In the matter of QANTM Intellectual Property Limited (No 2) [2024] NSWSC 963

Supreme Court of NSW|2024-08-02|Before: Black J

Solicitors: Gilbert & Tobin (Plaintiff) Ashurst (Bidders) File Number(s): 2024/215346

Judgment

By Originating Process filed on 11 June 2024, the Plaintiff, QANTM Intellectual Property Ltd ("QANTM") sought orders under s 411 of the Corporations Act 2001 (Cth) ("Act") in respect of a proposed scheme of arrangement and related orders. By way of background, QANTM is an Australian public company listed on the Australian Securities Exchange ("ASX") which owns businesses which provide intellectual property services in Australia and several other jurisdictions. On 10 May 2024, QANTM announced to ASX that it had entered into a Scheme Implementation Deed ("SID") with Fox BidCo Pty Ltd ("BidCo"), a company ultimately owned and controlled by funds managed and advised by Adamantem Capital Management Pty Ltd, which provides for BidCo to acquire, by scheme of arrangement, the ordinary shares in QANTM. The proposed scheme provides for two alternative forms of consideration, a default alternative of a cash consideration of A$1.817 per QANTM share, less the amount of any special dividend that may be determined and paid by QANTM, or a mixed alternative (which was not available to Ineligible Foreign Shareholders, as defined) of 50% cash and 50% scrip consideration ("Mixed Consideration"), namely A$9.085 in cash (less the amount of any special dividend) and 0.9085 class B shares in Fox HoldCo Ltd ("HoldCo"), the unlisted holding company of BidCo. The alternative Mixed Consideration was subject to Scale Back Arrangements (as defined) so that the total number of class B shares issued to QANTM shareholders and Equity Incentive Holders (as defined) would not exceed 24% of total shares on issue in HoldCo at the Implementation Date (as defined). The SID permitted QANTM to determine and pay a fully franked special dividend of up to A$0.71 per QANTM share, conditional on the scheme becoming effective. which would reduce the consideration and the cash component of the Mixed Consideration by the same amount.

Affidavit and other evidence

QANTM read the affidavit dated 11 June 2024 of Ms Sonia Petering who is a non-executive director and chair of QANTM and gave evidence as to the despatch of the scheme booklet and materials to shareholders, the conduct of the scheme meeting, the results of the poll of shareholders and voter turnout. QANTM also tendered certificates from each of QANTM and BidCo stating that all of the relevant conditions precedent have been satisfied or waived, other than the condition relating to Court approval of the scheme and a letter from the Australian Securities & Investments Commission (ASIC") indicating that it had no objection to the scheme for the purposes of s 411(17) of the Act.

