FEDERAL COURT OF AUSTRALIA

NetComm Wireless Limited, in the matter of NetComm Wireless Limited (No 2) [2019] FCA 1109

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Act) the scheme of arrangement between NetComm Wireless Limited (NetComm) and its shareholders, being in the form contained in Tab 3 to Exhibit “AM-1” in this proceeding, is approved.

2.    NetComm lodge an office copy of these Orders with the Australian Securities and Investments Commission as soon as practicable.

3.    Pursuant to s 411(12) of the Act, NetComm be exempted from compliance with s 411(11) of the Act, in relation to the scheme of arrangement referred to in Order 1.

4.    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

MARKOVIC J:

1    On 1 May 2019 I made orders (1 May Orders), among others, pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act) convening a meeting of holders of ordinary shares of NetComm Wireless Limited (NetComm) (Scheme Meeting) for the purposes of considering a proposed scheme of arrangement (Scheme), and approving a scheme booklet (Scheme Booklet) to be distributed to members (Scheme Shareholders) in connection with the Scheme: see NetComm Wireless Limited, in the matter of NetComm Wireless Limited [2019] FCA 795 (NetComm (No 1)).

2    The details of the Scheme are set out in NetComm (No 1) at [2]-[4].

background

3    On 22 May 2019 the directors of NetComm became aware of a letter from Tasman Jon Davies, a NetComm shareholder, posted on NetComm’s page on the HotCopper trading forum titled “Letter to shareholders of NetComm Wireless Limited” (Davies Letter). The effect of the Davies Letter was to assert that the cash consideration offered to Scheme Shareholders under the Scheme was inadequate. In a further post on the HotCopper trading forum made on 22 May 2019, Mr Davies stated that he would post the Davies Letter to NetComm shareholders with at least 5,000 shares in NetComm and with a registered address in Australia, which was approximately 1,900 shareholders, and invited the remaining 2,500 shareholders to email Mr Davies so that they too could receive a copy of the Davies Letter. Subsequently, NetComm approached the Court for orders that it would be justified in publishing a response to the Davies Letter.

4    On 27 May 2019 I made orders (27 May Orders) that NetComm was justified in publishing a letter in the form of annexure A to those Orders (May Letter to Shareholders).

5    On 29 May 2019 NetComm lodged an announcement with the ASX titled “Proxy Advisers recommend Scheme of Arrangement” (Proxy Adviser Announcement) which stated that institutional proxy advisers CGI Glass Lewis and Institutional Shareholder Services Inc recommended that Scheme Shareholders vote in favour of the Scheme. After inquiries from the Australian Securities and Investments Commission (ASIC) about the Proxy Adviser Announcement, on 6 June 2019 NetComm published an announcement with the ASX retracting it (Proxy Adviser Retraction).

6    Between 24 and 30 May 2019 NetComm received queries from a number of shareholders in relation to the outlook for NetComm beyond the 2019 financial year and requesting updates or information in relation to NetComm’s financial position. By letter dated 4 June 2019 from ASIC to NetComm, ASIC expressed its concerns in relation to the issues raised by these shareholders. Among other things, after referring to statements made by NetComm in the period 27 August 2018 to 22 February 2019 in relation to its strategic direction and the benefits it would realise, ASIC said:

Based on the above it appears that NetComm has periodically advised shareholders as to the short to medium term growth and value that is yet to be realised by the company.

It appears that these communications may have left an impression or otherwise created an expectation in the minds of shareholders, that the company is anticipated to achieve significant results in the relatively near future. Whilst ASIC recognises that all advice as to the prospects and expectations of a company are inherently subject to future uncertainty and risks and that there is no guarantee that expected outcomes will come into fruition, in the absence of any advice to the contrary however, shareholders may not otherwise have any firm reason to suspect any deviation from past advice provided. Thus, it is in this context that the decision by the directors of NetComm to recommend the sale of the company appears to have caused confusion or a misunderstanding amongst NetComm shareholders.

From the complaints that ASIC has received, it appears that there is a general sense of uncertainty by shareholders surrounding the timing and rationale for the sale when put into context of the previous advice that was provided by the company.

