In the Matter of Foundation Healthcare Limited ACN 002 611 501 (No 2) [2002] FCA 973

Federal Court of Australia|2002-08-05|Before: French J

REASONS FOR JUDGMENT Introduction 1 On 10 May 2002, Foundation Healthcare Limited (Foundation) and LifeCare Health Ltd (LifeCare) announced a proposed merger for the stated purpose of creating an entity capable of delivering a broad range of community based health care services under one management. They proposed to effect the merger through Schemes of Arrangement under which: (a) Foundation Shareholders would be entitled to receive 3.8 new shares in LifeCare for each Foundation share held (Share Scheme); and (b) Foundation Optionholders with an exercise price of fifty cents on or before 31 December 2003, would be entitled to receive 3.8 new options in LifeCare for each Foundation option held (Option Scheme). Foundation applied to the Court under ss 411 and 413 of the Corporations Act 2001 (Cth) for leave to convene meetings of its Shareholders and Optionholders to consider the proposed Schemes of Arrangement. That leave was granted by orders made on 11 June 2002. The proposed schemes have been approved by the requisite majorities. Foundation now applies to the Court under ss 411 and 413 of the Corporations Act seeking the Court's approval of the Schemes. The application is unopposed. The Australian Securities and Investments Commission (ASIC) has stated that it has no objection to the Schemes on the basis that it is satisfied that they have not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Ch 6 of the Act relating to takeovers. Background to the Schemes 2 Foundation provides premises, equipment and comprehensive practice management services to more than 750 general medical practitioners in Australia. It charges a fee to practitioners who conduct their practices at medical centres which it operates. Its fees are generally calculated as a percentage of revenue received by the practitioners. It manages ninety-nine medical centres throughout Australia and two public hospitals in Melbourne. It is presently operating at a loss. 3 LifeCare provides physiotherapy services throughout Australia. It conducts sixty practices under its name. It owns twenty-three of these, the remaining thirty-seven are conducted under franchise arrangements. It also undertakes other business activities relating to the provision of dental, occupational health, sports medicine and hospital services. It conducts swimming classes for babies and Pilates studios in Queensland, New South Wales and Western Australia. 4 Foundation is a publicly listed company. It was incorporated on 27 May 1983 under the Companies Act 1981 (NSW). It has an issued share capital represented by 161,408,271 fully paid ordinary shares. There is only one class of shares. The twenty largest shareholders represent approximately 69.3% of the issued fully paid ordinary shares in the company. It also has the following options on issue: Number of Exercise Price Expiry Date Scheme Status Options Cents 8,000,000 50 31/12/03 Scheme Options 3,000,000 50 07/10/05 Non Scheme Options 8,459,173 WAMP 23/08/10 Non Scheme Options 410,000 200 03/05/05 Non Scheme Options 100,000 145 15/06/05 Non Scheme Options 150,000 50 15/07/03 Non Scheme Options 250,000 50 15/07/03 Non Scheme Options 3,000,000 40 31/12/03 Non Scheme Options The 8 million options which are the subject of the proposed Schemes are held by four Optionholders. They are: Michael Boyd 2,500,000 Cryspur Pty Ltd 4,500,000 Genteel Nominees Pty Ltd 500,000 Jacqueline Hogan 500,000 5 Foundation's directors are Roger Steinepreis, Michael Denis Boyd, Anthony Edward Le Messurier, Colin Stephen Goldschmidt and Ralph Edward Shreeve. Philip James MacLeod is the company secretary. Mr Boyd is a chartered accountant. He was appointed to the Board on 22 January 2000 and has a relevant interest in 18.9 million Foundation shares which he holds personally and through Covenant Nominees Pty Ltd, a company which he controls. This represents 11.7% of Foundation's issued capital. 6 Foundation's consolidated performance figures for the years ended 30 June 2000, 30 June 2001 and the six months ended 31 December 2001 show substantial after-tax losses. These were $6,216,000 in the year ended 30 June 2000, $28,336,000 in the year ended 30 June 2001 and $14,547,000 in the six months ended 31 December 2001. The losses are said, in the Independent Expert's Report, which was sent to Shareholders and Optionholders prior to the Scheme meetings, to be largely attributable to poor integration of the businesses acquired, excessive overhead costs and high levels of debt. The company is said to have achieved significantly improved operating earnings in February and March 2002. These resulted largely from cost reduction initiatives. As at 31 December 2001, the company had a total debt of about $66.4 million, intangible assets of $145.6 million and net tangible assets of approximately $1.67 million. 7 LifeCare has an issued capital of 98.6 million fully paid ordinary shares. Its twenty largest shareholders hold approximately 67% of those shares. The top six shareholders of LifeCare who hold approximately 55% of the issued capital as at 26 March 2002, include Michael Boyd, who is the Chairman of Foundation. His interest in 18.6 million LifeCare shares represents 18.82% of its issued capital. LifeCare also has unlisted options on issue. 8 LifeCare's net loss after tax in the year ended 30 June 2000 was $291,000. It lost $516,000 in the year ended 30 June 2001 and $275,000 in the six months ended 31 December 2001. However in that last six-month period net revenue increased by 36.7%. The company achieved a small positive operating cashflow of $7,000 for the year ended 30 June 2001, which increased for the six month period ended 31 December 2001 to $183,000. At 31 December 2001 its total assets were $17,400,000 and total liabilities $3,137,000. It has a net asset position of $14,263,000 reflecting the total equity.

