Redflex Holdings Limited, in the matter of Redflex Holdings Limited (No 2) [2021] FCA 474

YATES J: 1 On 7 April 2021, I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act) for the convening and holding of a meeting of the plaintiff's shareholders to consider and, if thought fit, approve a scheme of arrangement to effect a transfer of the shareholders' shares in the plaintiff to Verra Mobility Corporation (Verra) or its nominee: Redflex Holdings Limited, in the matter of Redflex Holdings Limited [2021] FCA 417 (Reasons 1). In these reasons, I will adopt the expressions and abbreviations used in Reasons 1. 2 At the time of making those orders, I also made an order approving the scheme booklet to be sent to the shareholders in connection with their consideration of the scheme. The scheme booklet comprises the explanatory statement required by s 412(1) of the Act to be sent with the notice of meeting, explaining the effect of the scheme. 3 Following the first court hearing on 7 April 2021, five of the plaintiff's shareholders who hold, in aggregate, approximately 17.07% of the plaintiff's issued shares (25,936,612 shares), informed the plaintiff that there was a possibility that they may not support the scheme given that the offered scheme consideration was $0.92 per Redflex share. This possibility was communicated to Verra, who subsequently offered to increase the scheme consideration from $0.92 to $0.96 per Redflex share. On 27 April 2021, the five shareholders indicated their intention to vote in favour of the scheme with the scheme consideration of $0.96 per Redflex share. 4 On 30 April 2021, the plaintiff and Verra entered into a Deed of Amendment and Consent which, amongst other things, amended the Scheme Implementation Agreement to provide for the increased scheme consideration. On the same day, the plaintiff announced to the ASX that the scheme consideration had been increased; that the Deed of Amendment and Consent had been entered into; and that the five shareholders had indicated their intention to vote in favour of the scheme (with the increased scheme consideration), in the absence of a superior proposal being publicly announced before the proposed scheme meeting, and subject to the independent expert continuing to conclude that the scheme is in the best interests of the shareholders. 5 By an interlocutory process dated 30 April 2021, the plaintiff seeks directions in relation to the dispatch of a supplementary scheme booklet (the supplementary booklet) to inform the plaintiff's shareholders of these events and of the consequential changes to the information provided in the scheme booklet, including the necessary amendments to the terms of the scheme itself and to the terms of the resolution to be put to the meeting seeking shareholder approval of the scheme. I should emphasise that, so far as the scheme itself is concerned, there are no material changes proposed to its terms beyond those necessary to reflect the increased scheme consideration. 6 Plainly, the Court has jurisdiction and power to make the directions that are now sought: s 1319 of the Act. A direction that a supplementary scheme booklet be dispatched is an "ancillary" or "consequential" direction within the meaning of s 1319: Re Centro Retail Ltd and Centro MCS Manager Ltd in its capacity as responsible entity of Centro Retail Trusts [2011] NSWSC 1321 (Centro) at [16]. 7 A material change in circumstances has occurred which will bear upon the shareholders' consideration of the scheme as originally proposed. It is appropriate that they be provided with additional information, in an appropriate form, which addresses the changed circumstances. The appropriate form, here, is a supplementary scheme booklet. However, as explained in Coates Hire Ltd (ACN 073 603 586) No 2, in the matter of Coates Hire Ltd (ACN 073 603 586) [2007] FCA 2105 at [6] and in Centro at [10] - [11], where the Court has ordered the convening of a meeting and has approved an explanatory statement, the company should not dispatch additional or supplementary explanatory material without first obtaining court approval. 8 The plaintiff has filed detailed submissions on how the Court should approach, and exercise its discretion in, the present application, bearing in mind that the meeting is to be held on 10 May 2021 commencing at 9.00 am (AEST), with proxies to be completed and delivered by 9.00 am (AEST) on 8 May 2021. The submissions address the considerations referred to in In the matter of Prime Media Group Limited [2019] NSWSC 1888 at [6]. I will not summarise all the submissions that have been made or provide, in these reasons, any detailed analysis of them. It is only necessary for me to say that I am satisfied, on the basis of the evidence before me, that the directions sought by the plaintiff should be made, for the reasons advanced in its submissions. In these circumstances, I will simply record the following matters which have been critical to this conclusion. 9 I am satisfied that the supplementary booklet will give adequate further information to the shareholders to enable them to consider the changed circumstances and the proposed change to the scheme, bearing in mind that the essential change to the scheme is an increase in the scheme consideration. I doubt that, for reasonably-minded shareholders, the proposed change to the scheme will be challenging insofar as it concerns their ability to assess whether, in light of that matter, the scheme should be approved at the convened meeting. 10 I am also satisfied that the supplementary booklet adequately addresses the reasons for the proposed change to the scheme consideration and gives clear notice of how that change qualifies the other information in the scheme booklet, which the Court has previously approved. 11 An important consideration is the imminent date for the holding of the meeting and the date and time for the lodgement of proxies, and whether there is adequate time for the shareholders to respond to the changed circumstances. Shareholders who have elected to receive electronic communications from the plaintiff will be provided with access to the supplementary booklet on or before 5 May 2021. I am satisfied that these shareholders will have adequate time to respond to the information thereby conveyed. 12 Other shareholders who will be sent the supplementary booklet by priority pre-paid post (for those with registered addresses in Australia) or by pre-paid airmail or air courier (for those with registered addresses outside Australia), will have less notice. There are 725 shareholders who fall into this group. Only 33 of these shareholders have registered addresses outside Australia. 13 I am satisfied that it is likely that those shareholders with registered addresses in Australia (692 shareholders) will receive direct notification of the changed circumstances and proposed change to the scheme, and a copy of the supplementary booklet, within sufficient time to respond to the information thereby communicated. I think it is doubtful that those with registered addresses outside Australia will receive notice in time. However, these shareholders represent a very small number (0.2%) of the plaintiff's issued shares. 14 I note that publicity has been given to the increased consideration through the ASX announcement to which I have referred. Further publicity will be given by an additional announcement to the ASX that the Court has approved the supplementary booklet, which will be registered with ASIC. 15 As the plaintiff submitted in oral address, it is useful to reflect on the choices that shareholders might want to make in the changed circumstances. Shareholders who have lodged proxies and do not wish to change them, or who have not lodged and do not wish to lodge proxies, need do nothing except decide on whether to attend the meeting. Shareholders who have lodged proxies, and who have given a direction on voting, can either attend the meeting and vote, or lodge a new or replacement proxy by the proxy cut-off time, if they want to change the direction they have given. I deal further with the question of proxies below. 16 ASIC was informed of the present application and has considered the supplementary booklet. My consideration of the present application has been informed by ASIC's response, which was conveyed in a letter to the plaintiff, dated 3 May 2021. In that letter, ASIC said: The Application seeks a direction for dispatch of the supplementary disclosure on or before 5 May 2021. The Scheme meeting remains scheduled for 10 May 2021 and votes by proxy must be submitted to the Company by 8 May 2021. This means that shareholders may have a limited time in which to consider the supplementary disclosure although I understand that almost 50% of shareholders will receive the information electronically and there are only a very small number of shareholders with a foreign registered address who will receive the information by post. Section 602 of the Corporations Act sets out the principles underlying Chapter 6 and provides that holders of shares in a listed company should have reasonable time to consider a proposal under which a person will acquire a substantial interest in the company (refer section 602(b)(ii)). ASIC considers that this principle is relevant in determining whether shareholders are adequately informed in a scheme of arrangement that effects a control transaction (see RG 60 paragraph 9) and that it is generally appropriate for shareholders to be given at least l 0 days to consider any supplementary documentation before being required to vote, including by proxy (see RG 60 paragraph 92 and 93). However, the only change to the terms of the Scheme set out in the Supplementary Statement is increased cash consideration. This change is readily understandable and, in most cases, shareholders should have a few days to consider the supplementary disclosure before the Scheme meeting. Further, the Company made an announcement to ASX regarding the increased cash consideration on 30 April 2021. 17 Having noted these matters, ASIC said that it did not intend to make submissions, or to intervene to oppose the scheme or the making of orders in connection with the proposed dispatch of the supplementary booklet. (I note that ASIC nevertheless stressed that its position in this regard would not limit its discretion about whether to provide a letter of no objection for the purposes of s 411(17)(b) of the Act.) 18 A further matter of significance is the procedure that should now be adopted at the convened meeting, given that the order made on 7 April 2021 was for the plaintiff to convene a meeting of shareholders to consider a particular scheme of arrangement, being one under which the scheme consideration is $0.92 per Redflex share. 19 This question of procedure was considered in Citec Corporation Ltd [2006] NSWSC 143; 56 ACSR 663 (Citec) where, at [13], Barrett J said: [13] In the course of argument on 30 January, I expressed the view, to which I adhere, that a meeting convened pursuant to an order under s 411(1) to consider a particular compromise or arrangement cannot, simply at the behest of the company, consider some different compromise or arrangement. It is not open to the company simply to invite members or creditors to vote at such a meeting on some different compromise or arrangement. The meeting must have before it the compromise or arrangement that the court has directed should be submitted for consideration of members or creditors. Nor can the court, except upon a renewed application for orders under s 411(1), order that a different compromise or arrangement be placed before a meeting of members or creditors. But once the compromise or arrangement identified in an order under s 411(1) comes before the meeting that the court has required be convened, the meeting itself may address the question of modification of the compromise or arrangement. This is particularly so where, as here, the notice convening the meeting states the meeting's purpose as being "to consider and, if thought fit, to agree (with or without modification) to" the proposed compromise or arrangement. 20 Barrett J continued (at [16]): [16] The correct approach to a situation of the kind that arose in this case is, it seems to me, for the meeting to have before it the scheme as originally formulated and referred to in the s 411(1) orders, together with information about the updated position that will enable the meeting to make an informed decision on several questions, namely, acceptance or rejection of that original formulation, alteration of the original formulation (provided of course that any alteration is one that the company itself supports and accepts so as to accommodate the fundamental principle recognised in Re Savoy Hotel Ltd [1981] Ch 351) and, if some alteration is favoured, approval or rejection of the compromise or arrangement in the altered form the meeting itself has seen fit to debate. 