7    On 6 June 2019 I made orders (6 June Orders), among others, adjourning the Scheme Meeting to 20 June 2019 and the application to approve the Scheme, referred to as the second court hearing, to 24 June 2019 and requiring NetComm to announce the adjournment of the Scheme Meeting to the ASX.

8    Following ASIC’s expressions of concern about issues raised by shareholders, see [6] above, NetComm discussed the form of a supplementary disclosure with ASIC.

9    On 7 June 2019 I made orders (7 June Orders), among others, for the Scheme Meeting to be held on 18 June 2019, instead of 20 June 2019; for the second court hearing to be held on 20 June 2019, instead of 24 June 2019; and that NetComm would be justified in publishing to its members a letter substantially in the form of annexure RS-42 to the affidavit of Ronald Smooker, a partner in the firm of solicitors acting for NetComm (Supplementary Disclosure).

10    The Supplementary Disclosure was dispatched in accordance with the 7 June Orders, and relevantly included:

In deciding to recommend that NetComm shareholders vote in favour of the scheme in the absence of a superior offer the directors took into account the NetComm Outlook.

While having regard to the NetComm Outlook, but also having regard to the risks to NetComm if the Scheme does not proceed, which are set out in section 5.3 of the Scheme Booklet, the directors determined that the Scheme was in the best interests of NetComm shareholders for the reasons described in sections 2.1.2 to 2.1.7 of the Scheme Booklet.

In short, the directors consider that the Scheme crystallises value now by way of all-cash consideration at a substantial premium, which represents an attractive alternative to waiting for the NetComm share price to reflect value that may be created by the execution of NetComm's long term strategy, which is dependent on new customer wins together with the inherent uncertainty of future revenue streams. See section 2.1.4 of the Scheme Booklet.

    (emphasis in original.)

11    On 7 June 2019 the Scheme Meeting was convened and immediately adjourned to 18 June 2019. The Scheme Meeting was subsequently convened on 18 June 2019, and voting on the Scheme resolution took place.

12    On 20 June 2019 the second court hearing was listed before me. At that time, two of NetComm’s shareholders, Mr Davies and Namsat Pty Ltd (Namsat), were granted leave to be heard in the proceeding without becoming a party to it pursuant to r 2.13 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules). Mr Davies is the sole director of Namsat. Mr Davies and Namsat opposed NetComm’s application for approval of the Scheme. I address the matters raised by Mr Davies and Namsat below.

13    At the conclusion of the second court hearing, I made orders pursuant to s 411(4)(b) of the Act approving the Scheme. These are my reasons for making those orders.

legal principles

14    In APN Outdoor Group Limited, in the matter of APN Outdoor Group Limited (No 2) [2018] FCA 1633 at [4]-[5] I set out the applicable principles that govern the Court’s role in approving a scheme of arrangement under s 411(4)(b) of the Act as follows:

4    The role of the Court in approving a scheme of arrangement is supervisory. The Court has a discretion whether to approve a scheme pursuant to s 411(4)(b) of the Act. It is not bound to approve it merely because it previously made orders for the convening of a meeting or because the statutory majorities have been achieved. However, the Court will usually approach its task on the basis that members are better judges of what is in their own commercial interests than the Court: see Re Seven Network Ltd (ACN 052 816 789) (No 3) (2010) 267 ALR 583; [2010] FCA 400 (Re Seven Network) at [31]-[32] (per Jacobson J).

5    The matters of which the Court will need to be satisfied in deciding whether to approve a scheme relevantly include that:

(1)    there has been compliance with the orders of the Court convening the scheme meeting;

(2)    the resolution to approve the scheme was passed by the requisite majorities;

(3)    all other statutory requirements have been satisfied;

(4)    the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it. In considering this issue, it is not the role of the Court to impose its own commercial judgment on the scheme or to consider whether a better scheme might have been proposed;

(5)    the plaintiff has brought to the Court’s attention all matters that could be considered relevant to the exercise of the Court’s discretion; and

(6)    there has been full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme.

