Vault Intelligence Limited, in the matter of Vault Intelligence Limited (No 2) [2020] FCA 1504

Introduction 1 On 28 August 2020, I made orders convening a meeting of the holders of ordinary shares of the plaintiff (Vault), pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act) in relation to a proposed scheme of arrangement (Scheme): Re Vault Intelligence Limited [2020] FCA 1342. 2 On 2 October 2020, at the meeting of members convened pursuant to those orders, the Scheme was approved by 100% of votes cast on the resolution and by 100% of shareholders present and voting either in person or by proxy. Accordingly, the requirements specified in s 411(4)(a) of the Act have been met. 3 At the second court hearing held on 7 October 2020, Vault sought an order under s 411(4)(b) of the Act approving the Scheme. No shareholder or other person appeared at the hearing to object to the Scheme. 4 At the conclusion of the hearing, I made the orders sought by Vault. These are my reasons for doing so.

Overview of the Scheme 5 The Scheme is described in my decision convening the Scheme meeting referred to above. The Scheme provides for the transfer of all Vault shares to Damstra Holdings Limited (Damstra) in consideration for the issue of new shares in Damstra to each of Vault's shareholders, being one new fully paid ordinary share in Damstra for every 2.9 shares held by the shareholder (Scheme Consideration). 6 Accordingly, if the Scheme is approved by the Court, then on the implementation date (which is anticipated to be 19 October 2020): (a) Vault Shareholders who were on the share register on the Scheme Record Date (anticipated to be 12 October 2020) will receive the Scheme Consideration; and (b) all Vault shares will be transferred to Damstra, and Vault will become a wholly-owned subsidiary of Damstra, 7 On the trading day following the implementation date, Vault will be delisted from the ASX.

Relevant principles 8 Section 411(4) of the Act provides that an arrangement between a corporation and its members is binding on corporation and its members only if: (a) a resolution in favour of the arrangement is passed by a majority in number of the members present and voting (either in person or by proxy) and by 75% of votes cast; and (b) it is approved by order of the Court. 9 Section 411(6) of the Act provides that the Court may grant approval subject to such alterations or conditions as it thinks just. 10 In Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213 at 247, Fry LJ described the role of the Court in applications of this type as follows: … the Court is bound to ascertain that all the conditions required by the statute have been complied with; it is bound to be satisfied that the proposition was made in good faith; and, further, it must be satisfied that 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 a member, might approve of it. What other circumstances the Court may take into consideration I will not attempt to forecast. 11 In deciding whether to grant approval of a scheme of arrangement, the Court will ordinarily have regard to 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 other statutory requirements have been satisfied; (d) that the Scheme is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it; (e) that there has been full and fair disclosure to members and creditors of all information material to the decision whether to vote for or against the applicable scheme; and (f) 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, for example, Re Wellcom Group Limited (No 2) [2019] FCA 1872 at [10]; Re Solution 6 Holdings Ltd (2004) 50 ACSR 113 at [18]-[24]; Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [8]-[10]; Re Central Pacific Minerals NL [2002] FCA 239 at [12]-[14]; Re Seven Network Ltd (No 3) (2010) 267 ALR 583 at [35]-[39]; 77 ACSR 701; Re Signature Capital Investments Ltd (No 2) [2016] FCA 385; Re Medical Australia Ltd (No 2) [2017] FCA 1429.

Compliance with orders convening the meeting 12 An office copy of the orders made on 28 August 2020 (Convening Orders) was lodged with ASIC on that same day, as required by r 3.5(b) of the Federal Court (Corporations) Rules 2000. 13 The explanatory statement (which is included in the Scheme Booklet) was registered by ASIC on 31 August 2020 prior to being sent to Scheme shareholders in accordance with s 412(6) of the Act. 14 The Convening Orders required that the Scheme meeting be convened by sending to each Scheme shareholder a document substantially in the form of Annexure JDL-10 to the Third Affidavit of James David Lonie sworn 28 August 2020 (which is the Scheme Booklet). The Scheme Booklet was required to be sent by the following methods: (a) by email to those Vault Shareholders who have elected to receive communications electronically (Email Shareholders). The email to be sent to Email Shareholders (Email Notification) was required to be substantially in the form of page 572 of Annexure RDJ-1 to the Affidavit of Ross Donald Jenkins sworn on 27 August 2020, and contain links to the Scheme Booklet and to an online portal which enables the Email Shareholder to lodge their proxy for the Scheme Meeting and voting instructions online; and (b) for all other Vault Shareholders, by post (if resident in Australia) or airmail (if not resident in Australia) (Postal Shareholders). In addition, Postal Shareholders were required to be sent a proxy/voting form for the Scheme Meeting (Proxy Form) substantially in the form of pages 573-574 of Annexure RDJ-1 to the Jenkins Affidavit, as well as a reply-paid envelope for the return of completed Proxy Forms. 15 Based on the evidence adduced at the hearing, I am satisfied that those requirements were complied with. 16 On 29 September 2020, a notice advertising the hearing listed for 7 October 2020 was published in The Australian newspaper in accordance with order 10 of the Convening Orders.

Passing of the approval resolutions 17 The Scheme meeting was held electronically through an online platform in accordance with the requirements of s 5 of the Corporations (Coronavirus Economic Response) Determination (No 1) 2020 (Cth) on Friday 2 October 2020 at 10:00 am, and was accessed in accordance with the instructions included in the Notice of Meeting sent to shareholders (as required by order 1 of the Convening Orders). 18 In accordance with order 7 of the Convening Orders, the Scheme meeting was chaired by Mr Jenkins. 19 In accordance with order 5 of the Convening Orders, voting on the resolution to approve the Scheme was conducted by way of poll. 20 Mr Kompogiorgas of Link (appointed returning officer for the Scheme meeting) did not report any issues or concerns to Mr Jenkins in relation to the conduct of the Scheme meeting or the conduct of the poll. The resolution in favour of the Scheme was passed by 100% of votes cast on the resolution and by 100% of members present and voting in person or by proxy. Accordingly, the statutory majorities set out in ss 411(4)(a)(ii)(A) and (B) of the Act have been satisfied. I also noted that 78% of the total number of issued shares in Vault that were eligible to be voted at the Scheme meeting were voted (in person or by proxy), and 23.9% of the total number of Vault shareholders who were eligible to vote at the Scheme Meeting voted (in person or by proxy).

Full and fair disclosure to members 21 As noted above, the explanatory statement contained in the Scheme Booklet was registered by ASIC prior to dispatch as required by s 412(6) of the Act. The content of the explanatory statement provided to members was considered at the first court hearing. I am satisfied that the explanatory statement contained in the Scheme Booklet satisfies the requirements in ss 411(3) and 412 of the Act. 22 Vault adduced evidence of the conduct of the Scheme meeting including the address given by the chairman. I am satisfied that, through the Scheme Booklet and presentation at the Scheme meeting, there has been full and fair disclosure to members of all information material to the decision whether to vote for or against the Scheme.

Is the Scheme fair and reasonable? 23 When making orders convening the Scheme meeting, I concluded that the Scheme was fit for consideration by the members of Vault. In reaching that conclusion, I noted that the question whether to accept particular consideration for shares is quintessentially a commercial matter for members to assess. Nevertheless, the Court's role is also to scrutinise the terms of a scheme to satisfy itself that there is no element of unfairness. In respect of the present Scheme, I considered it relevant that: (a) all directors recommended that shareholders vote in favour of the Scheme and all directors stated their intention to vote their Vault shares in favour of the Scheme; (b) the Scheme Booklet disclosed the potential benefits and disadvantages of the Scheme; (c) the independent expert, Grant Thornton Finance Pty Ltd, opined that the Scheme is fair and reasonable and is in the best interests of Vault shareholders; (d) the Scheme contains measures to protect shareholders against performance risk; (e) members who voted at the Scheme meeting supported the Scheme unanimously; and (f) there is no evidence of opposition to approval by the Court, or as to oppression in the conduct of the meeting of members. 24 In my view, the Scheme is fair and reasonable in the sense that an intelligent and honest person who was a shareholder of Vault, properly informed and acting alone, might approve the Scheme.

Conditions Precedent 25 Before approving a scheme, the Court will ordinarily require that all conditions precedent to the scheme (other than the Court's approval and the lodgement of the Court's approval order with ASIC) have been satisfied or waived. The concern of the Court in this respect is to remove any future doubt as to the binding nature of the scheme: Re Glendale Land Development Ltd (In Liq) (1982) 7 ACLR 171 at 178-179; Re United Medical Protection Ltd [2007] FCA 631 at [19]. 26 Clause 3.1 of the Scheme stipulates that the Scheme is conditional upon and will not become effective unless the following conditions precedent are satisfied: (a) all the conditions precedent in cl 3.1 of the Scheme Implementation Deed (other than the condition precedent relating to Court approval of the Scheme) have been satisfied or waived in accordance with the terms of the Scheme Implementation Deed by no later than 8:00 am on the second court hearing date; (b) neither the Scheme Implementation Deed nor the Deed Poll has been terminated as at 8:00 am on the second court hearing date; (c) the Court has approved the Scheme pursuant to s 411(4)(b) of the Act, including with any alterations made or required by the Court under s 411(6) of the Act as are acceptable to Vault and Damstra; (d) such other conditions made or required by the Court under s 411(6) of the Act, as are acceptable to Vault and Damstra, have been satisfied or waived; and (e) the order of the Court made under s 411(4)(b) of the Act approving the Scheme becomes effective. 27 Clause 3.2 of the Scheme requires each of Vault and Damstra to provide a certificate to the Court at the second hearing regarding the satisfaction or failure of the conditions in paragraphs (a) and (b) above. 28 In the present matter, Vault and Damstra each provided to the Court a signed certificate confirming that, in respect of matters within their knowledge, each of the conditions precedent: (a) in clause 3.1 of the Scheme Implementation Deed (other than the condition relating to Court approval of the Scheme) has been satisfied; and (b) in clauses 3.1(a) and (b) of the Scheme has been satisfied. 29 As I discussed in Re Legend Corporation Limited (No 2) [2019] FCA 1444 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. In the present case, only the certificates were provided. In my view, no issues arose with respect to the interests of members from those certificates. I consider that the certificates are binding on each of Vault and Damstra and, accordingly, the Scheme is binding.

Section 411(17) 30 Section 411(17) of the Act 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, but the Court need not approve a compromise or arrangement merely because a statement by ASIC that it has no objection to the compromise or arrangement has been produced to the Court as mentioned in s 411(17)(b). 31 Vault provided the Court with a letter from ASIC issued pursuant to s 411(17)(b) of the Act stating that ASIC has no objection to the Scheme. In those circumstances, there is no need for the Court to consider s 411(17)(a), particularly where no issue has been raised concerning Chapter 6 of the Act by any person: Re Tatts Group Ltd (No 2) [2017] VSC 770.

Have all necessary matters been brought to the attention of the Court? 32 At the first court hearing, Vault notified the Court of several matters warranting the attention of the Court. These matters were considered by the Court: Re Vault Intelligence Limited [2020] FCA 1342 at [34]-[69]. In my view, none of those matters justifies the Court refusing to approve the Scheme.

Orders sought 33 For the reasons given, I made the order sought by Vault approving the Scheme pursuant to s 411(4)(b) of the Act. 34 Vault also sought an order under s 411(12) of the Act exempting it from compliance with s 411(11), which requires a copy of the Court's order under s 411(4)(b) to be annexed to the company's Constitution. An order under s 411(12) is appropriate in circumstances where the Scheme does not amend Vault's Constitution and where, upon implementation, Vault will become a wholly owned subsidiary of Damstra: Re Toll Holdings Ltd (No 2) [2015] VSC 236 at [18]-[19]. I therefore made that order. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan.