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

Supreme Court of NSW|2022-05-10|Before: Black J

Solicitors: Herbert Smith Freehills (Plaintiff) Clayton Utz (Bidder) File Number(s): 2022/82386

Judgment

By Originating Process filed on 22 March 2022, the Plaintiff, Link Administration Holdings Ltd ("Link") applies under ss 411 and 1319 of the Corporations Act 2001 (Cth) ("Act") for orders that it convene a meeting of holders of its ordinary shares to consider a proposed scheme of arrangement, and orders as to the conduct of that meeting.
By way of background, Link is an Australian public company, which is listed on the Australian Securities Exchange ("ASX") and provides technology enabled administration solutions for persons holding assets, including superannuation administration services, share registry services, fund administration and transfer agency services, stakeholder engagement services, communications services, and data and analytics services.
On 23 November 2021, Link announced to the ASX that it had received a conditional, non-binding indicative proposal from LC Financial Holdings ("LCFH") to acquire its Banking and Credit Management ("BCM") business. On 22 December 2021, Link announced to the ASX that it had entered into a Scheme Implementation Deed dated 22 December 2021 ("SID") with Dye & Durham Corporation ("Dye & Durham"), for the acquisition of all of the Link shares by way of scheme of arrangement. On 21 March 2022, Link announced to the ASX that discussions with LCFH in respect of LCFH's proposal to acquire the BCM business had concluded, and that those discussions had not resulted in a binding agreement. On 22 March 2022, Link and Dye & Durham entered into an amending deed to the SID, by which they agreed that the maximum amount of the BCM Net Sale Proceeds (as defined) if Link's BCM business is sold will be $0.13 cash per Link share held on the Scheme Record Date (as defined), payable if that business is sold and the net proceeds from the sale are received by Link prior to, or up to 12 months after, the implementation of the scheme.

