FEDERAL COURT OF AUSTRALIA

Viralytics Limited, in the matter of Viralytics Limited (No 2) [2018] FCA 972

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to subsection 411(4)(b) of the Corporations Act 2001 (Cth) (“Act”), the scheme of arrangement between the plaintiff and its shareholders, in the form of Exhibit 2 in the proceeding, be approved.

2.    The plaintiff lodge with the Australian Securities and Investments Commission a copy of the approved scheme of arrangement at the time of lodging a copy of these orders.

3.    Pursuant to subsection 411(12) of the Act, the plaintiff be exempted from compliance with section 411(11) in relation to order 1.

4.    These orders be entered forthwith.

5.    The Registrar be directed to give forthwith an office copy of the orders made today to the plaintiff.

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

REASONS FOR JUDGMENT

GLEESON J:

1    On 4 June 2018, I made orders, including an order pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (“Act”), approving the scheme of arrangement between the plaintiff and its shareholders. These are my reasons for making those orders.

BACKGROUND

2    The details of the scheme are described in Viralytics Limited, in the matter of Viralytics Limited [2018] FCA 637. The scheme provides for the acquisition by Merck Sharp & Dohme (Holdings) Pty Ltd (“MSD”) of 100% of the shares in the plaintiff (“Viralytics”) for $1.75 cash per share.

3    No representative of the Australian Securities and Investments Commission (“ASIC”) or other interested party appeared at the second court hearing. McCullough Robertson, Viralytics’ solicitors, received no notice of any intention on the part of any party apart from Merck Sharp & Dohme (Holdings) Pty Ltd to appear at the second court hearing. MSD received a communication from a possible interested party to the effect that that party was considering whether or not to seek leave to appear at the hearing; however, that party did not ultimately attend the hearing.

4    The evidence included a letter from ASIC dated 1 June 2018, by which it advised that it had no objection to the proposed scheme pursuant to s 411(17)(b) of the Act.

FORMAL AND STRUCTURAL MATTERS

5    I was satisfied that:

(1)    at a scheme meeting convened in accordance with the Court’s orders under s 411(1) of the Act, resolutions in favour of the scheme were passed with the statutory majority required for a members scheme by s 411(4)(a)(ii);

(2)    there was compliance with the orders made at the first hearing and other procedural requirements; and

(3)    ASIC indicated that it has no objections to the scheme under s 411(17).

Scheme meeting

6    The scheme meeting was held on 28 May 2018. Paul Hopper acted as chairman of the scheme meeting. The affidavit evidence of Sarah Prince, a company secretary and solicitor employed by Company Matters Pty Ltd and Andrew Pannell, Client Relationship Manager, Link Market Services Pty Ltd (“Link”) proved that the meetings were convened regularly and proceeded in accordance with the orders made on 20 April 2018.

7    Pursuant to s 411(4)(a)(ii) of the Act, to be eligible for approval by the Court, the scheme must have been approved at the scheme meeting by the following different majorities:

(a)    a majority in number of the members present and voting in person or by proxy; and

(b)    75% of the votes cast present and voting in person or by proxy.

8    The resolution to approve the scheme was passed by 94.59% of persons present in person or by proxy and 98.86% votes cast. Votes in favour were 178,224,227, by 1,276 holders. Votes against were 2,063,520, by 73 holders. Three shareholders (holding 25,042 votes) abstained.

9    Thus, the statutory majorities in favour of the scheme were obtained.

Voter turnout

10    In recent years, Courts have expressed an interest in knowing the turnout percentage of eligible shares (both for and against) and, more recently, shareholders. In Avoca Resources Ltd, re Avoca Resources Ltd [2011] FCA 208 (“Avoca Resources”) at [21], Gilmour J noted that these percentages have no statutory significance, but a low turnout percentage might suggest a flaw in the convening procedure. See also Mantra Group Limited, in the matter of Mantra Group Limited (No 2) [2018] FCA 805 (“Mantra Group”) at [9(4)].

11    The voter turnout percentages for the scheme meeting were:

(1)    shares participating – approximately 64%; and

(2)    members participating – approximately 26%.

12    Based on the figures discussed in Avoca Resources and Mantra Group, these percentages are not low. I identified no basis for concern about the procedure for convening the scheme meeting on the basis of these voter turnout percentages.

Compliance with 20 April 2018 orders and other procedural requirements

13    I was satisfied that:

(1)    a copy of the 20 April 2018 orders was lodged with ASIC on 20 April 2018, as required by r 3.5 of the Federal Court (Corporations) Rules 2000 (“Corporations Rules”);

(2)    scheme booklets and proxy forms were dispatched to members of Viralytics in accordance with the Court’s orders and s 412(6) of the Act, by a mailing house, Median Technologies, under the supervision of Link, which provides share registry services to Viralytics; and

(3)    the date of the second court hearing was advertised in the newspaper “The Australian” on 23 May 2018 by an advertisement substantially in the form annexed to the 20 April 2018 orders.

