RE NAVITAS LTD; EX PARTE NAVITAS LTD [No 2] [2019] WASC 218 (21 June 2019)

Background and additional evidence Incorporation of earlier reasons

1. I gave reasons for my 10 May 2019 orders in Re Navitas Ltd; Ex parte Navitas Ltd.[1]
2. I do not intend to repeat what was said in those reasons. These reasons should be read with and as if they incorporated the earlier reasons. In particular, I rely on what was stated in the earlier reasons as to:

(1) the relevant entities, Navitas and BGH BidCo (as well as the members of the BGH Consortium as associated with BGH BidCo) ([1], [10] to [19]);

(2) the announcement of the acquisition proposal ([2], [39] to [40]);

(3) the process by which Navitas and BGH BidCo arrived at the acquisition proposal (and the steps taken by Navitas' Board to restore a competitive market for control of Navitas after becoming aware of certain exclusivity restrictions assumed by the Consortium Shareholders) ([20] to [40]);

(4) the nature of the proposed scheme of arrangement ([3], [39], [42] to [50], [96] to [100] and [112] to [113]). In addition to what is there stated I note that additional evidence was adduced for the second hearing providing for a proposed 'Implementation Date' of 5 July 2019. That date is consistent with the date range for implementation that was foreshadowed in the scheme booklet;

(5) the description of the scheme booklet ([56] to [58], [72] to [82] and [84]) and the steps taken by way of verification of the contents of the scheme booklet ([83]);

(6) the extent to which the scheme consideration represents a premium over the trading price for Navitas shares ([55]);

(7) the opinion expressed in the independent expert report (IER) ([52] to [53], [80] and [90]); and

(8) the recommendation of Navitas' directors ([39] to [41], [54] and [88] to [89]).

1. Navitas relied on seven affidavits sworn by five deponents for the purpose of the first hearing.[2] That material was formally relied on for the second hearing. In addition, Navitas relied on the following affidavits:

(1) an affidavit of Tracey Horton AO affirmed 19 June 2019. Ms Horton was the chairperson of the scheme meetings. Among other things, Ms Horton confirmed the outcome of the scheme meetings;

(2) affidavits of David Roger Davies sworn 19 and 21 June 2019. Mr Davies is Navitas' solicitor and deposed to a number of formal matters;

(3) an affidavit of Matthew Rumpus sworn 20 June 2019. Mr Rumpus is Navitas' company secretary and senior legal counsel. Among other things Mr Rumpus addressed finalisation of the scheme booklet, various ASX announcements, modification to Navitas' employee and executive share ownership plans (removing restrictions on transfer to facilitate transfer to BGH BidCo in accordance with the scheme proposal), ongoing verification of the contents of the scheme booklet and the satisfaction or waiver of various conditions precedent to the scheme (including Foreign Investment Review Board approval);

(4) an affidavit of Lisa Ahwan, a relationship manager employed by the company who manages Navitas' share register, affirmed 20 June 2019, as to the processing of proxies and voting instruction forms for the two scheme meetings and the conduct and outcome of the scheme meetings (Ms Ahwan having been appointed as returning officer for the purpose of the two scheme meetings); and

(5) affidavits affirmed by employees of various external service providers to Navitas who deposed as to the printing and dispatch of the scheme booklet and proxy forms (including the electronic dispatch of the scheme booklet to those members who had nominated for electronic dispatch).[3]

1. Counsel for Navitas provided written submissions dated 20 June 2019.

1. I identified the applicable legal principles on an application for approval of a proposed scheme of arrangement under s 411(4)(b) of the Act in Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2].[4]
2. In short, there are two main tasks. First, the court must be satisfied that all statutory and procedural requirements under s 411(4)(b) have been observed. Second, the court must determine in the exercise of discretion whether to approve the scheme.
3. On the latter question, acknowledging that the members are better judges of what is in their commercial interests than the court, consideration is usually given to:

(1) whether the relevant parties voted in good faith and not for an improper purpose;

(3) whether the scheme proponent has brought all relevant matters to the court's attention;

(4) whether there has been full and fair disclosure to the members of all material information;

1. Navitas' further affidavit evidence establishes that:

(1) a copy of the court's 10 May 2019 orders were lodged with the Australian Securities and Investments Commission (ASIC) on 13 May 2019;

(2) a copy of the scheme booklet as approved for distribution was lodged with the ASIC and registered on 13 May 2019;

(3) save in one minor respect - as addressed at par 39 below - the scheme booklet was dispatched to Navitas' members on 17 May 2019 in accordance with par 9 of the orders of the court made 10 May 2019; and

(4) the two scheme meetings were held on 19 June 2019 in accordance with pars 1, 3 to 8 and 12 of the orders of the court made 10 May 2019.