Affidavit evidence

Link reads the affidavit dated 22 March 2022 of its solicitor, Mr Luke Hastings, who refers to an announcement made by Link to ASX on 22 December 2021 that it had entered into the SID Dye & Durham, for the acquisition of all of the issued shares in Link by Dye & Durham. He also refers to the terms of that announcement, which described aspects of the transaction to which I referred above. Mr Hastings also referred to the unanimous recommendation made by the directors of Link in favour of the scheme, conditional on there being no Superior Proposal and the independent expert concluding that the scheme is fair and reasonable and in the best interests of Link shareholders.
By his affidavit dated 11 April 2022, Mr Michael Carapiet, who is an independent non-executive director of Link, consents to act as chair of a scheme meeting and addresses his interests in Link and in two other entities, as to which Link was a service provider to one and is a service provider to the other. He also indicates the procedure he proposes to follow as chair of the scheme meeting. By his affidavit dated 5 April 2022, Mr Glen Boreham, also an independent non-executive director of Link, consents to act as chair of the scheme meeting if Mr Carapiet is unable to do so and addresses the same matters.
By her affidavit dated 3 May 2022, Ms Ivana Sjarifudin, who is a senior client relationship at Link Market Services Ltd, refers to the process which will be adopted for the despatch of materials in respect of the scheme, including their electronic despatch and hard copy despatch, the proposed reminder communications in respect of the scheme, and to the platform which would be used for the conduct of the scheme meeting as a hybrid meeting, allowing the possibility of either personal or virtual attendance.
By his affidavit dated 6 May 2022 Mr Tapan Parekh, who is a partner at Deloitte Australia and an authorised representative of Deloitte Corporate Finance Pty Ltd, addresses the preparation of the independent expert report and confirms that the report has been prepared in compliance with the Expert Witness Code of Conduct and applicable ASIC regulatory guides, and that he has made the inquiries he believes are necessary and desirable for the purpose of preparing the report and has not become aware of any facts or circumstances that would cause him to change the opinion expressed in it.
By her affidavit dated 8 May 2022, Ms Sarah Turner, who is the general counsel and company secretary of Link, outlines the nature of Link's business, to which I have referred above. Ms Turner outlines the background to the transaction, which arises following the receipt of two conditional, non-binding indicative proposals to acquire Link's BCM business in November 2021. She refers to the interim and special dividends contemplated in respect of the scheme, and to the elements of the Transaction Consideration to which I have referred above. She outlines the consideration of the scheme by the Link board, identifies the conditions precedent to the scheme, and refers to the circumstances in which a break fee and reverse break fee and exclusivity provisions were negotiated in respect of the scheme. She also addresses the treatment of equity based incentive plans available to Link employees, executives and senior leaders under the scheme. She also refers to an investigation commenced by the Financial Conduct Authority ("FCA") into matters concerning the LF Woodford Equity Income Fund in the United Kingdom, and to a claim that has been issued by 100 investors against a wholly owned subsidiary of Link in England in relation to that matter, although it has not yet been served. Ms Turner also outlines the process which was adopted for verification of the explanatory booklet in respect of the scheme, and deals with board approval of the explanatory booklet and the manner in which the proposed scheme meetings would be conducted.
By his affidavit dated 9 May 2022, Mr Antony Damian, who is a partner in the firm acting for Link in respect of the scheme, outlines correspondence with the Australian Securities and Investments Commission ("ASIC") in respect of the scheme, the process for Link board approval and ASIC relief in respect of the scheme. He also exhibits the current version of the explanatory booklet, and Mr Jackman, who appears for Link, took me through that booklet in the course of submissions. Link also tenders a letter dated 9 May 2022 from ASIC to its directors, which reserved ASIC's position in respect of s 411(17)(b) of the Act to the second Court hearing in accordance with its usual practice, confirmed that ASIC had been given at least 14 days' notice of the hearing and had had a reasonable opportunity to examine the terms of the scheme and the draft explanatory booklet, and indicated that ASIC did not currently propose to appear to intervene to oppose the scheme at the first Court hearing.
By an affidavit dated 8 May 2022, Mr Matthew Proud, who is the chief executive officer of Dye & Durham outlines the verification process which was adopted by that company in respect of references to it in the explanatory booklet, the funding which it has obtained in respect of the scheme, and the conditions precedent to the scheme. By a further affidavit dated 9 May 2022, Ms Ora Wexler, who is a partner in an international law firm practising in Canada, provides a legal opinion as to the due execution and enforceability of the deed poll executed by Dye & Durham in respect of the scheme.

Formal requirements in respect of a scheme

Mr Jackman, with whom Ms Ng appears for Link, draws the Court's attention to an ASIC company search for Link, which provides formal evidence that Link is a Part 5.1 body; Link's Constitution; and the text of the scheme, which provides prima facie evidence that there is an "arrangement" within the meaning of s 411 of the Act: Re Staging Connections Group Ltd [2015] FCA 1012 at [55]. He submits and I accept that the scheme is a straightforward "acquisition" scheme and involves an "arrangement" within the meaning of the Act: Re Simavita Holdings Ltd [2013] FCA 1274 at [2]. Mr Jackman also submits, and I accept, that the SID provides prima facie evidence that Link has committed itself to propounding the scheme and that accordingly the scheme is bona fide and has been properly proposed: Re Staging Connections Group Ltd above at [61. There is evidence of verification of the factual information in the explanatory booklet relating to Link (Turner 8.5.22, [67]-[84]) and to Dye & Durham (Proud 8.5.22, [10]-[22]). There is also evidence of the due execution and enforceability of the deed poll given by Dye & Durham under the laws of Canada (Wexler 8.5.22) and that the necessary consents to act as chairperson and alternative chair of the proposed scheme meeting and special general meeting have been given (Carapiet 11.4.22; Boreham 5.4.22).
ASIC was notified of the hearing and provided with a draft of the explanatory booklet and the scheme more than 14 days ago (Damian 9.5.22), satisfying s 411(2)(a) of the Act, and ASIC has confirmed that it had sufficient notice and has provided the "usual letter" indicating that it does not propose to appear at the first Court hearing.