See Re Seven Network at [35]-[39]; Signature Capital Investments Limited, in the matter of Signature Capital Investments Limited (No 2) [2016] FCA 385 at [4]; Medical Australia Ltd, in the matter of Medical Australia Ltd (No 2) [2017] FCA 1429 at [5].

15    The issue of full and fair disclosure was of some significance at the hearing of the application. That was so because of steps taken by NetComm in response to issues raised with it by Mr Davies, Namsat and other shareholders, described at [3] and [6] above, and because Mr Davies and Namsat raised, as one of the reasons why the Scheme should not be approved, the adequacy of NetComm’s disclosure.

16    As observed by Black J in In the matter of BIS Finance Pty Limited; In the matter of Artsonig Pty Limited [2017] NSWSC 1713 at [28]:

The explanatory statement for a scheme must contain “all the main facts as will enable [scheme participants] to exercise their judgment on the proposed scheme” and should fairly disclose any matter “which, if known and appreciated, has the capacity to influence a creditor’s decision and judgment whether to vote one way rather than the other (and, indeed, whether to participate at all)” and whether creditors voting on a creditors’ scheme have as much or more to gain from the scheme than a winding up ….

17    In Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 at [54]-[55] Vaughan J said the following about the standard of disclosure required of an explanatory statement:

54    As to the standard of disclosure:

•    The emphasis is on ensuring full disclosure so that the members are properly informed in their consideration of the proposed scheme. Thus the explanatory statement must provide proper disclosure conformable with s 411(3) and s 412 of the Act.

•    What is required is a statement of all of the main facts as will enable shareholders to exercise their judgment on the proposed scheme.

•    The court is also concerned with the notion of a fair picture being presented; there should not be an unbalanced presentation. The expectation is one of forthrightness. Cards must be placed on the table.

•    The court must be satisfied, at least to a prima facie level, that there has been proper disclosure with nothing misleading or deceptive in any material sense.

55    In each case the extent of disclosure required is a question of fact and degree dependent on the nature of the scheme and the context in which it is advanced for consideration. This must be considered in a practical and commercially realistic way having regard to the complexity of the proposed scheme.

(footnotes omitted.)

Procedural requirements

Compliance with the Court’s Orders

1 May Orders

18    The evidence established that, insofar as necessary given the subsequent orders made by the Court, there had been compliance with the 1 May Orders. In particular:

(1)    subject to the matter addressed below at [19]-[21], notice of the Scheme Meeting (then to be held on 7 June 2019), proxy forms and the Scheme Booklet, in a form substantially in the form of annexure A to the 1 May Orders, were sent to Scheme Shareholders between 6 May 2019 and 10 May 2019;

(2)    as required by Order 11 of the 1 May Orders an advertisement substantially in the form of annexure B to those Orders was published in The Australian newspaper on 27 May 2019; and

(3)    the Scheme Meeting was held at the time and place specified in the 1 May Orders and Justin Milne acted as chairperson of the meeting but, as noted at [11] above, the meeting was adjourned to 18 June 2019. Mr Milne also acted as chairperson of the meeting on 18 June 2019.

19    On 8 May 2019 NetComm became aware that there was an error in the printing of the Scheme Booklet and that the external front cover had been swapped with the external back cover. There were no other errors in the printing of the Scheme Booklet. As the 1 May Orders required the Scheme Booklet and other material to be dispatched by post to those shareholders who were not “Email Shareholders” (as defined in the 1 May Orders) by 10 May 2019, Christopher Last, the chief financial officer and company secretary of NetComm, decided that the Scheme Booklet should be posted despite the printing error in order to ensure compliance with those Orders.

20    On 10 May 2019 letters were sent to Scheme Shareholders who had received a hard copy of the Scheme Booklet containing the printing error identifying the error, providing a link to the electronic copy of the Scheme Booklet and offering that a corrected hard copy be provided on request.

21    I accepted NetComm’s submission that the printing error would be obvious to any reader from even a brief review of the Scheme Booklet and that the issue was appropriately addressed when the error was discovered. I accepted that the printing error did not cause any confusion on the part of shareholders insofar as the substantive matters for decision at the Scheme Meeting were concerned. The printing error was limited to the cover of the Scheme Booklet and did not affect its content.

