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[2025] NSWSC 317
General information, not legal advice.
Supreme Court of NSW
2025-04-04
Nixon J
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: In the matter of Navalo Financial Services Group Limited [2025] NSWSC 317
Hearing dates: 4 April 2025
Date of orders: 4 April 2025
Decision date: 04 April 2025
Jurisdiction: Equity - Corporations List
Before: Nixon J
Decision: Orders made approving acquisition of shares.
Catchwords: CORPORATIONS – approval of compulsory acquisition of shares from minority shareholders pursuant to s 664F of the Corporations Act 2001 (Cth) – standing requirements – procedural requirements – whether the shares are to be acquired at a fair value
CORPORATIONS – application for order under s 1322(4)(a) of the Corporations Act 2001 (Cth) to extend the time for dispatch of the prescribed notice under s 665B(2) to holders of convertible securities – whether there is utility in requiring compliance with obligations in ss 665A and 665B of the Act within the period stipulated by the Act – extension of time granted
Legislation Cited: Corporations Act 2001 (Cth) ss 46, 50, 664A, 664B, 664C, 664E, 664F, 664AA, 665B, 667, 667AA, 1322
ASIC Regulatory Guide 10 Compulsory Acquisitions and buyouts
ASIC Regulatory Guide 111 Content of expert reports
ASIC Regulatory Guide 112 Independence of experts
Civil Procedure Act 2005 (NSW)
Cases Cited: BG & E Management Pty Ltd v de Abolitz [2016] FCA 1368
Elderslie Finance Corporation Ltd v Australian Securities Commission (1993) 11 ACSR 157
Energex Ltd v Elkington (No 2) [2003] QSC 34 Energex Ltd v Elkington [2003] QCA 430
Ijack Pty Ltd v Cobb, in the matter of Vealls Ltd [2018] FCA 1321
In the matter of Openpay Group Ltd (recs and mgrs apptd) (subject to a DOCA) [2024] NSWSC 789
Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456
Weinstock v Beck (2013) 251 CLR 396; [2013] HCA 14
Category: Principal judgment
Parties: Metrics Business Finance Holdings Pty Ltd (Plaintiff)
PG Capital Pty Ltd as trustee for Gold Ventures Trust (First Defendant)
Plecjam Pty Ltd (Second Defendant)
Topaca Pty Ltd (Third Defendant)
Ronald Mark Evans and Janet Elizabeth Evans (Fourth Defendants)
Irwin David Klotz (Fifth Defendant)
Paul Samuel Cowan (Sixth Defendant)
Amarandhar Reddy Kotha (Seventh Defendant)
Linkwater Nominees Pty Ltd (Eighth Defendant)
Kimo Estate Holdings Pty Ltd (Ninth Defendant)
Sumo Nominees Pty Ltd (Tenth Defendant)
Lina Scalzo (Eleventh Defendant)
Rizzi Pty Ltd as trustee for Davmica Super Fund (Twelfth Defendant)
Representation: Counsel:
J Giles SC and L Muir (Plaintiffs)
Solicitors:
MinterEllison (Plaintiffs)
Henry William Lawyers (Fifth, Sixth, Seventh, Eleventh and Twelfth Defendants)
File Number(s): 2024/00452410
By Originating Process filed on 5 December 2024, the Plaintiff, Metrics Business Finance Holdings Pty Ltd (MBFH), seeks:
a declaration that the terms set out in a notice of compulsory acquisition issued to each of the holders of ordinary shares in Navalo Financial Services Group Limited (Compulsory Acquisition Notice) give a fair value, for the purposes of s 664F(3) and s 667C of the Corporations Act 2001 (Cth) (Act), for the shares which are the subject of that notice; and
an order under s 664F of the Act approving the acquisition by MBFH of Navalo’s ordinary shares on the terms set out in the Compulsory Acquisition Notice
(together, the Compulsory Acquisition Application).
In addition, by an Interlocutory Process filed on 2 April 2025, MBFH seeks leave to amend its Originating Process so as to seek an order pursuant to s 1322(4)(d) of the Act that the time for dispatch of the prescribed notice under s 665B(2) of the Act to holders of convertible securities be extended to the date which is three months after the date of the orders made on the Compulsory Acquisition Application. MBFH also moves on that extension application (the Extension of Time Application).
The twelve Defendants are minority shareholders in Navalo who have objected to the compulsory acquisition of their shares. There was evidence that each of them has been served. Only the Fifth, Sixth, Seventh, Eleventh and Twelfth Defendants (Active Defendants) entered an appearance in these proceedings.
The Active Defendants opposed the Compulsory Acquisition Application. However, they did not serve any evidence, including any evidence of value, and did not require the independent expert, Mr David McCourt, for cross-examination. At the hearing, the Active Defendants did no more than refer to and rely upon the terms of the objection notices which they had lodged, and otherwise did not make any submissions in opposition to the relief sought by MBFH.
