MDA National Ltd v Medical Defence Australia Ltd

The application 1 This is an application to the Court under s 411 of the Corporations Act 2001 (Cth) to approve the convening of a scheme meeting and the explanatory statement to be sent to members concerning the scheme. The scheme is proposed in order to give effect to the redomiciliation of the plaintiff, OPUS Group Limited (OPUS) from Australia to Bermuda. 2 Assuming the scheme meeting is held and the shareholders vote in favour of it, there must then be a further application to the Court to approve the proposed scheme. 3 On 26 July 2018 I made orders approving the convening of the meeting and other ancillary orders. These are my reasons.

Proposed scheme 4 OPUS is an Australian technology based printing group that employs a technology platform to allow it to produce and distribute published content to a range of global customers. Its publishing services division is responsible for the publication and electronic delivery of online material, professional educational and trade books, journals, loose leaf publication as well as providing digital and offset printing and other ancillary business services. Its operations are based in Australia. 5 OPUS is listed on the Australian Securities Exchange (ASX). The majority of its shares (75.61%) are held by Bookbuilders BVI Limited (Bookbuilders). Bookbuilders is a wholly owned subsidiary of Lion Rock Group Limited (Lion Rock), which is listed on the Hong Kong Stock Exchange (HKEx) and is primarily engaged in the provision of printing services and professional publications. Lion Rock holds 6.01% of OPUS shares. 6 OPUS intends to implement a restructure as follows: (a) a company recently incorporated in Bermuda called Left Field Printing Group Limited (LFPG) will acquire 100% of the ordinary shares in OPUS; (b) OPUS shareholders will receive 3 shares in LFPG as consideration for each share held in OPUS; (c) the LFPG shares issued to OPUS shareholders will be listed on the HKEx; (d) LFPG will then undertake a capital raising concurrent with the proposed listing on the HKEx; and (e) on implementation, further shares in LFPG are expected to issue under a share offer, but such that the OPUS shareholders (that is, those who previously held shares in OPUS) are anticipated to then hold some 80% of the issued shares in LFPG. 7 The scheme of arrangement will facilitate part of that restructure. It will bring about the redomiciliation of OPUS to Bermuda. Redomiciliation schemes may be used for a variety of reasons. It is not unusual for them to be used to allow a corporate group to seek a regime in another jurisdiction that may be more favourable to the nature of its business, or more conducive to raising equity capital. 8 This Court has approved schemes of arrangement used to effect a redomiciliation in a number of cases, including Brambles Industries Ltd, in the matter of Brambles Industries Ltd [2006] FCA 1273; Brambles Industries Ltd, in the matter of Brambles Industries Ltd (No 2) [2006] FCA 1719 (Lindgren J); (2006) 59 ACSR 501 (Lindgren J); Re Heartware Limited [2008] FCA 1997 (Emmett J); and Re Marengo Mining Ltd (No 2) [2012] FCA 1498 (Barker J). 9 According to the explanatory statement, Bermuda is a jurisdiction commonly chosen by HKEx listed companies.

Material relied upon 10 OPUS relies upon the following affidavits: (a) affidavit of Ana Martinez attaching a copy of the draft scheme booklet and the scheme implementation agreement (SIA): the SIA relevantly binds LFPG to the arrangements; (b) affidavit of Tang Tsz Ying, an Executive Director of LFPG, deposing relevantly to the scheme booklet verification process undertaken by LFPG; (c) affidavit of Richard Celarc, the Chairman and Executive Director of OPUS, deposing to his willingness to be the chairperson of the proposed scheme meeting, and confirming that Mr Paul Young agrees to otherwise be appointed chairperson, and deposing to the scheme booklet verification process undertaken by OPUS with respect to the scheme booklet; (d) second affidavit of Ana Martinez attaching the draft scheme booklet as provided to the Australian Securities Investment Commission (ASIC); (e) affidavit of Christopher Bickley, a partner of a firm of solicitors in Bermuda, deposing to the execution and enforceability of a deed poll by LFPG; (f) third affidavit of Ana Martinez attaching a marked up version of the scheme booklet reflecting communications with ASIC and also attaching the independent expert's report; and (g) fourth affidavit of Ana Martinez attaching the proposed final form of the scheme booklet and an undertaking from Lion Rock and Bookbuilders, (a matter to which I will return), and also attaching the requisite indication of intent letter from ASIC.

