In the matter of MyDeal.com.au Limited [2022] NSWSC 1317

Supreme Court of NSW|2022-09-13|Before: Black J

Solicitors: Maddocks (Plaintiff) Ashurst (Acquirer) File Number(s): 2022/167838

Nature of the application

On 2 August 2022, I made orders that the Plaintiff, MyDeal.com.au Limited ("MyDeal"), convene a meeting of Scheme Shareholders (as defined) to consider a proposed scheme of arrangement, approving the scheme booklet in respect of that scheme, and associated orders. I set out my reasons for doing so in my judgment delivered on 16 August 2022 (Re MyDeal.com.au Ltd [2022] NSWSC 1094). By way of background, MyDeal is an Australian public company limited by shares which conducts an online marketplace on which numerous sellers make available numerous items to consumers, with a particular focus on furniture, homewares and everyday items. The proposed scheme provides for Woolworths Group Limited ("Woolworths Group") to acquire 80.2% of the ordinary shares on issue of MyDeal (as held by "Participating Shareholders", as defined) for cash consideration of $1.05 per share, after which MyDeal would become a subsidiary of Woolworths Group and be delisted from the Australian Securities Exchange ("ASX").
At the second Court hearing on 13 September 2022, MyDeal sought, inter alia, an order under s 411(4)(b) of the Corporations Act approving that scheme of arrangement. I made the orders sought at the conclusion of the hearing and these are my reasons for doing so. I have drawn in this judgment on the helpful submissions of Dr Austin, with whom Mr May appeared, who appeared for MyDeal at that hearing.

Affidavit evidence

At the second Court hearing, MyDeal read the affidavit dated 9 September 2022 of Mr Paul Greenberg, who is a director and non-executive chair of MyDeal. Mr Greenberg's affidavit noted that the Australian Competition and Consumer Commission had advised Woolworths Group that it did not propose to intervene in the proposed acquisition, unless further information emerged. Mr Greenberg also referred to shareholder communications, including an announcement made by MyDeal to ASX on 26 August 2022 concerning its financial results for the year ended 30 June 2022, the publication of a corrective announcement with the Court's approval and the position as to a small number of proxy forms submitted by MyDeal shareholders between the release of those results and that corrective announcement.
Mr Greenberg outlined events at the scheme meeting and referred to the outcome of voting at that meeting, where the scheme resolution was passed by the requisite statutory majorities. Mr Greenberg also noted that none of the key management personnel or their excluded entities voted in respect of Excluded Shares (as defined) at the scheme meeting, and also referred to tagging votes cast by key management personnel in respect of their shares that were entitled to vote at the scheme meeting. The evidence indicates that the scheme resolution would still have been carried at the scheme meeting had those votes been disregarded. Mr Greenberg also addressed the relatively low attendance rate at the meeting, but that is consistent with relatively low attendance rates at annual general meetings of MyDeal and the fact that there are a significant number of holders of smaller parcels of shares in MyDeal who understandably may not wish to devote the time to attending such meetings.
MyDeal also read the affidavit dated 9 September 2022 of Mr Eric Kuret, who is the managing director and chief executive officer for Market Eye Pty Ltd, who referred to the engagement of that firm to contact MyDeal shareholders to remind them to vote at the scheme meeting and addressed the conduct of such calls, in accordance with an outbound call script that was previously approved by the Court. By his affidavit dated 9 September 2022, Mr Simon Quodling, a client services manager at Boardroom Pty Ltd, addressed the dispatch of documents to scheme shareholders, by email and in paper form as appropriate; the receipt of proxy forms; the conduct of a shareholder information line; and the conduct of the scheme meeting. By his affidavit dated 9 September 2022, Mr Joshua Peters, who is an interactive producer in Lumi Technologies Pty Ltd ("Lumi"), dealt with provision of registration and vote counting services of the Lumi online annual general meeting system in respect of the scheme meeting, and with the conduct of that meeting.
By his affidavit dated 9 September 2022, Mr Ron Smooker, a solicitor acting for MyDeal in the application, dealt with the lodgement of further documents with Australian Securities & Investments Commission ("ASIC"), the final form of the scheme booklet, announcements made by MyDeal to ASX since the first scheme hearing, further correspondence with ASIC and the publication of a notice of this hearing. By a further affidavit dated 12 September 2022, Mr Smooker tendered correspondence with ASIC, including a letter received from ASIC indicating that it had no objection to the scheme under s 411(17)(b) of the Corporations Act, and addressed MyDeal's entry into cancellation deeds with holders of MyDeal equity incentive plan options, and confirmed that no notice of appearance had been received from any person who sought to oppose the scheme. MyDeal also tendered condition precedent certificates confirming the satisfaction or waiver of relevant conditions precedent to the scheme.