In support of the Compulsory Acquisition Application and the Extension of Time Application, MBFH read three affidavits of Mr Andrew Lockhart, who is a director of MBFH; two affidavits of Mr Michael Swain, who is a solicitor employed by MBFH’s solicitors, MinterEllison; and an affidavit of the independent expert, Mr McCourt of BDO Corporate Finance Australia Pty Ltd.
Navalo was incorporated in 2015. It had been listed on the Australian Stock Exchange, but was delisted on 28 July 2023.
Navalo offers “Buy Now – Pay Later” consumer finance products in Australia and New Zealand.
On 10 July 2024, MBFH acquired a tranche of ordinary shares in Navalo, pursuant to a pro-rata non-renounceable entitlement offer for new fully paid shares in Navalo at an offer price of $0.194. As explained further below, this acquisition resulted in MBFH and a related body corporate (the Metrics Shareholders) holding full beneficial interests and voting power in approximately 97.10% of the shares on issue in Navalo.
On 16 July 2024, MBFH determined to exercise its right under Part 6A.2 of the Act to compulsorily acquire all of the shares in Navalo which were not owned by the Metrics Shareholders (the Minority Shares). The offer price for the proposed compulsory acquisition is cash consideration of $0.194 per Minority Share.
On 30 July 2024, MBFH requested, in accordance with s 667AA(1) of the Act, that the Australian Securities and Investments Commission (ASIC) nominate an independent expert to provide an opinion regarding whether the terms of the proposed compulsory acquisition provided a fair value for the Minority Shares.
On 5 August 2024, ASIC responded by nominating three potential independent experts, including BDO.
MBFH elected to engage BDO as the independent expert, and on 12 August 2024 sent a letter of instructions to BDO to prepare an independent report in respect of the compulsory acquisition.
On 24 September 2024, BDO issued its independent expert report (IER). The IER stated, in a section headed “Summary of opinion”, that: “We consider the Offer as outlined in the Notice of Compulsory Acquisition to provide fair value for the Minority Shares.” I address the basis for this opinion below.
On 3 October 2024, the Compulsory Acquisition Notice was lodged with ASIC.
On the same day, the Compulsory Acquisition Notice, the IER and an objection form were provided to holders of Minority Shares (the Minority Shareholders). On 4 October 2024, those documents were also provided to Navalo.
The Compulsory Acquisition Notice:
gave notice to the Minority Shareholders that MBFH proposed to compulsorily acquire the Minority Shares which they held for the cash amount of $0.194 per share;
disclosed that on 11 July 2024, MBFH had purchased shares in Navalo for $0.194 pursuant to an entitlement offer; and
notified the Minority Shareholders that, under s 664E of the Act, they had the right to object to the compulsory acquisition of their Minority Shares by completing and returning the objection form accompanying the Compulsory Acquisition Notice within one month of receiving that notice.
The provisions dealing with the compulsory acquisition of securities by a 90% holder are set out in Div 1 of Pt 6A.2 of the Act.
Section 664F of the Act provides as follows:
The Court's power to approve acquisition
(1) If people who hold at least 10% of the securities covered by the compulsory acquisition notice object to the acquisition before the end of the objection period, the 90% holder may apply to the Court for approval of the acquisition of the securities covered by the notice.
(2) The 90% holder must apply within 1 month after the end of the objection period.
(3) If the 90% holder establishes that the terms set out in the compulsory acquisition notice give a fair value for the securities, the Court must approve the acquisition of the securities on those terms. Otherwise it must confirm that the acquisition will not take place.
Note: See section 667C on valuation.
(4) The 90% holder must bear the costs that a person incurs on legal proceedings in relation to the application unless the Court is satisfied that the person acted improperly, vexatiously or otherwise unreasonably. The 90% holder must bear their own costs.
In Ijack Pty Ltd v Cobb, in the matter of Vealls Ltd [2018] FCA 1321 at [17]-[19], Moshinsky J reviewed the authorities and identified that there are essentially three principal matters that an applicant under s 664F must address, namely:
standing – is the applicant a “90% holder”?;
compliance with procedural requirements – has the 90% holder complied with the requirements of Pt 6A.2?; and
fair value – do the terms of the compulsory acquisition notice offer a fair value for the outstanding securities?
As regards the first matter, in order to have standing, the applicant must have been a 90% holder under s 664A(1) or s 664A(2) of the Act when it issued the compulsory acquisition notice and must have issued the notice within the time prescribed by s 664AA: Ijack at [29].
As regards the second matter, ss 664B, 664C, 664E and 664F(2) contain the procedural requirements with which a 90% holder must comply in order to compulsorily acquire shares.
