pSivida Limited v New pSivida, Inc; in the matter of pSivida Limited [2020] FCA 81 | Case summary

What happened

Champion Iron Limited (Champion Australia) applied to the Federal Court under s 411(1) and s 1319 of the Corporations Act 2001 (Cth) for orders to convene a shareholders' meeting to consider a members' scheme of arrangement put forward to effect a re-domiciliation of the company to Canada (Champion Canada). The court application, supported by affidavits and a scheme booklet (Exhibit B), disclosed a scheme implementation deed (SID), a deed poll from Champion Canada, an independent expert report, directors' recommendations and other customary materials. ASIC provided the usual letter indicating it did not intend to oppose orders at the first court hearing and tendered correspondence evidencing an opportunity to consider the materials (see [1]-[6], [10], [22], [25]-[28], [30], [34]). At the first court hearing on 4 February 2020 Farrell J made orders convening the scheme meeting (to be held on 12 March 2020), approved the scheme booklet for dispatch (subject to typographical corrections, ASIC registration and date updates), specified voting record dates and dispatch mechanics, appointed chairpersons, granted various procedural variations and adjourned the originating process to 20 March 2020 for the sanction hearing ([Orders]; [39]).

Key commercial ingredients were these: the re-domiciliation would be achieved by Champion Canada acquiring all issued ordinary shares in Champion Australia; scheme consideration would be Champion Canada shares or CHESS Depositary Interests (CDIs) depending on register; treatment of warrants, options and incentive awards required amendment or exchange agreements as conditions precedent; a sale facility would apply to a small number of ineligible foreign shareholders; and the directors unanimously recommended the scheme, supported by an independent expert who concluded the advantages outweighed the disadvantages ([3]-[6], [17]-[18], [13], [21]-[22]).

Why the court decided this way

The Court's reasoning rests on established principles for convening scheme meetings, statutory disclosure obligations, and practical assurances that execution risk and class-creation problems were addressed.

Principles for convening scheme meetings: Farrell J observed that "the principles relevant to when a court will convene a scheme meeting are well known" and expressly relied on prior summarised principles (citing Capilano Honey at [29]). The critical considerations include whether the scheme is bona fide and properly proposed, whether disclosure meets statutory standards, whether ASIC has had a reasonable opportunity to consider, and whether procedural requirements have been addressed.
Bona fides and execution assurances: The Court found the scheme to be bona fide and properly proposed because Champion Australia had entered the SID with Champion Canada and Champion Canada had executed the deed poll that appears as Appendix D. The scheme was "functionally the same as an acquisition scheme" and therefore within the usual concept of an arrangement approved by courts (see [10], [25], 30, 30).
Disclosure: The scheme booklet (Exhibit B) was examined in detail. The Court accepted that the booklet provided proper disclosure for the purposes of s 412(1)(a) and reg 5.1.01, and it had been subjected to verification processes designed to ensure required information was not misleading. The booklet contained the Chairman's letter, detailed descriptions of the transaction, advantages and disadvantages, tax implications, independent expert's report, the scheme text, deed poll and appendices comparing corporate laws and outlining transaction documents (see [4], [5], [25], 30).
ASIC and procedural matters: ASIC had at least 14 days' notice and had the usual opportunity to consider the draft, issuing a "usual letter" and certain exemptions. Procedural requirements under the Corporations Act and Federal Court (Corporations) Rules were either satisfied or varied as appropriate. These features supported the convening orders (see [28], 30-(6), Orders).
Absence of class-creating issues and manageable execution risk: The small number of ineligible foreign shareholders (holding approx. 0.01% of issued shares) and the proposed sale facility were accepted as non-problematic (see [13], [33]). The Court also found execution risk addressed by transaction documents and the deed poll (see [34]).

For these reasons the Court considered it appropriate to permit shareholders to vote on the proposal and approved the materials for dispatch to shareholders ahead of the scheme meeting (see [39]).

Before and after state of the law

Before this decision, the established legal framework for member schemes under Part 5.1 of the Corporations Act was well settled. Authorities such as Capilano Honey had provided succinct statements of the principles courts apply at a first court hearing: chiefly bona fides, adequate disclosure, ASIC oversight/opportunity, and absence of class-creating features. The Court explicitly relied on that approach ([29]).

After this decision, the reaffirmation by Farrell J of those criteria confirms their continued primacy. The judgment illustrates the operational detail required at a first hearing in cross-border re-domiciliation contexts: careful disclosure of the mechanics of cross-border securities (shares vs CDIs), the treatment of derivatives and incentive instruments, the role of deed polls in addressing execution risk, and the practicalities of dispatch to multiple registers (Australian and Canadian). The case also underscores the need to pre-empt headcount test issues where substantial holdings are registered in intermediary names and the importance of independent expert reports and directors' recommendations in supporting a convening order (see [17], [22], [35]-[37]).

This decision does not change the law but applies settled principles to a cross-border re-domiciliation context, producing orders consistent with other modern scheme convening judgments.

