Probiotec Limited, in the matter of Probiotec Limited (No 2) [2024] FCA 593

Background 1 On 26 March 2024, the Court made orders convening a meeting of the shareholders of the plaintiff (Probiotec) (Scheme Shareholders) to consider and, if thought fit, approve the scheme of arrangement set out at pages 1077 to 1145 of Annexure JMW-2 to the affidavit of Jonathan Michael Wenig dated 21 March 2024 (Scheme) (March Orders). 2 The meeting was held on 29 May 2024 (Scheme Meeting). The second court hearing was held on 5 June 2024. 3 These reasons are to be read with my reasons convening the Scheme Meeting: Re Probiotec Limited [2024] FCA 298 (Probiotec No 1). Those reasons set out the nature of, and commercial impetus for, the Scheme.

The evidence 4 At the second court hearing, Probiotec relied on the following affidavits: (a) affidavit of Jonathan Michael Wenig (Chair and non-executive director of Probiotec) dated 3 June 2024; and (b) affidavit of Ben Friis-O'Toole (Partner of Arnold Bloch Leibler) dated 5 June 2024. 5 I note that, at the second court hearing on 5 June 2024, Mr Izzo SC, counsel for Probiotec, corrected a minor typographical error in Mr Wenig's 3 June 2024 affidavit at [23], and did not read parts of the affidavit at [42] or the document that had been annexed at Tab 3 (pages 59 to 144). I directed Probiotec to file a version of Mr Wenig's 3 June 2024 affidavit, which redacts the parts that were not read. 6 The bidder, PT Pyridam Farma Tbk (Pyridam), appeared at the second court hearing and supported the orders sought by Probiotec.

Principles 7 Section 411(4) of the Corporations Act 2001 (Cth) (the Act) provides that a scheme of arrangement is binding if (relevantly): (a) at a meeting of members, the arrangement is passed by a majority in number of the members present and voting (either in person or by proxy) and by 75% of the votes cast on the resolution it is agreed to by the requisite majorities of members present and voting; and (b) the arrangement is approved by order of the Court. 8 As O'Bryan J stated in Re Australia and New Zealand Banking Group Ltd (No 2) [2022] FCA 1547 (Re ANZ) at [10], the matters to which regard will ordinarily be had in deciding whether to grant approval of a scheme of arrangement are as follows: (a) that the orders of the Court convening a meeting of members were complied with; (b) that the meeting of members so convened has approved the Scheme with the requisite majority; (c) that all other requirements of the [Corporations Act 2001 (Cth)] and the Federal Court (Corporations) Rules 2000 (Cth) (Rules) have been satisfied; (d) that the Scheme is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it; (e) that there has been full and fair disclosure to members and creditors of all information material to the decision whether to vote for or against the applicable scheme; and (f) that the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion.

Dispatch of Scheme materials 9 The Scheme Booklet, including the modifications discussed during the first court hearing, was registered with ASIC on 27 March 2024. 10 The method of dispatch required by the March Orders was as follows: (a) to the Scheme Shareholders described in the orders as 'Email Shareholders', Probiotec was to send an email containing links to view and download the Scheme Booklet, access the proxy website, and to access the online meeting platform; (b) to the Scheme Shareholders described in the orders as 'Hard Copy Shareholders' and whose registered address was located in Australia, and to Scheme Shareholders described as 'Non Electing Shareholders', Probiotec was to send a hard copy of the Scheme Booklet and a personalised proxy form; and (c) to the Scheme Shareholders described in the orders as 'Hard Copy Shareholders' but whose registered address was located outside of Australia, a letter explaining how to request a hard copy of the Scheme Booklet, and setting out the URLs from which the Scheme Booklet could be downloaded, and the online meeting platform could be accessed. 11 Mr Wenig's 3 June 2024 affidavit confirmed that the Scheme Booklet was dispatched in accordance with the March Orders. 12 A Supplementary Scheme Booklet was registered with ASIC on 10 May 2024. The need for a Supplementary Scheme Booklet arose from changes to the acquirer's financing arrangements, and the anticipated timing of a meeting on the acquirer's side of the transaction. 13 The Supplementary Scheme Booklet explained, at section 2.3 headed "Updated debt funding arrangements", that the Debt Commitment Letter referred to in section 6.5 of the Scheme Booklet had been superseded by a legally binding multicurrency term facility subscription agreement entered into by the bidder and the Singapore Branch of the Hongkong and Shanghai Banking Corporation Limited. The Supplementary Scheme Booklet also explained that the meeting of Pyridam shareholders had been delayed and was expected to be held in around mid-May 2024. 14 The independent expert confirmed that none of the matters referred to in the Supplementary Scheme Booklet altered the opinion that the Scheme is fair and reasonable and in the best interests of Probiotec's shareholders, in the absence of a superior proposal emerging. 15 On 9 May 2024, the Court made orders pursuant to ss 411(1) and 1319 of the Act, that Probiotec distribute, by the same method set out in the March Orders, copies of the Supplementary Scheme Booklet to Scheme Shareholders (May Orders). The May Orders also provided for the variation or revocation of proxy forms submitted prior to the supplementary disclosure, up to 10:00am on 27 May 2024. 16 Mr Wenig's 3 June 2024 affidavit confirmed that the Supplementary Scheme Booklet was dispatched in accordance with the May Orders. 17 On the basis of the evidence relied on at the second court hearing, I am satisfied that the Scheme materials, including both the Scheme Booklet and Supplementary Scheme Booklet, were effectively dispatched to Scheme Shareholders.

