Federal Court of Australia

American Pacific Borates Limited, in the matter of American Pacific Borates Limited [2021] FCA 1590

ORDERS

OTHER MATTERS:

A.    The Court notes that the Australian Securities and Investments Commission (ASIC) was provided with at least 14 days' notice of the hearing of this application.

B.    The Court is satisfied that ASIC has had a reasonable opportunity to:

a.    examine the terms of the proposed scheme of arrangement to which the application relates and a draft explanatory statement relating to that arrangement; and

b.    make submissions to the Court in relation to the proposed scheme of arrangement and the draft explanatory statement.

C.    The Court notes the letter from ASIC to the directors of the plaintiff, American Pacific Borates Limited, dated 26 October 2021 produced at the hearing.

THE COURT ORDERS THAT:

1.    Pursuant to subsection 411(1) and section 1319 of the Corporations Act 2001 (Cth) (Act), the plaintiff American Pacific Borates Limited (ABR) convene and hold a meeting of its shareholders (Scheme Meeting):

(a)    for the purpose of considering and, if thought fit, agreeing (with or without modification) to the scheme of arrangement (Scheme) proposed to be made between ABR and its shareholders (ABR Shareholders), the terms of which are set out in Annexure A to these orders; and

(b)    to be held on 3 December 2021 at 10.00am (AEDT) and to be conducted electronically through an online platform (which is to be accessed in accordance with the instructions included in the Notice of Scheme Meeting to be sent to shareholders in accordance with order 2(a) below).

2.    Pursuant to subsection 411(1) and section 1319 of the Act, the Scheme Meeting be convened by sending on or before 3 November 2021 to each ABR Shareholder:

(a)    an email to each ABR Shareholder who has nominated an electronic address for the purpose of receiving notices from ABR (Email Shareholder) (or, in the case of joint holders, to the holder whose name appears first in ABR’s register), such email to be substantially in the form of Annexure DJS-1 to the affidavit of David Jay Salisbury sworn on 26 October 2021 (Salisbury Affidavit), and which contains hyperlinks to:

(i)    an electronic copy of a document substantially in the form of the document which is Annexure SPD-11 to the affidavit of Sean Peter Duffy affirmed on 27 October 2021 (Third Duffy Affidavit) (Scheme Booklet) (which contains, among other things, the proposed Scheme of Arrangement at Annexure C and Notice of Meeting at Annexure E);

(ii)    an online portal or website that is accessible by the Email Shareholder and which enables the Email Shareholder to lodge proxy voting instructions for the Scheme Meeting online; and

(iii)    an online portal or website that is accessible by the Email Shareholder to listen to and participate in the Scheme Meeting online;

(b)    to each ABR Shareholder who is not an Email Shareholder (or, in the case of joint holders, to the holder whose name appears first in ABR’s register) (Postal Shareholder):

(i)    a hard-copy document substantially in the form of Annexure SPD-9 to the Second Duffy Affidavit (Notice & Access Form) setting out a URL which provides access to a website from which the Postal Shareholder:

A.    can download an electronic copy of the Scheme Booklet; and

B.    is directed to an online portal or website that is accessible by the Postal Shareholder to listen to and participate in the Scheme Meeting online; and

(ii)    a hard copy proxy form substantially in the form which is at SPD-9 to the Second Duffy Affidavit (Proxy Form) and a reply paid envelope for the Postal Shareholder to lodge their Proxy Form and voting instructions for the Scheme Meeting.

3.    The documents referred to in order 2(b) be sent:

(a)    in the case of ABR Shareholders whose registered address is within Australia, by prepaid ordinary post addressed to the relevant addresses recorded in ABR’s register; and

(b)    in the case of ABR Shareholders whose registered address is outside Australia, by airmail or international courier service addressed to the relevant addresses recorded in ABR’s register.

4.    Compliance with r 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) (Rules) be dispensed with, except in so far as that rule applies rule 75-15(2) of the Insolvency Practice Rules (Corporations) 2016 (Cth).

5.    Voting on the resolution to agree to the Scheme is to be conducted by way of a poll.

6.    A proxy in respect of the Scheme Meeting will be valid and effective if, and only if, it is completed and delivered in accordance with its terms or a proxy is lodged online in accordance with the instructions on the online portal or website referred to in Order 2(a)(ii) and received by ABR by 10:00am (Melbourne time) on 1 December 2021.

