Federal Court of Australia

PayGroup Limited, in the matter of PayGroup Limited (No 2) [2022] FCA 1350

File number(s):

VID 463 of 2022

Judgment of:

OCALLAGHAN J

Date of judgment:

8 November 2022

Date of publication of reasons:

11 November 2022

Catchwords:

CORPORATIONS – scheme of arrangement – second court hearing – orders sought under ss 411(4)(b) and 411(6) of the Corporations Act 2001 (Cth) for approval of scheme – orders sought under s 411(12) for exemption from compliance with s 411(11) – orders made

Legislation:

Corporations Act 2001 (Cth) ss 411(4)(b), 411(6), 411(11), 411(12), 411(17)(b), 1322, 1322(4)(a), 1322(4)(d)

Cases cited:

Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213

Re PayGroup Ltd [2022] FCA 1026

Re ResApp Health Ltd [2022] NSWSC 1014

Re Seven Network Limited (No 3) [2010] FCA 400; (2010) 267 ALR 583

Re Vimy Resources Ltd (No 2) [2022] WASC 257

Division:

General Division

Registry:

Victoria

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Number of paragraphs:

36

Date of hearing:

8 November 2022

Counsel for the Plaintiff:

Mr CT Möller SC with Mr MB Peckham

Solicitor for the Plaintiff:

K&L Gates

Counsel for the Interested Parties:

Mr B Holmes

Solicitor for the Interested Parties:

Gadens Lawyers

ORDERS

VID 463 of 2022

IN THE MATTER OF PAYGROUP LIMITED

PAYGROUP LIMITED

Plaintiff

order made by:

OCALLAGHAN J

DATE OF ORDER:

8 NOVEMBER 2022

OTHER MATTERS:

A.    The proceeding concerns a scheme of arrangement between the plaintiff and the holders of ordinary shares in the plaintiff, the terms of which are set out at pages 408 to 427 of Exhibit MSMS1 to the affidavit of Mark Stephen Malhotra Samlal made on 18 August 2022 – a copy of which pages is Annexure A to this order (the Scheme).

B.    There has been produced to the Court a statement in writing by the Australian Securities and Investments Commission (ASIC) in accordance with s 411(17)(b) of the Corporations Act 2001 (Cth) (the Act) stating that ASIC has no objection to the Scheme.

THE COURT ORDERS THAT:

1.    Under s 1322(4)(a) of the Act the convening of the scheme meeting, and the resolution of that meeting to approve the Scheme, are not invalid by reason of any failure to have convened that meeting in accordance with paragraph 2 of the order made on 23 August 2022 (convening order).

2.    Under s 1322(4)(d) of the Act:

(a)    the time for sending the materials referred to in paragraph 2 of the convening order is extended, now for then, to 29 August 2022; and

(b)    the time for publishing the notice referred to in paragraph 12 of the convening order is extended, now for then, to 29 September 2022.

3.    Under s 411(4)(b) of the Act, the Scheme is approved.

4.    Under s 411(12) of the Act, the plaintiff is exempted from compliance with section 411(11) of the Act in respect of the Scheme.

5.    These orders are to be entered forthwith.

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

REASONS FOR JUDGMENT

OCALLAGHAN J:

Introduction

1    I made the orders set out above at a hearing held on 8 November 2022. These are my reasons.

2    On 23 August 2022, I made the following convening orders:

1.    The plaintiff is to convene and hold a meeting of the holders of ordinary shares in the plaintiff (members) to consider and, if thought fit, to approve (with or without any alterations or conditions) the scheme of arrangement (Scheme) proposed to be made between the plaintiff and the members, the terms of which are found at pages 408 to 427 of Exhibit MSMS1 to the affidavit of Mark Stephen Malhotra Samlal made on 18 August 2022 (first Samlal affidavit) (the Scheme Meeting).