21 This is the procedure which the plaintiff proposes in the present case. 22 In Billabong International Limited, in the matter of Billabong International Limited (No 2) [2018] FCA 496 (Billabong) I accepted the wisdom and appropriateness of the staged approach discussed in Citec, although I did not follow it because of the extraordinary circumstances then before me. As discussed at [9] - [11] in those reasons, the scheme implementation agreement was amended on the morning of the scheme meeting to provide for an increase in the scheme consideration, given the acquirer's concern that the scheme might not be approved at the meeting in light of the disquiet expressed by some shareholders that the scheme consideration was too low. The amendment of the scheme implementation agreement to provide for the increased scheme consideration was made on condition that the meeting proceed on that day, as convened. Importantly, the approval resolution put to the shareholders was in respect of the scheme as proposed under the Court's existing orders for convening the meeting. At the meeting, the shareholders were not asked to vote to modify the scheme as proposed. However, they did vote in the knowledge that, if the scheme, as originally proposed, was approved at the meeting, the Court, at the second court hearing, would be invited to modify the scheme, in reliance on s 411(6) of the Act, to provide for the increased scheme consideration. At the second court hearing, I was persuaded that I should accede to the application to modify the scheme, and approve it, for the reasons I gave at [13] - [27]. 23 The circumstances of the present case are different to the extraordinary circumstances in Billabong. The plaintiff submits that, in the present case, where there is sufficient time to place an amending resolution before the shareholders and to receive their proxies, it is generally preferable to give shareholders the opportunity to make the amendment and vote on the amended scheme. I think that is the preferable approach. Procedurally, it places decisions about the commercial acceptability of the scheme more firmly within the will and control of the shareholders, while allowing the Court to maintain its essentially supervisory role. 24 This is particularly so in the present case, where the (now) supporting shareholders have expressed their intention to vote in favour of the scheme with the scheme consideration of $0.96 per Redflex share - not a scheme with (in their view) the unacceptable scheme consideration of $0.92 per share, leaving it to the Court to meet their assessment of commercial acceptability by modifying the shareholder-approved scheme at a second court hearing. 25 The supplementary booklet makes clear the procedure which will be followed at the convened meeting. Shareholders will be asked to consider a resolution to amend the existing scheme resolution (of which notice is given in the notice of meeting) to take account of the increased scheme consideration (the amending resolution). If that resolution is passed, the shareholders will then be invited to vote on the amended scheme resolution for the scheme with the amended scheme consideration. 26 I note that the personalised proxy forms accompanying the notice of meeting, which have already been dispatched, or otherwise made accessible, to shareholders, stipulate that, apart from any direction given, the authority of the proxy holder is to "act generally" at the meeting. A broad authority is, therefore, conferred on the proxy holder. I am satisfied that the proxy forms are apt to accommodate voting according to the staged procedure referred to in the supplementary booklet. 27 The supplementary booklet includes a letter from the plaintiff's chairman, Mr Gray. The letter makes clear that proxies lodged or to be lodged, which direct a vote in favour of the scheme, will be taken as indicating authority to vote in favour of the amending resolution and to vote in favour of the scheme resolution as amended (as might be the case). The supplementary booklet also makes clear that proxies lodged or to be lodged, which direct a vote against the scheme, will be taken as indicating authority to vote against the amending resolution and against the scheme resolution as amended (as might be the case). Importantly, the letter also states, firstly: If the Chair of the Scheme Meeting is appointed as your proxy (or is appointed by default), the Chair intends to vote all valid undirected proxies which he receives for (or in favour of) the Amending Resolution and the amended Scheme Resolution. 28 Secondly: If your position is that you oppose (or opposed) the proposed Scheme for Scheme Consideration of $0.92 per Share but you support the Amending Resolution and, if it is carried, you propose to vote in favour of the amended Scheme Resolution, you should either execute and lodge a new Proxy Form by the due date (see the "How to vote" instructions above) or attend the virtual Scheme Meeting and vote on both resolutions personally. 29 Turning to other matters, I note that the information given in the supplementary booklet has been verified as being correct in all material respects. Much of this information concerns consequential changes that should be made to the financial information that is given in the scheme booklet as previously approved, taking into account the increased scheme consideration. 30 Finally, I note further that the independent expert, BDO, has provided a supplementary report which has been included in the supplementary booklet. As might be expected, the continuing opinion is expressed that the scheme is fair and reasonable, and in the best interests of shareholders, in the absence of a superior proposal. As might also be expected, the directors maintain their recommendation to shareholders to approve the scheme. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates.