Federal Court of Australia

DDH1 Limited, in the matter of DDH1 Limited (No 3) [2023] FCA 1153

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth), the scheme of arrangement between the plaintiff and its shareholders (Scheme), in the form which appears at GD-25 of the third affidavit of Georgia Kaye Jennifer Denny sworn on 16 August 2023, and provided at Annexure A of the Scheme Booklet that was dispatched to shareholders in accordance with the orders made by this Court on 16 August 2023, be approved, subject to alteration under s 411(6) of the Corporations Act to insert:

(a)    the date of 25 June 2023 into the definition of Implementation Agreement in cl 1.1 of the Scheme;

(b)    the date of 13 August 2023 into the definition of Deed Poll in cl 1.1 of the Scheme; and

(c)    the date of 16 August 2023 into the definition of Scheme Booklet in cl 1.1 of the Scheme.

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

3.    The plaintiff lodge an office copy of these orders with the Australian Securities and Investments Commission as soon as practicable.

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

REASONS FOR JUDGMENT

COLVIN J:

1    On 16 August 2023, orders were made for a meeting of shareholders of DDH1 Limited to be convened to consider a scheme of arrangement: DDH1 Limited, in the matter of DDH1 Limited [2023] FCA 982. On 5 September 2023, orders were made for a supplementary scheme booklet to be dispatched to shareholders in addition to the explanatory material the subject of the orders made on 16 August 2023: DDH1 Limited, in the matter of DDH1 Limited (No 2) [2023] FCA 1046. A meeting of shareholders was convened on 18 September 2023. A resolution to approve the scheme was passed by the requisite majorities. On 26 September 2023, orders were made approving the scheme. These are my reasons for making those orders.

Statutory and procedural requirements

2    On the basis of the submissions advanced for DDH1, I was satisfied that the evidence before the Court on 26 September 2023 established:

(1)    The meeting to consider the scheme had been convened and held in accordance with the Court's orders. In particular, the orders and explanatory material had been lodged and registered as required, the meeting had been duly advertised, the required materials had been dispatched to shareholders in accordance with the orders, the meeting was chaired by Ms Diane Smith-Gander AO and the resolution was put to the meeting.

(2)    The procedures for return and lodgement of proxies were conducted in accordance with the orders.

(3)    The resolution to approve the scheme was supported by 64.69% of shareholders present and voting and 92.24% of the votes cast were in favour of the scheme.

3    I was also satisfied that notice in accordance with the orders had been given of the hearing to approve the scheme.

4    No party sought to appeared to oppose the scheme. In particular, the Australian Securities and Investments Commission (ASIC) did not appear to object to the approval of the scheme. It was supported by Perenti Limited the other party to the agreement to implement the scheme if approved.

Communications with shareholders

5    After orders were made to convene the scheme, DDH1 made announcements concerning its annual report and its annual results. They made reference to the proposed merger to be effected pursuant to the scheme of arrangement if approved but did not direct attention to the scheme booklet. There was also a results presentation published which referred to benefits of the proposed scheme but which did not list every advantage and disadvantage as set out in the scheme booklet, though it did provide a footnote link to the scheme booklet. These matters occurred on 29 August 2023. They were promptly brought to the Court's attention on the basis that submissions would be made upon any application to approve the scheme as to their consequences for approval.

6    The above events occurred at a time when the scheme booklet and notice of the meeting had been dispatched. Subsequently, by reason of the orders for supplementary material, there was further disclosure of updated information by a supplementary scheme booklet sent to all shareholders. In addition, there were announcements on 8 September and 13 September 2023 of information that was relevant to the scheme (in terms contemplated at the time of making orders) that directed attention to the explanatory material.

7    As explained below, the overall majority of votes cast in support of the scheme was quite strong. There have been no objections raised.

8    It is not suggested that any of the information that was provided was inaccurate in any respect. Any concern arises from the fact that there were communications that were not made explicitly by reference to the explanatory material the subject of the Court's orders (or with sufficiently prominent reference to that material) and did not otherwise include all of that material.

9    Also presented was some information concerning the voting results of proxies submitted before the supplementary material was dispatched to see whether those voting positions may have had a material affect on the outcome. The analysis showed that the requisite majorities were still attained quite comfortably if those votes were not included.

10    In all the circumstances, I was satisfied that the disclosed communications were not a reason for declining to approve the scheme.

11    The Court was also provided with a description of what had occurred in relation to communications by the shareholder engagement firm. Evidence in summary form was given to the effect that scripts as proposed were used (having been checked) and that the communications by call operators were supervised or otherwise conducted by the deponent to the affidavit. Two shareholders were reported to have complained about the complexity of the scheme booklet. Otherwise, no matters of concern were raised.

