- FT Eastman & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd

Supreme Court of NSW|2022-11-10|Before: Black J

Solicitors: Herbert Smith Freehills (Plaintiff) Corrs Chambers Westgarth (Bidder) File Number(s): 2022/321389

Judgment

By Originating Process filed on 27 October 2022, Beyond International Ltd ("Beyond") seeks an order, at the first Court hearing, that it convene a meeting of the holders of its ordinary shares to consider and, if thought fit, agree to a scheme of arrangement, by which Screentime Pty Ltd ("Screentime"), a subsidiary of Banijay Entertainment SAS ("Banijay"), will acquire all of its shares.
By way of background, Beyond is an Australian public company limited by shares. Beyond is a producer and manager of media content for distribution by multiple platforms and has two operating business segments, namely international media production and media rights management and distribution. Beyond announced to Australian Securities Exchange ("ASX") on 6 October 2022 that it had entered into a scheme implementation deed ("SID") with Banijay which provides for Beyond's shareholders to receive $0.7744 in cash for each Beyond share if the scheme is implemented.
I made the orders sought by Beyond at the end of the first Court hearing and these are my reasons for doing so. I have drawn on the helpful submissions of Mr Dick, who appears for Beyond in the application, in this judgment.

Affidavit evidence

Beyond reads the affidavit dated 27 October 2022 of Mr Luke Hastings, who is a solicitor acting for it in the application. Mr Hastings refers to the announcement made by Beyond to ASX on 6 October 2022, which I noted above.
Beyond also reads the affidavit dated 7 November 2022 of Mr Ian Ingram, a non-executive director and chair of Beyond, which indicates his consent as chair of the scheme meeting. By an affidavit dated 2 November 2022, Mr Ian Robertson, who is a non-executive director of Beyond, consents to act as chair of the scheme meeting if Mr Ingram is unable or unwilling to do so.
By an affidavit dated 8 November 2022, Mr Glen Rogers, who is a relationship manager employed by Computershare Investor Services Pty Ltd ("Computershare"), which maintains the register of Beyond's shareholders, sets out the process which will be adopted for dispatch of scheme materials to non-shareholders, in hard copy or in electronic form. Mr Rogers also indicates that the scheme meeting will be held as an in person meeting although a platform provided by Computershare can be used by shareholders who wish to submit questions in advance of the scheme meeting.
By an affidavit dated 9 November 2022, Mr John Borglund, who is the managing director and chief executive officer of Beyond, outlines the background to the transaction and its consideration by Beyond's board. Mr Borglund also refers to Beyond's engagement of the independent expert to prepare a report, the conditions precedent to the scheme, and to exclusivity and break fee provisions in respect of the scheme. Mr Borglund also outlined the verification process which had been adopted in respect of the scheme booklet and confirmed the Beyond board's approval of the scheme booklet. Mr Borglund also outlined the manner in which the scheme meeting was proposed to be conducted and referred to the proposed conduct of a shareholder information line by Georgeson Shareholder Communications Australia Pty Ltd on Beyond's behalf. Mr Borglund exhibited a copy of the proposed scheme booklet to his affidavit and Mr Dick went through that scheme booklet in the course of submissions.
By her affidavit dated 9 November 2022, Ms Nicole Pedler, who is a partner in the firm of solicitors acting for Beyond in respect of the scheme, referred to and exhibited correspondence with the Australian Securities and Investments Commission ("ASIC") in respect of the scheme and also outlined regulatory relief which had been given by ASIC in respect of the scheme. Mr Dick took me in submissions to correspondence between Beyond and ASIC in respect of the drafting of a material adverse change clause contained in the SID, which was amended to exclude any action taken by ASIC or the Takeovers Panel in respect of the scheme.
By an affidavit dated 8 November 2022, Mr Nicholas Chazarain, who is group chief legal officer of Banijay Group, addressed the corporate relationship between Banijay and Screentime and indicated the manner in which Banijay intended to fund the aggregate scheme consideration. Mr Chazarain also referred to the execution of a deed poll in respect of the scheme, the negotiation of exclusivity provisions and break fees and the verification process adopted in respect of information concerning the Banijay Group contained in the scheme booklet. His affidavit exhibited a deed dated 4 November 2022 between Banijay and Screentime, by which Banijay undertook to provide Screentime with cash funding equal to the aggregate scheme consideration. That undertaking, as between Banijay and Screentime, supplements the obligations assumed by Banijay and Screentime under the deed poll which are enforceable by Beyond and its shareholders.
By an affidavit dated 8 November 2022, Ms Pascale Girard, who is a partner of a law firm practising in Paris, France, exhibited her legal opinion in respect of the enforceability of the deed poll given by Banijay in respect of the scheme under French law.
Beyond also tendered a letter dated 10 October 2022 provided by ASIC, in standard form, reserving its position as to s 411(17)(b) of the Corporations Act 2001 (Cth) ("Act") to the second Court hearing and confirming that it did not currently propose to appear to make submissions or intervene to oppose the scheme at the first Court hearing.

