In the matter of Altium Limited (No 2) [2024] NSWSC 935

Supreme Court of NSW|2024-07-18|Before: Black J

Solicitors: King & Wood Mallesons (Plaintiff) DLA Piper (Bidder) File Number(s): 2024/183465

Nature of the application and background

By Originating Process filed on 17 May 2024, Altium Ltd ("Altium") sought an order under s 411 of the Corporations Act 2001 (Cth) ("Act") that it convene a meeting of its shareholders to consider a proposed scheme of arrangement and associated directions. By way of background, Altium is an Australian public company limited by shares and is listed on the Australian Securities Exchange ("ASX"). Its registered office is situated in New South Wales, although its operational headquarters is in San Diego, California, and it has a presence in other countries. Altium develops software that is used to design the layout of printed circuit boards and operates and maintains a cloud platform on which software engineers can collaborate for the design and development of printed circuit boards. On 15 February 2024, Altium entered into a Scheme Implementation Agreement ("SIA") with Renesas Electronics Corporation ("Renesas"), which is a global semiconductor company based in Tokyo with international operations, and it announced the proposed scheme of arrangement to ASX on the same date. The scheme involves the proposed acquisition of all of the issued ordinary fully paid shares in the capital of Altium by Renesas Electronics NSW Pty Ltd, a wholly owned indirect subsidiary of Renesas, for all cash consideration of $68.50 per fully paid ordinary share in the capital of Altium, subject to adjustment if certain dividends are paid by Altium.

Affidavit and other evidence

Altium reads the affidavit dated 17 July 2024 of Ms Tanya Thomas, who is Altium's company secretary. Ms Thomas refers to the registration of the scheme booklet with the Australian Securities & Investments Commission ("ASIC") and to the dispatch of scheme materials and reminder communications to Altium shareholders. She also addresses the conduct of a shareholder information line by a third party, Morrow Sodali, on Altium's behalf and an outbound call campaign also conducted by Morrow Sodali. She notes that Altium had also engaged Morrow Sodali to assist in scheduling meetings with major proxy advisors but no such meetings were ultimately held.
Ms Thomas also addresses communications concerning the scheme between Morrow Sodali, JP Morgan Securities Australia Ltd ("JPM") (Altium's financial advisor in relation to the scheme) and/or Mr Samuel Weiss (the chair of Altium) on the one hand and institutional investors on the other, and also between Altium and retail shareholders. Ms Thomas notes that the log of those shareholder communications has been provided to ASIC for review. I address these communications further below. Ms Thomas gives evidence as to the conduct of the scheme meeting held on 12 July 2024 and the results of the poll cast on the scheme resolution at that meeting and addresses the publication of notice of this Court hearing by an announcement made on ASX. She notes that the solicitor acting for Altium in respect of the scheme has received no notice of any shareholder in Altium who seeks to oppose the approval of the scheme at this hearing and no shareholder appeared to oppose the approval of the scheme at this hearing.
Altium also tendered certificates confirming that the conditions precedent to the scheme have been satisfied or waived in accordance with the terms of the SIA (other than for approval of the Court) and a letter from ASIC pursuant to s 411(17)(b) of the Act confirming that ASIC did not object to the scheme for the purposes of that section.

