//
© 2026 Zoe. All rights reserved.
Zoe is a legal information platform. Always consult the Federal Register of Legislation for authoritative text.
[2021] FCA 406
plaintiff. Orders made under s 411(1) and s 1319 convening the scheme meeting for 1 June 2021 to be held virtually approving the scheme booklet (subject to minor typographical ASIC or Court amendments)...
Asaleo Care wanted its shareholders to vote on a takeover by the Swedish hygiene giant Essity. The deal offered $1.40 cash per share plus a 2-cent special dividend. Asaleo asked the Federal Court to let it send out a detailed booklet and hold an online meeting. The judge examined whether shareholders had enough clear information whether any side deals were unfair and whether risks that Essity might not pay were covered. After reviewing nine affidavits an independent expert report and ASIC's letter the Court decided the booklet was fair the safeguards were sufficient and the meeting could go ahead electronically on 1 June 2021.
AI-generated legal information, not legal advice. Zoe can make mistakes. Check the cited source, and for advice about your situation consult a qualified Australian lawyer.
3 cited instruments linked from this judgment.
2,606 words · generated 24/04/2026
Asaleo Care Limited an ASX-listed manufacturer of personal care and hygiene products entered into a Scheme Implementation Agreement (SIA) on 17 February 2021 with Essity Group Holding BV a Dutch subsidiary of the Swedish-listed Essity Aktiebolag. Under the SIA a wholly-owned Australian subsidiary of Essity (the Bidder) would acquire all Asaleo shares not already held by the Essity group (approximately 36.16% of the register) for $1.40 per share. Shareholders would also receive a special dividend of $0.02 per share if declared by the Asaleo board and an ordinary dividend of $0.03 had already been paid on 31 March 2021. The total value to shareholders was therefore $1.45 assuming the special dividend.
The transaction was structured as a members' scheme of arrangement under Part 5.1 of the Corporations Act 2001 (Cth). Asaleo applied to the Federal Court for first-hearing orders under s 411(1) and s 1319. The application was supported by nine affidavits including those verifying the scheme booklet (Godfree and Orr affidavits) addressing the special dividend (Leyden affidavit) confirming Dutch-law enforceability of the Deed Poll (Schreuders and Koot affidavits) and verifying the independent expert report (Holt affidavit). An Independent Board Committee comprising three non-Essity nominee directors recommended the scheme in the absence of a superior proposal and subject to the independent expert's conclusion.
Essity entities appeared as interested parties with leave under r 2.13(1) of the Federal Court (Corporations) Rules 2000 (Cth). ASIC had been given 14 days' notice examined the draft booklet and advised it did not propose to appear at the first hearing. The scheme booklet contained a detailed independent expert report concluding that the $1.42 total value (assuming the special dividend) fell within the expert's valuation range of $1.39-$1.49 and was fair and reasonable. The booklet also disclosed reasons to vote against the scheme break fees exclusivity arrangements director and executive incentives and tax implications.
At the hearing on 22 April 2021 counsel drew the Court's attention to performance risk the break fee exclusivity the special dividend treatment of 128,336 share rights held by the CFO director benefits and conditions precedent. Banks-Smith J made the orders on 22 April 2021 and published reasons the following day. The orders provided for an electronically conducted meeting on 1 June 2021 dispatch of materials by 29 April 2021 (email to those who had nominated electronic addresses post to others) a virtual meeting platform quorum of five voting by poll and a second hearing on 9 June 2021.
Banks-Smith J applied the well-established six-stage checklist for first-hearing applications (derived from Amcom at [9] and EcoBiotics at [20]) and the limited standard of review that the scheme must not be inappropriate and must be one sensible business people might consider beneficial ([17]-[19]). Each element was satisfied on the affidavit evidence.
Performance risk was addressed first. Because Essity BV was not a party to the scheme itself its obligations were secured by a Deed Poll executed in favour of scheme shareholders and by SIA mechanics requiring payment into a trust account two business days before implementation (cl 4.2 Deed Poll cl 5.2 scheme cl 4.3 SIA). The Court held these interdependent steps minimised risk because Asaleo controlled the trust account share transfers could not occur without prior payment and the Deed Poll gave shareholders direct enforceable rights under Dutch law with Victorian jurisdiction ([45]-[50]). Dutch counsel opinions confirmed enforceability and likely recognition of Victorian judgments.
The break fee of $4,855,967 (less than 1% of equity value) was not coercive because it was not payable merely if shareholders voted no it arose only on defined events (competing transaction recommendation withdrawal or material breach) had been negotiated at arms length and was fully disclosed ([51]-[53]). The Court accepted the submissions citing the Takeovers Panel guideline and earlier authorities such as Rusina Mining and APN.
Exclusivity (no-shop no-talk no-due-diligence) was confined to a defined period of approximately seven months was expressly subject to directors' fiduciary and statutory duties and received clear prominence in the booklet. Although towards the upper end such periods had been accepted in Tox Free (6-7 months) Amcor (12 months) and Healthscope (9 months) ([54]-[57]).
The special dividend raised both s 260A financial assistance and class issues. The Court applied the commercial-realities approach from Milburn v Pivot Limited (1997) 78 FCR 472 at 501-503 and Re Skilled Group. The dividend was not required by the scheme did not reduce the $1.40 consideration the Bidder had ample independent liquidity ($757 million cash and $3.08 billion facilities against a $3.93 million dividend) and the CFO's evidence established no material prejudice to net assets creditors or shareholders ([58]-[61]). Consequently the dividend was neither prohibited financial assistance nor productive of a separate class because all shares on the record date were treated equally and scheme consideration remained unchanged (Tox Free at [31]-[32]).
