In the matter of Online Media Holdings Limited [2025] NSWSC 378 | Case summary | Zoe

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In the matter of Online Media Holdings Limited [2025] NSWSC 378 | Case summary | Zoe

OMHL reads the affidavit dated 21 March 2025 of its solicitor, Mr David Morris, who sets out the background to the scheme and exhibits corporate information concerning OMHL and the announcement of the proposed scheme made on Zendesk’s website.
OMHL also reads the affidavit dated 4 April 2025 of Mr Kim Jacobs who is a director and the current chair of OMHL. Mr Jacobs refers to OMHL’s entry into the SID with Zendesk, to exclusivity provisions under the SID and to the circumstances in which OMHL may be required to pay Zendesk a break fee under the SID, being about 1% of its implied equity value, and to a reverse break fee arrangement under the SID. He indicates his consent to act as chair of the proposed scheme meeting and also refers to Mr Darvall’s consent to act as alternate chair of that meeting. He also refers to proposed communications between OMHL and its shareholders, and notes that OMHL proposes to dispatch the explanatory booklet for the scheme by email to its shareholders, where all of its shareholders have elected to receive electronic communications.
OMHL also reads the affidavit dated 4 April 2025 of Ms Giulia George, who is its Chief Financial Officer, which exhibits the proposed explanatory statement for the scheme, which was amended in a minor respect at the hearing. Ms George also addresses the due diligence and verification process adopted in respect of the draft explanatory memorandum which was in customary form. By a second affidavit dated 8 April 2025, Ms George confirms that OMHL’s shareholders have all agreed to receive communications from OMHL electronically, and refers to the proposed email communications to OMHL’s shareholders in respect of the scheme meeting.
The Bidder in turn reads an affidavit dated 7 April 2025 of Ms Hannah Biggins, who is one of the solicitors acting for it in respect of the scheme. She refers to OMHL’s and the Bidder’s entry into the SID, the incorporation of an Australian proprietary company, Zendesk Australia Holdings Pty Ltd (“Bidder Nominee”) for the purpose of acquiring all of the issued shares of OMHL; the funding arrangements for the Bidder’s and Bidder Nominee’s acquisition of the shares and an undertaking from Zendesk in favour of the Bidder and Bidder Nominee as to payment of the scheme consideration; and to the verification process and board approval of the scheme and scheme booklet. She also confirms that, on 7 April 2025, the Bidder and Bidder Nominee executed a Deed Poll in favour of OMHL shareholders in respect of the scheme.
OMHL also tenders a letter from the Australian Securities & Investments Commission (“ASIC”) which, in common form, reserved its position as to s 411(17)(b) of the Act to the second Court hearing, and indicated that it did not currently propose to appear to make submissions or intervene to oppose the scheme at the second Court hearing.

The Court’s role at the first Court hearing in respect of a scheme is to determine, in the exercise of its discretion, whether to approve the convening of a scheme meeting and the explanatory statement if it is satisfied of several matters, namely that the plaintiff is a Pt 5.1 body; the proposed scheme is an “arrangement” within the meaning of s 411 of the Act; the scheme is bona fide and properly proposed; ASIC has had a reasonable opportunity to examine the proposed scheme and explanatory statement, to make submissions and has had 14 days’ notice of the proposed hearing date of the first Court hearing; the procedural requirements under the Supreme Court (Corporations) Rules 1999 (NSW) (“Rules”) have been met; and there is no apparent reason why the scheme should not, in due course, receive the Court’s approval if the necessary majority of votes is achieved: Re Staging Connections Group Ltd [2015] FCA 1012 at [19]; Re Wridgways Australia Ltd [2010] FCA 1187 at [30]; Re Ellerston Global Investments Ltd [2020] NSWSC 879 (“Ellerston”) at [25]; Re Vocus Group Ltd [2021] NSWSC 630 at [12].
The Court will not ordinarily summon a scheme meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the meeting, the Court would be likely to approve it. The Court will consider whether the proposed scheme is fit for consideration at the proposed scheme meeting, in the sense that it is of such a nature and cast in such terms that, if it achieves the statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed; and that members are to be properly informed as to the nature of the scheme before the scheme meeting: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, approved in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504; [1993] HCA 15; Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742 at [36] and [44], cited with apparent approval in Re CSR Ltd (2010) 183 FCR 358; [2010] FCAFC 34 at [58]; Re InvoCare Ltd [2023] NSWSC 1180 at [16]-[17].