The role of the Court at the second Court hearing

Dr Austin draws attention to my summary of the Court's role in the second Court hearing, by reference to Counsel's submissions, in Re Tabcorp Holdings Ltd (No 2) [2022] NSWSC 725 ("Tabcorp") at [3]-[4] as follows: "[Counsel] draws attention to the Court's role at a second Court hearing in respect of a scheme of arrangement, where the Court will need to be satisfied that the relevant resolutions have been passed in accordance with the statutory requirements and that the procedural requirements have been satisfied and will then exercise its discretion whether to approve the scheme: Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 247; Re Central Pacific Minerals NL [2002] FCA 239 at [12]; Re Redcape Property Fund Ltd and Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) [2012] NSWSC 486 at [7]; Re Aveo Group Ltd [2019] NSWSC 1679 at [15]; Re Sydney Airport Ltd and Trust Co (Sydney Airport) Ltd as responsible entity for Sydney Airport Trust 1 (No 2) [2022] NSWSC 103 at [7]; and see also Re Quantum Health Group Limited (No 2) [2022] NSWSC 74 at [10]ff. [Counsel] recognises that the Court is not bound to approve a scheme merely because it has previously made orders for the convening of meetings and the statutory majorities have been achieved, but points out that the Court will pay due regard to the assessment by members of their interests as manifested in the voting at the meeting: Re Central Pacific Minerals NL above. [Counsel] also recognises that there is no exhaustive statement of the matters as to which the Court must be satisfied before exercising its discretion to approve a scheme, but relevant matters may include whether the orders of the Court convening the scheme meeting have been complied with; all other statutory requirements have been satisfied, including that the scheme was agreed to by the requisite statutory majorities; shareholders have voted in good faith and not for an improper purpose; the proposal 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; there has been full and fair disclosure of all information material to the decision; minority shareholders would not be oppressed by the scheme; the scheme does not offend public policy; and the interests of other groups who are not parties to, but are affected by, the scheme are dealt with appropriately: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177; Re Centro Properties Ltd (2011) 86 ACSR 584; [2011] NSWSC 1465 at [32]-[33]; Re Seven Network Ltd (No 3) (2010) 77 ACSR 701; [2010] FCA 400 at [35]-[40]; Re David Jones Limited (No 3) [2014] FCA 753 at [3]; Re Windlab Ltd [2020] NSWSC 936 at [8]-[13]; Re Coca-Cola Amatil Ltd [2021] NSWSC 489 at [18]."
Dr Austin also refers to the recognition of relevant factors in other cases including Re Amcor Ltd (No 2) [2019] FCA 842 at [7]-[11], Re Dragontail Systems Ltd (No 2) [2021] FCA 1109 at [7]-[11] and Re Crown Resorts Ltd (No 2) [2022] FCA 710 at [11]-[14].