The Proposed Schemes 9 The schemes of arrangement were outlined in the Explanatory Statement sent to Shareholders and Optionholders in Foundation. It is proposed under the schemes that: (a) Foundation shares held by Foundation Shareholders will be transferred to LifeCare and, in exchange, Foundation Shareholders will be issued 3.8 LifeCare New Shares for each Foundation share transferred; (b) Foundation options held by Foundation Optionholders will be transferred to LifeCare and, in exchange, Foundation Optionholders will be issued 3.8 LifeCare New Options for each Foundation option transferred; and (c) Certain "Property" will be transferred by Foundation to LifeCare and the Court may, by later order, make orders under s 413 of the Corporations Act. 10 The term "Property" is defined in the Schedule to the schemes of arrangement as: "One (1) fully paid ordinary share in the capital of Foundation Ophthalmology (ABN 20 097 206 794), being 100% of the issued capital of that company owned legally and beneficially by Foundation." 11 If implemented, the proposed Schemes will result in Foundation becoming a wholly owned subsidiary of LifeCare. It will no longer be listed on the Australian Stock Exchange. According to the Explanatory Statement, the benefits of structuring the merger so that LifeCare acquires Foundation are that: . the Merged Group will have a fresh corporate structure from which it can commence its growth phase; . the amortisation expense for the Merged Group will be $4.6 million lower than Foundation's amortisation expense; . the lower amortisation expense will significantly enhance the profitability of the Merged Group; . the enhanced profitability may cause the market to re-evaluate its sentiment towards the Merged Group. The LifeCare New Shares issued to Foundation Shareholders will represent about 86% of LifeCare's fully diluted issued capital. 12 The effect of the Share Scheme as explained in the Explanatory Statement is to compel each Foundation Shareholder (including those who do not vote on the Share Scheme or who vote against it) to: (a) Appoint Foundation to transfer all of the Foundation Shares held by them to LifeCare free from all encumbrances in exchange for their receiving the relevant Scheme Consideration, being 3.8 LifeCare New Shares for each Foundation Share held. (b) Agree to cease to be a holder of and to have any interest in, their Foundation Shares in return for receiving the relevant Scheme Consideration. (c) Agree to any variation, cancellation or modification of the rights attached to their Foundation Shares constituted by or resulting from the Share Scheme. (d) Agree to accept the issue to them of LifeCare New Shares; and (e) Agree to become a registered LifeCare Shareholder for the purpose of s 231 of the Corporations Act and to be bound by the Constitution of LifeCare as in force from time to time in respect of the LifeCare New Shares. The Option Scheme will have a similar effect to the Share Scheme, save that it will apply to Foundation Options and the relevant Scheme Consideration will be LifeCare New Options. The procedure being adopted with regard to the proposed Schemes allows for the characterisation of the Optionholders as contingent creditors of Foundation. That is a characterisation which has been made in a number of cases, albeit it is attended with some doubt - Re Parmelia Resources NL (1994) 15 ACSR 392 (Steytler J). Foundation has also entered into agreements with non-Scheme Optionholders under which it has covenanted to procure LifeCare to allot and issue to each such Optionholder a number of options to acquire LifeCare shares under a formula by which each non-Scheme Option should attract an entitlement to 3.8 LifeCare Options. 13 Conditions precedent to the Share Scheme are: (a) The approval of the Share Scheme by the requisite majority at a meeting convened by the Court pursuant to s 411 of the Corporations Act; (b) The making of an order by the Court approving the Share Scheme under s 411(4)(b) of the Corporations Act; (c) Lodgment with the ASIC of an office copy of the order of the Court approving the Share Scheme; (d) Such other conditions approved by the Court under s 411(4) of the Corporations Act as are acceptable to Foundation; (e) The making of orders by the Court pursuant to s 413 of the Corporations Act including, in accordance with the terms set out in the Schedule or in terms with a similar effect; (f) Neither Foundation or LifeCare having terminated the Implementation Agreement in accordance with its terms. The conditions precedent of the Option Scheme are effectively identical save that the first condition is approval of "both Schemes" by the requisite majority. The Optionholder Scheme is thus conditional upon the approval of the Shareholder Scheme. The reverse is not the case. Subject to the satisfaction of the conditions precedent, the Foundation Shares will be transferred by Foundation (on behalf of the Scheme Participants) to LifeCare and the Property will be transferred by Foundation to LifeCare. In addition, on satisfaction of the conditions precedent set out in cl 3.2 the Foundation Options will be transferred by Foundation (on behalf of the Scheme Participants) to LifeCare.