7.    David Jay Salisbury or, failing him, Anthony David Hall, be Chairperson of the Scheme Meeting.

8.    The Chairperson of the Scheme Meeting has the power to adjourn the Scheme Meeting to such time, date and at such place (including electronically) as the Chairperson considers appropriate.

9.    ABR publish a notice of hearing in The Australian newspaper, in substantially the form that appears at Annexure B to these orders, not later than 5 days prior to the date fixed for the hearing of any application to approve the Scheme, and ABR be relieved from compliance with Rule 3.4 and Form 6 of the Rules to the extent necessary.

10.    The further hearing of the Originating Process is adjourned to 2:15pm (Melbourne time) on 8 December 2021 before the Honourable Justice Anastassiou or as soon thereafter as the business of the Court allows.

These orders have been amended in accordance with Rule 39.05(h) of the Federal Court Rules 2011.

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

ANNEXURE A

SCHEME

[The order entered is available on the Commonwealth Courts Portal, which attaches the Scheme]

ANNEXURE B

NOTICE OF HEARING TO APPROVE SCHEME OF ARRANGEMENT

TO all the members of American Pacific Borates Limited (ACN 615 606 114) (ABR):

TAKE NOTICE that at 2:15pm on 8 December 2021, the Federal Court of Australia will hear an application by ABR seeking the approval of a scheme of arrangement between ABR and its members (the Scheme) if agreed to by a resolution to be considered and, if thought fit, passed by the members of ABR at the meeting to be held on 3 December 2021.

If you wish to oppose the approval of the compromise or arrangement, you must file and serve on ABR a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on ABR at its address for service at least 1 day before the date fixed for the hearing of the application.

The address for service of ABR is c/- Baker McKenzie, Level 19, 181 William Street, Melbourne VIC 3000, Australia (Attention: Helen Joyce) (Email: helen.joyce@bakermckenzie.com).

REASONS FOR JUDGMENT

(Delivered ex tempore, revised from transcript)

ANASTASSIOU J:

Background

1    By Originating Process dated 12 October 2021, the Plaintiff, America Pacific Borates Limited (ABR), seeks orders under s 411(1) of the Corporations Act 2011 (Cth) to convene and hold a meeting of shareholders (the Scheme Meeting) to consider a proposed scheme of arrangement (the Scheme), which is annexure A to the orders I have made.

2    The commercial purpose of the Scheme is to effect a re-domiciliation of ABR from Australia to the United States of America (USA). It is, in effect, a corporate immigration of the place at which the company is to be listed as its primary place of listing.

3    In support of the Originating Process, ABR relied on the following affidavits (including exhibits):

(1)    an affidavit of Sean Peter Duffy, Partner at Baker McKenzie (the solicitors acting for ABR), affirmed on 12 October 2021 (the First Duffy Affidavit);

(2)    an affidavit of Sean Peter Duffy affirmed on 26 October 2021 (the Second Duffy Affidavit);

(3)    an affidavit of David Jay Salisbury, Non-Executive Director and Chair of ABR, sworn on 26 October 2021 (the Salisbury Affidavit);

(4)    an affidavit of Craig Alan Roeder, partner in the Chicago office of Baker & McKenzie LLP and co-leader of that office’s transactional practice, affirmed on 26 October 2021 (the Roeder Affidavit);

(5)    an affidavit of Aaron Dean Bertolatti, a director of HoldCo (defined below), affirmed on 26 October 2021 (the Bertolatti Affidavit);

(6)    an affidavit of Anthony David Hall, a director of ABR, affirmed on 26 October 2021 (the Hall Affidavit);

(7)    an affidavit of Andrea de Cian, a representative of Grant Thornton Corporate Finance Pty Ltd (Grant Thornton), affirmed on 26 October 2021 (the de Cian Affidavit); and

(8)    an affidavit of Sean Peter Duffy affirmed on 27 October 2021 (the Third Duffy Affidavit).