Key passages with plain-English translation

"The principles relevant to when a court will convene a scheme meeting are well known." [29]
- Plain English: The judge will follow established precedents about what is needed to allow a shareholders' scheme meeting to go ahead. See Capilano Honey for the summary of those principles.
"The scheme is bona fide and properly proposed." [30]
- Plain English: The Court is satisfied that the scheme is genuine, not a sham, and is presented for legitimate purposes.
"The text of the scheme booklet will provide proper disclosure to shareholders having regard to the requirements of s 412(1)(a) ... and it has been subject to a commonly used process of verification designed to ensure that it contains required information which is not misleading." [30]
- Plain English: The explanatory document sent to shareholders properly explains what the scheme does, includes the information required by law, and has been checked to avoid misleading statements.
"As the Special Voting Share has no voting rights, the buy back will not have any impact on control of Champion Australia." [20]
- Plain English: Buying back the one special share will not change who controls the company and will not materially affect shareholders.
"For the foregoing reasons the Court concluded that it was appropriate to make orders convening the scheme meeting, approving the scheme booklet for dispatch ... and ancillary orders in relation to the conduct of the meeting and advertising of the second court hearing." [39]
- Plain English: On balance, the judge decided to allow the meeting to be held, let the company send out its meeting materials, and made related procedural directions.

What fact patterns trigger this precedent

This judgment is directly relevant where:

A public company incorporated in Australia seeks to re-domicile by transferring its shares to a foreign acquiring entity via a members' scheme of arrangement;
The transaction involves cross-listed securities (ASX and TSX) and dual registers (Australian and Canadian);
The scheme consideration includes foreign shares and CDIs, and there are ineligible foreign shareholders requiring a sale facility;
The scheme involves complex treatment of outstanding warrants, options and incentive awards requiring amendments or exchange agreements as conditions precedent;
A deed poll is used to provide execution assurances from the acquiring company;
A substantial portion of the register is held in intermediary names (e.g., CDS & Co) raising potential headcount test practicalities.

If these features are present, the case is a relevant precedent for the Court's approach to disclosure, execution risk, handling of ineligible shareholders, and pre-emptive procedural directions (dispatch mechanics, record dates, proxy deadlines).

How later courts have treated it

This decision is a first-instance Federal Court decision applying settled principles. It expressly followed and cited earlier authorities (Capilano Honey, pSivida, Re Plantic, Spark Infrastructure and Sundance Energy) on points such as the convening principles, headcount test concerns and treatment of ineligible foreign shareholders ([29], [33], [36]). Later courts will view Farrell J's decision as a continuing application of the established test at first hearings for schemes, particularly in cross-border re-domiciliation contexts, but this judgment itself does not innovate doctrinally. Practitioners should expect subsequent first-hearing judgments to mirror the features accepted here where the same safeguards are present: adequate disclosure, deed poll and SID for execution risk, ASIC engagement and careful dispatch arrangements for multiple registers.

Still-open questions

Headcount test waiver and evidentiary mechanics: Farrell J noted the potential need to apply for a waiver of the headcount test due to intermediary holdings and foreshadowed that evidence of beneficial owner voting instructions would be required if an application were made (see [35]-[37]). The precise evidentiary standard and the Court's willingness to waive the headcount test in specific fact patterns will be clarified only in subsequent applications or sanction hearings.
Treatment of derivative instruments across jurisdictions: While the Court accepted the disclosed conditions precedent regarding warrants, options and incentive awards (see [17]-[18]), disputes could arise post-implementation about whether those arrangements (private treaty, exchange agreements, plan amendments) adequately preserve entitlements and rights across differing corporate law regimes. The practical effectiveness of those private arrangements in cases of minority dissent or competing claims remains a potential area of litigation.
Reliance on US Securities Act s 3(a)(10): The applicant indicated an intention to rely on the s 3(a)(10) exemption following court approval (see [38]). How US regulators and counterparties will treat reliance on an Australian court's order in a re-domiciliation context can raise cross-border securities law issues that are unresolved in the abstract here.
Class-creating assertions in different factual mixes: This case involved a very small number of ineligible foreign shareholders (approx. 0.01%). A larger minority of ineligible holders or materially different sale facility mechanics might attract different judicial scrutiny. The boundary between acceptable sale facilities and class-creating schemes will continue to be shaped by future decisions.
Interaction of CHESS Depositary Interests and shareholder protections: The use of CDIs as the default consideration for Australian-registered shareholders raises ongoing questions about rights and remedies where CHESS/ASX arrangements interact with foreign governing law of an acquiring company; further judicial guidance may develop if disputes arise.

Conclusion: Farrell J's reasons apply established scheme-convening principles to a cross-border re-domiciliation. The judgment is a practical template for presenting a scheme involving dual registers, foreign consideration, deed-poll execution assurances, and the treatment of derivative securities. The unresolved areas largely concern post-approval practicalities and evidentiary burdens should intermediary holdings or cross-border securities law issues be contested at the sanction hearing or thereafter.

