders with a view to their common interest. In reaching this conclusion, I am conscious that the Court should avoid creating classes in circumstances where it is not impossible for there to be consultation with a view to the common interest in order to guard against unfairness by giving one group an effective veto: Re Opes Prime Stockbroking Ltd [2009] FCA 813; 179 FCR 20 at [66]; Re NRMA Ltd (No 1) [2000] NSWSC 82; 33 ACSR 595 at [80].

[22]

Elabrook Sale 71 On 22 April 2022, ASIC raised with 3Q its concern that Shaun and David Rosen were receiving a collateral benefit, including by virtue of their interest in Elabrook and the tax advantages that they gain from the Elabrook Sale being structured separately to the Scheme. ASIC requested submissions as to why Shaun and David Rosen had not been placed in a separate class. 72 3Q provided a detailed response to ASIC. By reference to the decision in Huon Aquaculture Group Limited, in the matter of Huon Aquaculture Group Limited [2021] FCA 1170, 3Q submitted that the tax benefit that will be received by Shaun and David Rosen via the Elabrook Sale was not class creating. 3Q also agreed to add two additional paragraphs to the Scheme Booklet to provide details of the engagement of Shaun Rosen by 3Q Group from the Implementation of the Scheme and the negotiation of an ongoing distribution agreement by Vela Software in respect of certain merchandising software. 3Q also proposed to tag votes in respect of Shaun and David Rosen's shares. 73 After receipt of 3Q's response, and as noted above, ASIC confirmed that it had had a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statements and did not seek to make submissions at the first court hearing. 74 The concept of a collateral benefit is derived from the approach taken by the Takeovers Panel in looking at whether a bidder provides a security holder something of value which it does not offer to other security holders: Takeovers Panel Guidance Note 21: Collateral Benefits at [5]. 75 The second court hearing is the time at which the Court will assess whether a collateral benefit has been received and, if so, the impact of that issue on the exercise of the Court's discretion to approve the Scheme having regard to the voting at the Scheme meeting and the disclosure made in relation to that issue. For present purposes the issue is relevant to the identification of any separate class. I am satisfied that the conferral of a tax benefit on David and Shaun Rosen as a result of structuring the transaction to comprise the Elabrook Sale as separate and distinct from the Scheme does not make it necessary that the Rosens be placed in a separate class. The way in which the transaction has been structured is analogous to the transaction considered in Huon. In Huon, O'Callaghan J considered a scheme of arrangement where JBS Aquaculture Pty Ltd would acquire the Huon shares held by Huon shareholders (other than the Huon shares held by Surveyors Investments Pty Ltd. Huon's managing director and chief executive officer, Mr Bender, and his family controlled some 52.68% of the issued shares in Huon, 40.53% of which was held by Surveyors of which Mr Bender was the sole director and shareholder. It was proposed that JBS would acquire all the shares in Surveyors pursuant to a share sale agreement and it was a condition of the scheme that the Surveyors Resolution be passed at the annual general meeting. If Surveyors received the proceeds from the sale of the Huon shares it would only have to pay capital gains tax at the corporate rate, being less than the rate that Mr Bender would have to pay. Accordingly, the scheme afforded Mr Bender a tax advantage. Similarly in this case, the transaction has been structured to confer a tax benefit on David and Shaun Rosen by using the Elabrook Share Sale Deed as a means of Vela Software indirectly acquiring the Elabrook 3Q Shares. The observations made by O'Callaghan J at [33] are persuasive in the present context: …First, whatever financial consequence may exist for Mr Bender arises as a consequence of taxation law, and are not rights which are relevantly affected by the Primary Scheme, because a tax benefit is not a benefit that the shareholder receives in consideration for voting in favour of a scheme. Secondly, and relatedly, it is difficult to see how different tax consequences that may arise between different shareholders would mean that it is impossible for them to consider the scheme as one class. Such consequences may create divergent commercial interests, but they are extrinsic to share membership, so ordinarily, such interests are not a factor which should differentiate classes. Thirdly, although the ASIC letter proceeded on the assumption that Mr Bender holds 12.15% of the shares in Huon, as I explained above, there is in fact 0.07% of the shares held by the family trust and the super fund. Tax consequences for them will inevitably differ. Fourthly, the courts have made it clear that judges should not be "too assiduous in identifying classes" lest one "end[s] up with any number of classes". See Re Opes Prime Stockbroking Ltd (No 2) (2009) 179 FCR 20 at [66] (Finkelstein J). Creating different classes of shareholders based on the different tax consequences that a scheme may produce seems to me, with respect, to be a recipe to do just that. 76 The significance of the Elabrook Sale to the transaction as a whole and the tax benefit it is directed to are disclosed in the Scheme Booklet in section 2.12. The Independent Expert has also considered the Elabrook Sale and, in summary, is of the opinion that the Elabrook Sale is fair and reasonable to 3Q Shareholders. This is because Shaun and David Rosen (and interests holding Elabrook Shares who are associated with them) will receive the same value per 3Q share held by Elabrook that a General Shareholder (not a Current Employee Shareholder) will receive per 3Q share. Finally, I note that the Rosens' votes will be tagged and the Court will be able to assess at the second court hearing whether exclusion of their votes from the Employee Scheme Meeting would have made any difference to the satisfaction of the statutory majorities. 77 I am satisfied that in these circumstances the different tax consequence resulting from the Elabrook Sale does not necessitate David and Shaun Rosen being placed in a separate class to Current Employee Shareholders.