Principles 11 Section 411(1) of the Act relevantly provides that, where an arrangement is proposed between a Pt 5.1 body and its members, the Court may, on the application of the body in a summary way, order a meeting of the members to be convened in such manner and to be held in such place as the Court directs. Where the Court makes such an order, the Court may approve the explanatory statement required by s 412(1)(a) to accompany the notice of such a meeting. 12 Section 412(1)(a) of the Act relevantly provides that, where a meeting is convened under s 411, the Pt 5.1 body must, with every notice convening the meeting, send a statement explaining the effect of the arrangement. That statement must state any material interests of the directors and the effect of the proposed arrangement on those interests insofar as they may differ from the effect on the like interests of other persons. The statement must also set out such information as is prescribed and any other information that is material to a member's decision to agree or not agree to the arrangement. 13 The authorities refer generally to six matters to be proved at the first stage: (1) the plaintiff is a Pt 5.1 body; (2) the proposed scheme is an 'arrangement' within the meaning of s 411 of the Act; (3) the explanatory statement will provide proper disclosure to members; (4) the scheme is bona fide and properly proposed; (5) the Australian Securities and Investments Commission (ASIC) has had a reasonable opportunity to examine the proposed scheme and the explanatory statement, has had a reasonable opportunity to make submissions and has had 14 days notice of the hearing date of the first Court hearing; and (6) any other procedural requirements have been met. See, for example, Amcom Telecommunications Ltd, in the matter of Amcom Telecommunications Ltd [2015] FCA 341 at [8] per McKerracher J; EcoBiotics Limited, in the matter of EcoBiotics Limited [2017] FCA 643 at [19] per Gleeson J. 14 The principles as to the nature of the review at the first Court hearing are summarised elsewhere: for recent examples, see Re Westfield Holdings Ltd [2004] NSWSC 458; (2004) 49 ACSR 734, 736; Programmed Maintenance Services Ltd, in the matter of Programmed Maintenance Services Ltd [2017] FCA 1265 at [11]-[14] per McKerracher J; Signature Gold Ltd, in the matter of Signature Gold Ltd [2017] FCA 1481 at [22]-[23] per Markovic J. In summary, the standard of review is whether the proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members. If the proposed arrangement is one that seems fit for consideration by a meeting of members and is a commercial proposition likely to gain the Court's approval if passed by the necessary majority, then leave should be given to convene the meeting.

Part 5.1 body 15 As OPUS is a publicly listed company limited by shares, it is a Part 5.1 body within the meaning of the Act.

Arrangement 16 I am satisfied on the basis of the scheme implementation agreement and scheme booklet that the scheme is an arrangement between OPUS and its members. An 'arrangement' extends to any subject matter that may be agreed between the company and its members.

Verification of scheme booklet 17 Mr Tang Tsz Ying deposed to having been involved in the drafting and execution of the SIA. He has knowledge of the conditions precedent and the implementation conditions of the SIA and said that he was not aware of any reason there would be a failure of any such conditions. He deposed to the manner by which LFPG verified the parts of the scheme booklet that contained information about LFPG and the restructured group, and stated that to the best of his knowledge and belief all the material statements in the scheme booklet which required verification by LFPG are correct and not misleading or deceptive and there were no material omissions. 18 As to OPUS's verification process, Mr Celarc deposed to the establishment of a due diligence committee to co-ordinate its due diligence and enquiries with respect to the balance of the information in the scheme booklet not verified by LFPG. A partner of the law firm advising OPUS was a member of the committee and reported to Mr Celarc as to the nature of the committee's meetings and delegation of tasks. Ms Martinez, a solicitor with the same law firm, also deposed to a verification version of the scheme booklet having been distributed to those persons identified as having the requisite expertise. Appropriate information confirming the verification process, including verification certificates, was tabled at a meeting of the OPUS directors. Mr Celarc therefore was able to state that having made reasonable enquiries, to the best of his knowledge and belief all the material statements in the scheme booklet which required verification by OPUS are correct and not misleading or deceptive and there were no material omissions.