Judgment (11 paragraphs)

[1]

Pursuant to ss 411(1) and 1319 of the Corporations Act 2001 (Cth) (Corporations Act), the plaintiff convene and hold a meeting (the scheme meeting) of its holders of fully paid ordinary shares (shareholders) for the purpose of considering and, if thought fit, agreeing to (with or without modification) a scheme of arrangement proposed to be entered into between the plaintiff and the shareholders (scheme), the terms of which are contained in Appendix C of Exhibit B as provided to the Court on 4 February 2020 (scheme booklet).
The scheme meeting be held on Thursday, 12 March 2020 at the Sydney offices of Ashurst Australia, Level 11, 5 Martin Place, Sydney NSW 2000 commencing at 11.00 am (Sydney time), subject to Order 5(b).
The shareholders who are eligible to vote at the scheme meeting are those whose names are recorded in the register of members of the plaintiff (being the Australian Register and the Canadian Register, as those terms are defined in the scheme booklet) (Register) at 7:00 pm (Sydney time) on 10 March 2020 (Voting Record Date).
The Canadian Beneficial Owners (as defined in the scheme booklet) who are eligible to provide instructions to the plaintiff or their intermediary as to how their beneficially held shares in the plaintiff are to be voted are Canadian Beneficial Owners as at 7:00 pm (Montreal time) on 27 January 2020 (Beneficial Ownership Determination Date).
Pursuant to s 1319 of the Corporations Act: (a) Gary Kenneth Lawler or, failing him, Andrew John Love be chairperson of the scheme meeting; (b) the chairperson of the scheme meeting has the power to adjourn the scheme meeting in his absolute discretion to such time, date and place as he considers appropriate; (c) at the scheme meeting, two shareholders, present and entitled to vote, in person or by proxy, or by an attorney under power, or in the case of corporate shareholders, by corporate representatives, shall constitute a quorum; (d) at the scheme meeting, each shareholder, present and entitled to vote, will be entitled to one vote for each fully paid ordinary share in the capital of the plaintiff that the shareholder is registered as holding at the Voting Record Date; (e) except for procedural motions, all voting at the scheme meeting will be conducted by way of a poll.
The following documents are approved for distribution to shareholders and Canadian Beneficial Owners: (a) the explanatory statement, substantially in the form of the scheme booklet comprising Exhibit B (which explanatory statement be and is hereby approved for the purposes only of s 411(1) of the Corporations Act); and (b) the proxy forms (for shareholders) for the scheme meeting substantially in the form of the documents at Appendix G of the scheme booklet comprising Exhibit B and the document at annexure "SJD-8" to the affidavit of Stuart Dullard sworn on 3 February 2020; (together, the Scheme Documents), subject to any: (c) correction of any typographical or grammatical errors and final typesetting and formatting; (d) any minor amendments required or approved by the Australian Securities & Investments Commission for registration under s 412(6) of the Corporations Act; and (e) the correction or update of any relevant date references.
Subject to registration of the scheme booklet with the Australian Securities & Investments Commission pursuant to s 412(6) of the Corporations Act, on or before 12 February 2020 the plaintiff must dispatch or cause to be dispatched through its agent the Scheme Documents to each eligible shareholder as follows: (a) in the case of shareholders registered on the Australian Register who have nominated an electronic address for the purpose of receiving communications from the plaintiff - by email to that address containing a link to a website at which the Scheme Documents can be accessed. An email substantially in the form of Annexure B to this order is approved for this purpose; (b) in the case of shareholders registered on the Australian Register, other than those in paragraph (a) above: (i) with a registered address in Australia - by regular post to those addresses as set out in the Australian Register, together with a return reply paid envelope addressed to Champion Iron Limited, c/o - Automic Group Limited, PO Box 5193, Sydney NSW 2001; and (ii) with a registered address outside Australia - by airmail to those addresses as set out in the Australian Register, together with a return envelope addressed in the same manner as Order 7(b)(i); (c) in the case of shareholders registered on the Canadian Register: (i) with a registered address in Canada - by regular post to those addresses as set out in the Canadian Register, together with a reply paid envelope addressed to Champion Iron Limited, c/o TSX Trust Company, Suite 301, 100 Adelaide Street West, Toronto ON M5H 4H1, Canada; and (ii) with a registered address outside Canada - by airmail to those addresses as set out in the Canadian Register, together with a return envelope addressed in the same manner as Order 7(c)(i); (d) in the case of shareholders registered on the Canadian Register who are intermediaries for Objecting Beneficial Owners (as defined in the scheme booklet) - by dispatching the required number of hard copies of the Scheme Documents as advised by those shareholders to their registered address as set out in the Canadian Register by regular post or courier (for distribution to their respective Objecting Beneficial Owners).
Subject to registration of the scheme booklet with the Australian Securities & Investments Commission pursuant to s 412(6) of the Corporations Act, on or before 12 February 2020 the plaintiff must dispatch or cause to be dispatched through its agent the Scheme Documents to each eligible Non Objecting Beneficial Owner (NOBO) (as defined in the scheme booklet) as follows: (a) for NOBOs with an address in Canada as notified to their intermediary - by regular post to those addresses, together with a reply paid envelope addressed in the same manner as Order 7(c)(i); and (b) for NOBOs with an address outside Canada as notified to their intermediary - by airmail to those addresses, together with a return envelope addressed in the same manner as Order 7(c)(i).