The independent expert report and an issue as to the Expert Witness Code of Conduct

By his affidavit dated 2 November 2022, Mr Bradley Higgs, who is a partner at Titan Partners Corporate Finance Pty Ltd ("Titan Partners") addresses his independent expert's report in respect of the scheme. Mr Higgs there sets out his expertise and refers to his engagement by Beyond to prepare an independent expert report addressing the common question addressed in such matters, whether the scheme is fair and reasonable and in the best interests of the holders of Beyond's ordinary shares. He refers to the work that was undertaken in respect of his expert report, and I have been taken to the substance of that expert report in submissions. That report is structured in the way that experts' reports in these matters are usually structured.
Mr Higgs notes, in that affidavit, that he holds the opinions expressed in the draft report at the date of the draft and the date of the affidavit and that he has been shown and read the Expert Witness Code of Conduct ("Code") which is Sch 7 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), and agrees to be bound by the Code. He also there notes that his report was prepared having regard to the applicable regulatory guidance, including ASIC Regulatory Guides 111 and 112, and that he has made all inquiries that he believes are desirable and appropriate for the purpose of preparing the report and no matters of significance that he regards as relevant have been omitted from the draft report.
One matter of minor controversy arose in respect of Mr Higgs draft report, which I addressed in an ex tempore judgment and should also address in this judgment. Mr Dick acknowledged that the Code was not provided to Mr Higgs at the time that he was retained to provide his report, but was subsequently provided to him, obviously prior to his affidavit (which refers to it) being sworn on 2 November 2022. It is not clear from the evidence whether Mr Higgs' report was substantially advanced, or indeed a completed in draft, by the time that occurred. In correspondence with Beyond's solicitors, ASIC suggested that the Court's attention should be drawn at this hearing to a suggested non-compliance with UCPR r 31.23(2) and noted that the Court may exercise a discretion to otherwise admit the report under that rule. Mr Dick has fairly drawn my attention to that matter. The premise of ASIC's suggestion is, of course, that UCPR r 31.23 applies to an expert report in respect of a scheme of arrangement. It seems to me necessary, given the approach that ASIC has adopted, to address the correctness or otherwise of that premise. In subsequent correspondence, put in somewhat stronger terms, ASIC in turn expressed a degree of discontent with Mr Dick's submissions as to this issue for this hearing and Mr Dick has also drawn that correspondence to my attention.
Mr Dick submits that: "Beyond has followed the common practice of retaining an independent expert to provide an opinion on whether the proposed scheme is fair and reasonable and in the best interests of shareholders for the directors for the purpose of informing shareholders. ASIC suggests that the Independent Expert Report must comply with r 31.23 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). Beyond does not agree that an independent expert retained to prepare a report in relation to a proposed scheme is an 'expert witness' for the purpose of r 31.23 of the UCPR. This Court has on numerous occasions admitted into evidence expert reports in this context without reference to the expert report's compliance with r 31.32 of the UCPR or the code of conduct set out in Schedule 7 of the UCPR (Code of Conduct): Re AGL Limited [2022] NSWSC 576; Re Tabcorp Holdings Limited [2022] NSWSC 448; Re Ausnet Services Ltd [2022] NSWSC 21; Re Coca-Cola Amatil Limited [2021] NSWSC 270; Re Bellamy's Australia [2019] NSWSC 1671. The same approach has been adopted in the Federal Court of Australia: Re Crown Resorts [2022] FCA 367; Re Village Roadshow [2020] FCA 1669; Re Dulux Group Limited [2019] FCA 961. Notwithstanding this, Beyond's independent expert, Mr Higgs, acknowledges that he has read and agrees to be bound by the Code of Conduct. The Code of Conduct is exhibited to Mr Higgs' affidavit ... Moreover, Mr Higgs confirms in his affidavit that he prepared his draft Independent Expert Report having regard to ASIC Regulatory Guide 111 Content of expert reports and ASIC Regulatory Guide 112 Independence of experts. Further, non-compliance with r 31.23(2) of the UCPR does not preclude the Court from admitting the Independent Expert Report into evidence. Agreeing to comply with the Code of Conduct, even if a copy was not provided to the expert before the expert report was prepared, indicates the expert's observance of his overriding duty to assist the Court impartially: Re Spartan Pastoral Company Pty (in liq) [2020] NSWSC 1218 at [11] ..."
Beyond fairly recognises that there are also occasions on which the Court has, in judgments, recorded the fact that experts have, in their affidavits led in proceedings for the approval of schemes, referred to the fact that they have complied with the Code in preparing their reports. Many judgments of the Court, including some judgments of mine, have recorded that observation, usually by way of simply recording the content of the expert's affidavit. I have, in many such judgments, not previously had occasion to express any view whether it was necessary for a witness to comply with UCPR r 31.23 in that context, because there is plainly no harm in an expert doing so. It is necessary to express such a view here, where ASIC has placed that question in issue. If ASIC is correct, then a question would arise as to whether the Court should otherwise permit the expert report to be admitted for the purpose of r 31.23(3). If ASIC is not correct, and UCPR r 31.23 does not apply, then no occasion to otherwise order arises. It seems to me that ASIC is not correct, and that UCPR r 31.23 does not apply to expert reports that are put in evidence, for particular purposes, in respect of proceedings relating to schemes of arrangement. That is not to say that there is any harm in compliance with the rule, and to the extent that that has been common practice, there is no particular reason to cease that common practice.