27 May Orders

22    In accordance with the 27 May Orders, on 27 May 2019 the May Letter to Shareholders was released to the market by the ASX and published on NetComm’s website and on 28 May 2019 a copy of the May Letter to Shareholders was sent to NetComm’s shareholders by priority post.

6 June Orders

23    On 6 June 2019 in accordance with Order 2 of the 6 June Orders the adjournment of the Scheme Meeting to 20 June 2019 was announced on the ASX.

7 June Orders

24    The evidence established that, subject to the issue discussed at [25]-[28] below, there was compliance with the 7 June Orders. In particular:

(1)    the Supplementary Disclosure, which also notified Scheme Shareholders of the adjourned date for the Scheme Meeting and for the second court hearing, was announced to the ASX;

(2)    on 11 June 2019 the Supplementary Disclosure was dispatched in accordance with Order 1 of the 7 June Orders; and

(3)    an advertisement substantially in the form of annexure RS-43 to the affidavit of Ronald Smooker sworn on 7 June 2019 providing notice of the second court hearing was published in The Australian newspaper on 12 June 2019.

25    An issue arose in relation to the Supplementary Disclosure. While the letter sent to shareholders by post conformed to the form of the Supplementary Disclosure the subject of the 7 June Orders, the email sent to shareholders did not. The difference was in the information provided to shareholders about the ability to change their vote by lodging a fresh proxy if they wished.

26    The Supplementary Disclosure referred to in the 7 June Orders was to include, and did include in the case of the Supplementary Disclosure dispatched by post, the following statement:

If you have already voted and do not wish to change your vote, you do not need to take any action.

If you have not yet voted, or have submitted a proxy form and wish to change your vote, a further proxy form is included with this letter. You can also request another proxy form by calling the shareholder information line on 1300 365 969 (within Australia) or +61 1300 365 969 (outside Australia) Monday to Friday (excluding public holidays), between 8.30 am and 5.00 pm (AEST).

27    The Supplementary Disclosure sent by email did not include that statement but included the following:

Your Vote is Important

If you have already voted and do not wish to change your vote, you do not need to take any action.

How to Vote Online

To lodge your proxy vote on-line, please follow the instructions below:

1. Click on the link(s) below. Each link represents a separate holding:

NICHOLAS WILDING

# indicates a joint holding

2. For each shareholding:

•    if your registered address is in Australia, enter the postcode; or

•    if your registered address is overseas, select your country from the drop down menu.

3. After you have logged in, you will be offered the choice of appointing a proxy or lodging a vote.

The deadline for lodging, revoking or varying a proxy form is 10:00 am on Sunday 16 June 2019.

    (emphasis in original.)

28    Despite the difference in wording, I was satisfied, given the way in which the extract set out in the preceding paragraph was framed, that the Supplementary Disclosure was in substantially the same form and to the same effect as that referred to in the 7 June Orders. Accordingly, I was satisfied that there was compliance with those Orders by NetComm.

Scheme Meeting

29    As noted at [18] above the Scheme Meeting was adjourned to and held on 18 June 2019 and was chaired by Mr Milne.

30    At the Scheme Meeting the statutory majorities were obtained with:

(1)    59.95% of shareholders present and voting in person or by proxy voting in favour of the resolution and 39.9% of shareholders present and voting in person or by proxy voting against the resolution; and

(2)    of the total number of shares voted, 86.58% of those shares were voted in favour of the resolution and 13.42% of those shares were voted against it.

Other statutory and procedural requirements

31    At the conclusion of the hearing and prior to the making of orders, ASIC provided a letter dated 20 June 2019 in which it informed NetComm pursuant to s 411(17)(b) of the Act that it had no objection to the proposed Scheme.

32    I was otherwise satisfied that all other statutory requirements had been met.

33    In addition NetComm certified that as at 20 June 2019 the conditions precedent in the Scheme Implementation Deed dated 22 February 2019 between it and Casa Systems, Inc (Casa) (SID), other than the condition precedent in cl 3.1.4, had been satisfied or waived in accordance with the SID and that it was not in breach of the SID.

further disclosure by Netcomm

34    Subsequent to the issue of the Scheme Booklet NetComm made a number of disclosures to its shareholders and the ASX (see [3]-[10] above).