Conditions precedent

14    The evidence included two conditions precedent certificates, expressed to be effective on the second court date. The certificates certified that Viralytics and MSD were satisfied that the conditions precedent to the schemes had been satisfied or waived in accordance with the scheme implementation agreement.

DISCRETIONARY MATTERS

General principles

15    The general principles which guide the Court’s discretion at the second court hearing are very well established. The Court has a discretion whether to approve a scheme, and is not bound to approve it merely because it has previously made orders for the convening of meetings or because the statutory majorities have been achieved: In Seven Network Ltd (ACN 052 816 789); re Seven Network Ltd (ACN 052 816 789) (No 3) [2010] FCA 400; (2010) 267 ALR 583 (“Re Seven Network”) at [31], citing NRMA Ltd (Application of) [2000] NSWSC 408; (2000) 156 FLR 412 (“Re NRMA Ltd”) at [22]. However, the Court will usually approach the task upon the basis that the members are better judges than the Court of what is in their commercial interests: Re Seven Network at [32] and [33].

16    At [35] to [40] of Re Seven Network, Jacobson J set out the following six matters which courts have taken into account as informing their discretion whether or not to approve a scheme:

(1)    whether the shareholders have voted in good faith and not for an improper purpose;

(2)    whether the proposal is fair and reasonable so that an intelligent and honest man or woman who was a member of the relevant class, properly informed and acting alone, might approve it;

(3)    whether 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;

(4)    whether there has been full and fair disclosure of all information material to the decision

(5)    whether minority shareholders would be oppressed by the scheme; and

(6)    whether the scheme offends public policy.

Consideration

17    This was an uncontested proposal and those shareholders who attended the meeting voted in its favour in the requisite majorities. There was nothing to suggest that members voted other than in good faith, or that they cast their votes for an improper purpose, or that any member has been treated in way that might be characterised as oppressive.

18    I was satisfied that the proposal was fair and reasonable, by reference to the following matters:

(1)    No one came forward to Viralytics or the Court to oppose the scheme. ASIC has not raised an objection to the scheme.

(2)    The schemes were supported to the requisite majorities by those shareholders who attended the meetings and there was substantial attendance at the meetings.

(3)    The expert report of Deloitte Corporate Finance Pty Ltd expresses an independent opinion that, in the absence of a superior proposal, the scheme is fair and reasonable and in the best interests of Viralytics’ shareholders. There was no contrary evidence.

(4)    The content of the explanatory statement was verified on oath. The directors of Viralytics unanimously recommended that the participants in the schemes vote to approve them in the absence of a superior proposal. No superior proposal was forthcoming.

19    I was satisfied that Viralytics brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court’s jurisdiction.

20    There has been no criticism of the substance of the disclosure by any member or by ASIC. Nothing has been brought to my attention which would lead me to think that Viralytics’ shareholders might have been provided with inadequate information.

21    Nothing has been brought to my attention which suggests that the scheme may offend public policy in any way.

Section 411(10)

22    Section 411(10) of the Act provides that an order of the Court made for the purposes of s 411(4)(b) does not have any effect until an “office copy” of the order is lodged with ASIC. The expression “office copy” is also used in r 3.5 of the Corporations Rules, which requires the lodgement with ASIC of an “office copy” of orders made under ss 411 (1), (1A) or (4), or 413 (1) of the Act, as well as service of an “office copy” of the order on any person appointed to administer the compromise or arrangement. The expression is also used in reg 6.2 of the Corporations Rules, in a requirement for lodgement with ASIC of an office copy of an order for the appointment of a provisional liquidator. It is also used in reg 1.0.20 of the Corporations Regulations 2001 (Cth).

23    Mr Oakes SC, senior counsel for Viralytics, drew my attention to correspondence from ASIC, in which ASIC questioned whether a sealed copy of the Court’s order downloaded from the Court’s Electronic Court File (“ECF”) was an “office copy” within the meaning of s 411(10) of the Act and the Corporations Rules.

24    Since the implementation of the Court’s ECF, the official Court file for a proceeding in the Federal Court, subject to any order made by the Court in that proceeding, is the ECF: see Technology and the Court Practice Note (GPN-TECH) para 1.1.

25    Mr Oakes SC referred to the statements, concerning the meaning of “office copy”, made in Titelius v Public Service Appeal Board [1999] WASCA 19; (1999) 21 WAR 201. In that case, before the advent of electronic court files, the Court was considering whether the conduct of a public servant in giving a person a copy of a restraining order was a serious breach of discipline. It was common ground that the order was a “public document”. At [34], Malcolm CJ considered the effect of characterisation of a document as a “public document”, saying (emphasis added):