Rule 31.23 of the UCPR relevantly provides that an expert witness must comply with the Code and requires that the person engaging an expert witness must, as soon as practicable, provide a copy of Code to an expert witness. Schedule 7 in turn provides, in paragraph 1, consistently with provisions of the UCPR to which I will refer below, that the Code applies to any expert witness engaged or appointed to provide an expert's report for use as evidence in proceedings or proposed proceedings, or to give opinion evidence in proceedings or proposed proceedings. That rule then specifies the expert's general duties to the Court and imposes a series of requirements as to the content of an expert's report.
The relevant obligations under UCPR r 31.23(1) apply to an "expert witness", and that term is defined in r 31.18, consistent with Sch 7, as: "an expert engaged or appointed for the purpose of-- (a) providing an expert's report for use as evidence in proceedings or proposed proceedings, or (b) giving opinion evidence in proceedings or proposed proceedings."
The term "opinion evidence" is in turn likely to refer to evidence that would otherwise be excluded by the "opinion rule" but is admissible under s 79 of the Evidence Act 1995 (NSW). The rules in turn impose other requirements in respect of expert witnesses including, for example, in UCPR r 31.19, a requirement for parties to seek directions before adducing expert evidence. So far as I am aware, there has been no occasion in which a target company seeking to tender an independent expert report, in a proceeding relating to a scheme of arrangement, has sought such a direction, and it seems to me that there was no requirement that it do so. However, if that rule does not apply, then UCPR r 31.23 also does not apply by parity of reasoning.
It seems to me that it is plain enough, both as a matter of the text of UCPR r 31.23 and as a matter of policy, that it does not apply here. So far as the text of that rule is concerned, as Mr Dick rightly points out, the expert who prepares an independent expert's report in respect of a scheme of arrangement is not engaged or appointed for the purpose of providing an expert's report for use as evidence in Court proceedings, namely the proceedings to convene the scheme meeting or later to approve the scheme. That would invert the proper order of matters. That independent expert is generally engaged in order to properly inform shareholders of matters which are relevant to their decision making in respect of the scheme and, in some circumstances, an expert report is required under Sch 8, cl 8303 of the Corporations Regulations which provides that: "If: (a) the other party to the proposed reconstruction or amalgamation of the company the subject of the Scheme has a prescribed shareholding in the company; or (b) a director of any corporation that is the other party to the proposed reconstruction or amalgamation is a director of a company the subject of the Scheme; the statement must be accompanied by a copy of a report made by an expert who is not associated with the corporation that is the other party, stating whether or not, in his or her opinion, the proposed Scheme is in the best interest of the members of the company the subject of the Scheme and setting out his or her reasons for that opinion."
The independent expert's report is generally tendered before the Court, not to allow the Court to determine any relevant matter as to the scheme company's financial affairs or value, but simply to prove that it exists and that shareholders will in fact be informed of the matters that are relevant to their decision-making. The Court does not in fact determine any matter that arises from the expert report beyond the fact that it exists and will be made available to shareholders in order to properly inform them of the matters relevant to their decision-making. The report is not prepared for the purpose of giving opinion evidence in the proceedings because its purpose is, as I have noted above, to inform shareholders of matters relevant to their decision-making. Where the expert is not engaged or appointed for that purpose, he is not an "expert witness" within the meaning of UCPR r 31.18 and neither UCPR r 31.19 in respect of the need to seek directions before leading expert evidence nor r 31.23 in respect of the Code applies.
So far as the policy is concerned, it seems to me that that result is entirely consistent with the regulatory structure that applies to independent expert reports. Mr Higgs had confirmed, in respect of his report, that he had complied with ASIC Regulatory Guides 111 (dealing with the content of expert reports) and 112 (dealing with independence of experts). Those regulatory guidelines are comprehensive and directed to expert reports of the kind which are relied on in schemes of arrangement. They provide useful guidance to experts in that respect and useful protection to those who rely on such reports. By contrast, UCPR r 31.23 is primarily directed to the conduct of experts in contested proceedings in this Court which have no particular resemblance to the process adopted in informing shareholders of matters relevant to decision-making in respect of schemes of arrangement and are not directed to, and not likely to improve the quality of, expert reports that are provided to shareholders for that purpose.
Nothing in this judgment should be taken to suggest that there is anything wrong with the earlier practice sometimes, but not always, adopted of asking experts also to comply with the expert witness code of conduct in Sch 7 of the UCPR in respect of independent expert reports concerning schemes of arrangement. However, it does not seem to me that that is required by UCPR r 31.23. For that reason, where what is sought to be done here is to prove the existence of Mr Higgins' report and not any of the facts established by it, there is no need for me to otherwise order so as to allow Mr Higgs' affidavit to be read or his report to be tendered to prove the fact that it exists in this application.

