FEDERAL COURT OF AUSTRALIA Staging Connections Group Limited, in the matter of Staging Connections Group Limited [2015] FCA 1012 Citation: Staging Connections Group Limited, in the matter of Staging Connections Group Limited [2015] FCA 1012 Parties: STAGING CONNECTIONS GROUP LIMITED ACN 083 269 701 File number: NSD 898 of 2015 Judge: GLEESON J Date of judgment: 14 September 2015 Catchwords: CORPORATIONS – scheme of arrangement – proposed classes for voting purposes – deal protection clauses – execution of deed poll – electronic notification of shareholders – content of explanatory statement – Corporations Act 2001 (Cth), s 411 Legislation: Corporations Act 2001 (Cth), ss 411, 249J(3) Federal Court (Corporations) Rules 2000 (Cth), r 3.2 Cases cited: Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 Biosceptre International Ltd, in the matter of Biosceptre International Ltd [2013] FCA 1429 Central Pacific Minerals v NL [2002] FCA 239 David Jones Ltd, in the matter of David Jones Ltd [2014] FCA 530 Durban Roodepoort Deep Ltd v Newshore Nominees Pty Ltd [2005] WASCA 231 Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Ply Ltd (1977) 3 ACLR 69 Re Alinta Ltd (No 2) [2007] FCA 1378 Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 Re Archaean Gold NL (1997) 23 ACSR 143 Re Consolidated Media Holdings Ltd [2012] FCA 1186 Re Crusader Ltd [1996] 1 Qd R 117; (1995) 120 FLR 219 Re Hastings Deering Pty Ltd (1985) 9 ACLR 755 Re Hills Motorway Ltd [2002] NSWSC 897; (2002) 43 ACSR 101 Re Marengo Mining Ltd (No 2) [2012] FCA 1498 Re Nine Entertainment Group Limited (No 1) [2012] FCA 1464; (2012) 211 FCR 439 Re NRMA Insurance Ltd (No 1) [2000] NSWSC 82; (2000) 156 FLR 349 Re Orion Telecommunications Ltd [2007] FCA 1389 Re Permanent Trustee Company Limited [2002] NSWSC 1177; (2002) 43 ACSR 601 Simavita Holdings Ltd, in the matter of Simavita Holdings Ltd [2013] FCA 1274 Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 Date of hearing: 17 August 2015 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 65 Counsel for the Plaintiff: Mr M Oakes SC Solicitor for the Plaintiff: Thomson Geer Counsel for the Third Party: Mr RM Foreman IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 898 of 2015 STAGING CONNECTIONS GROUP LIMITED ACN 083 269 701 Plaintiff JUDGE: GLEESON J DATE OF ORDER: 17 August 2015 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The Plaintiff convene a meeting of the holders of its fully paid ordinary shares (other than Equity Management Unit Holdings Pty Ltd ABN 48 142 746 281 (EMUH)) (Scheme Meeting 1) for the purposes of considering, and if thought fit, approving (with or without modifications) the proposed scheme of arrangement to be made between the Plaintiff and its members (Scheme) substantially in the form of that contained in Annexure C to the explanatory statement in relation to the Scheme (Scheme Booklet), which is Exhibit 1 in the proceeding. 2. The Plaintiff convene a meeting of EMUH (Scheme Meeting 2) for the purposes of considering, and if thought fit, approving (with or without modifications) the Scheme. 3. Scheme Meeting 1 be held on Thursday, 24 September 2015 at 68-72 Lilyfield Road, Rozelle in the State of New South Wales commencing at 10:00am (Sydney time). 4. Scheme Meeting 2 be held on Thursday, 24 September 2015 at 68-72 Lilyfield Road, Rozelle in the State of New South Wales commencing at 10:30am (Sydney time) or as soon thereafter as Scheme Meeting 1 is concluded or has adjourned. 5. The time for determining eligibility to vote at Scheme Meeting 1 be fixed at 10:00am (Sydney time) on Tuesday, 22 September 2015. 6. The time for determining eligibility to vote at Scheme Meeting 2 be fixed at 10:30am (Sydney time) on Tuesday, 22 September 2015. 7. Mr Gregory James Robertson, or failing him, Mr John William Murphy, be chair of Scheme Meeting 1. 8. Mr Gregory James Robertson, or failing him, Mr John William Murphy, be chair of Scheme Meeting 2. 9. The chair of Scheme Meeting 1 report the result of the Scheme Meeting to the Court. 10. The chair of Scheme Meeting 2 report the result of the Scheme Meeting to the Court. 11. Except for procedural motions, all voting at Scheme Meeting 1 and Scheme Meeting 2 be by poll as declared by the chair. 12. The chair appointed to Scheme Meeting 1 has the power to adjourn the Scheme Meeting in his absolute discretion. 13. The chair appointed to Scheme Meeting 2 has the power to adjourn the Scheme Meeting in his absolute discretion. 