FEDERAL COURT OF AUSTRALIA Afterpay Holdings Limited, in the matter of Afterpay Holdings Limited (No 2) [2017] FCA 737 File number: NSD 614 of 2017 Judge: YATES J Date of judgment: 28 June 2017 Catchwords: CORPORATIONS – scheme of arrangement – second court hearing – application for approval Legislation: Corporations Act 2001 (Cth) ss 411, 412 Securities Act 1933 (US) s 3 Companies Act 1981 (Bermuda) Cases cited: Afterpay Holdings Limited, in the matter of Afterpay Holdings Limited [2017] FCA 570 Consolidated Media Holdings Limited, in the matter of Consolidated Media Holdings Limited (No 2) [2012] FCA 1224 Prime Infrastructure Ltd [2010] NSWSC 1337 Re Equinox Resources Ltd [2004] 49 ACSR 692 Talent2 International Limited, in the matter of Talent2 International Limited (No 2) [2012] FCA 926 Date of hearing: 28 June 2017 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 25 Counsel for the Plaintiff: Mr I Jackman SC with Ms T Wong Solicitor for the Plaintiff: Baker McKenzie ORDERS NSD 614 of 2017 IN THE MATTER OF AFTERPAY HOLDINGS LIMITED ACN 606 589 520 AFTERPAY HOLDINGS LIMITED ACN 606 589 520 Plaintiff JUDGE: YATES J DATE OF ORDER: 28 JUNE 2017 THE COURT ORDERS THAT: 1. Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Corporations Act), the scheme of arrangement (Scheme) made between the plaintiff and the holders of ordinary shares in the plaintiff other than the Excluded Shareholders in the form of Annexure C of the document which has been tendered and marked Exhibit 1 is approved, subject to the Scheme being altered pursuant to s 411(6) of the Corporations Act so that the definition of "Excluded Shareholder" be deleted and be replaced with "Excluded Shareholder means Touch Australia Pty Ltd ACN 166 091 587". 2. The plaintiff lodge with the Australian Securities and Investments Commission a copy of the approved Scheme at the time of lodging a copy of these Orders. 3. Pursuant to s 411(12) of the Corporations Act, the plaintiff is exempted from compliance with s 411(11) of the Corporations Act in relation to the Scheme. THE COURT NOTES THAT: 4. The plaintiff and Afterpay Touch Group Limited will rely on the Court's approval of the Scheme for the purpose of qualifying for exemption from the registration requirements of the Securities Act of 1933 (US), provided for by s 3(a)(10) of that Act, in connection with the implementation of, and provision of consideration under, the Scheme. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT YATES J: 1 On 12 May 2017, I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act) that the plaintiff, Afterpay Holdings Limited (APH), convene a meeting of the holders of its ordinary shares (other than Touchcorp Limited (TC) and its subsidiaries) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement under which Afterpay Touch Group Limited (ATG) will acquire all of APH's issued ordinary shares (other than those already owned by TC and its subsidiaries) (the APH scheme or the scheme): Afterpay Holdings Limited, in the matter of Afterpay Holdings Limited [2017] FCA 570 (my earlier reasons). 2 On 19 June 2017, the meeting was held (the scheme meeting) and the APH scheme was agreed to by the majorities required under s 411(4)(a)(ii) of the Act. APH seeks orders pursuant to s 411(4)(b) of the Act that the scheme be approved. 3 The following affidavits were read in support of the orders now sought: Anthony Mathew Eisen, affirmed 26 June 2017; David Rorke Squires, affirmed 26 June 2017; Wayne Albert Hopkins, affirmed 26 June 2017; Guy James Villiers Sanderson, affirmed 27 June 2017; and Maria Coffill O'Brien, affirmed 28 June 2017. 4 On the evidence before me, I am satisfied that the explanatory statement, represented by the scheme booklet (Exhibit 1), was registered with the Australian Securities and Investments Commission (ASIC) on 12 May 2017, prior to it being sent out on 19 May 2017: see s 412(6) of the Act. 5 The scheme meeting was convened and held under s 411 of the Act in accordance with the orders made on 12 May 2017. At the meeting, 98.71% of the members present and voting (either in person or by proxy) voted in favour of the scheme and 99.99% of the votes were cast in favour of the scheme. 6 A notice of the second court hearing was published in The Australian newspaper on 21 June 2017. No person has come forward to oppose the granting of the approval that is sought. 7 As noted in my earlier reasons, the APH scheme is dependent on another scheme of arrangement (the TC scheme) being sanctioned by the Supreme Court of Bermuda under the Companies Act 1981 (Bermuda) (the Bermudan Companies Act). The evidence before me is that, on 19 June 2017, a meeting of shareholders of TC approved the TC scheme and, on 23 June 2017, the Supreme Court of Bermuda made orders approving the TC scheme under the Bermudan Companies Act. On 26 June 2017, TC announced to the Australian Securities Exchange (the ASX) that these orders had been made. 8 The evidence shows that on 19 May 2017, in accordance with the orders made on 12 May 2017, the scheme booklet, a proxy form and a reply envelope (the scheme materials) were dispatched to those members of APH who had not nominated an electronic address for the purpose of receiving notices of meetings and proxy forms. The initial despatch was to 2,110 members. 9 On 19 May 2017, also in accordance with the orders made on 12 May 2017, APH sent an email to those members who had nominated an electronic address for the purpose of receiving notices of meetings and proxy forms, which included links to the scheme booklet and an online portal to lodge a proxy. The emails were sent using a bulk email platform operated by Computershare Investor Services Pty Limited (Computershare), which maintains APH's members' register, which is stored in an electronic database. The evidence shows that 661 emails were sent. There were no "soft" bounce backs but there was one "hard" bounce back, indicating that the email had been rejected because the assigned address was either incorrect or no longer in existence. On 24 May 2017, Computershare sent the scheme materials to the intended recipient by pre-paid post addressed to the postal address maintained in respect of that member in the members' register. 10 Following the events referred to in [8]-[9] above, further despatches of the scheme materials were made by pre-paid post to persons who had become members between 12 May 2017 and 1 June 2017. 11 According to the members' register, a further 488 persons became members of APH between 2 June and 7.00 pm on 17 June 2017, the cut-off time for determining eligibility to vote at the scheme meeting, representing a shareholding of 1.64% of the total number of ordinary Afterpay shares on issue as at 17 June 2017. The scheme materials were not sent to these new members, although I note that five of them, representing 47,509 shares, lodged proxies for the scheme meeting. 12 I am satisfied that the absence of postal despatch to these new members does not present an impediment to the scheme being approved, for the following reasons. 13 First, clause 35.10 of APH's constitution provides that every person who becomes entitled to any share in the company, by transfer or otherwise, will be bound by every notice in respect of the share which, before the person's name and address is entered on the register, is duly given to the person from whom title to the share is derived. Further, clauses 35.1 and 35.8 of the constitution permit, respectively, the giving of notice to members by email and by pre-paid post. As the scheme documents were either sent by pre-post or notified by email to all those who were members (and entitled to vote at the scheme meeting) in the period 19 May to 1 June 2017, there was no deficiency in the giving of notice of the scheme meeting to the 488 new members. 14 Secondly, notice of the scheme meeting and access to the scheme booklet were readily available to all members. Both were available on APH's website as well as on the ASX website. Indeed, as I have already noted, five of the 488 new members concerned lodged proxy forms for the scheme meeting. 15 Thirdly, and in any event, the shareholding of these new members is, relatively speaking, insignificant compared to the total number of shares on issue at the date of the scheme meeting. Certainly in terms of the votes cast at the scheme meeting, the voting of these shares against the APH scheme would not have made any difference to the outcome. 16 In submissions, the plaintiff referred to Consolidated Media Holdings Limited, in the matter of Consolidated Media Holdings Limited (No 2) [2012] FCA 1224 where, at [5]-[8], Emmett J employed similar reasoning in substantially similar circumstances to find that there was no impediment to approval being given to the scheme there under consideration. 17 The APH scheme is conditional on the satisfaction of certain conditions precedent. APH and TC have provided a certificate, executed as a deed, confirming and certifying that, other than for court approval and lodgement of the Court's order with ASIC, the conditions precedent referred to in clause 3.1 of the APH scheme have been satisfied or waived. ATG has also provided a certificate confirming that a particular condition precedent referable to it has been satisfied. 18 ASIC has provided a statement in writing that it has no objection to the scheme. Accordingly, there is no impediment under s 411(17) of the Act to the Court giving the approval that is sought. 19 I am satisfied that the scheme is fair and reasonable. In coming to this conclusion, I have taken into account the fact that APH's directors unanimously recommended the APH scheme to members; no superior proposal has been forthcoming; the independent expert, Lonergan Edwards & Associates Limited has provided an independent valuation and opinion that the scheme is fair and reasonable and in the best interests of APH's members; the scheme has been agreed to by the members, with the significant majorities I have recorded; and no person has come forward to oppose the scheme. 20 Having regard to all these matters, I am satisfied that the necessary procedural requirements have been satisfied for the approval that is now sought from the Court. 21 Three matters remain to be noted. 22 First, the APH scheme does not affect shares held by an Excluded Shareholder. In the form approved by members, the APH scheme defines an Excluded Shareholder as TC or a subsidiary of TC. The evidence establishes that, of the persons falling within this definition, only Touch Australia Pty Ltd held shares at the relevant time. In accordance with the practice established by Prime Infrastructure Ltd [2010] NSWSC 1337 at [4]-[11], as referred to in Talent2 International Limited, in the matter of Talent2 International Limited (No 2) [2012] FCA 926 at [16]-[17], the APH scheme, as approved by the members, should be altered to reflect this reality and to identify, with greater precision, the Excluded Shareholder. The orders as now sought by APH propose that the APH scheme be altered pursuant to s 411(6) of the Act to delete the current definition of Excluded Shareholder and to replace it with a definition of Excluded Shareholder that identifies Touch Australia Pty Ltd. 23 Secondly, pursuant to s 411(12) of the Act, APH seeks an exemption from compliance with s 411(11) which, absent this exemption, requires the Court's approval order be annexed to every copy of APH's constitution. I accept that this requirement would serve no useful purpose in the present case and that, accordingly, the exemption provided by s 411(12) should be granted: Re Equinox Resources Ltd (2004) 49 ACSR 692 at [22]. 24 Thirdly, as noted in my earlier reasons at [26], APH and ATG seek to rely on an exemption from the registration requirements of the Securities Act 1933 (US): see s 3(a)(10) thereof. To assist in this regard, I have been asked to note certain matters. Those matters have been noted in these reasons and/or my earlier reasons, which should be read together. 25 Having regard to all these matters, I am satisfied that all necessary procedural requirements have been satisfied for the approval that is now sought from the Court. There is no discretionary reason why approval should not be given. I therefore propose to order that the scheme be approved subject to the alteration I have discussed. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate: Dated: 30 June 2017