Applicable principles

I now return to the principles that apply in determining whether to convene a scheme meeting and make ancillary orders at a first Court hearing. Mr Dick points out that the test commonly applied by Australian courts in deciding whether to convene a scheme meeting or meetings is that articulated by Street CJ (with whom Hutley and Samuels JJA agreed) in FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 as follows: "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."
Mr Dick also refers to my summary of the applicable principles in Re Ellerston Global Investments Ltd [2020] NSWSC 879 ("Ellerston") at [25]-[27]: "It is, of course, well-established that the Court will order the convening of a scheme meeting and approve a draft explanatory statement if it is satisfied that the plaintiff is a Part 5.1 body; the proposed scheme is an arrangement within the meaning of s 411 of the Corporations Act; the Explanatory Booklet will provide proper disclosure to members; the scheme is bona fide and properly proposed; ASIC has had a reasonable opportunity to examine the terms of the scheme and the Explanatory Booklet and make submissions and has had 14 days' notice of the proposed hearing date; the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) have been met; and there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of votes is achieved: Re Staging Connections Group Ltd [2015] FCA 1012 at [19]- [20]; Re Atlas Iron Ltd [2016] FCA 366; (2016) 112 ACSR 554 at [30]; Re Duet Finance Ltd [2017] NSWSC 415 at [15]; Re Villa World Ltd [2019] NSWSC 1207 ["Villa World"] at [15]. The Court will not ordinarily summon a meeting at the first court hearing unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed: FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) [above] at 72, approved in Australian Securities Commissions v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504. In Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 at [36] and [44] (cited with apparent approval in Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [58]), French J observed that: "... by granting leave to convene the meeting, the court does not give its imprimatur to the proposed scheme. If the arrangement is one that seems fit for consideration by the meeting of members or creditors and is a commercial proposition likely to gain the court's approval if passed by the necessary majorities, then leave should be given: Re ACM Gold Ltd (1992) 34 FCR 530; 107 ALR 359; 7 ACSR 231; 10 ACLC 573 (O'Loughlin J). The court is not required to give close consideration to the effects of the scheme upon individual members of the classes of members or creditors affected. So to do would be to "introduce burdensome and to a large extent ineffectual consideration at this interlocutory stage": Re Jax Marine Pty Ltd [1967] 1 NSWR 145 at 148 (Street J)... The court at the stage of ordering a meeting to approve a scheme does not ordinarily go very far into the question of whether the arrangement is one which warrants the approval of the court ... That question is to be answered when the scheme returns to the court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further. At the first hearing, the Court is not concerned with whether final approval should be given to the scheme, but whether the scheme is one which is adequately explained to those who have a financial interest in it, and whether there is any obvious flaw in the scheme, such that it would be inappropriate even for it to be submitted for consideration: Re Abacus Funds Management Ltd [2005] NSWSC 1309; (2006) 24 ACLC 211 at [23]; Re Villa World above at [18]. The Court is also not required to be satisfied that no better scheme could have been proposed, but with whether sensible business people might consider the arrangement proposed is of benefit to members: Centrebet International Ltd [2011] FCA 870 at [29]; Re SAI Global Ltd [2016] FCA 1312 at [18]; Re BIS Finance Pty Ltd Finance Pty Ltd [2017] NSWSC 1713 at [22]."
I am satisfied that the formal requirements for a scheme are established. Beyond is a Pt 5.1 body as defined in s 9 of the Act; the scheme is designed to effect an acquisition by one company of shares in another, and falls within the concept of a "compromise or arrangement" within the meaning of s 411(1) of the Act; Beyond has applied, in the appropriate way, for orders under s 411(1) of the Act; ASIC was given sufficient time to review a draft of the scheme booklet and notice of the first Court hearing; and the matters prescribed by the Supreme Court (Corporations) Rules 1999 (NSW) are satisfied.
I am also satisfied that, subject to the particular matters addressed below, the Court should exercise its discretion to convene the scheme meeting. Beyond's directors unanimously recommend that Beyond shareholders vote in favour of the scheme, in the absence of a superior proposal, and subject to the independent expert continuing to conclude that the scheme is in the best interests of Beyond shareholders. The independent expert has expressed the view that the scheme is fair and reasonable and therefore in the best interests of Beyond shareholders, in the absence of a superior proposal. I am satisfied that there is no reason to doubt that the scheme booklet provides proper disclosure to Beyond shareholders, and there has been a verification and due diligence process. Subject to the particular issues which I address below, there is no reason to doubt that the proposed scheme is bona fide and properly proposed and could be approved at the second Court hearing if it receives the requisite shareholder approvals, and I am satisfied that the orders sought should be made in respect of the scheme meeting.

Particular aspects of the scheme

Consistent with the expectations of the Court articulated by Barrett J (as his Honour then was) in Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 at 603, Mr Dick draws attention to several particular aspects of the scheme. He submits that none of these aspects should be of concern to the Court to prevent the grant of an order to convene the scheme meeting.
First, Mr Dick notes that Banijay's and Screentime's obligations under the scheme are supported by a deed poll dated 7 November 2022 given by Banijay and Screentime in favour of each person registered as a holder of Beyond shares in the Beyond share register as at the Scheme Record Date (as defined). Mr Dick recognises that, where a deed poll is (as here) executed by a foreign company, it is customary that an affidavit is provided from an appropriately qualified lawyer in the foreign jurisdiction as to the deed poll's enforceability: Re Veda Group Ltd [2015] FCA 1506 at [30]-[33]; Re rhipe Ltd [2021] NSWSC 1170 at [6] and [14]; Re Afterpay Ltd [2021] NSWSC 1435 at [46]. Where the deed poll is governed by the law of an Australian jurisdiction and the parties have agreed to submit to the jurisdiction of an Australian court, it will generally be sufficient for there to be evidence as to the due execution of the deed poll: Re 3P Learning Ltd [2020] NSWSC 1573 at [14]; Re Intega Group Ltd [2021] NSWSC 1707 at [10]. I accept that the affidavit and legal opinion of Ms Girard provides such evidence.
Third, Mr Dick addresses the question of directors' interests in the scheme. He notes that, subject to the scheme becoming effective, Mr Borglund (who is Beyond's managing director and chief executive officer) will be eligible to a fixed one-time payment of $1,000,000 for retention purposes and in recognition of his role in assisting with initial integration activities. This amount is to be paid three months following implementation of the scheme, provided Mr Borglund does not resign from his employment prior to this date. Mr Borglund will also be eligible to receive a contingent bonus of up to $2,000,000 payable over a two-year period. Mr Dick submits that this benefit is fully and prominently disclosed in the scheme booklet as a matter for shareholders to consider when considering Mr Borglund's recommendation and refers to several decisions in this Court which have addressed similar issues, including Re Villa World Ltd [2019] NSWSC 1207 ("Villa World") at [38]-[40]; Re GBST Holdings Ltd [2019] NSWSC 1280 at [30]; Re Windlab Ltd [2020] NSWSC 571 ("Windlab") at [22]-[23]; Re Coca-Cola Amatil Ltd [2021] NSWSC 270 ("Coca-Cola Amatil") at [14]-[16]; Re BINGO Industries Ltd [2021] NSWSC 798 at [14]-[16]; Re Aventus Holdings Ltd [2021] NSWSC 1711 at [27].
Mr Dick points out that, throughout the scheme booklet, references to the directors' (and Mr Borglund's) recommendation are accompanied by a statement drawing Beyond shareholders' attention to Mr Borglund's entitlements if the scheme is implemented and advising them to have regard to these arrangements when considering Mr Borglund's recommendation. This disclosure is made, inter alia, in the chairman's letter, the "Frequently Asked Questions" and section 6.4 of the scheme booklet.
ASIC also raised an issue as to the place at which this disclosure was made, which I also addressed in an ex tempore judgment and should address here. By an email dated 7 November 2022, ASIC referred to the directors' unanimous recommendation that shareholders vote in respect of the scheme, where Mr Borglund has the interest noted above which is disclosed, as I noted above, on at least three occasions in the scheme booklet. ASIC draws attention to one of the many cases that deal with the question of disclosure of director's interests, and notes that: "Although ASIC would not withhold its indication of intent letter for this reason alone, due to the sufficient disclosure of this matter elsewhere in the scheme booklet, we confirm our preference is for the front page to include the clarifying disclosure (through a footnote or otherwise), principally to ensure shareholders who may only read the front page are aware of the contingent benefits."