The Orders of 11 June 2002 14 On 11 June 2002, orders were made approving the proposed meetings in the following terms: "1. The Applicant be at liberty to convene the following meetings of holders of shares (Shareholders) and options to acquire shares in the capital of the Applicant (Optionholders) for the purpose of considering and if thought fit, approving with or without modifications, schemes of arrangement proposed between the Applicant and its Shareholders and between the Applicant and its Optionholders: (a) a meeting of Shareholders of the Applicant who are holders of fully paid ordinary shares in the capital of the Applicant to be held at the Radisson Plaza Hotel, 27 O'Connell Street, Sydney, New South Wales at 10.30am (EST) on 16 July 2002 (Shareholders Meeting); and (b) a meeting of Optionholders of the Applicant who are holders of the options to acquire shares in the capital of the Applicant exercisable on or before 31 December 2003 at an exercise price of 50 cents each to be held at the Radisson Plaza Hotel, 27 O'Connell Street, Sydney, New South Wales at 11.00am (EST) on 16 July 2002 (or as soon as possible after the meeting referred to in (a) has concluded) (Optionholders Meeting), (together the Meetings). The relevant scheme documents are set out in Appendix 2 to the explanatory statement referred to in paragraph 4 below. 2. Each of the Meetings shall be convened, held and conducted: (a) in accordance with the provisions of Part 2G.2 of the Corporations Act (Act) that apply to members of a company and the provisions of the Applicant's constitution that are not inconsistent therewith and that apply to meetings of members; (b) on the basis that a quorum for the purpose of the Optionholders' Meeting shall be 2 Optionholders, present in person or by proxy or attorney, and otherwise as if such Optionholders were a separate class of creditors; and (c) on the basis that Corporations Regulations 5.6.12 to 5.6.36A do not apply to the meetings. 3. Michael Denis Boyd or, failing him, Roger Christian Steinepreis, shall act as chairperson of the Meetings and report the results of those Meetings to this Court. 4. The draft explanatory statement which is made up of: (a) Annexure "PJM-7" to the affidavit of Phillip James MacLeod sworn on 31 May 2002 (excluding Appendix 5 - the Independent Expert's Report); and (b) the Independent Expert's Report which is annexed as "PCW-1" to the affidavit of Peter Christopher Wall sworn on 4 June 2002, being the schemes booklet and explanatory statement required by s 412(1)(a) of the Act (Schemes Booklet), be and is approved (subject to any minor amendments required or approved by the Australian Securities and Investments Commission (ASIC) for the purposes of registration thereof under Section 412(6) of the Act). 5. The Applicant shall (subject to the registration of the explanatory statement by ASIC pursuant to s 412(6) of the Act) dispatch documents in the form of the Schemes Booklet by ordinary pre-paid post (or by airmail to overseas holders) to the Shareholders and Optionholders at their addresses last known to the Applicant on or before 15 June 2002. 6. Leave be given to make application for orders under ss 411(4) and (6) and 413 of the Act following the Meetings, as soon as practicable thereafter (such date to be arranged with the Registrar of the Court) for approval of the Schemes. 7. There be liberty to apply upon the giving of 24 hours' notice to ASIC and, where relevant, the Applicant. 8. An office copy of this order shall be lodged with ASIC as soon as practicable after the order is made. 9. The Explanatory Statement is to contain a statement to the effect that the forecast of earnings in the Independent Expert Report has not been included with the consent of ASIC as the Expert Report was not mandated by Item 8303 of Schedule 8 to the Corporations Regulations."

