Federal Court of Australia

Carbon Revolution Limited, in the matter of Carbon Revolution Limited (No 3) [2023] FCA 1270

ORDERS

THE COURT NOTES THAT:

A.    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) (Corporations Act) stating that ASIC has no objection to the proposed Scheme of Arrangement between the plaintiff (CBR) and its members referred to in this order.

THE COURT ORDERS THAT:

1.    Pursuant to s 411(6) of the Corporations Act, the Scheme of Arrangement between CBR and its members in the form set out in Annexure 2 to the Scheme Booklet provided to CBR’s shareholders on 8 September 2023 (a copy of which is Annexure AL-05 to the affidavit of Alexandra Mary Lockie dated 6 September 2023) agreed to by CBR’s shareholders at the meeting held on 16 October 2023 be altered as shown in tracked changes in Annexure A to these orders, such that the Scheme of Arrangement as so altered is as set out in Annexure B to these orders (Scheme).

2.    Pursuant to ss 411(4)(b) and 411(6) of the Corporations Act, the Scheme be and is hereby approved.

3.    Pursuant to s 411(12) of the Corporations Act, CBR be exempted from compliance with s 411(11) of the Corporations Act in respect of the Scheme.

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

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    On 6 September 2023, I made orders (the 6 September orders) that the plaintiff (CBR) convene and hold a meeting (Scheme Meeting) of holders of ordinary shares in CBR to consider and, if thought fit, agree (with or without modification) to the scheme of arrangement (Scheme) proposed to be made between CBR and its shareholders, the terms of which were set out in Annexure A to those orders. The background to, and the key terms of, the Scheme are set out in my reasons of that date: Carbon Revolution Limited, in the matter of Carbon Revolution Limited [2023] FCA 1081 (the 6 September Reasons).

2    Subsequently, CBR applied to the Court for further orders, to facilitate the sending of a supplementary scheme booklet (SSB). This application was dealt with on 28 September 2023 by Beach J, in his capacity as commercial and corporations duty judge. His Honour made orders on that date (the 28 September orders) and subsequently provided reasons: Carbon Revolution Limited, in the matter of Carbon Revolution Limited (No 2) [2023] 1173 (the 2 October Reasons).

3    Due to further developments, CBR applied to the Court for orders changing the date of the Scheme Meeting and for the sending of a second supplementary scheme booklet (Second SSB). On 5 October 2023, I made orders regarding these matters (the 5 October orders). I gave brief ex tempore reasons on that occasion.

4    These reasons should be read together with the 6 September Reasons and the 2 October Reasons. I will adopt the abbreviations used in the 6 September Reasons. Although this is the fourth hearing in this proceeding, it will be convenient to refer to this hearing as the “second court hearing”, as this reflects the way the hearing is referred to in a number of the key documents.

5    The Scheme Meeting was held on 16 October 2023, and the resolution to agree to the Scheme was passed by 98.23% of the votes cast and by 88.17% of shareholders present and voting (in each case, in person or by proxy).

6    By paragraphs 4, 5 and 6 of CBR’s originating process, it seeks orders approving the Scheme pursuant to s 411(4)(b) and (6) of the Corporations Act 2001 (Cth) (the Act) and ancillary orders.

7    In support of the orders sought today, CBR relies on:

(a)    an affidavit of David Nock affirmed 18 October 2023; this includes, at page 140, a certificate regarding conditions precedent; and

(b)    a letter from ASIC dated today stating that ASIC has no objection to the Scheme.

8    In advance of the hearing today, counsel for CBR, Mr Holmes, provided a detailed outline of submissions dated today.

9    At the hearing today, Mr Holmes appeared on behalf of CBR and made oral submissions in support of the proposed orders. Mr Ahern of counsel appeared for Twin Ridge Capital Acquisition Corp (the SPAC) in support of the proposed orders.