Applicable principles

Mr Jackman addresses, in relatively familiar terms, the principles applicable at the first Court hearing in respect of a scheme. He submits that the test commonly applied by Australian courts in deciding whether to convene a scheme meeting is that articulated by Street CJ (with whom Hutley and Samuels JJA agreed) in FT Eastman & 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 Jackman also refers to my summary of the applicable principles in Re Ellerston Global Investments Ltd [2020] NSWSC 879 at [25]-[27] as follows: "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 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: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 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]."
Here, Link's directors unanimously recommend that Link 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 Link shareholders. The independent expert has expressed the view that the scheme is fair and reasonable and therefore in the best interests of Link shareholders, in the absence of a Superior Proposal. I am satisfied that there is no reason to doubt that the explanatory booklet provides proper disclosure to Link 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 proposed scheme.

Particular aspects of the scheme

Mr Jackman draws attention to several aspects of the scheme, as contemplated by the decision in Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at 603.
First, he points out that, as I noted above, if the Scheme becomes effective, Mr Bhatia, Link Group's managing director and CEO, may be entitled to receive approximately $7,931,715 in connection with the early vesting of his unvested Performance Share Rights and the early release of restrictions of his Restricted Shares. Mr Jackman addresses the treatment of Link's incentive arrangements under the scheme, including the benefit that Mr Bhatia may be entitled to receive under them, in some detail. I have referred to the disclosure of those matters in the scheme booklet. Mr Jackman also refers to the many cases which have accepted that a director who is to receive a financial benefit in connection with a scheme may make a recommendation in relation to the scheme, provided that benefit is fully and prominently disclosed in the scheme booklet, including my decision in Re Villa World Ltd [2019] NSWSC 1207 at [38]-[40] and other recent decisions including Re RXP Services Ltd [2021] FCA 38 at [46]-[48]; Re Japara Healthcare Ltd (2021) 156 ACSR 695 at [70]-[73] and Re Over the Wire Holdings Ltd [2022] FCA 26 at [40]-[45]. Mr Jackman drew attention to the formulation of the disclosure regarding the Link board's decision deeming it appropriate for Mr Bhatia to make a recommendation and he also submitted that the types of benefits that Mr Bhatia stands to receive if the scheme is implemented are of a similar kind to those accepted in earlier cases. I accept that this matter is sufficiently disclosed in the explanatory booklet and provides no reason not to convene the scheme meeting and approve the explanatory booklet.
Second, Mr Jackman points out that, if a Special Dividend is paid, the Base Cash Consideration of $5.50 cash per Link share will, as I noted above, comprise two payments, being the Scheme Consideration of $5.50 cash per Link share, less the Special Dividend amount per Link share, and the cash amount of any Special Dividend per Link share. Mr Jackman submits, and I accept, that the explanatory booklet prominently disclosed that, in order to receive the full amount of the Base Cash Consideration, Link shareholders must hold their Link shares on the Scheme Record Date and also, if a Special Dividend is declared, the Special Dividend Record Date.
Third, Mr Jackman addresses the position in respect of the BCM Net Sale Proceeds, to which I referred above. He points out that, pursuant to cl 5.2(dd) of the SID, Link must take necessary steps to, promptly after the date of the SID, use its best endeavours to procure the sale of the BCM business; and pursuant to cl 5.14(b) of the SID, on and up to 12 months after the Implementation Date (as defined), Dye & Durham must use its best endeavours to pursue (or procure that the relevant Link Group Members (as defined) pursue) the sale of the BCM business. He points out that, as I also noted above, the SID provides that, if Link Group's BCM business is sold and the BCM Net Sale Proceeds are received by Link prior to, or within 12 months of the Implementation Date, Link shareholders will receive those proceeds as an additional payment, up to a maximum of $0.13 cash per Link share held on the Scheme Record Date ("BCM Proceeds Payment"). Clause 5.14 of the SID deals with the manner in which the BCM Proceeds Payment is proposed to be made. An aspect of that payment, the BCM Capital Return (as defined) is conditional on the implementation of the scheme and the approval of the BCM Capital Return by Link shareholders at the special general meeting, which will be held immediately following the scheme meeting. Mr Jackman notes that the BCM Capital Return does not require Court approval and, if approved by Link shareholders, would proceed under s 256B of the Act. He also points out that Dye & Durham is not required to return the BCM Net Sale Proceeds to Link shareholders after the conclusion of the Deferred Returns Period (as defined, being 12 months after the Implementation Date). This information is sufficiently disclosed in the explanatory booklet, including in the chairman's letter, "Frequently Asked Questions" and section 4.5.