The Explanatory Statements 15 The Explanatory Statements sent to Shareholders and Optionholders each contained a statement of the kind directed in par 9 of the orders made on 11 June 2002. 16 After the orders of 11 June were made, but before the meetings were held, the solicitors for Foundation became aware of an omission on p 20 of the Independent Expert's Report which was annexed to the Scheme Booklets and Explanatory Statements which had been sent to Shareholders and Optionholders. The Scheme Booklet sent was not identical to the Court approved Scheme Booklet in that it omitted a table of forecast earnings. That table however was repeated in full at p 17 of the Booklets sent to the Shareholders and Optionholders. ASIC was advised of the omission by email dated 24 June 2002 and a draft announcement for release by Foundation to the Australian Stock Exchange was enclosed with that email. ASIC confirmed, by an email dated 25 June 2002, that provided the omission was not material it did not object to the announcement. The independent expert confirmed by letter dated 26 June 2002, that the omission was not material in the expert's opinion. 17 Foundation then made an application to this Court which led to orders in the following terms: "1. The Applicant has leave to release to the Company Announcements Platform of Australia Stock Exchange Limited, the announcement substantially in the form of the announcement that is annexed to the affidavit of Peter Christopher Wall sworn on 26 June 2002 and marked "PCW-3". 2. The announcement referred to in Order 1 is to be repeated at the commencement of each of the proposed meeting of shareholders and optionholders. 3. An office copy of these orders shall be lodged with the ASIC as soon as practicable after the orders are made." 18 I was satisfied that having regard to the nature of the omission the proposed procedure was sufficient. There was evidence provided to the Court, at my request, that the cost of printing and mailing the Australian Stock Exchange announcement to all of the members of Foundation would be approximately $10,000. In my opinion, that expense was not warranted having regard to the nature of the correction.

The Meetings 19 There was evidence before the Court of the dispatch to Shareholders and Optionholders of all documents relevant to the meetings - affidavits of Roland Palazzolo sworn 24 July 2002 and Scott Beattie sworn 26 July 2002. 20 A meeting of Shareholders was conducted on 16 July 2002 at 10.30am and the following resolution passed: "That, for the purposes of sections 411 and 413 of the Corporations Act and for all other purposes, the Schemes of Arrangement proposed to be entered into between the Company and the Scheme Participants as more particularly described in the Schemes of Arrangement which are contained as Appendix 2 to the Explanatory Statement contained in the Booklet of which this Notice forms part, are agreed to (with or without modification as approved by the Federal Court of Australia)." The resolution was passed. The number of votes in favour of the resolution was 71,634,649, representing 99.99% of the votes cast. The number of votes cast against the resolution was 8,500, representing 0.01% of the voting shares. The number of persons who voted in favour of the resolution, either in person or by proxy, was 88 and the number of members who voted against the resolution, either in person or by proxy, was three. The resolution was passed by in excess of 75% of the votes cast and of the members who voted at the meeting, either in person or by proxy. 21 A similar resolution was passed at a meeting of Optionholders conducted at 11am on 16 July. The number of votes cast in favour of the resolution was 7,500,000 which represented 100% of the options held by those voting. The number of Optionholders who voted in favour of the resolution was three. The resolution was therefore passed by in excess of 75% of the number of votes cast and Optionholders who voted, either in person or by proxy. 22 In relation to the Shareholders' meeting, some eighty-five of the persons voting voted by proxy, representing 71,387,649 votes, comprising 44.23% of the company's issued share capital. The total number of Shareholders present and voting in person at the meeting was six. The number of Optionholders present and voting at the meeting of Optionholders in person was one and by proxy two. 23 The resolutions were, strictly, defective. Each referred to "this notice" which is no doubt a reference to the Notice of Meeting in which each was set out. In my opinion, however, the defect, while leading to a resolution which is ungrammatical and strictly illogical, does not render it ineffective for the purposes of these proceedings as reflecting the decisions of the Shareholders and Optionholders respectively to approve the proposed Schemes of Arrangement.

