Sirtex Medical Limited, in the matter of Sirtex Medical Limited [2018] FCA 1315

Outline of proposed scheme 5 The proposal is that: (1) Sirtex shareholders will transfer their shares to Grand Pharma Sphere (Australia Bidco) Pty Limited (Bidco); (2) the consideration for each share transferred will consist of a total cash payment of $33.60 per Sirtex share less any dividends paid by Sirtex up to a maximum of $0.30 per Sirtex share (Scheme Consideration); (3) payment of the Scheme Consideration is secured by a deed poll executed by each of CDH, CGP and Bidco; and (4) the scheme will effect the acquisition of Sirtex by Bidco and will result in Sirtex becoming a subsidiary of Bidco and being delisted from the ASX. 6 The Sirtex directors have unanimously recommended that, in the absence of a superior proposal, Sirtex shareholders should vote in favour of the scheme at the proposed scheme meeting.

Evidence 7 Sirtex relied on the following evidence in support of its application: (1) affidavit of John Eady, a non-executive director and interim chairman of Sirtex and the proposed chairperson for the scheme meeting, sworn 16 July 2018; (2) affidavit of Neville John Mitchell, a non-executive director of Sirtex and proposed alternative chairperson for the scheme meeting, sworn 20 July 2018; (3) affidavit of Darren Smith, the chief financial officer and company secretary of Sirtex, sworn 31 July 2018; (4) affidavit of Tapan Parekh, an authorised representative of Deloitte Corporate Finance Pty Limited (Deloitte), affirmed 30 July 2018; (5) affidavit of Owen James Andersen, a solicitor employed by Watson Mangioni Lawyers Pty Ltd, Sirtex's solicitors, sworn on 31 July 2018; (6) affidavit of Alberto Colla, a partner at MinterEllison, the Australian solicitors for CDH, CGP and Bidco, sworn 30 July 2018; (7) affidavit of Devika Parchment, an attorney practising as an associate at Maples and Calder, who is admitted in the Cayman Islands and is a registered foreign lawyer in Hong Kong, affirmed on 31 July 2018; (8) affidavit of Cathryn Clarise Deborah Minors, an attorney practising as a lawyer at Conyers Dill & Pearman, Hong Kong, who is admitted as a barrister and attorney in Bermuda, sworn on 30 July 2018; (9) letter dated 31 July 2018 from the Australian Securities and Investments Commission (ASIC) to the directors of Sirtex; and (10) a copy of the scheme booklet in the form approved by ASIC. 8 The Bidders and Bidco relied on an affidavit of Anthony George Sommer, a solicitor at MinterEllison, sworn on 1 August 2018 which concerned the execution of the deed poll.

legal framework and general principles 9 Section 411(1) of the Act relevantly provides that, where an arrangement is proposed between a Pt 5.1 body and its members, the Court may, on an application in a summary way of the body, order a meeting of the members of the body to be convened in such a manner and to be held in such place as the Court directs. Where the Court makes such an order, it may also approve the explanatory statement required by s 412(1)(a) of the Act to accompany the notice of meeting. 10 Section 412(1)(a) of the Act provides that where a meeting is convened under s 411, the body must, with every notice convening the meeting, send a statement explaining the effect of the arrangement and state any material interests of the directors and the effect of the proposed arrangement on those interests insofar as that effect is different from the effect on the like interests of other persons. The statement must also set out any prescribed information and any other information that is material to the making of a decision by a member whether or not to agree to the arrangement. 11 Section 411(2) of the Act provides that the Court must not make an order pursuant to s 411(1) unless 14 days' notice of the hearing of the application has been given to ASIC and the Court is satisfied that ASIC has had a reasonable opportunity to examine the terms of the proposed arrangement and a draft explanatory statement relating to it and make submissions to the Court in relation to the proposed arrangement and the draft explanatory statement. 12 There are three stages to an application under s 411 of the Act: first, the Court approves the convening of a scheme meeting and approves the draft explanatory statement to be sent to the scheme members; secondly, the members vote on the proposed scheme at the scheme meeting; and thirdly, the Court approves the proposed scheme: see Re CSR Ltd (2010) 183 FCR 358 at [7] (per Keane CJ and Jacobson J).

Standard of review 13 The approach of the Court at the first court hearing is that it would "not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the … meeting the court would be likely to approve it on the hearing of a petition which is unopposed": see FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69; (1977-78) CLC 40-368 at 72 (per Street CJ with whom Hutley and Samuels JJA agreed). At the first hearing the Court exercises its supervisory jurisdiction to review the scheme and explanatory statement and raise any queries: see Staging Connections Group Limited, in the matter of Staging Connections Group Limited [2015] FCA 1012 (Staging Connections) at [22] (per Gleeson J). 14 In Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 (Amcom) at [10] McKerracher J said the following in relation to the first Court hearing: As noted in Re Integra Mining Limited [2012] FCA 1414 (at [11]), the standard of review relevant to the first hearing requires the Court to consider whether the proposed Scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members: Re Sonodyne International Ltd (1994) 15 ACSR 494 per Hayne J (at 499). If the proposed arrangement is one that seems fit for consideration by a meeting of members and is a commercial proposition likely to gain the Court's approval if passed by the necessary majorities, then leave should be given to convene the meeting: Re ACM Gold Ltd; Re Mt Leyshon Gold Mines Ltd (1992) 34 FCR 530 per O'Loughlin J (at 535). The Court does not need to be satisfied that no better scheme could have been devised: Re Foundation Healthcare Ltd (2002) 42 ACSR 252 per French J, as his Honour then was, (at [44]). 15 The second court hearing is the most important hearing if the matter becomes contested, but in practice the first court hearing is where the court intervenes if it has concerns. One reason for that was recognised by Santow J in Re Archaean Gold NL (1997) 23 ACSR 143; (1997) ACLC 382 at 147: … court approval to convene the scheme meetings is viewed by the market as giving assurance that the scheme is at least in form and substance such as warranted receiving such preliminary court clearance. It must not be forgotten that trading thereafter takes place on that basis. 16 At both court hearings there is a duty of disclosure which falls on the plaintiff and its counsel as observed by Barrett J in Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 at [7]: In a technical sense, the application proceeds ex parte, which is a common enough occurrence in cases of this kind. The fact that the application is ex parte is not without some significance. The absence of any defendant or contradictor sharpens the duty of the applicant. While a case such as the present is distinguishable from one where an interlocutory injunction is sought in the absence of the defendant (in that there is here no defendant as such) I think it is fair to say that an applicant in this kind of situation, like an applicant ex parte for an injunction, carries the responsibility of bringing to the court's attention all matters that could be considered relevant to the exercise of its discretion. … 17 As observed by Mc Kerracher J in Amcom at [12], at the first hearing the Court should order the convening of the scheme meeting and approve the scheme booklet if it is satisfied that: • The proposed Scheme is an arrangement in respect of which the Court may order a meeting of the members: s 411 CA. That is, the Scheme is an arrangement; Amcom is a Pt 5.1 Body; the Scheme participants are members of Amcom; and the scheme meeting will be convened between members of the same class. • ASIC has had a reasonable opportunity to examine the terms of the Scheme and the Scheme Booklet and make submissions to the Court in relation to those matters: s 411(2)(b) CA. • The Scheme Booklet provides adequate disclosure (s 412(a)(i) CA) and contains the prescribed information: s 412(1)(a)(ii) CA, r 5.1.01; Sch 8 cll 8301-8310 of the Corporations Regulations 2001 (Cth). • The procedural requirements of the Federal Court (Corporations) Rules 2000 (Cth) have been met. • There is no apparent reason why the Scheme should not, in due course, receive the Court's approval if the necessary majority of votes are achieved: Integra Mining at [12] and the cases there cited. 18 In Staging Connections at [19] Gleeson J also referred to the need to demonstrate that the scheme was bona fide and properly proposed.

The proposed scheme is an arrangement in respect of which the Court may order a meeting of members pursuant to s 411(1) of the Act

Pt 5.1 body 19 Sirtex is a Pt 5.1 body: see definition in s 9 of the Act which, relevantly, includes a company.

Arrangement 20 The term "arrangement" is of wide import. In Re NRMA Ltd (No 1) (2000) 156 FLR 349; [2000] NSWSC 82 at [20] Santow J said: … Generally speaking, unless the arrangement is ultra vires the company or seeks to deal with a matter for which a special procedure is laid down by the Corporations Law or to evade a restriction imposed by the Corporations Law, almost any arrangement otherwise legal which touches or concerns the rights and obligations of the company or its members or creditors, and which is properly proposed, may come under s 411… 21 The terms of the scheme, which are annexed to the scheme booklet, provide prima facie evidence that the proposed scheme is an arrangement within the meaning of s 411 of the Act.

Scheme is bona fide and properly proposed 22 The following matters demonstrate that the scheme is bona fide and properly proposed: by entering into the SID, Sirtex has committed itself to propounding the scheme; the directors have unanimously recommended the scheme; and the scheme booklet includes the independent expert report prepared by Deloitte (Deloitte Report) which addresses whether the proposed scheme is fair and reasonable.

Members of the same class 23 The scheme participants will be Sirtex shareholders and the holders of Sirtex rights under the Sirtex Incentive Plan. 24 In relation to the latter, the Sirtex board (excluding Andrew McLean because of his interest in the matter) resolved that, if the Court convened the scheme meeting, all Sirtex rights on issue as at 27 July 2018 would vest with effect from 1 August 2018 subject to the scheme becoming effective. Thus the Sirtex rights will convert into Sirtex shares after the scheme becomes effective but before the Scheme Record Date (as defined in the scheme booklet), enabling the holders of those rights to participate in the scheme on the same terms as existing Sirtex shareholders. The result is that the Sirtex rights will not create a separate class out of those shareholders who held both shares and rights: see Aston Resources Limited, in the matter of Aston Resources Limited [2012] FCA 229 at [39] (per Jacobson J).

ASIC has had a reasonable opportunity to consider the scheme 25 In its letter dated 31 July 2018 ASIC indicated that: the requirement that it be given at least 14 days' notice of the hearing of an application under s 411(1) of the Act, unless the Court permits a shorter period, had been satisfied; and it had had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement and to make submissions to the Court in relation to the scheme and the draft explanatory statement as required by s 411(2)(b) of the Act.

Scheme booklet provides adequate disclosure 26 Based on the evidence before me and Sirtex's submissions I was satisfied that the scheme booklet provides adequate disclosure and that it contains the prescribed information. Among other things, the evidence established that Sirtex, on the one hand, and Bidco and the Bidders, on the other, had taken steps to confirm that the statements in the scheme booklet, insofar as they were each responsible for those statements, were accurate, not misleading or deceptive and that no material information had been omitted.

Procedural requirements of the Federal Court (Corporations) Rules 2000 (Cth) have been met 27 I was also satisfied that, based on the evidence before me and Sirtex's submissions, the requirements of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules) had been met.

There is no apparent reason why the scheme should not receive Court approval if the necessary number of votes are achieved. 28 As I have already observed, Sirtex's directors have unanimously recommended the scheme to Sirtex shareholders. 29 In addition, the Deloitte Report concludes that the scheme is fair and reasonable and therefore is in the best interests of shareholders. That report also notes that the Scheme Consideration offered to shareholders represents a premium over Sirtex's share trading prices through the 12 month period prior to the announcement on 30 January 2018 of the proposed scheme which was the subject of a scheme implementation deed entered into by Sirtex with Varian Medical Systems, Inc dated 30 January 2018 (Varian Scheme).

specific matters 30 Sirtex identified five specific matters which it considered appropriate to bring to the Court's attention. I address each of those matters below.

Classes 31 In Re Nine Entertainment Group Ltd (No 1) (2012) 211 FCR 439 at [53] Jacobson J observed, in relation to classes of creditors, that "[t]he test for composition of different classes of creditors is whether their rights are so dissimilar as to make it impossible for them to consult together with a view to their common interest". In Re Hills Motorway Ltd (2002) 43 ACSR 101; [2002] NSWSC 897 at [12] Barrett J emphasised that the test is not one of differentiation or identical treatment, but one of community of interest. In Staging Connections Gleeson J at [29] observed that "[i]t is only if the differentiation destroys the ability to come together in a single meeting and to debate the question of what is good or bad for the constituency as a whole and where the common good lies that the creditors or members are to be divided into classes". 32 Sirtex proposes one class of members for voting purposes. It submitted that it is appropriate to treat all participants as one class for voting purposes, including Sirtex shareholders who also hold Sirtex rights described at [23]-[24] above. 33 There was evidence before me that some Sirtex shareholders may be group members of the representative proceeding brought against Sirtex in this Court which is described in section 5.12 of the scheme booklet. As submitted by Sirtex, the rights of those shareholders are not such as to make it impossible for them to consult with other shareholders having regard to their common interest. Those shareholders will receive the same consideration as all other shareholders under the scheme.

Exclusivity arrangements 34 Clause 9 of the SID is titled "Exclusivity". It includes "no shop", "no talk" and "no due diligence" provisions which each apply during the "Exclusivity Period". The Exclusivity Period is defined to mean the period from and including the date of the SID to the earlier of either its termination or the "End Date" which is 14 June 2019 or such other date as Sirtex and the Bidders agree. 35 In Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 Santow J at [9] held that exclusivity arrangements should: (1) be for no more than a reasonable period capable of precise ascertainment; (2) be framed so that they are subject to the overriding obligation not to breach directors' fiduciary duties or be otherwise unlawful; and (3) be of adequate prominence in the explanatory memorandum sent to shareholders. 36 In In the matter of Tatts Group Limited [2017] VSC 552 at [36]-[39] Sifris J held that an exclusivity period of 14 months was reasonable in the circumstances of that case, including because of the significant and numerous complexities and potential delays with respect to obtaining the necessary regulatory approvals for implementation of the scheme. 37 In this case: the 12 month exclusivity period is reasonable given the complexities of the transaction and, in particular, the potential for delay arising from the process for obtaining clearance from the Committee on Foreign Investment in the United States (CFIUS); it is capable of precise ascertainment; cl 9.5 of the SID specifically provides that the "no talk" and "no due diligence" provisions will not apply if the board, in good faith, determines that a competing proposal may reasonably be expected to lead to a superior offer and that failing to respond to that proposal would be reasonably likely to constitute a breach of the board's fiduciary or statutory obligations; and there is clear disclosure of the exclusivity provisions in sections 2.4 and 9.1 of the scheme booklet.

Break fees 38 Clause 10.2 of the SID provides for a break fee of 1% of the Scheme Consideration (Reimbursement Fee) to be payable by Sirtex depending on the circumstances of termination of the scheme but is not payable if the scheme does not proceed as a result of Sirtex shareholders not voting in its favour. 39 The Reimbursement Fee and the exclusivity arrangements (see [34]-[37] above) were agreed by the parties after extensive arm's length negotiations over a period of approximately six weeks in which the parties were separately advised and represented by external legal and advisory firms with experience in transactions of this kind. 40 Clause 10.3 of the SID also provides for a Bidder facilitation/break fee of $200 million (excluding GST) (Bidder Facilitation Fee) to be paid by CGP to Sirtex in certain circumstances. 41 Sirtex and the Bidders have expressly acknowledged in the SID that cl 10 of the SID which concerns the Reimbursement Fee and the Bidder Facilitation Fee was agreed in circumstances where, among other things: (1) the parties believe that the scheme will provide significant benefits (cl 10.1(a)); (2) Sirtex requested that provision be made for the Bidder Facilitation Fee to be payable to it as consideration for it entering into the SID for the benefit of it and, indirectly, the Sirtex shareholders, without which Sirtex would not have entered into the SID (cl 10.1(h)); (3) the Bidders requested that a provision be made for the Reimbursement Fee to be payable to them, without which the Bidders would not have entered into the SID (cl 10.1(i)); and (4) the boards of all parties believe that it is appropriate and reasonable for each party to agree to the payments referred to in cl 10 to secure the other parties' entry into the SID and participation in the scheme (cl 10.1(j)). 42 Pursuant to cl 10.6 of the SID the parties agree that the costs incurred by them in relation to the scheme cannot be accurately quantified and that a genuine pre-estimate of the costs would equal or exceed the amount of the Reimbursement Fee and the Bidder Facilitation Fee as applicable. 43 In those circumstances I accepted that the Bidder Facilitation Fee and Reimbursement Fee were not excessive and would not operate coercively on the members when participating in the scheme.

China commercialisation rights 44 Clause 12 of the SID provides that if the SID is validly terminated in circumstances where Sirtex is entitled to payment of the Bidder Facilitation Fee and Sirtex has received payment of that fee then Sirtex and the Bidders will use their best endeavours to negotiate, having regard to their own best interests, and enter into an agreement for the grant by Sirtex to the Bidders of exclusive commercialisation rights for the China market (China Commercialisation Rights). The China Commercialisation Rights are addressed in the Chairman's letter included in the scheme booklet and are clearly disclosed in sections 2.4(f), 3, and 9.1(j) of the scheme booklet. 45 The China Commercialisation Rights will not apply where the scheme does not become effective because shareholders do not approve the scheme by the requisite majorities. Accordingly, I was satisfied that those rights would not coercive the members of Sirtex to vote in favour of the scheme: cf Re Unity Mining Ltd (No 2) [2016] VSC 830.

CFIUS Clearance 46 Sirtex brought to the Court's attention the requirement for CFIUS clearance which, it submitted, could have the potential to delay the finalisation of the scheme or prevent it from completing. However, CFIUS clearance is not a condition precedent to the scheme. The requirement for CFIUS clearance is clearly explained in the scheme booklet: in section 3 of the scheme booklet headed "Frequently Asked Questions", the following is included in response to the question "Is CFIUS approval required?": Under US law (the Defense Production Act of 1950, as amended), CFIUS has the power to review the direct or indirect acquisition of US businesses by non-US parties and to direct the parties to take steps to mitigate any potential national security concerns, and the President of the US has the authority to suspend or prohibit such an acquisition (by, among other things, taking action to prevent parties from completing an acquisition) based on a finding that it threatens to impair national security. Sirtex's US operations constitute a US business the acquisition of which by the Bidders is a covered transaction that is subject to review and investigation by CFIUS and potential action to prohibit the transaction by the President. The Bidders and Sirtex have submitted a draft of a joint voluntary notification of the Scheme to CFIUS. CFIUS approval is not a condition precedent to implementation of the Scheme. However an order issued by CFIUS pursuant to an ongoing investigation may result in a legal restraint being imposed that could delay or prevent the Scheme from completing. further disclosure concerning CFIUS approval is contained in sections 2.4(d), 4.5, 6.7(a) and 9.1(c) of the scheme booklet.

Proposed electronic notification of shareholders who have elected to receive notices by email 47 Sirtex proposes to email those shareholders who have elected to receive notices by email with links to the scheme booklet. 48 Sections 249J(3)(c), (ca) and (3A) of the Act contemplate sending notices of meetings to members to an electronic address or by other electronic means. Rule 3.3(2) of the Corporations Rules contemplates, in the absence of court orders to the contrary, that a meeting of members ordered under s 411 of the Act must be convened, held and conducted in accordance with the provisions of Pt 2G.2 of the Act in which s 249J appears, and Sirtex's constitution, to the extent that it is not inconsistent with Pt 2G.2 of the Act. Articles 9.1(a)(iv) and 9.1(d) of Sirtex's constitution, which deal with electronic mail outs, are not inconsistent with Pt.2G.2 of the Act. 49 Electronic mail out orders are commonly made in relation to scheme meetings. Similar orders to those sought by Sirtex on this application were made by the Court in relation to the proposed Varian Scheme: see Sirtex Medical Limited, in the matter of Sirtex Medical Limited [2018] FCA 584 at [33]-[37]; see also, for example, Alinta Limted, in the matter of Alinta Limited (No 2) [2007] FCA 1378 at [1]-[3]; Consolidated Media Holdings Limited, in the matter of Consolidated Media Holdings Limited [2012] FCA 1186 at [24]; and Staging Connections at [49]-[52]. 50 The proposed form of electronic notification conforms to requirements that information concerning the scheme booklet precede any invitation for shareholders to act, for example by submission of proxy forms: see David Jones Limited, in the matter of David Jones Limited [2014] FCA 530 at [37]. In the circumstances I was satisfied that it was appropriate to make the order permitting electronic notification.

Provisions of the scheme document 51 The scheme is included at Annexure C of the scheme booklet. It is subject to the conditions precedent set out in cl 3.1 which need to be satisfied or waived by 8.00 am on the second court hearing date such that the scheme will be self-executing upon the making of the second court hearing orders and registration of those orders with ASIC. 52 As neither the Bidders or Bidco are a party to the scheme, they have each executed a deed poll in favour of scheme shareholders pursuant to which the Bidders and Bidco have each undertaken, in favour of each scheme shareholder, to pay or procure the payment of the Scheme Consideration to a trust account operated by or on behalf of Sirtex as trustee for the scheme shareholders, subject to and in accordance with the scheme. The deed poll is governed by the laws of New South Wales. 53 CDH is incorporated in the Cayman Islands and CGP is incorporated in Bermuda. Consistent with best practice there was evidence before the Court from a solicitor admitted to practice in the Cayman Islands and a solicitor admitted to practice in Bermuda each of whom relevantly opined on the due execution of the deed poll and its enforceability in the applicable jurisdiction. That is, for CDH an opinion was given in relation to its due execution and enforceability in the Cayman Islands and for CGP an opinion was given in relation to its due execution and enforceability in Bermuda. 54 Finally, insofar as any performance risk is concerned: the scheme booklet discloses that the Bidders have deposited $220 million with an Australian bank to be held as escrow agent for Sirtex and the Bidders; clause 5.2(l) of the SID requires the Bidders to pay or procure the payment of the balance of the Scheme Consideration to the deposit holder by no later than the business day prior to the scheme meeting; and clause 5.2(a) of the scheme provides for the transfer of the scheme shares after provision of the Scheme Consideration.

conclusion 55 For those reasons I made the orders sought by Sirtex. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.