Share rights held by the CFO would convert to shares only upon scheme effectiveness so he would not vote at the meeting; no class issue arose ([62]). Director and executive benefits (retention payments accelerated EIP awards and one-off IBC fees) were all payable whether or not the scheme proceeded were not "inducements" and were disclosed prominently in the Chairman's letter at pages 3 8 12 22 and sections 7.2-7.3 whenever recommendations appeared. The Court therefore held that the directors' recommendations remained appropriate and no separate class was created because legal rights were identical and all shareholders received the same consideration ([63]-[72]).
Finally the Court accepted that electronic despatch (permitted by the constitution and ASIC's no-action position) and a virtual meeting were authorised by ss 411 and 1319 particularly given COVID-19 considerations and the precedent in Sienna Cancer Diagnostics ([74]-[78]). All conditions precedent were ordinary and no facts suggested they would fail ([73]). Because the scheme was conventional full disclosure had been given and no disqualifying features existed the Court was satisfied the proposal was fit for consideration by members and likely to obtain final approval if passed ([80]-[82]).
Prior to this decision the law on scheme convening hearings was settled by a consistent line of authority collected at [17] (Amcom EcoBiotics Wesfarmers) and [18] (Programmed Maintenance Signature Gold). The limited role of the court at the first hearing not to assess commercial merits but only to decide whether the scheme was not inappropriate had been reiterated for more than two decades. Break-fee doctrine was guided by the Takeovers Panel's 1% policy and the need to avoid coercion (APN Rusina Mining). Exclusivity was acceptable if time-limited fiduciary-protected and prominently disclosed (Re Arthur Yates). Financial assistance analysis turned on commercial realities rather than form (Milburn v Pivot Re Skilled Group). Treatment of director benefits and recommendations showed some divergence of first-instance views but all required full disclosure.
This judgment did not change the law. It applied the existing framework to a concrete set of facts involving a special dividend that did not reduce consideration a break fee below the guideline and incentives payable irrespective of implementation. It expressly favoured the more permissive line of cases on director recommendations (Re SMS Management Kidman Resources Re Villa World DWS RXP) while noting the nuance depends on the nature of the benefit and disclosure level ([71]). The decision reinforced that virtual meetings and electronic despatch fall comfortably within ss 411 and 1319 and ASIC's post-Determination no-action position.
After the decision the law remained unchanged but the judgment now forms part of the corpus of authorities that practitioners cite for the propositions that (a) advance payment into a trust account controlled by the target virtually eliminates performance risk (b) a special dividend that leaves scheme consideration intact and is supported by solvency evidence does not engage s 260A prejudice and (c) benefits payable regardless of scheme success do not disqualify directors from recommending the transaction when prominently flagged throughout the booklet. The case illustrates the practical operation of the "not inappropriate" test when all verification and disclosure boxes are ticked.
Paragraph [19]: "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. It is not necessary for the Court to descend into the commercial merits of the proposed scheme."
Plain English: The judge's job at this early stage is simply to decide whether the deal is so obviously bad that no reasonable business person would even want to vote on it. The Court does not decide whether it is a good price; that is for the shareholders and the second hearing.
Paragraph [48]: "the fact that Essity BV must provide the funds in advance into a trust account; the fact that Asaleo controls the trust account; and the fact that all other relevant steps occur on the implementation date but the transfers of shares are not effective without prior payment to the scheme shareholders."
Plain English: Essity has to put the money in the bank two days early the target company holds the key to the account and no shares change hands until the money is safely sitting there. That removes any realistic risk that shareholders will lose their shares without being paid.
Paragraph [61]: "I accept Asaleo's submission in this regard. Furthermore I accept Asaleo's submission that the special dividend arrangements do not create a separate class as all persons holding shares on the special dividend record date will be entitled to be paid the special dividend if it is declared and paid and its payment will not reduce the scheme consideration payable to scheme shareholders."
Plain English: Paying everyone the same 2-cent dividend on the same day does not split shareholders into different voting groups because the takeover price stays the same and every shareholder who owns shares on the record date gets the dividend.
Paragraph [71]: "Here however the relevant payments are not benefits to be received if the scheme is approved in any event they are payable regardless of whether or not the scheme proceeds. Therefore the issue with respect to the director's recommendations does not arise. Here the relevant benefits are fully and prominently disclosed in the scheme booklet (for example sections 7.2 and 7.3) and the arrangements are referred to in the scheme booklet whenever the recommendation to vote in favour of the scheme is mentioned."
Plain English: Because the extra payments to the managing director and independent directors are not conditional on the deal succeeding the legal controversy about biased recommendations simply does not apply. The booklet repeats the warning every time a recommendation appears so shareholders cannot miss it.
Paragraph [77]: "I consider that s 411 and s 1319 of the Act provide the power to make an order that a meeting take place virtually and such provisions have been relied upon in an environment where COVID-19 risks must be taken into account."
Plain English: Even after the temporary COVID meeting rules expired the Court still has general power under the scheme sections to order an online-only meeting.
This decision is triggered whenever a listed Australian company proposes a 100% cash scheme of arrangement that includes one or more of the following features: (1) the bidder is a foreign entity requiring a Deed Poll and foreign-law opinion on enforceability; (2) a special dividend is to be paid to all shareholders on the record date without reducing the scheme consideration and the target can produce CFO evidence of no material prejudice under ss 260A and 254T; (3) a break fee below the Takeovers Panel 1% guideline that is payable only on defined triggering events and not on a simple "no" vote; (4) exclusivity lasting up to approximately seven months with an express fiduciary carve-out and prominent booklet disclosure; (5) retention payments accelerated long-term incentives or one-off fees for independent directors that are payable whether or not the scheme succeeds and are disclosed every time a recommendation appears; (6) a small number of unvested share rights or employee incentives that do not affect the voting constituency; or (7) a proposal to conduct the scheme meeting and dispatch materials electronically.
The precedent is particularly apt where the independent expert concludes the total value (scheme consideration plus dividend) sits inside or at the lower end of its valuation range the IBC recommends the deal in the absence of a superior proposal and ASIC indicates it does not intend to appear at the first hearing. Conversely the decision would not assist schemes that lack a trust-account mechanism contain a break fee exceeding 1% without compelling justification or propose conditional director bonuses that are payable only if the scheme is approved without the fuller disclosure and analysis seen in the second line of authorities (Re SMS Kidman Resources RXP).
This judgment has been treated as a conventional and uncontroversial application of the established first-hearing principles. Subsequent decisions have cited it for the propositions that performance risk is eliminated by advance payment into a target-controlled trust account combined with a Deed Poll and that a special dividend which does not reduce scheme consideration and is supported by evidence of no prejudice under s 260A does not constitute financial assistance nor create a separate class. Courts have also referenced the detailed disclosure regime for director and executive incentives payable irrespective of implementation as an example of best practice that avoids any recommendation difficulty.
The nuanced discussion at [70]-[71] of the two competing lines of authority on conditional director benefits has been noted as illustrating that the outcome is fact-specific and turns on whether the benefit is truly conditional and the prominence of disclosure. The Court's preference for the permissive approach (aligning with Beach J in DWS and RXP) has been viewed as consistent with the weight of more recent first-instance authority. The confirmation that seven months' exclusivity remains acceptable when fiduciary-limited has been cited as confirming the outer but still tolerable limit of such periods. Overall the decision is treated as reinforcing rather than altering the law and is routinely included in compliance checklists for scheme booklets containing special dividends virtual meetings and management incentives.
Although this judgment resolves the issues on its facts several questions remain live for future schemes. First the precise boundary between the two judicial approaches to director recommendations where the benefit is conditional on implementation is still not finally settled; the Court noted the difference is "somewhat nuanced" and "much depends upon the nature of the particular alleged benefit and the level of disclosure" ([71]). A scheme in which the benefit is partly but not wholly conditional may still generate debate.
Second the outer limit of exclusivity periods remains impressionistic. While seven months was accepted as "within the parameters" the judgment leaves open whether nine or twelve months would be permissible in a contested or longer-dated transaction. Third the interaction between s 260A and special dividends paid to a substantial pre-existing shareholder (here 36.16%) may require further elucidation if the target’s cash position is tighter or the dividend larger relative to available facilities.
Fourth the enforceability of Deed Polls given by foreign bidders continues to depend on jurisdiction-specific opinions; the Dutch-law evidence accepted here may not translate to every jurisdiction. Finally the continuing status of ASIC's no-action position on virtual meetings after the expiry of the Coronavirus Determinations remains administrative rather than statutory; a future scheme challenged on meeting format could test the scope of s 1319 more rigorously. Practitioners should continue to monitor second-hearing decisions for any tightening of the disclosure standards for incentives or the evidentiary threshold required for s 260A comfort.
Counsel for the Plaintiff: Mr BK Holmes
Solicitor for the Plaintiff: King & Wood Mallesons
Solicitor for the Interested Parties: MinterEllison
ORDERS WAD 69 of 2021 IN THE MATTER OF ASALEO CARE LIMITED (ACN 154 461 300) ASALEO CARE LIMITED (ACN 154 461 300) Plaintiff
ESSITY HOLDING COMPANY AUSTRALIA PTY LTD Interested Parties
order made by: BANKS-SMITH J DATE OF ORDER: 22 APRIL 2021
BANKS-SMITH J: 1 On 22 April 2021 I heard an application under s 411 of the Corporations Act 2001 (Cth) (Act) to approve the convening of a scheme and the scheme booklet to be sent to members concerning the scheme. I made orders on that date for the following reasons.
Proposed scheme 2 On 17 February 2021 Asaleo Care Limited (Asaleo) announced that it had entered into a Scheme Implementation Agreement (SIA) with Essity Group Holding BV (Essity BV) in relation to the proposal by Essity BV to acquire all of the shares in Asaleo not already owned by the Essity group. The SIA was subsequently amended to provide, relevantly, that a wholly owned subsidiary of Essity BV is to acquire the relevant shares. Under the SIA, Asaleo and Essity BV have agreed to implement the scheme on the terms of the SIA as amended, subject to the scheme obtaining regulatory approvals, satisfying certain conditions precedent, being approved by Asaleo shareholders and being approved by the Court. The announcement was made available on the Australian Securities Exchange (ASX) and on Asaleo's website. 3 The scheme, if implemented, will result in all shares in Asaleo being transferred to Essity BV's nominee, being Essity Holding Company Australia Pty Ltd (Bidder). Asaleo will become a wholly-owned subsidiary of the Bidder. I note that Essity BV is referred to in some of the early documents as the 'Bidder', but I will refer to Essity Holding Company Australia Pty Ltd as the Bidder, adopting the convention used by Asaleo in its written submissions, and, having regard to its nomination under the SIA as amended as the entity to acquire all the relevant shares. 4 Under the terms of the scheme, Asaleo shareholders at the record date are to receive from Essity BV AUD$1.40 for each Asaleo share they hold. I will refer to those shareholders generally in these reason as the scheme shareholders. 5 In addition to the scheme consideration of $1.40 for each Asaleo share, shareholders will receive a special dividend of AUD$0.02 per share if the Asaleo Board resolves to declare and pay the special dividend. The Board has indicated its current intention is to pay the special dividend, subject to approval of the scheme by the scheme shareholders and the Court. The scheme consideration will not be reduced by the amount of the special dividend. 6 Further, an ordinary dividend of AUD$0.03 per share was paid to Asaleo shareholders on 31 March 2021.