Conduct of the Scheme Meeting and processing of proxies 18 The Scheme Meeting was held on 29 May 2024 and took place in a hybrid format involving a physical meeting at the offices of Probiotec's solicitors, and a virtual meeting. Mr Wenig was chairperson of the meeting. 19 Mr Wenig's 3 June 2024 affidavit exhibited an announcement, issued on the ASX platform on 29 May 2024 (ASX Announcement), that provided details of attendance and voting at the Scheme Meeting. 20 As stated in the ASX Announcement, 92.47% of Probiotec shareholders present and voting (in person or by proxy) (being 344 shareholders) voted in favour of the Scheme. The resolution to agree to the Scheme was approved by 98.40% of the votes cast. Of the shareholders present and voting (in person or by proxy), 28 shareholders (voting 1,054,198 shares) voted against the Scheme, and two shareholders (voting 1,933 shares) abstained. 21 In total, 65,771,901 Probiotec shares, held by 374 shareholders, were voted in respect of the Scheme. This represents a participation rate of 19.35% of Probiotec shareholders, and 80.88% of the Probiotec shares on issue. The shares of Wesley Stringer (the CEO and executive director), Jared Stringer (the CFO) and their controlled entities were tagged, as foreshadowed in the Scheme Booklet, and all shares were voted in favour of the Scheme. 22 Accordingly, the Scheme was passed by a majority in number of members present and voting, and by 75% of the votes cast at the Scheme Meeting. The voting majorities required by s 411(4)(a)(ii) of the Act were therefore achieved. While participation of individual shareholders was limited, the participation rate in respect of the Scheme Meeting far exceeded the participation rate at Probiotec's two most recent Annual General Meetings (which amounted to 4.77% of shareholders in 2022, and 4.59% of shareholders in 2023). 23 I am also satisfied that the Scheme Meeting was properly convened and conducted in accordance with the March Orders and that the statutory requirements set out in the Act and the Rules have been complied with, save to the extent that they were dispensed with under the March Orders, or by orders made approving the Scheme (which exempted the plaintiff from compliance with s 411(11) of the Act).

Advertisement of the second court hearing 24 By the March Orders, the Court dispensed with the requirement for compliance with r 3.4 of the Rules (see Probiotec No 1 at [50]) and directed that notice of the second court hearing be published on the ASX Announcements platform by no later than 28 May 2024. Mr Wenig's 3 June 2024 affidavit exhibited an ASX announcement dated 28 May 2024, evidencing compliance with this requirement. 25 No shareholder in Probiotec sought to appear to oppose approval of the Scheme.

Satisfaction of conditions precedent 26 In advance of the second court hearing a certificate in relation to conditions precedent was provided to my chambers, dated 5 June 2024. The certificate attested that all conditions precedent had been satisfied or waived (other than conditions relating to Court approval of the Scheme). The certificate was signed by Probiotec and, on the bidder side, by Pyridam and PYFA Australia Pty Ltd (Pyridam Australia).

Full and fair disclosure to members 27 Having regard to its contents, I accepted at the first court hearing that the draft Scheme Booklet (as amended) was a draft explanatory statement satisfying the criteria specified in s 412(1) of the Act: see Probiotec No 1 at [41]-[44]. 28 The finalised Scheme Booklet was distributed to Scheme Shareholders in accordance with the March Orders. 29 The Supplementary Scheme Booklet advised Probiotec shareholders of the matters referred to above. It was dispatched in accordance with the May Orders. 30 I am therefore satisfied that the disclosure requirements imposed by s 412(1) of the Act have been satisfied, and that there has been full and fair disclosure of all material information.