Overview of the Scheme

4    ABR is currently an ASX-listed public company incorporated in the state of Western Australia. ABR conducts mining exploration, and its main operations is the Fort Cady Integrated Boron Facility located in Southern California, USA. ABR is seeking to become a fully integrated producer of Boron specialty products for application in clean energy transition, electronic transportation and the food industry, and it has identified that large target markets exist in California and Arizona.

5    The central structure of the proposed Scheme is one whereby the current shareholders of ABR and its related entities will become shareholders of a company incorporated in the United States in the State of Delaware, presently known as 5E Advanced Materials Inc (HoldCo).

6    The method to be employed to achieve the transition to HoldCo has been described in the authorities as “top-hatting”: see, eg, Re Tronox Limited [2019] FCA 312 at [11] (O’Callaghan J). Top-hatting is a colloquial expression that means that following the restructure the shares held by the new company will reflect precisely the shares held by the company making the application, namely ABR.

7    HoldCo was incorporated under the laws of the State of Delaware on 23 September 2021. It was incorporated for the purpose of re-domiciling ABR to the United States under the proposed Scheme.

8    The operation of the Scheme is such that HoldCo will acquire all of the issued shares in ABR from the holder of those shares, with the result that ABR will become a wholly-owned subsidiary of HoldCo.

9    An important feature of the Scheme is that in consideration for the transfer of each ABR share to HoldCo, HoldCo shareholders, other than certain ineligible foreign shareholders to which I will refer below, will receive one HoldCo share for every 10 ABR shares held or one HoldCo CHESS Depository Interest (CDI) for every one ABR share held (depending on their election). In addition, ABR option holders will receive substituted options in HoldCo. In particular, the ABR Options will be cancelled in consideration of the grant of equivalent rights to acquire HoldCo Shares on the basis of 1 HoldCo Option for every 10 existing ABR Options held.

10    It follows that eligible ABR shareholders will hold an equivalent proportional interest in HoldCo as they held in ABR prior to the implementation of the Scheme. The Scheme will not result in any change to the operations, management or strategy of the ABR group. Indeed, HoldCo’s business will consist entirely of the business of ABR.

11    HoldCo will apply to be admitted to the official list of the Nasdaq Stock Market (NASDAQ) as its primary listing and to the official list of the ASX as its secondary listing. HoldCo will be registered in Australia as a foreign company under the Act. The HoldCo shares will be able to be traded on the NASDAQ and HoldCo’s CDIs will be able to be traded on the ASX.

12    The top-hatting method of effecting the change of domicile of a company is one which has been employed in other cases of a similar kind. For example, in Re News Corporation Ltd [2004] FCA 1480; 51 ACSR 394, News Corporation reincorporated in the USA by top-hatting the existing Australian incorporated holding company (News Corp, which had its primary listing on the ASX) with a Delaware incorporated company with its primary listing on NYSE (News Corp US). This was achieved by shareholders in News Corp exchanging their shares in News Corp for shares in News Corp US, and option holders receiving substituted options in News Corp US.

13    There are more recent examples, including Re GetSwift Limited (No 2) [2020] FCA 1733, see especially at [15] and [35] (Farrell J), and Re Amcor Limited [2019] FCA 346, see especially at [6]-[9], [32] (Beach J).

14    The Scheme does not involve any change of control of ABR and accordingly a question of relevance is whether the proposed Scheme has advantages which outweigh any disadvantages involved in the re-domicile. In this respect, the proposed re-domiciliation of ABR is expected to provide the following potential advantages to shareholders:

(1)    position the ABR Group in a more appropriate capital market, given that all of its assets are located in the USA;

(2)    increase the attractiveness of the ABR Group to a broader US investor pool that previously could not or were unlikely to invest in non-US securities;

(3)    increase the ABR Group’s access to lower-cost debt or equity capital in the US capital market; and

(4)    allow the ABR Group to streamline its business operations, as the corporate structure would be aligned with the core of its business operations.

15    ABR relies upon an independent report from Grant Thornton which is before the Court and dated 26 October 2021 (the Independent Expert’s Report). Grant Thornton have concluded, as expressed in the summary of their opinion, that the advantages of the Scheme outweigh the disadvantages and accordingly the Scheme is in the best interests of ABR shareholders.