The parties 7 Asaleo is an Australian public company limited by shares and admitted to the official list of the ASX. It is a personal care and hygiene company that manufactures, markets, distributes and sells essential everyday consumer products across the feminine care, incontinence care, baby care, consumer tissue and professional hygiene product categories. 8 Essity BV is incorporated in the Netherlands and is a wholly owned subsidiary of Essity Aktiebolag (publ), a company incorporated in Sweden and listed on the Nasdaq Stockholm. Essity Aktiebolag is a leading global hygiene and health company, with sales in approximately 150 countries under brands that include TENA and Tork. 9 The Bidder is an indirect wholly-owned subsidiary of Essity BV.
Asaleo securities 10 Asaleo has a number of securities on issue (information as at 15 April 2021), being: (a) 543,122,491 shares; and (b) 128,336 share rights (Asaleo share rights). 11 All Asaleo shares are held by approximately 2,887 registered shareholders. The Asaleo shareholders holding voting power in 5% or more of Asaleo shares based on substantial holder notices lodged with the ASX include, relevantly, Essity BV, which holds 196,396,028 shares (representing 36.16% of issued shares).
Materials relied upon 12 Asaleo relies upon the following affidavits: (a) affidavit of Mikkeli Godfree, special counsel at King & Wood Mallesons, affirmed on 31 March 2021 providing an overview of the scheme and Asaleo's business and attaching, relevantly, the Constitution of Asaleo, an ASIC company extract for Asaleo, and ASX announcements that include a copy of the SIA and an amending deed; (b) affidavit of James Kane Orr, General Counsel and Company Secretary of Asaleo, affirmed on 15 April 2021 deposing to various aspects of the scheme and the proposed scheme meeting, including the role and recommendations of the Independent Board Committee (described below), financial information as to Asaleo, evidence as to the proposed chairperson and alternate chairperson of the scheme meeting, verification of the information in the scheme booklet and the proposed electronic despatch of the scheme booklet. Mr Orr's affidavit attaches, relevantly, the draft scheme booklet provided to ASIC on 31 March 2021 with its attachments; (c) affidavit of Andrew John Leyden, Chief Financial Officer of Asaleo, affirmed on 16 April 2021 in respect of a proposed special dividend and the question of any material prejudice; (d) affidavit of Mr Godfree affirmed on 15 April 2021 deposing to prescribed information, being the lodgement of the draft scheme booklet with ASIC on 31 March 202, and the giving of notice to ASIC of the first court hearing; (e) affidavit of Jan Carlsson, Vice President and Senior Legal Counsel of Essity, affirmed on 14 April 2021 regarding the negotiation of the exclusivity and break fee provisions in the SIA; (f) affidavits of Tim B Schreuders and Martijn B Koot, both affirmed on 15 April 2021. Mr Schreuders and Ms Koot are partners of law firm Heussen BV which was retained by Essity BV to provide an opinion on the execution and enforceability of a relevant Deed Poll under Dutch law; (g) affidavit of Alberto Colla, partner of MinterEllison (solicitors for, relevantly, Essity BV and the Bidder), sworn on 20 April 2021 concerning the verification of the information in the scheme booklet relating to Essity BV and the Bidder, and the execution of the Deed Poll; (h) affidavit of Martin Holt, director and authorised representative of Lonergan Edwards, and jointly responsible for the independent expert's report (IER), affirmed on 21 April 2021, verifying the IER and providing qualifications relevant to his expertise; and (i) affidavit of Mr Godfree affirmed on 21 April 2021 describing the iterations of the draft scheme booklet provided to ASIC, amendments that followed comments received from ASIC and attaching a copy of the 'final' clean copy of the scheme booklet, less its annexures. Mr Godfree also attached a copy letter from ASIC dated 21 April 2021, to which I will return.
Legal framework for the approval of a scheme 13 The legal principles have been set out in many previous decisions on scheme applications, but for ease of reference I provide a short summary in these reasons. 14 Section 411(1) of the Act relevantly provides that, where an arrangement is proposed between a Part 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. 15 Section 412(1)(a) of the Act relevantly provides that where a meeting is convened under s 411, the Part 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 where they differ from the effect on the same 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. It is usual for a scheme booklet to include the explanatory statement information. 16 There are generally six matters to be established at the first stage: (a) the applicant is a Part 5.1 body; (b) the proposed scheme is an 'arrangement' within the meaning of s 411 of the Act; (c) the explanatory statement will provide proper disclosure to members; (d) the scheme is bona fide and properly proposed; (e) 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 (f) any other procedural requirements have been met. 17 There are many cases to similar effect but I note in particular the collection of such matters in Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 at [9] (McKerracher J); EcoBiotics Limited, in the matter of EcoBiotics Limited [2017] FCA 643 at [20] (Gleeson J); and Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 at [46]-[78] (Vaughan J). 18 The principles as to the nature of the review at the first court hearing are also summarised elsewhere: for example, Programmed Maintenance Services Limited, in the matter of Programmed Maintenance Services Limited [2017] FCA 1265 at [11]-[14] (McKerracher J); and Signature Gold Ltd, in the matter of Signature Gold Ltd [2017] FCA 1481 at [22]-[23] (Markovic J). 19 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. It is not necessary for the Court to descend into the commercial merits of the proposed scheme. 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.
Consideration - standard matters 20 The following are relevant in this proceeding to the six matters to be established at the first stage.
Part 5.1 body 21 A Part 5.1 body is defined by the Act to include, relevantly, a company. A review of the historical records of Asaleo, as evidenced by copies of the extracts from the ASIC registry, satisfy me that Asaleo is a company.
Arrangement 22 I am satisfied on the basis of the SIA and the scheme booklet contents that the scheme is an arrangement between Asaleo and its members. This is a cash transfer scheme, and such schemes have been approved on many occasions.
