Midway Limited, in the matter of Midway Limited [2025] FCA 47

INTRODUCTION 1 The plaintiff (Midway) sought orders approving a scheme of arrangement (Scheme) under s 411(4)(b) of the Corporations Act 2001 (Cth). 2 At the first Court hearing on 19 December 2024, I made orders (FCH Orders) requiring Midway to convene and hold a meeting of its shareholders on 30 January 2025 to vote on the proposed Scheme (Scheme Meeting). 3 At the Scheme Meeting on 30 January 2025, 99.70% of the votes cast were in favour of the Scheme, and 97.69% of the shareholders who voted were in favour of the Scheme. The requisite statutory majorities were therefore satisfied, and the Court's discretion to approve the Scheme was enlivened. 4 On 4 February 2025, I made orders approving the Scheme. These are my reasons for doing so.

THE SCHEME 5 In summary, the commercial purpose of the Scheme is to effect the acquisition of all of the issued shares in Midway by RCM BidCo Pty Limited, which is an indirect wholly-owned subsidiary of River Capital Pty Ltd. 6 Once the Scheme is implemented: (a) BidCo will acquire 100% of the shares in Midway on issue as at the Scheme Record Date (identified below) (Scheme Shares); (b) Scheme Shareholders (being the shareholders of Midway as at the Scheme Record Date) will receive $1.19 cash per Scheme Share, inclusive of a special dividend of $0.3835 per Midway share which the Midway directors have determined to pay (as announced to the ASX market announcements platform on 24 January 2025) (Cash Consideration); and (c) Midway will become a wholly-owned subsidiary of BidCo. 7 The Cash Consideration is the default scheme consideration. However, Scheme Shareholders may elect to receive scrip in the form of shares in RCM RollCo Pty Ltd, the immediate holding company of BidCo. The scrip consideration offered under the Scheme is subject to a minimum scrip threshold and a scaleback arrangement. As matters presently stand, the minimum scrip threshold has not been met. If this remains the case as at the Scheme Record Date of 7pm on 11 February 2025, no scrip will be provided under the Scheme, and all shareholders will receive the Cash Consideration.

EVIDENCE 8 Midway relies upon the affidavit of Robert Frederick Bennett affirmed on 31 January 2025 (Bennett Affidavit). Mr Bennett is the Company Secretary of Midway. His affidavit includes evidence of the dispatch of the Scheme materials, the conduct of the Scheme Meeting, and the voting results of that meeting. 9 In relation to the dispatch of the Scheme materials, the Bennett Affidavit confirms that there were no areas of non-compliance with the FCH Orders. The Bennett Affidavit also includes evidence regarding voter turnout at the Scheme Meeting, noting that the number of Midway shareholders present and voting constituted 15.9% of the total number of Midway shareholders eligible to vote, and the number of votes cast constituted 74.8% of the total number of Midway shares eligible to vote. 10 Midway also relied upon the affidavit of Lee David Mitchell affirmed on 4 February 2025. The affidavit annexes: (a) a conditions precedent certificate signed by Midway and BidCo confirming that all conditions precedent to the Scheme have been satisfied or waived (other than the conditions relating to Court approval of the Scheme); and (b) a letter from the Australian Securities and Investments Commission (ASIC) confirming that ASIC has no objection to the Scheme pursuant to s 411(17)(b) of the Act.

