Solicitors:
DLA Piper (Plaintiff)
Allens (Acquirer)
File Number(s): 2022/191161
[2]
Nature of the application and background
The Plaintiff, ResApp Health Ltd ("ResApp") sought orders to "postpone" a scheme due to take place today, 19 August 2022, at 2pm. The reference here to "postponement" has the sense noted by Mr Damian and Mr Rich, in the fourth edition of their text, Schemes, Takeovers and Himalayan Peaks at p 202, as an order made prior to a scheme meeting to defer that meeting, as distinct to an adjournment made after the scheme meeting had commenced. ResApp initially also sought orders approving the issue of a second explanatory statement, and as to the means of dispatch of further information to its shareholders, and approving a range of further communications to shareholders, including further call scripts and reminder to vote emails. As matters have developed, ResApp, rightly, does not now press the orders approving that second explanatory statement or the disclosure to shareholders, as a result of difficulties which have arisen during the course of the hearing today, and seeks only a postponement of the scheme meeting to a date to be fixed.
I should say something as to the background of the application and the difficulties which have arisen today, although I will consciously do so relatively briefly, since ResApp is now seeking to address the difficulties which have arisen, so as to put accurate and informative information before its shareholders. On 16 August 2022, more than two days ago, ResApp announced to Australian Securities Exchange ("ASX") that it had been informed by the acquirer in respect of the scheme, Pfizer Australia, that the amount that it had offered for ResApp shares was its best and final offer, and that it would not increase its offer, subject to no competing proposal emerging. That ASX announcement also indicated that Pfizer had agreed to provide a $680,000 bridging loan to "enable ResApp to meet its working capital needs during the scheme period", which would be repayable on ten business days' notice on the occurrence of certain events of default. The ASXC announcement also stated that, if ResApp failed to repay the bridging loan, implicitly within the ten business day period, it was required to grant Pfizer Australia a non-exclusive licence over certain intellectual property to the extent that would not be prohibited by certain matters.
A first difficulty with that announcement was that it offered no explanation as to why ResApp had come to realise, some three or so days before the scheduled scheme meeting, that it had so urgent a need for working capital that it was required to enter this transaction and potentially place that intellectual property at risk of Pfizer Australia exercising its security for the loan. A second difficulty with that announcement, which has emerged in the course of the hearing today, is that it may have misstated aspects of the bridging loan agreement, so far as at least some events of default arise on a five day notice period and, if an event of default has occurred, then Pfizer Australia can declare all of the amount due and owing no less than five (rather than ten) business days after the date of notice of that event of default. Mr Wood, with whom Mr Papamatheos appeared for ResApp, did not submit that the ten days referred to in the announcement were the total of the five day notice period in respect of a default and the further five day period after notice when the amount fell due, and accepted that an error has, or may have, occurred here.
Two business days later, on 18 August, ResApp approached the Court in the late afternoon, foreshadowing an application for the scheme meeting to be postponed. When the matter was listed at 4pm on 18 August, ResApp was not ready to proceed and the matter was stood over to today, 19 August, being the date of the scheme meeting.
[3]
ResApp's ability to continue as a going concern
ResApp read several affidavits in respect of the application but, as events have developed, it is likely to be preferable that I do not review that affidavit evidence in detail, where it is not necessary to do so. Difficulties have arisen from that affidavit evidence, and the documents to which it draws attention. The most significant is a statement in the affidavit dated 17 August 2022 of Dr Keating, the chief executive officer and managing director of ResApp, that, in the absence of the bridging loan offered by Pfizer Australia, he believes there would be a question as to ResApp's ability to continue as a going concern. The proposed scripts for communications with shareholders in incoming and outgoing calls are to the same effect as Dr Keating's affidavit, stating that, if the scheme does not proceed, there would be a question as to ResApp's ability to continue as a going concern. That proposition is not wholly consistent with the fact that the board resolution which approved the relevant arrangements affirms ResApp's solvency, including its solvency if it enters into the relevant loan arrangement. Mr Wood, who appears for ResApp, has now reserved the question whether the Statement in Dr Keating's affidavit and the proposed shareholder communications is an overstatement of the position. It seems to me that that is properly a matter that now warrants a close inquiry, at least by ResApp, likely by the independent expert who has provided a report in respect of the scheme, and possibly by the Australian Securities and Investments Commission.
That disclosure of a risk to ResApp's ability to continue as a going concern, if it is accurate, is made only in the scripts for incoming calls and outgoing calls to shareholders, and not in the second explanatory statement to be provided to shareholders. It is also not addressed by the independent expert, who refers to the entry into the arrangement with Pfizer Australia, and observes that he has continued to monitor ResApp's announcements, but does not identify any material change to them, and continues to express the view that the scheme is fair and reasonable to the shareholders of ResApp. Plainly, information as to whether there exists a risk that ResApp cannot continue as a going concern without the bridging loan may impact upon shareholders' decision-making in respect of the proposed scheme.