I should address that position, which raises wider issues in respect of disclosure in schemes of arrangement. The proposed explanatory booklet for this scheme is in evidence, in the usual way, and is some 186 pages or so in length. It contains, as the "first page" to which ASIC may be referring, a page that identifies the scheme and contains, under the heading "Vote in favour", a reference to director's unanimous recommendation that shareholders vote in favour of the scheme, with the usual qualification by reference to any superior proposal and the independent expert continuing to conclude that the scheme is in the best interest of Beyond shareholders. The scheme booklet then contains, on pages 2 and 3, a section headed "Important notices" which contains some statements in the nature of disclaimers, some informational statements, and some statements that are required in transactions of this character. A contents page follows and a chairman's letter is then included at pages 5 and 6 of the scheme booklet, as is common practice. The chairman's letter again records the directors' unanimous recommendation that shareholders vote in favour of the scheme, again subject to the earlier qualifications, and discloses the interests of Mr Borglund with a cross-reference to the more detailed disclosure of that matter later in scheme booklet.
I am not persuaded that the Court should require, as ASIC suggested, that that disclosure be included as a footnote on the front, or title page, of the scheme booklet. This Court has, over the years, dealt with many schemes of arrangement, and I am aware of none which contain a disclosure of that kind on the first page of the scheme booklet, even after the question of recommendation by interested directors came under close scrutiny in the Federal Court of Australia and this Court. ASIC's rationale for including a footnote of that kind on the title page, that it is necessary for shareholders who may not read beyond the first page of the scheme booklet, seems to me to prove too much and too little. A concern that a significant body of shareholders does not read beyond the first page of the scheme booklet is wholly inconsistent with the fundamental premises of a disclosure based regime for schemes of arrangement and financial services regulation generally. Rightly or wrongly, Australian disclosure regulation in respect of prospectuses, product disclosure statements and schemes of arrangement has for many years proceeded on the basis that disclosure is desirable, because at least informed shareholders will take the trouble to read material that is significant to their interests, and that the steps taken by informed shareholders to read such information in turn is communicated to other shareholders through the media and broker reports. It seems to me that if that premise is seriously in question, then it cannot be addressed by moving a footnote of this kind to the front page of a scheme booklet and would need to be addressed by much more fundamental legislative reform.
I also do not accept that there is any demonstrated reason to assume that there is a serious likelihood that shareholders generally would not at least read the chairman's letter, in respect of a significant corporate decision. If shareholders here read the chairman's letter, they will find the disclosure of Mr Borglund's interest in clear and prominent form. For that reason, I would not, so far as this Court has an approval role in respect of the scheme booklet, require Beyond to adopt the approach that ASIC proposed.
Fourth, Mr Dick notes that, prior to entry into the SID, Beyond had a confidential engagement with other interested parties and a reimbursement arrangement was entered into with one other party which may result in an amount of $300,000 ("Reimbursement Amount") becoming payable by Beyond if the scheme is completed by 19 July 2023. This matter is disclosed in section 1.1 of the scheme booklet, and the Reimbursement Amount does not reduce the scheme consideration payable to Beyond Shareholders under the scheme. This matter does not give rise to any reason not to convene the scheme meeting.
Fifth, turning to "break fees", Mr Dick notes that cl 11.2 of the SID provides that Beyond must pay a break fee of $475,000 to Banijay in specified circumstances. That break fee is not triggered by the failure of the Court to approve the scheme or by Beyond shareholders failing to approve the scheme with the requisite majorities and is not a disincentive to Beyond shareholders in their consideration of the proposed scheme: Re Adelaide Bank Ltd [2007] FCA 1582 at [31]. Mr Dick also draws attention to my observations concerning this issue in Coca-Cola Amatil at [24], where I observed that: "The case law has accepted reimbursement (or "break") fees that are a genuine pre-estimate of the internal and external costs that would be incurred by an acquirer in respect of a scheme, including opportunity costs, and that are not payable if the shareholders did not vote in favour of the scheme and are unlikely to be a matter which could influence voting at the scheme meeting: Re Cytopia Ltd [2009] VSC 560; Re Webcentral Group Ltd [2020] NSWSC 1279 at [30]. While there is limited evidence as to the out of pocket or opportunity costs of CCEP that support the reimbursement fee, and it seems that it would have been preferable if the components of that fee had been addressed in the affidavit evidence in at least a general way, I recognise that the amount of this fee is significantly less than the 1% guideline figure indicated by the Takeovers Panel, and that fee is payable as the occasion of Independent Amatil Shareholders obtaining the opportunity to consider a substantial transaction at a significant premium. Although the reimbursement fee could have been better justified, it does not seem to me to provide a reason not to make the orders sought."