Explanatory statement - the scheme booklet 23 I have had the opportunity to consider the draft scheme booklet in the form in which it was provided to ASIC and its subsequent amended form. It is a detailed document which includes sections dealing with important dates and notices; a covering letter from the Chairman providing an overarching review of the scheme; information regarding the directors' recommendations; reasons to vote for or against the scheme; a question and answer section; details of the scheme; information on Asaleo; information on the Essity group; tax implications of the scheme; additional information that might be considered material to the scheme shareholders' decision as to how they should vote; and a glossary. 24 It also has a number of annexures: the IER; the SIA; the scheme of arrangement document; the Deed Poll; and the notice of the scheme meeting. 25 Given all the circumstances, I am satisfied to the necessary level that by the scheme booklet there will be proper disclosure as to the effect of the proposed scheme and the material considerations to which shareholders ought to have regard. 26 Importantly, the scheme booklet gives disclosure as to the reasons why a shareholder may wish to vote against approval of the proposed scheme. Those are: (a) disagreement with the directors' recommendation and the IER; (b) a scheme shareholder will no longer hold shares in Asaleo and will not participate in any upside that may result from being an Asaleo shareholder; (c) the shareholder may believe it is in their best interests to maintain their current investment and risk profile; (d) the tax consequences of transferring the Asaleo shares may not be optimal for the shareholder's financial position; and (e) the shareholder may consider that there is potential for a superior proposal to be made after the date of the scheme booklet (although none had been received as at the date of the scheme booklet). 27 The explanatory statement provided to shareholders must provide proper disclosure as required by s 411(3) of the Act. I have reviewed the affidavit evidence to ensure that the matters which must be disclosed have been properly disclosed (including the prescribed matters referred to in s 412(1)(a) of the Act and Schedule 8 of the Corporation Regulations 2001 (Cth)) and I consider that is the case. I had the assistance of a compliance schedule provided by way of Mr Godfree's evidence. I am also satisfied that the scheme is bona fide and properly proposed. 28 Both Asaleo and Essity BV (on its own behalf and on behalf of the Bidder) have provided by way of affidavit evidence a record of the process each entity undertook with respect to verification of the relevant parts of the scheme booklet. 29 An Independent Board Committee (IBC) was formed by Asaleo to evaluate Essity BV's proposal. The members of the IBC are Harry Boon, Sue Morphett and JoAnne Stephenson. The IBC and the managing director, Mr Sid Takla, support the scheme and recommend that all shareholders vote in favour of the scheme, in the absence of a superior proposal and subject to the IER conclusion subsisting (I will return to the question of directors' recommendations below). There are in addition two directors who are Essity nominees. They are not members of the IBC. 30 Having regard to all of these matters and the IER, I am satisfied that the shareholders are to be provided with adequate information by the scheme booklet.
Independent expert 31 The IBC retained Lonergan Edwards to prepare the IER and to state whether in their opinion the scheme is fair and reasonable and in the best interests of the Asaleo shareholders, and the reason for that opinion. The IER addresses those matters. 32 The IER concludes that the scheme is fair and reasonable and in the best interests of Asaleo shareholders, in the absence of a superior proposal. The basis for this conclusion is that the total value of the scheme consideration (on the assumption that the special dividend is paid) of $1.42 lies within (albeit towards the lower end of) their assessed value range for Asaleo shares of $1.39 to $1.49 per Asaleo share. The explanatory statement discloses that since the announcement of the scheme, no superior proposal has emerged. 33 In addition, the IER contains a detailed evaluation of the scheme, presented in a way that enables a shareholder to form a view of the merits of the scheme.
Voting position of directors 34 Each of the IBC directors and Mr Takla have disclosed that they intend to vote in favour of the scheme in relation to all Asaleo shares held by them at the relevant time, in the absence of a superior proposal and subject to the IER conclusion subsisting. Essity BV and Essity nominee directors who hold Asaleo shares have indicated that they will abstain from voting.
A single class 35 The question of classes and separate class meetings arises because of the reference in s 411(1) to an arrangement proposed between a company and its members 'or any class of them'. 36 In this case I am satisfied that no issue arises as to a separate class: see [62] and [69] below.
Other procedural matters - chair 37 The members of the IBC have proposed that Mr Boon act as the chair of the scheme meeting on 1 June 2021, and that Ms Stephenson act as alternative chair. 38 Mr Orr deposes to having been informed by both Mr Boon and Ms Stephenson that they are willing to act in those respective roles. Both have disclosed that they are directors of Asaleo and owns shares in Asaleo (as to which I note there has been full disclosure in the scheme booklet). Both have also disclosed that they will receive a fee for acting as chair or alternate chair, as the case may be. 39 I am satisfied that the requisite consents to act have been provided.
ASIC 40 Section 411(2) of the Act requires that ASIC be given notice of the hearing and that it has had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement, and has had the opportunity to make submissions to the court. 41 ASIC's policy is that it will not provide a statement under s 411(17)(b) of the Act until the second, or confirmation, court hearing in relation to a scheme of arrangement. This policy is consistent with the wording of s 411(17)(b) of the Act which relates the statement to the court's approval of the scheme. 42 ASIC by its 21 April 2021 letter informed Asaleo that it has examined the terms of the scheme and the draft explanatory statement in accordance with its policy in 'Regulatory Guide 60 Schemes of arrangement,' but that it did not propose to appear to make submissions or intervene to oppose the scheme at the first court hearing under s 411(1) of the Act. 43 Having regard to the affidavit evidence that refers to ASIC having provided comments on the draft scheme booklet, and having regard to the 21 April 2021 letter, I am satisfied that there has been proper notice provided to ASIC and that it had the opportunity to make submissions at the hearing before me of 21 April 2021, had it wished to do so.
Consideration - particular matters relevant to the proposed scheme 44 Counsel for Asaleo drew the Court's attention to particular features of the scheme: (a) performance risk; (b) break fee; (c) exclusivity arrangements; (d) special dividend; (e) Asaleo share rights; (f) director benefits and executive incentives; and (g) conditions precedent.
