pSivida Limited v New pSivida, Inc; in the matter of pSivida Limited

REASONS FOR JUDGMENT 1 This is an application by pSivida Limited pursuant to s 411 of the Corporations Act 2001 (Cth) to convene a meeting of shareholders to consider a scheme of arrangement. The business of pSivida involves the development of pharmaceutical products for targeted and controlled drug delivery for local and international clients. 2 The scheme is intended to effect a change of pSivida's domicile from Western Australia to Delaware in the United States of America, while maintaining listings on the ASX, NASDAQ and the Frankfurt Stock Exchange. The pSivida scheme is represented diagrammatically in Part 1.1 of the Information Memorandum which was before me this morning in evidence. 3 Under the scheme it is proposed that by Court order the whole of the shareholders' shares in pSivida be transferred to New pSivida Inc, a company incorporated under the laws of Delaware. In exchange for this, New pSivida will issue CHESS Depositary Interests (CDIs) to pSivida shareholders other than the American Depository Shares (ADS) Depository and ineligible foreign shareholders. Each CDI will represent an interest in one fully paid share of the common stock in New pSivida. 4 The scheme will also result in the issue of New pSivida shares to the ADS Depository for distribution to the ADS holders. An ADS is a security that is tradable on NASDAQ and the Frankfurt Stock Exchange. One ADS represents 10 ordinary shares in pSivida. If the scheme is approved, pSivida shareholders will receive one CDI for every 40 ordinary shares in pSivida. The ADS holders will receive one New pSivida share for every four ADSs held. 5 The scheme provides for the transfer of all of the assets and liabilities of pSivida to New pSivida and for the deregistration of pSivida without a winding up following the transfer of its assets and liabilities. 6 In accordance with the approach taken in Royal Victorian Institute for the Blind Ltd v RBS.RVIB.VAF Ltd (2004) 206 ALR 581 at [17] and SGIC Insurance Ltd v Insurance Australia Ltd (2004) 51 ACSR 470 at [6], New pSivida Inc has been joined as a defendant in this application. 7 Mr Jackman SC who appears for pSivida Limited has taken me through the Explanatory Memorandum and the evidence in support of the application. I am satisfied that I should make the orders which are sought, however I should record that Mr Jackman pointed out that four features of the scheme which warranted particular attention. 8 First, as the diagram illustrating the structure of the pSivida Group shows, two wholly owned subsidiaries of pSivida Limited will not remain as subsidiaries after the reconstruction, but the assets and liabilities will be transferred to New pSivida Inc. 9 Secondly, after the scheme, pSivida will be deregistered without an order for the winding up of that company. This will be effected pursuant to s 413(1)(d) of the Act. 10 Third, option holders in pSivida Limited will become option holders in New pSivida Inc. There is no scheme of arrangement with the option holders. However, the liabilities comprising the options will be transferred to New pSivida and will become liabilities of that company. A consequential order will be needed if the scheme is approved. The Court will have power to make that order pursuant to s 413(1)(g). 11 The fourth feature to which Mr Jackman referred was that the ADS Depository holds its shares through ANZ Nominees Ltd on behalf of pSivida's many ADS holders who are United States residents. They account for approximately 388 million of the shares held by ANZ or approximately 53 per cent of the total shares issued. This may have consequences in relation to the headcount test imposed by s 411(4)(a)(ii) of the Act. 12 This is not a matter which affects my discretion to convene a meeting of the shareholders of pSivida. However, it may become a relevant factor at the second court hearing. In that event, the plaintiff may seek to rely on the recent amendment to s 411(4)(a)(ii) which adds the words "unless the court otherwise orders." 13 The scheme is a scheme for the reconstruction of the company. It passes the test set out by Buckley J in Re South African Supply and Cold Storage (1904) 2 Ch 268 at 286. The undertaking is being transferred to persons who are not outsiders so that substantially the same business will be carried on by substantially the same persons who previously conducted the business. 14 I have been provided with a helpful written outline of pSivida Ltd's submissions. In accordance with the practice usually followed, I will mark the outline of submissions as MFI 1, but will not make any further reference to them in these reasons. 15 I am satisfied that I should make orders in accordance with the short minutes of order which I have now signed and dated and placed with the Court papers. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.