14. Regulations 5.6.12 and 5.6.14 to 5.6.36A of the Corporations Regulations 2001 (Cth) shall not apply to Scheme Meeting 1. 15. Regulations 5.6.12 and 5.6.14 to 5.6.36A of the Corporations Regulations 2001 (Cth) shall not apply to Scheme Meeting 2 16. The Scheme Booklet and the proxy forms substantially in the form, or to the effect, of the documents which are at Tab 7 of Exhibit ADC1 in the proceeding (Proxy Forms) are approved for distribution to the shareholders of the Plaintiff. 17. On or before 24 August 2015 there be dispatched to: (a) each shareholder of the Plaintiff who has nominated an electronic address for the purposes of receiving notices of meeting from the Plaintiff, at such address, an email substantially in the form of the document which is Tab 17 of Exhibit ADC1 in the proceeding, including electronic hyperlinks to download the Scheme Booklet and to the webpage where that shareholder can electronically lodge proxies for the general meeting to which that shareholder is entitled to attend; and (b) each other shareholder of the Plaintiff, by hand at, or prepaid post or courier to, the address of that shareholder as set out in the register of members of the Plaintiff, a copy of the Scheme Booklet and the Proxy Form for the general meeting to which that shareholder is entitled to attend. 18. Notice of the hearing of the application pursuant to subsection 411(4)(b) of the Corporations Act 2001 (Cth) for orders approving the proposed scheme be published once in The Australian newspaper, by advertisement substantially in the form of annexure 'A' to these orders, such advertisement to be published on or before Friday 25 September 2015 and the Plaintiff otherwise be exempted for compliance with the requirement to publish a notice of the hearing of the application pursuant to rule 3.4 of the Federal Court (Corporations) Rules 2000 (Cth). 19. The Originating Process filed on 30 July 2015 is adjourned to 10.15 am on Thursday, 1 October 2015. 20. Liberty to apply on 2 days' notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. Annexure "A" Form 6 Notice of hearing to approve compromise or arrangement (rule 3.4) No. NSD898 of 2015 Federal Court of Australia District Registry: New South Wales Division: General IN THE MATTER OF STAGING CONNECTIONS GROUP LIMITED ACN 083 269 701 Staging Connections Group Limited ACN 083 269 701 Plaintiff TO all the creditors and members of Staging Connections Group Limited ACN 083 269 701. TAKE NOTICE that at 10:00am on Thursday, 1 October 2015, the Federal Court of Australia at Law Courts Building, Queens Square, Sydney, NSW 2000 will hear an application by Staging Connections Group Limited seeking the approval of a compromise or arrangement between the above-named company and its members as proposed by resolutions passed by meetings of the members of the company held on 24 September 2015. If you wish to oppose the approval of the compromise or arrangement, you must file and serve on the plaintiff a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on the plaintiff at its address for service at least 1 day before the date fixed for the hearing of the application. The address for service of the plaintiff is Level 25, 1 O'Connell Street, Sydney, NSW 2000. Name of person giving notice or of person's legal practitioner David Zwi, Thomson Geer. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 898 of 2015 STAGING CONNECTIONS GROUP LIMITED ACN 083 269 701 Plaintiff JUDGE: GLEESON J DATE: 14 September 2015 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 17 August 2015, I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) ("Act") after a first hearing in relation to a proposed scheme of arrangement. These are my reasons for making those orders. Background 2 Staging Connections Group Limited ("STG") is an unlisted public company. The company is an Australian-based venue services and exhibition business and an integrated event services provider. 3 As at 12 August 2015, STG had on issue a total of: (a) 98,872,781 fully paid ordinary shares; (b) 12,313,606 E Class shares; and (c) a warrant to subscribe for up to 55,084, 5000 new fully paid ordinary shares. 4 As at 12 August 2015, STG had 506 ordinary shareholders, of which 142 had elected to receive electronic notifications. Scheme implementation agreement 5 On 17 July 2015, STG entered into a scheme implementation agreement ("scheme implementation agreement") with Freeman Audio Visual, Inc. ("FAV"), a Texas corporation, under which STG and FAV agreed (among other things) to FAV acquiring 100% of the share capital of STG. Under the agreement, STG agreed to propose a scheme of arrangement to effect the transaction. 