[24]

Pre-Closing Statement 80 Clause 3.1(h) of the Scheme Implementation Deed concerns the provision of a Pre-Closing Statement, relevantly, five business days after dispatch of the Scheme Booklet to Shareholders. The clause effectively gives each of Vela Software and 3Q the ability to terminate the Scheme if not satisfied as to the asset and liability position of 3Q disclosed in the Pre-Closing Statement. 81 The evidence of David Rosen is that cl 3.1(h) was inserted after lengthy commercial negotiations. In the Scheme Booklet, the reason for the Pre-Closing Statement condition precedent is disclosed as being to confer on: (1) Vela Software the ability to terminate the Scheme if it is likely that 3Q's liabilities will exceed its assets such that retention of the Aggregate Holdback Amount would not afford sufficient protection for Vela Software against the liabilities position of 3Q as at the Effective Date; and (2) 3Q the ability to terminate if it considers that the Holdback Amount is likely to be reduced to such an extent that the Scheme Consideration is not in the best interests of 3Q Shareholders after factoring in the financial performance of the 3Q Group as at that time. 82 On the application, David Rosen's evidence was that it is likely that 3Q's assets will exceed its liabilities. If this proves to be the case, then the commercial imperative which informs cl 3.1(h) from Vela Software's perspective will not be triggered. It is, however, nevertheless possible that Vela Software may not be satisfied, acting in its sole discretion, with 3Q's asset and liability position as disclosed in the Pre-Closing Statement. At this stage, David Rosen's evidence suggests that there is no reason to think that the Scheme will fail for this reason. The Scheme Booklet discloses that Vela Software's satisfaction in this regard is a matter in which it acts in its sole discretion. 83 On 8 September 2022, the 3Q Board passed a resolution that the 3Q Board would consider condition precedent 3.1(h) to be met provided that the Accounts Receivable calculation in the Pre-Closing Statement takes into account invoices as Accounts Receivable for bi-annual maintenance contracts for the Island Pacific US and UK divisions that are normally invoiced on or about 1 November 2022, shortly before the date on which the Scheme becomes Effective, pursuant to cl 6.1(b)(i) of the Scheme Implementation Deed. David Rosen's evidence is that he expects the 8 September 2022 resolution to be satisfied. Accordingly, at this stage there is no reason to think that the Scheme will fail because 3Q is not satisfied with the information in the Pre-Closing Statement. Again, the Scheme Booklet discloses that 3Q is to act in its sole discretion in regard to conditions precedent based on the Pre-Closing Statement. 84 Based on the above, the Pre-Closing Statement condition precedent does not undermine the utility of convening the Scheme Meetings to enable Scheme Shareholders to exercise their own judgment.

