Sienna Cancer Diagnostics Limited, in the matter of Sienna Cancer Diagnostics Limited (No 2) [2020] FCA 1088

Introduction 1 On 10 June 2020, I made orders that the plaintiff (Sienna) convene and hold a meeting (Scheme Meeting) of holders of ordinary shares in Sienna to consider and, if thought fit, approve a scheme of arrangement proposed to be made between Sienna and its members (the Scheme). The background to, and the key terms of, the Scheme are set out in Sienna Cancer Diagnostics Limited, in the matter of Sienna Cancer Diagnostics Limited [2020] FCA 899 (the 10 June 2020 reasons). 2 These reasons should be read together with the 10 June 2020 reasons. I adopt the abbreviations used in the 10 June 2020 reasons. I will refer to the orders made on 10 June 2020 as the convening orders. 3 The Scheme Meeting was held in accordance with the convening orders. A resolution to approve the Scheme was passed by 98.51% of members present and voting and 99.85% of votes cast. 4 Sienna now seeks orders under s 411(4)(b) of the Corporations Act 2001 (Cth) approving the Scheme. 5 Since the first hearing, Sienna has filed the following affidavits: (a) an affidavit of Jim Kompogiorgas, a client relationship manager at Link Market Services Limited (Sienna's share registry) (Link), filed on 10 July 2020 (first Kompogiorgas affidavit); (b) an affidavit of Tony Di Pietro, Sienna's CFO and company secretary, filed on 10 July 2020; (c) an affidavit of Andrew Michael Gaffney, a partner of Sienna's solicitors, K&L Gates, filed on 13 July 2020; (d) a further affidavit of Mr Kompogiorgas, filed on 16 July 2020; (e) a further affidavit of Mr Di Pietro, filed on 16 July 2020; (f) an affidavit of Geoffrey James Cumming, a non-executive director and chairman of Sienna, filed on 16 July 2020; (g) a further affidavit of Mr Gaffney, filed on 16 July 2020 (fifth Gaffney affidavit); and (h) a further affidavit of Mr Gaffney, also filed on 16 July 2020, exhibiting up-to-date correspondence from ASIC, including its "no objection" letter dated 16 July 2020. 6 Consistently with the Court's practice guidelines during the current COVID-19 pandemic, the affidavits were not sworn or affirmed when they were filed. During the hearing on 17 July 2020, the deponents adopted their affidavits. 7 The hearing of Sienna's application took place on Friday, 17 July 2020 and today, Monday, 20 July 2020. The hearings took place by video using Microsoft Teams software. In advance of the hearings, an order was made pursuant to s 17(4) of the Federal Court of Australia Act 1976 (Cth) to facilitate the hearings taking place in this way. In respect of the hearing on 17 July 2020, members of the public were able to observe, and any person wishing to object to the Scheme was able to appear, by sending an email to, or calling, my Associate at least one hour before the scheduled commencement time for the hearing. In respect of the hearing today, in addition to those methods, members of the public and any person wishing to object to the Scheme could observe or appear by dialling a telephone number appearing in the Court List and entering a conference identification number. The Court List for today's hearing stated as follows: This hearing is for the approval of a scheme of arrangement in respect of the plaintiff company and will be conducted via remote access technology. If a member of the public wishes to observe the hearing through Microsoft Teams they must contact the Associate to Moshinsky J by telephone on +61 3 8600 3714 or by email to Associate.MoshinskyJ@fedcourt.gov.au at least one hour before the scheduled start time. If a member of the public wishes to dial in and hear these proceedings - Call + 61 2 9161 1229 and enter the Conference ID 426 800 283#. Members of the public are not to provide their name or phone number when connecting, and are to remain muted. Members of the plaintiff company who wish to object to the scheme of arrangement can join the hearing remotely by one of the mechanisms outlined above. If the person objecting wishes to appear remotely, they must either contact the Associate to Moshinsky J at least one hour before the scheduled start time, or dial in to the proceedings at least 20 minutes before the scheduled start time. Persons who are objecting to the scheme of arrangement and wish to appear will be asked to provide their name to the Court. In the event, no person wishing to object to the Scheme sought to appear at the hearing on 17 July 2020 or at the hearing today. 8 At the hearing of the application, Mr CT Möller of counsel appeared for Sienna and made submissions in support of the application. Detailed written submissions were also provided in advance of the hearing. Mr M Oakes SC appeared on behalf of BARD1 in support of the application. 9 For the reasons that follow, I consider it appropriate to make orders substantially in the terms sought by Sienna. The statutory and procedural requirements have been satisfied (including the necessary majority and the conditions precedent to the Scheme) and there is nothing that weighs against the Court exercising its discretion to approve the Scheme.

Applicable principles 10 I discussed the applicable principles in Re Verdant Minerals Ltd (No 2) [2019] FCA 841 at [6]-[7]. For east of reference, I incorporate those paragraphs into these reasons in the following paragraphs. 11 In approving a scheme of arrangement, the role of the Court is supervisory, requiring the Court to be satisfied that there has been no oppression and that the compromise or arrangement is one that is capable of being accepted by shareholders looking to their own commercial advantage. In Re NRMA Ltd (2000) 156 FLR 349 at [41], Santow J quoted with approval the following passage from Renard IA and Santamaria JG, Takeovers and Reconstructions in Australia (Butterworths, Sydney, 1990, looseleaf), at [1523]: … the court will determine: (1) whether all the conditions required by s 411 have been complied with; (2) whether the majority of members or creditors, though acting regularly, have acted in good faith and not in pursuit of some illegitimate purpose; and (3) whether the proposal was "at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such member, might approve it".* Fundamentally, the jurisdiction is supervisory; the court is concerned to be satisfied that there has been an absence of oppression and that the compromise or arrangement is one which is capable of being accepted: see Re Dorman Long & Co Ltd [1934] Ch 635; Scottish Insurance Corp Ltd v Wilsons and Clyde Coal Co Ltd [1949] AC 462 at 486. * Per Fry LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 212 at 247 [(Re Alabama)]. A passage to similar effect appears at [1545] of the current version of this text. 12 In deciding whether to give final approval to a scheme of arrangement, the Court will typically wish to be satisfied of the following matters: (a) that the orders of the Court convening a meeting of members were complied with; (b) that the meeting of members so convened has approved the scheme with the requisite majority; (c) that all the statutory requirements have been complied with; (d) that the majority of members have acted in good faith and not for any illegitimate purpose; (e) there is no suggestion of oppression of any minority; (f) that the scheme is fair and reasonable so that an intelligent and honest person, who is a member and acting alone in respect of his or her interest as a member, might approve it; (g) that there was full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme; and (h) that the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion. See Re NRMA Ltd at [41] per Santow J; Re Seven Network Ltd (No 3) (2010) 267 ALR 583 at [31]-[44] per Jacobson J; Re Solution 6 Holdings Ltd (2004) 50 ACSR 113 at [18]-[21]; Re Signature Capital Investments Ltd (No 2) [2016] FCA 385 at [4]; Re Medical Australia Ltd (No 2) [2017] FCA 1429 at [4]-[5]; Re Permanent Trustee Co Ltd (2002) 43 ASCR 601 at [8]-[10]; and Re Healthscope Ltd (No 2) (2019) 136 ACSR 259 at [6]-[7], [11]-[14].