6 Subsequently, STG received an unsolicited "conditional approach" from PSAV Holdings LLC ("PSAV"). FAV was notified of PSAV's approach. On 10 August 2015, STG and FAV entered into a deed of variation of the scheme implementation agreement under which the agreement was varied to increase the total purchase consideration payable by FAV, to replace the timetable in the agreement and to make other variations. 7 On 14 August 2015, that is, the last business day before the first hearing, STG received a further unsolicited "conditional approach" from PSAV which proposed a higher consideration than the consideration payable by FAV. The directors of STG met to consider the 14 August PSAV offer and decided to proceed with implementation of FAV's proposal. Proposed scheme 8 The proposal is that: (1) shareholders will transfer their shares to FAV; (2) FAV will advance funds to retire certain debt and other obligations of STG; (3) shareholders of STG apart from Equity Management Unit Holdings Pty Ltd ("EMUH") will receive a base figure of A$0.09280 cash per share with a possible uplift to A$0.09852 per share depending on the funds (if any) available in the bank accounts in the name of each member of the STG Group as at 9:00am on the day which is three business days prior to the implementation date; (4) payment of the scheme consideration is secured by a deed poll executed by FAV; and (5) the scheme will effect the acquisition of STG by FAV and will result in STG becoming a subsidiary of FAV. 9 FAV is not a party to the scheme, so is bound by a deed poll in favour of each scheme participant. The deed poll enables scheme participants to enforce directly the obligation to provide the scheme consideration. 10 Clause 4.3 of the scheme provides for the transfer of the scheme shares after provision of the scheme consideration under clause 4.1. Thus, the scheme consideration must be provided before the transfer of the scheme shares occurs, satisfying concerns that might otherwise exist about performance risk. 11 The scheme is subject to certain conditions precedent set out in clause 2.1, but subject to usual Court orders and such orders being lodged with the Australian Securities and Investments Commission ("ASIC"), these need to be satisfied or waived by 8:00am on the second Court hearing date, so the scheme will be self-executing upon the making of the second Court hearing orders and registration of those orders with ASIC. 12 Two scheme meetings are proposed: (a) A meeting of all shareholders of STG other than EMUH ("non-EMUH shareholders"); and (b) A meeting of EMUH alone. EMUH is in a separate class because it is treated differently under the scheme. EMUH is a bank-owned entity and supports the scheme proposal. Evidence 13 The plaintiff read the following affidavits in support of the application: (1) Affidavit of Johan Christopher Pietersz sworn 30 July 2015; (2) Affidavit of Antony Douglas Chamberlain sworn 12 August 2015; (3) Affidavit of Gregory James Robertson sworn 10 August 2015; (4) Affidavit of John William Murphy sworn 10 August 2015; (5) Affidavit of David John McCourt affirmed 11 August 2015; (6) Affidavit of Johan Christopher Pietersz sworn 12 August 2015; (7) Affidavit of George Angas Hodson affirmed 12 August 2015; (8) Affidavit of Dawnn Repp sworn 11 August 2015; (9) Affidavit of Jonathan Newton sworn 12 August 2015; and (10) Two affidavits of Helen Hui Jin affirmed 14 August 2015. 14 In addition, the plaintiff tendered the following documents: (1) A copy of the draft explanatory statement to be sent to the scheme members ("scheme booklet"); (2) A copy of the resolution of the STG board of directors on 14 August 2015; (3) Four pages identifying the words incorporated into the scheme booklet to address the PSAV offer on 14 August 2015; (4) A letter from PSAV to STG dated 13 August 2015 ; (5) An exhibit to the affidavit of Antony Douglas Chamberlain sworn 12 August 2015; (6) An exhibit to the affidavit of David John McCourt affirmed 11 August 2015; and (7) An exhibit to the affidavit of Jonathan Newtown sworn 12 August 2015. Recommendations Directors 15 The directors of STG ("directors") have unanimously recommended that, in the absence of a superior proposal, shareholders vote in favour of the scheme at the proposed scheme meetings. Independent experts 16 BDO Corporate Finance (East Coast) Pty Ltd ("BDO"), the independent expert appointed by the directors to assess the scheme, has concluded that, in the absence of a superior proposal, the scheme is fair, reasonable and in the best interests of STG's non-EMUH shareholders. 17 In expressing this conclusion, BDO proceeded on the basis that the proposed transaction will be fair to non-EMUH shareholders if the consideration is equal to or greater than the value of the securities the subject of the offer, being the fair market value of an STG share pre-transaction on a control basis. BDO assesses that fair market value at nil because the net debt held by STG exceeds BDO's derived enterprise value. Relevant Legal framework Jurisdictional requirements 18 There are three stages to an application under s 411. First, the Court approves the convening of a scheme meeting and approves the scheme booklet. Secondly, members vote on the proposed scheme at the scheme meeting. Thirdly, the Court approves the proposed scheme: Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [7] per Keane CJ and Jacobson J; Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 at [8] ("Amcom Telecommunications"); Central Pacific Minerals v NL [2002] FCA 239 at [6] per Emmett J. 19 The following matters are required to be proved at the first stage (Re Orion Telecommunications Ltd [2007] FCA 1389 at [5]): (1) The plaintiff is a "Part 5.1 body"; (2) The proposed scheme is an "arrangement" within the meaning of s 411 of the Act. (3) The scheme booklet will provide proper disclosure to members; (4) The scheme is bona fide and properly proposed; (5) ASIC has had reasonable opportunity to examine the proposed scheme and explanatory statement, to make submissions and has had 14 days' notice of the proposed hearing date of the first court hearing; and (6) Any other procedural requirements have been met, such as rule 3.2 of the Federal Court (Corporations) Rules 2000 (Cth) as to the nomination of a chairperson for the scheme meeting. Standard of review 20 As to the standard of review, in Amcom Telecommunications McKerracher J said relevantly at [10]-[12]: 10. As noted in Re Integra Mining Limited [2012] FCA 1414 (at [11]), the standard of review relevant to the first hearing requires the Court to consider whether the proposed Scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members: Re Sonodyne International Ltd (1994) 15 ACSR 494 per Hayne J (at 499). If the proposed arrangement is one that seems fit for consideration by a meeting of members and is a commercial proposition likely to gain the Court's approval if passed by the necessary majorities, then leave should be given to convene the meeting: Re ACM Gold Ltd; Re Mt Leyshon Gold Mines Ltd (1992) 34 FCR 530 per O'Loughlin J (at 535). The Court does not need to be satisfied that no better scheme could have been devised: Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 per French J, as his Honour then was, (at [44]). … 12. The Court should order the convening of the scheme meeting and approve the Scheme Booklet if it is satisfied of the following matters: • The proposed Scheme is an arrangement in respect of which the Court may order a meeting of the members: s 411(1) [of the Act]. That is, the Scheme is an arrangement; Amcom is a Pt 5.1 Body; the Scheme participants are members of Amcom; and the scheme meeting will be convened between members of the same class. • ASIC has had a reasonable opportunity to examine the terms of the Scheme and the Scheme Booklet and make submissions to the Court in relation to those matters: s 411(2)(b) [of the Act]. • The Scheme Booklet provides adequate disclosure (s 412(1)(a)(i) CA) and contains the prescribed information: s 412(1)(a)(ii) [of the Act], r 5.1.01; Sch 8 cll 8301 - 8310 of the Corporations Regulations 2001 (Cth). • The procedural requirements of the Federal Court (Corporations) Rules 2000 (Cth) have been met. • There is no apparent reason why the Scheme should not, in due course, receive the Court's approval if the necessary majority of votes are achieved: Integra Mining (at [12]) and the cases there cited. 21 The approach of the Court at the first court hearing is that "the court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the...meeting the court would be likely to approve it on the hearing of a petition which is unopposed": per Street CJ (with whom Hutley and Samuels JJA agreed) in FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Ply Ltd (1977) 3 ACLR 69 at 72. The High Court approved this observation in Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504. The FT Eastment approach has been consistently followed. 22 At the first court hearing the Court exercises its supervisory jurisdiction to review the scheme and the explanatory statement and raise any queries with the plaintiff. In Re Crusader Ltd [1996] 1 Qd R 117; (1995) 120 FLR 219, Thomas J said at 125 that "the courts are concerned with the notion of a fair picture being presented" and went on to embrace the observations of the Full Federal Court in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 468: If every possible formulation of the commercial objective of the proposal, and arguments for and against every theoretical possibility, were set forth the total package of information to members would be likely to confuse rather than illuminate the issue for decision, even for people having a familiarity with corporate law and commerce. The need to make full and fair disclosure must be tempered by the need to present a document that is intelligible to reasonable members of the class to whom it is directed, and is likely to assist rather than confuse. 23 The second court hearing is where the court makes its "final determination", and is the most important hearing if the matter becomes contested, but in practice the first court hearing is where the court intervenes if it has any concerns. One reason for this is that (per Santow J in Re Archaean Gold NL (1997) 23 ACSR 143 at 147): ...court approval to convene the scheme meetings is viewed by the market as giving assurance that the scheme is at least in form and substance such as warranted receiving such preliminary court clearance. It must not be forgotten that trading thereafter takes place on that basis. 24 At both court hearings there is a duty of disclosure which falls on the plaintiff and its counsel, as set out in the dictum of Barrett J in Re Permanent Trustee Company Limited [2002] NSWSC 1177; (2002) 43 ACSR 601 at [7]: The fact that the application is ex parte is not without some significance. The absence of any defendant or contradictor sharpens the duty of the applicant. While a case such as the present is distinguishable from one where an interlocutory injunction is sought in the absence of a defendant (in that there is here no defendant as such) I think it is fair to say that an applicant in this kind of situation, like an applicant ex parte for an injunction, carries the responsibility of bringing to the court's attention all matters that could be considered relevant to the exercise of discretion. Part 5.1 body 25 The term 'Part 5.1 body' is defined in s 9 of the Act to mean, relevantly, a company. "Arrangement" 26 The term 'arrangement' is of wide import. In Re NRMA Insurance Ltd (No 1) [2000] NSWSC 82; (2000) 156 FLR 349, Santow J said (at [20]): Generally speaking, unless the arrangement is ultra vires the company or seeks to deal with a matter for which a special procedure is laid down by the Corporations Law or to evade a restriction imposed by the Corporations Law, almost any arrangement otherwise legal which touches or concerns the rights and obligations of the company or its members or creditors, and which is properly proposed, may come under s 411; compare Re International Harvester Co of Australia Pty Ltd [1953] VicLawRp 90; [1953] VLR 669 at 672 per Lowe ACJ. 27 An arrangement to which s 411(1) applies is one between a company and its members or any class of them. It is only such an arrangement to which the Court may grant its approval pursuant to s 411(6) of the Act. Classes of members 28 Section 411 does not define the term 'class'. In Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583, Bowen J said that the term ought to be given such a meaning: ... as will prevent the section being so worked as to result in confiscation and injustice, and … it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. 29 The test for whether members are required to be divided into different classes is whether their rights are so dissimilar as to make it impossible for them to consult together with a view to their common interest: Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583; Re Nine Entertainment Group Limited (No 1) [2012] FCA 1464; (2012) 211 FCR 439 at [53]. As Barrett J emphasised in Re Hills Motorway Ltd [2002] NSWSC 897; (2002) 43 ACSR 101 at [12] (see also Re Nine Entertainment Group Limited at [56]), the test is not one of differentiation or identical treatment, but of community of interest. It is only if the differentiation destroys the ability to come together in a single meeting and to debate the question of what is good or bad for the constituency as a whole and where the common good lies that the creditors or members are to be divided into classes. 30 It is possible to have a meeting of a class of members comprising only one shareholder: Re Hastings Deering Pty Ltd (1985) 9 ACLR 755; Simavita Holdings Ltd, in the matter of Simavita Holdings Ltd [2013] FCA 1274 ("Simavita") at [20]. Exclusivity arrangements 31 In Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 at [55] ("APN"), Lindgren J expressed the view that it would be desirable that applications under s 411(1) be supported by affidavit evidence directed to showing: • that the no-shop and break fee provisions are the result of a normal commercial negotiation, and explaining, at least briefly and in general terms, the factual basis for that statement…; • that the directors of the target company, or at least those directors of it who are not affiliated with the offeror, believe that the provisions do not operate against the interests of offeree shareholders, and that in fact it was in the interests of such shareholders that the directors agreed to the inclusion of the provisions in the merger implementation agreement (see … In re Paramount Communications Inc Shareholders' Litigation 637 A2d 34 (Del Supr 1993) for a case in which a target company's directors' commitment to no-shop and break fee provisions was held, in all the circumstances, to constitute a breach of their fiduciary duty); and • in the case of the break fee, explaining, by reference to calculations based on the evidence before the Court, the percentage that the break fee represents (a) of the "equity value" of the target company, calculated in accordance with para 7.18 of the Takeovers Panel's Guidance Note 7, and (b) of the scheme consideration (the explanation might, instead, be conveyed in a submission, but still by reference to the evidence before the Court). Specific matters 32 Senior counsel for the plaintiff, Mr Oakes SC, identified five specific matters which he considered appropriate to bring to the Court's attention, although his submission was that none of these matters should be of concern to the Court. Classes 33 STG proposes two classes for voting purposes, namely EMUH and non-EMUH shareholders. 34 As appears from the description of the proposed scheme, EMUH is differently affected by the scheme to the non-EMUH shareholders. The plaintiff submitted that the incentive payments and E Class share arrangements disclosed in section 12.8(b)(i) of the scheme booklet are not class creating for scheme purposes (consideration proceeds on the basis of collateral benefit by analogy) because of the amounts involved, the nature of the payments and the fact that they are subject to their own approval regime via a General Meeting pursuant to provisions of the Act at which meeting those receiving the benefits and their associates are subject to a voting exclusion. 35 The plaintiff also submitted that the "special efforts fee" payable to certain non-executive directors, disclosed in section 12.8(b)(ii) of the scheme booklet is not class creating for scheme purposes (consideration proceeds on the basis of collateral benefit by analogy) because of the amounts involved, the nature of the payments and the fact that they are subject to their own approval regime via a General Meeting pursuant to provisions of the Act at which meeting those receiving the benefits and their associates are subject to a voting exclusion. 36 I am satisfied that the proposed two classes of members are appropriate. Deal protection clauses 37 The scheme includes exclusivity arrangements in the form of "no shop", "no talk" and "no due diligence" arrangements. Further, STG has agreed to pay a "break fee" if the scheme does not proceed in the circumstances contemplated in clause 14 of the scheme implementation agreement. The amount of the break fee is $1 million, which is between 1.61% and 1.64% of the bid consideration. 38 The break fee, no shop, no talk and no due diligence obligations are all disclosed in the scheme booklet. 39 As to the "no shop", "no talk" and "no due diligence" arrangements, Mr Oakes SC referred to the evidence of Mr Chamberlain addressing the matters suggested in Lindgren J in APN, and set out at paragraph 31 above. 40 The break fee is higher than the 1% referred to in the Takeovers Panel Guidance Note 7 on lock-up devices. 41 Mr Oakes SC submitted that the break fee is reasonable in the circumstances for the following reasons: (a) following an extensive sale process the two parties which put forward proposals were both based outside Australia; (b) STG considered it was reasonable for an overseas purchaser to incur additional costs in pursuing a transaction in relation to STG than an Australian purchaser in a similar situation; (c) the break fee put forward by FAV is comparable to, and less than, the break fee amount under the other proposal received by STG; (d) the break fee was agreed after substantial and expedited negotiation; (e) the agreement to pay the break fee was voluntary and not as a result of coercion; (f) clause 14.1 of the scheme implementation agreement ("SIA") notes that neither party would have entered into the SIA without the break fee – thus it was necessary for STG to agree the break fee to secure the proposal for shareholders; (g) clause 14.2 of the SIA notes an acknowledgment that the break fee represents a reasonable amount to compensate for various costs and expenses; and (h) Dawnn Repp, the chief legal and administrative officer of FAV, has deposed in her affidavit at as to the negotiations in paragraph 18, in paragraph 21 to expenses already incurred of A$366,121, in paragraph 22 to estimated additional fees of A$813,603, and in paragraph 23 to employees and officers of FAV having spent approximately 1,000 hours working on the transaction. 42 Mr Oakes SC also noted: (a) The break fee is not payable if shareholders vote down the proposal; (b) There is a "fiduciary carve out" from the no talk and no due diligence exclusivity arrangements; and (c) Both STG and FAV are represented by well-known legal firms recognised as practising in the mergers and acquisitions area. 43 I accept that the break fee is not excessive in the circumstances identified above. Deed poll 44 In Simavita at [43], Farrell J explained: A deed poll operates under Australian law to allow those for whose benefit it is expressed to sue on the promises in the deed poll. This is a common mechanism, especially in acquisition schemes, for binding an "outsider" to a scheme to perform its obligations under the scheme …, especially the payment of scheme consideration. This is an important element of managing "performance risk". 45 Mr Oakes SC informed the court that, in Simavita, Farrell J indicated during the first court hearing submissions that she considered best practice would be advanced if there was an affidavit from an appropriate lawyer from the jurisdiction of incorporation of the foreign company opining on due execution of the deed poll and enforceability in that jurisdiction. This approach was applied by Yates J in Biosceptre International Ltd, in the matter of Biosceptre International Ltd [2013] FCA 1429 at [21]. 46 One reason for this approach is that as FAV is not a "company" within the meaning of the Act, the assumptions contemplated in ss 128 and 129 will not apply: see Durban Roodepoort Deep Ltd v Newshore Nominees Pty Ltd [2005] WASCA 231 at [68] to [70]. An important effect of this is that the assumption provided for in s 129(5), namely that "a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1)", which provides for execution by two directors of a company or a director and a company secretary without using a seal, cannot be made and due execution has to be proved. 47 The plaintiffs read affidavits of Dawnn Repp, the chief legal and administrative officer of FAV, and Jonathan Newton, a Texas admitted attorney and a principal of Baker & McKenzie LLP, to comply with the practice recommended by Farrell J. 48 I am satisfied that the deed poll has been duly executed and is prima facie enforceable. Proposed electronic notification of shareholders 49 The plaintiff proposes to email those shareholders who have elected to receive notices by email with links to the scheme booklet. 50 Sections 249J(3)(c) and (ca) of the Act contemplate sending notices of meetings to members. The Federal Court (Corporations) Rules 2000 (Cth) contemplate, in the absence of Court orders to the contrary, in r 3.3(2) that a meeting of members ordered under s 411 must be convened, held and conducted in accordance with the provisions of Part 2G.2 of the Act (in which s 249J appears) and STG's constitution (to the extent that it is not inconsistent with Part 2G.2). STG's constitution is silent on the matter, leaving s 249J(3) as the source of power. 51 Mr Oakes SC referred to the following cases in which electronic mailout orders have been made by the Courts: Re Alinta Ltd (No 2) [2007] FCA 1378; Re Consolidated Media Holdings Ltd [2012] FCA 1186; Re Marengo Mining Ltd (No 2) [2012] FCA 1498; David Jones Ltd, in the matter of David Jones Ltd [2014] FCA 530. 52 The plaintiff proposes that shareholders notified electronically receive an email with a link to the scheme booklet. Mr Oakes SC explained how the proposed form of notification corresponded with directions given by Farrell J in David Jones. Chairman's letter 53 The Chairman's letter in the draft scheme booklet initially submitted at the hearing was amended to include additional information concerning the 14 August 2015 PSAV offer and the reasons why the directors had decided to proceed with the proposed scheme. Consideration Part 5.1 body 54 The evidence confirms that STG is a Part 5.1 body. Proposed scheme is an "arrangement" 55 The text of the scheme (annexed to the scheme booklet) provides prima face evidence that the proposed scheme is an "arrangement". Scheme booklet will provide proper disclosure to members 56 Mr Chamberlain, the managing director of STG, has given evidence of the due diligence and verification process undertaken for the scheme for the purposes of: (a) ensuring that the scheme booklet complies with all applicable legal requirements and contains all information that STG shareholders and their professional advisors would reasonable require to make an informed assessment of the scheme and the transaction; and (b) conducting an appropriate due diligence and verification process in relation to the scheme booklet. 57 Mr Chamberlain has verified on oath that nothing material has been omitted from the scheme booklet and all of the statements of fact in the scheme booklet are true and correct, save to the extent that they anticipate the making of certain court orders or the lodging of the explanatory statement for the scheme for registration with ASIC. 58 On 11 August 2015, the directors of STG resolved that: (a) the version of the scheme booklet exhibited to the affidavit of Mr Chamberlain be approved; (b) the independent expert's report completed by BOO Corporate Finance (East Coast) Pty Ltd as at 10 August 2015 be accepted and incorporated into the scheme booklet; (c) the directors of STG unanimously recommended that, in the absence of a superior proposal, STG shareholders vote in favour of the scheme; (d) the directors of STG unanimously believe that, for the reasons set out in section 6 of the scheme booklet, the scheme is in the best interests of STG's shareholders; (e) all other statements and information/data included in the scheme booklet attributable to the directors of STG are approved. 59 Statements in the scheme booklet concerning FAV are verified by Ms Repp. 60 On the basis of this evidence, and taking into account the changes made to the Chairman's letter, I am satisfied that there is prima facie evidence that the scheme booklet will provide proper disclosure to members. Scheme is bona fide and properly proposed 61 STG has committed itself to propounding the scheme by entering into the scheme implementation agreement. I accept that this provides prima facie evidence that the scheme is bona fide and has been properly proposed. Notice to ASIC 62 There is evidence that ASIC has had a reasonable opportunity to examine the proposed scheme and explanatory statement, and to make submissions and it has had 14 days' notice of the proposed hearing date of the first court hearing. Other procedural requirements have been met 63 Consents to act as chairman and alternate chairman at the scheme meetings have been obtained. 64 I am satisfied that there is no order sought which goes beyond current accepted practice. 65 Finally, I am satisfied that the proposed scheme is of such a nature and is cased in such terms that, if it were to receive the requisite statutory majority, the Court would be likely to approve the scheme on the hearing of an unopposed application. I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate: Dated: 14 September 2015