The Application for Approval 24 The orders which Foundation now seeks are in the following terms: "1. The Schemes of Arrangement between: (a) the Applicant and its members; (b) the Applicant and its optionholders, being Appendix 2 to the Schemes Booklet (which incorporates the Explanatory Statement (Schemes) which is included in Annexure "PJM-7" to the affidavit of Phillip James MacLeod sworn 31 May 2002 and agreed to by resolutions of the members and optionholders of the Applicant at meetings of its members and optionholders on 16 July 2002, be approved. 2. Subject to Section 1336 of the Corporations Act and any laws relating to stamp duty (if any): (a) the whole of the Property (as defined in the Schemes) be transferred from the Applicant to and vested in LifeCare Health Limited (LifeCare) pursuant to Section 413(1)(a) of the Corporations Act 2001 (Cth) (Act) and without any further act or deed with effect from the Effective Date (as defined in the Schemes); and (b) all liabilities, obligations and duties of the Applicant (if any) in respect of the Property also be transferred to and become the liabilities, obligations and duties of LifeCare pursuant to Section 413(1)(a) of the Act and without any further act or deed with effect from the Effective Date. 3. The Applicant is authorised to make any application(s) to the Court, either at the time of the application for orders approving the arrangement(s) envisaged in the Schemes or by later application, for a later order (or orders) for any of the matters set out and envisaged in Section 413(1)(a)-(f) of the Act in connection with the merger between the Applicant and LifeCare (Merger), including (without limitation), orders for the continuation by or against LifeCare of any legal proceedings pending by or against the Applicant, and/or for such incidental, consequential and supplemental matters as are necessary to ensure that the Merger is fully and effectively carried out.

That, in accordance with Section 411(12) of the Act, the Applicant is exempt from compliance with Section 411(11) of the Act. 5. An office copy of this Order be lodged with the Australian Securities and Investments Commission within 14 days. 6. Liberty to apply on notice to Australian Securities and Investments Commission."

Statutory Framework 25 This application, like the application for approval of the Shareholder and Optionholder meetings, is made under Part 5.1 "ARRANGEMENTS AND RECONSTRUCTIONS", appearing in Ch 5 of the Corporations Act headed "EXTERNAL ADMINISTRATION". Section 411(1) deals with the Court's power to order a meeting and approve the requisite explanatory statement. Subsections (1A) to (1C) concern group arrangements and are not relevant for present purposes. Subsection (2) provides for notice to ASIC in relation to an application for an order for a meeting and for approval of the explanatory statement. Subsection (3) deals with the requirements of the draft explanatory statement. Subsection (4), which is relevant for present purposes, provides: 411(4) A compromise or arrangement is binding on the creditors, or on a class of creditors, or on the members, or on a class of members, as the case may be, of the body and on the body or, if the body is in the course of being wound up, on the liquidator and contributories of the body, if, and only if: (a) at a meeting convened in accordance with an order of the Court under subsection (1) or (1A): (i) in the case of a compromise or arrangement between a body and its creditors or a class of creditors - the compromise or arrangement is agreed to by a majority in number of the creditors, or of the creditors included in that class of creditors, present and voting, either in person or by proxy, being a majority whose debts or claims against the company amount in the aggregate to at least 75% of the total amount of the debts and claims of the creditors present and voting in person or by proxy, or of the creditors included in that class present and voting in person or by proxy, as the case may be; and (ii) in the case of a compromise or arrangement between a body and its members or a class of members - a resolution in favour of the compromise or arrangement is: (A) passed by a majority in number of the members, or members in that class, present and voting (either in person or by proxy); and (B) if the body has a share capital - passed by 75% of the votes cast on the resolution; and (b) it is approved by order of the Court. . . . 411(6) The Court may grant its approval to a compromise or arrangement subject to such alterations or conditions as it thinks just. . . . 411(10) An order of the Court made for the purposes of paragraph (4)(b) does not have any effect until an office copy of the order is lodged with ASIC, and upon being so lodged, the order takes effect, or is taken to have effect, on and from the date of lodgment or such earlier date as the Court determines and specifies in the order. 411(11) Subject to subsection (12), a copy of every order of the Court made for the purposes of paragraph (4)(b) must be annexed to every copy of the constitution of the body issued after the order has been made. 411(12) The Court may, by order, exempt a body from compliance with subsection (11) or determine the period during which the body must comply with that subsection. . . . 411(17) The Court must not approve a compromise or arrangement under this section unless: (a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or (b) there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement; but the Court need not approve a compromise or arrangement merely because a statement by ASIC stating that ASIC has no objection to the compromise or arrangement has been produced to the Court as mentioned in paragraph (b)." 26 Also relevant for present purposes is s 413, which provides for the Court to make ancillary orders in cases in which a compromise or arrangement in which the whole or any part of the undertaking or property of a body concerned in the scheme is to be transferred to a company called the transferee company.