10    The orders sought today are as follows:

1.    Pursuant to s 411(6) of the Corporations Act, the Scheme of Arrangement between CBR and its members in the form set out in Annexure 2 to the Scheme Booklet provided to CBR’s shareholders on 8 September 2023 (a copy of which is Annexure AL-05 to the affidavit of Alexandra Mary Lockie dated 6 September 2023) agreed to by CBR’s shareholders at the meeting held on 16 October 2023 be altered as shown in tracked changes in Annexure A to these orders, such that the Scheme of Arrangement as so altered is as set out in Annexure B to these orders (Scheme).

2.    Pursuant to ss 411(4)(b) and 411(6) of the Corporations Act, the Scheme be and is hereby approved.

3.    Pursuant to s 411(12) of the Corporations Act, CBR be exempted from compliance with s 411(11) of the Corporations Act in respect of the Scheme.

11    For the reasons that follow, which draw substantially on CBR’s outline of submissions, I consider it appropriate to make orders substantially in the terms sought by CBR. In summary, I consider it appropriate to make the amendments sought by CBR and I consider it appropriate to approve the Scheme as so amended.

Applicable principles

12    I discussed the applicable principles in Re Verdant Minerals Ltd (No 2) [2019] FCA 841 at [6]-[7]. For ease of reference, I incorporate the substance of those paragraphs into these reasons in the following paragraphs.

13    In approving a scheme of arrangement, the role of the Court is supervisory, requiring the Court to be satisfied that there has been no oppression and that the compromise or arrangement is one that is capable of being accepted by shareholders looking to their own commercial advantage. In Re NRMA Ltd (No 1) [2000] NSWSC 82; 156 FLR 349 (Re NRMA Ltd) at [41], Santow J quoted with approval the following passage from Renard IA and Santamaria JG, Takeovers and Reconstructions in Australia (Butterworths, Sydney, 1990, loose-leaf), at [1523]:

… the court will determine: (1) whether all the conditions required by s 411 have been complied with; (2) whether the majority of members or creditors, though acting regularly, have acted in good faith and not in pursuit of some illegitimate purpose; and (3) whether the proposal was “at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such member, might approve it”.* Fundamentally, the jurisdiction is supervisory; the court is concerned to be satisfied that there has been an absence of oppression and that the compromise or arrangement is one which is capable of being accepted: see Re Dorman Long & Co Ltd [1934] Ch 635; Scottish Insurance Corp Ltd v Wilsons and Clyde Coal Co Ltd [1949] AC 462 at 486.

* Per Fry LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 212 at 247.

14    In deciding whether to give final approval to a scheme of arrangement, the Court will typically wish to be satisfied of the following matters:

(a)    that the orders of the Court convening a meeting of members were complied with;

(b)    that the meeting of members so convened has approved the scheme with the requisite majority;

(c)    that all the statutory requirements have been complied with;

(d)    that the majority of members have acted in good faith and not for any illegitimate purpose;

(e)    that there is no suggestion of oppression of any minority;

(f)    that the scheme is fair and reasonable so that an intelligent and honest person, who is a member and acting alone in respect of his or her interest as a member, might approve it;

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

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

See Re NRMA Ltd at [41] per Santow J; Re Seven Network Ltd (No 3) [2010] FCA 400; 267 ALR 583 at [31]-[44] per Jacobson J; Re Solution 6 Holdings Ltd [2004] FCA 1049; 50 ACSR 113 at [18]-[21]; Re Signature Capital Investments Ltd (No 2) [2016] FCA 385 at [4]; Re Medical Australia Ltd (No 2) [2017] FCA 1429 at [4]-[5]; Re Permanent Trustee Co Ltd [2002] NSWSC 1177; 43 ACSR 601 (Re Permanent Trustee) at [8]-[10]; and Re Healthscope Ltd (No 2) [2019] FCA 759; 136 ACSR 259 at [6]-[7], [11]-[14].

Application of principles to the present case

Statutory and procedural requirements

Dispatch of scheme booklets

15    The 6 September orders required CBR send to its shareholders on or before 8 September 2023 a copy of the scheme booklet substantially in the form of the document which is Annexure “AL-05” to the affidavit of Alexandra Mary Lockie affirmed on 6 September 2023 (including its annexures) (Scheme Booklet). The 6 September orders provided for dispatch by way of email or hard-copy, depending upon elections made by shareholders.