1. At each scheme meeting the proposed scheme of arrangement was approved by resolution with the required statutory majorities.
2. The resolution was carried unanimously at the Consortium Shareholders' meeting. That is unsurprising. The Consortium Shareholders had contractual obligations to support the scheme proposal. Nevertheless, the Consortium Shareholders hold 64,481,870 shares which represents about 18 per cent of the Navitas shares on issue.
3. There was also an overwhelming vote in favour of approval of the proposed scheme of arrangement at the meeting for Navitas shareholders other than the Consortium Shareholders. As to votes, 96.93 per cent of the votes cast were in favour of the resolution (216,848,871 in favour and 6,870,211 against). As to head count, 94.61 per cent of members in attendance by person or proxy voted in favour of the resolution (316 in favour and 18 against). Some 62.45 per cent of the shares on issue voted at the general shareholders' meeting (although this represents only 334 of about 3,094 eligible shareholders). The 62.45 per cent figure does not include the 18 per cent as held by the Consortium Shareholders (who voted at their separate scheme meeting). Including the Consortium Shareholders 288,200,952 of the 358,251,068 shares of Navitas on issue were voted across the two scheme meetings (ie approximately 80.45% of the shares on issue).
4. Based on this analysis counsel for Navitas submitted, and I accept, that there is not such a low voter turnout as might signify an error in dispatch procedures. In any case the affidavits proving dispatch provided primary evidence of notification of the meetings and provision of the meeting materials.
5. Notice of the second court hearing was given by way of advertisements in The West Australian and The Australian newspapers of 13 June 2019. That occurred in compliance with par 14 of the court's orders made 10 May 2019. No party has sought to appear to oppose the approval of the proposed scheme of arrangement.
6. Finally, to complete satisfaction of the various formal matters, by letter dated 20 June 2019 the ASIC informed Navitas pursuant to s 411(17) of the Act that it had no objection to the proposed scheme of arrangement.
7. Accordingly, all statutory and procedural preconditions to the court's approval were satisfied.

1. I was satisfied at the first hearing that the proposed scheme of arrangement was fit for consideration by Navitas' members.[5] In so holding I relied in particular on the opinions expressed by the independent experts in the IER and the views of Navitas' directors. I was satisfied that those opinions were reasonably open.[6]
2. My conclusion reached at the interlocutory first stage hearing has not altered. I remain satisfied that the proposed scheme is fair and reasonable such that an intelligent and honest shareholder properly informed might approve it. As further support for that view I take into account the overwhelming support for the proposed scheme of arrangement as expressed by the ordinary shareholders at the scheme meeting.
3. There was nothing to suggest an absence of good faith or an improper purpose on the part of the members in approving the scheme.
4. Nothing in the scheme is oppressive. Nor, in my view, is the scheme offensive to public policy. I explained in my earlier reasons why the concerns that have been expressed by the ASIC as to socalled 'stub equity' offers to shareholders generally did not arise in the present scheme.[7]
5. As to disclosure, at the first hearing, based on the evidence then before the court and for the reasons that I gave, I was satisfied that the draft scheme booklet would provide proper disclosure to members.[8] The additional affidavit evidence establishes that the scheme booklet as distributed was substantially in the form approved for distribution by the 10 May 2019 orders. Nothing has arisen to suggest that there has not been full and fair disclosure. For the reasons I gave in approving the draft scheme booklet for distribution I was satisfied that the scheme booklet as distributed met the requirements under the Act.
6. Otherwise, there was nothing to suggest that Navitas had not brought to my attention all matters that could be considered relevant to the exercise of the discretion to approve the scheme.

1. Four specific matters were drawn to my attention by senior counsel for Navitas in his oral submissions.
2. First, senior counsel invited me to consider the fact that the Navitas nonexecutive directors will be paid 'special exertion fees' as a result of the scheme proposal. The special exertion fees are described as follows in the scheme booklet:

As contemplated by rule 10.3 of the Navitas constitution, the Navitas Board has approved one-off special exertion fees for each NonExecutive Director of Navitas, in recognition of the increased and sustained workload and time commitment involved in those NonExecutive Directors: considering and responding to the First Indicative Proposal and the Revised Proposal; negotiating and agreeing the Process and Confidentiality Deed, and facilitating the Consortium's due diligence investigations; negotiating and agreeing the terms of the Revised Proposal, including the terms and conditions of the Scheme Implementation Deed and associated documents; and (now) overseeing the process through to implementation of the Scheme.