[26]

Performance risk regarding payment of the Scheme Consideration 87 In the present case, under the terms of the Scheme, the proposed transfer of the Scheme Shares to Vela Software is subject to the provision of the Scheme Consideration. On the Implementation Date, Vela Software will pay in cleared funds: (1) the Aggregate Initial Amount (as defined in the Scheme Implementation Deed) to an account in the name of 3Q to be held on trust for Scheme Shareholders; and (2) an amount equivalent to the Aggregate Holdback Amount (as defined in the Scheme Implementation Deed) and the Aggregate Implementation Loan Amount into an escrow account to be held pursuant to the terms of the escrow agreement. This will cover all amounts which could be paid on the Holdback Release Date other than the Excess Amount. 88 The transfer of shares to Vela Software is subject to, and will occur only after, payment of those sums by Vela Software. The ability of scheme participants to enforce entitlements to be received under a scheme is a matter that has been considered relevant to the exercise of the Court's discretion to convene the scheme meeting: Re Signature Gold Ltd [2017] FCA 766 at [66]. The mechanism employed in this case is consistent with the usual mechanism for securing performance risk: Re APN News & Media Ltd [2007] FCA 770; 62 ACSR 400 at [23]. 89 The position in relation to the Excess Amount is different. If an Excess Amount is payable, which will not be known until after the Implementation Date, that amount will not be subject to the escrow regime described above. Whilst a performance risk issue arises in respect of the Excess Amount, if any, 3Q submits that this ought not preclude the convening of the Scheme Meetings for the following reasons. 90 First, 3Q submits that an escrow solution is not available for the Excess Amount because that sum is uncapped and depends entirely on the post-Implementation Date Closing Statement and the dispute regime in sch 4 of the Scheme Implementation Deed. Accordingly, there is no commercial solution where a sum sufficient to cover any amount potentially payable could be paid into escrow. The only commercial solution would be to impose a cap (such that the cap could be paid into escrow in the same way as the Aggregate Holdback Amount) or not have any such excess amount payable. 3Q submits that either alternative would only operate to reduce the amount potentially received by shareholders. 91 Secondly, 3Q submits in a practical sense, the likelihood of an Excess Amount being payable is low. This is a matter that was not addressed in the evidence but in respect of which 3Q submitted that evidence will be given. That is a matter which may be deferred for consideration at the second court hearing. 92 Thirdly, 3Q submits that a deed poll in favour of the Scheme Shareholders executed by Vela Software and by CSI as guarantor is in place pursuant to which 3Q is obliged to enforce the rights conferred on Scheme Shareholders against Vela Software and CSI including the obligation, if any, to pay an Excess Amount (as well as to pay the other Scheme Consideration). The guarantee by CSI is significant - as mentioned above, CSI is a substantial company, with a market capitalisation of approximately CAD $45,338,218,858 (AUD $50,595,043,922) as at 20 August 2022. The evidence on the application demonstrates that the Deed Poll has been executed in accordance with Canadian law. In light of these circumstances I am satisfied that the way in which the performance risk has been managed in respect of the Excess Amount, if payable, does not preclude the Court exercising its discretion to order that the Scheme Meetings be convened.

