Federal Court of Australia

VGW Holdings Limited, in the matter of VGW Holdings Limited [2025] FCA 715

ORDERS

THE COURT ORDERS THAT:

1. Pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act), the plaintiff is to convene and hold a meeting of its shareholders (the Scheme Meeting):

(a) for the purposes of considering and, if thought fit, agreeing (with or without amendment) to a scheme of arrangement (Scheme) proposed to be made between the plaintiff and its shareholders (Shareholders), the terms of which are set out in Annexure 2 to the Scheme Booklet at annexure 'CEDB-9' to the third affidavit of Carl Edward Della-Bosca affirmed 26 June 2025 (Third Della-Bosca Affidavit); and

(b) to be held online at 10.30 am AWST on 1 August 2025 or immediately after the conclusion of the General Meeting (as that term is defined in the Scheme Booklet), whichever occurs later, via an online meeting platform powered by the plaintiff's share registry, Automic, that allows for remote participation, to be accessed substantially in accordance with the instructions set out in the notice of Scheme Meeting (at Annexure 7 of the Scheme Booklet) (Notice of Scheme Meeting).

2. Pursuant to s 411(1) of the Act, the Scheme Booklet, which contains the explanatory statement required by s 412(1)(a) of the Act, is approved for distribution to Shareholders substantially in the form of annexure 'CEDB-9' to the Third Della-Bosca Affidavit, subject to:

(a) correction of any minor typographical or grammatical errors and final typesetting, formatting and page numbering;

(b) any minor amendments requested or approved by the Australian Securities and Investments Commission for registration under s 412(6) of the Act;

(c) the correction or update of relevant dates or market price references and consequential amendments; and

(d) effecting any other amendments approved by the Court.

3. Subject to these orders and pursuant to s 1319 of the Act, the Scheme Meeting must be:

(a) convened, held and conducted in accordance with the provisions of Pt 2G.2 of the Act that apply to members of a company and the provisions of the plaintiff's constitution that apply to meetings of members that are not inconsistent with Pt 2G.2 of the Act;

(b) convened using a notice substantially in the form of the Notice of Scheme Meeting contained in Annexure 7 of the Scheme Booklet (with any amendments contemplated by paragraph 2 above);

(c) held and conducted pursuant to the arrangements for attending, participating and voting described in the Notice of Scheme Meeting and in accordance with the provisions of Pt 2G.2 of the Act; and

(d) convened, held and conducted as if r 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules) does not apply.

4. Pursuant to s 1319 of the Act:

(a) Mike Symons, or failing him, Mats Johnson, is the chairperson of the Scheme Meeting (Chairperson);

(b) the Chairperson has the power to adjourn or postpone the Scheme Meeting in the Chairperson's absolute discretion to such time, date and place that the Chairperson thinks appropriate (including as to whether the adjourned meeting should be held electronically);

(c) at the Scheme Meeting, two or more Shareholders entitled to vote, present in person, by proxy or by attorney, or in the case of a corporate Shareholder, under power or by a corporate representative (if applicable), shall constitute a quorum;

(d) at the Scheme Meeting, each Shareholder, present and entitled to vote, is entitled to one vote for each fully paid share in the capital of the plaintiff that the Shareholder is registered as holding at 5.00 pm AWST on 30 July 2025; and

(e) at the Scheme Meeting, voting on the resolution to approve the Scheme must be conducted by way of a poll (declared by the Chairperson).

5. Subject to registration of the Scheme Booklet with ASIC pursuant to s 412(6) of the Act, and pursuant to s 411(1) and s 1319 of the Act, the Scheme Meeting must be convened by the plaintiff sending on or before 2 July 2025 (or such other day as directed by the Court) the following materials to each Shareholder who appears on the plaintiff's register of as at 5.00 pm AWST on 26 June 2025 (Register Time):

(a) in the case of each Shareholder who has elected to receive shareholder communications from the plaintiff electronically (Email Shareholders), emails containing online portal and website links where the Email Shareholders may:

(i) access and download the Scheme Booklet;

(ii) complete and lodge their proxy forms for the General Meeting (as defined in the Scheme Booklet) and the Scheme Meeting online;

(iii) obtain a copy of an Election Form (as defined in the Scheme Booklet), CGT Rollover Election Form (as defined in the Scheme Booklet) and US investor certificate;

(iv) access the online meeting platform powered by Automic to listen to and participate in the General Meeting and the Scheme Meeting, and the details of how the Shareholder may request a free hard copy of the Scheme Booklet;

