Nexbis Limited, in the matter of Nexbis Limited [2012] FCA 487

BACKGROUND 1 This is an application under s 411(1) of the Corporations Act 2001 (Cth) (Corporations Act) in which Nexbis Limited (Nexbis) seeks orders for the convening of a meeting of its shareholders to vote on a proposed scheme of arrangement. The scheme is between Nexbis and its shareholders. If the scheme is approved and all conditions precedent are satisfied, Nexbis shareholders will have their shares transferred to Agathis Three Pte Ltd (Agathis) for a consideration of 10 cents per share. Given the number of Nexbis shares on issue, the total scheme consideration to be paid by Agathis is approximately $79.84 million. On implementation of the scheme Nexbis will become a wholly owned subsidiary of Agathis. Agathis has stated that its intention is for Nexbis to then apply for removal of its shares from quotation on the Australian Stock Exchange. 2 The relevant provisions are ss 411(1) and 411(2) of the Corporations Act. By s 411(1) the Court may, on application, order a meeting of the members of the body and under s 411(2) such an order must not be made unless certain conditions in relation to notice to the Australian Securities and Investments Commission (ASIC) and information from ASIC are satisfied. 3 In relation to this application, Mr Foreman of counsel has provided detailed written and oral submissions, the effect of which is to satisfy me of the required matters as identified in Orion Telecommunications Ltd [2007] FCA 1389 at [5], namely that: - (i) Nexbis is a Part 5.1 body, (ii) the proposed scheme is an arrangement within the meaning of s 411 of the Corporations Act, (iii) there has been proper disclosure to the members of the body, Nexbis, (iv) the scheme is bona fide and properly proposed, (v) ASIC has had a reasonable opportunity to examine the proposed scheme and explanatory statement, to make submissions and has had 14 days' notice of the proposed hearing date of this court hearing, and (vi) other procedural requirements have been met. 4 I am also satisfied in terms of the statement of principle, which Mr Foreman has identified in his written submissions, namely that the Court will not convene a meeting at the first court hearing unless the arrangement proposed is of such a nature and is cast in such terms that, if the arrangement receives approval by the statutory majority at the relevant meeting, the Court would be likely to approve the arrangement on the hearing of any application that is unopposed. 5 In the course of taking me through the relevant material, the evidence which has been read and tendered establishes: - (i) Nexbis, the scheme company, is a Part 5.1 body, (ii) Nexbis' capital and constitution, as well as its commitment to propounding the scheme, (iii) verification of the factual material in the Scheme Booklet relating to the positions of Agathis and Nexbis, (iv) verification of the independent expert's report (a matter to which I shall return), (v) the text of the Scheme Booklet, including the annexures thereto, (vi) the relevant consents from Mr Mohamed Al Amin Bin Abdul Majid and Mr Peter Dykes to act as chairman and alternative chairman of the scheme meeting, and (vii) the notification to ASIC, including ASIC's response. 6 In terms of the position of ASIC, there is in evidence two letters, both dated 8 May 2012, which confirm ASIC's receipt of the relevant 14 days' notice and ASIC's position that it does not currently propose to appear to make submissions or intervene to oppose the scheme at the first hearing, and indeed ASIC has not done so today. The second letter also identifies ASIC's position in relation to the explanatory statement and otherwise sets out its conditions in relation to the explanatory statement.