Mr Dick points out that evidence regarding the components of the out of pocket and opportunity costs of Banijay that support amount of the break fee is here led in Mr Chazarain's affidavit, to which I referred above. That break fee represents approximately 1% of the equity value of the Beyond Group based on the implied value of the scheme consideration at $0.7744 per Beyond share and the 61,336,968 Beyond shares on issue as at Last Practicable Date (as defined), which is in line with guideline figure indicated by the Takeovers Panel in Guidance Note 7, Lock-up devices. This matter also does not give rise to any reason not to convene the scheme meeting.
Mr Dick notes that Banijay has also agreed to pay Beyond a reverse break fee of $475,000 in specified circumstances. Evidence regarding the components of the out of pocket and opportunity costs of Beyond which support the amount of the reverse break fee is provided in the Mr Borglund's affidavit and this matter also does not give rise to any reason not to convene the scheme meeting.
Sixth, turning to exclusivity provisions, Mr Dick notes that cl 10.1 of the SID imposes "no talk", "no shop" and "no due diligence" obligations (as defined in the SID), which are subject to a fiduciary exception as set out in cl 10.2; cl 10.3 of the SID imposes a notification requirement; and cl 10.4 of the SID provides Banijay a matching right. Mr Dick refers to the summary of the applicable principles relating to exclusivity provisions in Re TPG Telecom Ltd [2020] NSWSC 772 ("TPG") at [22], as following: "… the Court will be concerned to ensure that any exclusivity period should be for no more than a reasonable period capable of precise ascertainment; an exclusivity clause directed at dealing with an unsolicited alternative merger proposal should be subject to a fiduciary carve out; and the provisions must be clearly disclosed in the explanatory statement sent to shareholders."
Mr Dick points out that the exclusivity period is here defined in the SID and capable of precise ascertainment, and lasts from the date of the SID until the earlier of the termination of the SID; the "End Date" (being 31 March 2023, unless otherwise agreed between the parties); and the Implementation Date (as defined). Mr Dick submits and I accept that an exclusivity period of approximately 6 months between the date of the SID and the End Date is comparable with or is shorter than exclusivity periods in other schemes that have previously been accepted by the Courts: for example, Re Tatts Group Ltd [2017] VSC 552 at [36]-[39]; Re Sirtex Medical Ltd [2018] FCA 1315 at [37]; Re Tawana Resources NL [2018] FCA 1456 at [32]; Re Vocus Group Ltd [2021] NSWSC 630 at [16]-[17]. Mr Dick also points out that the Exclusivity Provisions are clearly disclosed in the "Frequently Asked Questions" and section 9.4 of the scheme booklet. I accept that broadly similar exclusivity provisions have been accepted in other cases, including Re ERM Power Ltd [2019] NSWSC 1502 at [24]; Re Prime Media Group Ltd [2019] NSWSC 1805; Windlab at [18] and TPG at [22]. I am satisfied that this matter also does not give rise to any reason not to convene the scheme meeting
Seventh, Mr Dick draws attention to section 4.4 of the scheme booklet, which indicates that none of the Beyond directors or Banijay are aware of any circumstances which would cause any condition precedent not to be satisfied. He submits and I accept that the current status of the conditions precedent should not prevent the grant of an order to convene the scheme meeting and the satisfaction or waiver of the conditions precedent to the scheme is a matter more appropriately addressed at the second Court hearing.
Eighth, Mr Dick refers to the evidence as to the manner in which the scheme materials will be dispatched and the scheme meeting will be conducted, which also gives rise to no reason not to convene that meeting.
