Solution 6 Holdings Limited ACN 003 264 006, in the matter of Solution 6 Holdings Limited ACN 003 264 006 [2004] FCA 1049

REASONS FOR JUDGMENT 1 By its originating process filed on 26 May 2004 the plaintiff, Solution 6 Holdings Limited ("Solution 6") sought, inter alia, an order under subsection 411(4) of the Corporations Act 2001 (Cth) ("The Act") for the approval of three schemes of arrangement, namely schemes made between Solution 6 and its shareholders, its vested option holders and its unvested option holders. I made an order yesterday approving the schemes. These are my reasons. 2 The effect of the schemes, upon implementation, will be that all of the existing shares and options over shares in Solution 6 will be transferred to MYOB Limited ("MYOB") so that Solution 6 will become a wholly owned subsidiary of MYOB. Thus, the schemes involves a merger of the businesses and operations of Solution 6 and MYOB. 3 Solution 6 is a leading provider of practice management software to the accounting and other professions. The strength of its business lies in serving larger accounting practices. MYOB also provides practice management software but the strength of its business is apparently in the areas of small to medium businesses and smaller accounting practices. Accordingly, the rationale for the merger is to be found in the combination of the strengths of the respective complimentary businesses of Solution 6 and MYOB and the synergies which will flow from the merger. 4 The consideration for the share scheme is that Solution 6 shareholders are to transfer their shares in that company to MYOB in exchange for 0.55 MYOB shares for each Solution 6 share. 5 Shareholders in Solution 6 will also receive, as part of the scheme consideration, the sum of 20.7 cents per share as a capital return by way of an equal capital reduction. The reduction of capital has been approved by a resolution of the shareholders of Solution 6 in general meeting in accordance with section 256C of the Act. 6 Approval of the capital reduction and return of capital to shareholders of Solution 6 is one of the conditions precedent to the operation of the schemes of arrangement. Unlike former statutory regimes, which required approved of the court for a reduction of capital, no such requirement is contained in the Act. Nevertheless, for reasons referred to below, it is necessary for me to consider whether the capital return should preclude the making of orders approving the scheme. 7 Option holders will receive as the scheme consideration in exchange for their options, a number of shares in MYOB calculated in accordance with a formula. The effect of the formula is that the option holders will receive the intrinsic value of their options calculated on the basis of 0.55 MYOB shares for each Solution 6 share after taking into account the amount payable on exercise of the options (or a promise to pay that amount) and the 20.7 cents return of capital. 8 The evidence adduced yesterday indicates that the schemes were very strongly approved by those members and option holders who voted in person or by proxy at the meetings. At the share scheme meeting approximately 98.7 per cent in number and 99.97 per cent of the shareholders on the taking of a poll voted in favour of approving the scheme. At each of the meetings of option holders, 100 per cent of those present in person or by proxy lodged in accordance with the timetable fixed by the court voted in favour of the scheme. 9 Some adjustment would have to be made to the figures for option holders meetings if proxies received after the deadline were counted. However, even if they were taken into account the votes in favour of the schemes were considerably in excess of the statutory majority required under the Act. 10 In Re Central Pacific Minerals NL [2002] FCA 239 ('Central Pacific'), Emmett J described the statutory framework that regulates the adoption and approval of a scheme of arrangement between a company and its members. 11 His Honour observed at [4] that the pivotal provision is section 411(4), which provides that an arrangement is binding on a class of members and on the company if, and only if, at a meeting convened in accordance with an order of the court, a resolution in favour of the arrangement is passed by the requisite statutory majority. 12 In the case of a scheme of arrangement proposed between the company and its members the required statutory majority is:-