Compliance with the Court's orders made at the first Court hearing

Dr Austin points to the evidence led by MyDeal that it complied with the orders convening the scheme meeting and further interlocutory orders made by the Court dealing, inter alia, with communications to shareholders. Dr Austin submits, and I accept that, the Court can be satisfied that the required documents for the scheme, including notification of the scheme meeting, were dispatched in compliance with the convening orders. MyDeal also published a notice of this hearing substantially in the form approved by the Court in a national newspaper. I have also referred above to Mr Kuret's evidence of calls made by his firm to larger shareholders in MyDeal who had not, as at 25 August 2022, lodged a proxy form, in order to remind them of the opportunity to vote at the scheme meeting, or lodge a proxy form before the cut-off time and date.
Dr Austin also recognises that, on 26 August 2022, MyDeal published an "Appendix 4E Full Year Annual Report" for the year ended 30 June 2022; an Investor Presentation titled "FY22 Results Presentation"; and an ASX and media release titled "MYDEAL EXCEEDS GUIDANCE TO DELIVER ANOTHER RECORD YEAR" (collectively "FY22 Financial Material"). As acknowledged by Mr Greenberg in his affidavit to which I referred above, the FY22 Financial Material included statements regarding the proposed scheme that had not been approved by the Court prior to their publication, which had, regrettably, also not been provided to MyDeal's solicitors for review before it was published on the ASX. Appropriately in the circumstances, MyDeal sought the Court's approval on 30 August 2022, to publish an ASX and media release which addressed the earlier publication of the FY22 Financial Material and the statements concerning the scheme in it. On 31 August 2022, the Court made orders approving the publication of the ASX and media release ("Corrective Notices"), which were published on the ASX announcements platform and on the MyDeal website on 31 August 2022. I return below to the relevance of the issue of the Corrective Notices to any questions of fairness in the context of the second Court hearing.
MyDeal complied with the orders made in respect of the conduct of the scheme meeting and, following voting, the scheme meeting was adjourned to allow for the tallying of the votes, and resumed to display the result of the poll. Dr Austin notes that this process was adopted to ensure that the meeting complied with the statutory requirement that the approval resolution be "passed" by the relevant majorities "at" the meeting convened in accordance with s 411(1) of the Corporations Act: Re MAC Services Group Ltd [2010] NSWSC 1474 per Barrett J at [13]. An extraordinary general meeting for MyDeal shareholders to consider a resolution to approve the grant of the put and call options to the Key Management Personnel (as defined) then took place and the relevant resolution was passed for the purposes of item 7 of s 611 of the Corporations Act.
Dr Austin recognises that, as had been noted at the first Court hearing and as I noted above, certain shares held by Key Management Personnel are participating in the scheme and were voted at the scheme meeting. MyDeal took steps to ensure that votes cast by Key Management Personnel and their associated entities were tagged so that the Court can assess whether the scheme would have been approved if those votes were disregarded. Those votes were identified and the results were recorded in Mr Greenberg's second affidavit, as were the votes of MyDeal's directors and executives. As I noted above, the results indicate that even without these votes, the resolution to approve the scheme would still have been carried by the requisite statutory majorities.