Performance risk 45 Although Essity BV is to provide the scheme consideration, it is not a party to the scheme and is not directly bound by it. Its obligations do not depend upon s 411. Asaleo has adopted accepted safeguards to address the performance risk arising from the obligations of Essity BV attributed to it under the scheme. 46 First, the terms of the scheme prevent any transfer of the scheme shares to the Bidder unless and until the scheme consideration has been received by the scheme shareholders: cl 5.2 of the scheme of arrangement. By Deed Poll executed by Essity BV and the Bidder in favour of the scheme shareholders, Essity BV has covenanted to pay the scheme consideration to a trust account operated by or on behalf of Asaleo to hold the funds on trust for the purpose of payment to the scheme shareholders. The funds must be paid two business days before the implementation date, being the date when payment of the scheme consideration to the scheme shareholders is due (cl 4.2 Deed Poll). Under the SIA, the Bidder agrees to accept the transfer of the consideration and pay the consideration to the scheme shareholders on the implementation date (cl 4.3 SIA). 47 Therefore, the interdependent steps and mechanics as to the provision of transfers and payment on the implementation day anticipate that the transfer of shares is subject to compliance with the payment regime for payment to shareholders: see generally Decimal Software Limited, in the matter of Decimal Software Limited [2018] FCA 1647 at [31]-[33]. 48 In my view, the following procedures anticipated by the scheme of arrangement, SIA and Deed Poll operate to minimise and protect the shareholders from performance risk: the fact that Essity BV must provide the funds in advance into a trust account; the fact that Asaleo controls the trust account; and the fact that all other relevant steps occur on the implementation date but the transfers of shares are not effective without prior payment to the scheme shareholders. 49 Second, by the Deed Poll Essity BV is legally bound to perform the roles assigned to it under the scheme, including with respect to the issue of the scheme consideration. The Deed Poll contains an undertaking by Essity BV in favour of each scheme shareholder to perform the obligations attributed to it in the scheme and gives the shareholders a direct contractual right against Essity BV in the event that it fails to perform its obligations. Mr Schreuders and Ms Koot have provided an opinion to the effect that the Deed Poll is validly executed but also that the submission by Essity BV under the Deed Poll to the non-exclusive jurisdiction of the courts of Victoria for any legal action, suit or proceedings arising out of or related to the Deed Poll is valid and legally binding on the Essity BV under the laws of the Netherlands. Although there is no applicable treaty between the Netherlands and Australia, they opine that under current practice a final judgment obtained in a court in Victoria would generally be upheld in a Dutch court of competent jurisdiction as evidence if asked to render a judgment based upon it. 50 Accordingly, there is no material performance risk which would justify me not ordering the convening of the scheme meeting.
Break fee 51 Clause 10 of the SIA requires Asaleo to pay a break fee of $4,855,967 in certain circumstances, including where a Competing Transaction (as defined) is given effect in a prescribed time frame; the recommendation made by the IBC directors and managing director is withdrawn or adversely modified; or where Essity BV terminates the SIA for material breach. 52 In certain circumstances, a break fee may be considered excessive or otherwise coercive in nature: see generally Rusina Mining NL, in the matter of Rusina Mining [2010] FCA 517 at [52] (Barker J); APN News & Media Limited, in the matter of APN News & Media Limited [2007] FCA 770 at [55] (Lindgren J); and Amcom at [35] (McKerracher J). Asaleo submits that the break fee in this case is neither, because: (a) under the SIA, the break fee will not be payable where the scheme becomes effective, and it is not payable merely because shareholders reject the scheme at the scheme meeting. Accordingly, the fee is not such that it would likely influence voting at the meeting; (b) the break fee is less than the 1% guideline given by the Takeovers Panel; (c) the break fee was the subject of commercial, arms-length negotiations; and (d) there has been full disclosure of the break fee in scheme booklet. 53 I accept Asaleo's submissions as to the break fee.
Exclusivity arrangements 54 The SIA contains exclusivity provisions by way of no shop, no talk and no due-diligence agreements on the part of the Asaleo directors. 55 In general, and as discussed in APN News & Media Limited at [29] and Re Arthur Yates & Co Ltd [2001] NSWSC 40 at [9] (Santow J), exclusivity provisions should: (a) exist for no more than a reasonable period which is properly defined; (b) be subject to the directors' fiduciary and other duties; and (c) be given adequate prominence when disclosed in the scheme booklet. 56 In this case, the relevant period is defined and it is for a period of approximately seven months, the exclusivity provisions were subject to an overriding obligation not to breach directors' fiduciary and statutory duties, and there is clear disclosure of the provisions in the scheme booklet. 57 A period of seven months, whilst perhaps towards the upper range, is within the parameters of periods recognised as reasonable: see, for example the terms in Tox Free Solutions Limited, In the matter of Tox Free Solutions Limited [2018] FCA 977 at [54] (6-7 months); Amcor Limited, in the matter of Amcor Limited [2019] FCA 346 at [82] (12 months); and Healthscope Limited, in the matter of Healthscope Limited [2019] FCA 542 at [154] (9 months).