[27]

Exclusivity 93 Clause 10 of the Scheme Implementation Deed contains certain exclusivity provisions that apply during the Exclusivity Period. 94 These include a "no-shop" (cl 10.1), a "no-talk" (cl 10.2) and "no-due diligence" restriction (cl 10.3), together with notification obligations (cl 10.4) and a matching right (cl 10.4(c)-(d)). There is a fiduciary carve-out in relation to the "no-talk" and "no-due diligence" restriction (cls 10.2(b) and 10.3(b)) and in respect of the matching right (cl 10.4(f)). 95 As Santow J observed in Re Arthur Yates & Co Ltd [2001] NSWSC 40; 36 ACSR 758 at [9]: …It is important that an exclusivity clause satisfy the following concerns: (a) it should be for no more than a reasonable period capable of precise ascertainment, hence the need to ensure that any exclusivity period is properly defined; (b) while an exclusivity clause may differentiate between actively soliciting an alternative merger proposal or simply dealing with an unsolicited one, in either case it is important that such an exclusivity clause be framed so that it is subject to the overriding obligation not to breach the directors' fiduciary duties or be otherwise unlawful; and (c) there should be adequate prominence given to that constraint in the explanatory memorandum sent to shareholders. 96 These requirements are satisfied in the present case. The period of the restriction is both capable of precise ascertainment and reasonable. The "no-talk" and "no due diligence" restrictions and the matching right are each subject to a fiduciary carve-out. Although the "no shop" restriction in its prohibition on actively seeking alternative bids is not the subject of a fiduciary carve-out, that is not unusual: Re AXA Asia Pacific Holdings Ltd [2011] VSC 4 at [29]; Palladium Holdings Pty Ltd [2022] FCA 526 at [29]-[30]. The restrictions are appropriately disclosed in the Scheme Booklet. 97 Finally, the necessity and appropriateness of the exclusivity provisions is supported by affidavit evidence of the kind usually required: see Re APN at [55].

[28]

Reimbursement fees 98 Clause 11 of the Scheme Implementation Deed provides for a reimbursement, or break, fee of $260,000 to be paid by 3Q in particular circumstances. 99 The reimbursement fee represents approximately 1% of the total equity value of 3Q (not including any Holdback Amount), and is consistent with the 1% guideline referred to under the Takeovers Panel Guidance Note 7 on lock up devices. This calculation is based on 150,916,603 ordinary shares on issue in 3Q and a Scheme consideration of $0.1575 per share, such that the total equity value placed on 3Q by the Scheme is approximately $23,769,365 (including the Elabrook Shares). 100 Clause 11.1 of the Scheme Implementation Deed sets out the circumstances in which 3Q must pay the reimbursement fee, which in summary include: (1) during the Exclusivity Period, any 3Q Director fails to recommend the Scheme or publicly changes or withdraw their recommendation other than: (a) the Independent Expert concludes that the Scheme is not in the best interests of shareholders of 3Q (except where the Independent Expert reaches that conclusion as a result of a competing proposal having been announced); or (b) 3Q is entitled to terminate the Scheme Implementation Deed for material breach. (2) a competing proposal is announced or made during the Exclusivity Period and is completed at any time prior to the first anniversary of the date of the Scheme Implementation Deed, and, as a result, a Third Party acquires a relevant interest and/or economic interest in at least 50% of the Scheme Shares; or (3) Vela Software terminates the Scheme Implementation Deed because of a material breach by 3Q. 101 The reimbursement fee is not payable in circumstances where the Scheme Shareholders do not approve the Scheme by the requisite majorities at the Scheme Meetings and therefore does not create a disincentive for Scheme Shareholders to vote against the Scheme: see, for example, Re MYOB Group Limited [2019] FCA 484 at [70]. 102 The reasonableness and appropriateness of the reimbursement fee provisions is supported by affidavit evidence of the kind referred to in Re APN at [55]. 103 Clause 11.4 of the Scheme Implementation Deed provides for a reverse reimbursement fee of $260,000 to be paid by Vela Software if the Scheme does not proceed due to termination of the Scheme Implementation Deed by 3Q due to a material breach by Vela Software or breach of a warranty by Vela Software or CSI. 104 The reimbursement fee and reverse reimbursement fee are adequately disclosed in the Scheme Booklet.