I am here satisfied that each of the preconditions to the exercise of the Court’s discretion in s 411 of the Act is satisfied in this case. OMHL is a company registered under the Act and a Pt 5.1 body. The proposed scheme is an “arrangement” within the scope of s 411 of the Act where it involves the acquisition of the shares in OMHL in return for consideration being paid to its shareholders. There is no reason to doubt that the scheme is bona fide and properly proposed, where it provides for the acquisition of shares and the independent expert has concluded that the scheme is in the best interests of OMHL’s shareholders in the absence of a superior proposal. ASIC has here had a reasonable opportunity to examine the proposed scheme and scheme booklet and to make submissions; it has had the necessary notice of this hearing; and, as I noted above, it has indicated that it does not currently propose to appear to make submissions or intervene to oppose the scheme at this hearing. The relevant procedural requirements under the Rules have generally been met.
Dr Austin also addresses several specific aspects of the scheme. First, he points out that, as disclosed in the scheme booklet, OMHL currently has 6,419,050 options on issue which were granted to directors and employees under an employment option plan or under separate option letters. Each option confers on the relevant holder the right to receive one share, subject to payment of the exercise price for the option and subject to satisfaction of certain vesting conditions. The SID requires that all of these options must, on the day before the second Court hearing, either be exercised in accordance with their terms, or be subject to Option Cancellation Deeds under which the options will be cancelled upon implementation of the scheme, and the Bidder must have deposited scheme consideration in return for the cancellations. Dr Austin also notes that four of the directors who hold options have entered into Option Cancellation Deeds, and their options will be cancelled and the relevant consideration paid whether the options are vested or unvested. Dr Austin submits that these arrangements, which apply to all option holders in the same way, are fair having regard to the interest of shareholders as a whole to avoid impediments to a control transaction from which they will benefit.
Dr Austin also points out that OMHL has issued 1,580,005 warrants to TELUS Corporation and TELUS also holds 8.23% of the issued shares, and OMHL has an obligation to issue to TELUS a maximum of 1,580,005 shares in three tranches subject to certain performance conditions and the payment of an exercise price per warrant. Dr Austin also points out that the continuation of that arrangement would be contrary to the Bidder’s objective of obtaining all of the issued shares of OMHL, and OMHL has entered into a Warrant Cancellation Deed with TELUS under which, on condition that the scheme becomes effective, the warrants will be cancelled in exchange for the warrant consideration of approximately $800,000. Dr Austin submits that these arrangements are also fair having regard to the interests of shareholders to avoid an obvious impediment to the implementation of a control transaction which they are likely to support.
Dr Austin submits, and I accept, that cancellation of options (and warrants) is a common arrangement in the context of schemes. I recognise that these arrangements are disclosed in the scheme booklet and OMHL shareholders have the opportunity to take them into account in determining whether to vote in favour of the scheme, and approve the special resolution for the giving of financial assistance in respect of the scheme which I address below. The interests of directors in respect of these matter are also disclosed in the explanatory booklet. Where these matters are disclosed in the explanatory booklet, I accept that it is open to those directors to make a recommendation concerning the scheme: Re Kidman Resource Ltd (2019) 139 ACSR 122; [2019] FCA 1226 at [115]; Re DWS Ltd (2020) 148 ACSR 616; [2020] FCA 1590 at [41]-[49]; Re McGrath Ltd [2024] NSWSC 555 at [25]. I also accept that these matters do not have the result that the interests of the directors and other OMHL shareholders are so dissimilar as to make it impossible for them to consult together with a view to their common interest at a scheme meeting, and this matter do not require separate classes of shareholders: Re Hills Motorway Ltd (2002) 43 ACSR 101; [2002] NSWSC 897 at [12]; First Pacific Advisors LLC v Boart Longyear Ltd (2017) 121 ACSR 136; [2017] NSWCA 116 at [80]; Re Healthscope Ltd (2019) 139 ACSR 608; [2019] FCA 542 at [106]-[107].