Ninth, Mr Dick addresses the question of performance risk in respect of the payment of the scheme consideration. He rightly recognises that the scheme participants' ability to enforce their right to entitlements to be received under a scheme is relevant to the exercise of the Court's discretion: Re KAZ Group Ltd [2004] FCA 738 at [4]-[5]; Re SFE Corporation Ltd [2006] FCA 670 at [4]; Re APN News & Media Ltd (2007) 62 ACSR 400; [2007] FCA 770 at 405; Villa World at [22]. Mr Dick also refers to my observation in Ellerston at [29] that a practice has developed to address performance risk, by which the transfer of target shares to an acquirer is conditional on the payment of the consideration to target shareholders, and that numerous cases which have endorsed that practice. Mr Dick submits and I accept that practice has been followed in this case, under cl 5.1 of the scheme, and that practice sufficiently addresses performance risk.
Tenth, Mr Dick notes that cl 8.2 of the scheme provides that each Beyond shareholder is taken to have given various warranties to Banijay, including that on the Implementation Date (as defined) all their Beyond shares are free from encumbrances and interests of third parties of any kind. I accept that the case law has recognised the legitimacy of deemed warranty provisions, provided that appropriate disclosure is made, since their purpose and effect is to ensure that a scheme participant whose shares are subject to an encumbrance is not unfairly advantaged: Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26]; Villa World at [25]; Windlab at [21]. The deemed warranties of the Beyond shareholders are disclosed at section 4.7 of the scheme booklet, and give rise to no reason not to convene the scheme meeting.
Eleventh, Mr Dick notes that it is now settled that the appropriate occasion for the Court to address the question posed by s 411(17) of the Act is on the application to approve a scheme at the second Court hearing: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [23]-[31]; TPG at [31]; Ellerston at [35]. That matter may properly be deferred to that point.
Twelfth, Mr Dick notes that scheme materials will be despatched to Beyond shareholders in accordance with s 110E of the Act and cl 14.1 of Beyond's constitution, which provides that a notice may be sent to a Beyond shareholder by prepaid post to the registered address of the shareholder (or to an address supplied to Beyond by the shareholder for the giving of notices), or to the fax number or electronic address nominated by the shareholder. He notes that it is proposed that Beyond shareholders who have elected to receive communications electronically will be notified by email of the scheme meeting, with URL links to the scheme booklet and a proxy lodgement link. When a recipient clicks on these links, they will be taken to a website where they can view and download the scheme booklet (including the notice of meeting); view and download the proxy instructions; lodge their proxy instructions in relation to their shareholding; and lodge questions prior to the meeting. Where Beyond shareholders have elected to receive communications by post, Beyond proposes to post hard copies of the scheme booklet and proxy form; and, where Beyond shareholders who have not made an election as to the receipt of communications, have not provided an email address to the register, or to whom electronic delivery fails, Beyond proposes to post a hard copy letter providing directions to where the scheme booklet can be viewed or downloaded as well as a hard copy of the proxy form. I accept that it is now commonplace for electronic mail-out orders to be made in relation to notices of scheme meetings and this approach gives rise to no reason not to convene the scheme meeting: Re Signature Gold Ltd [2017] FCA 1481 at [55]; Re ERM Power Ltd [2019] NSWSC 1502 at [26]; TPG at [32].
Finally, Mr Dick notes that it is proposed that the deadline for receipt of proxy forms (including proxy forms lodged online) or powers of attorney by Beyond's share registry for the scheme meeting will be 5.00pm (Sydney time) on 10 December 2022, and this is disclosed in the notice of scheme meeting and in the key dates section of the scheme booklet. He submits and I accept that the proposed time and date is consistent with cl 7.9(j) of Beyond's constitution and s 250B(1) of the Act, which require proxy forms to be received at least 48 hours before the scheme meeting.

Orders

For these reasons, I was satisfied that I should convene the scheme meeting and make the associated orders, and I made those orders at the conclusion of the first Court hearing on 10 November 2022 in accordance with the short minutes of order initialled by me and placed in the file.

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