As regards the third matter, section 667C of the Act provides as follows in relation to the determination of “fair value”:
(1) To determine what is fair value for securities for the purposes of this Chapter:
(a) first, assess the value of the company as a whole; and
(b) then allocate that value among the classes of issued securities in the company (taking into account the relative financial risk, and voting and distribution rights, of the classes); and
(c) then allocate the value of each class pro rata among the securities in that class (without allowing a premium or applying a discount for particular securities in that class).
(2) Without limiting subsection (1), in determining what is fair value for securities for the purposes of this Chapter, the consideration (if any) paid for securities in that class within the previous 6 months must be taken into account.
“The expression ‘fair value’ is a statutory label, the sole meaning of which comes from s 667C itself. The use of the word ‘fair’ does not mean that there is a search for something which is intrinsically fair according to general notions of fairness: see Teh v Ramsay Centauri [2002] NSWSC 456; (2002) 42 ACSR 354 at 357 [12]. Fair value is to be determined by asking what price would be negotiated in a hypothetical transaction between two willing but not anxious parties: see Ramsay at 358 [14]-[16]; Capricorn Diamonds Investments Pty Ltd v Catto (2002) 5 VR 61 at 76-77 [59]-[61].
The Corporations Act provides no direct guidance about the appropriate methodology for assessing the ‘value of the company as a whole’. Typically, however, one or more valuation methods that are generally accepted methods of valuation of companies are adopted. They include discounted cash flow, net realisable assets or an estimate of future earning with a capitalisation factor: see Ramsay at 359-360 [22]-[23]. The expert report in this matter adopted the discounted cash flow methodology for the reasons explained in the report.
The value is to be determined at the date of the compulsory acquisition notice: see Ramsay 361 [28]-[29]. The process described in s 667C(1) must be undertaken and a value determined before reviewing that result in light of the material to which s 667C(2) draws attention: see Ramsay at 360 [27].
Getting a fair value for the securities is not necessarily the same thing as being fair to an individual shareholder. Section 667C limits the factors which can be taken into account in deciding what is a fair value for securities. In consequence, the individual circumstances and wishes of a shareholder whose shares are acquired are not a matter which enters into the question of whether the terms set out in the compulsory acquisition notice give a fair value for the securities: Dolby Australia Pty Ltd v Catto [2004] NSWSC 1222; (2004) 52 ACSR 204 at 226 [82].
When deciding whether the value is fair, the proper approach is to consider whether it is fair to all shareholders, rather than whether it is fair to a particular shareholder or class of shareholders in the peculiar circumstances of the case: see Capricorn Diamonds at 77 [60].
The Court’s decision must largely be based on the expert report. If the report contains such deficiencies that it was impossible to determine whether the price was fair, approval would be refused. However, the report does not need to be beyond criticism for a judge to act on it and conclude that the price was fair: CCPI Holdings Proprietary Limited v Joan Hose and Ronald Hose [2011] VSC 34 at [7], quoting Bromley Investments Pty Ltd v Elkington [2003] QCA 407; (2003) 47 ACSR 273 at 279 [18] (per Williams JA).”
A person is a 90% holder in relation to a class of securities of a company if the person holds, either alone or with a related body corporate, full beneficial interests in at least 90% of the securities (by number) in that class.
At all times since 10 July 2024:
Navalo has had 55,142,545 ordinary shares on issue;
MBFH and MCH Investment Management Services Pty Ltd as trustee for MCP Credit Trust 1 (CT1) have held, between them, 53,542,507 ordinary shares in Navalo; and
accordingly, MBFH and MCH Investment Management have held, between them, approximately 97.10% of the ordinary shares of Navalo on issue.
MBFH holds its shares in Navalo beneficially.
MCH Investment Management holds its shares in Navalo on trust for CT1, which is a unit trust. The sole unitholder is Metrics Credit Holdings Pty Ltd. Accordingly, assets held by MCH Investment Management as trustee of CT1 (including all of the ordinary shares which it holds in Navalo) are beneficially held for Metrics Credit Holdings.
Metrics Credit Holdings is the holding company of Metrics Business Finance Group Pty Ltd, which in turn holds around 75.76% of the shares in MBFH. It follows that MBFH is a subsidiary of Metrics Business Finance Group (s 46(a)(iii) of the Act) and is also a subsidiary of Metrics Credit Holdings (s 46(b) of the Act).
By reason of those matters, MBFH holds, with a related body corporate, full beneficial interests in at least 90% of the ordinary shares in Navalo, and is therefore a “90% holder” within s 664A(1) of the Act.
I note that none of the Active Defendants raised, in an objection notice or otherwise, any contention to the effect that MBFH did not have standing to bring the Compulsory Acquisition Application.
Section 664AA of the Act provides that the 90% holder in relation to a class of securities of a company may compulsorily acquire securities in that class under s 664A only if the 90% holder lodges the compulsory acquisition notice with ASIC within, relevantly, the period of 6 months after becoming the 90% holder in relation to that class.
