FEDERAL COURT OF AUSTRALIA Decimal Software Limited, in the matter of Decimal Software Limited (No 2) [2018] FCA 2040 File number: WAD 464 of 2018 Judge: BANKS-SMITH J Date of judgment: 13 December 2018 Date of publication of reasons: 17 December 2018 Catchwords: CORPORATIONS - application to approve scheme of arrangement under s 411(4)(b) of the Corporations Act 2001 (Cth) - where low voter turnout - where statutory majorities met - application for orders granted Legislation: Corporations Act 2001 (Cth) s 411, Chapter 6 Cases cited: David Jones Limited, in the matter of David Jones Limited (No 3) [2014] FCA 753 Decimal Software Limited, in the matter of Decimal Software Limited [2018] FCA 1647 Re Osiris Insurance Ltd [1999] 1 BCLC 665 Seven Network Limited, in the matter of Seven Network Limited (No 3) [2010] FCA 400; (2010) 267 ALR 583 TriAusMin Limited, in the matter of TriAusMin Limited (No 2) [2014] FCA 833 Date of hearing: 13 December 2018 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 34 Counsel for the Plaintiff: Mr AJ Papamatheos Solicitor for the Plaintiff: Corrs Chambers Westgarth Counsel for the Interested Party: Mr JY Wang Solicitor for the Interested Party: King & Wood Mallesons ORDERS WAD 464 of 2018 IN THE MATTER OF DECIMAL SOFTWARE LIMITED (ACN 009 235 956) DECIMAL SOFTWARE LIMITED Plaintiff SARGON CAPITAL PTY LTD (ACN 608 799 873) Interested Party JUDGE: BANKS-SMITH J DATE OF ORDER: 13 DECEMBER 2018 THE COURT ORDERS THAT: 1. Pursuant to s 411 of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the plaintiff and its members, being the document at pages 122 to 138 in Annexure 'SYB-1' of the affidavit of Sonia Yvonne Breen affirmed on 3 December 2018, is approved. 2. Pursuant to s 411(12) of the Act, the plaintiff is exempted from compliance with s 411(11) of the Act, in relation to the scheme of arrangement referred to in order 1. 3. The plaintiff is to lodge an office copy of these orders with the Australian Securities and Investments Commission as soon as practicable. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BANKS-SMITH J: 1 On 30 October 2018 I made orders approving the convening of a meeting of shareholders for the purpose of considering a scheme of arrangement and approving the distribution of a scheme booklet: Decimal Software Limited, in the matter of Decimal Software Limited [2018] FCA 1647. 2 The scheme meeting was held on 6 December 2018 and the members agreed to the scheme by the requisite statutory majorities. 3 Accordingly, on 13 December 2018 Decimal sought approval of the scheme and I made orders on that date. These are my reasons. Nature of scheme 4 As summarised in my previous reasons, Decimal is a public company with shares listed on the Australian Securities Exchange (ASX). It operates a cloud-based digital advice platform that enables enterprises such as banks and superannuation funds to provide automated, online financial advice. 5 Sargon is a private company which provides financial institutions and entrepreneurs with technology and infrastructure for investment funds and financial products. 6 By the proposed scheme, Sargon is to acquire all of the issued fully paid ordinary shares in Decimal. In this manner Decimal will become a wholly owned subsidiary of Sargon and Decimal will be delisted. Jurisdiction to approve scheme 7 Section 411(4) of the Corporations Act 2001 (Cth) (Act) relevantly provides that an arrangement is binding on the members of a company and the company if, at a meeting convened in accordance with an order of the Court, a resolution in favour of the arrangement is: (a) passed by a majority in number of the members present and voting (either in person or by proxy) (s 411(4)(a)(ii)(A)) (Headcount Test); and (b) if the body has a share capital - passed by 75% of the votes cast on the resolution (s 411(4)(a)(ii)(B)) (Votes Cast Test), and the arrangement is approved by order of the Court. Relevant considerations for second court hearing 8 The considerations relevant to the Court's decision to approve a scheme pursuant to s 411(4)(b) of the Act are well established, but for ease of reference I will summarise them here. 9 Where a majority of members have approved a scheme, the Court is not bound to approve it. However, the Court should be slow to conclude that a scheme is unreasonable or unfair, provided that the members have been properly informed of matters relevant to the making of their decision, as that would otherwise involve the Court substituting its commercial judgment for that of the body of members: Seven Network Limited, in the matter of Seven Network Limited (No 3) [2010] FCA 400; (2010) 267 ALR 583 at [31]-[40] (Jacobson J). 10 The matters the Court must take into account in deciding whether to approve the scheme were summarised in Seven Network Limited (No 3) and David Jones Limited, in the matter of David Jones Limited (No 3) [2014] FCA 753 (Farrell J) and include whether: (a) the orders of the Court convening the scheme meeting were complied with; (b) the resolution to approve the scheme was passed by the requisite majority, and whether other statutory requirements have been satisfied; (c) all conditions to which the scheme is subject (other than Court approval and lodgement of the Court's orders with the Australian Securities and Investments Commission (ASIC) have been met or waived; (d) the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it; (e) there was full and fair disclosure to shareholders of all information material to the decision whether to vote for or against the scheme; (f) the company has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion; and (g) the Court is satisfied under s 411(17) that the scheme has not been proposed to avoid Chapter 6 of the Act, or that the company has a statement from ASIC that it has no objection to the scheme. Evidence relied upon 11 In addition to the affidavits relied upon for the first Court hearing, Decimal relied on the following evidence: (a) affidavit of Jonathan Dos Santos confirming that a copy of the first hearing orders and the scheme booklet approved by the Court were lodged with ASIC; (b) affidavit of Cassandra Rodgers explaining the collation and despatch procedure for scheme booklets and preparation of proxy forms; (c) affidavit of Sonia Breen as to printing of the scheme booklets; (d) affidavit of Mark Potts, a director of Decimal and chairman of the scheme meeting, confirming that the scheme meeting was held in accordance with the Act, the court orders and the constitution of Decimal, and that statutory majorities on the resolution to approve the scheme were obtained; (e) affidavit of David Gardner, the company secretary of Decimal, summarising the process he engaged in to supervise the preparation and production of the scheme booklet and to review the final draft, confirming that notice of the scheme meeting and a copy of the scheme booklet was provided to Decimal's auditor, confirming the scheme booklet accorded with the scheme booklet registered at ASIC, noting that Decimal monitored the receipt of proxy forms, summarising the conduct of the scheme meeting, confirming that Decimal announced to the ASX the result of the poll at the scheme meeting and providing information as to the historical voter turnout at Decimal's two most recent annual general meetings; (f) affidavit of Emilia Varga of Computershare Investor Services Pty Ltd (Computershare), deposing to the preparation of the proxy forms and the distribution of the email broadcast to those Decimal shareholders who had elected to receive notices of the meeting electronically; (g) affidavit of Caitlin Robinson of Computershare deposing to the maintenance of Decimal's share register and the receipt of proxy forms, providing a detailed summary of the conduct of the scheme meeting, confirming the poll results as returning officer and, importantly, confirming that she opened a special purpose trust account on behalf of Decimal for the purpose of receiving the scheme consideration to be provided by Sargon for the purpose of the scheme and that she ensured steps were in place for same-day despatch of cheques and electronic payments to Decimal shareholders; (h) affidavit of Russell Philip confirming that advertisements of the hearing to approve the scheme were placed in The Australian and The West Australian newspapers on Decimal's behalf; (i) further affidavit of Mr Philip attaching certificates from each of Decimal and Sargon confirming that all relevant conditions precedent were satisfied prior to the court hearing, confirming that ASIC has given a statement in writing pursuant s 411(17)(b) of the Act and attaching that statement, and attaching a scheme update announcement made to the ASX on 29 November 2018. Voting majorities 12 I am satisfied that the requisite majorities were achieved at the shareholders' meeting. 13 Of 166,882,303 votes cast, 166,450,697 were in favour of the resolution, being 99.74% for the Votes Cast Test. 14 Of 96 shareholders who voted, 88 voted in favour, being 91.67% of the Headcount Test. 15 The shares voted were 166,882,303 of the 315,773,155 shares on issue, indicating that approximately 52.85% of shares on issue were voted. 16 The number of Decimal shareholders voting was 96 of 1,842 shareholders on the register as at 4 December 2018, signifying that approximately 5.21% of Decimal shareholders voted. Particular issues 17 Counsel for Decimal properly raised three particular issues. 18 The first matter raised by Decimal's counsel was raised by way of disclosure to the Court. Between the first court hearing and the scheme meeting an entity called Collins St Asset Management as trustee for the Collins St Value Fund (Collins St) started collecting shares in the plaintiff and reached a 19.9% holding prior to the scheme meeting. Those shares were ultimately voted in favour of the scheme. However, at one point Collins St informed Decimal that it did not agree with the assessment by the Board of Decimal as to the merits of the scheme. Collins St did not put forward any other proposal. Accordingly, on 29 November 2018 Decimal made an announcement to the ASX which disclosed those matters and also attached a copy of a letter from Sargon of the same date, confirming that the scheme consideration (of 1.41 cents per share) as already disclosed to the shareholders represents its last and final offer. In the announcement, Decimal reminded shareholders of the importance of voting on the scheme. 19 The second matter raised by counsel was that of low voter turnout. It appears that the figure of 5.21% in this case is lower than any turnout for a members scheme meeting that is reported in the authorities. I note that in Re Osiris Insurance Ltd [1999] 1 BCLC 665, a case concerning a creditors scheme, a turnout of 3.6% was reported: only 35 of 971 scheme creditors with claims worth approximately 41% of the total value attended. That example superficially provides some comfort but I have approached the task of considering this issue with some caution. 20 The issue of low voter turnout was addressed by Farrell J in TriAusMin Limited, in the matter of TriAusMin Limited (No 2) [2014] FCA 833, and I respectfully adopt her Honour's analysis: [10] Although the statutory requirement under s 411(4)(a)(ii) has been satisfied, it is the usual practice of the Court at the second court hearing to consider the number of shareholders who attended the Scheme Meeting in person or by proxy. Low shareholder turnout may be an indication that some procedural irregularity occurred. It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme: Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [7] and Re Seven Network Limited (No 3) (2010) 267 ALR 583 (Re Seven Network Ltd) at [61] per Jacobson J; apathy should not be presumed to be antagonism: Re Matine Limited (1998) 28 ACSR 268 at 295 per Santow J. [11] Nonetheless it does call for consideration to ensure that the vote not unrepresentative, since the court retains the discretion to withhold its approval in that case: see Re Seven Network Ltd at [61] and Re BTR plc [2000] 1 BCLC 740 at 747. It is relevant to consider whether members have been deterred from attending or voting at the meeting: Re Cape plc [2006] EWHC 1446 at [20] per David Richards J. [12] Relatively low shareholder turnout did not prevent orders being made in Re Avoca Resources Limited [2011] FCA 208 (11.49% of shareholders holding 72.38% of shares) or Re Cortona Resources Limited (No 2) [2013] FCA 302 (17.5% of shareholders holding 45.2% of shares); see also Re Redcape Property Fund Limited and The Trust Company (RE Services) Limited [2012] NSWSC 486 per Black J at [6]. In Re Auzex Resources Limited (No 2) [2012] QSC 101 at [18] Applegarth J noted that a turnout of 9.75% of shareholders representing 42.3% of votes was substantially higher than at annual general meetings of the company. In Re Osiris Insurance Ltd [1999] 1 BCLC 182 only 35 of 971, scheme creditors with claims worth approximately 41% of the total value attended the meeting and Re British Aviation Insurance Co Ltd [2006] 1 BCLC 665, creditor turnout was 15% representing approximately 50% of claims. See Damian T and Rich A, Schemes, Takeovers and Himalayan Peaks (3rd edition, 2013, University of Sydney) at 4.4.2 for a full discussion of this issue. 21 Conscious that the parameters to date of reported voter turnout will apparently be expanded by this case, I have considered carefully whether there may have been any issue with respect to despatch of information to shareholders or any other matter that may have deterred voters from attending or voting at the scheme meeting. There is no evidence of such matters. There is detailed evidence as to despatch of the materials. There is no evidence of irregularity in the manner of despatch, and in the case of a small number of 'bounce back' emails, Computershare took immediate steps to send hard copy scheme booklets to the relevant shareholders. I have also had regard to the following: (a) the evidence of Mr Gardner was that the turnout of shareholder voters at the two preceding annual general meetings was 0.76% and 3.10% respectively. Against that history, there seems to have been less apathy by voters with respect to the scheme meeting than generally; (b) there are many shareholders on the registry with small parcels of shares. According to Ms Robinson's evidence, the number of Decimal shareholders who held a parcel of Decimal shares worth $2,000 or less was 1,710 and the number of Decimal shareholders who held a parcel of Decimal shares worth $500 or less was 1,565. It is a reasonable inference that for many of those voters, the scheme was of relatively minor commercial interest; (c) the Decimal shareholders who did vote voted overwhelmingly in favour of the scheme, and they represented 52.85% of shares on issue; and (d) the ASX announcement of 29 November 2018 referred to above operated as a reminder to shareholders of the importance of voting. 22 Taking into account those matters, I do not consider the low voter turnout should prevent the Court from making orders under s 411(4)(b). 23 The third matter raised by counsel was by way of information. As appears from the reasons published following the first Court hearing (at [28]-[34]), the issue of performance risk was addressed. By Ms Robinson's affidavit, Decimal provided useful additional information as to the practical steps put in place by Computershare and Computershare's experience in effecting same-day payments to shareholders of their scheme consideration. That information confirmed my initial view that the scheme as proposed involved minimal performance risk to shareholders. Other procedural matters complied with 24 Having reviewed the evidence (as summarised above) I am satisfied the procedural requirements of the Act and previous orders have been met. 25 The orders and scheme booklet were lodged with ASIC. Conditions precedent to the scheme 26 Mr Phillip's final affidavit attached the requisite certificates on behalf of Decimal and Sargon confirming satisfaction of the conditions precedent. Scheme fair and reasonable 27 The Court generally takes the view that the members are in the best position to judge whether an arrangement is in their commercial interests and will be reluctant to make a decision contrary to the views expressed at the meeting. 28 I also take into account that the conclusion of the independent expert was to the effect that the scheme is fair and reasonable, and that the Decimal directors support and recommend the scheme. 29 Proof of the relevant statutory majorities is sufficient to establish that prima facie the scheme is fair. 30 No person came forward at either hearing to oppose the scheme. Sargon was represented at both Court hearings and supported the orders sought by Decimal. 31 There has been, in my view, full and frank disclosure to the Decimal shareholders by the scheme booklet and the 29 November 2018 ASX announcement. 32 Taking into account those matters, I consider that the scheme is fair and reasonable. 33 Furthermore, ASIC has provided its 'no objection' letter under s 411(17) stating that it has no objection to the scheme. Conclusion 34 For the above reasons, I made orders approving the scheme. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Banks-Smith. Associate: Dated: 17 December 2018