Sovereign Life Assurance Co v Dodd

Background 1 Probiotec Limited (Probiotec) is public company limited by shares. It is listed on the Australian Securities Exchange (ASX). Probiotec manufactures and packs a range of prescription and over-the-counter pharmaceuticals and other health products. Its manufacturing facilities are located in New South Wales and Victoria. 2 Probiotec's board of directors (the Board) comprises one executive director (Probiotec's CEO, Mr Wesley Stringer) and two non-executive directors (Mr Simon Gray and Probiotec's chairman, Mr Jonathan Wenig). The company secretary and CFO is Mr Jared Stringer. 3 As at 21 March 2024, Probiotec had on issue: (a) 81,323,406 fully paid ordinary shares (PBP Shares); and (b) 2,675,000 performance rights issued under short and long term incentive plans (PBP Equity Incentives). 4 On 21 December 2023, Probiotec entered into a Scheme Implementation Deed (SID) with PT Pyridam Farma Tbk (Pyridam), a company incorporated in Indonesia, and PYFA Australia Pty Ltd (Pyridam Australia), a wholly owned subsidiary of Pyridam, under which Pyridam Australia agreed to acquire all of the issued shares in Probiotec by way of scheme of arrangement (the Scheme). 5 Pyridam and its related bodies corporate hold shares in Probiotec accounting for 10.33% of the voting power. 6 Probiotec applied to the court for orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act) convening a meeting of its members to consider, and if thought fit, agree to the Scheme, as well as certain orders as to the manner in which the meeting is to be conducted. I made those orders on 26 March 2024. These are my reasons for making orders convening the meeting and related matters.

The evidence 7 Probiotec and Pyridam relied on the following affidavits: (a) an affidavit of Benjamin James Friis-O'Toole (solicitor for Probiotec) dated 5 March 2024; (b) an affidavit of Jonathan Michael Wenig (chair and non-executive director of Probiotec) dated 21 March 2024; (c) an affidavit of Nadia Miranty Verdiana (Pyridam's head of legal and company secretary) dated 21 March 2024; (d) a supplementary affidavit of Benjamin James Friis-O'Toole dated 25 March 2024; and (e) an affidavit of Jeremy Simon Lanzer (solicitor for Probiotec) dated 26 March 2024.

The Scheme 8 If the Scheme is implemented: (a) each person who owns PBP Shares (the Scheme Shareholders) on the "Scheme Record Date" (defined under the Scheme as 7:00pm on the fifth business day after the date on which the Scheme becomes effective or such other date agreed between Probiotec and Pyridam) will transfer their PBP Shares (the Scheme Shares) to Pyridam Australia; and (b) in consideration for that transfer, those shareholders will receive consideration of $3.00 per share (the Scheme Consideration). 9 In its ASX announcement on 22 December 2023 in respect of the Scheme, Probiotec noted that the consideration of $3.00 per share constituted a 30% premium over the undisturbed share price of $2.31 (3 month volume weighted average price to 5 May 2023), a 26% premium over the 1 month volume weighted average price of $2.37 (to 21 December 2023) and a 19% premium over the share price of $2.52 on 21 December 2023, being the last trading day before the announcement. These figures are repeated in the draft scheme booklet. The draft scheme booklet also refers to the highest trading price in the three months before the announcement being $2.68 (13 October 2023) and the lowest being $2.18 (11 December 2023). 10 The SID allows for certain dividends to be declared for the first half of financial year 2024 (1 July 2023 to 31 December 2023), and for the period between 1 January 2024 and the date that is immediately before the Scheme Record Date, without affecting the Scheme Consideration. Probiotec has declared the $0.035 per share dividend in respect of the first half of the 2024 financial year but has not, as yet, made any further declaration of dividends. 11 The Scheme makes provision for the payment of funds by Pyridam Australia into a trust account in Probiotec's name (Trust Account) before the Implementation Date (which is expected to be 18 June 2024). The transfer of the Scheme Shares to Pyridam Australia is subject to payment of the Scheme Consideration in the manner prescribed by the Scheme. 12 Prior to the hearing, Pyridam and Pyridam Australia delivered an executed Deed Poll in favour of Scheme Shareholders. This executed Deed Poll is one of the annexures to the draft scheme booklet. 13 The SID specifies the conditions precedent, which include approval of Probiotec's shareholders and Pyridam's shareholders, court approval, FIRB approval and approval of the Indonesian Financial Services Authority (Otoritas Jasa Keuangan) by 8:00am on the day of the second court hearing. 14 The draft scheme booklet makes provision for a deduction to the consideration to be paid to certain employee shareholders to whom Probiotec has advanced loans that remain outstanding on the Effective Date. Those employees include Mr Wesley Stringer and Mr Jared Stringer. Loans were made as part of the company's Executive Option Plan. The current balance of loans outstanding is $12.31 million. 15 The PBP Equity Incentives were granted to members of Probiotec's management by letters dated 30 November 2021 and 21 November 2022 under the PBP Executive Option Plan. Those rights have a nil exercise price. The SID requires that there be no outstanding equity incentives at the Scheme Record Date. Accordingly, the Board resolved to accelerate the vesting of the 2022 rights, subject to receiving a waiver from the ASX of listing rules 6.23.3 and 6.23.4. The ASX subsequently advised that no waiver was required. Although the performance trigger for the 2021 rights was not reached (meaning that the rights did not vest), given those rights only expire after the Scheme Record Date, each holder of the 2021 rights entered a binding cancellation deed. 16 Probiotec also had on issue 450,000 options at an exercise price of $2.1176 per option. Mr Wenig's affidavit explains that those options expired during the negotiation of the SID and that the option holders did not exercise those options before they expired. The parties to the SID agreed that the option holders would receive from Pyridam Australia an amount of $0.8824 per option, being the difference between the Scheme Consideration ($3 per share) and the option exercise price. Those payments will not reduce the Scheme Consideration payable to Scheme Shareholders. Should it matter, the explanation for holders of expired options receiving an amount in respect of the lapsed options arose from their inability to exercise the options after Pyridam's bid was announced. The draft scheme booklet explains that no such amount is being paid to any director, member of key management or the executive team, other than Probiotec's chief people officer. 17 The affidavit evidence also discloses that the bidder intends to effect an internal reorganisation prior to the anticipated second court hearing date (which is 5 June 2024). Pursuant to this reorganisation, Pyridam Australia will become a wholly owned subsidiary of Pyfa Health Singapore Pte Ltd, which in turn is 99% owned by Pyridam and 1% by Rejuve Global Investment Pte Ltd, which is itself the majority shareholder of Pyridam. This reorganisation is explained in the draft scheme booklet. 18 The Scheme has the approval of an Independent Board Committee (IBC) established by Probiotec to consider proposals in respect of Probiotec and to engage with counterparties. The IBC comprises Probiotec's two non-executive directors: Mr Gray and Mr Wenig. The IBC was established given that the Scheme involves an ongoing role, and certain performance-related incentives, for Mr Wesley Stringer post-implementation. 19 Mr Wenig and Mr Gray both hold shares in Probiotec. Mr Wenig is also a partner of Arnold Bloch Leibler (ABL), the solicitors who are acting in relation to the scheme and the present application. At the first court hearing, I raised with counsel for Probiotec the need for the chair's introductory letter to the draft scheme booklet to: (a) make it clear at an early point (cf later in the letter) that the IBC comprised only two directors; (b) refer, in the context of the letter setting out his endorsement of the Scheme, to Mr Wesley Stringer's interests in the body of the text of the letter (cf just in a long and densely worded footnote); and (c) refer, in the body of the text (cf in a footnote), to Mr Wenig's role as a partner of ABL, which firm is acting on the transaction. 20 Following the first court hearing, Probiotec proposed a revised form of the introductory letter of Mr Wenig, which will form part of the final scheme booklet. 21 The draft scheme booklet attaches an independent expert report of Grant Thornton. Grant Thornton conducted a valuation on a discounted cashflow basis (with an EBITDA multiple approach and quoted security pricing approach used as cross-checks) and concluded that the scheme consideration of $3.00 per share is within the range of fair market values of shares in Probiotec on a control basis. Accordingly, Grant Thornton concluded that the Scheme is fair to Scheme Shareholders and hence in the best interests of Scheme Shareholders in the absence of a superior alternative proposal. The figures used by Grant Thornton did not account for outflows associated with dividends permitted under the SID. Grant Thornton also addressed, as part of its analysis of reasonableness, advantages, disadvantages and other factors in the relation to the Scheme. Grant Thornton noted a heightened execution risk, having regard to the size of the transaction relative to Pyridam's market capitalisation.

The meeting and communications with shareholders 22 The first meeting is to be held in a hybrid format: (a) virtually, on an online "Lumi" platform; and (b) physically, at the offices of the plaintiff's solicitors, ABL, at Level 21/333 Collins St, Melbourne VIC 3000. 23 Mr Wenig deposed to the means by which notice will be given to shareholders of the meeting. Those means involve sending an information pack by the shareholder's preferred means of communication. For shareholders who have stated a preference to receive documents by email, they will be sent an email that contains (inter alia) a link to the website at which the scheme booklet can be found. Shareholders who have nominated a physical address for communications, and whose registered address is in Australia, will receive a pack that includes a hard copy of the scheme booklet. Where a shareholder has not nominated a preferred means of communication, a letter will be sent that (inter alia) explains how to obtain a hard copy of the Scheme Booklet, and also advises of the URL where the scheme booklet can be accessed. This letter will also be sent to shareholders (other than those who prefer email communications) whose registered address is outside Australia. Provision is also made in the orders for that same letter to be sent where an email failure notification is received. There is also a review process to ensure that any new shareholders coming on to the register are notified. 24 Probiotec has also made arrangements to operate an inbound telephone information line for shareholders who have questions. A copy of the script was in evidence. In addition, Probiotec has made arrangements with a third party (Morrow Sodali) to operate an outbound telephone line, disseminate an email "blast", and send text messages and email reminders to vote. A separate outbound telephone line is to be operated by another third party (Morgans) to conduct calls with institutional investors. Those calls are to be conducted substantially in accordance with the scripts for the inbound and the outbound calls to retail investors. Changes were made to the outbound telephone call script, text of the email "blast" and email reminder, in response to comments received from ASIC. 25 The meeting is to be chaired by Mr Wenig or, if he is unable, Mr Gray. Mr Wenig deposed to his willingness to act as chair, and the willingness of Mr Gray to act if Mr Wenig is unavailable. Mr Wenig also deposed to the following: (a) as at 21 March 2024, he held 115,750 PBP Shares (and would on that shareholding receive $347,250 if the Scheme is implemented); (b) he is chair of the board of Probiotec and receives director's fees from Probiotec; (c) he is a partner of ABL, which acts for Probiotec in relation to the scheme (and has acted for Probiotec, and certain of its shareholders, in unrelated matters); and (d) save for those matters, he has had no previous relationship or dealing with Probiotec or any person interested in the Scheme and has no interest or obligation that may give rise to a conflict of interest or duty if he were to act as chair of the meeting. 26 Mr Wenig also deposed, on information and belief, to the following facts in relation to Mr Gray: (a) as at 21 March 2024, he had a relevant interest in 60,000 PBP Shares; (b) he is a non-executive director of Probiotec and receives director's fees from Probiotec; and (c) save for those matters he likewise has had no previous relationship or dealing with Probiotec or any person interested in the Scheme and has no interest or obligation that may give rise to a conflict of interest or duty if he were to act as chair of the meeting.

The applicable principles 27 As the procedural requirements have been satisfied, the court's discretion to make the convening orders is enlivened. 28 In its written submissions, Probiotec said as follows in relation to the applicable principles (footnotes omitted): 16. The principles that apply upon an application to convene a scheme meeting are well-known and have been referred to in a number of recent decisions in this Court. The authorities make it clear that the Court's function is supervisory and that it is not the Court's role to usurp the shareholders' decision by attempting to intrude its own commercial judgment. For example, in Re Amcor, Beach J described the Court's role as follows: My function on an application to order the convening of a meeting is supervisory. At this stage I should generally confine myself to ensuring that certain procedural and substantive requirements have been met including dealing with adequate disclosure, with limited consideration of issues of fairness. But having said that, it is appropriate to consider the merits or fairness of a proposed scheme at the convening hearing if the issue is such as would unquestionably lead to a refusal to approve a proposed scheme at the approval hearing, that is, the proposed scheme appears now to be on its face "so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further". But in the present case, in my view there is no issue arising from the Scheme which would unquestionably lead to a refusal to approve the Scheme at the approval hearing. It cannot be said that the Scheme on its face is "so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further". Put another way, the Scheme is not of such a nature and cast in such terms that if it receives the support of the statutory majorities at the meeting, nevertheless I would not be likely to approve it at the second court hearing. 17. It has consistently been held that the question whether or not to accept particular consideration for shares is quintessentially a commercial matter for the members to assess, and they ought not be prevented from having the opportunity to do so, provided that the Court can be satisfied that they are acting on sufficient information and with time to consider what they are voting on. Therefore, if the arrangement is one that seems fit for consideration by the meeting of members, and is a commercial proposition likely to gain the Court's approval if passed by the necessary majorities, then orders should be made to convene and hold the meeting. 29 Those submissions accurately capture the court's task. I also refer to, without repeating, my summary of the authorities in Re Clemenger Group Ltd [2023] FCA 815 at [44]-[46].

Corporations Act and Corporations Regulations 30 I will first address compliance with the matters specified in the Act and the Corporations Regulations 2001 (Cth) (the Corporations Regulations). 31 The Scheme is an arrangement proposed between a Pt 5.1 body and its members. It is an "arrangement" for the purpose of s 411(1) of the Act.

Notification of ASIC 32 ASIC was given notice of the hearing on 10 March 2024. Accordingly, it has been given at least 14 days' notice of the hearing of the application, as required by s 411(2)(a) of the Act. A copy of the draft scheme booklet was also lodged with ASIC on 10 March 2024. Further amended versions of the draft scheme booklet were lodged with ASIC on 20 and 21 March 2024. Since providing the 21 March 2024 version of the draft scheme booklet to ASIC, further changes were made in light of comments received from ASIC. ASIC was then provided with a further version of the draft scheme booklet on 25 March 2024. 33 The day before the first court hearing (25 March 2024), ASIC provided a letter confirming that it had been given the requisite 14 days' notice, and 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. The letter further stated that ASIC "does not currently propose to appear to make submissions or intervene to oppose the Scheme at the first hearing under s411(1) of the Corporations Act". 34 I am satisfied that ASIC has had a reasonable opportunity to examine the terms of the proposed arrangement and to make submissions in relation to the arrangement and the draft explanatory statement, as required by s 411(2)(b).

Communication with members 35 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" the explanatory statement. Section 412 is part of Ch 5 of the Act. Section 110C applies Div 2 of Pt 1.2AA to, inter alia, documents required to be sent pursuant to Ch 5. Section 110D(1) sets out a range of ways in which documents may be sent. Those means encompass various forms of electronic communication and provision of information which permits the recipient to access the document in question. The other sub-sections of s 110D set out various qualifying criteria. 36 In view of the proposal to provide the scheme booklet to some shareholders by including a link in an email, and to provide it to others by explaining, in a letter, how a hard copy could be requested and also providing the link, I asked Probiotec to confirm the basis on which these forms of communication satisfied the notification requirements in the Act. Following the hearing, Probiotec filed short supplementary submissions on this matter (although the submission only directly addressed the category of shareholders who had not elected to receive communications by email, or nominated a physical address). 37 Those submissions observed that s 411(1) provides that the court may order a meeting of the members of the body "to be convened in such manner … as the Court directs". The submissions referred to cases in which similar orders had been made, and also referred to s 1319 of the Act, which provides that, where the court orders a meeting be convened, it may "subject to this Act" give such directions with respect to the convening, holding or conduct of the meeting, and such ancillary or consequential directions in relation to the meeting, as it thinks fit. Probiotec submitted that these provisions permit the court to make orders in the form proposed. Probiotec cited a number of cases in support of that proposition, including Re Security Matters Limited [2023] FCA 19 where Anderson J said (at [119]) "[t]he scheme meetings will be convened by the Court's order. Accordingly, the Court can make such orders in relation to the meeting as it sees fit" (referred to with approval by Jackson J in Re Essential Metals Limited (No 2) [2023] FCA 1306, who observed, at [20] that it is well established that s 1319 empowers the court to give procedural directions in relation to a meeting that may not correspond with the requirements for a general meeting convened under the company's constitution or with the procedural requirements of Pt 2G.2 of the Act). 38 It further submitted that the requirements of s 110D(1)(b) are satisfied and can be relied upon as a source of power to make the orders sought. Probiotec submitted that: 14. In Re Australia and New Zealand Banking Group Limited [[2022] FCA 1378 at [72]-[73]], O'Bryan J ordered dispatch of the scheme booklet (including the notice of meeting annexed to the booklet) by the same methods proposed in the present case. This included dispatch to non-electing shareholders by way of a hard copy letter setting out URL addresses from which the shareholder could download an electronic copy of the scheme booklet (ie, the equivalent of paragraph (d) of the draft orders in the present case). His Honour noted that "I am satisfied that those methods of sending the meeting documents to ANZBGL Shareholders comply with the requirements of Div 2 of Pt 1.2AA of the Act [of which s 110D forms part]". 15. O'Bryan J also considered s 110D in the schemes context in Re Security Matters Limited (No 2) [[2023] FCA 40 at [54]-[55]] , where his Honour noted that "s 110D(1) and (2) empower a company to send documents to members by post, by posting a letter with a link to a website where the document can be obtained or by way of electronic communication." [at [55]] 39 Finally, I note that the means of distribution proposed are in accordance with Probiotec's constitution, which provides (cl 11.5) that the company "may distribute any document that is required or permitted to be given to a person under the Corporations Act 2001 that relates to a general meeting … by means of electronic communication. For the avoidance of doubt, giving the person sufficient information to allow them to access the document electronically will suffice". 40 For the reasons set out by Probiotec in its supplementary submissions, I am satisfied that the court has the power to make orders for dispatch in the manner proposed by Probiotec and that the means proposed by Probiotec are appropriate and effective to bring the notice to the attention of shareholders and to provide them the scheme booklet by means of accessing it via the URL provided. Those means are also consistent with the company's constitution.

Explanatory statement 41 The draft scheme booklet: (a) contains a letter from the chair explaining the background to the Scheme and the view of the IBC that the Scheme presents an attractive opportunity for shareholders to realise their investments for cash at a premium over historical trading prices; (b) explains the voting recommendation of Probiotec's directors (including Mr Wesley Stringer) and the deeds entered into by Mr Wesley Stringer and Mr Jared Stringer regarding voting all their directly held and controlled shares in favour of the Scheme; (c) sets out the reasons for the board's recommendation, which include the prospect that the share price is likely to fall if the Scheme does not proceed, and the opportunity presented to shareholders to realise their investments notwithstanding the low trading volume of Probiotec shares on the ASX; (d) sets out potential disadvantages, which include that some shareholders may disagree with the independent expert's view, consider a superior proposal would likely emerge, prefer to maintain their direct investment, or be exposed to tax consequences from the realisation of their investment that do not suit their current financial position; (e) explains that Wesley Stringer and Jared Stringer, who between them hold nearly 10% of the shares on issue, have entered into binding voting agreements in support of the Scheme; (f) summarises the view of Grant Thornton's independent expert report (namely that the Scheme is fair and reasonable and in the best interests of Probiotec's shareholders in the absence of a superior proposal), and annexes the full report; (g) contains a "frequently asked questions" section; (h) notes the need for regulatory approval to be obtained from FIRB and for the Scheme to be approved by the Indonesian Financial Services Authority; (i) explains that a meeting of Pyridam's shareholders will be required to approve the Scheme as a "material transaction", and that that meeting will take place in late April 2024; (j) explains other conditions to the Scheme being completed, and sets out the status of those conditions and why it is believed they will be satisfied (or waived); (k) explains the nature of the two categories of equity incentives (performance rights and options), the number of shares involved, who holds the performance rights, the categories of persons who will and will not be paid the option reimbursement amount, and how each category of performance rights is to be treated; (l) provides details of the meeting, statutory thresholds required, the resolution that will be proposed and voting procedures; (m) explains the break fees payable by both sides (which equal $2,513,202) and the circumstances in which a break fee would be payable; (n) refers to the Deed Poll executed in favour of each Scheme Shareholder by Pyridam and Pyridam Australia; (o) refers to Pyridam's view that it is important to retain Mr Wesley Stringer (CEO) and Mr Jared Stringer (CFO), explains that new executive employment arrangements have been substantially agreed with them, and details some features of those arrangements; (p) provides comparative trading price data for Probiotec shares; (q) provides financial performance data; (r) provides information about Pyridam and Pyridam Australia, as well as the intended internal restructure; (s) details the funding arrangements by which the Scheme Consideration will be funded (a rights issue, with a standby buyer agreement in place, an equity commitment arrangement and debt funding); (t) details a meeting that took place on the bidder side in relation to its capital raising; (u) details the extent of employee loans of five members of the executive team, the amounts of those outstanding loans, and the provisions of the Scheme whereby those outstanding loan balances will be repaid from the Scheme Consideration otherwise due to each person; (v) includes a section directed to Scheme Shareholders that are not Australian tax residents, which details withholding for capital gains tax; (w) sets out general risk factors associated both with the Scheme and Probiotec's operations should the Scheme not proceed; and (x) details transaction costs, including fees payable to advisers (ABL and Grant Thornton). 42 The draft scheme booklet annexes the Grant Thornton Report, the Scheme, the form of the Scheme Deed Poll and the notice of scheme meeting. 43 Mr Wenig's affidavit explains and exhibits certificates verifying the accuracy of the information contained in the draft scheme booklet. 44 Pursuant to s 412(1) of the Act, the notice convening the meeting must be accompanied by an explanatory statement addressing the matters specified by s 412(1)(a)(i) and (ii). The draft scheme booklet explains the effect of the arrangement, the material interests of the directors, and other information that is material to the making of a decision by the members whether or not to agree to the arrangement. It also, as required by s 412(a)(ii), sets out information of the kind prescribed by reg 5.1.01, which in turn relevantly refers to Pt 3 of Sch 8 to the Corporations Regulations. 45 Additional assurance in relation to the explanatory statement (being the scheme booklet) is provided by s 412(6)-(8), which requires that the scheme booklet be registered by ASIC. In order to register the scheme booklet, ASIC must have formed that opinion that it does not contain any matter that is false or misleading in any material particular, or materially misleading. As referred to above, ASIC has engaged with Probiotec in relation to the draft scheme booklet, resulting in changes being made. An email from ASIC on 25 March 2024 confirmed that it had no further comments on the draft scheme booklet and that a registration copy should be lodged after the first court hearing. 46 ASIC also provided a letter granting relief from the requirements of para 8302(h) of Pt 3 of Sch 8 to the Regulations. At the court's request, Probiotec also provided a schedule confirming that each relevant requirement in the Act, the Regulations and the Federal Court (Corporations) Rules 2000 (Cth) (Rules) had been met (or was the subject of an application for relief), which schedule provided references to the evidence demonstrating compliance. That schedule, which also addressed ASIC Regulatory Guide 60, was a useful aid in ensuring that no requirement had been inadvertently overlooked.

Corporations Rules 47 Probiotec seeks an order under r 1.3 of the Rules, dispensing with compliance with: (a) r 2.4(1) to the extent that the rule requires the affidavit filed with the Originating Process to state all the facts in support of the Originating Process; (b) r 2.15; and (c) r 3.4 and Form 6. 48 Rule 2.4(1) relevantly requires that, unless the court otherwise directs, an originating process must be supported by an affidavit stating the facts in support of the process. Here, the originating process was accompanied by a short solicitor's affidavit exhibiting a company search (as required by r 2.4(2)), Probiotec's ASX announcement of 22 December 2023, and the SID. The substantive facts were stated in subsequent affidavits provided prior to the first hearing. Probiotec ought to be relieved from the default requirement to set out the substantive facts in the commencing affidavit. 49 Rule 2.15 applies Div 75 of the Insolvency Practice Schedule (Corporations) (being Sch 2 to the Act) and Div 75 of the Insolvency Practice Rules (Corporations) 2016 (Cth) to meetings ordered by the court, subject to the Act, the Rules and any direction of the court. However, here, the matters otherwise covered by those provisions are addressed by a combination of the orders of the court in relation to the convening and chairing of the meeting, the terms of the materials being disseminated in respect of the Scheme (including the notice of meeting, proxy forms and arrangements in relation to proxies) and otherwise by the company's constitution. It is appropriate that there be a dispensation from compliance with r 2.15. 50 Rule 3.4 relevantly provides that, where there is an application under s 411(4) for an order approving (inter alia) an arrangement in relation to a Pt 5.1 body, unless the court otherwise orders, a notice is to be published in a daily newspaper circulating in the State or Territory where the body has its principal, or last known, place of business. The notice is required to be in accordance with Form 6. Probiotec is listed on the ASX. It is likely that dissemination of information concerning the second court hearing by an announcement on the ASX Announcements platform will be more effective than publication of a notice in a newspaper. Accordingly, it is appropriate that there be dispensation from compliance with r 3.4.

Exercise of discretion 51 In my view, the Scheme is fit for consideration by Probiotec's members. The Scheme is simple in its terms, is proposed on a basis that is not obviously unfair to members. Nor does it suffer any other deficiency such that it should not be permitted to go forward for consideration by the members. 52 Probiotec's submissions raised, and addressed, the following aspects of the Scheme: (a) performance risk; (b) performance rights, options and post-Scheme employment arrangements; (c) voting recommendation; and (d) break fees and exclusivity. 53 I will address each in turn.

Performance risk 54 The shares are to be acquired by Pyridam Australia, which is not a party to the Scheme (save for in its capacity as a Scheme Shareholder). Probiotec submitted that the associated performance risk had been effectively addressed by the Scheme adopting two accepted safeguards. First, the aggregate Scheme Consideration must be paid into the Trust Account and Scheme Shareholders must be paid before shares are transferred to Pyridam Australia. Secondly, Pyridam and Pyridam Australia have executed a Deed Poll in favour of Scheme Shareholders. 55 I accept that these two mechanisms adequately safeguard against performance risk in relation to the transfer of the Scheme Shares. 56 There is also a commercial performance risk arising from the disclosed need for funds to be raised in order to pay the aggregate Scheme Consideration. As the draft scheme booklet explains, the sources of funds comprise an equity commitment, issue of further debt and a capital raising. 57 As to the equity raising, Pyridam and Pyridam Australia have entered into a binding equity commitment letter with a third party fund for and on behalf of a strategic sponsor. By those arrangements, if Pyridam Australia cannot meet its commitments to pay the aggregate Scheme Consideration and existing debt facilities of Probiotec, the sponsor will provide up to $155 million. The only outstanding condition is that Scheme becomes effective. 58 As to the further debt, Pyridam Australia has entered into a legally binding debt commitment letter with a bank, to provide a secured debt facility up to $155 million. There are no present indications that any conditions are likely to remain unsatisfied. It is anticipated that a full agreement will have been signed by the time of the second court hearing. 59 As to the capital raising, Pyridam is undertaking a rights issue on the Indonesia Stock Exchange, the proceeds of which are expected to be just over $104 million. Pyridam has an agreement with a third party to exercise all remaining rights if not taken up by existing shareholders of Pyridam. 60 Probiotec submitted, and I accept, that these fundraising activities are of a usual commercial kind and do not present any reason to decline to make orders convening the scheme meeting. While there is no disclosed reason to be pessimistic about Pyridam Australia having sufficient funds to complete, there is a performance risk which Grant Thornton considered to be greater than usual. Nevertheless, to the extent that any deficiency were to arise, the Scheme ensures that shares will not be transferred in that event. For these reasons, I do not regard the residual performance risk as a reason not to permit the meeting to proceed and for Scheme Shareholders to vote on the Scheme.

Performance rights holders, option holders and post-Scheme employment arrangements 61 As set out above, the draft scheme booklet explains the nature of the performance rights on issue and how they will be treated. In summary, the vesting of some performance rights will be accelerated, other performance rights will be cancelled, and holders of the expired options will receive a cash amount equivalent to the difference between the Scheme Consideration and the exercise price of each the expired options held immediately prior to their expiry on 26 October 2023. 62 The question arises, however, whether separate classes should be created; the proposal advanced is for a single meeting, without separate classes. In relation to this issue, Probiotec submitted as follows: Courts have consistently held that holders of performance rights or options who are also shareholders of the scheme company do not constitute a separate class for the purposes of s 411(1) [citing Re Oz Minerals at [61]-[63]; Re APN at [39] and Re RXP at [45]. See also Re Healthscope at [167]; Re Amcor at [85]; Re Citadel at [63]; Re DWS at [40]]. This is because the legal rights of these shareholders are not so dissimilar from the rights of other shareholders as to make it impossible for them to consult together with a view to their common interest. They will each participate in the Scheme on the same basis and receive the same consideration as all other shareholders. 63 In relation to the holders of the expired options, the additional payment to be received by each of those shareholders on account of their expired options does not affect the Scheme Consideration. To the extent that such a person is also a Scheme Shareholder, their interests in the Scheme, insofar as their Scheme Shares are concerned, does not diverge from the interests of the Scheme Shareholders at large. 64 In relation to the holders of the 2022 performance rights, the Board has resolved to accelerate the vesting of those rights so that they automatically vest upon the Scheme becoming effective. There are three shareholders with these performance rights: Mr Wesley Stringer, Mr Jared Stringer and Ms Julie McIntosh (the Chief Operating Officer). As those performance rights will only vest upon the Scheme becoming effective, the three individuals concerned will only vote their existing shares at the meeting. If the Scheme proceeds, they will be issued further shares, which will then be transferred when the Scheme is implemented, with the Scheme Consideration being paid in respect of those shares. 65 While the holders of the 2022 performance rights will, one would think, have an added incentive to vote in favour of the Scheme - namely that their performance rights will vest early and they will have additional Scheme Shares, and therefore receive a greater payment when the Scheme comes into effect - that is a matter personal to them. Each Scheme Shareholder will have personal interests that affect how they elect to vote. The three holders of the 2022 performance rights will have an additional personal incentive, but it is not one that means that the shareholders at large cannot effectively consult together in a single meeting with a view to their common interest: Re Healthscope Ltd (2019) 139 ACSR 608; [2019] FCA 542 (Re Healthscope) at [106] (Beach J) citing Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583 (Bowen LJ). Each of the three holders of the 2022 performance rights will only receive additional shares if the Scheme is approved; they will not be voting the prospective additional shares. In this regard, the circumstances are similar to those considered by Beach J in Re Healthscope at [162], [165] and [167] and by Robson J in Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525; [2015] VSC 789 at [82]. In addition, I note that two of the three shareholders with 2022 performance rights have already entered into binding agreements to vote their shares in favour of the Scheme, suggesting there would, in any event, be little utility in separate meetings. 66 Finally, as disclosed in the draft scheme booklet, Pyridam wishes for Mr Wesely Stringer and Mr Jared Stringer to remain with the company following implementation of the Scheme. I do not consider that that presents any class issue. The nature of the arrangements proposed to be entered into with each of them are detailed in the draft scheme booklet and include incentive arrangements that are consistent with the current long-term incentive arrangements. Both of them have already entered into binding agreements to vote their shares in favour of the Scheme. I do not consider that the nature of their executive arrangements is such that there exists a class of shareholders that ought to meet separately on the basis that the shareholders as a whole cannot effectively consult together in a single meeting with a view to their common interest: Re Healthscope at [106] (Beach J).

Recommendation of Mr Wesley Stringer 67 The draft scheme booklet includes a voting recommendation made by Mr Wesley Stringer. He wishes to make, and proposes to make, such a recommendation notwithstanding his interest in the Scheme (by reason of his substantial shareholding and the arrangements he is negotiating with Pyridam for his employment post-Scheme). The appropriateness of a director with interests making a recommendation has been considered in a number of cases (see the discussion of the cases in Re DWS Limited (2020) 148 ACSR 616; [2020] FCA 1590 at [42]-[49] (Beach J)). 68 I consider that Scheme Shareholders would be interested to know, and ought to be able to be told, Mr Wesley Stringer's view of the Scheme. Probiotec has a small board (only three directors) and Mr Wesley Stringer is also the CEO. While Mr Wesley Stringer's interests are adequately disclosed in the body of the scheme booklet, I have, however, as noted above, required that Mr Wenig's introductory letter in the draft scheme booklet refer to Mr Wesley Stringer's interests when referring to his recommendation that shareholders vote in favour of the Scheme and to do so in the body of the text (not in a long, dense footnote). I also note that rr 8301 and 8302 of Sch 8 to the Regulations anticipate that the recommendations and voting intentions of all directors will be disclosed (subject to exceptions).

Exclusivity provisions and break fees 69 The exclusivity provisions are in a common form and contain the usual fiduciary carve-outs. They are not of concern. While break fees are also provided for, the amount of the fee is approximately 1% of the equity value of Probiotec as at the date of the SID. Moreover, the break fees are bilateral (ie also payable by the bidder). The break fees are also not a matter that ought to result in the Scheme not being put to a vote by Probiotec's shareholders.

Conclusion 70 In this case, I am satisfied that, if the Scheme achieves the necessary majorities at the meeting, there is no reason that is presently apparent which would cause the court not to approve the Scheme at the second court hearing, if it is unopposed. Having regard to the matters set out above concerning the draft scheme booklet and the means by which it is to be distributed, I am also satisfied that Scheme Shareholders will be properly informed as to the nature of the Scheme before the meeting. 71 Accordingly, orders were made on 26 March 2024 for the first meeting to be convened, together with ancillary orders. I certify that the preceding seventy-one (71) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Button.