ROLE OF THE COURT 11 Section 411(4) of the Act provides that a members' scheme of arrangement is binding if, at a meeting of members, it is agreed to by the requisite majorities of members present and voting and by number of votes cast, and it is subsequently approved by order of the Court. 12 Before approving a scheme, the Court needs to be satisfied not only that the resolution to agree to the scheme has been passed in accordance with the statutory majorities, but that all other statutory and procedural requirements in relation to the convening and conduct of the meeting have been observed: Re AWA Mutual Limited (No 2) [2024] FCA 104 at [12] (Anderson J); Re iSelect Ltd (2022) 166 ACSR 41 at [7] (Anderson J); Re ResApp Health Ltd [2022] NSWSC 1353 at [23] (Black J); Re Tabcorp Holdings Ltd (No 2) [2022] NSWSC 725 at [3] (Black J); Re Afterpay Limited [2021] NSWSC 1709 at [14] (Black J); Re Isentia Group Limited [2021] NSWSC 1069 at [9] (Black J). 13 In particular, the Court must be satisfied that the meeting was properly convened and conducted in accordance with the orders made at the first Court hearing, and that all requirements of the Act and the Federal Court (Corporations) Rules 2000 (Cth) have been complied with: Re AWA at [12]; Re iSelect at [7]; Re Costa Group Holdings Limited [2024] FCA 59 at [11] (O'Callaghan J). 14 Once satisfied that all statutory and procedural requirements have been met, the Court has a discretion to approve a scheme pursuant to s 411(4)(b) of the Act. 15 Although the Court is not bound to approve a scheme simply because it has previously made orders for the convening of a scheme meeting and the statutory majorities have been achieved, the Court will recognise that shareholders are generally the best judges of whether an arrangement is to their commercial advantage and, accordingly, absent good reason, will give effect to their intentions as manifested in the voting at the scheme meeting: Re iSelect at [10]; Re Costa at [13]; Re ResApp Health at [23]; Re Probiotec Limited (No 2) [2024] FCA 593 at [33] (Button J). In this respect, the Court accepts that the shareholders' vote in favour of a scheme is evidence of its inherent fairness. Put another way, if a majority of the shareholders approve a scheme, it is unlikely that the scheme would be considered unreasonable: Re iSelect at [11]; Re Crown Resorts Limited (No 2) [2022] FCA 710 at [11]-[12] (Anderson J); Re Amcor (No 2) [2019] FCA 842 at [11] (Beach J). 16 The considerations relevant to the exercise of the Court's discretion to approve a scheme are well established, and they have been considered in a number of decisions: Re AWA at [11]-[14]; Re iSelect at [8] - [12]; Re Carbon Revolution Limited (No 3) [2023] FCA 1270 at [12]-[14] (Moshinsky J); Re Probiotec at [8]; Re Amcor at [7] to [11]; Re Japara Healthcare Limited [2021] FCA 1150 at [11] - [13] (Moshinsky J). Those decisions demonstrate that the Court will ordinarily have regard to the following matters: (a) that the scheme was approved by shareholders acting in good faith and for proper purposes, and there is no suggestion of oppression of any minority; (b) that there was full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme; (c) that the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it; (d) that all matters that could be considered relevant to the exercise of the Court's discretion have been drawn to the Court's attention, and that ASIC has been given the opportunity to draw the Court's attention to any relevant matter; (e) that the conditions precedent to the scheme have been satisfied or waived (save for conditions relating to Court-approval); and (f) that the Court is satisfied under s 411(17) that the scheme has not been proposed to avoid Chapter 6 of the Act, or there is a statement from ASIC that it has no objection to the scheme. 17 Midway submitted, and I accept, that each of these matters has been satisfied in relation to the present Scheme.

Dispatch of Scheme materials 18 The FCH Orders required that, on or before 24 December 2024, Midway provide to its shareholders a copy of the Scheme booklet substantially in the form which appeared at pages 5 to 444 of Annexure JH-1 to the affidavit of James Humphris affirmed on 18 December 2024. 19 The means by which the Scheme booklet was to be provided to shareholders varied, depending upon whether the relevant shareholder had elected to receive documents electronically or in hard copy form. The associated material to be provided to shareholders varied on the same basis. 20 The Scheme booklet and associated material were provided to shareholders on 23 December 2024 in the form required by the FCH Orders and by the methods required by those orders. The Scheme booklet provided to shareholders had been registered by ASIC, as required by s 412(6). 21 There were no instances of non-compliance with the FCH Orders in respect of the dispatch of the Scheme materials. 22 Accordingly, I am satisfied that all statutory and procedural requirements in respect of the dispatch of the Scheme materials have been complied with. 23 In addition, as required by r 3.5(b) of the Corporations Rules, an office copy of the FCH Orders was lodged with ASIC on 19 December 2024.

Scheme Meeting 24 In accordance with order 1 of the FCH Orders, the Scheme Meeting commenced at 11:00 am (Melbourne time) on 30 January 2025 at the offices of KPMG at Level 36, Tower 2, Collins Square, 727 Collins Street, Melbourne, Victoria. 25 In accordance with order 5 of the FCH Orders, Mr Gordon Davis was chairperson of the Scheme Meeting. 26 At the Scheme Meeting, 99.70% of the votes cast were in favour of the Scheme, and 97.69% of the shareholders who voted were in favour of the Scheme. It follows that the resolution was passed by the requisite statutory majorities.

Voter turnout 27 The number of shares voted at the Scheme Meeting as a percentage of Midway's total issued share capital eligible to vote was 74.8%, and the number of members who voted as a percentage of the total number of Midway's members eligible to vote was 15.9%. 28 A number of decisions have considered the proper approach to low voter turnout for schemes of arrangement, usually focusing on the number of shareholders who voted (which is commonly much lower than the number of shares voted). However, generally speaking, "low" in this context often means less than 10%: see Re Crown at [37]. Given the voter turnout in the present case was 15.9%, I accept Midway's submission that the matters addressed by the Court in considering low voter turnout do not arise. A sample of voter turnout figures from some recent cases where the Court approved the relevant scheme is as follows: Re Carbon Revolution (27.33% of shares and 5% of shareholders); Re Surf Lakes Holdings Limited (No2) [2023] FCA 1601 at [16] (51.86% and 11.39%); Re Costa at [19]-[21] (53.7% and 11.8%); Re Incannex Healthcare Limited (No 2) [2023] FCA 1450 at [11]-[12] (62.38% and 5.27%); Re iSelect at [31] - [33] (53.7% and 11.8%); Re AWA at [33] (14.26% of shares and shareholders). 29 In any event, even if the level of voter turnout were properly to be considered "low", this does not provide a reason for the Court to withhold its approval of the Scheme. In Re TriAusMin Ltd (No 2) [2014] FCA 833, Farrell J held as follows (at [10]): Although the statutory requirement under s 411(4)(a)(ii) has been satisfied, it is the usual practice of the court at the second court hearing to consider the number of shareholders who attended the Scheme Meeting in person or by proxy. Low shareholder turnout may be an indication that some procedural irregularity occurred. It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme: Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [7] and Re Seven Network Ltd (No 3) (2010) 267 ALR 583 (Re Seven Network Ltd) at [61] per Jacobson J; apathy should not be presumed to be antagonism: Re Matine Ltd (1998) 28 ACSR 268 at 295 per Santow J. 30 I accept that the level of voter turnout here does not give rise to any concern that shareholders were deterred from attending or did not have notice of the Scheme Meeting. In particular: (a) there is nothing to suggest any irregularity in dispatch of material to the shareholders; (b) shareholders were provided with notice of the Scheme Meeting; (c) there is no evidence of any issue that would have deterred shareholders from voting at or from attending the Scheme Meeting, and Midway has not received any complaint from any shareholder that they did not receive notice of the meeting; (d) the level of voter turnout for the Scheme Meeting exceeded the levels of voter turnout at Midway's most recent two AGMs; and (e) those shareholders who did vote, voted overwhelmingly in favour of the Scheme.

Notice of Second Court Hearing 31 Order 9 of the FCH Orders required Midway to publish by no later than 27 January 2025 an announcement via the ASX market announcements platform setting out the details for the second Court hearing and the process for any person wishing to appear at that hearing to oppose the approval of the Scheme. Order 9 required that the announcement be substantially in the form which appears at page 566 of annexure GRD-1 to the affidavit of Gordon Richard David affirmed on 16 December 2024. 32 Midway has complied with this order. 33 Midway did not receive any notice from any person wishing to appear at the second Court hearing to oppose the approval of the Scheme.