16    ABR has also prepared a draft scheme booklet which sets out a detailed description of the proposed Scheme, including its advantages and disadvantages (the Scheme Booklet). The Scheme Booklet annexes a notice of meeting for the Scheme Meeting. It also annexes a copy of the Independent Expert’s Report, and sets out the ABR directors’ recommendation to shareholders to vote in favour of the Scheme, and the ABR directors’ intentions to vote any ABR shares held by them in favour of the Scheme.

17    ABR proposes to provide the Scheme Booklet to its shareholders electronically for the purpose of the Scheme Meeting. In light of the COVID-19 pandemic, the Scheme Meeting is proposed to be conducted via an online platform, without any physical attendance.

18    The Australian Securities and Investments Commission (ASIC) was first provided with a copy of the draft Scheme Booklet on 12 October 2021. ASIC was provided with a further draft on 21 October 2021. On 26 October 2021, ABR received a preliminary ‘no objection letter’ from ASIC, in which the regulator indicated that it does not currently propose to appear to make submissions or intervene to oppose the Scheme at the first Court hearing under s 411(1) of the Act.

19    I return now to the key aspects of the Scheme. Allied to the Scheme is an agreement described as a scheme implementation agreement, or SIA, which provides for certain steps to be taken, subject to the Scheme being adopted by the requisite shareholder majority at the meeting and, of course, subject also to its approval following any such adoption at a second court hearing.

20    The Scheme is subject to the satisfaction of certain conditions precedent. Those conditions precedent are as follows:

(1)    Clause 3.1 of the SIA provides that the Scheme will not become effective, and the obligations of the parties in relation to the Scheme will not become binding, until each of the following Conditions is satisfied or waived:

(a)    Shareholder Approval: Shareholders approving the Scheme Resolution at the Scheme Meeting by the requisite majorities;

(b)    Court approval: the Scheme is approved by the Court at the Second Court Date;

(c)    ASIC and ASX: ASIC and ASX providing all consents and approvals which are necessary or desirable to implement the Scheme prior to 8.00 am on the Second Court Date;

(d)    Regulatory Consents: all other approvals or consents required from any Government Agency which are necessary or desirable to implement the Scheme having been obtained by 8.00 am on the Second Court Date;

(e)    No Prohibitive Orders: no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or Government Agency, or other legal prohibition or restraint preventing the acquisition of Scheme Shares by HoldCo or otherwise preventing implementation of the Scheme being in effect as at 8.00 am on the Second Court Date;

(f)    Independent Expert's Report: the Independent Expert issuing the Independent Expert's Report and concluding that the Scheme is in in the best interests of Shareholders (and not changing that conclusion prior to 8.00 am on the Second Court Date);

(g)    NASDAQ Listing: HoldCo Shares having been authorised for listing on NASDAQ prior to 8.00 am on the Second Court Date, subject to official notice of issuance following implementation of the Scheme and any customary conditions;

(h)    ASX Listing: ASX approving the admission of HoldCo to the official list of ASX and the HoldCo CDIs for official quotation prior to 8.00 am on the Second Court Date, which approval may be conditional on the Scheme becoming Effective and any such other conditions that are acceptable to ABR and HoldCo;

(i)    ATO Class Ruling: the ATO issuing the ATO Class Ruling, or otherwise confirming that the ATO Class Ruling will be issued on terms and conditions that are acceptable to ABR and HoldCo prior to 8.00 am on the Second Court Date;

(j)    Options: before 8.00 am on the Second Court Date, ABR and HoldCo have entered into binding agreements with each Option Holder to cancel the Options held by such Option Holder on conditions that are acceptable to ABR and Holdco.

(2)    Clause 3.1 of the Scheme of Arrangement provides that the Scheme is conditional on, and will have no force or effect until, the satisfaction of each of the following conditions precedent:

(a)    Satisfaction of Conditions: all the conditions in clause 3.1 of the SIA (other than the condition requiring Court approval of the Scheme) having been satisfied or waived in accordance with the terms of the SIA before 8.00am on the Second Court Date;

(b)    Scheme Implementation Agreement: as at 8.00 am on the Second Court Date, neither the SIA nor the Deed Poll having been terminated in accordance with its terms;

(c)    Court Approval: the Court making orders under section 411(4)(b) of the Corporations Act approving this Scheme; and

(d)    Court Order: the coming into effect, pursuant to section 411(10) of the Act, of the orders of the Court made under section 411(4)(b) of the Act.