16    The evidence establishes that the Scheme Booklet was registered by ASIC on 6 September 2023, and that it was provided to CBR’s shareholders on 8 September 2023 in accordance with the 6 September orders.

17    Further, the evidence established that the SSB was provided to shareholders in accordance with the 28 September orders, and the Second SSB was provided to shareholders in accordance with the 5 October orders.

18    In addition, as required by r 3.5(b) of the Federal Court (Corporations) Rules 2000 (Cth), an office copy of the 6 September orders was lodged with ASIC on 6 September 2023.

Full and fair disclosure

19    CBR submits, and I accept, that registration of the Scheme Booklet by ASIC pursuant to s 412(6) of the Act is evidence of compliance with the disclosure obligations imposed by s 412 of the Act.

20    Before registering the explanatory statement, ASIC must conclude that it appears to comply with the requirements of the Act, and ASIC must form the opinion that the statement does not contain any matter that is false in a material particular or materially misleading in the form and context where it appears (see ss 412(6) and 412(8) of the Act). Accordingly, in light of ASIC’s registration of the explanatory statement, ASIC can be taken to have been satisfied that the requirements of s 412(1) of the Act were met.

21    Further, the Court accepted CBR’s submission at the first court hearing that the information in the Scheme Booklet has been subject to thorough verification processes and satisfied the disclosure requirements set out in s 412 of the Act.

22    In light of these matters, it is submitted, and I accept, that there has been full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme.

Scheme Meeting voting results

23    The Scheme Meeting was held at the time and place required by the 5 October orders and the 6 September orders respectively, and Mr James Douglas was chairperson of the Scheme Meeting.

24    At the Scheme Meeting, CBR shareholders voted on the following resolution, which was set out in the Notice of Meeting included with the Scheme Booklet (Scheme Resolution):

That, pursuant to and in accordance with the provisions of section 411 of the Corporations Act 2001 (Cth), the scheme of arrangement proposed between Carbon Revolution Limited and the holders of its fully paid ordinary shares (the terms of which are described in the scheme booklet of which the notice convening this meeting forms part of) is agreed to (with or without amendment or any alterations or conditions as approved by the Federal Court of Australia to which Carbon Revolution Limited and Twin Ridge Capital Acquisition Corp agree).

25    As noted above, the Scheme Resolution was agreed to by 98.23% of the votes cast and by 88.17% of shareholders present and voting (in each case, in person or by proxy). It follows that the Scheme Resolution was passed by the statutory majorities required by s 411(4)(a)(ii) of the Act.

26    The number of shares voted at the Scheme Meeting as a percentage of CBR’s total issued share capital was 27.33%. I was also informed that the number of shareholders who voted was 5%.

27    Although the level of shareholder turnout may be considered relatively low, CBR submits, and I accept, that this does not give rise to any concern that shareholders were deterred from attending the Scheme Meeting or did not have notice of it. In relation to low voter turnout, I refer to the cases discussed in Re Japara Healthcare Ltd (No 2) [2021] FCA 1317 at [27]-[28]. In the present case:

(a)    there is nothing to suggest any irregularity in dispatch of material to the shareholders;

(b)    shareholders were provided with notice of the Scheme Meeting;

(c)    there is no evidence of any issue that would have deterred shareholders from voting at or from attending the Scheme Meeting, and CBR has not received any complaint from any shareholder that they did not receive notice of the Scheme Meeting; and

(d)    those shareholders who did vote voted overwhelmingly in favour of the scheme.

Advertisement of second court hearing

28    In accordance with the 6 September orders, CBR published an announcement via the ASX Market Announcements Platform on 6 October 2023 that set out the details for the second court hearing and the process for any person wishing to appear at that hearing to oppose the approval of the scheme, together with an address for service of CBR.

Conditions precedent

29    The Scheme is subject to a number of conditions precedent, including that CBR shareholders vote in favour of the Scheme and the Court approves the Scheme at the second court hearing.