A single class 19 There is a single class of shareholders and all members have the same rights under the scheme. For reasons addressed further below, I do not consider that the proposed treatment of ineligible foreign shareholders under the scheme creates any separate class.

Independent expert report 20 It is a condition precedent to the scheme that an independent expert issues a report that concludes that the scheme is in the best interests of OPUS's shareholders. The board appointed Lonergan Edwards and Associates as the independent expert to assess the scheme. An unsigned copy of the Lonergan Edwards report was before the Court, but I was assured by OPUS' solicitors that it would be executed upon orders being made. 21 In particular, Lonergan Edwards considered the comparative advantages and disadvantages of the restructure as a whole (including the proposed scheme). 22 Lonergan Edwards noted that implementation of the restructure would have benefits for OPUS shareholders as follows: (a) it is reasonable to expect that the listed market price of OPUS shares will be positively re-rated (at least over the medium term); (b) Lonergan Edwards expect a greater level of investor interest in OPUS than at present, with associated improved levels of share market liquidity; and (c) there would be improved access to equity capital, the potential benefit of which is likely to be medium to longer term in nature. 23 Identified disadvantages are that: (a) OPUS shareholders who wish to sell their shares subsequent to implementation of the scheme (that is, sell the LFPG shares that they acquire through the scheme) would need to do so on the HKEx; (b) the restructure may have adverse tax consequences for some shareholders (and I note the scheme booklet provides some information to shareholders about such risks); and (c) transaction costs will be incurred in connection with the restructure. 24 Lonergan Edwards state that in its opinion, the restructure is in the best interests of OPUS shareholders because it considers that the advantages of the restructure outweigh the disadvantages.

Particular matters 25 Bearing in mind the ex parte nature of the application, counsel for OPUS properly brought to the Court's attention the following particular matters: (a) matters raised by ASIC which led to amendments of the draft scheme booklet; (b) the position of foreign shareholders; and (c) the deemed warranty provision.

ASIC communications 26 For the scheme to proceed, the resolution must be approved by a majority in number (more than 50%) of OPUS shareholders who are present and vote (s 411(4)(a)(ii)(A) of the Act - referred to as the headcount vote) and at least 75% of the total number of votes cast on the resolution (s 411(4)(a)(ii)(B) of the Act). 27 Given that Bookbuilders and Lion Rock, who hold 75.61% and 6.01% of the shares respectively, have indicated that they will vote in favour of the scheme, the 75% threshold appears to have already been met. ASIC noted this and sought amendments to the disclosure in the draft explanatory statement to highlight the headcount test in order to empower minority shareholders to vote. Amendments to reflect that the votes of minority shareholder remain important and may impact on the outcome were expressly made to the scheme booklet. 28 Other matters raised by ASIC were addressed and incorporated in the final version of the proposed scheme booklet. I do not understand them to have been of any great significance.

Foreign shareholders 29 An OPUS shareholder whose address is in a place other than Australia, South Africa, Singapore, the United States of America or Hong Kong is an 'ineligible foreign shareholder' for the purposes of the scheme. Under the scheme, the LFPG shares to which the ineligible foreign shareholders would otherwise become entitled will be sold and the proceeds of those sales will be paid to the ineligible foreign shareholders on a proportionate basis. 30 According to the Lonergan Edwards report, the percentage of shares in OPUS issued to ineligible foreign shareholders is 1.3 % (as at 15 June 2018). 31 The treatment of a relatively small section of shareholders in a members' scheme in this manner by reason of their overseas residence is not unusual and in my view, does not mean they are to be treated as a separate class of shareholders. There remains a sufficient 'community of interest' between the ineligible foreign shareholders and the OPUS shareholders: Re CSR Limited [2003] FCA 82; (2003) 45 ACSR 34 at [5] (Conti J). The reason specified foreign shareholders are treated differently under some schemes is that it avoids the costs and logistics to the company of assessing and complying with the securities law in all relevant countries: Re Brambles Industries Ltd at [23]-[24] (Lindgren J).