35    Having regard to the principles set out at [14]-[17] above, I was satisfied that there had been adequate disclosure to NetComm shareholders. I accepted the following submissions made by NetComm in relation to each of the further disclosures set out above:

(1)    any potentially misleading implication that may have been derived from the Proxy Adviser Announcement was addressed by the Proxy Adviser Retraction;

(2)    the May Letter to Shareholders was an appropriate response to the Davies Letter; and

(3)    the Supplementary Disclosure, which identified the commercial choice for shareholders, was adequate to address the concerns identified by ASIC and by those shareholders who communicated with it.

Mr Davies and NAmsat’s objection to approval of the scheme

36    As set out above, Mr Davies and Namsat were given leave to be heard at the hearing pursuant to r 2.13(1) of the Corporations Rules. Mr Davies filed a notice of appearance which was treated as a notice of intention to appear (Notice of Appearance). The “grounds” included in the Notice of Appearance were treated as submissions and provided:

1.    Shareholders were required to vote on a Scheme of Arrangement based on limited information and reliant on a director recommendation which relied on an Independent Expert’s Report. The Independent Expert’s Report recommendation relied on a valuation of NetComm based on the market traded share price over the period from 27 August 2018 to 21 February 2019 (IER page 35). Both valuation methods used the share price during this period as the basis of determining a valuation range and a view of the fair value of NetComm shares in relation to the Scheme Offer. The Revenue Multiple Approach determined the multiplier by the enterprise value as measured by the share price of $0.71 (IER page 30) and the market value approach simply provided a control premium uplift to the general share price trading range during this same period.

2.    A report was provided to NetComm outlining trading data indicating systematic and prolonged share trading that manipulated the share price downwards over the period from mid July 2016 to end of December 2018 that raises serious concerns that the share price did not reflect a market price based on true market forces that would otherwise provide a basis for price discovery and a true representation of market forces through supply and demand.

3.    Even when based on the share price that I assert is artificially low the independent expert used pessimistic and arguable incorrect assumptions that further undervalued the NetComm share value in the Revenue Multiple Method. This analysis is detailed in my letter to shareholders on 22 May 2019.

4.    We asked the Board to investigate the matters raised in the report on NetComm share trading in order to protect the interest of shareholders. We believe that is unacceptable to have shareholders vote on a matter as serious and final as the Scheme with the matters raised in the report not properly considered by the Board.

5.    The company was asked twice by me in writing to inform the market of the outlook for trading past the current financial year. This information is required by shareholders to assess the merits of the Scheme in regards to assessing the future trading risks and points 2.2.1, 2.2.2, 2.2.3 and 2.2.4 in the Scheme Booklet which would provide a basis for shareholders to consider the option of voting AGAINST the scheme. This was also asked again prior to the vote in the Scheme meeting and the Chairman advised that it was required, appropriate or relevant to provide this information. The relevance pertained to the outcome of the vote which had not yet been officially taken. It appears to this shareholder that the Chairman representing the Board had pre-empted the vote in deciding what information was relevant to shareholders. In effect the Directors were providing a certain option of $1.10 per share and a completely uncertain view of what would transpire if the vote was AGAINST the Scheme. In my view this prejudiced the outcome and the ability of shareholders to properly assess the merits of the Scheme.

6.    We ask the Court to consider these matters, the documents provided as per the Affidavit and provide guidance back to shareholders on how we can protect our interests in this matter.

37    Mr Davies and Namsat also relied on an affidavit sworn by Mr Davies on 19 June 2019 which, after rulings were made on NetComm’s objections to it, principally annexed correspondence between Mr Davies and NetComm.

38    Mr Davies made the following further submissions.

39    Mr Davies first informed the Court about his motivation for appearing at the second court hearing, noting the propensity for Australia to sell off its valuable IP at a time when its potential for commercial purposes is evident, with the result that technical jobs and innovation are exported.

