In the matter of MSL Solutions Limited (No 2) [2023] NSWSC 79

Affidavit evidence

1. MSL reads the affidavit dated 3 February 2023 of its solicitor, Mr Sayer, which refers to the lodgement of convening orders and the registration of the scheme booklet with the Australian Securities and Investments Commission ("ASIC"), the steps taken to despatch the scheme booklet to MSL shareholders and the publication of notice of the second Court hearing in The Australian newspaper.
2. MSL also read the affidavit dated 4 February 2023 of Mr Anthony Toohey, who is the executive chair and a director of MSL. He referred to a letter dated 17 January 2023 received from Pemba Capital indicating that there would be no increase to the scheme consideration, which was disclosed on MSL's website and to Australian Securities Exchange ("ASX") on the same day. Mr Toohey also referred to the conduct of the scheme meeting, where he acted as chair, on 31 January 2023 and addressed the position in respect of MSL's performance rights plan and the conversion of certain convertible notes to MSL shares. Mr Toohey's affidavit exhibited the script for his presentation at the scheme meeting and minutes of the scheme meeting, which recorded that no shareholders asked questions at the scheme meeting. He also exhibited an announcement made by MSL to ASX on 31 January 2023 which recorded that 98.47% of MSL shareholders present and voting at the scheme meeting voted in favour of the scheme resolution, and 99.47% of total votes cast on the scheme resolution of MSL shareholders present and voting (in person or by other means) at the scheme meeting were in favour of the scheme resolution.
3. MSL also relied on the affidavit dated 2 February 2023 of Ms Kara van Hummel who is a client service manager employed by Computershare Investor Services Pty Ltd ("Computershare"). Ms van Hummel referred to the scope of Computershare's engagement by MSL to assist in convening and conducting the scheme meeting, the dispatch of initial documents relating to the scheme, the dispatch of a reminder to vote email and mail correspondence, the operation of the MSL shareholder information line by Georgeson Shareholder Communications Australia Pty Ltd, the proxy forms and other documents in respect of the scheme meeting and the conduct of the scheme meeting. She also outlined the result of the scheme meeting, consistent with the announcement made by MSL to ASX which was exhibited to Mr Toohey's affidavit. She also indicated that, if the votes of shareholders who held MSL Performance Rights were excluded, the scheme resolution would still have passed by a substantial majority. MSL also read an affidavit dated 3 February 2023 of Mr Ronn Bechler, an executive director of Automic Pty Ltd, which addressed the conduct of an outbound call campaign on behalf of MSL in respect of the scheme, to which reference had been made at the first Court hearing.
4. By a second affidavit dated 4 February 2023, Mr Toohey referred to the receipt, by a corporate adviser to MSL, of a non-binding letter of intent from a third party on 27 January 2023, which raised the possibility of an acquisition of shares in MSL by a competing scheme of arrangement, subject to the completion of due diligence, and likely subject to the need for that third party to obtain approval from the Foreign Investment Review Board; to steps taken by MSL to address that non-binding letter, including providing information to that third party and notifying the receipt of that communication to Pemba Bidco; and noted that, on 28 January 2023, the third party cancelled a proposed meeting with MSL on the basis that it would not be able to provide binding transaction documentation by 7 February 2023 and has not further communicated with MSL in respect of its non-binding proposal. It is apparent that, by the time of the scheme meeting, the non-binding proposal which had been made by that third party had ceased to have any operation so as to provide any potential alternative to the scheme.
5. By his affidavit dated 6 February 2023, Mr Matthew Coull, who is a partner in the firm of solicitors acting for Pemba Bidco in the application, addressed a deed poll executed by Pemba Bidco in respect of the scheme and the funding available to Pemba Bidco in order to complete its obligations under the scheme. Mr Coull indicates that he is not aware of any reason conditions to the relevant funding should not be satisfied prior to the implementation date of the scheme and, in the case of a debt facility with the Australian banks, gives evidence on information and belief from another solicitor in that firm who is acting for Pemba Bidco in relation to the debt facility agreement.
6. By a second affidavit dated 7 February 2023, Mr Sayer noted that he had not received notice that any shareholder would appear to oppose the approval of the scheme at the second Court hearing, and no shareholder appeared to do so. Mr Sayer also annexed a letter dated 6 February 2023 from ASIC indicating that it had no objection to the proposed scheme for the purposes of s 411(17)(b) of the Act. He also annexed conditions precedent certificates executed by each of MSL and Pemba Bidco which were executed on 6 February 2023 and "released" from an escrow-style arrangement on 7 February 2023, the date of the second Court hearing.