Voter turnout

12    As noted by Middleton J in Village Roadshow Limited, in the matter of Village Roadshow Limited (No 2) [2020] FCA 1857 at [46]: 'Even where the statutory majorities are achieved, it is not uncommon for the Court at the second court hearing to consider the number of shareholders who attended the scheme meeting in person or voted by proxy, as low shareholder turnout may be an indication that some procedural irregularity occurred'.

13    Recently, in Allogio Group Ltd, in the matter of Allogio Group Ltd (No 2) [2023] FCA 1053 at [14]-[16], Kennett J addressed the practice that has grown up in relation to voter turnout. I respectfully agree with his Honour's observations.

14    It may be noted that the 37 shareholders who participated in the meeting to consider the scheme represented about 9.6% of the total shareholders. Of those, 35.31% of shareholders present and voting voted against the resolution. There is no apparent reason why they did so. There is nothing to indicate that it was anything other than a different view as to the commercial merits of the scheme.

15    The evidence was to the effect that the turnout was greater than that for the 2022 annual general meeting for DDH1 which was attended by 189 shareholders representing 5.168% of shareholders.

16    The evidence was to the effect that the proposal was the subject of a number of ASX announcements and that the explanatory material and convening documents were despatched as required.

17    In all the circumstances, I was satisfied that there was no indication of procedural irregularity or event that excluded or prevented shareholder participation.

Supervisory discretion

18    The Court has a discretion whether to approve the scheme. The nature of the discretion and the matters to be taken into account were explained by Vaughan J in Re Wesfarmers Limited; Ex parte Wesfarmers Ltd (No 2) [2018] WASC 357 at [13]-[16]; and Banks-Smith J in Opus Group Limited, in the matter of Opus Group Limited (No 2) [2018] FCA 1413 at [6]-[7]. As to those discretionary matters, I was satisfied that:

(1)    there was no indication that the shareholders had acted otherwise than in good faith;

(2)    the scheme was for an acquisition transaction of a kind ordinarily approved and was advanced in order to obtain efficiencies and scale through the merger of the businesses conducted by DDH1 and Perenti Limited (see my earlier reasons which describe the nature of the scheme);

(3)    the characteristics of the scheme were explained in the explanatory material in terms that enabled shareholders to make their own assessment of the commerciality of the scheme;

(4)    the scheme was supported by an independent expert report that in the absence of a superior proposal the scheme is in the best interests of shareholders of DDH1;

(5)    there is no superior proposal;

(6)    the support for the scheme by 92.24% of the votes cast at the meeting is evidence that supports its fairness;

(7)    the information provided in the explanatory material was the subject of a detailed verification process and was approved by the board of DDH1 for release on the basis that on the available evidence its contents were true and correct in all material respects;

(8)    there have been a number of ASX announcements concerning the scheme;

(9)    there is no evidence to indicate or suggest oppression of a minority; and

(10)    evidence was provided that the various conditions precedent to the scheme have been satisfied or waived.

19    Further, there was no matter that I identified that might raise practical or legal difficulty for the implementation of the scheme and rational commercial reasons had been advanced to support the scheme.

Satisfaction of s 411(17) and public policy

20    There was produced to the Court a statement in writing by ASIC that it had no objection to the scheme. Production of the letter deals with those aspects of s 411(17) of the Corporations Act 2001 (Cth) which may stand in the way of approval, but the Court retains a discretion whether to approve: Re Wesfarmers at [18]. There was no indication that the scheme was proposed to for the purpose of avoiding Chapter 6 of the Corporations Act nor any indicated aspects that might give rise to public policy concerns.

Exemption from s 411(11)

21    DDH1 sought an order that it be exempted from the requirement in s 411(11) that a copy of the Court's order be annexed to every copy of the constitution of DDH1 issued after the order was made. In circumstances where the scheme did not effect any change to the constitution of DDH1 I was satisfied that it was appropriate to exercise the power conferred by s 411(12) to exempt DDH1 from compliance with that requirement.

Minor alterations under s 411(6)

22    DDH1 sought amendments to the scheme to insert relevant dates into blanks in the definitional provisions in the scheme. They were not controversial and were indicated by the terms of the scheme. They did not alter the substance of the scheme or its manner of operation. I was satisfied that it was just to make those alterations to the scheme.

Conclusion

23    The orders sought were in standard terms and those orders were made.

Associate:

Dated:    28 September 2023