The question whether a document is a public document as distinct from a private document is one that has been considered in the context of the law of evidence. At common law, a document admissible in evidence as a public document could be proved by the production of a properly authenticated copy: Lynch v Clerke (1697) 3 Salk 154; Mortimer v M'Callan [1840] EngR 160; (1840) 6 M&W 58; Sayer v Glossop [1848] EngR 571; (1848) 2 Exch 409 at 441. Originally, proof of the contents of a public or judicial record was by production of an “exemplification”, namely, a copy under the Great Seal or the seal of the court where the record was kept. This procedure is no longer known. A judicial record, such as a judgment or order, is now proved by the production of an office copy or a certified copy. An office copy is a copy of a document in the custody of a court made and authenticated by an officer of the court who has the authority to supply a copy: Davenport v Townsend (1867) 15 LT 528. While the rules relating to the admissibility of office copies originally applied to superior courts only, they have in practice been applied to the records of courts of petty sessions

26    For the avoidance of doubt as to whether a copy of the Court’s order downloaded by Viralytics’ solicitor was an “office copy”, I made an order (order 5) that the Registrar be directed to give forthwith an office copy of the orders approving the scheme of arrangement to the plaintiff.

27    Since making that order, I have given further consideration to whether it was necessary in the light of the fact that the ECF is designed to avoid the inconvenience of individual Registrars being required to authenticate documents that have been uploaded to the ECF. I have concluded that doing so was unnecessary for the following reasons.

28    Section 37 of the Federal Court of Australia Act 1976 (Cth) (“Federal Court Act”) provides:

(1)    All writs, commissions and process issued from the Court shall be:

(a)    under the seal of the Court; and

(b)    signed (including by way of electronic signature) by the Chief Executive Officer, a District Registrar or an officer acting with the authority of the Chief Executive Officer or a District Registrar.

(2)    For the purposes of paragraph (1)(b), a document is taken to be signed by the Chief Executive Officer if the electronic signature of the Chief Executive Officer is applied to the document by an officer acting with the authority of the Chief Executive Officer.

(3)    In this section:

“electronic signature” of a person means the person’s unique identification in an electronic form that is approved by the Chief Executive Officer.

29    By s 4 of Federal Court Act, the “Chief Executive Officer” means the Chief Executive Officer and Principal Registrar of the Court (“CEO”). The CEO is appointed under s 18C of that Act.

30    Section 36(6) of the Federal Court Act provides that the seal of the Court shall be affixed to documents as provided by that or any other Act or by the Rules of Court.

31    Rule 2.01 of the Federal Court Rules 2011 (“Rules”) provides for the use of the seal of the Court. Rule 2.01(2)(b) provides that the seal of the Court or the stamp of a District Registry will be affixed to an order of the Court. Rule 2.01(3) provides that the seal of the Court and the signature of the Registrar may be affixed to a document by hand or by electronic means.

32    Rule 39.35 of the Rules provides for the authentication of orders without reference to the concept of an “office copy” as follows:

(1)    An order is authenticated by:

(a)    the Court, or a Registrar signing the order; and

(b)    the Court, a person at the direction of the Court, or a Registrar, affixing the seal of the Court or the stamp of a District Registry to the order.

(2)    The Registrar is to give a copy of an authenticated order in the proceeding to a party to a proceeding, on request.

(3)    The Registrar may give a copy of an authenticated order in the proceeding to any person who:

(a)    appears to have a sufficient interest in the proceeding; and

(b)    pays the prescribed fee (if any).

33    Schedule 1 to the Rules (the Rules’ dictionary) defines “Registrar” as meaning:

(a)    the Registrar, a Deputy Registrar, a District Registrar, or a Deputy District Registrar, of the Court; and

(b)    any officer from time to time authorised to perform the duties of a Registrar mentioned in paragraph (a).

34    As Principal Registrar, the CEO is an officer from time to time authorised to perform the duties of a Registrar.

35    An order made by the Court, authenticated in accordance with r 39.35 of the Rules, may be downloaded from the relevant ECF. Such an order bears the electronic signature of the CEO, the electronic seal of the Court and a notation that the document was prepared in the relevant Registry of the Court.

36    The CEO is taken to have signed the order and to have affixed the seal of the Court to the order by the inclusion of the CEO’s electronic signature and the Court’s electronic seal when the order is uploaded to the ECF for the proceeding in which the order is made.

37    An order uploaded to the relevant ECF is an electronic document in the custody of the Court, made by the relevant judicial officer and authenticated by the Court. By rr 39.35(2) and 39.35(3) of the Rules, the CEO has the authority to supply a copy of the order. By uploading an order onto the ECF, the CEO (in accordance with his authority to supply copies) makes the order available for the production of copies by downloading from the ECF.

38    Accordingly, where an order is uploaded onto the ECF, a copy of that order downloaded from the ECF by any person is an “office copy” within the meaning of s 411(10) of the Act because:

(1)    it is a copy of a document in the custody of the Court;

(2)    it is a copy of a document made and authenticated by a Registrar of the Court (relevantly, the CEO); and

(3)    it was supplied by the CEO making the document available for downloading, the CEO having the authority to supply a copy of the document.

CONCLUSION

39    For the reasons given above, I was satisfied that I should approve the scheme (order 1) and make ancillary orders 2 to 4.

Associate:

Dated:    27 June 2018