Mr Jackman notes that there does not appear to be any authority as to the position where part of the scheme consideration depends on another transaction which may or may not occur after the Implementation Date, and may also not occur within the relevant time period. He submits that: "In principle, such scheme consideration should be permissible provided there is full disclosure in the scheme booklet, including full disclosure of the risk of non-performance by the scheme company or the bidder to provide the consideration to shareholders where scheme shares have already been transferred, leaving shareholders with an unsecured claim under the scheme and, or alternatively, the deed poll."
I note that there is at least a partial analogy between scheme consideration of this kind and the earn-out arrangement which was recently accepted in a scheme which involved a smaller group of shareholders: Re Crestone Holdings Ltd [2022] NSWSC 433. The case for approval of a scheme involving this feature is stronger where, as here, the independent expert has opined that the Base Cash Consideration (disregarding the BCM Payment Proceeds) is fair and reasonable and therefore in the best interests of Link shareholders. Mr Jackman also addresses the question whether this arrangement amounts to a "debenture" within the meaning of s 9 of the Act, which would give rise to additional requirements as to its structure. He submits this arrangement is not a debenture, because that concept does not include a debt that does not presently exist, but which may exist in the future: Handevel Pty Ltd v Comptroller of Stamps (Victoria) (1985) 157 CLR 177 at 196. He submits that is the position here, where the BCM business has not been sold and there is no presently existing debt owing to Link shareholders. He distinguishes decisions as to the meaning of the word "debt" in cases regarding s 588G of the Act and submits that, in any event, there is here a contractual obligation to pay the BCM Payment Proceeds, but the condition to that payment, being the sale of the BCM business, is too conditional or uncertain to give rise to a debt or a debenture. It seems to me that these questions are properly deferred to the second Court hearing.
Fourth, Mr Jackman refers to the position in respect of an FCA investigation into Link Fund Solutions Limited ("LFSL"), an indirect wholly owned subsidiary of Link, in its role as authorised corporate director to the LF Woodford Equity Income Fund (now known as the LF Equity Income Fund). He also refers to a claim issued in England against LFSL in relation to that Fund, but not yet served on LFSL, and to LFSL's intends to defend any such proceedings, He notes that LFSL has also received complaints from investors in the Fund, a number of which have been referred to the Financial Ombudsman Service, and has not been notified of any determination of any of these complaints. I recognise that information regarding these matters is disclosed to Link shareholders in section 7.3 of the explanatory booklet. The explanatory booklet also discloses that it is a condition precedent to implementation of the scheme that, between 22 December 2021 and 8:00am on the second Court hearing, the FCA and the Financial Ombudsman Service have not imposed a fine or made a determination in respect of these matters which LFSL is unable to meet from its own resources. I accept these matters are sufficiently disclosed in the explanatory booklet and provides no reason not to convene the scheme meeting or approve that booklet.
Fifth, Mr Jackman points out that cl 11.2 of the SID provides that Link must pay a break fee of $28,620,000 (excluding GST) ("Break Fee") to Dye & Durham in specified circumstances:, which do not include the Court's not approving the Scheme or Link shareholders failing to approve the scheme with the requisite majorities, and is therefore not a disincentive to Link shareholders in their consideration of the proposed scheme: Re Adelaide Bank Ltd [2007] FCA 1582 at [31]. Mr Jackman also refers to my observations in Re Coca-Cola Amatil Ltd [2021] NSWSC 270 at [24] 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 Jackman points to Mr Proud's evidence of the components of the out of pocket and opportunity costs of Dye & Durham that support the amount of the break fee. He also points out that that the break fee represents approximately 1% of the equity value of the Link Group based on the implied value of the Scheme Consideration at $5.50 per Link share and the number of Link shares on, consistent with guideline figure indicated by the Takeovers Panel in Guidance Note 7: Lock-up devices. Dye & Durham has agreed to pay an expense reimbursement amount or "reverse break fee" of $28,620,000 (excluding GST) in specified circumstances. I accept that these matters provide no reason not to convene the scheme meeting and approve the explanatory booklet.