Procedural matters and two issues of disclosure

1. By way of the procedural matters that arise at a second Court hearing seeking approval of a scheme, Mr Oakes draws attention to evidence establishing that the scheme booklet and orders from the first Court hearing on 13 December 2022 were lodged with ASIC; that the scheme booklet was made available to MSL shareholders; and that the letters and emails dispatched to MSL shareholders corresponded with those tendered at the first Court hearing. He also draws attention to the evidence addressing the receipt of proxy forms and collation of proxies; the conduct of the scheme meeting; the passage of the scheme resolutions by the necessary statutory majorities; the execution of the deed poll; the publication of a notice of the second Court hearing; and the fact that no notice has been received that any shareholder proposes to appear at the hearing. I have addressed that evidence above. Mr Oakes also points out that, as I noted above, the resolution to approve the scheme was passed by 99.47% of votes cast and by 98.47% of MSL shareholders present and voting at the scheme meeting, and the statutory majorities would still have been obtained had tagged votes been excluded.
2. Mr Oakes draws two matters to the Court's attention, by way of disclosure in an ex parte application. First, he points out that MSL sent a reminder to vote email substantially in the form that I had approved at the first Court hearing to all Email Notification Shareholders (as defined) and a "Notice of Access letter" in the form approved at the first Court hearing to all MSL shareholders other than Email Notification Shareholders. He points out that these communications were sent following an indication from some MSL shareholders, during the outbound call campaign, that they would like the voting instructions to be resent to them. Mr Oakes fairly refers to Barrett J's observation in Re Centro Retail Ltd [2011] NSWSC 1321 that, where the Court has ordered the convening of a meeting and has approved an explanatory statement, the company should not dispatch additional explanatory material without first obtaining court approval, and to the rationale for this approach that "the court approved "message" should not be interfered with by unilateral supplementation by the company". He also draws attention to my decision in Re Walsh and Company Investments Ltd [2020] NSWSC 1746 at [66], where a company had undertaken communications with shareholders which had not been approved by the Court, and I observed that the ultimate question was whether the manner in which those communications had occurred had compromised the integrity of the voting process at the scheme meeting. Mr Oakes submits and I accept that the reminder to vote email and additional Notice of Access mail out did not interfere with the court approved message constituted by the scheme booklet or compromise the integrity of the voting process at the scheme meeting or disclosure to shareholders.
3. Second, Mr Oakes refers to the unsolicited non-binding proposal from a third party, to which I referred in dealing with Mr Toohey's affidavit evidence. He outlines the chronology of events concerning that proposal, which I have noted above. He points out that rule 3.1 of the ASX Listing Rules require the immediate disclosure of information that a reasonable person would expect to have a material effect on the price or value of a company's securities, and that, under rule 3.1A of the ASX Listing Rules, information does not need to be disclosed if, relevantly, the information concerns an incomplete proposal or negotiation; the information is confidential and ASX does not form the view that information has ceased to be confidential; and a reasonable person would not expect the information to be disclosed. He also points out that, in Guidance Note 8 Continuous Disclosure, ASX expressed the view that disclosure of confidential approaches for control transactions is generally not required under that rule, where a reasonable person would not expect this information to be disclosed until any negotiations entered into concerning the transaction are successfully concluded. Mr Oakes submits that the proposal received by MSL was not required to be disclosed to the shareholders under the ASX Listing Rules, by reason of its non-binding and highly qualified character. I do not consider it necessary to express a view as to that matter, where it is not necessary to do so in order to approve the scheme.
4. Mr Oakes accepts that shareholders in a scheme company should be informed of all new material information which arises after the explanatory statement has been sent and before the final Court hearing, but submits that disclosure of new information will generally only be required if it is material to the decision of members in deciding how to vote on the proposed scheme or whether to attend the scheme meeting (either in person or by proxy). He refers to the observation of Gowans J in Re Australian Foundation Investment Co Ltd [1974] VR 331 at 338 that: "The concern of the Court should be whether by reason of absence of information of the kind described, "reasonable information", "some important or substantial class or item of information", there has been no "real conclusion", no "determination because they had not the means of determining", and whether the event which has supervened, "some important event", was such that it had "very materially altered the effect and operation of the scheme". It is not "any" information which is relevant to the subject-matters dealt with in the scheme or "any" event relevant thereto that would influence the exercise of the discretion."
5. He points out that, if the third party had delivered binding transaction documentation in respect of a superior offer ahead of the scheme meeting on 31 January 2023, the scheme meeting would have been postponed, the right to match process in the Pemba scheme implementation agreement would have been implemented and scheme shareholders notified accordingly. That did not arise because the third party advised, on 29 January 2023, that it would not make a binding proposal within that time frame. I accept that that third party proposal was not an available alternative to the scheme at the time of the scheme meeting, and this matter gives rise to no reason not to approve the scheme.