(b) in the case of each Shareholder who has elected to receive shareholder communications from the plaintiff by post (Postal Shareholders), using the methods of service set out in paragraph 7 of these orders, the following documents by post:

(i) the Scheme Booklet;

(ii) personalised proxy forms for the General Meeting and Scheme Meeting;

(iii) a personalised Election Form;

(iv) a personalised CGT Rollover Election Form;

(v) a reply paid envelope for Australian Shareholders and a self-addressed envelope for Shareholders outside of Australia;

(c) in the case of each Shareholder who is not an Email Shareholder or a Postal Shareholder (Non-Electing Shareholders), using the methods of service set out in paragraph 7 of these orders, an access letter by post containing:

(i) online portal and website links where the Non-Electing Shareholders may

A. access and download the Scheme Booklet;

B. access the online meeting platform powered by Automic to listen to and participate in the General Meeting and the Scheme Meeting;

(ii) the details of how the Shareholder may request a free hard copy of the Scheme Booklet;

(iii) personalised proxy forms for the General Meeting and Scheme Meeting;

(iv) a personalised Election Form;

(v) a personalised CGT Rollover Election Form;

(vi) information on how they can obtain a US investor certificate; and

(vii) a reply paid envelope for Australian Shareholders and a self-addressed envelope for Shareholders outside of Australia.

6. If it comes to the attention of the plaintiff (through its share registry services provider, Automic) that any email dispatched in accordance with paragraph 5(a) of these orders results in the return of a receipt or notice that the email was undelivered, then the plaintiff must dispatch to that Shareholder within a reasonable time thereafter the documents referred to at paragraph 5(c) of these orders.

7. The plaintiff must dispatch the documents identified in paragraphs 5(b), 5(c) and 6 of these orders:

(a) to each Shareholder who has a registered address in Australia, by pre-paid ordinary post to their registered address as recorded at the Register Time; and

(b) to each other Shareholder who has a registered address outside Australia, by prepaid international airmail to their registered address as recorded at the Register Time.

8. The plaintiff must cause a hard copy of the Scheme Booklet to be provided to any Shareholder if requested by a Shareholder before the date of the Scheme Meeting.

9. Dispatch in accordance with paragraphs 5 to 8 above is sufficient notice of the Scheme Meeting.

10. The plaintiff is not obliged to send documents in relation to the Scheme to any person who becomes a Shareholder after the Register Time.

11. The time by which Shareholders must return their Proxy Form (or lodge an electronic proxy appointment) in respect of the Scheme Meeting is 10.00 am AWST on 30 July 2025.

12. The proceeding is adjourned to 10.15 am AWST on 5 August 2025.

13. The plaintiff must give notice of the hearing of any application pursuant to s 411(4) and, if necessary, s 411(6) of the Act for orders approving the Scheme by publishing an announcement via its website by 4.00 pm AWST on 29 July 2025, substantially in the form of annexure MJS-13 to the affidavit of Michael John Symons affirmed on 24 June 2025 and the plaintiff is otherwise relieved from compliance with r 3.4 of the Corporations Rules.

14. Pursuant to r 1.3 of the Corporations Rules compliance with r 2.4(1) is dispensed with.

15. The plaintiff must lodge an office copy of these orders with ASIC as soon as practicable after they are made.

16. The plaintiff has liberty to apply upon giving 24 hours' notice to ASIC.

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

REASONS FOR JUDGMENT

JACKSON J:

1 The plaintiff, VGW Holdings Limited, proposes a scheme of arrangement (Scheme) which requires the Court's approval under Part 5.1 of the Corporations Act 2001 (Cth).  On 27 June 2025 I made orders under s 411(1) of the Act convening a meeting of the shareholders of VGW to vote on whether to approve the Scheme.  These are the reasons for those orders.

Key features of VGW and of the proposed Scheme

2 VGW is a public company limited by shares.  It is in the business of interactive entertainment, delivering online casino-themed games to players in most states of the United States of America (US) and most provinces of Canada. The games are available to play at no cost, but include optional in-game purchases.

3 The company has over 900 shareholders.  It is not listed on any stock exchange but there is the ability to trade shares on PrimaryMarkets, an online platform that facilitates the buying and selling of shares in companies not listed on traditional stock exchanges such as the Australian Securities Exchange.

4 Approximately 70% of the issued shares in VGW are held by its founder, Laurence Escalante, and his affiliates (the LEO Shareholders, LEO being an acronym of Mr Escalante's family office company, Lance East Office Pty Ltd).

5 VGW announced the Scheme on 2 June 2025, the day on which a Scheme Implementation Deed (SID) was signed.  The Scheme had its genesis in a proposal for the LEO Shareholders to acquire the shares in VGW they did not already hold, although that may not be the effect of the Scheme as now proposed.  Before describing how the Scheme will operate, if implemented, it is relevant to explain how it was negotiated.

6 The Board of VGW is comprised of Mr Escalante, his father Lorenzo Escalante, Mats Johnson and Mike Symons.  Given Mr Escalante's interest in the outcome of the Scheme, the Board resolved to constitute an Independent Board Committee (IBC) which is now comprised of Mr Symons as Chair and Mr Johnson, as well as two VGW executives, Mike Thunder and Angus Tiet.  The role of the IBC has been to negotiate the terms of the Scheme on behalf of shareholders who are not LEO Shareholders and to instruct professional advisers to pursue and implement the scheme.

7 Under the Scheme as now proposed after those negotiations:

(a) all of the issued shares in VGW will be transferred to Ocean BidCo Limited, a company incorporated in Guernsey;

(b) shareholders will receive $5.05 in cash as consideration for the transfer of their shares (less dividends declared between the date of the SID and the implementation date of the Scheme, which will be described below); and

(c) shareholders may, however, elect to take scrip in respect of any number of their shares in VGW (subject to a minimum of 2,000 shares), meaning that they will receive as consideration the same number of shares in Ocean BidCo.

8 In other words, while the cash consideration is the default option, shareholders may elect to take the consideration for any number of their shares in the form of Ocean BidCo scrip instead.

9 The LEO Shareholders have indicated that they will elect to take scrip consideration in relation to all their shares in VGW.  As a result, they will have a majority interest in Ocean BidCo and, through it, VGW.  The proportion of that interest will depend on how many of the other shareholders elect to take scrip consideration;  the fewer who make that election, the higher the proportion of the LEO Shareholders' holding in Ocean BidCo.

10 Mr Escalante has indicated in his letter to VGW Shareholders that Ocean BidCo will 'continue to operate VGW in the ordinary course' and that, 'BidCo will seek to operate in a more streamlined manner, with a view to realising operational efficiencies and reducing the opportunities for VGW's competitors to leverage our competitively sensitive information'.

11 An independent expert firm, Kroll Australia Pty Ltd, has given an opinion on the Scheme.  The opinion is that, 'on the basis of the Scheme Cash Consideration only, the Scheme is in the best interests of VGW Shareholders, in the absence of a superior proposal'.  The 'Scheme Cash Consideration' is the cash consideration referred to in [7(b)] above.  For shareholders who receive consideration for their shares in that form only, Kroll assesses the Scheme to be fair and reasonable.

12 Kroll considers, however, that it is not possible to reliably estimate the realisable value of a share in Ocean BidCo.  Its opinion under a range of scenarios is that the underlying economic value of Ocean BidCo shares immediately after implementation is likely to be lower than the value of shares in VGW.  Its opinion in relation to the 'Scheme Scrip Consideration', which is the scrip consideration referred to in [7(c)] above, is that it is unlikely to be fair, unlikely to be reasonable, and so is unlikely to be in the best interests of shareholders in VGW.

13 The independent directors, Mr Symons and Mr Johnson, intend to unanimously recommend that VGW shareholders vote in favour of the Scheme subject to no superior proposal emerging and Kroll concluding and continuing to conclude that the Scheme is in the best interests of VGW shareholders (on the assumption that those shareholders receive the cash consideration).  The Messrs Escalante make no recommendation.  It is also pertinent to note that the LEO Shareholders will not be voting on the resolution to approve the Scheme.  The decision made will therefore be a decision of the minority shareholders.

14 The solicitors representing VGW in this application, Ashurst Australia, are instructed by the IBC.  Mr Escalante and the LEO Shareholders have been separately represented by King & Wood Mallesons.

Materials relied on

15 In support of its application for orders under s 411(1) of the Corporations Act, VGW relied on the following affidavits:

(a) affidavit of Carl Edward Della-Bosca affirmed on 19 June 2025;

(b) affidavit of Carl Edward Della-Bosca affirmed on 23 June 2025;

(c) affidavit of Jessica Louise O'Hara affirmed on 24 June 2025;

(d) affidavit of Michael John Symons affirmed on 24 June 2025;

(e) affidavit of Jared Mark Webster affirmed on 25 June 2025;

(f) affidavit of Carl Edward Della-Bosca affirmed on 26 June 2025;

(g) affidavit of Jared Mark Norman Webster sworn on 26 June 2025;

(h) affidavit of Elliott Cosmo Schutte affirmed on 26 June 2025; and

(i) affidavit of Toby Michael Newnes sworn on 26 June 2025.

16 VGW also tendered a letter dated 26 June 2025 from the Australian Securities and Investments Commission (ASIC) stating that ASIC did not propose to appear to make submissions or intervene to oppose the Scheme at the first court hearing (and ASIC did not appear at the hearing).

Principles

17 It is not necessary to set out the well-established principles as to how schemes of arrangement come into effect.  A meeting of members must be called pursuant to an order of the Court.  If the meeting votes in favour of the scheme by the requisite majorities, a further application will be made for the Court's approval of the scheme.  I refer to without repeating the summary given in Re Essential Metals Limited [2023] FCA 1101 at [8]-[13].

18 Apart from certain formal and procedural requirements that will be addressed below, to make orders convening the scheme meeting, the Court must be satisfied that the 'explanatory statement' required under s 412(1)(a) of the Corporations Act - commonly called the scheme booklet - will provide proper disclosure to shareholders.  The Court must also be satisfied that the scheme is bona fide and that it would be likely to approve the scheme at a second hearing, assuming it is unopposed.

The prerequisites for convening a meeting were satisfied

19 Before considering the last of these requirements, I will set out my findings as to the other prerequisites for the orders made convening the scheme meeting.

The Scheme is within the scope of Part 5.1

20 Section 411 of the Corporations Act operates in relation to a 'Part 5.1 body', which relevantly in s 9 is defined to include a company.  An ASIC search in evidence verifies that VGW is an Australian public company.

The Scheme is an arrangement within the meaning of s 411(1)

21 Section 411 operates in relation to a 'compromise or arrangement'.  The Scheme clearly meets that broad description:  see Re NRMA Insurance Ltd (No 1) [2000] NSWSC 82 at [20] (Santow J).

The meeting will be constituted by shareholders in an appropriate class

22 There will only be one class of shareholders voting at the meeting.  That is appropriate, as there are no different securities on issue that would make it impossible for all security holders to deliberate in respect of their common interests in VGW and the outcome of the Scheme:  Re SILK Laser Australia Limited [2023] FCA 1191 at [37] (Halley J); Re Healthscope Limited [2019] FCA 542 [106] (Beach J).  I address one matter relevant to this further below, namely the treatment of shares that some employees acquired under an incentive scheme funded by VGW.

The disclosure effected by the Scheme Booklet

23 There are a number of specific requirements as to the content of a scheme booklet, which arise from s 411(3) and s 412 of the Corporations Act, and reg 5.1.01(1)(b) and Pt 3 of Sch 8 of the Corporations Regulations 2011 (Cth).  These were met in this case.  I was assisted in coming to that conclusion by annexures to the outline of written submissions filed on behalf of VGW, which set out in detail the basis on which it was said that the company had complied with numerous procedural and formal requirements found in Pt 5.1 of the Corporations Act, the Corporations Regulations and the ASIC Regulatory Guide in relation to schemes of arrangement.

24 More broadly, and as summarised in Re Wesfarmers Ltd [2018] WASC 308 at [54]-[55] (Vaughan J), the scheme booklet must provide proper disclosure, with nothing misleading or deceptive in any material sense.  The extent of the disclosure required is a question of fact and degree dependent on the nature of the scheme and the context in which it is advanced for consideration, which must be considered in a practical and commercially realistic way having regard to the complexity of the proposed scheme.

25 VGW has provided various iterations of a draft Scheme Booklet for this transaction.  Mr Della-Bosca’s affidavit of 19 June 2025 confirmed that the Scheme Booklet was first filed with ASIC on 13 June 2025.  It is a detailed document which describes the Scheme and sets out reasons why shareholders might vote for or against it.  It contains information about VGW, its current shareholders and directors, and the recommendations of the independent directors as to voting.

26 The Scheme Booklet also gives a profile of VGW and its business.  It includes financial information including a summary of the company's profits, cash flow and balance sheet over the past three full financial years as well as for the six months ended 31 December 2024.  It outlines the effect of the Scheme and explains advantages and disadvantages of the Scheme for current shareholders.  That is done in the context of risks that affect VGW's current business model, which include risks associated with the possibility of further regulation in the US.  The Scheme Booklet gives a timetable for approval and implementation of the Scheme.

27 The Scheme Booklet describes the different forms of consideration which shareholders may receive, as summarised above.  The Scheme Booklet explains, as has already been mentioned, that the $5.05 per share cash consideration will be reduced by the amount of any dividends declared, determined and paid to VGW shareholders after the date of the SID (2 June 2025) and before implementation of the Scheme (proposed to be on 20 August 2025).  In that regard, a dividend of $0.30 per share was declared on 3 June 2025, and the directors expect to declare a further dividend of $0.15 per share before the scheme meeting.  As a result, the cash consideration paid if the Scheme is implemented is expected to be $4.60 per share.

28 The Scheme Booklet also describes how the cash consideration will be funded, which will be via a combination of a loan from VGW to Ocean BidCo, and a loan from two US-based financiers, Centerbridge Credit CS, L.P and FS Credit Opportunities Corp.  The loan from VGW means that the shareholders will have to approve the giving of financial assistance to fund the purchase of its own shares, under s 260B of the Corporations Act.  It is proposed that approval will be sought at a general meeting that will be held immediately before the scheme meeting.

29 The Scheme Booklet describes taxation implications for certain shareholders (while disclaiming any taxation advice).  It also gives a summary of shareholder rights and corporate laws that are applicable to each of VGW and Ocean BidCo, given their different corporate domiciles, as well as a summary of key terms of a shareholders' deed that will govern relations between the shareholders of Ocean BidCo.

30 The Scheme Booklet annexes Kroll's Independent Expert Report and the terms of the Scheme itself.  It will annex a deed poll executed by Ocean BidCo in standard terms by which that company undertakes in favour of each VGW shareholder (as at the record date of 25 June 2025) to perform its obligations under the Scheme, including those that relate to the provision of scheme consideration, and to give warranties attributed to it under the scheme.

31 At the first court hearing, I made certain suggestions as to specific points at which  the disclosure to shareholders might be enhanced.  During an adjournment in that hearing, VGW's solicitors accommodated those suggestions.

32 I will address the independent expert's mixed recommendation below.  Subject to that, in view of all the above I was satisfied that the Scheme Booklet and its annexures, along with the explanatory materials to the two notices of meeting, will give shareholders the information they need to make an informed choice about whether to approve the Scheme.

33 As for the veracity of the information in the Scheme Booklet, VGW has provided affidavit evidence as to detailed processes that have been undertaken to verify all relevant details, to ensure they were accurate and not misleading or deceptive, and that there has been no material omission.

34 Having regard to the above matters, it would appear at a prima facie level that the Scheme Booklet, when dispatched, will provide adequate disclosure to the shareholders of VGW.

The Scheme is bona fide and properly proposed

35 On the evidence, the Scheme is proposed for intelligible commercial purposes.  These include giving shareholders the opportunity to cash out the value of their shares in VGW in light of what the Scheme Booklet describes as 'an environment with rapidly evolving US regulatory developments and VGW facing increasing industry competition'.  Shareholders who do not wish to sell all their shares for cash may elect to retain all or part of their holding in the form of equity, albeit in the form of shares in the new Guernsey based holding company, Ocean BidCo.

36 In the Scheme Booklet, the proposal to have VGW held by a Guernsey company is explained as follows:

BidCo will seek to operate in a more streamlined manner, with a view to realising operational efficiencies and reducing the opportunities for VGW's competitors to leverage VGW's competitively sensitive information.  This has been noted to VGW Shareholders in the past and was the reason for VGW announcing at the 2024 AGM that it was ceasing voluntary half year public reporting.

37 It may be, then, that one of the objectives of the move to Guernsey is to facilitate less public disclosure in relation to VGW's finances or activities.  But it is not the role of the Court in making orders to convene a meeting to approve a scheme to police the ongoing commercial disclosure practices of the company.  There is no reason to suppose that Ocean BidCo and VGW will operate otherwise than in accordance with the laws applicable in Guernsey and Australia.  According to the Scheme Booklet, VGW will continue to pay Australian income tax.

38 VGW has indicated to its shareholders why it considers that the move to Guernsey will be commercially advantageous to the company as a whole.  The Scheme Booklet will also, as mentioned, provide a comparison of certain laws applicable to VGW as an Australian company and laws that will apply to Ocean BidCo as a Guernsey company.  Shareholders who are considering electing to take some or all of their consideration under the Scheme in Ocean BidCo shares will be able to make an informed decision about whether to do so.  The intentions stated above did not provide reason to think that the Scheme is other than bona fide and properly proposed.

Notice to ASIC

39 The Scheme Booklet and the terms of the proposed arrangement were first provided to ASIC on 13 June 2025, and the letter from ASIC dated 26 June 2025 mentioned above confirmed that the requirement in s 411(2)(a) of the Corporations Act for 14 days' notice of the hearing of the application under s 411(1) was satisfied.

40 The letter also confirmed that ASIC is of the view that it has had a reasonable opportunity to examine the terms of the Scheme and the Scheme Booklet and to make submissions to the Court in relation to those matters.  I was therefore satisfied as to that, as required under s 411(2)(b) of the Corporations Act .

Procedural requirements

41 The annexures to the outline of written submissions that have already been mentioned satisfied me that the numerous procedural and formal requirements found in Pt 5.1 of the Corporations Act the Corporations Regulations and the ASIC Regulatory Guide have been satisfied.

Is there any apparent reason not to give Court approval if members approve the Scheme?

42 It is convenient to repeat what was said in Essential Metals at [29]:

As Markovic J noted in Re Xplore Wealth, the court will ordinarily not convene a scheme meeting unless it is satisfied that it would be likely to approve the scheme on the hearing of a petition that is unopposed.  If the arrangement seems fit for consideration by the meeting of members and is a commercial proposition likely to gain the court's approval, then leave should be given.  But the court may still intervene in circumstances in which the scheme appears on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks:  Re Foundation Healthcare Limited [2002] FCA 742 at [36], [44] (French J).  At the stage of the first court hearing the court should be alive to any difficulties that may arise subsequently when it is called upon to decide whether the arrangement should be approved:  Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 504 (Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ).

43 In this case, the main issue that arises as to the commercial wisdom of the Scheme is that, in relation to one possible form of the proposed consideration, the independent expert has reached an unfavourable conclusion.  As indicated above, Kroll's opinion is that, on the basis of the cash consideration proposed, the Scheme will be fair and reasonable and in the best interests of VGW shareholders.  But on the basis of the scrip consideration, Kroll consider that it is unlikely to be fair, unlikely to be reasonable, and unlikely to be in the best interests of shareholders.

44 The Scheme Booklet offers the following commentary on the latter opinion:

The Independent Expert's statements in relation to the Scheme Scrip Consideration are based on comparing the potential value of a VGW Share on a 100% basis (ASIC requirement) with the potential value of a BidCo share on a minority and marketability discounted basis.  The VGW Independent Directors note that this is not a comparison between the value of a VGW Share held by a minority VGW Shareholder today, which would also include a minority and marketability discount, to the potential value of a BidCo Share on a minority and marketability discounted basis.

45 Also pertinent are the following observations in Kroll's report, immediately following its unfavourable opinion on the Scheme viewed from the point of view of scrip consideration:

In evaluating the reasonableness of the scrip alternatives, relative to an investment in VGW Shares today, BidCo Shares will not be traded on PrimaryMarkets, BidCo Shareholders will not have the takeover protections under the Corporations Act and BidCo will be more highly leveraged and it may have reduced capacity to pay dividends in the near term as a result of the terms of the Debt Facility.  On the other hand, VGW Shareholders who elect to receive Scheme Scrip Consideration may benefit from rollover relief on capital gains.  Furthermore, LEO and BidCo have advised that following implementation of the Scheme BidCo will seek to operate in a more streamlined manner, with a view to realising operational efficiencies and reducing the opportunities for VGW's competitors to leverage its competitively sensitive information.  This may have a favourable impact on the competitive pressures that BidCo faces relative to those faced by VGW as a public company.

An offer may be considered to be in the best interests of shareholders if there are compelling reasons to suggest that despite not being fair, the offer is reasonable.  In this instance, we do not consider that there are compelling reasons to suggest that despite not being fair, the Scheme Scrip Consideration is reasonable.  Consequently, as the Scheme Scrip Consideration is unlikely to be fair, it is unlikely to be reasonable and, therefore, it is unlikely to be in the best interests of VGW Shareholders.  Notwithstanding this, passive shareholders who have a long investment horizon and a high risk appetite may find the Scrip Consideration to be attractive, particularly if they stand to attract a capital gain as a result of the sale of their VGW Shares (given that rollover relief may be available for shareholders who elect to receive the scrip consideration alternatives).  However, VGW Shareholders need to carefully consider the rights and obligations and risks attaching to BidCo Shares before making a decision to elect the receive the Scheme Scrip Consideration.

46 By this the independent expert is saying in effect, that although the Scheme if viewed from the point of view of scrip consideration is unlikely to be fair and reasonable, it will be open to shareholders to decide, based on commercial, investment, legal and taxation considerations, whether it is in their interests to elect to receive consideration in that form.

47 In Re Beadell Resources Ltd [2018] WASC 410, Vaughan J explained that fairness is 'concerned with a comparison of the scheme consideration and the true value of the shares' (at [59]).  His Honour said that a scheme is reasonable if it is fair but may also be reasonable if there are other factors making it reasonable to accept an offer that is less than fair in the absence of a higher bid.  In that case, Vaughan J said that the independent expert's conclusion that the proposed scheme was not fair but reasonable was not fatal to the plaintiff's application, and cited numerous examples of cases where courts have approved schemes in these circumstances (at [60]).

48 Generally, provided that members are properly informed as to the independent expert's conclusion, it is ultimately a matter for them to decide whether to accept the offer:  Beadell Resources at [62].  In Re Crown Resorts Ltd [2022] FCA 367 at [27] O'Bryan J said (more generally than in the context of this particular issue):

The question whether or not to accept particular consideration for shares is quintessentially a commercial matter for the members to assess:  [Re Amcor Ltd [2019] FCA 346] at [50].  Members ought not be prevented from having the opportunity to do so provided that the Court can be satisfied that they are 'acting on sufficient information and with time to consider what they are voting about':  Re English, Scottish and Australian Chartered Bank [1893] 3 Ch 385 at 409 per Lindley LJ, cited with approval in Re ACM Gold Ltd (1992) 34 FCR 530 at 534 per O'Loughlin J.

49 In Re Blackgold International Holdings Limited [2017] FCA 601 at [19], Siopis J held that a scheme where the independent expert had concluded that it was not fair but was reasonable was not 'so obviously unfair or unreasonable that it should not be allowed to go to a meeting'.  In Re AIRR Holdings Ltd [2019] FCA 2180, dealing with an independent expert's report expressed in similar terms, Besanko J held that the proposed scheme was 'not so obviously unfair or unreasonable that it should not be allowed to go to the Scheme Meeting for consideration by AIRR Members' (at [78]).

50 In Re Security Matters Limited (No 3) [2023] FCA 140 O'Callaghan J approved a scheme that had been approved by shareholder vote where the independent expert's opinion was that it was not fair or reasonable or in the interests of shareholders.  While each case depends on its own facts, this shows that an adverse expert opinion of that kind will not invariably lead the Court to withhold its approval.

51 In the present case, it must be recalled that shareholders will only receive the form of consideration which the expert has judged is unlikely to be fair or reasonable to the extent that they elect to do so.  No shareholder who votes against the Scheme will be bound to accept the scrip consideration.  If they make no election, they will receive cash consideration that has been assessed to be fair and reasonable.

52 Further, the basis of the expert's opinion as set out above is disclosed prominently in the IBC Chair's letter to shareholders and in the 'Potential reasons to vote against the Resolutions' section of the Scheme Booklet, and can be assessed in more detail in Kroll's report itself.

53 For those reasons I did not consider that the unfavourable opinion in relation to one form of consideration offered under the Scheme meant that the Scheme was so obviously unfair that it should not be permitted to go to shareholders.

54 No other commercial aspect of the Scheme proposal came to my attention that would make it necessary to remove the Scheme from the consideration of shareholders.  But it is appropriate to canvass a few other matters that commonly require the Court's scrutiny in relation to whether to convene the scheme meeting.

Other matters relevant to the exercise of the discretion

Conditions precedent

55 Clause 3.1 of the SID contains a number of unremarkable conditions precedent to which the Scheme is subject.  They include the necessary shareholder and Court approvals, the execution and ongoing enforceability of the necessary financing documents, and the receipt of an indication from the Australian Taxation Office of a favourable class ruling in respect of capital gains tax rollover relief for those who choose scrip consideration.  Mr Symons's affidavit of 24 June 2025 indicated that as at that date he was not aware of anything that had resulted in the failure or non-satisfaction of any of the conditions precedent, or was likely to do so.