KEY ASPECTS OF THE PROPOSED SCHEME 7 As set out in the evidence, Agathis is a company limited by shares incorporated in the Cayman Islands. It is a special purpose vehicle established to acquire the Nexbis shares. The evidence also identifies that on 5 March 2012 Nexbis entered into a binding Scheme Implementation Agreement (Agreement) with Agathis in relation to the proposed scheme. Under the Agreement, Nexbis agreed to propose the scheme to its shareholders upon and subject to the terms and conditions of the Agreement, which include conditions precedent. Pursuant to clause 3.2(3) of the Agreement, Nexbis and Agathis are bound to use their respective best endeavours to procure that each of the conditions of Agreement are satisfied as soon as practicable after 5 March 2012. As has been put to me, this is prima facie evidence that the scheme is bona fide and properly proposed. The obligations of Agathis under the scheme are also supported by a deed poll proposed to be given by Agathis in favour of Nexbis shareholders. It is proposed, as set out in the Agreement in clause 6.2(10), that Agathis will execute the deed poll and provide it to Nexbis immediately after (and if) the meeting of Nexbis shareholders is convened. 8 Important issues in relation to the funding of the consideration for the proposed scheme have been documented in the evidence. In particular, under clause 4.2(2) of the scheme, Nexbis' obligations will be satisfied by procuring Agathis to deposit an amount in cleared funds equal to the aggregate scheme consideration payable to all of the shareholders into an account operated by Nexbis before 10.00 a.m. on the implementation date to be held in trust for the Nexbis shareholders and for the purpose of paying the aggregate scheme consideration to those shareholders. Accordingly, the funds will be held on trust by Nexbis for the Nexbis shareholders prior to the implementation date, by which it is proposed the Nexbis shares will be transferred to Agathis. 9 The circumstances which have been identified, namely Agathis' status as a company limited by shares incorporated in the Cayman Islands, are a material consideration in the decision to approve the holding of the meeting. It is also relevant that Agathis has disclosed how the scheme consideration will be funded, which will be through the proceeds from the issuance of redeemable convertible preference shares in Agathis pursuant to an investment agreement dated 24 February 2012. In the scheme booklet there is verification by Agathis, having regard to those arrangements, that it believes it has reasonable grounds for holding the view, and holds the view, that it will be able to satisfy its obligation to pay the scheme consideration as and when it falls due under the terms of the scheme. 10 There are six other matters which Mr Foreman has particularly drawn to my attention pursuant to the obligations of disclosure. 11 The first is the interest of Mr Johann Young, who is the managing director of Nexbis. In short, Mr Young has an interest in the scheme proceeding because he has entered into an investment agreement with Agathis to acquire a 6% interest in redeemable convertible preference shares to be issued by Agathis. It is intended that he will continue to be employed as the chief executive officer of Nexbis following implementation of the scheme on the same terms and conditions as his current contract. Mr Foreman relied on three matters to found his submission that this was not a reason to cause concern in respect of the convening of the scheme meeting: (1) As set out in the evidence, Mr Young will not be exercising any of his voting rights at the scheme meeting. (2) Mr Young's interest is prominently disclosed throughout the scheme booklet, including in the chairman's letter, in the "Frequently Asked Questions" section, and in two other sections there is also prominent and appropriate disclosure of his interest. (3) In any event, Mr Young has provided his verification in relation to the Nexbis information that it is not to his knowledge misleading or deceptive, nor is there any material omission. I accept Mr Foreman's submissions in this regard. 12 The second issue, to which I have made reference already, is that of performance risk. Mr Foreman has drawn my attention to the observations of Lindgren J in Re APN News & Media Ltd (2007) 62 ACSR 400 (Re APN) at [23] in relation to the concern raised in previous scheme applications that shareholders may be left in a position, once the scheme has become effective, where their shares have been transferred but there is a delay in the provision of the scheme consideration their only remedy might be to sue on the deed poll, which, of course, is a particular issue in relation to the present matter. As Mr Foreman noted, in Re APN this issue was resolved, in effect, by implementation of the same or a similar arrangement as is proposed in the present case, namely that the transfer of the shares of the Nexbis shareholders to Agathis is subject to the payment of the scheme consideration in accordance with clause 4.1(2) of the scheme. Further, the aggregate scheme consideration, as I have noted, is to be deposited into an account operated by Nexbis before 10.00 a.m. on the implementation date, and is to be held on trust for the Nexbis shareholders for the purpose of paying the aggregate scheme consideration to them. In addition, there is the deed poll providing covenants in favour of Nexbis shareholders. For these reasons, I consider that the issue of performance risk is adequately and appropriately addressed in relation to the proposed scheme. 13 Mr Foreman has otherwise drawn my attention to the third issue, the exclusivity provisions contained in clauses 14.2, 14.3 and 14.4 of the Agreement, in terms of the reasonableness of the period and its capacity to be precisely ascertained. I am satisfied that these issues have been appropriately addressed in the documents. There is a non-solicitation period which is defined in its scope and is capable of precise ascertainment. The so-called "no-talk" and "no due diligence" restrictions are subject to the fiduciary carve-out that is in clause 14.7 and, as Mr Foreman has said, although the "no shop" restriction is not the subject of the same exclusion in terms of fiduciary duties, consistently with the authorities that is not necessary. It is also relevant that all of these restrictions are disclosed in the scheme booklet in the "Frequently Asked Questions" section and one other section. 14 The fourth issue is the break fees, which are dealt with in detail in the evidence. There is provision for break fees to be paid by both Nexbis and Agathis in the specified circumstances. There is also evidence that these fees were negotiated in the ordinary course of commercial transactions between Nexbis and Agathis and, equally importantly, there are defined circumstances in which the break fee is not payable by either party, including termination of the Agreement or the scheme becoming effective, notwithstanding the occurrence of any circumstance which would otherwise make a break fee payable. Importantly, the break fee is not payable by Nexbis to Agathis in the event that the directors of Nexbis (or any one or more of them) changes his or her recommendation that the scheme be approved because the independent expert does not conclude that the scheme is in the best interest of the Nexbis shareholders, or withdraws such a conclusion. The amount of the break fee is 1% of the aggregate of the value of all classes of equity securities issued by Nexbis, and there is evidence that this represents a genuine and reasonable pre-estimate of the transaction. The break fees are also appropriately disclosed in the scheme booklet. 15 The fifth issue to which my attention has been drawn is the deemed warranty provision. This is the deemed warranty by Nexbis shareholders that their shares will be free from encumbrances, and it is noted that the deemed warranty provision is also disclosed in the scheme booklet, including in the "Frequently Asked Questions" section. 16 The sixth and last issue is the fact that Nexbis is obliged by the agreement to use reasonable endeavours to procure that each holder of options over Nexbis shares enters into an option cancellation agreement on or before the date of the scheme meeting. 17 Otherwise, the only other relevant matter is that the evidence includes a report, being an independent expert's report, which states that the independent expert has formed the opinion that the proposed scheme is fair and reasonable, and hence is in the best interests of Nexbis shareholders. 18 Having regard to these matters, I am satisfied that it is appropriate for orders to be made under s 411 convening the meeting of Nexbis shareholders. Accordingly, I make orders 1 through to 11 in the short minutes of order. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.

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