Special dividend 58 Asaleo raises two issues in relation to the special dividend. First, s 260A provides that a company may only financially assist a person to acquire shares in the company if certain conditions are met. Asaleo submits that payment of the special dividend would not constitute the provision of financial assistance by Asaleo to the Bidder to purchase Asaleo shares, when one has regard to the commercial realities, a course endorsed in, for example, Milburn v Pivot Limited (1997) 78 FCR 472 at 501-503 (Goldberg J); and Re Skilled Group Ltd (No 1) [2015] VSC 789 at [90] (Robson J). 59 In particular, whilst the SIA anticipates payment of the special dividend, the scheme does not require it to be paid, and if paid it will not reduce the amount of the scheme consideration. Moreover, payment of the special dividend to Essity BV as a shareholder will not financially assist the purchase of Asaleo shares, as Essity BV is able to fund the scheme consideration without reference to any such payment received. The final version of the scheme booklet discloses that the Essity group's cash and cash equivalents amounted to approximately AUD$757 million and long term, unutilised bank credit facilities amounted to approximately AUD$3.08 billion, against a potential special dividend receipt of approximately AUD$3.93 million. Asaleo accordingly submits that, properly characterised, these arrangements are not financial assistance within the meaning of the Act. 60 Asaleo submits that in any event, even if it were financial assistance, the payment of the special dividend would be permitted by s 260A(1)(a) as it will not prejudice Asaleo, its shareholders or its ability to pay its creditors for the purposes of s 260A. In particular, Mr Leyden's evidence was that the financial position of Asaleo generally, and its net asset position in particular, are more than sufficient to meet the payment of the special dividend and that the payment would not materially prejudice Asaleo or its members, or the ability of Asaleo to pay its creditors. Such evidence has been accepted in other cases as sufficient to satisfy the requirements of s 260A: for example, RXP Services Limited, in the matter of RXP Services Limited [2021] FCA 38 at [57]. Further, s 254T(1)(b) forbids a company from paying a dividend unless it is fair and reasonable to the company's shareholders as a whole. Mr Leyden also gave evidence that, in his view, the financial position of Asaleo generally, and its asset and liability position in particular, are such that the payment of the special dividend is fair and reasonable to Asaleo's shareholders as a whole. 61 I accept Asaleo's submission in this regard. Furthermore, I accept Asaleo's submission that the special dividend arrangements do not create a separate class, as all persons holding shares on the special dividend record date will be entitled to be paid the special dividend if it is declared and paid, and its payment will not reduce the scheme consideration payable to scheme shareholders: Tox Free Solutions at [31]-[32].
Asaleo share rights 62 There are 128,336 Asaleo share rights on issue. Those are held by Mr Leyden. Pursuant to the SIA, Asaleo will issue one share to Mr Leyden for every Asaleo share right that he holds, conditional on the scheme becoming effective. Mr Leyden will be able to participate in the scheme in respect of those shares. However, Mr Leyden is not currently a shareholder of Asaleo, and so will not be entitled to vote at the scheme meeting. I accept that, therefore, no class issue arises.
Director benefits and executive incentives 63 It is recognised that director benefits and executive incentives can raise issues of class, collateral benefit, and the appropriateness of directors making a recommendation to shareholders in relation to a scheme. 64 Asaleo has disclosed in the scheme booklet and to the Court that the following payments may be made to Sid Takla, Asaleo's managing director, who currently holds 611,601 Asaleo shares: (a) a retention payment of $900,000 if Mr Takla remains with Asaleo until at least 30 June 2022, and which is payable whether or not the scheme proceeds. The amount of this payment is equivalent to Mr Takla's 12-month fixed remuneration; (b) the potential accelerated payment of the second tranche of Mr Takla's 2020 Executive Incentive Plan (EIP) award of approximately $641,651 in cash, which would otherwise be deferred and payable 12 months after Asaleo's full year results. The Asaleo board may exercise its discretion to make this payment on an earlier date to be determined prior to the scheme record date; and (c) while the Asaleo board has not made any decision in this regard, subject to level of achievement of performance measures for the 2021 EIP award, the Asaleo board may exercise its discretion to make a cash payment of up to a maximum amount of $1,350,000 to Mr Takla and to accelerate the timing of that payment. 65 Mr Orr's evidence indicates that pursuant to their employment agreements, the other Asaleo executives are entitled to receive a one-off payment if they remain employed by Asaleo at 30 June 2022, whether or not the scheme proceeds. Three of the six executives also hold Asaleo shares. In addition, these executives are entitled to cash payments pursuant to their 2020 EIP awards, which the Board may in its discretion accelerate. No decision has been made in respect of the grant of the 2021 EIP award, however the Board may exercise its discretion to grant awards in cash and accelerate the timing of that payment. 66 In consideration for their time commitment and consideration of the Essity proposal and their participation in the IBC, the Asaleo Board has approved one-off fees payable on 31 March 2021 to its three independent non-executive directors: Mr Boon ($90,000); Ms Stephenson ($35,000); and Ms Morphet ($35,000). These fees are payable regardless of whether or not the scheme is approved and implemented. Each of these directors holds small parcels of Asaleo shares. As a result, Asaleo submits that it cannot be said that these payments are an inducement to these directors to support the scheme; rather they reflect the additional workload of each of these directors arising out of the scheme. I accept this submission. 67 Further, none of the above payments entitle any Asaleo director or executive to receive a direct benefit as a result of the scheme being implemented. 68 Even though s 623 does not apply to schemes, the prohibition on collateral benefits is sometimes considered. However, the prohibition in s 623 only apples to benefits given to shareholders in their capacity as owners of shares, and not benefits conferred on them in their capacity as employees. In addition, s 623 only applies to a benefit likely to induce the recipient to accept an offer under the bid or dispose of securities in the bid class. Based on the above considerations, neither of these factors apply in the present case. 69 As to class considerations, I do not consider the recipients of the payments referred to above who are also Asaleo shareholders constitute a separate class. The legal rights of these shareholders are not so dissimilar from the rights of other shareholders as to make it impossible for them to consult together with a view to their common interest. They will each participate in the scheme on the same basis and receive the same consideration as all other Asaleo shareholders. I accept Asaleo's submissions that all shareholders are being treated equally under the scheme. 