40    Mr Davies contended that he still has no information from the directors of NetComm as to why they are selling the company and that in the May Letter to Shareholders the board reiterated its unanimous recommendation to sell the company. He addressed each of the reasons given for that recommendation:

    as to the significant premium to the share price, which was 50% up on the previous six months, Mr Davies said that the share price had been as high as approximately $3.90 over the last few years and that the premium was based on a time when the share price was low despite the results having been quite encouraging with revenue growth. He said that while shareholders will get $1.10 per share, an investor in shares is not necessarily after certainty and that certainty in value is not a reason to sell a company but simply a specification of the proposal;

    insofar as it was said that there was no other proposal, Mr Davies submitted that he thought that there was another very compelling proposal which was to continue to grow the business, deliver great service and products, innovate, make money and reward employees and shareholders; and

    as to the risk of the share price falling to $0.72, Mr Davies conceded that was a valid reason and was something that shareholders needed to consider but that it was unbalanced because there was also the possibility of the share price going up over a period of time.

41    Mr Davies submitted that NetComm was in breach of s 602 of the Act in not providing a reasonable time and enough information to enable shareholders to assess the merits of the proposal.

42    Mr Davies then turned to the independent expert report prepared by Lonergan Edwards & Associates Limited (Lonergan Edwards) and included in the Scheme Booklet (IER). He contended that the analysis in the IER, insofar as it adopted the revenue multiple approach to value the shares, was “deeply flawed” and that the alternate method used for calculating the value of the company using the share price with a control premium added was, in effect, use of the same method.

43    Mr Davies’ criticism of the revenue multiple approach included in the IER was in relation to the choice of ADTRAN, Inc (Adtran), a company with similar technology and similar products, as the comparator in circumstances where, in contrast to NetComm and based on Mr Davies’ own calculations, Adtran had had fairly flat revenue. Mr Davies described the independent expert’s methodology as “like a circular reference going back to use the share price to work out what the multiplier is to work out a fair value” and said that it should be the other way around. Mr Davies noted the independent expert came up with a revenue multiplier in the range of 0.65-0.75 for NetComm and 0.9 for Adtran but that one would expect that the multiplier should be higher for NetComm, given it is a higher growth revenue company than Adtran. Mr Davies explained that his argument essentially was that the independent expert did not use the revenue multiple approach but used the share price.

44    Mr Davies submitted that in order for shareholders to be able to weigh up the merits of the proposal they required further information. He stated that he had asked the NetComm board to provide further information on the outlook for the company to at least the next financial year and the response he received from the board was that the company had provided all necessary disclosures and the information could be found in the Scheme Booklet. Mr Davies, in effect, submitted that there was insufficient information provided in the Scheme Booklet and that the absolute lack of information beyond the 2019 financial year was prejudicial to shareholders’ ability to weigh up the merits of the Scheme.

45    Mr Davies also submitted that there had been manipulation of NetComm’s share price. He contended that the company had delivered strong revenue growth, was profitable, had no debt, had contracts in place for a long period of time and was investing in new technology and that, as a result, he would have expected in normal day-to-day market trading there would have been a price discovery process and not a sudden drop and flatlining of the share price. Mr Davies contended that NetComm’s share price behaviour did not seem natural to him and that he would ask the Court to not approve the Scheme until the matters raised by him were properly resolved. Mr Davies also sought an order that NetComm pay the costs of a forensic expert to look into the issues raised by him in relation to the alleged share price manipulation.

46    In response to Mr Davies’ and Namsat’s criticism of the IER, NetComm relied on an affidavit sworn on 20 June 2019 by Craig Edwards of Lonergan Edwards. Mr Edwards, who together with Martin Holt prepared the IER, was provided with a copy the Notice of Appearance and Mr Davies’ affidavit. Mr Edwards prepared a supplementary report in response (Supplementary Expert Report). In that report, Mr Edwards responded to the criticism that:

(1)    share trading in the period 27 August 2018 to 21 February 2019, which was relied on in the IER, was unreliable, as follows:

I disagree with any suggestion that the share trading in the period between 27 August 2018 and 21 February 2019 was unreliable. This is primarily because, as noted in paragraph 152 of the IER, the value of NetComm shares traded between the release of its FY19 guidance on 27 August 2018 and the announcement of the Scheme was $45.9 million. Given that the Scheme valued all the shares in NetComm at approximately $161 million, this is a relatively high level of share trading (which suggests that the volume weighted average share price (VWAP) during this period of $0.78 per share is an appropriate valuation reference point).