2.    The Scheme Meeting is to be convened by sending on or before 26 August 2022:

(a)    in the case of members who have elected to receive shareholder communications electronically by way of email (Email Members), an email substantially in the form of pages 661 to 663 of Exhibit MSMS1 to the first Samlal affidavit and which includes links to a document substantially in the form of pages 154 to 235 of Exhibit MSMS2 to the affidavit of Mark Stephen Malhotra Samlal made on 22 August 2022 (second Samlal affidavit), which comprises the explanatory statement as required by s 412(1)(a) of the [Corporations Act 2001 (Cth) (the Act)] (Scheme Booklet) and which is to contain (among other things) the notice of scheme meeting (Notice of Scheme Meeting) and a proxy form for the Scheme Meeting (Scheme Proxy Form) substantially in the form of pages 89 to 97 of Exhibit MSMS2 to the second Samlal affidavit;

(b)    in the case of members who are not Email Members, the following documents by pre-paid post addressed to the relevant address(es) recorded in the plaintiffs register:

(i)    a document substantially in the form of the Scheme Booklet, which contains among other things the Notice of Scheme Meeting and the Scheme Proxy Form; and

(ii)    a reply paid envelope for the return of the Scheme Proxy Form.

3.    Subject to these orders, the Scheme Meeting is be convened, held and conducted in accordance with the provisions of:

(a)    Part 2G.2 of the Act (save for any applicable replaceable rule) that apply to a meeting of the plaintiffs members; and

(b)    the plaintiffs constitution that apply in relation to meetings of members and that are not inconsistent with Part 2G.2 of the Act.

4.    The Scheme Meeting is to be held at 11:00 am (AEST) on Friday 30 September 2022 at the offices of K&L Gates, Melbourne, level 25, 525 Collins Street, Melbourne, in Victoria.

5.    Members of the plaintiff may vote at the Scheme Meeting by attending in person or by proxy, attorney or corporate representative (if applicable).

6.    Ian Richard Basser, or failing him David Grahame Fagan, is to be the chair of the Scheme Meeting.

7.    The chair of the Scheme Meeting shall have the power to adjourn the meeting to such time, date and place as they consider appropriate.

8.    The plaintiff may provide access to the Scheme Meeting for such other persons as it thinks fit.

9.    Voting on the resolution to approve the Scheme is to be conducted by way of a poll.

10.    A proxy form in respect of the Scheme Meeting will be valid and effective if, and only if, it is completed and received in accordance with its terms by 11:00 am (AEST) on 28 September 2022.

11.    Compliance with r 2.15 of the Federal Court (Corporations) Rules 2000 (Rules) is dispensed with.

12.    Notice of the hearing of an application under s 411(4) of the Act for an order approving the Scheme is to be published once in “The Australian” newspaper by an advertisement substantially in the form of Annexure A to these orders, such advertisement to be published on or before five days prior to the Scheme Meeting, and the plaintiff is otherwise exempted from compliance with r 3.4 of the Rules.

13.    The further hearing of the originating process is adjourned to 10:15 am (AEDT) on 25 October 2022.

14.    Liberty to apply is reserved.

15.    These orders are to be entered forthwith.

See Re PayGroup Ltd [2022] FCA 1026.

3    These reasons adopt the same definitions as those convening orders.

4    In accordance with the convening orders, the scheme meeting was held on 30 September 2022. There were 231 members present (in person or by proxy, excluding one member who directed their proxy to abstain from voting), of whom 229 (representing 99.1342% of members voting and 99.9959% of the votes cast) voted in favour of the resolution to approve the Scheme.

5    At the adjourned hearing on 25 October 2022, an application for an adjournment was granted, because it had been realised that the convening orders had not been strictly complied with, and it was necessary to put on sworn evidence in that regard, and to give the Australian Securities and Investments Commission (ASIC) an opportunity to respond.

6    There were four matters of non-compliance with the convening orders, which PayGroups legal representatives dubbed the advertising issue, the delayed dispatch issue, the annexure issue, and the mode of dispatch issue.

7    Put briefly:

(1)    The advertising issue was that whereas the effect of the convening orders was to require the advertisement of the second court hearing to be published by 23 September 2022, it was published on 29 September 2022.

(2)    The delayed dispatch issue was that whereas the convening orders required that the Scheme materials be sent to members on 26 August 2022, they were not sent until 29 August 2022.

(3)    The annexure issue was that the convening orders themselves incorrectly referred to the penultimate version of annexure F to the Scheme Booklet (exhibited to an affidavit made on 22 August 2022), rather than the final version (exhibited to an affidavit made on 23 August 2022 – the morning of the first court hearing).

(4)    The mode of dispatch issue was that whereas paragraph 2 of the convening orders required either that an email (in the form approved by the court) be sent to Email Members, or a hard copy Scheme Booklet be sent to those members who were not Email Members, some members (897 in total) were not sent the approved email or a hard copy Scheme Booklet. Instead, they were sent a Notice and Access Letter, which provided a QR code with a link (to the same page linked in the approved email) at which the Scheme Booklet could be downloaded.