Sixth, Mr Jackman addresses the position in respect of exclusivity provisions. Clause 10.1 of the SID imposes "no talk", "no shop" and "no due diligence" obligations. Mr Jackman submits, and I accept, that similar restrictions have been accepted in the case law: Re ERM Power Ltd [2019] NSWSC 1502 at [24] Re Prime Media Group Ltd [2019] NSWSC 1805; Re TPG Telecom Ltd [2020] NSWSC 772 at [22]; Re Windlab Ltd [2020] NSWSC 571 at [18]. He also points out that the "no talk" and "no due diligence" obligations are subject to a fiduciary exception as set out in clause 10.2 of the SID, which I accept is consistent with the Takeovers Panel's Guidance Note 7.
Mr Jackman also refers to my observation in Re TPG Telecom Ltd above at [22] that: "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 Jackman points out that the exclusivity period is defined in the SID and is capable of precise ascertainment and is not later than 30 September 2022, unless otherwise agreed between the parties. He submits that an exclusivity period of this length is a reasonable period and is comparable with or is shorter than exclusivity periods in other schemes that have previously been accepted by the Court: 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]. I accept that submission where the scheme is relatively complex and requires several regulatory approvals, although it seems to me that the Courts dealing with schemes will need to be alert to the risk of an incremental increase in the length of exclusivity periods, with each longer period sought to be justified by reference to earlier decisions permitting longer periods. I also accept that the exclusivity provisions are clearly disclosed in the "Frequently Asked Questions" and section 9.4 of the explanatory booklet. I accept that these matters provide no reason not to convene the scheme meeting and approve the explanatory booklet.
Seventh, Mr Jackman refers to the status of certain conditions precedent and refers to the observation in section 4.7 of the explanatory booklet that none of the Link directors are aware of any circumstances which would cause any condition precedent not to be satisfied. He also notes that cl 3.1(f) of the SID contains a condition precedent concerning "No Link Material Adverse Change", and a Link Material Adverse Change is defined as including, relevantly: "an event, change, condition, matter, circumstance or thing occurring or being reasonably likely to occur … which, whether individually or when aggregated with all events, changes, conditions, matters, circumstances or things of a like kind that have occurred or are reasonably likely to occur, has had or would be considered reasonably likely to have, the effect of: … 5. a diminution in the operating EBITDA as defined in Link's FY21 Annual Report of the RSS business segment (but not only on a one off basis), taken as whole by at least $14,200,000 against what it would reasonably be expected to have been but for that change, event, circumstance or matter. … other than those events, changes, conditions, matters, circumstances or things: 7. that were Fairly Disclosed in: 8. the Disclosure Materials (excluding the operation of termination, consent or similar rights in respect of material contracts, licences, authorisations or arrangements); … 11. that are within the actual knowledge of the Bidder prior to the date of this deed (excluding the operation of termination, consent or similar rights in respect of material contracts, licences, authorisations or arrangements);"
Mr Jackman also points to section 6.4 of the explanatory booklet, which notes that Dye & Durham "is aware of one contract which is up for renewal which may affect EBITDA and Dye & Durham considers that this may potentially result in a Link Material Adverse Change." Section 4.7 of the explanatory booklet in turn records that Link Group does not consider that this process will result in a Material Adverse Change, including because Link Group does not consider that this process will result in an EBITDA diminution that would constitute a Material Adverse Change. Mr Jackman also notes that section 6.4 of the explanatory booklet indicates that Dye & Durham "has been advised that some of the regulators referred to in clause 3.1(a) [of the SID] require shareholders who hold 10% or greater in Dye & Durham Limited to seek regulatory approval in addition to Dye & Durham itself" and it is "not aware of the attitude of such shareholders to seeking regulatory approval". He notes that this may impact the likelihood and timing of Dye & Durham obtaining the required regulatory approvals.