30    Before approving a scheme, the Court will ordinarily require that all conditions precedent to the scheme (other than the Court’s approval of the scheme) have been satisfied or waived.

31    CBR and the SPAC rely on a conditions precedent certificate regarding the satisfaction or waiver of the conditions precedent. The conditions precedent certificate confirms that all relevant conditions precedent to the Scheme have been satisfied or waived, other than the condition relating to Court approval of the Scheme, and two other conditions precedent which the parties to the Scheme Implementation Deed (SID) have agreed to convert into conditions subsequent by way of amendments to the Scheme. This issue is considered further below.

Amendments to the Scheme

32    CBR seeks an order, pursuant to s 411(6), that the Scheme be amended. There are two categories of proposed amendments:

(a)    amendments to the merger ratio and other minor matters that were foreshadowed in the SSB and the Second SSB and provided to shareholders before the Scheme Meeting; and

(b)    amendments to convert two conditions precedent into conditions subsequent; these amendments have not been provided to shareholders.

33    A copy of the proposed scheme as amended is attached to CBR’s submissions. The amendments in the first category are marked-up, and the amendments in the second category are both marked-up and highlighted in yellow.

34    The applicable principles in relation to amendment of a scheme pursuant to s 411(6) can be summarised as follows:

(a)    the discretion may be exercised if the alteration is of a minor or technical kind which does not really affect the details of, or recast, the scheme: Re Adelaide Air Conditioning and Domestic Engineers Ltd (In Liq) [1972] 6 SASR 603 at 605; Re Industrea Ltd (No 2) [2012] FCA 1287 at [5]; Re Billabong International Ltd (No 2) [2018] FCA 496; 26 ACLC 18-011 at [13];

(b)    likewise, the discretion may be exercised if the alteration is of a minor or technical kind which improves the smooth working of the scheme or which does not affect the substantive operation of the scheme: Re Permanent Trustee at [21]; Re Homemaker Retail Management Ltd [2001] NSWSC 1058; 40 ACSR 116 at [25];

(c)    the Court will not make an alteration to a scheme unless it is satisfied that the scheme as proposed to be altered would still have been agreed to by the requisite majorities if the members or creditors (as the case may be) had considered and voted on the scheme as proposed to be altered: Re Independent Practitioner Network Ltd (No 2) [2008] FCA 1593; 26 ACLC 1,249 (Re Independent Practitioner Network) at [17]; Re Australian Co-operative Foods Ltd [2008] NSWSC 1221 at [50]; and

(d)    any alteration should not impinge upon or affect the “spirit and intendment of the scheme as a whole”: Re Permanent Trustee at [21]; Re Aveo Group Ltd and Aveo Funds Management Ltd (No 2) [2019] NSWSC 1679 at [13].

See also, generally, Re Investorinfo Ltd [2005] FCA 1848; 24 ACLC 44 at [7]; Re Independent Practitioner Network at [16]; Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [38]-[39].

Amendments to merger ratio etc

35    The proposed scheme of arrangement voted on at the Scheme Meeting was Annexure 2 to the Scheme Booklet provided to CBR’s shareholders on 8 September 2023.

36    The SSB provided to shareholders on 2 October 2023 foreshadowed CBR’s intention to make amendments to the scheme of arrangement consequent upon entry into the Structured Equity Facility (SEF). In particular, entry into the SEF necessitated a change to the merger ratio for determining entitlements to the Scheme Consideration. However, the precise change required to the merger ratio would not be known until after the final SPAC redemptions were known, and this was not anticipated to be known until closer to the date of the Scheme Meeting. Once this information was known, an amendment would be required to the formula which appears in the definition of “Scheme Consideration” in the scheme: see the letter from the chair of CBR in the SSB.

37    In CBR’s written submissions dated 27 September 2023, filed for the purposes of the hearing on 28 September 2023, CBR referred to the above disclosure in the then-proposed SSB and made submissions in relation to this issue at paragraphs 44 to 46 and 66 to 72. In the 2 October Reasons, Beach J made observations about this issue at [95]-[99].

