Mincom Ltd v EAM Software Finance Pty Ltd

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NSD 1653 OF 2007

REASONS FOR JUDGMENT 1 This is an application by Peplin Limited (Peplin) pursuant to s 411 of the Corporations Act 2001 (Cth) to convene a meeting of shareholders and optionholders to consider schemes of arrangement. Peplin is listed on the official list of the Australian Securities Exchange, ASX Limited, and specialises in the development of pharmaceutical products, particularly relating to medical dermatology. It has decided to have a restructure which, in essence, amounts to relocating the corporate structure to the United States and, in particular, to the State of Delaware. The schemes themselves are relatively straightforward. They amount to shareholders and optionholders exchanging interests in the present company for the company which has been incorporated in Delaware. That is a rather crude summary of the situation but is sufficient to understand what is at stake. 2 Prior to the hearing, counsel for the plaintiff provided me with comprehensive written submissions, which incorporate a schedule which summarises the disclosure requirements of an information memorandum for a share scheme and shows what the obligations are and where the information memorandum picks them up. There are in fact two schemes: one is a share scheme and the other is an option scheme. I have been taken through the evidence in some detail over some hours this morning. That, in conjunction with the written submissions, satisfies me that all of the relevant statutory preconditions to convening of the meetings have been satisfied. Rather than reproduce the substance of those submissions, I will do what has been done in some other similar cases. I will mark the outline of submissions for identification number 1 and I will direct that they remain with the papers and should be available for inspection by any interested party. 3 I have been taken carefully through the scheme documents themselves and, subject to one matter, I have no difficulty with them. In the course of the hearing I raised with counsel the issue of the warranty said to be given by the party whose shares or options are affected. As counsel has said, clauses along those lines have been approved or have been included in schemes approved in recent times by judges of this Court, the Supreme Court of New South Wales and the Supreme Court of Queensland, albeit misgivings or doubts having been expressed about the effect of such a clause (eg Mincom Ltd v EAM Software Finance Pty Ltd (No 3) [2007] QSC 207 at [20]-[29]). I also have doubts but I do not believe that it is likely that the inclusion of such a clause would lead to any difficulty about confirmation of these schemes. Against the possibility of somebody coming along and arguing the matter, I cannot, of course, make a final judgment about that. Even if a draconian view were taken about that clause, it is hardly fundamental to these transactions in particular, because they are not at arm's length with parties that might be in contention, but, rather, they represent an internal restructure. 4 I have been taken carefully through the information memorandum and to the material which backs that memorandum including the expert report and the underlying advices which are directed to two topics of significance. The first is that of tax and the second is that of corporate governance, bearing in mind the different regimes in Australia, on the one hand, and Delaware, on the other. As will be appreciated, the question in the expert report is rather different from usual. The financial structure, except perhaps for costs incurred in the course of the transaction, effectively remains the same before and after. The assessment of whether to vote for the change of location will be governed by matters other than the immediate economic consequences to the company. It will involve a broader assessment by investors as to whether they wish to become part of the restructured operation and, if so, how they should do so, noting that there is, if the scheme is approved, an alternative between holding CHESS depository instruments (CDIs) listed on the Australian Securities Exchange, on the one hand, and the American securities listed, hopefully, on the NASDAQ Stock Market on the other. 5 For those reasons I make orders in accordance with the short minutes of order which I have initialled. I certify that the preceding five (5) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

Solicitor for the Plaintiff: Corrs Chambers Westgarth