These matters are disclosed in the explanatory booklet, so that Link shareholders can assess the risk of delay arising from them, and I accept Mr Jackman's submission that the current status of these conditions precedent should not prevent the Court making an order to convene the scheme meeting, where the satisfaction or waiver of the conditions precedent to the scheme is more appropriately addressed at the second Court hearing.
Eighth, Mr Jackman notes that it is proposed that the scheme meeting will be held first, followed by the special general meeting, and both will be held as hybrid meetings allowing attendance in person or online. I accept the sequence of the meetings is consistent with that permitted in Re Spicers Ltd [2019] FCA 731. I accept that the conduct of a hybrid meeting is consistent with cl 13.2 of Link's constitution, which allows for the holding of meetings at two or more venues by using technology and with consistent with ss 249R and 249S of the Act.
Ninth, Mr Jackman addresses performance risk and recognises that the ability of scheme participants to enforce entitlements to be received under a scheme is relevant to the exercise of the Court's discretion: Re APN News & Media Ltd (2007) 62 ACSR 400 at 405 and, more recently, Re Villa World Ltd above at [22]. He also refers to my observation in Re Ellerston Global Investments Ltd above 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 there are numerous cases which have endorsed that practice. That approach is adopted here.
Mr Jackman also notes that, by cl 5.1(a) of the scheme, an amount equal to the difference between the aggregate cash amount of the Base Scheme Consideration (as defined in the scheme) payable to all scheme shareholders and the aggregate of all Additional Dividends (as defined), will be paid or procured to be paid, by Dye & Durham into an Australian dollar denominated trust account operated by Link (or its registry) as trustee for the Link shareholders ("Trust Account") by no later than the business day before the Implementation Date. He notes that Link (or its registry) as trustee will open the Trust Account with an "authorised deposit-taking institution" within the meaning of the Banking Act 1959 (Cth). Evidence of this matter will be adduced at the second Court hearing. Under cl 5.3(b) of the scheme, on the Implementation Date, Link must pay, or procure to pay, each Link shareholder such amount as is due to the Link shareholder in respect of all of their Link shares. All Link shareholders will receive their Scheme Consideration in this way. The performance risk in relation to the BCM Payment Proceeds where the scheme shares have already been transferred is disclosed in the chairman's letter and section 7.4 of the explanatory booklet, and I have noted above that the independent expert's assessment that the scheme is fair and reasonable does not depend on that amount. On balance, this matter provides no reason not to convene the scheme meeting and approve the explanatory booklet
Tenth, Mr Jackman addresses the position as to deemed warranties and notes that cl 8.2 of the scheme provides that each Link shareholder is taken to have given various warranties to Dye & Durham, including that on the Implementation Date all their Link shares are free from encumbrances and interests of third parties of any kind. As Mr Jackman points out, 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 Atlassian Corporation Pty Ltd [2013] FCA 1451 at [36]; Re Villa World Ltd above [25], Re Windlab Ltd above at [21], This matter is sufficiently disclosed at section 4.10 of the explanatory booklet and also provides no reason not to convene the scheme meeting and approve the explanatory booklet.
Eleventh, Mr Jackman submits that it is now settled that the second Court hearing is the appropriate occasion for the Court to address the question posed by s 411(17) of the Act: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [23]-[31]; Re TPG Telecom Ltd above at [31]; Re Ellerston Global Investments Ltd above at [35]. I will defer that question to that point.
Twelfth, Mr Jackman addresses the manner of dispatch of information to Link shareholders, which provides for many shareholders to be provided with URL links to the virtual meeting platform where they can participate in the meetings and view the explanatory booklet and other documents. This also provides no reason not to convene the scheme meeting and approve the explanatory booklet.

Orders

For these reasons, I was satisfied that an order should be made convening the scheme meeting and approving the explanatory booklet for distribution to shareholders, and I made the orders sought by Link at the conclusion of the first Court hearing.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 May 2022

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