Whether the Scheme is fair and reasonable 31 Once satisfied that the statutory and procedural requirements have been satisfied, the Court has a discretion to approve a scheme pursuant to s 411(4)(b): see, eg, Re Costa Group Holdings Ltd [2024] FCA 59 (Re Costa) at [11] (O'Callaghan J). 32 Before approving a scheme, the Court must consider "whether the Scheme is sufficiently fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it": Re Amcor Ltd (No 2) [2019] FCA 842 (Re Amcor) at [7] (Beach J). 33 It is well accepted that, as Markovic J put it in Re APN Outdoor Group Ltd (No 2) [2018] FCA 1633 (Re APN) at [4], "members are better judges of what is in their own interests than the Court". Where there is no opposition to the order for approval, the commercial judgment of the Scheme Shareholders is particularly relevant: see, eg, Re Amcor at [11] (Beach J) and Re ANZ at [36] (O'Bryan J). 34 Where a scheme is proposed and attracts the requisite statutory majorities, that stands as evidence of a scheme's apparent fairness and reasonableness: Re Amcor at [11] (Beach J); Re Clemenger Group Ltd (No 2) [2023] FCA 974 (Re Clemenger) at [22]-[23] (Button J). That is all the more so where the scheme has attracted a high shareholder turnout, and voting Scheme Shareholders overwhelmingly support the scheme. 35 While, as noted above, shareholder participation in the Scheme Meeting was limited, I do not consider that that suggests the Scheme ought not be approved. As also noted above, the participation rate was close to four times the participation rate at Probiotec's recent Annual General Meetings. Moreover, assessed on the basis of shares issued, participation was much higher (80.88% of shares on issue were voted at the Scheme Meeting). To the extent that Probiotec's shareholders include a large number of shareholders with relatively modest shareholdings, and, having been properly notified, those shareholders did not choose to participate and vote their shares, that reflects a decision made by them, and their failure to participate does not suggest that the Scheme is not fair and reasonable, or that they are hostile to the Scheme (as distinct from being indifferent or apathetic). Low voter turnout is not, without more, reason to refuse to exercise the discretion to approve a scheme: see, eg, Re Surf Lakes Holdings Ltd (No 2) [2023] FCA 1601 at [17] (O'Callaghan J), referring to Re Matine Ltd (1998) 28 ACSR 268 at 295 (Santow J) and Re Amcor at [18]-[20]. 36 I accept that the Scheme is fair and reasonable in the sense that an intelligent and honest shareholder, properly informed and acting alone, might approve it. This is supported by the fact that the Scheme received overwhelming support from those shareholders who engaged with the proposal and voted at the Scheme Meeting. It is also supported by the opinion of the independent expert that the Scheme is fair and reasonable and therefore in the best interests of the shareholders. It is also relevant to note that the Scheme contains measures to protect against performance risk, and that there has been no application by any shareholder to oppose the Scheme being approved.

Whether all necessary matters have been brought to the attention of the court 37 There is no indication that there are any additional matters relevant to the exercise of the Court's discretion that ought to have been, but were not, brought to the attention of the Court by Probiotec.

Section 411(17) 38 Section 411(17) of the Act provides that the Court must not approve a compromise or arrangement unless: (a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or (b) there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement; but the Court need not approve a compromise or arrangement merely because a statement by ASIC stating that ASIC has no objection to the compromise or arrangement has been produced to the Court as mentioned in paragraph (b). 39 In advance of the second court hearing, Probiotec produced a "no objection" letter from ASIC dated 4 June 2024, pursuant to s 411(17)(b) of the Act. ASIC's "no objection" letter advised that it had no objection to the proposed Scheme. The requirement in s 411(17)(b) has therefore been satisfied. 40 There is no evidence before the Court to suggest that the Scheme was proposed to avoid the operation of Ch 6 of the Act.

Exemption from s 411(11) 41 Probiotec sought an order under s 411(12) of the Act, exempting it from compliance with s 411(11) of the Act in relation to the Scheme. Section 411(11) provides that: Subject to subsection (12), a copy of every order of the Court made for the purposes of paragraphs (4)(b) must be annexed to every copy of the constitution of the body issued after the order has been made. 42 As Probiotec submitted, the purpose of s 411(11) is to ensure that any modification of the rights of shareholders that may affect interests of persons dealing with the company, such as prospective creditors or purchasers of shares, will have the opportunity of seeing what the exact rights of shareholders in the company, or its creditors, are, as modified by the scheme: Re Equinox Resources Ltd (2004) 49 ACSR 692; [2004] WASC 143 at [22], cited with approval in a number of cases including Re Clemenger at [31] (Button J), Re iSelect Ltd (No 2) (2022) 166 ACSR 41; [2022] FCA 1528 at [53] (Anderson J) and Re Costa at [33] (O'Callaghan J). 43 Probiotec submitted, and I accept, that it is appropriate to exempt it from compliance with s 411(11) in the present circumstances because: the Scheme will not alter the constitution of Probiotec or the rights of its members or creditors or other persons dealing with the company; no ongoing purpose would be served by requiring the orders approving the Scheme to be annexed to its constitution; and immediately following implementation of the Scheme, Probiotec will be a wholly owned subsidiary of Pyridam Australia, which is well aware of the Scheme.

Disposition 44 Having regard to the foregoing matters, I am satisfied that the Court ought to exercise its discretion in favour of approving the Scheme. 45 Orders will be made for the approval of 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 Button.