Applicable principles

The Court must be satisfied of several matters in order to approve a scheme of arrangement at the second Court hearing, namely that the plaintiff has complied with the orders of the Court convening the meeting of members; the meeting of members so convened has approved the scheme with the requisite majorities; all other statutory requirements have been satisfied; the scheme is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it; the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion; and there was full and fair disclosure to members of all information material to the decision whether to vote for or against the applicable scheme: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 at [8]-[10]; Re Central Pacific Minerals NL [2002] FCA 239 ("Central Pacific Minerals") at [8]-[14]; Re Seven Network (No 3) (2010) 267 ALR 583; [2010] FCA 400 ("Seven Network") at [35]-[39]; Re Solution 6 Holdings Ltd (2004) 50 ACSR 113; [2004] FCA 1049 at [18]-[24]; Re Redcape Property Fund Ltd and the Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) [2012] NSWSC 486 at [7]; Re Signature Capital Investments Ltd (No 2) [2016] FCA 385 at [4]; Re Atlas Iron Ltd (No 2) [2016] FCA 481 at [5]-[6]; Re Amcor Ltd (No 2) [2019] FCA 842 at [7]-[11]; Re Ellerston Global Investments Ltd [2020] NSWSC 1108 ("Ellerston") at [10]-[12]; Re Coca-Cola Amatil Ltd [2021] NSWSC 489 at [9]; Re Pendal Group Ltd (No 3) [2023] NSWSC 14 at [9]. Mr Williams submits and I accept that the Court will also have regard to shareholders' assessment of their interests as manifested in the voting results on the scheme resolution in recognising that shareholders are "the best judges of whether an arrangement is to their commercial advantage": Central Pacific Minerals at [13]; Ellerston at [10].
I also summarised the applicable principles in Re InvoCare Ltd (No 2) [2023] NSWSC 1350 at [8]-[9] as follows: "The matters of which the Court must be satisfied in approving the scheme at the second Court hearing are whether there was compliance with the orders of the Court convening the scheme meeting or meetings; whether the resolution to approve the scheme was passed by the requisite majority and whether other statutory requirements have been satisfied; and whether all conditions to which the scheme is subject (other than Court approval and lodgement of the Court's orders with ASIC) have been met or waived: Re ELMO Software Ltd (No 2) [2023] NSWSC 81 ("ELMO") at [7]. The Court also has, in exercising its power of approval, a residual discretion whether to approve a scheme and is not bound to approve it merely because it has made orders for the convening of meetings or because the statutory majorities have been achieved: Re Seven Network Ltd (No 3) (2010) 267 ALR 583 ("Seven Network") at [31]; Re Staging Connections Group Ltd (No 2) [2015] FCA 1102 at [12]. In exercising that residual discretion, the (non-exhaustive) matters the Court will take into account include whether the scheme is fair and reasonable so that an intelligent and honest member of the relevant class, properly informed and acting alone, might approve it; whether there was full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme; and whether the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [8]; Seven Network at [35]-[40]; Re Pendal Group Ltd (No 3) [2023] NSWSC 14 at [10]; ELMO at [8]."