There are two separate fee amounts, to reflect the differing levels of involvement that each Non-Executive Director has had (and is expected to have) in the process - with Mr Tony Cipa and Ms Tracey Horton leading Navitas' Bid Response Committee (and its function in overseeing and co-ordinating Navitas' response to the First Indicative Proposal and the Revised Proposal, and in advancing the interests of Navitas and all its shareholders throughout).

These special exertion fees are not conditional on the Scheme being implemented, and will be paid prior to implementation of the Scheme in the following amounts (inclusive of superannuation): $30,800 for each of the Non-Executive Directors, plus a further amount of $70,000 for each of Mr Tony Cipa and Ms Tracey Horton (to reflect their additional work as members of the Bid Response Committee).

The approved amounts were determined using a time-based methodology, having regard to (among other things) advice obtained from an independent board remuneration and governance consultant as to a reasonable rate to apply in calculating the amounts payable.[9]

1. Elsewhere within the scheme booklet it is made clear that the payment of the special exertion fees is a one-off and will result in a cost to Navitas irrespective of whether the scheme becomes effective and is implemented.[10]
2. I was aware of the special exertion fees at the time of the first hearing. The passage from the scheme booklet reproduced above was included in the draft of the scheme booklet before me at the time of the first hearing. Also, both Ms Horton AO[11] and Mr Cipa[12] drew attention to the special exertion fee payable to them in their affidavits filed pursuant to r 3.2 of the Supreme Court (Corporations) (WA) Rules 2004 (WA). Both noted that the payment of the special exertion fee was not conditonal on the scheme being implemented.
3. Senior counsel thought it necessary to draw my attention to the special exertion fees because of the recent decisions of Farrell J in Re Gazal Corporation Ltd[13] and Re Ruralco Holdings Ltd[14] and myself in Re Nzuri Copper Ltd; Ex part Nzuri Copper Ltd.[15]
4. In summary, in those three decisions the court has questioned the appropriateness of individual directors joining in a recommendation to members to vote in favour of a scheme where, by reason of a bonus or similar benefit, the director has an additional and different interest to the members in the approval of the scheme. Farrell J has stated, and I agree, that:

[D]irectors who are interested in the outcome of the scheme because they stand to receive a bonus or benefit (other than as a shareholder) only if the scheme proceeds should exercise caution in making recommendations and, in my view, generally should not do so.[16] (emphasis added)