The Court's role at the second Court hearing and determination

1. Mr Oakes draws attention to Beach J's summary of the Court's role at the second Court hearing in Re Amcor Ltd (No 2) [2019] FCA 842 at [7]ff as follows: "Let me say something about my power under s 411(4)(b) to approve the Scheme. In essence, my role at the second court hearing is to assess the Scheme taking into account whether the Scheme is sufficiently fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it. Of course, I can only approve a scheme of arrangement if the requisite majority of shareholders vote in favour of it, but I am not bound to approve the Scheme simply because I previously made orders for the convening of a Scheme meeting and subsequently the requisite majority agreed to it. But I accept that shareholders voting collectively at the Scheme meeting are better judges than I of what is to their commercial advantage and in their interests and accordingly, absent good reason, I should give effect to their intentions. Now whilst there is no exhaustive statement of the matters as to which I must be satisfied before granting approval, it is not in doubt that in exercising my power under s 411(4)(b), I should be satisfied: (a) the Scheme complies with the law, including the relevant procedural requirements; (b) the Scheme was approved by shareholders acting in good faith and for proper purposes; (c) there has been an accurate and comprehensive disclosure of the details of the Scheme and its effect to those voting on it; (d) there is no suggestion of oppression of any minority; (e) there is no evidence that any third parties will be disproportionately adversely affected by the operation of the Scheme; (f) the Scheme does not offend against any aspect of public policy; and (g) all matters that could be considered relevant to the exercise of my discretion have been drawn to my attention. I also need to be satisfied that the conditions precedent to the Scheme have been met, save for Court approval, and that ASIC has been given the opportunity to draw to my attention any relevant matter(s). I would say now that I am so satisfied concerning the conditions precedent, the last of which was satisfied on 31 May 2019. Moreover, ASIC has had an adequate opportunity to draw any necessary matters to my attention beyond what it drew to my attention for the purposes of the first court hearing. I will discuss any relevant Ch 6 question and s 411(17) later. In considering whether the Scheme complies with the law, including the relevant procedural requirements, I need to satisfy myself that the procedural and other requirements in the Act, Corporations Regulations 2001 (Cth) and Federal Court (Corporations) Rules 2000 (Cth) have been complied with and that the requirements for a valid resolution of the shareholders have been satisfied. I am so satisfied, including being satisfied that the Scheme materials have been properly despatched in accordance with my orders and that the resolution agreeing to the Scheme has been passed by the statutory majorities required by s 411(4)(a). Now as I have said, my task is to consider whether the Scheme is fair and reasonable with the test of fairness and reasonable including a consideration of whether "an intelligent and honest [shareholder], properly informed, acting alone, might approve [the scheme]" (Fowler v Lindholm (2009) 178 FCR 563 at [79] per Emmett, Gordon and Jagot JJ). But the Scheme shareholders' vote in favour of the Scheme is evidence of its inherent fairness. Put another way, if a majority of the Scheme shareholders have approved the Scheme, it is unlikely that the Scheme would be unreasonable. Further, I do not have to be satisfied that no better Scheme could have been devised."