With respect to Order 7(a) above, if the plaintiff receives an email notification of a failure to deliver an email to a shareholder's nominated electronic address, the Scheme Documents are to be dispatched by the plaintiff to those shareholders in the manner described in Order 7(b).
The time by which proxy forms must be returned in accordance with the instructions given on the proxy form is 11.00 am (Sydney time) on Tuesday, 10 March 2020.
Rule 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules) does not apply to the Scheme Meeting, save in respect of the application of section 75-15(2) of the Insolvency Practice Rules (Corporations) 2016 (Cth).
The plaintiff be relieved of compliance with r 3.4 of the Corporations Rules in respect of the scheme, subject to the plaintiff publishing once in The Australian newspaper, on or before 12 March 2020, an advertisement substantially in the form of Annexure A to this order.
The originating process be adjourned to 10.15 am on Friday, 20 March 2020.
The plaintiff be granted liberty to apply.
These orders be entered forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. Annexure A Notice of hearing to approve compromise or arrangement TO all the members of Champion Iron Limited (ACN 119 770 142) (Champion Iron) TAKE NOTICE that at 10:15am (Sydney time) on 20 March 2020 the Federal Court of Australia at Law Courts Building, Queens Square, Sydney, will hear an application by Champion Iron seeking the approval of a compromise or arrangement between Champion Iron and its members if agreed to by a resolution to be considered, and if thought fit, passed at a meeting of such members of the company to be held at 11.00am on 12 March 2020 (Sydney time). If you wish to oppose the approval of the compromise or arrangement, you must file and serve on Champion Iron a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on Champion Iron at its address for service at least 1 day before the date fixed for the hearing of the application. The address for service of Champion Iron is: c/o Ashurst Australia, Level 11, 5 Martin Place, Sydney NSW 2000 (Attention: Nicole Gardner). Annexure B Email to be sent to shareholders - Australian Registry Dear [HolderNameDesignator] Thank you for being one of our many shareholders who has provided their email address for the purpose of receiving all communications by email, where applicable. NOTICE OF SCHEME MEETING On behalf of the board of Champion Iron Limited, I am pleased to provide you with important information in relation to the proposed re-domiciliation of the company from Australia to Canada. It is proposed that the re-domiciliation be effected by a scheme of arrangement through the acquisition of all the issued ordinary shares in Champion Iron Limited by Champion Iron Inc., a company incorporated in Québec, Canada. Notice is hereby given that, by an order of the Federal Court of Australia pursuant to section 411(1) of the Corporations Act 2001 (Cth), a meeting of ordinary shareholders of Champion Iron Limited will be held at: The Sydney Offices of Ashurst Australia, Level 11, 5 Martin Place, Sydney, NSW 2000 Australia on the 12 March 2020 at 11.00am (Sydney Time) (which corresponds to 8.00pm on 11 March 2020 in Montreal) The Scheme Booklet is now available and can be viewed by clicking on the link below: • You can now access your Proxy online for the scheme meeting by following the instructions and clicking the link of your name below:
[HolderNameDesignator]
Enter the postcode (Australian address) or select the country code (overseas address) relevant to your shareholding.
Tick the box next to 'I'm not a Robot' and then, click on the 'access' button.
Click on "Download" under the heading 'Documents & Statements' relevant to the Proxy to obtain your copy. If you wish to vote by proxy, you must lodge your proxy for the scheme meeting no later than 11.00am on 10 March 2020 (Sydney Time), this being 48 hours prior to the commencement of the Scheme Meeting. NOTICE OF EXTRAORDINARY GENERAL MEETING Notice is hereby given that an extraordinary general meeting will be held at: The Sydney Offices of Ashurst Australia, Level 11, 5 Martin Place, Sydney, NSW 2000 Australia on the 12 March 2020 at 11.30am (Sydney Time) (which corresponds to 8.30pm on 11 March 2020 in Montreal) or as soon as practicable after the conclusion of the scheme meeting. The purpose of the extraordinary general meeting is to vote on the special resolution under section 257D of the Corporations Act 2001 (Cth) to approve the buy back of the Special Voting Share on the terms and conditions set out in the Scheme Booklet, which is available and can be viewed by clicking on the link below: • You can now access your Proxy online for the extraordinary general meeting by following the instructions and clicking the link of your name below:
[HolderNameDesignator]
Enter the postcode (Australian address) or select the country code (overseas address) relevant to your shareholding.
Tick the box next to 'I'm not a Robot' and then, click on the 'access' button.
Click on "Download" under the heading 'Documents & Statements' relevant to the Proxy to obtain your copy. If you wish to vote by proxy, you must lodge your proxy for the extraordinary general meeting no later than 11.30am on 10 March 2020 (Sydney Time), this being 48 hours prior to the commencement of the extraordinary general meeting. Yours sincerely Mr Pradip Devalia Company Secretary | Champion Iron Limited | ACN 119 770 142 | ASX: CIA