In these circumstances, Mr Wood rightly recognises that ResApp needs both to undertake further analysis of the factual position, to confirm whether the statements made as to ResApp's going concern status in respect of the need for the bridging loan, and potentially the scheme, are correct or not. It also needs to address issues as to inaccuracy and incompleteness of disclosure, which would include at least the issues as to the reference to the ten business day period in the ASX announcement made on 16 August 2022 and the fact that the second explanatory statement to be provided to shareholders does not now address ResApp's going concern status, if that is at risk, and also does not explain how that issue arose, where it was not previously disclosed in ResApp's initial disclosure and several supplementary disclosures. These matters need to be addressed and ResApp is not presently in a position to make fair or accurate disclosure to shareholders, at least in the form put before the Court for its approval, and that approval could not be given.
[4]
What should be done as to the meeting today
The question arose, in those circumstances, as to what should be done with the meeting due to take place at 2pm today.
The first possibility is that that meeting should be permitted to continue, but there are at least three difficulties with that course. The first is that, as Mr Wood rightly points out, Pfizer Australia has made a best and final statement, and that may well be relevant to shareholders who are presently inclined to vote against the scheme because they hope that Pfizer Australia will make a better offer. Second, if an issue as to ResApp's ability to continue as a going concern without the loan agreement or the scheme exists, then fair disclosure of that matter to shareholders may provide a reason to vote in favour of the scheme, to obtain such value as may be available for their shares. Third, even apart from that issue, shareholders need to understand the terms of the loan agreement with Pfizer Australia, because the proposition that Pfizer Australia can require its repayment on five business days' notice may undermine other evidence given, which seeks to treat that agreement as not coercive in respect of shareholders' entry into the scheme. All of these matters suggest that a meeting, held this afternoon, without a proper understanding of those issues, would involve a real risk that shareholders are misinformed or not adequately informed of relevant matters. That difficulty is exacerbated where ResApp has made an announcement, without the Court's approval on 16 August 2022, that the meeting will be postponed subject to ASIC's or the Court's approval, and that has the consequence that some shareholders may already not attend that meeting, who would otherwise have done so, because they treat that approval as a formality.
The second possibility, to which I gave careful consideration, would be to revoke the orders previously made by the Court in respect of the scheme, and cancel the scheme meeting, on the basis that the events which have developed over the history of this scheme, the issues which have arisen as to the ASX announcement on 16 August 2022, and the issue as to ResApp's status as a going concern, are such that the disclosure difficulties in this scheme may now be irremediable. On balance, it seems to me that I should not take that course, although it would not necessarily have prevented the scheme meeting being set down for some further date, if those issues could be resolved. There are, I think, two reasons that I should not take that course. The first is that, while it may be challenging for ResApp to now make disclosure in a way that sufficiently corrects any difficulties of disclosure in the past, it is likely not impossible to do so. Disclosure now made by ResApp, in a manner that records what ResApp has said in the past, why it was wrong, if it was wrong, and what is the correct position, in a clear and comprehensible way, may sufficiently clarify matters for shareholders in a way that they can make a properly informed decision. Second, and importantly, if there is an issue as to whether ResApp is a going concern without Pfizer Australia's ongoing support, then shareholders may be disadvantaged if the meeting was cancelled and did not go ahead, and they lost any opportunity to sell their shares at the price presently proposed. Again, I recognise that Mr Wood has rightly drawn attention to the fact that the statements as to the going concern issue may have been overstatements, and that issue may not exist, or may not exist in the form in which it was put in some of the materials.
On balance, it seems to me that a third possibility, to which Mr Wood draws attention, is the proper course. The Court cannot, as matters stand, adjourn the meeting to a specified date, because it could not be satisfied that ResApp can provide information to shareholders, in a way that will sufficiently address these issues, or how long that will take, until ResApp has prepared corrective information and the independent expert and ASIC have undertaken any further review they consider appropriate. However, the Court has wide powers under s 1319 of the Corporations Act 2001 (Cth) in respect of a meeting that it has convened, including the power to give such directions with respect to the convening, holding or conduct of the meeting, and such ancillary or consequential directions in relation to the meeting as it thinks fit. As Mr Wood points out, that section permits the approach adopted by Brereton J in Re Asciano Ltd (No 2) [2015] NSWSC 1651, where his Honour postponed a scheme meeting so as to preserve the opportunity to proceed with that meeting on a date to be fixed. That does not have the difficulty of postponing the meeting to a fixed date, where it is not certain that the date could be achieved, and preserves to shareholders the opportunity to allocate a scheme meeting date, once they can properly be informed of the issues relevant to their decision-making. That course seems to me to achieve the objectives of, first, allowing the opportunity for shareholders to be properly informed and, second, preserving for them the opportunity of considering a scheme proposal which, depending upon the position in respect of ResApp's inquiries and disclosure as to its financial position, may be attractive to them.
I therefore make the following orders:
The scheme meeting convened by the Plaintiff pursuant to orders previously made by the Court not be held on 19 August 2022 and be postponed to a date to be fixed.
The orders previously made by the Court be set aside so far as it is necessary to achieve paragraph 1.
The Plaintiff forthwith send by email to those shareholders for whom it has an email address, by ordinary mail to other shareholders, and announce to the Australian Securities Exchange, that the meeting due to be held today has been postponed to a date to be fixed.
The proceeding be adjourned to 10:30am on 23 August 2022 with a view to the potential allocation of a further date for a scheme meeting.
Liberty to apply on short notice specifying the relief sought.
These orders be entered forthwith.
[5]
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Decision last updated: 23 August 2022