21    There are also features of the Scheme which are required because some of the shareholders in ABR are Ineligible Foreign Shareholders. They are ineligible in the sense that the relevant shareholders are domiciled outside Australia, those shareholders being located in New Zealand, Canada, Hong Kong, Ireland, Papua New Guinea, Singapore, Malaysia, Thailand or the United States.

22    Accordingly, Ineligible Foreign Shareholders will not receive HoldCo CDIs and will instead receive the proceeds of the sale of the HoldCo CDIs to which they would otherwise have been entitled to receive, which will be issued to and sold by a sale agent (Sale Agent) pursuant to a sale facility.

23    That is a procedure that has previously been considered and found to be a suitable and appropriate procedure, at least for the purposes of making an order for the convening of a first meeting for the consideration by the shareholders of ABR of the Scheme: Re Amcor at [20]-[31]

24    It is unnecessary for me to describe further the sequence of steps to be followed in the event that the Scheme is approved following the scheme meeting and following a second court hearing. The sequence of events and transactional steps have been covered thoroughly. Further, it has been explained to me that HoldCo’s obligations in respect of the Scheme are secured by entry into an enforceable Deed Poll.

Relevant principles

25    I have been referred to the relevant principles, which are well known, in relation to the convening of a meeting for the purpose of considering a proposed scheme of arrangement.

26    Broadly, the procedure under Pt 5.1 of the Act involves three main steps:

(1)    an application to the Court for an order that the company convene a meeting of its members;

(2)    if such an order is made, the convening of such a meeting at which a resolution agreeing to the scheme is considered, and perhaps passed; and

(3)    if the resolution is passed by the necessary majority (see s 411(4)), an application to the Court for approval of the scheme.

27    This application concerns the first stage, being an application to the Court for an order to convene a scheme meeting. At this first stage, ABR must satisfy the Court of two key matters. First, that it has satisfied the statutory prerequisites to the making of orders to convene and hold a scheme meeting. Second, that it is appropriate for the Court to exercise its discretion in favour of making those orders.

28    The statutory prerequisites of the convening of a scheme meeting are contained in s 411(1) of the Act and I am satisfied they have been met in this instance.

29    In relation to the first stage, s 411(1) of the Act confers a discretion on the Court to make such an order only if certain statutory pre-requisites are met. ABR submits that these pre-requisites have been satisfied in this case.

30    First, as required by s 411(1) of the Act, ABR has made an application in relation to an arrangement that is proposed between a Pt 5.1 body and its members. It is well established that a scheme to effect an acquisition of shares may be an ‘arrangement’ within the meaning of that section.

31    Second, as required by r 2.4(2) of Federal Court (Corporations) Rules 2000 (Cth), the evidence relied upon by ABR includes an ASIC company extract recording the results of a search of the records of ASIC in relation to ABR carried out no earlier than 7 days before the Originating Process was filed.

32    Third, as required by s 411(2), 14 days’ notice of the hearing has been given to ASIC, and ASIC has had a reasonable opportunity to examine the terms of the proposed Scheme and the draft explanatory statement, and to make submissions to the Court.

33    Fourth, as required by r 3.2 of the Rules, the evidence about the proposed chairperson and alternate chairperson of the Scheme Meeting required has been provided.

34    Fifth, and finally, as required by r 3.3(1) of the Rules, the orders I have made annex a copy of the Scheme.

35    Accordingly, the Court’s discretion to make the convening orders is enlivened. There are quite a number of authorities that have described and encapsulated the function of a Court at this stage in relation to a proposed scheme of arrangement between members of a company.

36    The Court’s function was helpfully summarised, for instance, by Beach J in Re Healthscope Limited [2019] FCA 542; 139 ACSR 608 at [45]:

My function on an application to order the convening of a meeting is supervisory. At this stage I should generally confine myself to ensuring that certain procedural and substantive requirements have been met including dealing with adequate disclosure, with limited consideration of issues of fairness. But having said that, it is appropriate to consider the merits or fairness of a proposed scheme at the convening hearing if the issue is such as would unquestionably lead to a refusal to approve a proposed scheme at the approval hearing, that is, the proposed scheme appears now to be on its face “so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further” (Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [44] per French J). But in the present case, in my view there is no issue arising from the Scheme which would unquestionably lead to a refusal to approve the Scheme at the approval hearing. It cannot be said that the Scheme on its face is “so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further”. Put another way, the Scheme is not of such a nature and cast in such terms that if it receives the support of the statutory majorities at the meeting, nevertheless I would not be likely to approve it at the second court hearing.