[2]

Introduction 1 By an originating process filed on 23 January 2020, Champion Iron Limited (Champion Australia) applied for orders under ss 411(1) and 1319 of the Corporations Act 2001 (Cth) convening a meeting of the holders of fully paid ordinary shares issued in Champion Australia (shareholders) for the purpose of considering, and if thought fit, approving a scheme of arrangement between Champion Australia and its shareholders (scheme meeting). These are reasons for making the orders sought by Champion Australia on 4 February 2020. 2 Written submissions in support of the application were filed on 3 February 2020. 3 The purpose of the proposed scheme is to effect the re-domiciliation of Champion Australia to Canada by the transfer of all of the ordinary shares in Champion Australia to Champion Iron Inc, a corporation incorporated in Québec (Champion Canada), with the result that Champion Australia will become a wholly-owned subsidiary of Champion Canada. 4 The form of the proposed disclosure to shareholders in connection with the scheme (including the explanatory memorandum required by s 412 of the Corporations Act) is set out in Exhibit B (scheme booklet). 5 If the scheme is implemented, each shareholder (other than ineligible foreign shareholders) will receive: (1) one fully paid common share in Champion Canada (a Champion Canada Share), which will be the default scheme consideration for shareholders registered on Champion Australia's Canadian register; or (2) one unit of beneficial ownership in a Champion Canada Share in the form of a CHESS Depositary Interest (Champion Canada CDI) which will be the default scheme consideration for shareholders registered on Champion Australia's Australian register, for every ordinary share held on the Scheme Record Date. Shareholders may inform Champion Australia in writing before 7:00 pm (Sydney time) on the Scheme Record Date that they wish to receive Champion Canada Shares instead of Champion Canada CDIs (or vice versa). 6 If the scheme is implemented, Champion Canada Shares or CDIs to which an ineligible foreign shareholder would otherwise have been entitled (Sale Security) will be issued to a sale agent who will sell them under a share sale facility and remit the proceeds (after deduction of brokerage fees and other costs of sale) to the shareholder. The amount of money received by each ineligible foreign shareholder will be calculated on an averaged basis, so that all ineligible foreign shareholders will receive the same amount for each Sale Security, rounded to the nearest whole cent.

[3]

Background 7 An historical extract taken from the database of the Australian Securities & Investments Commission (ASIC) on 9 January 2020 indicates that Champion Australia was registered as an Australian public company on 18 May 2006. 8 Ordinary shares in Champion Australia are listed for trading on markets operated by ASX Limited and the Toronto Stock Exchange (TSX). As at 28 January 2019, Champion Australia had a market capitalisation of approximately A$1.16 billion, based on a closing price of A$2.50 and 462,188,497 ordinary shares on issue. Over the last four reported quarters, 77% of total share trading volume has occurred on TSX. 9 Champion Australia and its subsidiaries focus on the production and development of, and exploration for, iron ore. Its mineral assets are located exclusively in Canada. Through wholly-owned subsidiaries, Champion Australia has: (1) The Bloom Lake iron ore mine, a long life and large scale open pit mining operation located in northern Québec. It is the "flagship" asset of the group. (2) Interests in nine exploration assets in the Labrador Trough in north-eastern Québec and exploration properties in the province of Newfoundland and Labrador. 10 On 7 January 2020, Champion Australia announced that it had entered into a scheme implementation deed with Champion Canada (SID) setting out the terms upon which the proposed re-domiciliation would proceed. 11 Champion Canada is seeking an ASX listing and has obtained conditional approval to list on the TSX with the intention that, if the scheme is implemented, Champion Canada Shares will be quoted and traded on the TSX and Champion Canada CDIs will be quoted and traded on the ASX. 12 If the scheme is implemented, it is intended that Champion Australia will be wound up by way of a members' voluntary winding up. 13 As at 29 January 2020, there were six shareholders who will be "ineligible foreign shareholders", that is, shareholders whose registered address is at a place outside of Australia, Canada, New Zealand, the United States of America or the United Kingdom. Those shareholders held 56,032 ordinary shares, or approximately 0.01% of the issued ordinary shares. 14 As at 30 January 2020, Champion Australia's capital structure was as follows: Securities Number Ordinary shares 467,688,497 Champion Australia Warrants exercisable at C$1.125 10,281,250 Champion Australia Warrants (Glencore International AG) exercisable at C$1.125 27,733,333 Champion Australia Warrants (CDP Investissements Inc.) exercisable at C$2.45 15,000,000 Incentive Awards (Options under Old Plan) with exercise prices of A$0.20, $0.25, $0.30, $1.00, $1.08, $1.24 and $1.33 5,750,000 Incentive Awards (Options under Omnibus Plan) with exercise prices of A$1.24, $1.46, $2.21 and $2.53 1,064,334 Champion Australia Incentive Awards (Deferred Share Units) 118,591 Champion Australia Incentive Awards (Performance Share Units) 653,071 Champion Australia Incentive Awards (Restricted Share Units) 597,504 Special Voting Share 1

[4]