Performance risk

56 If the Scheme is implemented in accordance with its terms, Ocean BidCo will be required to pay the cash component of the consideration for the Scheme into a trust account operated by or on behalf of VGW one business day before the date of implementation of the Scheme: Scheme of Arrangement cl 6.4(a)(i).  Subject to that having occurred, the shares in VGW will be transferred to Ocean BidCo on that implementation day:  Scheme of Arrangement cl 5.2.  As has already been mentioned, Ocean BidCo has secured finance for the maximum cash component of the consideration and has executed a deed poll in favour of VGW shareholders.  I was satisfied that these measures, which are standard, appropriately minimise the risk that Ocean BidCo will not perform its obligations under the Scheme:  cf Re APN News & Media Limited [2007] FCA 770 at [23] (Lindgren J); Re Kangaroo Resources Ltd [2018] WASC 327 at [48]-[49] (Vaughan J).

Exclusivity provisions

57 Clause 11 of the SID contains 'no shop', 'no talk' and no due diligence exclusivity provisions.

58 Exclusivity provisions should:

(a)    exist for no more than a reasonable period, which is properly defined;

(b)    be subject to the directors' fiduciary and other duties; and

(c)    be given adequate prominence when disclosed in the scheme booklet.

See Re Asaleo Care Limited [2021] FCA 406 at [55] (Banks-Smith J).

59 Here the exclusivity period is likely to run from the date of the SID (2 June 2025) until 15 September 2025, about 3½ months.  That is properly defined and is well under the upper limit of what amounts to an acceptable period:  cf Asaleo Care at [57].  The 'no talk' and no due diligence provisions are subject to an exception which will permit the independent directors of VGW to fulfill their fiduciary duties to shareholders should a superior proposal materialise (given the LEO Shareholders' majority position in the company, this is considered unlikely):  see SID cl 11.

60 The Scheme Booklet accurately discloses that the SID contains customary exclusivity provisions but permits the VGW independent directors to engage with a genuine, unsolicited approach provided certain conditions are met.

61 I accepted that the exclusivity provisions are standard and appropriate, with suitable carve outs to permit the directors of VGW to fulfil their fiduciary duties to the company.  It is also relevant to note that the SID contains no break fee.

Directors' recommendations

62 I have already described the recommendation of the independent directors of VGW in respect of the Scheme.  I was satisfied that they are independent;  Mr Symons has no shares in VGW and is not party to any agreement or arrangement conditional on the Scheme going ahead.  Mr Johnson holds approximately 10 million shares in VGW but he has no financial interest in LEO or Ocean BidCo and is also not a party to an agreement or arrangement conditional on the outcome of the Scheme.  Mr Johnson has made no decision about whether he will elect to take scrip consideration if the Scheme is approved and implemented.

63 It is relevant to note at this point that the purchase of nearly all of Mr Johnson's shares in VGW were funded by a loan from VGW pursuant to an employee incentive scheme.  It is proposed that if the Scheme is implemented, the holders of shares who have outstanding loans pursuant to that incentive scheme will be deemed not to have elected to take scrip consideration in relation to sufficient of those shares to yield enough cash to pay their respective loans.  As a result their loans will be taken to have been repaid, and they will be left with the ability to elect to take cash or scrip in relation to the balance of their shares.  The existence of a mechanism of this kind does not mean that the shareholders in question are part of a different class to other shareholders, as their shares are being acquired for the same consideration and are being valued in the same way as the shares of the other members:  SILK Laser Australia at [40].

64 Given Mr Escalante's position as a proponent of the Scheme, and given that Lorenzo Escalante is his father, it is appropriate that they do not make any recommendation as to how other shareholders should vote:  see the authorities canvassed in Re ThinkSmart Limited [2022] FCA 1314 at [50]-[51].

65 Also appropriate in view of the independent expert's conclusions is that the independent directors' recommendation only pertains to the cash consideration; they make no recommendation as to the scrip consideration.

Shareholder communications

66 Mr Symons's affidavit contains evidence that VGW has engaged a shareholder communication firm to discuss the Scheme with shareholders.  The firm has prepared scripts for both outbound and inbound calls which have been reviewed by Ashurst for consistency with the Scheme Booklet.  On that basis, it was not necessary for the purposes of the first hearing for the Court  to review the scripts:  see Re Essential Metals Limited [2023] FCA 240 at [88]-[100] (Banks-Smith J).  It will, however, be appropriate for VGW to provide evidence at the second court hearing of any significant departure from those scripts in the course of those shareholder communications.

Conclusion

67 For the above reasons I considered it appropriate to make orders convening the meeting of shareholders for the purpose of deciding whether to approve the Scheme.

Associate:

Dated:    1 July 2025