Re Mincom Ltd [No 2] [2007] QSC 58 (13 March 2007)

HIS HONOUR: I have before me a further hearing in relation to an application by Mincom Limited for an order to convene a meeting of members of the company under section 411 of the Corporations Act 2001.

The application was first heard by me on the 28th of February 2007, when I made an order for the convening of a meetings of shareholders, and approving an explanatory statement in the form of a scheme booklet for distribution to shareholders. I delivered reasons for that decision on the 9th of February.

In those reasons, I drew attention to several matters which were, potentially, problematic. The first was a procedural matter involving the notice to the Australian Securities Investment Commission, which was not, at the time of the previous hearing, appearing in the matter. ASIC has now appeared and that procedural issue is no longer of any consequence.

Second, were matters going to the substance of the application. One was whether there was a reasonable chance demonstrated that the Court would not be required to refuse approval under section 411(17) of the Act. That is a matter which can await any second hearing, and I see no need to say anything further about it today.

One issue on the periphery of that which has been dealt with today has been the possible involvement of section 414, but, in his helpful submissions, Mr Oakes SC has demonstrated the inapplicability of that section.

The second factor to which I referred was the possible existence of a breach of fiduciary duty by the directors. That arose out of what appeared, on the evidence then before me, to have been an agreement entered into by the directors in August 2006, which disabled them from seeking or discussing alternative proposals. Evidence has now been put before me that that agreement ran for only about a month, and that thereafter the directors were free to take whatever steps they thought prudent. There has been confidential material put before me, also, which has been helpful in this regard.

There is, in my view, on the evidence now available, no reason why this possibility should constitute any impediment to the convening of a meeting, and having the views of the shareholders ascertained.

I should add that the problems which had previously concerned me have been dealt with also in a supplementary scheme booklet which it is proposed to circulate to shareholders and I see no difficulties in what has been said in that regard.

The third matter was whether the provisions of section 6(d) of the Scheme of Arrangement prevented there being a reasonable chance that the Court would approve it at any second meeting. In that regard I held that the matter could be dealt with at the second meeting and I adhere to that view. Again, the matter has been raised in the supplementary memorandum where that paragraph of the scheme has been drawn explicitly to the shareholders' attention and no doubt that will be a relevant consideration if and when the matter comes back before the Court.

The orders sought now are for the revised Notices of Scheme meeting set out in the supplementary scheme booklet which has been exhibited, to be sent and for the supplementary scheme booklet to be approved for distribution and circulated. As I have said, I think the issue of possible breach of fiduciary duty has been sufficiently dealt with to enable the matter to go forward. I see no need to say anything further.

Another issue which arose on the face of the previous booklet was whether there was an accurate statement of the proportion of votes needed for approval. There is some ambiguity in the provisions of section 411(5B) of the Act but I see no need to resolve that as all parties have accepted that, in this case at least, there will be no attempt to depart from the vote counting procedure set out in the booklet. If anyone else comes along who wants to argue for a different outcome, that can be dealt with at any second meeting.

The point which has occupied most of today has been the explication in the supplementary booklet of the case for and against. Following the reasons which I delivered on

28 February (in which certain suggestions were made regarding other matters that could be included in any case against) extra provision has been made in the supplementary booklet to set out those matters.

There has been debate today about whether there should be any reference to the position regarding the future job prospects for current employees of Mincom. Mincom is a somewhat unusual public company. It is unlisted; it has three classes of shareholders of whom the "B" and "C" class shareholders are effectively only two people being substantial corporations. The 165 "A" class shareholders contain a substantial proportion of employees or former employees. It may be expected that such shareholders would have a particular interest in the position of employees after any successful approval of the scheme since the effect of such approval will be for EAM Software Finance Pty Ltd to acquire all of the shares in Mincom.

EAM proposes to review Mincom's operations after it acquires all of the shares. It proposes to maintain employment until that review, but can give no assurances beyond that. As noted in my earlier reasons for judgment, EAM is the vehicle for a private equity takeover by Francisco Partners, a limited liability partnership.

There were when the proposal was first publicly announced a number of articles in the public press, the financial press and the trade press, (Mincom operates a business involving computer software), about the proposed takeover by way of scheme of arrangement and a variety of views was expressed. In particular one journalist asserted the likelihood of job losses. Indeed what he described was job cuts being an absolutely essential part of the strategy. This view was reportedly rebutted in press statements attributed by Mr Mathews, the Chief Executive Officer of Mincom, although whether his rebuttal was accurately reported is now disputed.

Mr Mathews was reported to have said, that, "No jobs would be lost" and that the proposal was purely about giving Mincom the capital to go forward and was nothing more than a change in the share register. The directors, including Mr Mathews, do not now hold the opinions attributed to Mr Mathews. If Mr Mathews was accurately reported (and he has not given evidence on the question) he has resiled from his earlier position. There is no evidence that he has attempted to have the reports corrected.

Whether the articles accurately reported what Mr Mathews said need not be determined. The publicity given to such statements early in the public exposure of the proposal is a matter of concern. The debate today revolved around what should be done about those issues. It has been resolved on the basis that the supplementary booklet will direct the attention of shareholders to the existence of these various views (including internet addresses) and will assert the present views of the board as being the matters now set out in the booklet. Those who care to look at the articles will see the differences which exist between the board's present views and those in the articles and can either make up their own minds or can carry out such further research as to them seems appropriate.

In my judgment that is an appropriate way for the question of future employment prospects for current employees to be resolved. I reject the submission advanced on behalf of the Mincom and EAM that inclusion of further references on this topic is unnecessary. Shareholders are entitled to take the welfare of employees into account in reaching their decision about the proposal. I reject any implication that the contents of an explanatory statement should be restricted to issues which are relevant to the economic self-interest of the shareholders.

In a situation where a public debate has already arisen about a relevant topic it is appropriate for the directors to tell shareholders of that debate and to identify for them where further information about it may be obtained. This is particularly important when a director who is the CEO has participated in that debate and has been reported as expressing a view which, according to the explanatory memorandum, he does not now hold.

In accordance with a suggestion in my earlier reasons, the supplementary explanatory statement in the present case has identified additional reasons why shareholders may wish to oppose the proposal. These include a possible view that it is desirable for cutting-edge software production to remain under Australian control and a possible view that it is desirable to attract overseas software engineers to this country to build up the local industry. Just as the omission of these possible views would leave of the "No" case in the explanatory statement incomplete and misleading, so would the omission of information concerning future employment prospects.

In the present case the issue of future employment prospects is one of particular interest to shareholders by reason of the high proportion of them who are employees, former employees or possible future employees.

In those circumstances and with those revisions to the supplementary statement it seems to me appropriate that the statement be approved for distribution to shareholders. There is no controversy about the dates in the order. ASIC has no objections to the order and, I should have said also, has no problems at this stage with the view which I have expressed relating to the potential breach of fiduciary duty or to the absence of any breach of fiduciary duty on the material presently available. That being so there will be an order in accordance with the draft initialled by me and placed with the papers.