15 The directors of Champion Australia and Champion Canada are the same. There are no proposed changes to senior management as a result of re-domiciliation. 16 Based on an issued capital of 462,188,497 ordinary shares, section 12.7 of the scheme booklet discloses that the directors have the following direct or indirect interests. 17 The terms of the Warrants, Options and Incentive Awards referred to in [14] above are summarised in section 12.4 of the scheme booklet. It is a condition precedent to the implementation of the scheme that: (1) Champion Canada enters into a private treaty arrangement with the holders of the Warrants, pursuant to which (among other things) the terms of the Warrants are amended so that Champion Canada will substitute for Champion Australia and the rights and obligations of Champion Australia with respect to the Warrants and all references in the Warrants to ordinary shares will be replaced by references to Champion Canada Shares or Champion Canada CDIs, as applicable; (2) Champion Australia and Champion Canada will enter into an exchange agreement with each holder of Options, whereby existing Options in Champion Australia will be exchanged for the same number of new options issued in Champion Canada; and (3) The plans pursuant to which the Incentive Awards were made will either be replaced or amended such that Champion Canada will be the company and Champion Canada Shares or CDIs the relevant security under the plan. Each Incentive Award will essentially continue to exist in an amended form with all of its other terms and conditions (including vesting schedule and vesting and settlement conditions) unchanged. 18 The intended effect is that none of the Warrants, Options or Incentive Awards will be exercised or vest as a result of the scheme and Champion Canada will have the rights and be subject to the obligations of Champion Australia under them. 19 As noted in the table at [14] above, there is one Special Voting Share issued in Champion Australia. The background to the special voting share and the proposal that it be bought back is disclosed in section 11.1 of the scheme booklet as follows: Champion Australia issued the Special Voting Share in connection with the Plan of Arrangement between Champion Australia (at the time, called "Mamba Minerals Limited") and Champion Iron Mines Limited effected on 31 March 2014, whereby Champion Australia acquired all of the common shares in Champion Iron Mines Limited in exchange for ordinary shares in Champion Australia and shares in Champion Exchange Limited (Exchangeable Shares). As part of the consideration provided by Champion Australia, the Special Voting Share was issued to TSX Trust Company (formerly Equity Financial Trust) for the benefit of Canadian shareholders that had received Exchangeable Shares as consideration under the Plan of Arrangement. The Exchangeable Shares enabled shareholders who elected to receive them under the Plan of Arrangement to take advantage of a full or partial tax deferral which was available under Income Tax Act (Canada). The terms of the Special Voting Share are contained in rule 22.3 and Schedule 2 of Champion Australia's constitution. The terms of the Special Voting Share provide that the holder does not have a right to vote at any shareholder meeting if there cease to be any Exchangeable Shares on issue in Champion Exchange Limited. The terms of the Special Voting Share also provide that it is non-convertible, non-transferable, non-redeemable and non-participating in respect of dividends or distributions of Champion Australia, nor in respect of the liquidation, dissolution or winding up of Champion Australia. Rule 22.3 of Champion Australia's constitution provides that, if at any time after the issue of the Special Voting Share, there ceases to be any Exchangeable Shares on issue, unless the Champion Australia Board resolves otherwise, Champion Australia must buy back and cancel, or cancel by way of selective capital reduction, the Special Voting Share, in either case for A$1.00. As there are no longer any Exchangeable Shares on issue in Champion Exchange Limited, the Champion Australia Board has resolved to buy back and cancel the Special Voting Share for A$1.00. 20 Champion Australia submitted, and the Court accepts, that: (1) As the Special Voting Share has no voting rights, the buy back will not have any impact on control of Champion Australia. (2) There will be no material financial effect of the buy back on Champion Australia as the consideration is $1.00 in cash. (3) Buy back of the Special Voting Share will facilitate Champion Canada acquiring 100% of the issued shares in Champion Australia on the implementation date of the scheme. (4) It is a condition precedent to the implementation of the scheme that shareholders approve the buy back resolution. Champion Australia will convene an extraordinary general meeting half an hour after the scheme meeting to facilitate voting on the buy back resolution. (5) If the buy back resolution is passed, then the buy back will proceed and the Special Voting Share will be cancelled even if the Scheme and the re-domiciliation do not proceed. 21 The directors of Champion Australia unanimously recommend that shareholders vote in favour of the scheme and they intend to vote to approve the scheme in respect of shares under their control and proxies placed at their discretion. 22 Grant Thornton Corporate Finance Pty Ltd, the independent expert appointed by the Champion Australia board to assess the scheme, has provided a report. Grant Thornton concludes that the advantages of the scheme outweigh the disadvantages and accordingly the scheme is in the best interests of shareholders. 23 Three major shareholders of Champion Australia, who hold in aggregate approximately 33% of Champion Australia's ordinary shares, have indicated their intention to vote in favour of the scheme. One of those shareholders, Prospect AG Trading Pty Ltd and its related entities are companies controlled by Champion Australia's Executive Chairman, Michael O'Keeffe. 24 Gary Kenneth Lawler or failing him Andrew John Love, both directors of Champion Australia, have consented to act as chairman of the scheme meeting. 25 Sections 411(3) and 412(1) of the Corporations Act require the disclosure of information explaining the effect of the scheme, any material interests of the directors (whether as directors, members or creditors of Champion Australia or otherwise), the effect on those interests of the scheme insofar as they differ from the interests of other persons, and information material to a member's decision whether or not to agree to the scheme. The scheme booklet contains information designed to meet these requirements as follows: (1) The Chairman's letter. (a) Section 1 contains information about key dates. (b) Section 2 contains information about how to vote. (c) Section 3 contains an overview of the re-domiciliation to be effected by the scheme. (d) Section 4 contains responses to "Frequently Asked Questions", directing attention to the parts of the scheme booklet in which particular matters are addressed in greater detail. The conditions precedent to the scheme are set out in detail at section 4.11. (e) Section 5 sets out the Champion Australia board's reasons for its recommendation and contains a statement of their intentions and the intentions of major shareholders with respect to voting on the scheme. It also summarises the independent expert's opinion. (f) Section 6 contains details of the advantages and disadvantages of the scheme and the Chairman's letter summarises them. (g) Section 7 provides an overview of Champion Australia. (h) Section 8 provides an overview of Champion Canada following implementation of the scheme. (i) Section 9 sets out implications of Champion Canada being incorporated in Canada and section 9.4 and appendix A contain a comparison of Australian and Canadian corporate laws. (j) Section 10 contains a report in relation to the taxation implications for shareholders of the implementation of the scheme. (k) Section 11 contains an information statement in relation to the extraordinary general meeting at which the buy back resolution will be proposed. (l) Section 12 contains additional information, including the identity of substantial shareholders, latest trading price of ordinary shares in Champion Australia before the announcement made at 7:00 pm on 6 January 2020, Champion Australia's capital structure and the impact of domiciliation on shares, Options Warrants and Incentive Awards, the identity of Champion Australia's auditor, identification of directors' interests in securities issued by Champion Australia, details of payments and other benefits to directors of Champion Australia, transactions in Champion Canada securities (or the lack thereof in the past three months) and a summary of "transaction documents" including the SID, consents and disclaimers and waivers and approvals provided by ASIC, ASX and TSX, disclosure of interests, fees and other benefits, and disclosure relating to foreign selling restrictions, notices to shareholders resident in New Zealand and the US, the "scheme warranty" given by shareholders. (m) Section 13 contains a glossary of terms. (2) Appendix A contains a comparison of Australian and Canadian corporate laws. (3) Appendix B contains Grant Thornton Australia's independent expert's report. (4) Appendix C is the proposed scheme of arrangement. (5) Appendix D contains a copy of a deed poll executed by Champion Canada on 29 January 2020 in favour of Champion Australia's shareholders. It is in usual form. (6) Appendix E is an explanation of CDI arrangements which are applicable to Champion Canada CDIs. (7) Appendix F is the notice of the scheme meeting. (8) Appendix G is the notice of the extraordinary general meeting to be held following the scheme meeting. 26 Included with the scheme booklet are proxy forms, one relating to voting at the scheme meeting and the other relating to voting at the extraordinary general meeting.