[37]

(d) the date of receipt by the parties of the written determination of the Reviewing Accountant. Adjustment Tangible Assets means the aggregate dollar value of the Accounts Receivable and Cash at Bank. Adjustment Tangible Liabilities means the aggregate dollar value of the Bank Debt, Accounts Payable and Tax Payable. Aggregate Implementation Loan Amount means the aggregate of all amounts deducted from the Initial Amount payable to Current Employee Shareholders and Non-Current Employee Shareholders, which are applied towards the repayment of their ESOP Loan Amounts. ASIC means the Australian Securities and Investments Commission. Associate has the meaning given in section 12 of the Corporations Act. Balance ESOP Loan Amount means the amount by which any 3Q Shareholder's ESOP Loan Amount exceeds the Initial Amount payable to that shareholder. Bank Debt means the outstanding balance of the 3Q Group's facility with Commonwealth Bank of Australia or any other facility provider as at the Effective Date. Baskin Clarke Priest means Baskin Clarke Pty Ltd ABN 003 555 619, the Company's tax adviser. Business Day means a day that is not a Saturday, Sunday or public holiday and on which banks are open for business generally in Sydney, New South Wales, Australia. Cash at Bank means cash and cash equivalents in each of the bank accounts held by the 3Q Group as at the Effective Date. Closing Statement means a statement setting out the Adjustment Tangible Assets and Adjustment Tangible Liabilities prepared and determined in accordance with schedules 4 and 5 of the Scheme Implementation Deed. Competing Proposal means any expression of interest, proposal, offer, transaction or arrangement (other than any transaction that may be made and implemented in accordance with the Scheme Implementation Deed) by or with any person pursuant to which, if the expression of interest, proposal, offer, transaction or arrangement is entered into or completed substantially in accordance with its terms:

[43]

(b) 3Q would be required to abandon or otherwise fail to proceed with the Scheme, by whatever means. Conditions means the conditions precedent and condition subsequent set out in clause 3 of the Scheme Implementation Deed. Constellation Software means Constellation Software Australia Pty Ltd ACN 141 627 232. Corporations Act or the Act means the Corporations Act 2001 (Cth). Court means the Federal Court of Australia. CSI means Constellation Software Inc. Current Employee Shareholder means a 3Q Shareholder who holds 3Q Shares pursuant to the Employee Share Ownership Plan and remains an employee or contractor of the 3Q Group as at the Effective Date. Dispute Notice means written notice provided by the Shareholders' Representative to Vela Software confirming that they wish to dispute the Adjustment Tangible Assets and Adjustment Tangible Liabilities as set out the draft Closing Statement provided by Vela Software. Disputed Services Taxes means the disputed services Taxes in relation to the Indian Subsidiary. Distributed ESOP Loan Amount means the amount, in respect of each Scheme Share, determined in accordance with the following formula: (Aggregate Implementation Loan Amount less the Paid Loans) divided by the total number of Shares. Effective when used in relation to the Scheme, means the coming into effect, under section 411(1) of the Corporations Act, of the order of the Court made under section 411(4)(b) in relation to a Scheme. Effective Date means the date on which the Scheme becomes Effective. Elabrook means Elabrook Pty Limited ACN 098 929 483. Elabrook Resolution means the resolution pursuant to section 611 item 7 of the Act to be put to 3Q Shareholders at the General Meeting to approve the Elabrook Sale. Elabrook Sale means the proposed sale of the Elabrook Shares to Vela Software pursuant to the Elabrook Share Sale Deed. Elabrook Share Sale Deed means the share sale and purchase deed for the sale of the Elabrook Shares to Vela Software dated 17 March 2022, as amended by the variation deed dated 28 April 2022. Elabrook Shareholders means entities respectively controlled by Shaun Rose and David Rosen. Elabrook Shares means the 3Q Shares held by Elabrook as at the Record Date. Employee Scheme Meeting means the meeting of Current Employee Shareholders to be convened pursuant to section 411(1) of the Corporations Act to consider and, if thought fit, approve the Scheme. The Notice of Meeting for the Employee Scheme Meeting is set out in Annexure G. Employee Scheme Resolution means the resolution to be put to Current Employee Shareholders at the Employee Scheme Meeting to approve the Scheme. Employee Share Ownership Plan means the employee share ownership plan adopted by 3Q on or around November 2009. End Date means 30 November 2022, or such later date as Vela Software and 3Q may agree in writing. ESOP Distribution Bonus has the meaning given to that term in the Letter from the Chairman of 3Q. ESOP Loan Amount means the loan amount owed by a 3Q Shareholder in respect of their 3Q Shares pursuant to the terms of the Employee Share Ownership Plan. Excess Amount means the amount, in respect of each Scheme Share held by a Scheme Participant on the Record Date, determined by dividing the dollar amount of any excess above the Target Amount by which the Adjustment Tangible Assets exceed the Adjustment Tangible Liabilities divided by the number of the Total 3Q Shares. Exclusivity Period means the period commencing on the 17 March 2022 and ending on the first to occur of:

[47]

(b) 5 Business Days after the Adjustment Finalisation Date. Implementation Date means the fifth Business Day after the Scheme Record Date, or such other date as 3Q and Vela Software may agree or as ordered by the Court. Implementation Loan Amount means the amount, in respect of each Current Employee Shareholder, determined in accordance with the following formula: The greater of $0.1552 and the ESOP Loan Amount less: (a) any amount paid to that Current Employee Scheme Shareholder for a Scheme Share in accordance with clause 4.2(a)(i) of the Scheme Implementation Deed and (b) any Balance ESOP Loan Amount. Independent Expert means BDO Corporate Finance (East Coast) Pty Ltd. Independent Expert's Report means the report from the Independent Expert in respect of the Scheme, as set out in Annexure C. Indian Subsidiary means Island Pacific Retail Systems Private Ltd. Initial Amount means approximately $0.155 per Scheme Share (rounded to three decimal places), being A$23,400,000 divided by the Total 3Q Shares. Material Adverse Change means any event, matter, change or condition occurs, is announced, or becomes known to Vela Software (whether or not becoming public) where that event, change or condition has had or could reasonably be expected to have a 5% decrease effect on the revenue of the 3Q Group (taken as a whole) or 10% decrease on EBITDA (after capitalising research and development costs), in both cases as compared to FY21 (and for the avoidance of doubt, as an example, if a customer leaves between 17 March 2022 and the Second Court Date and the revenue from that customer for FY21 is 5% or more of the total revenue of the 3Q Group for FY21, it would constitute a material adverse change) and includes without limitation, Vela Software not being given the opportunity to conduct customer calls in conjunction with the relevant 3Q representative with each customer agreed in writing by Vela Software and 3Q on or prior to 17 March 2022 and Pyramid Merchandising Software (Pty) Ltd (a company incorporated in South Africa), not entering into a new distribution agreement with Island Pacific Australia Pty Ltd ACN 099 004 145 negotiated in consultation with Vela Software and on the terms agreed in writing by 3Q and Vela Software, other than:

[71]