8    It is not necessary to explain further the causes of the mistakes. Detailed evidence was put on to explain what happened, and I readily accepted that each matter was inadvertent, and caused no prejudice. I also accepted that each was also procedural and capable of remediation under s 1322 of the Act.

9    There was one other matter that I should mention.

10    On about 26 August 2022, PayGroup engaged external consultants, Georgeson Shareholder Communications Australia Pty Ltd, to conduct an outbound calling campaign to inform PayGroups members of the Scheme and to encourage their participation in the Scheme Meeting.

11    Calls were conducted according to a script (a copy of which was in evidence) that was written to be neutral and to avoid any personal opinions. Further, reports about the campaign and its results were prepared. They too were in evidence.

12    The purpose of the campaign, so the evidence established, was to:

(a)    confirm members had received their documentation;

(b)    ensure members were fully aware of the Scheme Meeting and proxy deadline;

(c)    explain the importance of participating in the voting process;

(d)    answer any general questions regarding the Scheme (in accordance with another script, again carefully neutral); and

(e)    record member queries and document re-mail requests for follow-up.

13    The difficulty that arose was that the calling campaign had not been mentioned at the first hearing.

14    In its Report 539 - ASIC regulation of corporate finance: January to June 2017, ASIC gave guidance about the use of telephone campaigns in members schemes of arrangement. The report said at [126]:

If a company proposing a members scheme of arrangement seeks to engage with members ahead of the scheme meeting, they should take care and ensure that:

(a)    information other than that contained in the scheme booklet is not discussed;

(b)    the court is advised at the first court hearing-before approving the explanatory statement and convening the scheme meeting-of the companys proposed communications and any information sessions;

(c)    they do not interfere with the court approved message before the meeting: see Re Centro Retail Ltd [2011] NSWSC 1321 at [10]-[11]; and

(d)    they keep records of any information presented by way of those communications and make those records available to ASIC.

15    The evidence was that the relevant PayGroup officer was not aware of that ASIC report.

16    PayGroup accepted that, before undertaking the telephone campaign, it should have informed the court and sought approval of the information provided during the proposed campaign. It submitted, however, that the telephone campaign was conducted in a manner consistent with the ASIC report; information other than that contained in the Scheme Booklet was not discussed; there was no interference with the court approved message before the Scheme Meeting; and records of information presented by those communications were kept and have been made available to ASIC. The evidence made good those submissions, and I accept them. Compare Re Vimy Resources Ltd (No 2) [2022] WASC 257 (Strk J); and Re ResApp Health Ltd [2022] NSWSC 1014 (Black J).

17    ASIC had the opportunity to review the evidence adduced to explain the reasons for and effect of the non-compliance, and had nothing to say about it.

18    Other than those matters, the statutory and procedural requirements for approval of the Scheme – including the statutory majority and the conditions precedent to the Scheme – were satisfied.

19    Since the first hearing, PayGroup has filed seven further affidavits, as follows:

(1)    affidavit of Ian Richard Basser, PayGroup’s chairman and a non-executive director, affirmed on 18 October 2022;

(2)    affidavit of Oliver Robert Carton, PayGroup’s company secretary, sworn on 25 October 2022;

(3)    three affidavits of Andrew Michael Gaffney, a partner of K&L Gates, PayGroup’s solicitors, affirmed on 25 and 27 October and 8 November 2022;

(4)    affidavit of Michael Peter Stretton, a relationship manager at Computershare Investor Services Pty Limited (which maintains PayGroup’s register of shareholders), affirmed on 26 October 2022; and

(5)    affidavit of Mark Stephen Malhotra Samlal, PayGroups managing director, affirmed on 27 October 2022.

20    The acquirer, Deel Australia Holdings Pty Ltd and Deel, Inc., also filed an affidavit of Vaughan Petherbridge, a partner of Gadens, the solicitors for the acquirer, affirmed on 8 November 2022.

The scheme meeting

21    The evidence established the following.

22    In accordance with the convening orders, the Scheme Meeting was held on 30 September 2022, at 11am (AEST). It was held in person, at the Melbourne offices of K&L Gates.

23    The Scheme Meeting was preceded by PayGroups annual general meeting, which commenced at 10am (AEST) at the same venue.

24    In accordance with paragraph 6 of the convening orders, PayGroups non-executive chairman, Mr Basser, chaired the Scheme Meeting. The meeting had a quorum of five members physically present (the number required by PayGroups constitution), including Mr Basser as chairman and proxy-holder.