It follows that the period within which MBFH could lodge a compulsory acquisition notice was from 10 July 2024 to 10 January 2025. The Compulsory Acquisition Notice, which was lodged with ASIC on 3 October 2024, was therefore lodged within time.
By reason of those matters, the standing requirements are satisfied.
As noted above, the procedural requirements for a compulsory acquisition are set out in ss 664B, 664C, 664E and 664F(2) of the Act.
Section 664B(1) provides that the 90% holder “may acquire the securities in the class for a cash sum only, and subject to subsection (2), must pay the same amount for each security in the class acquired”.
The terms of the Compulsory Acquisition involve the payment of a cash sum of $0.194 for each Minority Share. This requirement is therefore satisfied.
Section 664C provides that the 90% holder:
must prepare a compulsory acquisition notice in the prescribed form that contains the information within s 664C(1)(a)-(e);
must lodge the compulsory acquisition notice with ASIC (s 664C(2)(a));
must give, by the next business day following lodgement of the notice, a copy of “the expert’s report … under s 667A” and an objection form to each other shareholder (s 664C(2)(b) and (3));
must give copies of those documents to the company (and if the company is listed, to the relevant market operator) (s 664C(2)(c)-(d)); and
may not withdraw a notice under this section (s 664C(6)).
The Compulsory Acquisition Notice is in the prescribed form and contains the required information. It was lodged with ASIC on 3 October 2024 and has not been withdrawn.
On 3 October 2024, the Compulsory Notice, the IER and an objection form were dispatched to the Minority Shareholders either electronically or by post (depending on the shareholders’ respective standing elections regarding the physical or electronic receipt of documents). The material was also provided to Navalo on the following day.
The IER is an “expert’s report …under s 667A”. Section 667A(1) provides that an expert report under, relevantly, s 664C must be prepared by a person nominated under s 667AA; must state whether, in the expert’s opinion, the terms proposed in the compulsory acquisition notice give a fair value for the securities concerned; and must set out the reasons for forming that opinion. The IER which was prepared by BDO (who were nominated by ASIC following a request made under s 667AA of the Act) contains the required statement by the expert and the reasons for the expert’s opinion.
Seven of the 354 emails to Minority Shareholders “bounced back” and 51 of the 735 postal dispatches were returned to sender (representing a failure rate of around 5%).
MBFH submits that insofar as the returned dispatches and bounce backs constitute a procedural irregularity, this does not invalidate the proceeding. In that regard, MBFH relies on s 1322(2) of the Act, which provides as follows:
A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid.
Having regard to the evidence before the Court, I accept MBFH’s submission that there is no substantial injustice in the present case. There was no further step that could practically have been taken to bring the Compulsory Acquisition Notice to the Minority Shareholders’ attention and the failure by those shareholders to update their standing elections for the receipt of notices from Navalo suggests that they did not have a continuing interest in the affairs of Navalo, in circumstances where its shares had been delisted in July 2023 (see, in a different context, the observations of Black J in In the matter of Openpay Group Ltd (recs and mgrs apptd*) (subject to a DOCA)* [2024] NSWSC 789 at [14]).
Section 664E of the Act provides that the 90% holder must lodge with ASIC a copy of any objection form as soon as practicable after it is received, and must, as soon as practicable after the end of the objection period, lodge with ASIC and give to the company (and any relevant market operator) a list of persons who have objected to the acquisition and details of the securities which they hold.
MBFH complied with these requirements. The objection period ended on 6 November 2024. Objection notices were received between 3 and 6 November 2024. On 8 November 2024, the objection notices and a list of objectors were lodged with ASIC and on 11 November 2024, those documents were provided to Navalo.
Section 664F(2) provides that the 90% holder must make any application to the Court for approval of the compulsory acquisition of the securities within one month after the end of the objection period. MBFH filed its Originating Process on 5 December 2024, and therefore within time.
Section 664E(4)(b) provides that, if objections are made, the 90% holder must give notice of any Court application to approve the acquisition to everyone to whom the compulsory acquisition notice was sent. MBFH gave such notice to the Minority Shareholders on 6 December 2024.
It follows that there has been compliance with the procedural requirements in Pt 6A.4 of the Act.
If MBFH establishes that the terms set out in the Compulsory Acquisition Notice give a fair value for the ordinary shares in Navalo, the Court must approve the acquisition of the shares on those terms: s 664F(3) of the Act.
In order to establish this requirement, MBFH relies on the IER, in which BDO adopts a number of alternative valuation methodologies and concludes, on the basis of this analysis, that the offer outlined in the Notice of Compulsory Acquisition provides fair value for the Minority Shares.
There is no competing expert evidence on the issue of valuation. Mr McCourt, who signed the IER and swore an affidavit in this proceeding, was not required for cross-examination. Mr McCourt’s curriculum vitae discloses that he has extensive experience in the preparation of independent expert reports in respect of the proposed acquisition of securities.
The Active Defendants did not advance, at the hearing, any submissions as to why BDO’s opinions should not be accepted. Instead, they simply referred to and relied on the terms of their objection notices.
Some of those notices raise matters going to, more broadly, the “fairness” of the means by which the Metrics Shareholders became a 90% holder, or the “fairness” of the compulsory acquisition process. However, as Barrett J remarked in Teh v Ramsay Centauri Pty Ltd [2002] NSWSC 456 at [7]-[9], whereas under the predecessor provisions “it was open to a shareholder subjected to a compulsory acquisition proposal after the conclusion of a takeover to attack the proposal on any ground going to fairness”, under the current statutory regime “there is no scope for the court to embark upon some general inquiry as to the fairness … of the proposed compulsory acquisition of the plaintiff’s shares”. Instead, “a single and narrow avenue of attack is available”, which is “confined to the particular question of adequacy of consideration”, and that question “is to be answered solely by reference to the statutory concept of ‘fair value for securities’ defined by s 667C”.
Some of the objection notices raised an issue concerning the adequacy of the information provided to BDO. In that regard, BDO states in the IER that it has considered the information provided by management of Navalo; that this information has been “evaluated through analysis, inquiry and review”; that it has formed the view that this information is “reliable, complete and not misleading”; and that it “has no reason to believe that any material facts have been withheld”. There is no reason for the Court not to accept BDO’s opinions on these matters.
Finally, some of the objection notices raised an issue about the valuation methodology adopted. I refer to some of these matters below. However, there is plainly a difficulty in the Court accepting a contention which is raised by a Minority Shareholder regarding an expert valuation, in circumstances where there is no evidence that the Minority Shareholder has any relevant expertise and where no Minority Shareholder has put before the Court any expert evidence in relation to these matters or has sought, in cross-examination, to put any such criticism to Mr McCourt.
“The price that would be negotiated in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller acting at arm’s length.”
The IER also notes that, in determining whether the offer gives fair value for Minority Shares, BDO took into account:
ASIC Regulatory Guide 10 Compulsory Acquisitions and buyouts;
ASIC Regulatory Guide 111 Content of expert reports (RG111); and
ASIC Regulatory Guide 112 Independence of experts.
In particular, the IER notes that RG111.11 indicates that an offer is “fair” if the value of the offer price or consideration is equal to or greater than the value of the securities the subject of the offer; and that the value of the securities the subject of the offer is determined assuming:
a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at arm’s length; and
100% ownership of the target company, irrespective of the percentage holding of the bidder or its associates in the target company.
The IER further comments that:
“RG 111.48 states that to determine what ‘fair value’ is, Section 667C of the Act requires that an expert:
First assess the value of the entity as a whole
Then allocate that value among the classes of issued securities in the company (taking into account the relative financial risk, voting, and distribution rights of the classes)
Then allocate the value of each class pro rata among the securities in that class (without allowing any premium or applying a discount for particular securities or interest in that class).
RG 111.49 states that in determining the fair value for securities, an expert must also take into account the prices paid for securities in that class in the previous six months (Section 667C(2) of the Act).
RG 111 suggests that where the transaction is a control transaction, the expert should focus on the substance of the control transaction rather than the legal mechanism to effect it. RG 111 suggests that where a transaction is a control transaction, it should be analysed on a basis consistent with a takeover bid.
In our opinion, the Compulsory Acquisition is a control transaction as defined by RG 111 and we have therefore assessed the Compulsory Acquisition as a control transaction to consider whether, in our opinion, it offers a fair value for the Minority Shares.”
The IER provides an analysis of Navalo’s financial performance (section 3) and an industry analysis (section 5), before turning to consider the available valuation methodologies (section 6).
The IER identifies that five common methodologies for valuing businesses and assets are discounted cash flow (DCF); capitalisation of earnings (COE); net asset value (NAV); quoted market price (QMP); and historical capital raisings.
The IER proceeds to provide a valuation of the shares in Navalo on three of these bases, but not on the DCF or the QMP methodology. The QMP methodology was plainly not available as Navalo’s shares are not listed in a regulated and observable market. BDO explained that the DCF methodology is appropriate where earnings are capable of being forecast for a reasonable period (preferably five to ten years) with reasonable accuracy. However, BDO was not provided with the forecast financial information required to adopt this methodology for Navalo.
Some of the Defendants criticised, in their objection notices, the failure to apply a DCF methodology. However, it is not apparent how such a methodology could be applied where, as BDO explains, the necessary information is not available; and further, the IER discloses that Navalo has made substantial losses before tax, in the range of $10-12m, for the past three financial years. In the absence of any expert evidence from the Minority Shareholders to establish that a DCF methodology could have been applied, or would have led to a different outcome, I do not consider that BDO’s decision not to apply such a methodology provides a basis for rejecting BDO’s conclusions on fair value.