Compliance with convening orders and Court Rules 13 A copy of the convening orders was lodged with ASIC on 10 June 2020, as required by r 3.5(b) of the Federal Court (Corporations) Rules 2000 (the Rules). 14 The convening orders required that the Scheme Meeting be convened by the dispatch to each Sienna Member of: (a) a document substantially in the form of the Scheme Booklet, (a draft of which was annexed at pages 119 to 229 of the second Stubbings affidavit); and (b) a proxy form or a website or portal that enabled the member to lodge a proxy online. 15 That material was to be sent on or before 12 June 2020 as follows: (a) in the case of "Email Members" (i.e. members who have elected to receive shareholder communications electronically by way of email), by an email (substantially in the form of Tab 13 of Exhibit CSS1 to the first Stubbings affidavit), containing links to the Scheme Booklet and an online portal or website enabling the Email Member to lodge their proxy; and (b) in the case of members who are not Email Members, a document substantially in the form of the Scheme Booklet, a proxy form (substantially in the form of Tab 7 of Exhibit CSS1 to the first Stubbings affidavit), and a return envelope). 16 The evidence establishes that those materials was sent to each member on 12 June 2020 in the manner required by the convening orders. 17 Mr Gaffney and Mr Di Pietro explain how the Scheme Booklet despatched to Sienna's members was reviewed to ensure it was substantially in the form of the version considered at the first hearing and referred to in the convening orders. 18 A proxy for the Scheme Meeting was taken to be valid and effective if, and only if it was completed and delivered in accordance with its terms by 11.00 am (Melbourne time) on Monday, 13 July 2020. 19 Mr Kompogiorgas of Link, who was the returning officer for the poll on the resolution to approve the Scheme, has explained how proxies were received and processed. 20 On 9 July 2020, in accordance with paragraph 5 of the convening orders, a notice advertising the hearing listed for 17 July 2020 was published in The Australian newspaper.

Compliance with disclosure obligations under s 412(1) 21 By the convening orders, the Court ordered Sienna to send the Scheme Booklet, which contains the explanatory statement required by s 412(1), to Sienna's members. In the 10 June 2020 reasons, I noted at [101(d)] that "the draft Scheme Booklet meets all of the statutory requirements, has been carefully prepared and verified by Sienna, and has been examined by ASIC". 22 Further, as required by s 412(6) of the Corporations Act, the explanatory statement contained in the Scheme Booklet was registered by ASIC. 23 Registration by ASIC is evidence of compliance with the disclosure obligations under s 412 of the Corporations Act. This is because s 412(8) provides that ASIC must not register the explanatory statement "unless the statement appears to comply with this Act and ASIC is of the opinion that the statement does not contain any matter that is false in a material particular or materially misleading in the form or context in which it appears".

Approval of the Scheme at the Scheme Meeting 24 The Scheme Meeting was held on 15 July 2020. As the convening orders required, it was a virtual meeting, held using a website hosted by Sienna's share registry, Link. The meeting was chaired by the chair of Sienna's board, Dr Cumming. 25 A sufficient number of members were present at the meeting (either by attending the meeting by logging onto the website, or by proxy) to satisfy the quorum requirement. 26 The resolution to approve the Scheme was put to a poll, using the voting procedures on the website. The result of the poll (including proxies) was as follows: No. of votes % of votes No. of Sienna Members % of Sienna Members who voted For 227,631,625 99.85 132 98.51 Against 341,668 0.15 2 1.49 TOTAL 227,973,293 100 134 100

27 Thus, the resolution was passed by 98.51% of shareholders present and voting (in person or by proxy) and by 99.85% of votes cast. 28 Accordingly, the statutory majorities required by s 411(4)(a) of the Corporations Act have been satisfied: a resolution in favour of the Scheme was passed at the Scheme Meeting by a majority in number of the members present and voting, and by 75% of the votes cast on the resolution. 29 As acknowledged in Sienna's submissions, voter turnout might be regarded as relatively low, whilst the number of shares voted as a percentage of Sienna's total issued share capital was high. In particular: (a) 134 members (out of 826) voted on the resolution, that is, 16.22%; and (b) 227,973,293 shares (out of 395,132,839 on issue) were voted on the resolution, that is, 57.70%. I note that in the first Kompogiorgas affidavit at paragraph 17, the number of members of Sienna is stated to be 830 as at 10 June 2020, rather than 826, as indicated in Sienna's submissions. It may be that the figure in the submissions represents the position at a later point in time. In any event, the difference does not have a significant effect on the percentage. 30 In my view, the voter turnout does not give rise to any concerns that shareholders were deterred or did not have notice of the meeting. 31 In Re EcoBiotics Limited (No 2) [2017] FCA 1031 at [17]-[18], Gleeson J explained the relevance of this issue: In Avoca Resources Ltd, re Avoca Resources Ltd [2011] FCA 208 at [20], Gilmour J referred to Lion Nathan Ltd, re Lion Nathan Ltd (No 2) [2009] FCA 1261 where, at [6] Emmett J noted that 64% of eligible shares had been represented and voted at the scheme meeting, and Re MB Group plc [1989] BCLC 672 at 675 where Harman J described a turnout of 52% of scheme shares as "a high turn-out". At [21], Gilmour J noted that, since these cases, this Court has expressed an interest in knowing the turnout percentage of eligible shares (both for and against), and more recently of shareholders. His Honour noted that these percentages have no statutory significance, but a low turnout percentage might suggest a flaw in the convening procedure. 32 The leading authority on the Court's approach is Re TriAusMin Limited (No 2) [2014] FCA 833. There, Farrell J approved a scheme where 10.94% of shareholders, holding 52.90% of shares, voted at the scheme. Her Honour said (at [10]): Although the statutory requirement under s 411(4)(a)(ii) has been satisfied, it is the usual practice of the Court at the second court hearing to consider the number of the shareholders who attended the Scheme Meeting in person or by proxy. Low shareholder turnout may be an indication that some procedural irregularity occurred. It is inappropriate to assume (in the absence of complaint) that that [sic] shareholders who did not vote either did not have the notice of the meeting or were silent in protest of the scheme ...apathy should not be presumed to be antagonism: [Re Matine Limited (1998) 28 ACSR 268 at 295 per Santow J]. 33 Her Honour's analysis has been applied in a number of subsequent cases, including by Sifris J in Re Tatts Group Limited (No 2) [2017] VSC 770 at [67] (58% of shares and 16% of shareholders) and by Robson J in Re Skilled Group Ltd (No 2) [2015] VSC 805 at [18] (62% of shares and 14% shareholders). In Re Skilled Group Ltd (No 2), Robson J stated that he inferred it was likely that the non-attendance of shareholders with small holdings was referable to the fact that they had no objection to the scheme (at [22]). 34 The decision in Re TriAusMin Limited (No 2) was also referred to with apparent approval by Vaughan J in Re Beadell Resources Limited (No 2) [2019] WASC 53. 35 In the present case, the relatively low voter turnout does not give rise to any concerns that shareholders were deterred or did not have notice of the meeting. The following factors are important in this respect: (a) there is nothing to suggest there was any irregularity in the manner of dispatch of material to the shareholders; (b) shareholders were provided with notice of the Scheme Meeting; (c) there is no evidence of any issue that would have deterred shareholders from voting at or from attending the Scheme Meeting; and (d) those shareholders who did vote, voted overwhelmingly in favour of the Scheme.

Section 411(17) 36 Section 411(17) provides that the Court must not approve a compromise or arrangement unless: (a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or (b) there is produced to the Court a statement in writing by ASIC to the effect that ASIC has no objection to the compromise or arrangement. 37 It is well-established that the Court should not refuse approval of a scheme of arrangement merely because it could have been effected under Chapter 6: see Re ACM Gold Ltd & Mt Leyshon Gold Mines Ltd (1992) 34 FCR 530 at 542-543; Re Stockbridge Ltd (1993) 9 ACSR 637 at 652-653; Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at 265; Re Lion Selection Ltd [2009] VSC 546 at [21]. 38 Where a "no objection" statement is received from ASIC, there is no need for the Court to consider s 411(17)(a), particularly where (as here) no issue has been raised concerning Chapter 6 of the Corporations Act: see Re Tatts Group Limited (No 2) at [36] and [38]; see also Re Legend Corporation Limited (No 2) [2019] FCA 1444 at [32]; Re DuluxGroup Limited (No 2) [2019] FCA 1225 at [32]. 39 A "no objection" statement has been provided by ASIC, which satisfies the requirements of s 411(17)(b).

Conditions Precedent 40 Clause 3.1 of the Merger Implementation Agreement provides that the Scheme will not become effective, until each of the "Conditions" are satisfied or waived in accordance with clause 3.2. Clause 3.2 provides that a Condition can only be waived in writing. Clause 3.5(d) is a certification provision, which provides that each of the parties (Sienna and BARD1) must give to: (a) the other (in draft) by 5.00 pm on the day immediately prior to the Second Court Date (i.e. 5.00 pm on 16 July 2020); and (b) the Court (in final form), on the Second Court Date (i.e. 17 July 2020), a certificate "signed by an Authorised Officer (in respect of the Conditions of which it is the Responsible Party, other than the Condition 3) which states whether or not those Conditions have been satisfied or waived." 41 The "Conditions" are set out in Schedule 1 to the agreement. There are 12 conditions, typical of those that might be expected in a merger scheme such as this. For instance: there are conditions that no court, ASX or government agency issue or take steps to issue an order restraining the Scheme or requiring a material change to its terms; that there has not been a material adverse change to Sienna or BARD1; that all options issue by Sienna have been cancelled or terminated on terms acceptable to BARD1; and that there have been no objection to the Scheme under the Foreign Acquisitions and Takeovers Act 1975 (Cth). Condition 3 is that the Court approve the Scheme. 42 Further, clause 3.1 of the Scheme provides that the Scheme is conditional on and will have no force or effect until the satisfaction of: (a) the conditions precedent in Schedule 1 to the Merger Implementation Agreement (other than the condition precedent in item 3) (clause 3.1(a)(i)); (b) neither the Merger Implementation Agreement nor the Deed Poll have been terminated in accordance with their terms before 8.00 am on the Second Court Date (clause 3.1(a)(ii)); (c) approval of the Scheme by the Court under s 411(4)(b) of the Corporations Act, including with any alterations made or required by the Court under s 411(6) as are agreed to in writing by BARD1 and Sienna (clause 3.1(a)(iii)); and (d) such other conditions imposed by the Court under s 411(6) of the Corporations Act, as are acceptable to the parties, having been satisfied (clause 3.1(a)(iv)). 43 Clause 3.2 of the Scheme is a certification provision, which (like the one in the Merger Implementation Agreement) provides that BARD1 and Sienna must each give the Court a certificate confirming (in respect of matters within their knowledge) whether or not all of the Conditions (other than the condition precedent in clause 3.1(a)(iii) and the condition precedent in item 3 of Schedule 1 to the Merger Implementation Agreement) have been satisfied or waived: clause 3.2(a). Clause 3.2(b) provides that such certificates "constitute conclusive evidence that such Scheme Conditions were satisfied, waived or taken to be waived". 44 Certificates regarding the satisfaction or waiver of conditions precedent are exhibited to the fifth Gaffney affidavit. While these certificates were initially held in escrow, that escrow came to an end before the hearing on 17 July 2020. 45 In Re Legend Corporation Limited (No 2), O'Bryan J considered a certification regime, similar to the present, contained in a scheme implementation agreement. His Honour explained (at [28]): There has been some discussion in the cases whether, at the second court hearing to approve a scheme which is subject to conditions precedent, there is a need for primary evidence as to the satisfaction of the conditions precedent or whether it is sufficient for the parties to provide certificates confirming that the conditions have been satisfied or waived: see for example Re Fiducian Investment Management Services Limited (No 2) (2015) 228 FCR 587 (at [44] to [49]) and Re Wesfarmers Ltd [2018] WASC 308 (at [128] and [129]). In my view, the answer to that question depends upon the subject matter of the condition and the possible effect on members' interests if the condition is waived rather than satisfied. If the failure of a condition precedent may adversely affect the interests of members, the Court may require primary evidence of satisfaction rather than a certificate stating that the condition has been "satisfied or waived" (an illustration is given by Re Spicers Ltd (No 2) [2019] FCA 1110 at [26]-[37]). On the other hand, the subject of a condition may be such that it is incapable, in a practical sense, of proof by primary evidence: for example, a condition that there has been no adverse change in the financial position of a company. 46 Sienna submits, and I accept, that none of the conditions to the Scheme is such as to require proof by primary evidence of its satisfaction. Further, none of the conditions is such that its failure may adversely affect the interests of members, such that primary evidence of satisfaction is required rather than a certificate.

Exercise of discretion 47 ASIC has issued a proforma "No objection under s 411(17)(b)" letter, stating that ASIC has no objection to the Scheme. 48 Sienna has not received notice that any person intends to appear at the hearing to oppose the Scheme. As noted above, no person wishing to object to the Scheme sought to appear at the hearing on 17 July 2020 or at the hearing today. 49 In my view, this is an appropriate case for the Court to make an order approving the Scheme pursuant to s 411(4)(b) of the Corporations Act. In reaching this view, I have had regard to the role of the Court (as described earlier) and to the following matters: (a) the overwhelming support of Sienna's members, as reflected in the voting results of the Scheme Meeting; (b) the opinion of the independent expert that the Scheme and associated transactions are in the best interests of Sienna's shareholders; (c) the recommendation from all Sienna's directors that its members vote in favour of the Scheme; (d) the absence of opposition to the Scheme by ASIC or any shareholder, and the position of ASIC in relation to s 411(17); (e) the full disclosure in the Scheme Booklet of the potential benefits and disadvantages of the Scheme; (f) the absence of anything suggesting that the Scheme has been proposed other than in good faith; (g) the absence of anything suggesting that the shareholders voted other than in good faith; (h) the absence of anything suggesting that any shareholder was oppressed; and (i) the fact the Scheme contains measures to protect shareholders against performance risk. 50 In light of these matters, I am satisfied that the Scheme is made in good faith and is "at least so far fair and reasonable, as that an intelligent and honest [person], who is a member of [the] class, and acting alone in respect of [their] interest as such a member, might approve of it" (Re Alabama at 247 per Fry LJ) and that it is appropriate that the Court exercise its jurisdiction to approve the Scheme.

US Securities Act exemption 51 As noted in the 10 June 2020 reasons, if the Court grants approval of the Scheme, Sienna and BARD1 intend to rely upon the Court's approval for the purposes of qualifying for the exemption under s 3(a)(10) of the Securities Act of 1933 from US registration/prospectus requirements in connection with the implementation of the Scheme. 52 This has become a common practice in schemes of arrangement, as Beach J explained in Re Amcor Limited (No 2) [2019] FCA 842 at [33]. 53 BARD1 intends to rely on the exemption based on an order of the Court. The intention in this respect was set out in Sienna's submissions before the first hearing and in the Scheme Booklet. It is also set out in Sienna's written submissions for the hearing of the present application. 54 A condition is that the Court consider the fairness and reasonableness of the scheme of arrangement. As Beach J observed in Re Amcor Limited (No 2) at [37]: "a central aspect of [the Court's] role under section 411(4)(b) is to consider the fairness of the proposed Scheme". His Honour applied the approach taken in other cases, namely to note in the reasons approving the scheme the matters relevant to the availability of the exemption (see at [38]). Accordingly, I note the following matters: (a) I was advised before the commencement of the approval hearing that reliance would be placed on the exemption under s 3(a)(10) of the Securities Act of 1933 (US) on the basis of my approval of the Scheme; (b) I have been informed of the securities to be offered as scheme consideration, and an independent expert report concluded that the proposal is in the best interests of shareholders; and (c) I have held a hearing to consider the fairness and reasonableness of the proposed Scheme. Notice of the date of the approval hearing was included in the Scheme Booklet sent to all members of Sienna prior to the proposal being considered by the Scheme Meeting, and the date of the approval hearing was advertised in a daily newspaper circulating throughout the country. No member gave notice of any intention to appear at the second court hearing to oppose the approval of the Scheme. 55 The draft form of order prepared by Sienna contains a note to the effect that Sienna and BARD1 will rely on the Court's order for the purpose of qualifying for the s 3(a)(10) exemption. I will include such a note in the orders that I make.

Exemption from s 411(11) 56 Sienna seeks an order that, pursuant to s 411(12) of the Corporations Act, Sienna be exempted from compliance with s 411(11) of the Corporations Act in respect of the Scheme. 57 I accept that it is appropriate in the circumstances to make such an order. There is no need for the Court order approving the Scheme to be annexed to every copy of the Sienna Constitution because there is no alteration to the Constitution and Sienna shareholders are fully informed of the Scheme. An order under s 411(12) of the Corporations Act is regularly made on this basis.

Conclusion 58 I will therefore make orders to the effect that: (a) pursuant to s 411(4)(b) of the Corporations Act, the Scheme be approved; and (b) pursuant to s 411(12) of the Corporations Act, Sienna be exempted from compliance with s 411(11) of the Corporations Act in respect of the Scheme. I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.