[5]

Affidavits and exhibits 27 The following affidavits were read and exhibits tendered: (1) The affidavit of Nicole Angela Gardner sworn on 22 January 2020. Ms Gardner is a partner of Ashurst Australia, solicitors engaged by Champion Australia in relation to the scheme. Annexed is an historical extract in relation to Champion Australia on the basis of which the Court is satisfied that Champion Australia is a Part 5.1 body under the Corporations Act. (2) The affidavit of Steve Boucratie sworn on 31 January 2020. Mr Boucratie is Champion Australia's, vice-president, general counsel and company secretary. Exhibit SB-1 was tendered. Mr Boucratie gave evidence concerning Champion Australia's background, details of the proposed scheme, details concerning eligible foreign shareholders, directors' interests, the proposed treatment of Options, Warrants and Incentive Awards and the buy back of the Special Voting Share, the scheme booklet and related consents, mechanics to be employed in relation to dispatch of documents to shareholders and voting at the scheme meeting, due diligence and verification in relation to the scheme booklet and the resolution of Champion Australia's board to seek orders convening the scheme meeting and dispatch of the scheme booklet. (3) The affidavit of Andrea De Cian sworn on 31 January 2020. Mr De Cian is a partner of Grant Thornton Australia Limited and a director of Grant Thornton Corporate Finance Pty Ltd. He verified the independent expert's report. (4) The affidavits of Gary Kenneth Lawler sworn on 3 February 2020 and Andrew John Love sworn on 31 January 2020 consenting to act as chairman of the scheme meeting and declaring their interests in securities issued by Champion Australia. They each declared that they have no interest or obligation which would give rise to a relevant conflict. (5) The affidavit of Stuart John Dullard sworn on 3 February 2020. Mr Dullard is a partner of Ashurst Australia. He gave evidence in relation to correspondence with ASIC concerning the scheme booklet. 28 Exhibit A in these proceedings comprises copies of letters dated 3 February 2020 sent by ASIC to Champion Australia's directors which were tendered at the first court hearing. The first letter is the "usual letter" indicating that ASIC confirmed that it had had an opportunity to consider the draft scheme booklet and indicating that it did not intend to appear at the first court hearing to oppose orders being made. The second letter related to the grant of exemptions for which Champion Australia had applied.

[6]

Matters for comment 29 The principles relevant to when a court will convene a scheme meeting are well known. Champion Australia's written submissions relied on my summary of those principles in Capilano Honey Limited, in the matter of Capilano Honey Limited [2018] FCA 1568; 131 ACSR 9 at [32]-[34].