37    In the recent decision of Re Youfoodz Holdings Ltd [2021] FCA 1081, Middleton J also referred to the principles relevant for consideration at this stage of the scheme process. His Honour referred to the passage I have just extracted and added:

36.     It is appropriate to also recall the comments of Hayne J (as a judge of the Supreme Court of Victoria, as his Honour was then) in Re Sonodyne International Ltd (1994) 15 ACSR 494 at 499-500:

…in the end the question that is presented at this stage of the process of a company propounding and implementing a scheme of arrangement is whether the scheme is such that it could reasonably be supposed by sensible business people to be for the benefit of the class concerned. That is, the test in the present case is whether it is reasonable to suppose that sensible business people might consider that the arrangement proposed by the company is of benefit to its members.

I do not consider that that question requires, or in the circumstances of this case permits the court to embark upon a nice analysis of whether the chance that is now offered to members to derive some benefit from their shareholding is likely or unlikely to occur. Of course, there may be cases in which the appearance of benefit to members or creditors is properly classified as illusory but I do not consider that that is this case. It has often been said both in the context of schemes of arrangement and elsewhere that the court is not to substitute its judgment on affairs of business for the judgment of the business people concerned. If the members of this company consider that the chance is worth pursuing then they may choose to vote for it. If they do not, or for some other reason they consider that the scheme should not be approved, then they will vote against it. At the stage of determining whether or not to permit the matter to be put to members, I do not consider that it is right for the court now to conclude that what is proposed is not an arrangement because there is no sufficient prospect of benefit to members. In saying that I am not to be taken as expressing any view of any kind on the matters of business judgment that have been raised and debated in the course of argument beyond saying that I consider that the arrangement is one which could reasonably be supposed by sensible business people to be for the benefit of members as a whole. Even if the requisite majority of members vote in favour of the scheme that will still leave wholly open the question whether the court should in all the circumstances approve of it.

37.     Therefore, it is clear that the Court at this stage is not considering whether it will approve the scheme: the enquiry is far more limited to considering whether sensible business people could consider the arrangement to be for the benefit of members as a whole. The Court should be careful not to preclude the members of the company from having the opportunity to consider the scheme.

38    I am satisfied that there is no matter to which my attention has been drawn, or which is revealed by the material, that would justify stopping the process in its tracks. Further, there are no reasons why the discretion should not be exercised favourably to ABR.

39    The detailed, well-structured and thorough written submissions of the Plaintiff are helpful in this respect as the key elements of the discretion are clearly explained. They are, first, whether the Scheme is fit for consideration by members. That is whether the Scheme is of such a nature and cast in such terms that if agreed to at the scheme meeting the Court would be likely to approve the Scheme at the second court hearing. And, secondly, whether the members are to be properly informed as to the nature of the Scheme.

40    I am satisfied for the reasons that are advanced in relation to each of those core elements affecting the discretion of the Court that orders should be made to convene a meeting of ABR shareholders. ABR submitted, and I accept, that the Scheme is fit for consideration by its members and there is no issue which would obviously lead to a refusal by the Court to approval the Scheme at the approval hearing.

41    ABR specifically referred to the following matters for consideration in relation to the discretion:

(1)    performance risk;

(2)    deemed warranties by ABR shareholders;

(3)    Ineligible Foreign Shareholders;

(4)    rights attaching to HoldCo securities;

(5)    the treatment of ABR options; and

(6)    the proposed treatment of Advisory Board share rights.