The deemed warranty provision 32 The scheme provides that each of the OPUS shareholders is deemed to have warranted to LFPG that all of their shares transferred under the scheme are fully paid and free of encumbrances at the date of the transfer. Such deemed warranties are not unusual and despite some views to the contrary, the courts have generally held that the warranty is a device directed to ensuring that a scheme participant whose shares are subject to an encumbrance is not unfairly advantaged: see for example Re APN News & Media [2007] FCA 770; (2007) 62 ACSR 400 at [60] (Lindgren J); Re Hostworks Group Ltd [2008] FCA 64; (2008) 26 ACLC 137 at [41] (Mansfield J).

Deed poll 33 Under the SIA, LFPG was required to execute a deed poll in favour of the OPUS shareholders prior to the first hearing date. A copy of the executed deed poll was provided and the purpose of Mr Bickley's affidavit was to provide evidence regarding the proper execution of the deed poll under Bermuda law. I accept Mr Bickley's evidence.

Confirmation and undertaking, comparison of shareholder protection 34 Each of Bookbuilders and Lion Rock provided a written undertaking that on their own behalf and on behalf of each other or their affiliates and associates they would not: (a) acquire more than 75% of the shares in LFPG; or (b) seek to delist LFPG from the HKEx for a period of two years after the date on which trading in LFPG shares first commences on the HKEx. The confirmation and undertaking was said to operate by way of deed poll for the benefit of each of OPUS, LFPG and the shareholders (other than the ineligible foreign shareholders). 35 An issue which must be considered by shareholders in deciding whether or not to vote in favour of a redomiciliation is the nature of takeover rules which will apply in relation to the new holding company. In this case, takeover bids of LFPG will be subject to the Hong Kong takeovers code. A comparison of the key provisions of the ASX listing rules and the HKEx listing rules is provided in the scheme booklet. The undertaking provided by Bookbuilders and Lion Rock provides some certainty to shareholders that those entities will not pursue a takeover at least in the relevant short term. 36 The rules relating to corporate governance and shareholder rights vary significantly between jurisdictions. A comparison of such rights is also included in the scheme booklet for consideration by the shareholders.

Other procedural matters 37 The requisite consents to act as chairperson and alternative chairperson were provided by way of the affidavit of Mr Celarc. I am otherwise satisfied that the procedural requirements for making the orders sought were met. I was assisted in this task by a checklist prepared by OPUS' counsel and solicitors that identified the requirements of the Act, the Corporations Regulations 2001 (Cth) and ASIC Regulatory Guide 69 and the applicable affidavit evidence or scheme booklet reference.

Distribution of scheme booklet 38 OPUS seeks an order that there be dispatch of the scheme booklet and proxy form by electronic means to those members who have nominated an electronic address for the purpose of receiving notices of meetings by sending an email containing a URL link to the scheme booklet and proxy form to the nominated email address. There is no question that the Court may make orders that provide for the electronic dispatch of a scheme booklet and I consider this is an appropriate cause in this case: see MDA National Ltd v Medical Defence Australia Ltd [2014] FCA 954 at [105] (Yates J).

ASIC 39 ASIC confirmed in a letter dated 25 July 2018 addressed to OPUS that the requirement for prior notice of the hearing of the application under s 411(1) had been provided and that it had had a reasonable opportunity to examine the terms of the proposed scheme and draft explanatory statement. ASIC confirmed that it did not propose to appear to make submissions or intervene to oppose the scheme at the hearing.

Conclusion 40 For the reasons set out above I am satisfied that the proposed scheme is bona fide, that each of the matters relevant to an order convening a scheme meeting under s 411 was addressed, and that the matters referred to in para [13] above are otherwise satisfied. Accordingly, I considered it was appropriate to make the orders sought by OPUS, including those relating to the convening of the meeting, approving the scheme booklet for distribution and the conduct of the scheme meeting. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Banks-Smith.