Rubik Financial Limited, in the matter of Rubik Financial Limited [2017] FCA 379

INTRODUCTION 1 The plaintiff, Rubik Financial Limited (Rubik), seeks an order under s 411(1) of the Corporations Act 2001 (Cth) (the Act) that it convene a meeting of its members (referred to in the order as Scheme Shareholders) for the purpose of considering and, if thought fit, agreeing to (with or without modification) a scheme of arrangement under which 100% of the ordinary shares in Rubik will be acquired by, and transferred to, Temenos Solutions Australia Pty Ltd (TSA), a subsidiary of Temenos Group AG (TG) (the scheme). TG already has a relevant interest in 976,000 shares in Rubik, which are held by a custodian for Temenos Headquarters SA, another subsidiary of TG. These shares represent a 0.23% voting power in Rubik. The shares were acquired during 2008 and 2009.

Background 2 Rubik is a financial technology company that provides banking, financial services and collections software solutions. It is admitted to the official list of the Australian Securities Exchange. As at 22 March 2017, Rubik had 423,587,074 ordinary shares on issue. 3 TG is a provider of mission critical software to financial institutions globally. It has more than 2,000 customers in over 150 countries worldwide. TG's proposed acquisition of Rubik's issued shares is a strategic acquisition to expand its international business by creating a presence in what it sees as a fast growing Australian financial software market. 4 TSA has been established for the sole purpose of acquiring the Rubik shares if the scheme is implemented. It was incorporated on 1 March 2017 and does not currently have any other activities. 5 On 14 February 2017, Rubik and TG entered into a Scheme Implementation Deed (the SID). The SID provides the framework for Rubik to propose and implement the scheme and for TG to assist Rubik to do so.

The scheme 6 In essence, the scheme provides for TSA, as TG's nominee, to acquire all of Rubik's issued ordinary shares for a cash consideration, payable to Rubik's members, of $0.1667 per share (the scheme consideration). The proposed scheme is a straightforward transfer scheme with no unusual features. 7 The explanatory statement required by s 412(1)(a) of the Act is contained in a scheme booklet which has been tendered as Exhibit 1.