42    In relation to performance risk, ABR submitted that although HoldCo is not a party to the Scheme and is not directly bound by it, the Court can be satisfied that it will perform its obligations because:

(1)    the terms of the Scheme require the provision of the Scheme Consideration before there is any obligation upon Scheme Shareholders to transfer the Scheme Shares to HoldCo; and

(2)    as noted above, HoldCo has executed a Deed Poll in favour of Scheme Shareholders binding HoldCo to perform the actions attributed to it under the Scheme, including the provision of the Scheme Consideration

43    In relation to deemed warranties, cl 8.4 of the Scheme provides that each Scheme Shareholder is taken to have warranted to ABR that:

(1)    all of their Scheme Shares that are transferred under the Scheme will, at the date of transfer, be fully paid and free from all encumbrances; and

(2)    they have full power and capacity to sell and transfer their Scheme Shares to HoldCo.

44    ABR submitted that deemed warranty clauses are commonly found in schemes of arrangement and are acceptable provided they are sufficiently disclosed to shareholders: see, eg, Re Amcor at [56].

45    Further, as I have alluded to above, Ineligible Foreign Shareholders will not receive HoldCo Shares or HoldCo CDIs as Scheme Consideration. Instead, the HoldCo CDIs to which they otherwise would have been entitled will be issued to the Sale Agent and sold. ABR will in turn distribute the net proceeds of the sale to Ineligible Foreign Shareholders in Australian dollars within 10 Business Days after the settlement of the sale of the last of the HoldCo CDIs by the Sale Agent, in full and final satisfaction of the Ineligible Foreign Shareholders' entitlements to the Scheme Consideration.

46    ABR explained that essentially the same mechanism has been considered in a number of cases and held to be appropriate. As Barrett J said in Re Hills Motorway Ltd [2002] NSWSC 897; 43 ACSR 101 at [12]-[13]:

The test is thus not one of identical treatment. It is one of community of interest. The court must ask itself whether the rights and entitlements of the different groups, viewed in the totality of the scheme’s context, are so dissimilar as to make it impossible for them to consult together with a view to their common interest. The focus is not on the fact of differentiation but on its effects. The extent and nature of the differentiation must be measured in terms of the effect on the ability to consult together in a common interest or, in other words, the ability to come together in a single meeting and to debate the question of what is good or bad for the constituency as a whole and where the common good lies. Only if the differentiation destroys that ability - the word used by Bowen LJ is “impossible” - does class distinction come to prevail.

In this case, neither of the differentiations can be said at this point to have any such effect. Intrinsic value assured to members if the scheme is approved and implemented is the same for those specially singled out as it is for all others. There are also practical considerations underlying the differentiations that give them a rationale that would be readily understood and accepted in the single forum to which the Sovereign Life test directs attention. As things now stand, I am sufficiently content with the notion that there is no class distinction to see it as appropriate that the scheme go forward for members’ consideration in its present form.

47    In Re Amcor, Beach J also considered a similar mechanism and held at [41]:

In my view this proposed treatment of Ineligible Foreign Shareholders under the Scheme accords with common practice adopted in schemes of arrangement where scrip comprises or is a component of the proposed scheme consideration. Moreover, the issuing to a sale agent under a scheme of arrangement of scrip that would otherwise have been issued to ineligible foreign shareholders does not require those shareholders to meet together as a separate class for the purposes of considering the proposed scheme of arrangement.

48    Similarly, in Re Orica Ltd [2010] VSC 231, Davies J held as follows at [14]:

I accept the submission that the proposed treatment of the ineligible shareholders under the scheme does not constitute those shareholders as a separate class for the purposes of s 411 of the Act. I am satisfied that there will be the requisite community of interest, despite the differential treatment. The difference is that ineligible shareholders although entitled to DuluxGroup shares paid for out of the capital reduction and demerger dividend, will receive the proceeds of the sale of those shares on their behalf instead of receiving the shares in specie.

49    In relation to the rights attaching to HoldCo securities, ABR submitted that on implementation of the Scheme, Eligible Shareholders will become holders of HoldCo Shares or HoldCo CDIs (together, HoldCo Securities). As HoldCo is a company incorporated in the State of Delaware, it will not be subject to all of the provisions of the Act to which ABR is currently subject. The rights of holders of HoldCo Securities will instead be governed by the laws of the State of Delaware, including the Delaware General Corporation Law (Delaware Corporation Law), US federal securities laws, the NASDAQ Listing Rules and HoldCo's certificate of incorporation and by-laws.