25    Prior to the Scheme Meeting, PayGroup received 79,719,675 valid proxy votes, representing 66.22% of the total PayGroup shares on issue.

26    The resolution to approve the Scheme was conducted by a poll. Mr Stretton of Computershare (who was in attendance at the meeting) was appointed the returning officer for the poll, the result of which was as follows (including proxies):

Number of votes

% of applicable votes

Number of members

% of members voting

For (including undirected proxies)

79,946,908

99.9959%

229

99.1342%

Against

3,242

0.0041%

2

0.8658%

TOTAL

79,950,150

100.00%

231

100.00%

Abstain

1,000

1

27    Thus, the resolution was passed by 99.1342% of members present and voting (in person or by proxy) and 99.9959% of votes cast.

28    Accordingly, the statutory majorities required by s 411(4)(a) of the Act were satisfied, the resolution being passed by a majority in number of the members present and voting, and by 75% of the votes cast on the resolution.

The role of the court

29    The role of the court in approving a scheme of arrangement is supervisory. The court is not bound to approve it merely because it previously made orders for the convening of a meeting or because the statutory majorities were achieved. That said, as Jacobson J observed in Re Seven Network Limited (No 3) [2010] FCA 400; (2010) 267 ALR 583 at 588 [32], the court will usually approach the task upon the basis that the members are better judges of what is in their commercial interests than the court.

30    The cases establish that the following matters should be taken into account, namely that:

(a)    the orders of the court convening the scheme meeting were complied with;

(b)    the resolution to approve the scheme was passed by the requisite majority, and whether other statutory requirements have been satisfied;

(c)    all conditions to which the scheme is subject (other than court approval and lodgement of the courts orders with ASIC) have been met or waived;

(d)    the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it;

(e)    there was full and fair disclosure to shareholders of all information material to the decision whether to vote for or against the scheme;

(f)    the plaintiff has brought to the attention of the court all matters that could be considered relevant to the exercise of the courts discretion; and

(g)    the court is satisfied under s 411(17) that the scheme has not been proposed to avoid Chapter 6 of the Act, or that the plaintiff has a statement from ASIC that it has no objection to the scheme.

Consideration

31    In light of the detailed and helpful submissions of counsel for PayGroup, the only issue that required consideration at the hearing on 8 November was in respect of (a) above. As I have explained, I accepted that each matter of non-compliance was inadvertent, and caused no prejudice. I also accepted that each was also procedural and capable of remediation under s 1322 of the Act.

32    ASIC issued a no objection under s 411(17)(b) letter, stating that it had no objection to the Scheme.

33    Further, no person appeared at the second hearing to oppose the Scheme or for any other reason.

34    I was in this case satisfied that:

(a)    there is nothing to suggest that the Scheme was proposed other than in good faith;

(b)    there is nothing to suggest that PayGroups members voted other than in good faith;

(c)    PayGroups members overwhelmingly supported the Scheme, as reflected in the voting results at the Scheme Meeting;

(d)    the opinion of the independent expert was that the Scheme and associated transactions are in the best interests of PayGroups members;

(e)    the recommendation from all of PayGroups directors was that members vote in favour of the Scheme;

(f)    at the time the submissions were filed, and since then, there has been no opposition to the Scheme by ASIC or any PayGroup member;

(g)    PayGroup has brought to the courts attention all matters that could be considered relevant to the exercise of its discretion;

(h)    the Scheme Booklet contained full disclosure of the potential benefits and disadvantages of the Scheme;

(i)    there is nothing to suggest that any member will be oppressed by the Scheme (to the contrary, the Scheme contains measures to protect shareholders against performance risk); and

(j)    there is nothing to suggest that the Scheme offends public policy.

35    In light of these matters, I was satisfied that the Scheme was made in good faith and is at least so far fair and reasonable, as that an intelligent and honest [person], who is a member of the class, and acting alone in respect of [their] interest as such a member, might approve of it. See Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213 at 247.

36    I accordingly made the orders set out above, including the orders under s 411(12) of the Act that PayGroup be exempted from compliance with s 411(11).

I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O’Callaghan.

Associate:

Dated:    11 November 2022

SCHEDULE OF PARTIES

VID 463 of 2022

Interested Parties

First Interested Party

DEEL AUSTRALIA HOLDINGS PTY LTD

Second Interested Party

DEEL INC