(2)    the revenue multiple calculation for NetComm shares in the IER uses either pessimistic or incorrect assumptions by confirming that, upon his review of the letter from Mr Davies to NetComm shareholders dated 22 May 2019 (being annexure TJD10 to Mr Davies’ affidavit), the revenue multiple valuation remains appropriate for the reasons set out at [131]-[148] of the IER. Mr Edwards set out the reasons why he considered Mr Davies’ approach to be incorrect.

47    Mr Edwards concluded that nothing in the Notice of Appearance or in Mr Davies’ affidavit caused him to change the opinion expressed in the IER and that he remained of the view that the Scheme was fair and reasonable and in the best interests of NetComm shareholders, in the absence of a superior proposal.

48    I was not persuaded that I should refuse to approve the Scheme based on the matters raised by Mr Davies and Namsat. That was so for the following reasons.

49    First, I was not satisfied that any issue arose in relation to the IER. Mr Davies did not call any expert evidence to counter the analysis and conclusions in the IER. Mr Edwards addressed the concerns raised by Mr Davies’ submissions in the Supplementary Expert Report and confirmed his opinion that the Scheme was in the best interests of NetComm shareholders in the absence of a superior proposal. In particular, in the Supplementary Expert Report Mr Edwards addressed the appropriateness of the revenue multiple approach adopted in the IER and, as senior counsel for Casa pointed out, the matters that were considered relevant to the revenue multiple valuation did not include historical growth figures but were profitability of NetComm as a percentage of revenue and expected revenue growth.

50    Secondly, s 602 of the Act has no application to schemes of arrangement but is found in Ch 6 of the Act which is concerned with takeovers.

51    Thirdly, Mr Davies’ allegations of manipulation of the NetComm share price was based on an unsigned draft report in inadmissible form. In any event, in the Supplementary Expert Report Mr Edwards noted that in his view the NetComm share price in mid-2016 “reflected unrealistic expectations as to the future performance and outlook for the NetComm business” and that the “NetComm share price then declined as the company’s results and outlook failed to live up those lofty expectations”.

52    Fourthly, as set out at [34]-[35] above, having regard to the Scheme Booklet and the additional disclosures NetComm made, I was satisfied that NetComm had made fair and adequate disclosure and presented a fair picture to shareholders.

other matters

Scheme is fair and reasonable

53    At the first court hearing I was satisfied that the Scheme was of such a nature and cast in such terms that, if approved at the Scheme Meeting by the statutory majorities, the Court would be likely to approve it on the hearing of an unopposed application: see NetComm (No 1) at [29].

54    Further, having regard to the conclusion I reached in relation to the matters raised by Mr Davies and Namsat and the further disclosures made by NetComm, I was satisfied that the Scheme was reasonable such that any intelligent and honest shareholder properly informed and acting alone would approve it.

All relevant matters brought to the Court’s attention

55    I was satisfied that NetComm had brought all necessary matters to the Court’s attention. This included the matters notified to the Court at the first court hearing, none of which were considered to be of concern or to justify the Court declining to make the orders sought at that time: see NetComm (No 1) at [16]-[28]. In addition NetComm brought to the Court’s attention:

    the correspondence with ASIC in relation to the Proxy Adviser Announcement and the Proxy Adviser Retraction;

    the complaints received from some Scheme Shareholders about the Scheme;

    the correspondence with ASIC regarding the Supplementary Disclosure; and

    the correspondence from Mr Davies including the draft report regarding trading in NetComm’s shares.

conclusion

56    For those reasons I was satisfied that I should approve the Scheme and made the orders sought by NetComm.

Associate:

Dated:    18 July 2019