As I noted above, OMHL proposes to conduct an extraordinary general meeting of its shareholders immediately prior to the proposed scheme meeting to consider a resolution, conditional on approval of the scheme, approving, for the purposes of s 260A of the Act, the giving of financial assistance by OMHL’s cancellation of the options and warrants, as outlined in the scheme booklet, and any other elements of the transaction which may constitute the giving of financial assistance by OMHL. Dr Austin points out that s 260A(1) of the Act provides that a company may financially assist a person to acquire shares in the company only if the giving of assistance does not materially prejudice the interests of the company or its shareholders or the company’s ability to pay its creditors, or that assistance is approved by the shareholders under s 260B of the Act. Dr Austin submits that OMHL will seek that shareholder approval to avoid the risk of contravention of the financial assistance prohibition. The proposed resolution is explained in a notice of the extraordinary general meeting and in the scheme booklet. This matter does not provide reason not to convene the scheme meeting.
Dr Austin also submits that relatively standard arrangements concerning exclusivity, enforcement of existing confidentiality agreements, no shop, no talk, no due diligence with fiduciary carve-out, and other provisions are disclosed in the scheme booklet at section 9.1. I accept that the exclusivity provisions in respect of the scheme are in common form, and that exclusivity provisions in this form are now commonplace in schemes of arrangement and are not inconsistent with the Takeovers Panel’s guidance as to “deal protection”: Re Villa World Ltd (2019) 139 ACSR 550; [2019] NSWSC 1207 (“Villa World”) at [23]. The Court is concerned to ensure that any exclusivity period should be for no more than a reasonable period, capable of precise ascertainment; an exclusivity clause directed at dealing with an unsolicited alternative proposal should be subject to a fiduciary carve out; and the provisions should be clearly disclosed in the explanatory statement sent to shareholders: Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 at [9]; Re TPG Telecom Ltd [2020] NSWSC 772 at [22]; Re Isentia Group Ltd [2021] NSWSC 910 at [23]; Re Asaleo Care Ltd [2021] FCA 406 at [55]. The exclusivity period here is relatively long for a transaction which does not involve unusual complexities, but I do not think this provides sufficient reason to deprive shareholders of the opportunity to consider the proposed scheme.
Dr Austin notes that a break fee is also summarised in the scheme booklet at section 9.2. The break fee is not payable merely because OMHL shareholders do not approve the scheme at the scheme meeting and represents about 1% of the implied equity value of the scheme. I accept that break fees of this size and kind are common features in schemes of arrangement and will be permitted where the amount of the break fee is not such that it could influence voting at the meeting to be convened and there are no other unusual circumstances: Villa World at [24]. This matter also gives rise to no reason not to convene the scheme meeting.
Mr Marsh, who appears for the Bidder and Bidder Nominee, also addresses the question of funding and performance risk for the scheme. He acknowledges that, where the Bidder Nominee is a special purpose vehicle with minimal assets, it is appropriate to address the funding arrangements that will be relied upon to complete the Scheme, in determining whether to convene the scheme meeting. He points to the cash consideration payable to scheme shareholders, which I have noted above, and the costs of cancellation of options and the TELUS warrants to which I referred above. He points out that the SID contemplates that the Bidder (or its nominated subsidiary) will provide a loan to OMHL to fund the Warrant Consideration and the Aggregate Option Consideration (as defined), prior to the effective date of the scheme, and OMHL will be able to access those funds for that purpose when the scheme becomes effective. He also recognises that the maximum scheme consideration payable by the Bidder in relation to the proposed acquisition of OMHL will be approximately $91.58 million, assuming all options are cancelled prior to the Implementation Date, and points to Ms Biggins’ evidence that the Bidder and the Bidder Nominee intend to fund that consideration through Zendesk's existing cash reserves, as is also disclosed in section 6.5 of the scheme booklet. He points to Zendesk’s undertaking in favour of the Bidder and the Bidder Nominee as to funding, and to the Bidder and the Bidder Nominee’s execution of a Deed Poll in favour of OMHL shareholders in customary form. Mr Marsh also submits and I accept that funding and performance risks in respect of the scheme are sufficiently addressed by Zendesk’s undertaking as to funding, the Deed Poll executed by the Bidder and Bidder Nominee, the requirement that the scheme consideration be paid into a trust account before Implementation (as defined) and making the transfer of the scheme shares on the Implementation Date (as defined) conditional upon that payment having occurred: Re SFE Corporation Ltd (2006) 59 ACSR 82; [2006] FCA 670 at [4]; Ellerston at [29].
These matters, separately and together, give rise to no reason not to convene the scheme meeting.