Voting results and attendance at the scheme meeting

Dr Austin in turn points to the evidence that 88% of shareholders present and voting in person or by proxy at the scheme meeting voted in favour of the resolution; 12% of those present and voting in person or by proxy voted against the resolution; and 1 shareholder abstained from voting, such that the voting majority by number of shareholders required by s 411(4)(a)(ii)(A) was satisfied. The number of shares which voted in favour of the resolution was 170,556,062 (99.89% of the total number of shares voted in person or by proxy) and the number of shares which voted against the resolution was 186,914 (0.11% of the total number of shares voted in person or by proxy), such that the voting majority by shares required by s 411(4)(a)(ii)(B) was also comfortably satisfied.
Dr Austin recognises that it is not uncommon for the Court at the second Court hearing to consider the number of shareholders who attended the scheme meeting in person or voted by proxy, as low shareholder turnout may be an indication that some procedural irregularity occurred: noting in Re TriAusMin Ltd (No 2) [2014] FCA 833 at [10]-[12], which has been cited with approval in many later cases including Tabcorp at [7]. He also points to Santow J's characteristically pragmatic observation in Re Matine Ltd (1998) 28 ACSR 268 at 295 that: "The apathetic shareholder who chooses not to vote upon a scheme should not be presumed to be antagonistic to the scheme or to warrant paternalistic protection. That is why the voting test for schemes (and capital reductions, selective or otherwise) is by reference to shareholders "present and voting", not by reference to the total issued capital or total shareholders of the relevant class… The policy of the Corporations Law is to afford primary weight to the votes of those who attend and vote, in person or by proxy, at a meeting convened under CL s411(1); subs (4)."
Dr Austin also refers to similar observations in Re WOTSO Ltd; Blackwall Fund Services Ltd as responsible entity of Blackwall Property Trust [2021] NSWSC 100 at [12] and in Re Real Energy Corporation Ltd (No 2) [2021] FCA 422 at [7].
Dr Austin notes that MyDeal shareholders who attended the meeting (in person or by proxy) represented only 4.71% of MyDeal Scheme Shareholders (as defined) by number, although they held 82.30% of the shares held by MyDeal Scheme Shareholders and 65.97% of MyDeal's total issued share capital. This compares favourably with the low bar set by MyDeal's 2021 Annual General Meeting ("AGM") held on 16 November 2021, which was attended by five MyDeal shareholders representing 0.11% of MyDeal shareholders entitled to attend and vote at the AGM. I accept Dr Austin's submission that the relatively low voter turnout is not a matter for concern, where the shareholders who attended that meeting held a high percentage of the shares entitled to be voted on the resolution, and a relatively high percentage of MyDeal's total issued share capital; a large number of shareholders have small shareholdings in MyDeal, and may wish to spend their time in other ways (compare Re Old Mutual plc [2018] EWHC 1875 (Ch) at [11]; Re Stellar Diamonds plc [2018] EWHC 1152 (Ch) at [14]); the voter turnout numbers at the scheme meeting were significantly higher than the turnout for MyDeal's 2021 AGM; and there is no reason to think that there has been issue as to the dispatch of scheme materials and appropriate efforts were made to encourage shareholders to vote at that meeting.

Issues arising from references to the scheme in the FY22 Financial Material

Dr Austin also addresses the position as to votes cast by a small number of shareholders after the FY22 Financial Material was published on 26 August 2022, referring to the scheme, and before the Corrective Notices were issued. Dr Austin points out that the financial information disclosed in the FY22 Financial Material does not create any reason for concern, where MyDeal provided the FY22 Financial Material to the Independent Expert for their opinion as to whether the audited FY22 results changed their opinion that the scheme is fair and reasonable and in the best interests of MyDeal shareholders absent a superior proposal, and it did not do so. As Dr Austin points out, that approach has been accepted in previous schemes, including, for example, Re Webcentral Group Ltd [2020] NSWSC 1279 ("Webcentral") at [34] and the authorities there cited.
As I noted above, MyDeal also sought the Court's approval for the publication of the Corrective Notices, where the FY22 Financial Material referred to the scheme but did not draw MyDeal shareholders' attention to any risks or disadvantages of the scheme and had not been approved by the Court. Dr Austin refers to my observations in Tabcorp at [17] and Re ResApp Health Ltd [2022] NSWSC 1014 ("ResApp"), that any proposed communications with shareholders should largely mirror the information that is contained in more detail in the scheme booklet; prominently direct recipients to read the scheme booklet before making any voting decision; and provide a fair summary of the scheme that does not highlight advantages rather than disadvantages. He rightly acknowledges that, in approving the Corrective Notices on 31 August 2022, I noted that the appropriateness of the steps being taken to bring the issue to the attention of MyDeal shareholders was properly dealt with at this hearing, following the approach in ResApp and Re Walsh & Company Investments Ltd [2020] NSWSC 1746 ("Re Walsh & Company"), where I accepted a submission that the ultimate question is whether the material had compromised the integrity of the voting process. Dr Austin submits and I accept that the integrity of the voting process has not been compromised here where, inter alia, the Corrective Notices advised MyDeal shareholders that they should read the FY22 Financial Material in the context of the disclosure in the scheme booklet in deciding how to vote at the scheme meeting and the EGM; that when considering the directors' recommendations, they should carefully read and take into account the disclosures made in the scheme booklet, including arguments for and against the proposed scheme; and they should also have regard to the interests of the MyDeal directors in the outcome of the proposed scheme, and directed shareholders to where a statement of those interests was to be found in the scheme booklet.
MyDeal fairly also acknowledges that the FY22 Financial Material was available online from 26 August 2022 for five days before the Corrective Notices were published on 31 August 2022. The evidence indicates that during this time, 43 MyDeal shareholders (0.01% of the total number of MyDeal Scheme Shareholders) submitted proxy forms in respect of the scheme meeting and MyDeal wrote to these shareholders to inform them of the publication of the Corrective Notices, and indicating that if they wished to change the way in which they had voted, then they could do so online or by contacting MyDeal's share registry. None of the 43 shareholders changed their proxies. I accept that appropriate steps were taken to address this issue which, in any event, appears to have had no effect on the outcome of the scheme meeting where, if those votes were disregarded, the scheme would still have passed by the requisite statutory majorities.

