Surf Lakes Holdings Limited, in the matter of Surf Lakes Holdings Limited (No 2) [2023] FCA 1601

THE COURT ORDERS THAT:

1. Pursuant to rule 1.39 of the Federal Court Rules 2011 (Cth), the time by which the notice referred to in order 8 of the orders made on 3 November 2023 be extended to 12 December 2023.
2. Pursuant to section 411(4)(b) of the Act, the Scheme, the terms of which are set out in Annexure A to these orders, be and is hereby approved.
3. Pursuant to section 411(12) of the Act, Surf Lakes be exempted from compliance with section 411(11) of the Act in respect of the Scheme. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. ANNEXURE A

Introduction 1 On 3 November 2023, I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) directed to convening a meeting (Scheme Meeting) of holders of ordinary shares in Surf Lakes Holdings Limited (Surf Lakes, Surf Lakes Shareholders) for the purpose of considering a proposed scheme of arrangement (Scheme) between Surf Lakes and Surf Lakes Shareholders. See Re Surf Lakes Holdings Limited [2023] FCA 1355. 2 At a hearing today, Surf Lakes sought, and I made, orders including for the approval of the Scheme pursuant to s 411(4)(b) of the Act. These are my reasons for making those orders.

The evidence 3 Surf Lakes read the following affidavits: (1) Affidavit of Julian Ross Blanchard affirmed 12 December 2023; (2) Affidavit of BeeYen Nah affirmed 12 December 2023; and (3) Affidavit of Michael Eric Wilton affirmed 13 December 2023. 4 Those affidavits were consistent with the approach set out in the Federal Court's Schemes of Arrangement Practice Note (GPN-SOA) (Practice Note). 5 The Practice Note at paragraph [3(i)] states that "[t]he Court expects a scheme proponent to lead evidence at the second Court hearing of the dispatch of scheme documents in accordance with the Court's orders. That evidence may include evidence on information and belief and need not be extensive, but should disclose any issues with compliance with those orders". 6 Mr Wilton and Ms Nah each deposed as to the dispatch of the Scheme Booklet (as defined in the 3 November 2023 orders) and associated materials. 7 The Practice Note at paragraph [3(j)] also states that "[i]n addition to evidence that the scheme was approved by the requisite statutory majorities, the Court expects a scheme proponent to lead evidence at the second Court hearing as to voter turnout at the scheme meeting(s), being the number or percentage of members who attended the scheme meeting, in person or by proxy, as compared to the total number of members of the scheme company". 8 Ms Nah deposed as to voter turnout and participation at the Scheme Meeting.

Role of the court 9 The principles relevant to the exercise of the court's power to approve a scheme of arrangement are well understood. See, by way of example only, Re Crown Resorts Limited (No 2) [2022] FCA 710 at [11] (Anderson J). 10 In making an order pursuant to s 411(4)(b) of the Act (approving a scheme of arrangement), the role of the court is supervisory. The court is not bound to approve a scheme merely because it previously made orders convening a meeting or because statutory majorities were achieved. However, as Jacobson J observed in Re Seven Network Limited (No 3) [2010] FCA 400; (2010) 267 ALR 583 at 588 [32], "the court will usually approach the task upon the basis that the members are better judges of what is in their commercial interests than the court". As a matter of practical and commercial reality, this must be correct. 11 The cases establish that the following matters should be taken into account: (a) the orders of the court convening the Scheme Meeting were complied with; (b) the resolution to approve the scheme was passed by the requisite majority, and whether other statutory requirements have been satisfied; (c) all conditions to which the scheme is subject (other than court approval and lodgement of the court's orders with the Australian Securities and Investments Commission (ASIC) have been met or waived; (d) the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it; (e) there was full and fair disclosure to shareholders of all information material to the decision whether to vote for or against the scheme; (f) 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; and (g) the court is satisfied under s 411(17) that the scheme has not been proposed to avoid Chapter 6 of the Act, or that the plaintiff has a statement from ASIC that it has no objection to the scheme. See, by way of example only, Re PayGroup Limited (No 2) [2022] FCA 1350.

Statutory and procedural requirements 12 I had the benefit of detailed written and oral submissions by Mr BK Holmes of counsel. Those submissions drew attention to the following relevant matters.

Dispatch of scheme materials 13 The Scheme Booklet and associated materials were dispatched to Surf Lakes Shareholders on 8 November 2023, in accordance with the 3 November 2023 orders. The Scheme Booklet was registered by ASIC as required by s 412(6) of the Act, and the orders were lodged with ASIC as required by r 3.5(b) of the Federal Court (Corporations) Rules 2000 (Cth.

Results of scheme meeting 14 The Scheme Meeting was conducted on 11 December 2023, in accordance with the 3 November 2023 orders. 15 The resolution to agree to the Scheme passed by 96.83% of votes cast, and by 95.83% of shareholders present and voting. Accordingly, the statutory majorities required by s 411(4)(a) of the Act - the resolution being passed by a majority in number of the members present and voting, and by 75% of votes cast - were satisfied.

Voter turnout 16 The number of shares voted at the Scheme Meeting was 38.56% of Surf Lakes' total issued share capital, and the number of Surf Lakes Shareholders who voted was 10.98% of the total number. 17 Low voter turnout is not, without more, a reason to refuse to exercise the discretion to approve a scheme. As Santow J said in Re Matine Ltd (1998) 28 ACSR 268 at 295: The apathetic shareholder who chooses not to vote upon a scheme should not be presumed to be antagonistic to the scheme or to warrant paternalistic protection… See also Re Amcor (No 2) [2019] FCA 346 at [18]-[20] (Beach J). 18 Surf Lakes submitted, and I agreed, that the levels of voter turnout do not give rise to any concern that Surf Lakes Shareholders were deterred from attending, or did not have notice of, the meeting.

Notice of second court hearing 19 Order 8 of the 3 November 2023 orders required that, by no later than 6 December 2023, Surf Lakes publish an announcement on its website setting out the details of the second court hearing, and the process by which a person could appear to oppose approval. 20 Mr Blanchard deposed that the order was not complied with, due to an "oversight". He also deposed that, upon becoming aware of the non-compliance, Surf Lakes took immediate steps to rectify the non-compliance and uploaded an announcement to its website at approximately 12:00pm (AEST) on 12 December 2023. 21 That announcement otherwise complied with order 8 of the 3 November 2023 orders. 22 Surf Lakes sought an order extending time for compliance with order 8 of the 3 November 2023 orders. Rule 1.39 of the Federal Court Rules 2011 (Cth) provides that: The Court may extend or shorten a time fixed by these Rules or by order of the Court: (a) before or after the time expires; and (b) whether or not an application for extension is made before the time expires. 23 Surf Lakes submitted, and I agreed, that no prejudice would be caused by granting an extension of time, and that it would be in the interests of justice to do so. That was including because Surf Lakes Shareholders were given notice of the second court hearing in the Scheme Booklet dispatched on 8 November 2023.

Conditions precedent 24 The usual requirement that conditions precedent have been satisfied does not arise, because the only conditions precedent to the Scheme are court approval, and orders approving the Scheme coming into effect pursuant to s 411(10) of the Act.

Capital raise 25 On 30 November 2023, Surf Lakes sent all existing shareholders an information memorandum in relation to a proposed capital raise by Surf Lakes Capricorn Coast Pty Ltd (SLCC), a wholly-owned subsidiary of Surf Lakes. 26 The relevant implication of that capital raise is the potential dilution of Surf Lakes' shareholding in SLCC, due to shares in SLCC being allocated to existing Surf Lakes Shareholders who participate in the capital raise. 27 The Chairman referred to the capital raise in his address at the Scheme Meeting, including the fact that Surf Lakes would still hold 95% of shares in SLCC. 28 Surf Lakes had informed ASIC of the capital raise, and provided it with a copy of the information memorandum. 29 I was satisfied that nothing turned on the issue of the capital raise.

Exercise of the discretion 30 Surf Lakes submitted, and I agreed, that the following matters were relevant in considering whether the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it: (a) ASIC issued a letter to the directors of Surf Lakes, stating that under s 411(17)(b) of the Act, it had no objection to the Scheme; (h) the overwhelming support of the Surf Lakes Shareholders reflected in the voting results of the Scheme Meeting; (i) the directors' recommendation that Surf Lakes Shareholders vote in favour of the Scheme; (j) the opinion of the independent expert that the Scheme is in the best interests of Surf Lakes Shareholders; (k) the disclosures in the Scheme Booklet which set out a detailed description of the proposed Scheme, including its potential benefits and disadvantages; (l) there was no application to oppose the orders approving the Scheme, and no evidence suggesting any oppression in the conduct of the Scheme Meeting; and (m) the Scheme contains measures to protect shareholders against performance risk. 31 In summary, the evidence clearly established that the Scheme was made in good faith and was "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". See Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213 at 247 (Fry LJ).

Exemption from the Securities Act of 1933 (US) 32 If the Scheme becomes effective, Surf Lakes Global Inc (SL Global, a newly-incorporated US company) will be required to issue shares to Surf Lakes Shareholders with a registered address in the US. 33 Unless an exemption applies, all securities offered in the US must satisfy various registration requirements pursuant to the Securities Act of 1933 (US) (US Securities Act) and be registered with the Securities and Exchange Commission. 34 Section 3(a)(10) of the US Securities Act provides for an exemption to those registration requirements in circumstances where securities issued are exchanged for other securities, and where the terms and conditions of that issue are approved by a court after a hearing upon the fairness of such terms and conditions. 35 In Re Atlantic Gold NL (No 2) [2014] FCA 869, Jacobson J addressed the conditions of qualifying for the s 3(a)(10) exemption and recorded whether they had been satisfied. 36 Surf Lakes submitted, and I agreed, that it was appropriate to follow that approach and to note the following matters: (a) the court was advised before commencement of the second court hearing that reliance would be placed on the s 3(a)(10) exemption on the basis of the court's approval of the Scheme; (b) the court was informed of the securities to be offered as scheme consideration, and an independent expert report has valued those securities and concluded that the proposal is in the best interests of Surf Lakes Shareholders; (c) the court, as it is statutorily required to do, was holding a hearing to consider the fairness and reasonableness of the proposed Scheme; and (d) the second court hearing was open to the public and any person to whom SL Global shares are to be issued had standing to appear. Notice of the date of that hearing was included in the Scheme Booklet sent to all shareholders, as well as on Surf Lakes' website. No shareholder gave notice of any intention to appear at the hearing to oppose the approval of the Scheme.

Exemption from s 411(11) 37 Section 411(11) of the Act requires, subject to s 411(12), that a copy of the court's order approving a scheme of arrangement be annexed to every copy of the company's constitution issued after the order is made. 38 Section 411(12) relevantly allows the court to exempt a body from compliance with s 411(11). 39 In Re Equinox Resources Ltd [2004] WASC 143; (2004) 49 ACSR 692 at [22], E M Heenan J explained that the purpose of s 411(11) was: to ensure that any modification of the rights of shareholders of the company which is the subject of the scheme or any other provision in the scheme which may affect the interests of persons dealing with the company, such as prospective creditors or purchasers of shares, will be sure to have the opportunity of seeing what the exact rights of shareholders in the company or of its creditors are, as modified, if at all, by the scheme which has been approved. See also Re Hostworks Group Ltd (No 2) [2008] FCA 248 at [36] (Mansfield J). 40 Surf Lakes submitted, and I agreed, that exemption from compliance with s 411(11) is appropriate given that the schemes will not alter Surf Lakes' constitution nor the rights of Surf Lakes Shareholders, creditors or other persons dealing with it; current Surf Lakes Shareholders were fully informed of the schemes and will be informed if the court approves the Scheme; and no ongoing purpose will be served by requiring orders approving the Scheme to be annexed to Surf Lakes' constitution given Surf Lakes will become a wholly-owned subsidiary of SL Global.

Conclusion 41 For the foregoing reasons, it was appropriate to make the orders sought by Surf Lakes, including that it be exempted from compliance with s 411(11) of the Act, and that the time for compliance with order 8 of the 3 November 2023 orders be extended to 12 December 2023. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Callaghan.