1. Senior counsel wished me to be aware that the nonexecutive directors (as part of the Navitas board) had joined in the unanimous recommendation that shareholders vote in favour of the scheme in the absence of a superior proposal and subject to the independent experts continuing to conclude that the scheme is in the best interests of Navitas shareholders. It was thought that a concern might arise that the non-executive directors had joined in the recommendation given the special exertion fees that are payable to those directors. A number of reasons were advanced as to why the making of the recommendation by the non-executive directors while they stand to be paid the special exertion fees did not make the proposed scheme unfair or unreasonable, or the approval resolution oppressive, so as to warrant withholding the court's approval of the scheme.
2. The short answer is that the concern does not arise. The special exertion fees payable to the nonexecutive directors are not conditional on the proposed scheme proceeding. No inducement operates to incentivise the nonexecutive directors to support the scheme. The special exertion fees were not dependent on the shareholders voting in favour of the scheme.
3. Having initially been invited to consider the special exertion fees, my attention was then drawn to a retention payment that is payable to Navitas' chief executive officer and managing director, David Buckingham. The retention payment is also disclosed in the scheme booklet.[17] An amount of $750,000 is payable. The timing of the payment is accelerated if the scheme resolutions are passed. Also, depending on Navitas' financial performance, in the normal course the payment might be reduced. But the effect of the passing of the scheme resolutions is that the full $750,000 is payable immediately without any possibility of reduction. Accordingly, Mr Buckingham stood to receive a benefit other than as a shareholder if the scheme proceeded through shareholders voting in favour of the scheme. That benefit was twofold. First, uncertainty was removed as to the possibility that the retention payment might be reduced below $750,000. Second, the payment of the $750,000 was accelerated.
4. Accordingly, while no concern arose as to the non-executive directors' recommendation in the context of the special exertion fees, a question did arise as to Mr Buckingham's joinder in the recommendation to shareholders. The situation was similar to that raised by the facts in Re Ruralco Holdings Ltd. The terms of the retention payment mean that Mr Buckingham stood to receive a benefit other than as a shareholder if the scheme proceeded. Mr Buckingham had an incentive, other than as a shareholder, to bring about the shareholders' approval of the scheme.
5. I was satisfied that Mr Buckingham's joinder in the directors' recommendation, despite his interest as to the retention payment, was not a sufficient reason to decline to approve the scheme of arrangement. The interest was properly disclosed in the scheme booklet. There was a reasonable commercial rationale for the benefit. Mr Buckingham was one of six directors. No other director stood to receive a similar benefit. Shareholders were likely to have given weight to the collective recommendation of the directors rather than the fact that Mr Buckingham had so recommended. There was nothing to suggest that Mr Buckingham's recommendation had influenced the other directors in their recommendation. In all the circumstances I could not identify any real possibility that Mr Buckingham's joinder in the recommendation (despite his additional and different interest to members generally in the approval of the scheme) might have affected the integrity of the outcome of the shareholders' resolutions to agree to the proposed scheme. Given the overwhelming support for the scheme by Navitas' shareholders, and the conclusion of the independent experts that the scheme was in the best interests of the shareholders in the absence of a superior proposal, it was appropriate in the exercise of discretion to approve the scheme.
6. It should also be recognised that the decision in Re Gazal Corporation Ltd was delivered after the first hearing in this matter. I acknowledge that Farrell J referred to a 'common practice' of directors declining to make a recommendation where they will receive a substantial benefit, otherwise than as a shareholder, if a scheme proceeds.[18] That has not been the invariable practice in Western Australia. Nor, as shown by decisions such as Re SMS Management & Technology Ltd,[19] is it necessarily the practice in Victoria. Mr Buckingham's joinder in the board's recommendation was not unreasonable given the historical state of practice in Western Australia. In the future, however, practitioners should have regard to the observations of Farrell J in in Re Gazal Corporation Ltd.
7. Second, there were four shareholders who came on to Navitas' register between 10 and 16 May 2019. Their presence was overlooked and consequently they were not included in the 17 May 2019 dispatch of the scheme booklet. However, that omission was rectified on 22 May 2019. Accordingly, the delay in dispatch was minor and unlikely to have any real effect. The affected shareholders held some 871 shares representing 0.00024313 per cent of the shares on issue. I was satisfied that there was substantial compliance with the orders of 10 May 2019. In any event the five day delay was a procedural irregularity within s 1322(2) of the Act which had not caused and could not cause any substantial injustice. That was all the more so given the small number of shareholders affected. The proceedings represented by the scheme meeting were not invalidated by reason of the late dispatch to the four shareholders.[20]
8. While, for these reasons, the minor non-compliance as disclosed did not invalidate the proceedings as represented by the scheme meeting, I was nevertheless asked to make an order under s 1322(4)(d) of the Act to extend the time for dispatch for these four shareholders. Navitas sought the order to remove any doubt as to the efficacy of the general scheme meeting and the validity of the resolution for approval. I made such an order in Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2].[21] I was likewise prepared to make an extension order in the present case. The matter was procedural and the noncompliance inadvertent. Appropriate steps were taken to rectify the oversight as soon as practicable. No substantial injustice had been or was likely to be caused to any person. As to the exercise of discretion, the order was appropriate to remove any doubt as to the effectiveness of the general scheme meeting and thus provide commercial certainty to those interested in the effectuation of the scheme of arrangement.
9. Third, my attention was drawn to the fact that the scheme contained a exculpatory term similar to that which was discussed in Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2].[22] I was prepared to approve the scheme despite that clause. I did so on the basis that, on its proper construction, the clause does not exclude liability for acts or omissions in breach of the scheme terms or in breach of the deed poll. Such acts or omissions cannot be in performance of the scheme or the deed poll. Clause 9.6 of the scheme is to be understood in that way.
10. Finally, the affidavit evidence on the second hearing dealt with the conditions precedent to the scheme of arrangement. Specifically, the affidavit of Mr Davies sworn this morning attaches certificates of satisfaction of conditions precedent on the part of both Navitas (annexure 'DRD-26') and BGH BidCo (annexure 'DRD-27'). The certificates confirm satisfaction or waiver of all conditions precedent other than court approval. Accordingly, the evidence established that the only remaining substantive condition precedent was the court's approval under s 411(4)(b) of the Act.