Other matters relevant to approval of the scheme

Dr Austin submits and I accept that the Court should conclude that the scheme is fair and reasonable such that an intelligent and honest shareholder, properly informed and acting alone, would approve it, in the light of: the independent expert's opinion that the proposed scheme was fair and reasonable, and was in the best interests of MyDeal shareholders; the support for the scheme by the substantial majority of MyDeal shareholders at the scheme meeting, and the MyDeal directors' recommendation and their intention to vote their shares in favour of the scheme; and the disclosures in the scheme booklet of the potential benefits and disadvantages of the proposed scheme.
There is no reason to think that MyDeal scheme shareholders have not voted in good faith or for an improper purpose in respect of the scheme, where it is an acquisition scheme of arrangement of a kind regularly approved by courts, including where certain shareholders have been excluded from the proposed scheme (Re Wellcom Group Ltd (No 2) [2019] FCA 1872), the independent expert has expressed the view that the scheme is in the best interests of MyDeal shareholders in the absence of a superior proposal, as I noted above, and neither ASIC nor anyone else has sought to appear at the second Court hearing to object to approval of the scheme. I was satisfied, for the purposes of the first Court hearing, that neither the holders of incentive plan options nor the Key Management Personnel or their associated entities required separate classes for the purposes of voting on the scheme, subject to the tagging of votes which I noted above; nothing has occurred to change that position; and, as I noted above, the resolution to approve the scheme would still have been passed by the requisite majorities if the votes cast by Key Management Personnel and their associated entities had been disregarded. There is also no reason to think, having regard to the explanatory booklet, that there has not been full and fair disclosure to shareholders of all information material to their decision whether to vote for or against the scheme.
Before approving a scheme of arrangement, the Court will ordinarily also need to be satisfied that all conditions precedent to the scheme (other than the Court's approval and the lodgement of the Court's approval order with ASIC) have been satisfied or waived, so as to avoid any future doubt as to the binding nature of the scheme: Re Vault Intelligence Ltd (No 2) [2020] FCA 1504 at [25]. As I noted above, MyDeal and Woolworths have executed a deed confirming satisfaction or waiver of the conditions precedent. Dr Austin also rightly recognises the requirement to bring all relevant matters to the Court's attention, arising from the nature of the proceedings as an ex parte application: Re Permanent Trustee Company Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 at [7] per Barrett J.

Sections 411(11) and 411(17) of the Corporations Act

MyDeal seeks an order pursuant to s 411(12) of the Corporations Act that it be exempted from compliance with section 411(11) of the Corporations Act which would otherwise, broadly, require that a copy of the Court's order approving a scheme of arrangement be annexed to every copy of the company's constitution issued after the order is made. That order should be made where the scheme does not amend MyDeal's Constitution and, after the scheme is approved by the Court and implemented, MyDeal will be delisted from the ASX: Re Villa World Ltd [2019] NSWSC 1509 at [13]; Re Vault Intelligence at [34].
I need not further address any issue under s 411(17) of the Corporations Act, where ASIC has not raised any objection to the scheme under that section, and no issue has been raised concerning Ch 6 of the Corporations Act by any interested person: Re Vault Intelligence at [31].

Orders

For these reasons, I made the orders sought by MyDeal at the conclusion of the second Court hearing on 13 September 2022.

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: 29 September 2022

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