Federal Court of Australia

Incannex Healthcare Limited, in the matter of Incannex Healthcare Limited (No 2) [2023] FCA 1450

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 section 411(17)(b) of the Corporations Act 2001 (Cth) (Act) that ASIC has no objection to the proposed Scheme of Arrangement between the plaintiff (IHL) and its members referred to in this order (Share Scheme) and the proposed Scheme of Arrangement between IHL and its option holders referred to in this order (Option Scheme).

B.    The shares of common stock (US Holdco Shares) and options to acquire US Holdco Shares (US Holdco Options) to be issued by Incannex Healthcare Inc (US Holdco) pursuant to the Share Scheme and Option Scheme will not be registered under the U.S Securities Act of 1933 (US Securities Act) or the securities laws of any other state jurisdiction in the United States. In connection with the implementation of the Share Scheme and the Option Scheme and the issue of the US Holdco Shares and US Holdco Options, IHL and US Holdco intend to rely on the Federal Court’s approval of the Share Scheme and Option Scheme for the purpose of qualifying for exemption from the registration requirements of the US Securities Act, provided for by s 3(a)(10) of the US Securities Act.

THE COURT ORDERS THAT:

1.    Pursuant to section 411(4)(b) of the Act, the Share Scheme, the terms of which are set out in Annexure A to these orders, be and is hereby approved.

2.    Pursuant to section 411(4)(b) of the Act, the Option Scheme, the terms of which are set out in Annexure B to these orders, be and is hereby approved.

3.    Pursuant to section 411(12) of the Act, IHL be exempted from compliance with section 411(11) of the Act in respect of the Share Scheme and the Option Scheme.

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

ANNEXURE A

The order entered is available on the Commonwealth Courts Portal, which attaches the Share Scheme of Arrangement

ANNEXURE B

The order entered is available on the Commonwealth Courts Portal, which attaches the Option Scheme of Arrangement

REASONS FOR JUDGMENT

BESANKO J:

Introduction

1    On 4 October 2023, orders concerning meetings of the members and the optionholders in Incannex Healthcare Limited (IHL) were made under s 411 of the Corporations Act 2001 (Cth) (the Act). The reasons for making the orders are set out in Incannex Healthcare Limited, in the matter of Incannex Healthcare Limited [2023] FCA 1441.

2    The Second Court Hearing was fixed to take place on 16 November 2023. On 13 October 2023, the Chief Justice of this Court made the Schemes of Arrangement Practice Note.

3    Prior to the hearing on 16 November 2023, an affidavit affirmed by Mr Joel Bradley Latham on 15 November 2023 was filed. Mr Latham deposed in that affidavit to the fact that the Share Scheme Meeting was held at 10 am Melbourne time on Wednesday, 8 November 2023 at level 23, Rialto South Tower, 525 Collins Street, Melbourne, Victoria 3000. The Option Scheme Meeting was held at 10.30 am Melbourne time on Wednesday, 8 November 2023 at level 23, Rialto South Tower, 525 Collins Street, Melbourne, Victoria 3000. Mr Latham deposed to the fact that the resolution to agree to the Share Scheme was passed by 99.55% of the votes cast and by 94.91% of shareholders present and voting. Mr Latham deposed that the Option Scheme was passed by 99.95% of the votes cast and by 96.50% of optionholders present and voting.

4    IHL sought orders at the Second Court Hearing that the Court approve the Schemes under s 411(4)(b) of the Act. I made orders approving the Schemes and these are my reasons for doing so.

5    The evidence adduced by IHL at the Second Court Hearing in addition to Mr Latham’s affidavit included a letter from the Australian Securities and Investments Commission (ASIC) dated 16 November 2023 and a Joint Certificate in relation to the conditions precedent in the Scheme Implementation Deed and the Share Scheme and the Option Scheme.

6    Mr Latham’s affidavit establishes that the Scheme Booklet and other documents were dispatched in accordance with the orders made by the Court at the First Court Hearing. Mr Latham’s affidavit also establishes that the Share Scheme Resolution was passed by a majority in number of shareholders present and voting in person or by proxy and by more than 75% of the votes cast on the Share Scheme Resolution. His affidavit establishes that the Option Scheme Resolution was passed by a majority in number of the optionholders present and voting in person or by proxy and by more than 75% of the votes cast on the Option Scheme Resolution.

7    Under s 411(4) of the Act, a scheme of arrangement is binding if, at a meeting of members or creditors, it was agreed to by the requisite majorities of members or creditors present and voting and by number of votes cast, and it is subsequently approved by order of the Court. The requisite majority in the case of a creditors scheme is that a majority in number of creditors present and voting (either in person or by proxy), being a majority whose debts or claims against the company amount in the aggregate to at least 75% of the total amount of debts and claims of creditors present and voting (either in person or by proxy). The requisite majority in the case of a members scheme is a majority in number of the members present and voting (either in person or by proxy) and by 75% of the votes cast on the resolution. Those requirements have been satisfied in this case.

8    Before the Court approves an arrangement, it must be satisfied that all statutory and procedural requirements in relation to the convening and conduct of a meeting have been observed. If those matters are satisfied, the Court then has a discretion to approve the scheme pursuant to s 411(4)(b) of the Act. The matters which are relevant to the exercise of the Court’s discretion are well established. In Amcor Limited, in the matter of Amcor Limited (No 2) [2019] FCA 842, Beach J said the following (at [7] and [11]):

7    Let me say something about my power under s 411(4)(b) to approve the Scheme. In essence, my role at the second court hearing is to assess the Scheme taking into account whether the Scheme is sufficiently fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it. Of course, I can only approve a scheme of arrangement if the requisite majority of shareholders vote in favour of it, but I am not bound to approve the Scheme simply because I previously made orders for the convening of a Scheme meeting and subsequently the requisite majority agreed to it. But I accept that shareholders voting collectively at the Scheme meeting are better judges than I of what is to their commercial advantage and in their interests and accordingly, absent good reason, I should give effect to their intentions.

…

11    Now as I have said, my task is to consider whether the Scheme is fair and reasonable with the test of fairness and reasonableness including a consideration of whether “an intelligent and honest [shareholder], properly informed, acting alone, might approve [the scheme]” (Fowler v Lindholm (2009) 178 FCR 563 at [79] per Emmett, Gordon and Jagot JJ). But the Scheme shareholders’ vote in favour of the Scheme is evidence of its inherent fairness. Put another way, if a majority of the Scheme shareholders have approved the Scheme, it is unlikely that the Scheme would be unreasonable. Further, I do not have to be satisfied that no better Scheme could have been devised.

Statutory and Procedural Requirements

9    As I have previously said, the Scheme Booklet and associated materials were dispatched to shareholders and optionholders in accordance with the orders made at the First Court Hearing and there were no issues or irregularities with respect to that dispatch. All other statutory and procedural requirements have been complied with.

10    The results of the Scheme Meetings are set out above and it is clear that the resolutions were passed by the requisite statutory majorities.

11    IHL drew to my attention the fact that the voter turnout can be a relevant matter if it suggests that some procedural irregularity occurred (see Schemes of Arrangement Practice Note at para 3(j)). IHL pointed out that the number of shares voted at the Share Scheme Meeting as a percentage of IHL’s total issued share capital was 62.38% and that the number of shareholders who voted as a percentage of the total number of IHL shareholders was 5.27%. The votes attaching to options voted at the Option Scheme Meeting as a percentage of the total votes attaching to IHL options for the purposes of the Option Scheme Meeting was 70.55% and the number of optionholders who voted as a percentage of the total number of IHL’s optionholders was 11.06%.

12    IHL submits, and I accept, that the voter turnout in the present case does not give rise to any concern that shareholders were deterred from attending the meetings or did not have notice of the meetings. That is so having regard to the following matters in particular: there is nothing to suggest any irregularity in dispatch of the material to the shareholders and optionholders; shareholders and optionholders were provided with notice of the meetings; there is no evidence of any issue that would have deterred shareholders or optionholders from voting at or from attending the meetings, and IHL has not received any complaint from any shareholder or optionholders that they did not receive notice of the meetings; and those shareholders and optionholders who did vote, voted overwhelmingly in favour of the Schemes.

13    Mr Latham’s affidavit establishes that IHL made an Australian Securities Exchange announcement confirming the results of the Scheme Meetings and giving notice of the Second Court Hearing at which orders approving the Schemes would be sought. I mention at this point that no shareholder or optionholder sought to appear or intervene at the Second Court Hearing.

14    The conditions precedent other than the Court’s approval of the Schemes and the Schemes coming into effect have been satisfied. That has been established by the Joint Certificate in relation to the conditions precedent referred to earlier.

The Discretion to Approve the Schemes

15    As I have said, the Court will consider whether the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it. IHL invites the Court to conclude that the Schemes are fair and reasonable in this respect. The following matters support that conclusion.

16    First, the conclusion that the Schemes are fair and reasonable is supported by the overwhelming support of the IHL shareholders and optionholders reflected in the voting results at the meetings. Proof of the relevant statutory majorities establishes that prima facie the Schemes are fair. It is well settled that the shareholders’ vote in favour of a scheme is evidence of its inherent fairness, and that shareholders are the best judges of their own commercial interests, such that the Court should be reluctant to make decisions contrary to the views of shareholders expressed at meetings.

17    Secondly, the conclusion that the Schemes are fair and reasonable is supported by the recommendation from the directors that the shareholders and optionholders vote in favour of the Schemes for the reasons given in the Scheme Booklet and the fact that each IHL director stated their intention to vote the IHL shares and options held or controlled by them in favour of the Schemes.

18    Thirdly, the conclusion that the Schemes are fair and reasonable is supported by the opinion of the independent expert that the Schemes are in the best interests of IHL shareholders and optionholders.

19    Fourthly, the conclusion that the Schemes are fair and reasonable is supported by the disclosures in the Scheme Booklet which set out a detailed description of the proposed schemes, including the potential benefits and disadvantages of the Schemes.

20    Fifthly, the conclusion that the Schemes are fair and reasonable is supported by the fact that there has been no application to oppose the orders approving the Schemes and no evidence suggesting any oppression in the conduct of the Scheme Meetings.

21    Finally, the conclusion that the Schemes are fair and reasonable is supported by the circumstances that the Schemes contain measures to protect shareholders against performance risk.

22    I considered that the Schemes were fair and reasonable such that an intelligent and honest shareholder (optionholder) properly informed and acting alone, might approve them.

US Securities Act Exemption

23    IHL asks me to follow the approach of Jacobson J in Atlantic Gold NL, in the matter of Atlantic Gold NL (No 2) [2014] FCA 869 (at [8]) and to address the various conditions for qualifying for the exemption from the registration requirements of the Securities Act of 1933 (US) and be registered with the US Securities and Exchange Commission (SEC). The background to this matter is as follows. Under the Schemes, US Holdco will be required to issues shares of common stock of US Holdco (US Holdco shares) to IHL shareholders with a registered address in the United States and options to acquire US Holdco shares (US Hold options) to IHL optionholders with a registered address in the United States. Under the US Securities Act, all securities offered in the United States must satisfy the registration requirements of the Act and be registered with the SEC unless an exemption applies. The registration requirements are aimed at ensuring that companies disclose financial information relevant to the securities. A company that is required to comply with the registration requirements must create a registration statement, which often includes a prospectus with information about the securities, the company and the business, including audited financial statements. Section 3(a)(10) of the US Securities Act contains an exemption in the following terms:

Except as hereinafter expressly provided, the provisions of this subchapter shall not apply to any of the following classes of securities:

…

[10] … any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval.

24    In this case, if the Court approves the Schemes, IHL and US Holdco intend to rely upon that approval to qualify for the exemption in s 3(a)(10) of the US Securities Act.

25    The conditions giving rise to the exemption were referred to by Beach J in Newcrest Mining Limited, in the matter of Newcrest Mining Limited (No 2) [2023] FCA 1251 at [8]–[17].

26    I am satisfied that each of the conditions of the exemption in s 3(a)(10) have been or will be satisfied. First, the Court was advised before the commencement of the approval hearing that reliance would be placed on s 3(a)(10) of the US Securities Act exemption on the basis of the Court’s approval of the Schemes. Secondly, the Court has been informed of the securities to be offered as Scheme Consideration, and an independent expert’s report has valued those securities and concluded that the Share Scheme is in the best interests of the IHL shareholders and the Option Scheme is in the best interests of the IHL optionholders. Thirdly, the Court as it is required by statute to do, held a hearing to consider the fairness and reasonableness of the proposed Schemes. Finally, the hearing was open to the public and any person to whom US Holdco shares or US Holdco options were to be issued had standing to appear. Notice of the date of the hearing was included in the Scheme Booklet sent to all shareholders and optionholders, as well as on the ASX Announcements Platform. No shareholder or optionholder either gave notice of an intention to appear at the Second Court Hearing to oppose the approval of the Share Scheme or Option Scheme and no shareholder or optionholder appeared at the hearing.

27    It is appropriate that a note be included in the orders to the effect that IHL and US Holdco intend to rely on this Court’s approval of the Share Scheme and Option Scheme for the purpose of qualifying for the exemption from the registration requirements of the US Securities Act provided for by s 3(a)(10) of the US Securities Act.

28    Section 411(17) of the Act has been complied with. IHL has produced to the Court a letter from ASIC dated 16 November 2023 stating that ASIC has no objection to the compromise or arrangement.

29    Section 411(11) provides that subject to subs (12), a copy of every order of the Court made for the purposes of para (4)(b) must be annexed to every copy of the constitution of the body issued after the order has been made. Section 411(12) provides that a court may by order exempt a body from compliance with subs (11).

30    IHL submits that an exemption from compliance with s 411(11) is appropriate given that:

(a)    the schemes will not alter the constitution of IHL or the rights of IHL shareholders, creditors or other persons dealing with the company;

(b)    no ongoing purpose will be served by requiring the orders approving the schemes to be annexed to IHL’s constitution;

(c)    current shareholders and optionholders of IHL are fully informed of the schemes and will be informed in the event that the Court approves the schemes; and

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

31    For these reasons, I considered it appropriate to make an order that pursuant to s 411(12) of the Act, IHL be exempted from compliance with s 411(11) of the Act in respect of the Share Scheme and the Option Scheme.

Associate:    

Dated:    28 November 2023