Applying the other three valuation methodologies, BDO determined that the fair value of a share in Navalo was:
Nil, applying the COE methodology;
$0.140, applying the NAV methodology; and
$0.248, applying the historical capital raise methodology.
As regards the first of these methodologies, there was some suggestion in the objection notices that BDO did not select appropriate comparable companies in applying the COE methodology. However, the selection of appropriate comparables is a matter within the expertise of BDO, and there is no reason on the face of the IER for the Court not to accept BDO’s opinions in this regard (particularly since the comparables selected by BDO have similar revenue to Navalo, whereas those companies which the objectors contend should have been selected as comparables have revenue 30 or 40 times higher than Navalo).
After applying the three methodologies set out above, the IER concluded by reporting as follows:
“In determining whether the Offer provides fair value for the Minority Shares, we have considered:
The Offer of $0.194 falls between the fair value of a Navalo share determined under the NAV (c.$0.140) and historical capital raise (c.$0.248) methodologies.
The COE valuation is prepared on a going concern basis. Under this methodology, the fair value of a Navalo share is nil.
Under an orderly realisation scenario (i.e. the NAV methodology), the fair value of a Navalo share is c.$0.140. The NAV only became positive in July 2024 as a result of the Entitlement Offer, under which c.98.95% of the funds received were contributed by Metrics Group (see Section 3.7.3).
As required by Section 667C, we have considered acquisitions of Navalo shares in the last six months. We have placed reduced reliance on the historical capital raise methodology, as the Entitlement Offer had minimal participation by non-Metrics Group shareholders (i.e. only 10.68%), which may indicate the Entitlement Offer price was above the fair value of a Navalo share.
Therefore, we consider the Offer as outlined in the Notice of Compulsory Acquisition to provide fair value for the Minority Shares.”
A number of the objection notices made complaints to the effect that “fair value” should have been determined on the basis of historical capital raises, which would have led to a higher value for the Navalo shares. Such objections do not provide a basis for the Court to reject BDO’s opinion on fair value.
First, s 667C(2)of the Act provides that, in determining what is fair value for securities for the purposes of Ch 6A of the Act, “the consideration (if any) paid for securities in that class within the previous 6 months must be taken into account”. The only raising of capital in Navalo in the six months prior to the Compulsory Acquisition Notice was at a price of $0.194 per share, which is precisely equal to the offer made under the Compulsory Acquisition Notice.
Secondly, in circumstances where BDO has, based on its expertise, applied and had regard to three different valuation methodologies in determining the fair value of Navalo shares, and there is no competing expert evidence, there is no basis for the Court to conclude that fair value should be determined on the basis of only the historical capital raise methodology.
Thirdly, in July 2024, all shareholders, including the Minority Shareholders, were offered the opportunity to purchase shares in Navalo at the price of $0.194 per share. However, as noted in the BDO report:
“participation of non-Metrics Group shareholders in the Entitlement Offer was low at only c.10.68%. The low take-up may be an indication the Entitlement Offer was above fair value. Therefore, we have placed reduced reliance on the historical capital raise methodology”.
Accordingly, the criticisms of the IER which are made in the objection notices either are irrelevant to the determination of “fair value” or have not been established.
Having regard to those matters, I am satisfied that the terms set out in the Compulsory Acquisition Notice give fair value to the ordinary shares in Navalo.
It follows that, in accordance with s 664F(3) of the Act, the Court must approve the acquisition of the ordinary shares in Navalo on those terms.
Accordingly, I will grant MBFH the relief sought in respect of the Compulsory Acquisition Application.
On completion of the compulsory acquisition, MBFH will become a “100% holder” within the meaning of s 665A(1) of the Act, as MBFH and its related body corporate, Metrics Credit Holdings, will then hold full beneficial interests in all of the ordinary shares in Navalo.
Section 665A(2) of the Act relevantly provides as follows:
A 100% holder in relation to a class of securities (the main class) who becomes a 100% holder through compulsory acquisitions under this Part must offer to buy out the holders of securities in another class that are convertible into main class securities in accordance with sections 665B and 665C. …
Failure to comply with this obligation is a strict liability offence: s 665A(3).
Navalo has the following other securities on issue:
35,555,560 convertible notes (Notes); and
21,713 warrants (Warrants).
The Notes were issued pursuant to a convertible note deed poll executed by Navalo on 5 May 2022. There are 31 holders of the Notes (Noteholders). Only one of them is a defendant to this proceeding, being the Fifth Defendant, who holds 1.97% of the Notes on issue. Three Noteholders, who together hold 10.97% of the Notes on issue, are Minority Shareholders who did not lodge an objection to the Compulsory Acquisition Notice. The maturity date for all Notes on issue is the fourth anniversary of the issue date, which will fall in May 2026. Pursuant to the terms of the Notes, the next date that Navalo may issue a voluntary redemption notice is 13 May 2025 for all Notes other than those held by CT1, and 17 May 2025 for the Notes held by CT1. The redemption amount for the Notes is $0.225, plus any accrued unpaid interest, per Note.