38    Subsequently, on 6 October 2023, CBR published the Second SSB, which referred to a further change to the Scheme Consideration: see the Chair’s letter in the Second SSB.

39    As foreshadowed in the SSB and the Second SSB, when the final SPAC redemption rate became known, a marked-up amended scheme of arrangement was provided to CBR shareholders via an ASX announcement on 13 October 2023 (Proposed Amended Scheme). That announcement informed shareholders that CBR would seek an order at the second court hearing under s 411(6) approving the Proposed Amended Scheme. This information was repeated to shareholders at the Scheme Meeting.

40    Accordingly, while the terms of the Scheme Resolution agreed to at the Scheme Meeting referred to the scheme of arrangement attached to the Scheme Booklet, shareholders voted with knowledge that CBR would seek the Court’s approval of the Proposed Amended Scheme. Further, the Scheme Resolution stated that the scheme is “agreed to (with or without amendment or any alterations or conditions as approved by the Federal Court of Australia to which Carbon Revolution Limited and Twin Ridge Capital Acquisition Corp agree).”

41    In the circumstances described above, it is appropriate to make this category of amendments to the Scheme (pursuant to s 411(6)) (and then to consider whether to approve the Scheme as so amended). The amendments were foreshadowed to members of CBR before the Scheme Meeting. Members of CBR can be taken to have proceeded on the basis that, if the requisite majorities voted in favour of the Scheme, the Court would be likely to make these amendments to the Scheme at the second court hearing and then to consider whether to approve the Scheme as so amended.

Amendments to convert conditions precedent to conditions subsequent

42    Since the Scheme Meeting was held, the parties to the SID have agreed to make some further amendments to the Proposed Amended Scheme, to convert certain conditions precedent into conditions subsequent.

43    Clause 3.1 of the SID provides that the scheme will not become effective, and the respective obligations of the parties in relation to implementation of the scheme are not binding, until each of the conditions precedent in clause 3.1 of the SID are satisfied or waived, including:

(a)    3.1(p): Nasdaq or NYSE Quotation: before 8.00 am on the Second Court Date, the MergeCo Shares to be issued pursuant to this Scheme have been approved for listing on either Nasdaq, NYSE or NYSE American, subject only to official notice of issuance; and

(b)    3.1(r): Composition Agreement/SEAS: before 8.00 am on the Second Court Date, MergeCo has entered into a composition agreement with the Revenue Commissioners of Ireland and a Special Eligibility Agreement for Securities with the Depository Trust Company in respect of the MergeCo Shares and MergeCo Warrants, both of which are in full force and effect and are enforceable in accordance with their terms.

44    Neither of these conditions can be waived: see clause 3.3(a) of the SID.

45    Clause 3.1 of the Scheme provides that the Scheme is conditional on and will have no force or effect until, the satisfaction of each of the conditions precedent set out in clause 3.1 of the Scheme, which include: “(a) all the conditions in clause 3.1 of the Implementation Deed (other than the condition in the Implementation Deed relating to Court approval of this Scheme) having been satisfied or waived in accordance with the terms of the Implementation Deed by 8.00 am on the Second Court Date”.

46    It follows that it is a condition precedent to the scheme that, before 8.00 am on the Second Court Date, Nasdaq approves the listing of the MergeCo Shares and MergeCo has entered into the Composition Agreement and a SEAS.

47    However, it became apparent that neither of these conditions would be met prior to the second court hearing. Consequently, the parties to the SID agreed to convert those conditions precedent into conditions subsequent that must be satisfied before the “End Date” of 30 November 2023.

48    The principal proposed amendments to the Scheme are:

49    Additionally, there are ancillary or consequential amendments relating to the same issue.

50    The End Date is 30 November 2023.

51    Two issues arise in relation to these proposed amendments: first, in what circumstances will a Court approve a scheme that remains subject to conditions at the time of approval; secondly, whether the Court should exercise its power to amend a scheme under s 411(6) in relation to these matters.