(ii) at least 75% of the total number of votes cast on the Scheme Resolution by 3Q Shareholders at the Scheme Meeting. Review Period means the period of thirty (30) days following receipt of the Closing Statement. Reviewing Accountant means a partner of an independent accounting firm appointed for the purposes of resolving a dispute the subject of a Dispute Notice. Second Court Date means the first day of hearing of an application made to the Court by 3Q for orders pursuant to section 411(4)(b) of the Corporations Act approving the Scheme or, if the hearing of such application is adjourned for any reason, means the first day of the adjourned hearing. Second Court Hearing means the hearing of the application made to the Court for an order under section 411(4)(b) of the Corporations Act approving the Scheme. Scheme means the scheme of arrangement under Part 5.1 of the Corporations Act between 3Q and the Scheme Participants in the form set out in Annexure C, subject to any alterations or conditions made or required by the Court under section 411(6) of the Corporations Act as are acceptable to 3Q and Vela Software. Scheme Booklet means this scheme booklet, including the Annexures. Scheme Consideration means the consideration to be provided to Scheme Participants under the terms of the Scheme for the transfer to Vela Software of their Scheme Shares, as set out in detail in section 2.6. Scheme Implementation Deed means the Scheme Implementation Agreement dated 17 March 2022 between 3Q and Vela Software, as amended by the variation deeds dated 22 July 2022, 15 September 2022 and [11 October] 2022. A summary is set out in Annexure A. Scheme Meetings means both of the General Scheme Meeting and the Employee Scheme Meeting and Scheme Meeting means either of both of them (as the context requires). Scheme Participant means each person registered in the 3Q Share Register as a holder of one or more Scheme Shares on the Scheme Record Date. Scheme Record Date means 7.00pm on the fifth Business Day following the date on which the Scheme becomes Effective. Scheme Resolutions means the General Scheme Resolution and the Employee Scheme Resolution and Scheme Resolution means either of them (as the context requires). Scheme Shares means the 3Q Shares on issue as at the Record Date, but excluding the Elabrook Shares. Share Registry means Computershare Investor Services Pty Ltd ACN 078 279 277. Shortfall Amount means the amount by which the Adjustment Tangible Assets do not exceed the Adjustment Tangible Liabilities by the Target Amount. Subsidiary means each of the following entities:

[76]

(b) would, if completed substantially in accordance with its terms, be more favourable to Shareholders (as a whole) than the Scheme, taking into account all the terms and conditions of the Competing Proposal and all aspects of the Scheme. Target Amount means $400,000, being the amount by which the Adjustment Tangible Assets must exceed the Adjustment Tangible Liabilities for the total Holdback Amount to be payable to 3Q Shareholders. Tax means any governmental, federal or state tax (including duty, rates, levies, charges or other imposition or withholding) imposed in or outside Australia and includes tax on gross or net income profit or gains, or diverted profits (including income tax required to be deducted or withheld from or accounted for in respect of any payment), corporation tax, capital gains tax, fringe benefits tax, income tax, superannuation guarantee charge, sales tax, goods and services tax, land tax, property tax, pay-as-you-earn, pay as-you-go or other like withholding tax, customs duty, payroll tax, stamp duty, stamp duty reserve tax, stamp duty land tax, withholding tax, together with any interest, fine or penalty, interest, fee or other amount imposed in respect of the above, and regardless of whether any such tax, duty, rates, levies, charges, imposts or withholdings, interest, fine or penalty interest, fee or other amount imposed in respect of the above assessed, is chargeable directly or primarily to the 3Q Group or any other person and of whether any amount in respect of any of them is recoverable from any other person. Tax Authority means any governmental, federal or state tax regulatory authority or any sub-division, agency, commission or authority of such authorities responsible for the collection of any Tax or administration of any Tax Law in any applicable jurisdiction. Tax Law means any law (including principles of law or equity established by decisions of courts) that applies to any Tax including any rule, regulation, ordinance, order, by-law, local law, statutory instrument, control, restriction, direction or notice made under any law in any applicable jurisdiction by any Government Agency or Tax Authority. Tax Payable means the amount of any Taxes that are payable as at the Effective Date that relate to the period up to the Effective Date (including any Tax which remains unpaid in respect of the period prior to the financial year commenced on 1 July 2021), but excluding the Disputed Services Taxes. Transaction means the aggregate of the Scheme and the Elabrook Sale, pursuant to which:

Fraser v NRMA Holdings Ltd

At a glance

Court

Decision date

Before

Source

Judgment (81 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (31)

Cited By (2)