The only holder of Warrants in Navalo is Goldman Sachs International, which is not a shareholder. The exercise price of the Warrants as payable by the Warrant holder is $4.5375. The Warrants expire on 29 September 2027, being four years from the date of their issue.
Sections 665B and 665C of the Act set out the procedure which must be followed by MBFH in respect of these other securities, upon MBFH becoming a 100% holder. In particular, MBFH must:
prepare a notice in the prescribed form containing the information in s 665B(1)(a), including the cash sum for which it is willing to acquire the Notes and Warrants;
obtain an expert report under s 667A in relation to the sum offered for the Notes and Warrants;
within one month after becoming 100% holder, lodge a copy of the notice with ASIC and give each holder of Notes or Warrants the notice and a copy of the expert’s report; and
allow one month for each holder of Notes or Warrants to give a notice to MBFH requiring MBFH to acquire their securities.
On the basis that MBFH becomes 100% holder on 4 April 2025, it would be required to send out the necessary material to holders of Notes and Warrants by 5 May 2025, and the holders would have until 5 June 2025 to provide notice to MBFH requiring it to acquire their securities.
MBFH submits that this process “is likely to be entirely inutile, and likely can be avoided” if the Extension of Time Application is granted, for the following reasons:
(a) so far as the Notes are concerned, the redemption amount of the Notes ($0.225 plus accrued unpaid interest) exceeds the fair value of an ordinary share in Navalo ($0.194), and will therefore likely exceed the amount which MBFH would be willing to pay per Note; and (b) so far as the Warrants are concerned, Goldman Sachs would likely not seek to exercise their entitlement to purchase shares in Navalo at a price of $4.5375, in circumstances where that exercise price substantially exceeds the fair value of those shares, such that the value of the Warrants is negligible.
Thirdly, on completion of the compulsory acquisition, MBFH will procure funding to be provided to Navalo in order for Navalo to redeem the Notes for the Redemption Amount. It is anticipated that Navalo will take steps to redeem the Notes at the earliest opportunity (on 13 and 17 May 2025), following which the Noteholders may elect to be paid out for their Notes 20 days later (that is, on 5 or 9 June 2025 as applicable).
Fourthly, MBFH is in negotiations with Goldman Sachs and it is likely that the Warrants will be bought out or terminated by agreement by 11 April 2025.
Given those matters, MBFH seeks that the time period specified in s 665B(2) of the Act, within which the required material is to be sent to holders of Notes and Warrants, be extended to the date that is three months after the date of the orders made in the Compulsory Acquisition Application, in the expectation that, by the end of that period, all of the Warrants and Notes will have been acquired, redeemed or terminated, such that there will not be any need to comply with the regime in ss 665A to 665C of the Act.
The Fifth Defendant is the only Active Defendant who is also a Noteholder. He did not oppose the application. MBFH has also provided notice of this application and the supporting material to ASIC. By an email sent on 3 April 2025, ASIC stated that it neither supported nor objected to the Extension of Time Application and did not intend to appear at the hearing.
Section 1322(4)(d) of the Act provides, relevantly, that the Court may, on an application by any interested person, make (either unconditionally or subject to such conditions as the Court imposes) “an order extending the period for doing any act, matter or thing … under this Act or in relation to a corporation”.
Section 1322(6) provides that the Court may not make an order under, relevantly, s 1322(4)(d) unless it is satisfied “that no substantial injustice has been or is likely to be caused to any person”.
This provision confers a remedial power on the Court, the exercise of which is conditioned always on satisfaction by the Court that no substantial injustice has been or is likely to be caused to any person, which is therefore to be “construed with all the liberality that its language permits”: Weinstock v Beck (2013) 251 CLR 396; [2013] HCA 14 at [60] per Gageler J. The word “injustice” requires the Court to consider real, and not merely insubstantial or theoretical, prejudice: Elderslie Finance Corporation Ltd v Australian Securities Commission (1993) 11 ACSR 157 at 160 (Owen J).
MBFH is an “interested person” for the purposes of s 1322(4)(d) because, unless the period in s 665B(2) is extended, it will be required, within the next month, to take a series of steps which will involve significant costs being expended, particularly in procuring the preparation of a further expert report.
I am satisfied that no substantial injustice has been or is likely to be caused to any person by reason of the proposed extension, in particular because, for the reasons set out above:
it is unlikely that any offer made under s 665A would be accepted by the holders of Notes or Warrants;
the proposed extension of the period (from one month to three months) is relatively short;
if there remains any Notes or Warrants on issue at the end of the period so extended, the holders of those securities will then have the benefit of being able to exercise their rights under the regime in ss 665A to 665C; and
the extension does not interfere with the rights of holders of the Notes or Warrants under their respective issue documents.