52    As to the first issue, previous decisions have established that the Court may be prepared to approve a scheme that is subject to a condition subsequent where the condition subsequent does not cause the scheme to become unclear or uncertain, or introduce a new decision-making process after Court approval of the scheme: see Re Atlassian Corporation Pty Ltd [2013] FCA 1451 at [28]-[30]; Re iProperty Group Ltd [2015] FCA 1507 at [26]-[27]; Re Afterpay Limited (No 2) [2021] NSWSC 1709 at [17].

53    CBR submits, and I accept, that the conditions subsequent in the proposed amended scheme in this case satisfy the requirements of the authorities. In particular, if the conditions subsequent are not satisfied by the specified date (being 30 November 2023), the scheme will be terminated and the status quo restored, and there will be no adverse consequences to the members.

54    As to the second issue, unlike the amendments considered at [35]-[41] above, CBR shareholders did not have prior notice of these amendments when they voted on the Scheme.

55    I consider that the proposed amendments are to ensure the proper working of the scheme, are of a relatively minor and technical nature, and do not affect the scheme’s substantive operation. Moreover, the proposed alterations to the scheme are consistent with its spirit and intendment. In these circumstances, I consider it appropriate to make these amendments to the Scheme (pursuant to s 411(6)) (and then to consider whether to approve the Scheme as so amended).

Exercise of discretion

56    CBR submits, and I accept, that the Scheme (as so amended) is fair and reasonable, in the sense that an intelligent and honest shareholder, properly informed and acting alone, might approve the scheme.

57    The following matters support this conclusion:

(a)    the overwhelming support of the CBR shareholders as reflected in the voting results of the Scheme Meeting. It is submitted, and I accept, that proof of the relevant statutory majorities establishes that prima facie the scheme is fair. This is on the basis that courts generally take the view that shareholders are in the best position to judge whether an arrangement is in their commercial interests, and the Court should be reluctant to make a decision contrary to the views expressed by the shareholders at the meeting;

(b)    the recommendation from all CBR directors that CBR shareholders vote in favour of the Scheme, for the reasons given in the Scheme Booklet, and the fact that the directors stated their intention to vote all of the CBR shares held or controlled by them in favour of the scheme;

(c)    the opinion of the independent expert that the Scheme is in the best interests of CBR shareholders;

(d)    the disclosures in the Scheme Booklet which set out a detailed description of the proposed scheme, including the potential benefits and disadvantages of the Scheme;

(e)    there is no application to oppose the orders approving the Scheme, and no evidence as to any oppression in the conduct of the Scheme Meeting; and

(f)    the Scheme contains measures to protect shareholders against performance risk.

Section 411(7)

58    The Court’s power to approve a s 411 scheme is restricted by s 411(17) of the Act. At the approval stage, the Court must be satisfied there is no proscribed purpose as described in s 411(17)(a), or there must be provided to the Court a statement in writing by ASIC that it has no objection to the arrangement (see s 411(17)(b)). A ‘no objection’ statement has been provided by ASIC prior to this hearing. This satisfies the requirements of s 411(17)(b) of the Act, and consequently the bar under s 411(17) to approval of the Scheme is removed. It is otherwise well established that the Court should not refuse approval of a scheme of arrangement merely because it could have been effected under Chapter 6.

Exception from s 411(11)

59    Section 411(11) of the Act requires that, subject to s 411(12), a copy of the Court’s order approving a scheme of arrangement be annexed to every copy of the company’s constitution issued after the order is made. Section 411(12) allows the Court to exempt a body from compliance with this provision or to determine the period during which it shall comply.

60    It is submitted, and I accept, that exemption from compliance with s 411(11) is appropriate in the present circumstances given that:

(a)    the Scheme will not alter the constitution of CBR or the rights of the holders of CBR Shares, creditors or other persons dealing with the company. Further, no ongoing purpose will be served by requiring the orders approving the scheme to be annexed to CBR’s constitution;

(b)    current shareholders of CBR are fully informed of the scheme and will be informed in the event that the Court approves the Scheme; and

(c)    an order under s 411(12) is regularly made on the above basis.

Conclusion

61    I will therefore make orders substantially as sought by CBR.

Associate:

Dated:    23 October 2023