Conditions Precedent 34 The Scheme was subject to a number of conditions precedent, such as the approval of Midway shareholders and the Court. 35 Before approving a scheme, the Court will ordinarily require that all conditions precedent to the scheme (other than the Court's approval of the scheme and the scheme coming into effect) have been satisfied or waived. 36 As noted above, the affidavit of Mr Mitchell affirmed on 4 February 2025 annexed a conditions precedent certificate signed by Midway and BidCo which confirmed that all conditions precedent to the Scheme had been satisfied or waived, other than the conditions relating to Court approval of the Scheme.

DISCRETION TO APPROVE THE SCHEME 37 In exercising its discretion whether to approve a scheme, the Court will consider whether the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it: Re AWA at [43]. 38 I am satisfied of these matters in the present case, for the following reasons submitted by Midway: (a) the overwhelming support of the Midway members reflected in the voting results of the Scheme Meeting. Courts have held that the shareholders' vote in favour of a scheme is evidence of its inherent fairness, and that shareholders are the best judges of their own commercial interests, such that the Court should be reluctant to make decisions contrary to the views of shareholders expressed at meetings: see [15] above; (b) the recommendation from all Midway directors that Midway shareholders vote in favour of the Scheme, for the reasons given in the Scheme booklet; (c) the opinion of the independent expert that the Scheme is fair and reasonable and therefore is in the best interests of Midway shareholders, in the absence of a superior proposal; (d) the disclosures in the Scheme booklet setting out a detailed description of the Scheme, including its potential benefits and disadvantages; (e) there is no application to oppose the orders approving the Scheme, and no evidence suggesting any oppression in the conduct of the Scheme Meeting; and (f) the Scheme contains measures to protect shareholders against performance risk. 39 In light of these matters, I agreed that the Court ought to exercise its discretion in favour of approving the Scheme.

SECTION 411(17) 40 The Court's power to approve a members' scheme is restricted by s 411(17) of the Act. At the approval stage, the Court must be satisfied there is no proscribed purpose as described in s 411(17)(a), or the Court must be provided with a statement in writing by ASIC that it has no objection to the arrangement. 41 A "no objection" statement has been provided by ASIC, in the form of a letter to the directors of Midway dated 3 February 2025. This letter satisfies the requirements of s 411(17)(b), and consequently the bar under s 411(17) to approval of the Scheme has been removed.

EXEMPTION FROM s 411(11) 42 Section 411(11) requires, subject to s 411(12), that a copy of the Court's order approving a scheme of arrangement be annexed to every copy of the company's constitution issued after the order is made. Section 411(12) allows the Court to exempt a body from compliance with this provision or to determine the period during which it shall comply. 43 In Re Equinox Resources Ltd (2004) 49 ACSR 692; [2004] WASC 143, Heenan J stated the following regarding the purpose of s 411(11) (at [22]): the purpose of that provision is to ensure that any modification of the rights of shareholders of the company which is the subject of the scheme or any other provision in the scheme which may affect the interests of persons dealing with the company, such as prospective creditors or purchasers of shares, will be sure to have the opportunity of seeing what the exact rights of shareholders in the company or of its creditors are, as modified, if at all, by the scheme which has been approved. 44 I agree that exemption from compliance with s 411(11) is appropriate in the present circumstances given that: (a) the Scheme will not alter the constitution of Midway or the rights of Midway's members, creditors or other persons dealing with the company; (b) no ongoing purpose will be served by requiring the orders approving the Scheme to be annexed to Midway's constitution; (c) current members of Midway are fully informed of the Scheme and will be informed regarding the Court's approval of the Scheme; (d) immediately following implementation of the Scheme, Midway will be a wholly owned subsidiary of BidCo, which is well aware of the Scheme; and (e) an order under s 411(12) is regularly made on the above basis.

DISPOSITION 45 For the above reasons, Midway has satisfied all applicable statutory and procedural requirements for approval of the Scheme, and I agreed that it was appropriate that the Court exercise its discretion in favour of approving the Scheme. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anderson.