50    Eligible Shareholders receiving HoldCo Securities in exchange for their ABR Shares may have reduced takeover protection under Delaware and US laws, compared to the protection available under Australian law. However, ABR shareholders resident in Australia may take action to enforce the ABR Constitution or securities laws applicable to ABR in Australian courts, applying Australian law. Such matters have been disclosed to shareholders in the Scheme Booklet.

51    In relation to the treatment of ABR Options under the Scheme, ABR explained that ABR Options will be cancelled in consideration of the grant of equivalent rights to acquire HoldCo Shares (HoldCo Options) on the basis of 1 HoldCo Option for every 10 existing ABR Options held (Option Exchange). There are two issues which can arise for consideration in the scheme context when arrangements of this kind are proposed: first, whether the proposed treatment of the incentives gives rise to the need for separate classes to be created to vote on the resolution to agree to the Scheme; and, second, the appropriateness of any directors who might receive a benefit from such arrangements making a recommendation to shareholders in relation to the proposed Scheme.

52    As to the first issue, ABR submitted that separate class meetings are not necessary or desirable as a result of the proposed treatment of the ABR Options: see, eg, similar approaches in Re Healthscope at [107] and Re Amcor at [86].

53    As to the second issue, ABR submitted that the nature and extent of any additional benefits that it might be said that the ABR directors who are also ABR Option holders may become entitled to if the Scheme is implemented are not such as to make it inappropriate for them to make a voting recommendation to members. Further, and in any event, such arrangements are adequately disclosed in the Scheme Booklet.

54    For the reasons advanced by ABR in relation to each of these matters relevant to the exercise of the Court’s discretion to convene the meeting, I am satisfied with the explanations given in the context of this Scheme on behalf of the Plaintiff.

55    A further important element relevant to the exercise of the Court’s discretion is whether the members are to be properly informed as to the nature of the scheme. In this regard, I am satisfied that the Scheme Booklet and the notice provisions are adequate for the purposes of allowing the meeting to be convened and for the Scheme to be considered by the members at the meeting to be called.

56    It is significant in that regard that ASIC, having had the opportunity to consider the proposed Scheme and Scheme Booklet, has indicated, as is clear from their correspondence to the directors which is annexed to the Third Duffy affidavit, that it does not seek to raise, at this stage at least, any matters of concern nor to oppose the holding of a meeting for the purpose of considering the Scheme.

57    As the ASIC correspondence makes clear, that is not an endorsement or approval on the part of ASIC of the proposed Scheme. However, it does indicate that ASIC, having been involved in the process and having been consulted, has not expressed any concerns as to matters which might have a bearing upon the exercise of the Court’s discretion. In my view, it is therefore relevant in relation to this aspect of the Court’s discretion.

58    For those reasons, I have concluded that I should exercise the discretion to make the orders sought in relation to convening a meeting of ABR shareholders. Further, in view of present restraints arising from the COVID-19 pandemic in relation to in-person meetings, particularly large meetings, it is appropriate that the meeting be held virtually via an online platform. I note that there have been some recent examples where the Court has permitted this approach for the convening of a virtual meeting for the purposes of considering and, if thought fit, approving a proposed scheme: see, eg, Re Sienna Cancer Diagnostics Limited [2020] FCA 899 at [110] (Moshinsky J) and GetSwift Limited, in the matter of GetSwift Limited [2020] FCA 1382 at [8] (Yates J).

59    Finally, it is open to me to approve the Scheme Booklet. I do not propose to do so. It seems to me the weight of authority is against that and further, given the nature of the orders that were sought, which are simply to allow for the convening of the meeting, and having regard to the principles I have already expressed about the role of the Court at this point, it seems to me unnecessary to express a view about the adequacy of the explanatory statement contained within the Scheme Booklet. Of course, impliedly I do so by having concluded that the Scheme Booklet, and the information and process to be followed as revealed by the materials filed by the Plaintiff, is sufficient to satisfy the Court that proper and adequate notice and explanation will be given to shareholders for the purposes of their consideration of whether or not to approve the Scheme.

60    Further matters may arise at the second court hearing that bear upon the merits of the Scheme itself. Those matters can be considered at the second court hearing.

Disposition

61    For the above reasons, I have made the orders as sought by ABR.

Associate:

Dated:    16 December 2021