2. Mr Oakes also refers to Re Wesfarmers Ltd (No 2) [2018] WASC 357, where Vaughan J noted that the Court will usually approach its task on the basis that the members are better judges of what is in their own commercial interests than the Court, and that: '[t]he function of the court does not extend to usurping the views of the shareholders. However, the court is not a mere rubber stamp and will look at the arrangement to ensure that it is a reasonable one. In doing so the court is primarily concerned with whether the proposal is "fair and reasonable" in the sense described in the second factor mentioned in the preceding paragraph. In that respect the court does not determine that the scheme is intrinsically in the members' interest or otherwise. The court ought only require satisfaction that the arrangement is one which is capable of being accepted.'
3. As Mr Oakes points out, his Honour also described the Court's task at a second Court hearing as being to confirm ensure that all statutory and procedural requirements in relation to s 411 of the Corporations Act have been observed; and, second, to determine in the exercise of its discretion whether to approve the scheme.
4. Mr Oakes submits, and I accept, that it has been established that MSL is a Part 5.1 body; that the scheme booklet was properly despatched and the scheme meeting properly conducted, and 98.47% of MSL shareholders present and voting voted in favour of the scheme resolutions and 99.47% of all votes cast were in favour; Pemba Bidco has duly executed the deed poll; MSL has tendered a certificate under cl 3.1 of the scheme implementation deed stating that all of the relevant conditions precedent have been satisfied or waived, other than the condition relating to Court approval of the scheme; the independent expert's report has confirmed that the scheme is fair and reasonable and in the best interests of MSL shareholders; and ASIC has provided a statement under s 411(17)(b) of the Act, so that the Court would not withhold approval to the scheme under s 411(17)(a) of the Act.
5. Mr Oakes also points to the common and desirable practice of providing evidence as to voter turnout in support of the integrity of the scheme meeting process, and he refers to Re MB Group plc [1989] BCLC 672 at 675 and Re Lion Nathan Ltd (No 2) [2009] FCA 1261 at [6] as early examples of that approach, which has of course been taken many times since. He points out that approximately 69.48% of MSL shares and approximately 33.20% of MSL shareholders participated at the scheme meeting, and I accept that this turnover raises no concern as to the integrity of the despatch of scheme documents or that meeting
6. Mr Oakes in turn points to the deference given in the case law to shareholders' judgement as to their commercial interests, and that it is not the Court's role, in considering whether to approve a scheme, to impose its own commercial judgment on the scheme, nor to satisfy itself that no better scheme could have been devised. He submits and I accept that the Court should exercise its discretion in favour of approving the scheme, given the strong support of the shareholders as reflected in the voting results at the scheme meeting; the independent expert's opinion that the scheme is fair and reasonable and in the best interests of MSL shareholders; the MSL directors' recommendation that MSL shareholders vote in favour of the scheme resolutions; the disclosure in the scheme booklet of the potential benefits and disadvantages of the scheme; the absence of any reason to think that the scheme has been proposed other than in good faith or that the shareholders voted other than in good faith or that any shareholder was oppressed; and the measures to protect shareholders against performance risk contained in the scheme.

Orders

1. For these reasons, I made the orders sought by MSL at the conclusion of the second 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: 13 February 2023