Determination

The evidence establishes that Altium has complied with the Court's orders in respect of the distribution of scheme documents to Altium shareholders, with one immaterial exception. Mr Williams refers to the steps taken by Altium in respect of reminder communications sent to certain Altium shareholders who had not submitted proxy instructions and to the operation, by Morrow Sodali, of an inbound telephone shareholder information line to respond to queries from Altium shareholders regarding the scheme and the scheme booklet and an outbound call campaign to retail shareholders of Altium. The inbound and outbound scripts were drawn to the Court's attention at the first Court hearing and they properly drew attention to the advantages and disadvantages of the scheme and encouraged Altium shareholders to read the scheme booklet in its entirety. No issues of concern arose from those matters. There were additional communications between representatives of Altium and institutional shareholders, and between representatives of Altium and retail shareholders. The communications with retail shareholders raised no issues of concern.
Mr Williams rightly also draws attention to communications between Altium and its institutional shareholders. Altium had foreshadowed at the first Court hearing that employees of Morrow Sodali and JPM (as I noted above, Altium's financial advisor in relation to the scheme) and Mr Weiss (as I noted above, the chair of Altium) would undertake communications with institutional shareholders of Altium, by telephone or by email. I addressed this matter in my earlier judgment in Altium 1 at [29]ff, where I referred to Re ResApp Health Ltd [2022] NSWSC 1353 ("ResApp Health") and observed (at [34]) that: "… Altium's proposal to conduct unscripted meetings with its institutional shareholders does not give rise to any reason not to convene the scheme meeting. It will, however, require Altium's advisers to give particular attention to their ex parte disclosure obligations at the second Court hearing, and may require that evidence of the matters discussed at those meetings be led at the second Court hearing. It is to be hoped that these meetings do not give rise to the difficulties of the kind that arose in ResApp Health."
Mr Williams now points to the evidence that Morrow Sodali and Ms Thomas were responsible for keeping a log of all communications with institutional shareholders of Altium as set out in her affidavit read at this hearing. He notes that no formal script was followed for these communications. He submits and I accept that the log of these communications does not indicate any lack of balance or that any matters were addressed in a manner inconsistent with the scheme booklet and that matters discussed included, inter alia, the status of regulatory approvals and how some institutional shareholders held their interest in Altium shares. Mr Williams recognises that some of these communications could be considered as encouragement to various institutional shareholders to convert an interest held "on swap" to physical shares so as to be able to vote them on the scheme resolution and submits that that encouragement to vote did not undermine the integrity of the scheme process. As I noted above, Altium has provided the log of institutional shareholder communications to ASIC which has raised no concern at this hearing, although the Court must form its own view in this regard.
Mr Williams submits and I accept that the Court's role at this hearing involves an assessment whether these communications compromised the integrity of the voting process at the scheme meeting or the adequacy of the disclosure in respect of the scheme: ResApp Health at [33]; Re Walsh and Company Investments Ltd [2020] NSWSC 1746 at [66]-[67]. He also points out that the Court has recognised that a degree of advocacy is permissible so long as it is fair and honest: Re Investa Listed Funds Management Ltd [2016] NSWSC 344 at [5]; ResApp at [38]. I am satisfied that these communications did not undermine the integrity of disclosure or the voting at the scheme meeting and do not give rise to any reason not to approve the scheme where it has been approved by shareholders by the requisite statutory majorities at the scheme meeting.
As I noted above, the scheme was approved at the scheme meeting by the requisite statutory majorities. The voting participation rate at the scheme meeting was 60.27% by number of Altium shares and 11.79% by number of Altium shareholders. The former figure is broadly similar to the voting participation rate at Altium's three most recent AGMs and the latter figure compares favourably with the voting participation at Altium's three most recent AGMs. This matter does not raise any concern that there was any irregularity in the procedure for convening the scheme meeting and does not give rise to any reason not to approve the scheme. Each of the conditions precedent to the scheme have been satisfied or waived and ASIC has confirmed that it has no objection to the scheme for the purposes of s 411(17)(b) of the Act. I am satisfied that the procedural requirements for approval of the scheme are satisfied.
Turning now to the exercise of the Court's discretion in respect of the scheme, the scheme was recommended by Altium's independent directors and the independent expert whose report was included in the scheme booklet expressed the view that the scheme was fair and reasonable and in the best interests of Altium shareholders in the absence of a superior proposal. No Altium shareholder or other person indicated an intention to appear at the second Court hearing to oppose the scheme and there was no such appearance. There is no reason to doubt that the scheme is fair and reasonable so that an intelligent and honest Altium shareholder, properly informed and acting alone, might approve it. I am satisfied that there is otherwise no reason to doubt that Altium has brought to the Court's attention all matters that could be considered relevant to the exercise of the Court's discretion and that there was full and fair disclosure to Altium shareholders of all information material to the decision whether to vote for or against the applicable scheme. I am therefore satisfied that the scheme is appropriate for the Court's approval.
Altium also seeks an exemption under s 411(12) of the Act from compliance with s 411(11) so that a copy of the Court order approving the scheme does not need to be annexed to any copy of Altium's constitution that may be issued in the future. I am satisfied that such an order should be made where, as here, the rights of Altium shareholders are not modified by the scheme: Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 at 240; [2003] WASC 19; Re GBST Holdings Ltd [2019] NSWSC 1503 at [15]; Re Bellamy's Australia Ltd [2019] NSWSC 1889 at [16].

Orders

For these reasons, I made the orders sought by Altium at the conclusion of the second Court hearing on 18 July 2024.

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: 02 August 2024

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