GENERAL MATTERS 8 I note the following matters. 9 First, Rubik's directors have unanimously recommended that members vote in favour of the scheme in the absence of a superior proposal and subject to the independent expert (see below) continuing to hold the opinion that the scheme is in the best interests of members. Rubik's directors have said that they intend, in respect of any shares held or controlled by them, to vote in favour of the scheme in the absence of a superior proposal. 10 Secondly, Grant Thornton Corporate Finance Pty Ltd (Grant Thornton) has been engaged by Rubik to prepare an independent report to express an opinion on whether or not the scheme is fair and reasonable and in the best interests of members. A report has been prepared and is included in the scheme booklet. The opinions expressed in the report have been verified by Andrea De Cian, a director of Grant Thornton. The scheme consideration is within Grant Thornton's assessed valuation range of Rubik's issued shares on a 100% and fully diluted basis. This range is from $0.1146 to $0.1690 per share. Although the assessed valuation range is broad, Grant Thornton has expressed the view that this is reasonable given the historical volatility in Rubik's earnings; the industry in which Rubik operates; and the historical research and development expenses incurred for the development of the Rubik Model Bank, which is a hosted, integrated, modular banking system, and one of the key offerings of Rubik's banking division. 11 Grant Thornton has noted that, although Rubik's management expects that the rollout of the Rubik Model Bank will strengthen and support future growth of Rubik's business, there is uncertainty whether or not these growth opportunities will be realised within the anticipated timeframe, to their full extent or at all. Grant Thornton has expressed the view that the range of values is reasonable for a FinTech company in the growth phase of its business cycle. 12 The scheme consideration represents a premium of: 52% compared with Rubik's closing share price on 13 February 2017 (the last trading day before the announcement of the scheme to the market); 73% compared with the one month VWAP of Rubik's shares on 13 February 2017; and 65% compared with the three month VWAP of Rubik's shares on 13 February 2017. 13 Grant Thornton has expressed the view that the scheme consideration is fair and, based on the Australian Securities and Investments Commission's Regulatory Guide 111 Contents of Expert Reports, that the offer is reasonable. 14 The report canvasses the advantages and disadvantages of the proposed scheme and concludes that it is in the best interests of Rubik's members in the absence of a superior alternative proposal emerging. 15 The report is included in the scheme booklet. 16 Thirdly, Rubik's three largest shareholders, who currently represent approximately 44% of the shares on issue, have informed Rubik that they intend to vote in favour of the scheme, in the absence of a superior proposal and subject to Rubik's directors maintaining their unanimous recommendation to members to vote in favour of the scheme. I note, nevertheless, that these shareholders have made no commitment to hold or not dispose of their current shares, with the consequence that their voting power at the time of the scheme meeting may be more or less than their current holdings. 17 Fourthly, I note that the SID contains exclusivity provisions which include "no shop", "no talk" and "no due diligence" restrictions as well as "notification" and "matching right" obligations. The "no talk" and "no due diligence" restrictions and the "notification" obligation are each subject to a fiduciary carve-out to preserve the directors' overriding obligation not to breach their fiduciary duties. The exclusivity period is from 14 February 2014 to on or around 14 August 2017, at the latest. I am satisfied that this is a reasonable period in the circumstances. The exclusivity provisions are clearly disclosed in the scheme booklet: see, for example, Section 3.10. 18 Fifthly, a break fee of $700,000 (exclusive of GST) is payable by Rubik to TG in certain circumstances. This fee represents approximately 1% of the aggregate amount of the scheme consideration. Payment of the break fee is not triggered by the members failing to approve the scheme. It is intended to compensate TG for its actual costs incurred in connection with the scheme in the eventuality that the scheme does not proceed in limited circumstances. There is evidence before me that the break fee is a genuine pre-estimate of part of these costs and was negotiated in the course of negotiations in which the parties were represented by experienced legal and financial advisers. 19 The existence of the break fee is clearly disclosed in the scheme booklet: see, for example, Section 3.11. 20 Sixthly, the scheme contains appropriate safeguards against "performance risk". As is now usual, the scheme shares will not be transferred until the scheme consideration has been provided by TG in the manner contemplated by clause 5.2 of the scheme. The aggregate amount of the scheme consideration will be deposited in cleared funds into a trust account on the business day before the Implementation Date (as defined in the scheme). The transfer of the scheme shares to TSA is contingent on the provision of funds in accordance with clause 5.2. 21 Further, TG has executed a Deed Poll in favour of the scheme shareholders under which it covenants to deposit or procure the deposit of the scheme consideration in cleared funds into the trust account to which I have referred, and to undertake all other actions attributed to it under the scheme. It has also covenanted to procure that TSA undertakes all actions attributed to it under the scheme. The Deed Poll is expressed to be governed by the laws in force in New South Wales. TG has irrevocably submitted to the exclusive jurisdiction of courts exercising jurisdiction in New South Wales and has waived any objection on the ground of inconvenient forum. 22 A copy of the Deed Poll is included in the scheme booklet. I note that, at the second court hearing, it is intended that evidence will be adduced of the due execution of the Deed Poll, including evidence showing the authority of the signatories who have purported to execute the Deed Poll as authorised representatives of TG. 23 Seventhly, the scheme contains deemed warranties by the scheme shareholders that their shares will be free from encumbrances and that they have full power and capacity to transfer the scheme shares, as more particularly described in clause 8.2 of the scheme. Such warranties are now customarily included. The Court's concern is to ensure that the existence of such warranties is clearly brought to the attention of the scheme shareholders. This has been done in the scheme booklet: see, for example, Section 3.15. 24 Eighthly, the evidence discloses that some of the ordinary shares on issue have been classified by Rubik as long term incentive plan shares, loan funded shares, gift plan shares and Treasury shares. The nature of these classifications is explained in an affidavit made by Iain Dunstan on 22 March 2017. Mr Dunstan is Rubik's Chief Executive Officer. This explanation is somewhat difficult to follow but, in the course of submissions during the hearing, Mr McHugh SC, counsel for the plaintiff, elaborated on this matter. I am satisfied that the existence of these classifications does not give rise to class-creating issues. All the shares are ordinary shares; all are liable to be transferred under the scheme; and all will receive the same scheme consideration. 25 Ninthly, there is evidence before the Court establishing the verification of the statements made and opinions expressed in the scheme booklet. 26 Tenthly, a consent has been given by Craig Evan Coleman, Rubik's chairman, to act as chairman of the scheme meeting. John Clark Wilson, one of Rubik's non-executive directors, has also consented to act as chairman of the scheme meeting in the event that Mr Coleman is unwilling or unable to do so. 27 Finally, by letter dated 22 March 2017, the Australian Securities and Investments Commission has signified that the requirements of s 411(2)(a) of the Act have been complied with and that, in accordance with s 411(2)(b) of the Act, it has had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement, and to make submissions thereon. In that letter, ASIC signified that it did not intend to make submissions or intervene to oppose the scheme at the first court hearing.

conclusion and disposition 28 I am satisfied that Rubik is a Part 5.1 body and that the scheme is an "arrangement" for the purposes of s 411(1) of the Act. I am satisfied that the formal requirements that are preliminary to the Court convening a meeting under s 411(1) of the Act have been complied with. I am also satisfied that the proposed scheme is of such a nature and is cast in such terms that, if it receives the requisite statutory majorities, the Court would be likely to approve it on an unopposed application. 29 Subject to my consideration of any matter that might be raised at the second court hearing, I am satisfied that the scheme booklet sufficiently discloses the detail and effect of the scheme to enable shareholders to make an informed decision on how to vote. 30 I am satisfied that orders, substantially as sought, should be made. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.