Wellcom Group Limited, in the matter of Wellcom Group Limited (No 2) [2019] FCA 1872

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 approximately 85% of Wellcom's shares to Innocean Worldwide Inc (Innocean) in consideration for a cash payment by Innocean of $6.70 per share. The remaining 15% of Wellcom's shares, which are owned by SIDCOM Pty Ltd (SIDCOM), a company controlled by Mr Wayne Sidwell, the founder and current Chairman of Wellcom, will not participate in or vote on the Scheme and will not be acquired by Innocean pursuant to the Scheme. Those shares are referred to as the excluded shares. The excluded shares are the subject of separate arrangements with Innocean which are connected to a proposed employment arrangement between Innocean and Mr Sidwell. Those arrangements are described at [9]-[14] and [38]-[48] of my decision convening the Scheme meeting. 6 If the Scheme is approved by the Court, on the Implementation Date (which is anticipated to be 27 November 2019): (a) holders of Wellcom shares, other than the excluded shares, who were listed on the share register on the record date (proposed to be 7.00pm on 21 November 2019) will be paid the Scheme consideration of $6.70 per share; and (b) all Wellcom shares, other than the excluded shares, will be transferred to Innocean and Wellcom will become an 85% owned subsidiary of Innocean and will be delisted from the ASX.

Relevant principles 7 Section 411(4) of the Act provides that an arrangement is binding on members and Wellcom only if: (a) at a meeting of members, it is passed by a majority of members present and voting (in person or by proxy) and by 75% of votes cast; and (b) it is approved by order of the Court. 8 Section 411(6) of the Act provides that the Court may grant approval subject to such alterations or conditions as it thinks just. 9 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. 10 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 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 11 An office copy of the orders I made on 4 October 2019 (Convening Orders) was lodged with ASIC on 7 October 2019 as required by r 3.5(b) of the Federal Court (Corporations) Rules 2000. 12 The explanatory statement (which is included in the Explanatory Booklet) was registered by ASIC on 7 October 2019 prior to being sent to Scheme shareholders in accordance with s 412(6) of the Act. 13 The Convening Orders required that the Scheme meeting be convened by sending the following documents to each Scheme shareholder: a document substantially in the form set out at Annexure 'BOV6' to the affidavit of Bernard Frederic Oude-Vrielink sworn 4 October 2019 (the Explanatory Booklet) and a proxy form for the Scheme meeting. The Explanatory Booklet and the proxy form were required to be sent by the following methods: (a) in the case of Scheme shareholders who have elected to receive shareholder communications electronically by way of email (Email Shareholders) and whose registered address is in or outside Australia, by email; (b) in the case of Scheme shareholders who are not Email Shareholders and whose registered address is in Australia, by pre-paid post addressed to the relevant addresses recorded in Wellcom's register; and (c) in the case of Scheme shareholders who are not Email Shareholders and whose registered address is outside Australia, by airmail addressed to the relevant addresses recorded in Wellcom's register. 14 Based on the evidence adduced at the hearing, I am satisfied that those requirements were complied with. 15 On 30 October 2019, a notice advertising the hearing listed for 13 November 2019 was published in The Australian newspaper in accordance with Order 10 of the Convening Orders.

Passing of the approval resolutions 16 The Scheme meeting was held at the offices of Minter Ellison, Level 23, 525 Collins Street, Melbourne, Victoria 3000 on 8 November 2019 commencing at approximately 10.00am (as required by Order 2 of the Convening Orders). 17 In accordance with Order 6 of the Convening Orders, the Scheme meeting was chaired by Mr Charles Anzarut. 18 In accordance with Order 4 of the Convening Orders, voting on the resolution in favour of the Scheme was conducted by way of poll. 19 Mr Daniel Reid, of Link Market Services Limited (acting as both scrutineer and returning officer), did not report any issues or concerns to Mr Anzarut 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 99.46% of votes cast on the resolution and by 93.84% of members present and voting either 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. 20 A second poll calculation was made by Link Market Services Limited, at the request of Wellcom, showing the shares voted by attendees at the Scheme meeting excluding the 12,361,887 shares participating in the Scheme in which Mr Sidwell has an interest. That second poll calculation shows that the resolution in favour of the Scheme was passed by 98.97% of votes cast on the resolution and by 93.78% of members present and voting either in person or by proxy when the shares associated with Mr Sidwell are excluded. 21 The evidence showed that approximately 78% of shares eligible to vote at the Scheme meeting participated in the vote.

Full and fair disclosure to members 22 As noted above, the explanatory statement contained in the Explanatory 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 Explanatory Booklet satisfies the requirements in ss 411(3) and 412 of the Act. 23 Wellcom adduced evidence of the conduct of the Scheme meeting including the address given by the chairman and the questions and answers that followed. I am satisfied that, through the Explanatory Booklet and further consideration given to the Scheme 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? 24 When making orders convening the Scheme meeting, I concluded that the Scheme was fit for consideration by the members of Wellcom. 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; (b) all directors intended to vote their Wellcom shares (save for Mr Sidwell's indirect interest in the excluded shares) in favour of the Scheme; and (c) the independent expert, PricewaterhouseCoopers, opined that in the absence of a superior proposal, the Scheme is fair and reasonable and is in the best interests of Wellcom's shareholders. 25 There is no evidence of opposition to approval by the Court, or as to oppression in the conduct of the meeting of members. 26 In my view, the Scheme is fair and reasonable in the sense that an intelligent and honest person who was a shareholder of Wellcom, properly informed and acting alone, might approve the Scheme.

Conditions Precedent 27 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 of the conditions in clause 3.1 of the Scheme Implementation Deed (other than the condition relating to Court approval of the Scheme) are satisfied or waived in accordance with the terms of the Deed by 8.00am on the second court hearing date; (b) neither the Scheme Implementation Deed nor the Deed Poll is terminated in accordance with its terms before 8.00am on the second court hearing date; and (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 agreed to in writing by Wellcom and Innocean. 28 Clause 3.6 of the Scheme Implementation Deed sets out a regime for certificates to be provided by Wellcom and Innocean to the Court regarding the satisfaction or waiver of conditions precedent. 29 In the present matter, Wellcom and Innocean 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 or waived in accordance with the terms of the Agreement; and (b) in clauses 3.1(a) and (b) of the Scheme has been satisfied. 30 The Schedule to each of the conditions precedent certificates provided to the Court contained primary evidence (where available) regarding the satisfaction of those conditions precedent. In my view, no issues arose with respect to the interests of members from those certificates and the supporting evidence.

Section 411(17) 31 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). 32 Wellcom 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 Ch 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? 33 At the first court hearing, Wellcom notified the Court of several matters warranting the attention of the Court. These matters were considered by the Court: Re Wellcom Group Limited [2019] FCA 1655 at [38]-[60]. In my view, none of those issues justifies the Court refusing to approve the Scheme.

Orders sought 34 For the reasons given, I made the order sought by Wellcom approving the Scheme pursuant to s 411(4)(b) of the Act. 35 Wellcom 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 Wellcom's Constitution and where, upon implementation, Wellcom will become an 85% owned subsidiary of Innocean and the remaining 15% of shares are all held indirectly by Mr Sidwell: Re Toll Holdings Ltd (No 2) [2015] VSC 236 at [18]-[19]. I therefore made that order. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Bryan .