Issues
14 Mr O'Hagan's evidence, Ms Seomangal's evidence and Ms Rafferty's evidence raise a number of issues of concern which, unfortunately, it is necessary for me to address.
15 Regrettably, Order 7 made on 2 October 2015 concerning the despatch of the scheme booklet was not complied with. This is surprising, to say the least, because the Court was invited to make the order in the form put forward by the plaintiff. Order 7 was as follows:
7. Subject to registration of the Scheme Booklet with the Australian Securities and Investments Commission pursuant to s 412(6) of the Act, the plaintiff despatch, on or before 2 October 2015, the Scheme Booklet, a proxy form, a roll-over election form and a reply-paid envelope addressed to Security Transfer Registrars Pty Limited to each member on the plaintiff's register of members and each optionholder on the plaintiff's register of optionholders to the relevant address set out in the relevant register by:
(a) in the case of each member or optionholder who has a registered address in Australia, prepaid post; and
(b) in the case of each member or optionholder who has a registered address outside Australia, prepaid airmail or air courier.
16 This order was not complied with in a number of respects.
17 First, the scheme booklet, which stood as the explanatory statement required under s 412(1) of the Act, was not registered before it was despatched. Section 412(6) provides that, in the case of a compromise or arrangement that is not, or does not include, a compromise or arrangement between a Part 5.1 body and its creditors, or any class of them, the body must not send out an explanatory statement unless a copy of that statement has been registered by ASIC. Further, Order 7 was conditioned on registration taking place before despatch of the scheme booklet.
18 Ms Seomangal explained that the scheme booklet was not registered due to an incorrect understanding that registration was to take place as part of "ASIC's final approval process" prior to the second court hearing, as well as the fact that the plaintiff was "working towards a tight deadline to achieve the distribution" of the scheme booklet.
19 The plaintiff submitted that the failure to register the scheme booklet was a procedural defect capable of cure under s 1322(2) of the Act: see, for example, Mincom Ltd v EAM Software Finance Pty Ltd (2007) 213 FLR 364; [2007] QSC 207 at [8]-[11]; Re Capel Finance Ltd (2005) 54 ACSR 270; [2005] NSWSC 522. Section 1322(2) of the Act provides:
(2) A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid.
20 I accept that the failure to register an explanatory statement is a procedural defect of a kind that might be capable of cure under this provision, depending on the circumstances of the given case. However, even by the time of the first day of the second court hearing, the plaintiff, inexplicably, had not even lodged the scheme booklet for registration. Moreover, the explanation given to the Court does not engage with the fact that the Court's order was for despatch of the scheme booklet subject to registration having occurred. The order could not have been clearer in this regard. Having regard to the fact that s 412(6) was also referred to in the order, it is difficult to understand how it could have been thought that registration was part of "ASIC's final approval process".
21 Further, although the deadline was tight, it was one that the plaintiff itself had sought. Its position may have been made more difficult by the fact that, even though the first court hearing commenced on 28 September 2015 and should have been completed on that day, there were significant and obvious deficiencies in the plaintiff's evidence. The draft scheme booklet also contained a number of significant errors and omissions that required rectification in order for it to be put in a form that was suitable for despatch. The matter came back before me for a further hearing on 1 October 2015. Some additional errors in the scheme booklet were identified. These matters were finally rectified at a further hearing on 2 October 2015.
22 Secondly, the scheme booklet was not despatched on 2 October 2015. As this was the date for despatch which the plaintiff had urged on the Court, the Court was entitled to assume that the plaintiff had already put in place arrangements which would enable it to comply fully with Order 7. It is now clear that no such arrangements were in place. The evidence indicates that the time for despatch that was ordered was never going to be complied with because, realistically, that time limit was simply not capable of practical achievement. The consequence was that some members received late notice of the share scheme meeting.
23 Thirdly, notwithstanding that Order 7 required despatch by prepaid post (in the case of each member or optionholder who had a registered address in Australia) or by prepaid air mail or air courier (in the case of each member or optionholder who had a registered address outside Australia), the plaintiff despatched the scheme booklet by prepaid post, prepaid air mail or air courier only to some members and optionholders, and not to others. For the others, the plaintiff decided to despatch the scheme booklet electronically because the members and optionholders concerned had signified their desire to receive such communications electronically. Whilst, in the normal course, there may be no objection to despatch by this means, it was contrary to the order which the plaintiff had specifically sought and obtained.
24 These matters reveal that there has been what can only be described as a complete failure to comply with the Court's orders on a fundamentally important aspect of the convening of the court-appointed meetings. This is a serious matter which weighs in the balance as to whether the Court should approve the schemes. These failures should not have happened. All were completely avoidable had appropriate care and diligence been exercised.
25 The convening of the share scheme meeting and the option scheme meeting was under the control of the Court, not the plaintiff. It was not for the plaintiff to chart its own course, regardless of the Court's orders. The only course open to the plaintiff was to obey the Court's orders.
26 The scheme booklet, standing as the explanatory statement, should have been registered before despatch. The plaintiff should have been alert to this requirement, not just because it is an explicit requirement of the legislative regime under which the plaintiff was acting but because it was an explicit requirement of the Court's order.
27 Further, it was incumbent on the plaintiff to propose a realistic time by which the scheme booklet was to be despatched. It did not do so. As soon as it realised that there were problems in that regard, the plaintiff should have approached the Court, without delay, for directions under s 1319 of the Act or to obtain a variation of the order that had been made. Rather than doing that, the plaintiff seems to have thought that it was both appropriate and acceptable for it to set and proceed upon its own agenda, regardless of the Court's order. That course was neither appropriate nor acceptable.
28 Similarly, it was not for the plaintiff to elect to undertake a mode of despatch of the scheme booklet that was contrary to the Court's order.
29 Notwithstanding these serious failures and shortcomings, there is evidence which shows that the vast number of members and optionholders did receive notice of each meeting (which included receipt of the scheme booklet) that was, nevertheless, timely and effective. I refer, in particular, to the Updated Distribution and Receipt Summary provided in Ms Rafferty's affidavit. I note that, despite the late and informal service of the scheme booklet, 28,556,077 out of 31,374,848 shares issued as at the date of the scheme meeting were voted, with 9,150 abstentions (in total, 91.05% of all shares). Of those attending the share scheme meeting in person or by proxy, 99.96% voted in favour of the share scheme. Members holding 1.2% of the total number of shares received late notice and did not vote. By way of comparison, members holding 6.95% of the total number of shares received timely notice but did not vote. Confirmation of receipt of the scheme booklet was not possible in respect of members who held 0.8% of the total number of shares and who did not vote.
30 In respect of the option scheme meeting, 449,982 out of 471,982 options issued as at the date of the option scheme meeting were voted, with 5,000 abstentions (in total, 96.4% of all options). Of those attending the option scheme meeting in person or by proxy, 98.46% voted in favour of the option scheme. Confirmation of receipt of the scheme booklet was not possible in respect of optionholders who held 3.6% of the total number of options on issue and who did not vote.
31 The second court hearing was advertised, as ordered. No member has come forward to oppose the share scheme and no optionholder has come forward to oppose the option scheme. ASIC does not oppose the schemes. It has also given written notice under s 411(17)(b) of the Act that it has no objection to the schemes.
32 The scheme booklet has now been registered.
33 Further, the evidence before me is that all relevant preconditions to the schemes have been either satisfied or waived.
34 Despite my strong dissatisfaction with the plaintiff's failure to comply with Order 7 made on 2 October 2015, I am persuaded that, in all the circumstances, no substantial injustice has arisen and that each scheme should be approved. This is essentially because of the high voter turnout at the meetings. Further, overwhelming majorities were attained in favour of each scheme. But for those factors, there would have been strong discretionary reasons for withholding approval.
35 Although I have referred to the "plaintiff's" failure, the fact is that the plaintiff has entrusted the conduct of this proceeding to its legal advisers. The failures that have occurred are attributable to them because these matters were under their control. To withhold approval, when there has been a strong voter turnout with overwhelming majorities in favour of the schemes, would be to penalise, unnecessarily, the plaintiff, its members and optionholders.
36 In the ordinary course, this proceeding should have involved two relatively short hearings. It has, in fact, involved hearings of various lengths over five days; three for the first court hearing and two for the second court hearing. I have already referred to the reasons why the first court hearing ranged over three days: see [21] above. The second court hearing could not conclude on the first day because of significant and obvious deficiencies in the evidence, requiring a second hearing day so that those deficiencies could be attended to. The costs of the unnecessary hearings should not be visited upon the plaintiff. The plaintiff's solicitors should not be entitled to seek or obtain payment of professional fees from the plaintiff or any person on its behalf for the court attendances by any lawyer in this proceeding on 1 October, 2 October and 11 December 2015.
I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.