Approval Considerations 27 In determining whether to approve the proposed Schemes it is necessary that the Court be satisfied that: 1. The requirements of s 411 have been met. 2. The majority of Shareholders and Optionholders voting in favour of the Schemes were acting in good faith and not in pursuit of some illegitimate purpose. 3. The proposal was sufficiently fair and reasonable that an intelligent and honest Shareholder or Optionholder, acting alone, might approve it - see Application of NRMA Ltd (2000) 18 ACLC 533; [2000] NSWSC 408 Santow J. 28 As to the first matter, I am satisfied that the requirements of s 411 have been met. These were canvassed in some detail in relation to the scheme documentation in the reasons for the orders made on 11 June 2002. It is not necessary to canvass those reasons again at this stage. 29 It is a requirement of s 411(17) that the Court not approve an arrangement unless it is satisfied that the arrangement has not been proposed for the purpose of enabling any person to avoid the operation of the takeover provisions of Ch 6 or there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement. Such a statement by ASIC has been produced in this case. That is sufficient to discharge the alternative necessary conditions precedent to the Court's approval imposed by s 411(17). The proviso that the Court need not approve a compromise or arrangement merely because of the production of a statement by ASIC under s 411(17)(b) has two consequences. The first is that the production of the ASIC statement does not mandate approval generally. Nor does it mean that the Court is precluded from considering, notwithstanding the views of ASIC, whether the arrangement has been proposed for the purpose of enabling avoidance of the operation of any of the provisions of Ch 6. As indicated in the reasons given on 11 June 2002, the materials before the Court offer no indication that the proposed arrangement would serve such a purpose. As O'Loughlin J said in Re ACM Gold Ltd (1992) 10 ACLC 573: "Chapter 6 does not…dominate and take automatic precedence over the provisions of Chapter 5 and, in particular, s 411." His Honour rejected the proposition that an arrangement must be struck down if it or any part of it could have been implemented as a takeover scheme or by means of a takeover announcement. This he regarded as "far too rigid" saying: "The mixture of strong control and Chapter 6 on the one hand… coupled with the legislature's willingness to make exceptions and grant exemptions from the provisions of Chapter 6 call for a liberal and practical interpretation of subs 411(7)." In any event, as submitted on behalf of Foundation, the substance of what is proposed under the Schemes the subject of the present application is a merger. 30 Turning to the second of the two criteria for approvals proposed by Santow J in Application of NRMA Ltd, there is nothing to suggest that the Shareholders or Optionholders have acted other than in good faith or in pursuit of any illegitimate purpose. 31 In considering the fairness of the proposed Schemes, it is not for the Court to determine that the Schemes are intrinsically in the interests of the Shareholders and Optionholders. The Court must leave it to their commercial sense to judge what is reasonable in their interests - Application of NRMA Ltd at 541, citing re Pheon Pty Ltd (1987) 47 SASR 427 at 435. There are no objections taken on grounds of fairness or on any ground. The opposition to the Shareholders' Scheme came from a very small minority of the voting shares represented at the meeting. The opposition represented three out of ninety one shareholders present and voting either in person or by proxy. As I observed in making the orders of 11 June 2002 for the convening of the meetings, the Schemes are not obviously unfair or otherwise inappropriate. On the face of it the Schemes have the potential to yield benefits to the Shareholders and Optionholders in the two companies. These benefits are indicated in the Independent Expert Report. There is no class of Shareholder or Optionholder who appears to be materially disadvantaged by the proposals. 32 All conditions precedent to the implementation of the Schemes, other than the approval of the Court and the lodgment of its orders with ASIC, have been met. In the circumstances and subject to some minor alterations, I am prepared to make the orders sought. I certify that the preceding thirty two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.

Counsel for the Applicant: Mr P Jooste QC with Mr P Wall

Companies Act 1981(NSW)

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