Applicable principles

Mr Hutton rightly notes that the orders made by the Court at the first Court hearing proceed on the basis that the proposed scheme is one which could, if approved at the scheme meeting and unopposed at the second hearing, be approved by the Court: Re Equinox Resources Limited (2004) 49 ACSR 692; [2004] WASC 143 at [22]-[23]; Re Murchison Metals Ltd [2014] NSWSC 951 at [10]-[11]; Re The Trust Company Ltd [2013] NSWSC 1947 at [19]. He also rightly notes that the second Court hearing for a scheme of arrangement provides an opportunity for the Court to exercise its discretion to approve a scheme, and the Court will make a "final determination" with respect to approving the scheme at this hearing.
Mr Hutton also notes that the Court will seek to be satisfied of six matters in determining whether to give final approval to a scheme of arrangement, namely, whether the plaintiff has complied with the orders of the Court convening the meeting of members; the meeting of members so convened has approved the scheme with the requisite majorities; all other statutory requirements have been satisfied; the scheme 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; there was full and fair disclosure to members of all information material to the decision whether to vote for or against the applicable scheme; and 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: Re Central Pacific Minerals NL [2002] FCA 239 at [8]-[14]; Re Permanent Trustee Co Limited (2002) 43 ACSR 601; [2002] NSWSC 1177 at [8]-[10]; Re Solution 6 Holdings Ltd (2004) 50 ACSR 113; [2004] FCA 1049 at [18]-[24]; Re Seven Network Ltd (No 3) (2010) 267 ALR 583; [2010] FCA 400 at [35]-[39]; Re Signature Capital Investments Ltd (No 2) [2016] FCA 385 at [4]. Determination
The evidence establishes that QANTM has complied with the Court's orders in respect of the distribution of scheme documents to QANTM shareholders. As I noted above, the scheme was approved at the scheme meeting by the requisite statutory majorities. At the scheme meeting, 99.94% of the votes cast were in favour of the proposed scheme (excluding shareholders who abstained); and 98.7% of shareholders who cast votes were in favour of the proposed scheme (excluding shareholders who abstained). The voter turnout at the scheme meeting compares favourably to the voter turnout at recent AGMs of QANTM, where 21.16% of shareholders voted with a combined shareholding of 75.51% of the shares on issue, by contrast with the last three AGMs where between 8.74% and 9.49% of shareholders voted with a combined shareholding of between 48.36% and 56.85%. The voting participation rate at the scheme meeting does not raise any concern that there was any irregularity in the procedure for convening the scheme meeting and does not give rise to any reason not to approve the scheme. Each of the conditions precedent to the scheme have been satisfied or waived and ASIC has confirmed that it has no objection to the scheme for the purposes of s 411(17)(b) of the Act. I am satisfied that the procedural requirements for approval of the scheme are satisfied.
Mr Hutton draws one additional matter to the Court's attention at the second Court hearing concerning Ineligible Foreign Shareholders (as defined) who are not entitled to elect to receive the Mixed Consideration (as defined) under the scheme. The definition of "Ineligible Foreign Shareholder" in the scheme excludes (and thus makes eligible to elect to receive the Mixed Consideration) a shareholder whose address is shown in the register as a place outside Australia, if BidCo and QANTM agree in writing that it is lawful and not unduly onerous or impracticable to issue the HoldCo shares to that shareholder if they so elect.
Ms Petering's evidence (Petering [32]-[39]) is that QANTM took steps to ascertain jurisdictions where Ineligible Foreign Shareholders have their registered address where it would be lawful, not unduly onerous or impracticable to issue the HoldCo shares to the shareholder if they so elect; QANTM and BidCo agreed that it would be lawful and not unduly onerous or impracticable to issue Class B Shares in HoldCo to all QANTM shareholders whose registered address was in Hong Kong or Singapore and also to those QANTM shareholders who were also employees whose registered address was in New Zealand; and QANTM and BidCo determined that it would be unduly onerous and impracticable to issue Class B Shares in HoldCo to all other QANTM shareholders whose registered address was outside Australia. Ms Petering explains that the differential treatment of employee and non-employee shareholders in New Zealand arises as it could readily be ascertained with respect to relevant exceptions to applicable securities laws that it was not unlawful to issue the scrip consideration to 7 employee shareholders in New Zealand (within a personal offer exception) given their status as employees, but substantial work, time and resources would be required to ascertain whether it was lawful to issue shares to the 15 non-employee shareholders registered in New Zealand, and it was therefore unduly onerous and impracticable to seek to issue the HoldCo shares to the 15 non-employee shareholders in New Zealand. Ms Petering's affidavit also annexes relevant provisions of Schedule 1 to the Financial Markets Conduct Act 2013 (NZ). There is no reason to doubt this conclusion and it is not necessary to address the further question whether, if investigations had established that offers to non-employee shareholders were made in circumstances that could properly be characterised as "personal offers", the additional requirement under New Zealand law that the offer is accepted by more than 20 people could be satisfied.
Turning now to other matters relevant to the exercise of the Court's discretion in respect of the scheme, the scheme was recommended by QANTM's directors and the independent expert whose report, which was included in the scheme booklet, expressed the view that the scheme was fair and reasonable and in the best interests of QANTM shareholders in the absence of a superior proposal. No QANTM shareholder or other person indicated an intention to appear at the second Court hearing to oppose the scheme and there was no such appearance. There is otherwise no reason to doubt that the scheme is fair and reasonable so that an intelligent and honest QANTM shareholder, properly informed and acting alone, might approve it. I am satisfied that there is also no reason to doubt that QANTM has brought to the Court's attention all matters that could be considered relevant to the exercise of the Court's discretion and that there was full and fair disclosure to QANTM shareholders of all information material to the decision whether to vote for or against the applicable scheme. I am therefore satisfied that the scheme is appropriate for the Court's approval.
QANTM also seeks an exemption under s 411(12) of the Act from compliance with s 411(11) so that a copy of the Court order approving the scheme does not need to be annexed to any copy of QANTM's constitution that may be issued in the future. I am satisfied that such an order should be made where, as here, the rights of QANTM shareholders are not modified by the scheme: Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 at 240; [2003] WASC 19; Re GBST Holdings Ltd [2019] NSWSC 1503 at [15]; Re Bellamy's Australia Ltd [2019] NSWSC 1889 at [16].

Orders

For these reasons, I made the orders sought by QANTM at the conclusion of the second Court hearing on 2 August 2024.

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: 07 August 2024

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