[7]

Matters which support the making of orders 30 On the basis of the evidence, the Court is satisfied that: (1) Champion Australia is a Part 5.1 body. (2) The text of the proposed scheme is set out in Appendix C of the scheme booklet. The scheme is functionally the same as an acquisition scheme and therefore within the concept of an "arrangement" which has often been approved by Australian courts. (3) The text of the scheme booklet will provide proper disclosure to shareholders having regard to the requirements of s 412(1)(a) of the Corporations Act and reg 5.1.01 of the Corporations Regulations 2001 (Cth) and it has been subject to a commonly used process of verification designed to ensure that it contains required information which is not misleading. (4) The scheme is bona fide and properly proposed. Pursuant to the SID (the terms of which were disclosed to the market when the proposed scheme was announced on 7 January 2020) Champion Australia has committed itself to propounding the scheme and Champion Canada has executed the deed poll which appears as Appendix D of the scheme booklet. (5) ASIC has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and to make submissions at the first court hearing and it has had at least 14 days' notice of the date of the first court hearing. (6) Procedural requirements of the Corporations Act and the Federal Court (Corporations) Rules 2000 (Cth) have been addressed or varied. (7) The scheme is of such a nature and cast in such terms that, if it receives the statutory majorities required by s 411(4)(a)(ii) of the Corporations Act at the scheme meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed.

[8]

Matters which do not prevent the making of orders 31 The manner in which Champion Australia proposes to address outstanding Options, Warrants and Incentive Awards is adequately disclosed and the fact that a director holds any such interest does not give rise to any conflict of interest which would suggest that the director should not make the recommendation that shareholders approve the scheme if a director is otherwise minded to do so. 32 The proposed buy back of the Special Voting Share facilitates the commercial efficacy of the scheme but does not give rise to any issue which would be a reason to refuse to make orders convening the scheme meeting or orders approving the scheme. 33 The number of ineligible foreign shareholders is small and the proposed Sale Facility for sale of Champion Canada Shares or Champion Canada CDIs to which they would otherwise be entitled is of a kind which is common and does not give rise to issues which would be class-creating: see Sundance Energy Australia Limited, in the matter of Sundance Energy Australia Limited [2019] FCA 1944 at [14] and the cases there cited. 34 Having regard to the terms of the scheme and the deed poll, execution risk has been addressed in the usual way. Similarly, the deemed warranty in cl 3.7 of the scheme has been properly disclosed in sections 3.5, 4.15 and 12.21 of the scheme booklet and its existence does not give rise to any issue which would be a reason to refuse to make orders convening the scheme meeting or orders approving the scheme.

[9]

Possible need to make application to waive compliance with the "headcount test" 35 Champion Australia maintains two share registers; one in Australia and one in Canada. A shareholder whose name is registered on either register at 7:00 pm Sydney time on 10 March 2020 will be entitled to attend and vote at the scheme meeting, in person or by proxy. 36 As at 27 January 2020, there were 213,134,209 ordinary shares registered in the name of intermediaries, primarily (as to about 99%) with CDS Clearing and Depositary Services Inc (or a nominee) (CDS & Co Intermediaries), on Champion Australia's Canadian register. Under Canadian securities regulation, the persons who beneficially own those ordinary shares, called Canadian Beneficial Owners, are entitled to receive notice of the scheme meeting and to provide instructions to vote at the scheme meeting. The instructions given by the Canadian Beneficial Owners are not votes or proxies. 37 Champion Australia's written submissions raise the issue that, where a registered shareholder (such as CDS & Co Intermediaries) casts votes for and against a resolution (as CDS & Co Intermediaries may be required to do to comply with instructions), it is not possible to count those votes as votes by which any resolution is "passed" for the purposes of the headcount test in s 411(4)(a)(ii)(A): see Spark Infrastructure Holdings No 1 Ltd [2010] NSWSC 1497; 79 NSWLR 756 at 761-762 [28]-[29] (Barrett J). Given the number of ordinary shares registered with CDS & Co Intermediaries, Champion Australia foreshadowed that it may be necessary for it to apply to the Court at the second court hearing to waive compliance with the "headcount test": see pSivida Limited v New pSivida, Inc; in the matter of pSivida Limited [2008] FCA 627 at [11]-[12] (Jacobson J) and Re Plantic Technologies Ltd [2010] VSC 484 at [16] (Davies J) where this course was proposed. Senior counsel for Champion Australia confirmed that, if such an application were made, it would provide evidence for the voting instructions given by Canadian Beneficial Owners.

[10]

Intention to rely on the US Securities Act of 1933 38 Champion Australia has advised the Court that if the Court approves the scheme, Champion Canada will rely on that fact to take the benefit of the exemption from compliance with registration requirements provided by s 3(a)(10) of the US Securities Act of 1933 in connection with the issue of Champion Canada Shares and CDIs as scheme consideration.

[11]

Conclusion 39 For the foregoing reasons the Court concluded that it was appropriate to make orders convening the scheme meeting, approving the scheme booklet for dispatch in the manner proposed by Champion Australia and ancillary orders in relation to the conduct of the meeting and advertising of the second court hearing. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.

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

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