Conclusion: proposed scheme of arrangement approved

1. In the circumstances I was satisfied that I should approve the proposed scheme of arrangement. I was satisfied that Navitas had met the various statutory and procedural preconditions for approval. I was also satisfied that in the exercise of discretion I should grant approval under s 411(4)(b) of the Act.

1. Navitas sought an exemption from s 411(11) of the Act. No ongoing purpose will be served by requiring the orders approving the schemes to be annexed to Navitas' constitution. The orders will be irrelevant once Navitas becomes a wholly owned subsidiary of BGH BidCo. Accordingly, I made an order under s 411(12) exempting Navitas from this requirement.

1. I was satisfied that I should approve the proposed scheme of arrangement and made orders substantially in the terms as sought by Navitas.
2. The orders made were as follows:
   1. Pursuant to section 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the plaintiff and holders of fully paid ordinary shares in the capital of the plaintiff (Shareholders), in the form set out at pages 128 to 146 of Annexure DRD-20 to the affidavit of David Roger Davies sworn on 19 June 2019 and filed herein (Scheme), is approved.
   2. Pursuant to section 1322(4)(d) of the Act, the time for compliance with paragraph 9 of the orders of the Court made on 10 May 2019, to the extent that those orders apply to the four Shareholders referred to at paragraph 65(a) of the affidavit of Lisa Nicole Ahwan affirmed on 19 June 2019, is extended to 22 May 2019.
   3. Pursuant to section 411(12) of the Act, the plaintiff is exempted from compliance with section 411(11) of the Act in relation to the Scheme.
   4. These orders be entered forthwith.
   5. The plaintiff lodge a copy of these orders with the Australian Securities and Investments Commission on Monday, 24 June 2019.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[1] Re Navitas Ltd; Ex parte Navitas Ltd [2019] WASC 180.

[2] Re Navitas Ltd; Ex parte Navitas Ltd [7].

[3] See the affidavit of Jodie Lindsay affirmed 19 June 2019 (as to preparation of the typeset scheme booklet); the affidavit of Peter de Stefani affirmed 19 June 2019 (as to the printing of the scheme booklet); the affidavit of Richard Williamson affirmed 19 June 2019 (as to the printing of the scheme booklet); the affidavit of Margaret Smith affirmed 19 June 2019 (as to preparation and posting of the hard copy dispatch packs (including scheme booklet and personalised proxy forms); the affidavit of Lisa Ahwan affirmed 19 June 2019 (as to: preparation of proxy and voting instruction forms; dispatch to postal recipients; dispatch to email recipients; further hard copy dispatch to new shareholders; hard copy dispatch to nine email recipients where there was a non-delivery event); the affidavit of Natasha Robertson affirmed 20 June 2019 (as to certain post-17 May 2019 dispatches of hard copy dispatches).

[4] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [2018] WASC 357 [11] - [19].

[5] Re Navitas Ltd; Ex parte Navitas Ltd [85] - [91], [116].

[6] Re Navitas Ltd; Ex parte Navitas Ltd [87] - [90].

[7] Re Navitas Ltd; Ex parte Navitas Ltd [79].

[8] Re Navitas Ltd; Ex parte Navitas Ltd [72] - [84], [117].

[11] Affidavit of Tracey Horton affirmed 3 May 2019, par 35(i) - (l), 70.

[12] Affidavit of Antoni Cipa affirmed 3 May 2019, par 6.

[13] Re Gazal Corporation Ltd [2019] FCA 701 [19] - [21], [27] - [34].

[14] Re Ruralco Holdings Ltd [2019] FCA 878 [11] - [15], [26] - [28].

[15] Re Nzuri Copper Ltd; Ex part Nzuri Copper Ltd [2019] WASC 189 [72] - [74], [83] - [89].

[16] Re Gazal Corporation Ltd [30]; Re Nzuri Copper Ltd; Ex part Nzuri Copper Ltd [84] - [85].

[19] Re SMS Management & Technology Ltd [2017] VSC 257 [22] - [27].

[20] See Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [28] - [29], [31].

[21] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [30] - [35].

[22] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [49].