For those reasons, I am satisfied that the Extension of Time Application should be granted.
MBFH must bear its own costs of the Compulsory Acquisition Application: s 664F(4) of the Act.
In addition, s 664F(4) provides that the 90% holder “must bear the costs that a person incurs on legal proceedings in relation to the application unless the Court is satisfied that the person acted improperly, vexatiously or otherwise unreasonably”.
MBFH submitted that there should be no order as to the costs of the Active Defendants, on the basis that the conduct of the Active Defendants in appearing in the proceedings to oppose the application, but not filing any evidence in opposition to the application, and in not identifying any basis for challenging BDO’s report or MBFH’s compliance with the statutory provisions, was unreasonable within the meaning of s 664F(4) of the Act.
I do not accept this submission.
The default position prescribed by the Act is that the 90% holder must bear the costs which any person “incurs on legal proceedings in relation to the application”. That is not preconditioned on such person adopting any particular role in such proceedings, including filing evidence or advancing submissions. That default position will apply unless the person has behaved “improperly, vexatiously or unreasonably” in relation to those proceedings. There is no allegation that any aspect of the conduct of the Active Defendants has been improper or vexatious. In general terms, when considering, in the context of any determination regarding costs, whether a party has behaved “unreasonably” in relation to a proceeding, the Court is considering whether the party, by the position adopted in respect of the proceeding or by the manner in which that position has been advanced, has caused time to be wasted or unnecessary expense to be incurred. For example, the only authority to which MBFH referred in support of its submission on costs was a case in which the objectors to a s 664F application adopted a position on the application which was contrary to authority: Energex Ltd v Elkington (No 2) [2003] QSC 34 at [11]-[12] (affirmed in Energex Ltd v Elkington [2003] QCA 430 at [24]-[29]).
There was no submission that the Active Defendants had adopted any unreasonable position in response to the application, or had by their conduct in relation to the application caused any time or costs to be wasted.
I do not consider that the Active Defendants could be said to have behaved unreasonably merely by appearing at the application in order to draw the Court’s attention to, and to rely on, the matters set out in their objection notices, and to adopt, in effect, a position of putting MBFH to proof on the issue of fair value.
For those reasons, I have concluded that there should be an order, in accordance with s 664F(4) of the Act, that MBFH pay the Active Defendants’ costs of the Compulsory Acquisition Application on the ordinary basis, as agreed or assessed.
For those reasons, I make the following orders.
Grant leave to the Plaintiff to file the draft Amended Originating Process in the form exhibited at pages 1 – 6 of Exhibit ARL-3 to the affidavit of Andrew Roy Lockhart affirmed 2 April 2025.
Declare that the terms set out in the notice of compulsory acquisition dated 1 October 2024 (Compulsory Acquisition Notice) give a fair value, for the purposes of sections 664F(3) and 667C of the Corporations Act 2001 (Cth), for the ordinary shares in Navalo Financial Services Group Limited which are the subject of the Compulsory Acquisition Notice.
Order, pursuant to section 664F(1) of the Corporations Act, the acquisition of Navalo’s ordinary shares by the Plaintiff on the terms set out in the Compulsory Acquisition Notice be approved.
Order, pursuant to section 1322(4)(d) of the Corporations Act, that the time for dispatch of the prescribed notice under s 655B(2) of the Corporations Act to holders of convertible securities be extended to the date three months after the date of these orders.
Order, pursuant to s 664F(4) of the Corporations Act, that the Plaintiff pay the costs of the Fifth, Sixth, Seventh, Eleventh and Twelfth Defendants on the ordinary basis, as agreed or assessed.
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(2013) 251 CLR 396
(2002) 5 VR 61
Between 3 and 6 November 2024, MBFH received objection notices from the Defendants. The Defendants hold, between them, approximately 60% of the shares which are the subject of the Compulsory Acquisition Notice. The objection notices were in evidence on this application.
On 8 November 2024, the objection notices and a list of objectors were lodged with ASIC, and on 11 November 2024, those documents were provided to Navalo.
On 5 December 2024, this proceeding was commenced, and on 6 December 2024, notification of this proceeding was given to shareholders of Navalo. Each of the Defendants was served with the Originating Process and the supporting affidavits of Mr Lockhart and Mr McCourt.
The IER commences by identifying the relevant statutory provisions, including s 667C of the Act, which specifies how “fair value” is to be determined (which is set out in paragraph [25] above).
The IER notes that the Act does not define the term “fair value” and that BDO formed their opinion in reference to the standard definition of the term, namely:
First, in the IER, BDO expressed the opinion that the “warrants and conversion feature of the convertible notes … have immaterial value, and are not a class we consider value should be apportioned to”. There is no reason to conclude that another independent expert would reach a different view.
Secondly, there is no reason to think that the holders of Notes or Warrants would accept MBFH’s offer to purchase their securities under the procedure in ss 665A to 665C of the Act, given that: