FEDERAL COURT OF AUSTRALIA

Bulletproof Group Limited, in the matter of Bulletproof Group Limited (No 2) [2018] FCA 868

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (the Act), the scheme of arrangement between the plaintiff and its members set out in Appendix 3 of Exhibit A (the Scheme) be approved.

2.    Pursuant to s 411(12) of the Act, the plaintiff be exempt from compliance with s 411(11) of the Act in relation to the Scheme.

3.    These orders be entered forthwith.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

YATES J:

1    On 25 May 2018, I made an order pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (the Act) approving the scheme of arrangement between the plaintiff and its members set out in Appendix 3 of Exhibit A in the proceeding (the scheme). These are my reasons for granting that approval.

2    On 10 April 2018, I made orders pursuant to s 411(1) of the Act providing for a meeting of the plaintiff’s members to be convened for the purpose of considering, and if thought fit agreeing to, the scheme: Bulletproof Group Ltd, in the matter of Bulletproof Group Ltd [2018] FCA 497 (my earlier reasons). These orders also dealt with procedural matters, including dispatch of the scheme booklet.

3    The following affidavits were read in support of approval of the scheme:

    Anthony Pannell, sworn 23 May 2018 and 25 May 2018;

    Kenneth Martin Carr, sworn 24 May 2018; and

    Mark Christopher Malinas, sworn 24 May 2018.

4    On the basis of this evidence, I was satisfied that the meeting had been convened and held in accordance with the orders made on 10 April 2018.

5    At that meeting, a resolution in favour of the scheme was passed by 84.98% of the members present and voting (either in person or by proxy), with 98.66% of the votes cast in favour of the scheme. The requirements of s 411(4) of the Act were therefore met.

6    In my earlier reasons, I recorded the following findings:

    the plaintiff’s directors unanimously recommended that members vote in favour of the scheme, in the absence of a superior proposal;

    the independent expert, BDO Corporate Finance (East Coast) Pty Ltd expressed the opinion that, although the scheme was not fair, it was, nonetheless, reasonable and in the best interests of members; and

    the scheme is of such a nature and is cast in such terms that, if approved by the members, the Court would be likely to approve it on an unopposed application. As events have transpired, no person has come forward to oppose the scheme (the application for Court approval having been advertised in accordance with the orders made on 10 April 2018).

7    In light of these findings, taken with the substantial vote of members in favour of the scheme, I was satisfied that the scheme was reasonable and in the best interests of members.

8    On 24 May 2018, the Australian Securities and Investments Commission provided a letter advising that, under s 411(17)(b) of the Act, it had no objection to the scheme.

9    All conditions precedent to the scheme had been satisfied or waived. This fact was recorded in a deed between the plaintiff and Klikon Group Holdings Pty Limited, the acquirer of the scheme shares.

10    Based on all these matters, I was satisfied that it was appropriate that the scheme be approved.

11    There is one matter to which I should, nevertheless, draw attention. I have noticed an increasing tendency for the affidavit evidence deployed in support of approval applications to resort to hearsay. This should be avoided, particularly when direct evidence on a particular subject can be given readily. Two examples of this in the present case illustrate the problems that can arise when the affidavit evidence is not in suitable form.

12    The first example concerns the dispatch of the scheme booklet. This evidence was given by Mr Pannell, a Client Relationship Manager at Link Market Services Ltd (Link). Link maintains the plaintiff’s register of members. Link arranged for a subcontractor, Median Technologies Pty Ltd (Median Technologies), to print and dispatch copies of the scheme booklet and proxy form to members. In his affidavit, Mr Pannell said that the scheme booklet had been dispatched by post to members with a registered address in Australia. Mr Pannell’s evidence in this regard was based on information said to have been supplied by Ms Ryan, an Account Manager at Median Technologies. On reading Mr Pannell’s affidavit, it was immediately apparent to me that the information on which he relied in making that statement was inconsistent with other statements made by Mr Pannell in his affidavit. Neither Mr Pannell nor, it seems, the plaintiff’s legal advisers appreciated that fact at the time the affidavit was sworn and read as part of the evidence in the approval application. As events later showed, the inconsistency arose because of two matters: firstly, Ms Ryan inadvertently supplied incomplete information to Mr Pannell; secondly, Mr Pannell erroneously failed to distinguish, in one part of his affidavit, between members with a registered address in Australia and members with a registered address outside Australia. As a consequence, it was necessary for the proceeding to be stood down so that evidence could be obtained to correct the evidence that Mr Pannell had given on this subject in his first affidavit. I cannot help but think that this consequence could have been avoided if the evidence had been given in the first place by Ms Ryan, who had direct knowledge of the facts.

13    The second example concerns the substantial conformity of the scheme booklet that had been dispatched to members, with the scheme booklet that had been approved by the Court on 10 April 2018 (Ex A). In his affidavit, Mr Pannell said that he had been informed by a solicitor employed by the plaintiff’s solicitors that a copy of the scheme booklet previously provided to him by another solicitor employed by the plaintiff’s solicitors was the same as Ex A, save for certain categories of amendments. Mr Pannell had no direct knowledge of that fact, and there was nothing in the evidence to suggest that either of the solicitors involved had any better knowledge. Plainly, evidence in that form could not establish the fact that the scheme booklet dispatched to members was substantially in the form of Ex A. The appropriate course would have been to obtain direct evidence of the changes made to Ex A and direct evidence of the fact that the amended scheme booklet, with those changes, had been given to Mr Pannell for dispatch to the members. As a result of this gap in the evidence, it was necessary for me to undertake in court my own comparison between Ex A and the scheme booklet dispatched to members, with the aid of a marked up version of Ex A provided by counsel. As events transpired, this was not an overly burdensome task. Indeed, there will be occasions when it is appropriate that the Court should undertake this task. The point of present significance is that the evidence that was intended to prove the fact of substantial conformity was plainly deficient for that purpose. Indirect proof is no substitute for direct proof, when direct proof can be given (as it could have been on this subject).

14    I do not make these remarks as a matter of censure. Overall, the application was extremely well-prepared. I do, however, wish to emphasis the fact that the Court should have before it evidence in appropriate form on all issues, so that it can be satisfied that the necessary procedural requirements in relation to the convening and holding of the scheme meeting have been complied with. If this is not done and, instead, unnecessary or avoidable shortcuts are taken, a plaintiff runs the risk that it will be delayed in obtaining the orders it seeks until sufficiently probative evidence is adduced.

Associate:

Dated:    8 June 2018