70 As to director recommendations, this issue primarily concerns the appropriateness of Mr Takla making a recommendation to shareholders, notwithstanding his retention payment and the possible payment and acceleration of his EIP awards. To a lesser extent, it might also be said to be relevant to the fees payable to the IBC directors. In a number of recent decisions, courts have considered whether a director who is to receive an additional financial benefit if a scheme is approved should make a recommendation to members about voting in favour of the scheme. Counsel for Asaleo noted the recent cases in this area and that different views have been expressed: (a) in some cases, the court has taken the view that, as a general rule, a director who will receive such a benefit should decline to make a recommendation to shareholders as to how they should vote, but that the making of such a recommendation may not preclude the court making orders convening a meeting if the benefits are adequately disclosed in the scheme booklet: for example Gazal Corporation Limited, in the matter of Gazal Corporation Limited [2019] FCA 701 at [30] (Farrell J); Ruralco Holdings Limited, in the matter of Ruralco Holdings Limited [2019] FCA 878 at [28] (Farrell J); Re Navitas Ltd; Ex Parte Navitas Ltd [No 2] [2019] WASC 218 at [32] (Vaughan J); and Wellcom Group Limited, in the matter of Wellcom Group Limited [2019] FCA 1655 at [60] (O'Bryan J); (b) in other cases, the court has taken a different approach, holding that it will ordinarily be appropriate for a director who is to receive a financial benefit if a scheme is approved to make a recommendation, but to fully and prominently disclose the benefit in the scheme booklet: see, for example Re SMS Management & Technology Ltd [2017] VSC 257 at [26] (Robson J); Kidman Resources Limited, in the matter of Kidman Resources Limited [2019] FCA 1226 at [105]-[113] (O'Callghan J); Re Villa World Ltd [2019] NSWSC 1207 at [38]-[40] (Black J); Re ERM Power Limited v Shell Energy Australia Pty Ltd [2019] NSWSC 1502 at [18] (Black J); DWS Limited, in the matter of DWS Limited [2020] FCA 1590 at [42]-[49] (Beach J); and RXP Services Limited at [41]-[48] (Beach J). 71 Whilst I favour what might be referred to as the second approach, the difference between the approaches in the various decisions is at times somewhat nuanced and much depends upon the nature of the particular alleged benefit and the level of disclosure. Here, however, the relevant payments are not benefits to be received if the scheme is approved in any event - they are payable regardless of whether or not the scheme proceeds. Therefore, the issue with respect to the director's recommendations does not arise. Here, the relevant benefits are fully and prominently disclosed in the scheme booklet (for example, sections 7.2 and 7.3), and the arrangements are referred to in the scheme booklet whenever the recommendation to vote in favour of the scheme is mentioned. Further, the shareholders are instructed to have regard to these arrangements when considering the recommendations (for example, in the Chairman's letter at page 3 of the scheme booklet; under the heading 'What is the Independent Board Committee and the Managing Director's recommendations?' at page 8; in section 1.1(a) on page 12; and in section 2 on page 22). 72 I am satisfied that there is nothing in the circumstances of the present case that impact on the propriety of Mr Takla or any director having made recommendations with respect to the scheme, and that there has been appropriate transparency as to this issue.
Conditions precedent 73 The SIA contains various conditions precedent which are summarised in paragraph 80 of Mr Orr's affidavit. There are no known facts or circumstances likely to result in a failure of any condition precedent.
Electronic despatch of materials and on-line meeting 74 The scheme booklet is to be dispatched electronically to the Asaleo shareholders who have elected to receive communications electronically (which is approximately 2,030 of Asaleo's 2,887 shareholders presently listed on the register). Those shareholders will receive an email with a hyperlink to the Asaleo website which contains electronic copies of the scheme booklet and annexures. The email will also provide a hyperlink to an identified website with instructions as to how to lodge proxy forms through that website. The process referred to is provided for under cl 106.1 (b) of Asaleo's constitution. 75 It is proposed that the scheme meeting will be held virtually via an online platform. Details on how Asaleo shareholders can participate in the scheme meeting via the online platform are provided in the scheme booklet, the explanatory notes to the notice of scheme meeting and in a 'Virtual Meeting Online Guide'. 76 Such arrangements for an online meeting would have been in accordance with Part 2 of the Corporations (Coronavirus Economic Response) Determination (No.3) 2020 (Cth), which modified the relevant provisions of the Act to permit shareholder meetings to be held electronically. That determination is no longer in force, but ASIC has indicated by a release dated 23 March 2021 that in order to provide the market with certainty, it currently has a 'no action' position in relation to the holding of meetings using appropriate technology and in relation to the electronic dispatch of notices. 77 In any event, I consider that s 411 and s 1319 of the Act provide the power to make an order that a meeting take place virtually, and such provisions have been relied upon in an environment where COVID19 risks must be taken into account: for example, Sienna Cancer Diagnostics Limited, in the matter of Sienna Cancer Diagnostics Limited [2020] FCA 899 at [102]-[111] (Moshinsky J). 78 Having regard to all of those matters, I consider the orders sought by Asaleo as to electronic dispatch and the on-line meeting are appropriate.
Interested parties 79 I note for completeness that with leave of the Court, counsel appeared for Essity BV and the Bidder as interested parties and supported the application.
Conclusion 80 For the above reasons, I was satisfied that each of the matters relevant to an order convening a scheme meeting under s 411 was addressed by the evidence and that it was appropriate to make the orders sought by Asaleo, including those relating to the convening of the meeting, approving the scheme booklet for distribution and the conduct of the scheme meeting. 81 The terms of the proposed scheme are in a conventional form. There is no reason why the scheme, if considered and adopted by the members, is not of such a nature as would be likely to be approved at the second court hearing. 82 Orders were made accordingly. I certify that the preceding eighty-two (82) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.
Milburn
Pivot Limited
[2019] WASC 218
[2015] VSC 789
[2017] VSC 257
[2018] WASC 308
(1997) 78 FCR 472
Orders made under s 411(1) and s 1319 convening the scheme meeting for 1 June 2021 to be held virtually approving the scheme booklet (subject to minor typographical ASIC or Court amendments) appointing Mr Boon or Ms Stephenson as chair directing electronic and postal despatch by 29 April 2021 dispensing with r 2.15 setting quorum voting by poll and proxy deadline and listing the second hearing for 9 June 2021 with liberty to apply.