Federal Court of Australia Xplore Wealth Limited, in the matter of Xplore Wealth Limited (No 2) [2021] FCA 166 File number: NSD 1279 of 2020 Judgment of: MARKOVIC J Date of judgment: 18 February 2021 Date of publication of reasons: 4 March 2021 Catchwords: CORPORATIONS – scheme of arrangement – second court hearing – application under s 411(4)(b) and s 411(12) of the Corporations Act 2001 (Cth) for approval of schemes of arrangement – application allowed Legislation: Corporations Act 2001 (Cth) s 411 Cases cited: Re Amcor Limited (No 2) [2019] FCA 842 Re APN Outdoor Group Limited (No 2) [2018] FCA 1633 Re Seven Network Limited (No 3) (2010) 77 ACSR 701; [2010] FCA 400 Re Westfield Corporation Limited (No 2) [2018] NSWSC 921 Xplore Wealth Limited, in the matter of Xplore Wealth Limited [2020] FCA 1868 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 19 Date of hearing: 18 February 2021 Counsel for the Plaintiff: Mr D Barnett Solicitor for the Plaintiff: Hamilton Locke Counsel for HUB24 Limited Mr M Oakes SC Solicitor for HUB24 Limited MinterEllison ORDERS NSD 1279 of 2020 IN THE MATTER OF XPLORE WEALTH LIMITED ACN 128 316 441 XPLORE WEALTH LIMITED ACN 128 316 441 Plaintiff order made by: MARKOVIC J DATE OF ORDER: 18 february 2021 THE COURT ORDERS THAT: 1. Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Corporations Act), the scheme of arrangement between the plaintiff and its members agreed to by the said members at the meeting held on 12 February 2021 (the terms of which were set out in Annexure A to these Orders) (Share Scheme) is approved. 2. Pursuant to s 411(4)(b) of the Corporations Act, the scheme of arrangement between the plaintiff and certain creditors agreed to by the said creditors at the meeting held on 12 February 2021 (the terms of which were set out in Annexure B to these Orders) (Option Scheme) is approved. 3. Pursuant to s 411(12) of the Corporations Act, Xplore Wealth Limited be exempted from compliance with s 411(11) of the Corporations Act in relation to the Share Scheme and Option Scheme. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MARKOVIC J: 1 On 18 February 2021, I made orders including orders pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Act) approving a scheme of arrangement between the plaintiff, Xplore Wealth Limited (Xplore Wealth), and its shareholders (Share Scheme) and a scheme of arrangement between Xplore Wealth and its option holders (Option Scheme). 2 These are my reasons for making those orders. background 3 On 18 December 2020 at the first court hearing, on the application of Xplore Wealth, I made a number of orders (December 2020 Orders) including orders: (1) convening a meeting of Xplore Wealth's ordinary shareholders (Xplore Shareholders) for the purpose of considering and, if thought fit, agreeing to the Share Scheme (Share Scheme Meeting); (2) convening a meeting of Xplore Wealth's option holders (Xplore Option Holders) for the purpose of considering and, if thought fit, agreeing to the Option Scheme (Option Scheme Meeting); and (3) approving dispatch of the explanatory statement in relation to the Share Scheme and the Option Scheme (Scheme Booklet), see: Xplore Wealth Limited, in the matter of Xplore Wealth Limited [2020] FCA 1868 (Xplore Wealth (No 1)). 4 The details of the Share Scheme and the Option Scheme are described in Xplore Wealth (No 1) at [7]-[11] and [12]-[15] respectively. 5 The Share Scheme Meeting and the Option Scheme Meeting were held on 12 February 2021. The resolution to approve the Share Scheme was passed by 99.99% of votes cast and 98.43% of Xplore Shareholders present and voting and the resolution to approve the Option Scheme was passed by 100% of votes cast and 100% of the total value of the debts and claims of Xplore Option Holders as against Xplore Wealth present and voting. legal principles 6 Section 411(4) of the Act relevantly provides that a compromise or arrangement is binding on its creditors or on its members, as the case may be, if and only if: (1) at a meeting convened in accordance with an order of the Court under s 411(1): (a) in the case of a compromise or arrangement between a body and its creditor, the compromise or arrangement is agreed to by a majority in number of the creditors, or of the creditors present and voting either in person or by proxy, being a majority whose debts or claims against the company amount in the aggregate to at least 75% of the total amount of the debts and claims of the creditors present and voting in person or by proxy; and (b) in the case of a compromise or arrangement between a body and its members a resolution in favour of the compromise or arrangement is passed by majority in number of the members present and voting, either in person or by proxy, and by 75% of the votes case on the resolution; and (2) it is approved by order of the Court. 7 The Court's role in approving a scheme of arrangement is supervisory. The Court retains a discretion as to whether to approve a scheme: see Re Seven Network Limited (No 3) (2010) 77 ACSR 701; [2010] FCA 400 (Re Seven Network) at [31]. 8 In Re APN Outdoor Group Limited (No 2) [2018] FCA 1633, at [5], I summarised the matters about which the Court will need to be satisfied when deciding whether to approve a scheme relevantly as: (1) there has been compliance with the orders of the Court convening the scheme meeting; (2) the resolution to approve the scheme was passed by the requisite majorities; (3) all other statutory requirements have been satisfied; (4) the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it. In considering this issue, it is not the role of the Court to impose its own commercial judgment on the scheme or to consider whether a better scheme might have been proposed; (5) the plaintiff has brought to the Court's attention all matters that could be considered relevant to the exercise of the Court's discretion; and (6) there has been full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme. See too Re Amcor Limited (No 2) [2019] FCA 842 at [8]; Re Seven Network at [35]-[40]; Re Westfield Corporation Limited (No 2) [2018] NSWSC 921 at [7]. Consideration 9 The evidence relied on by Xplore Wealth established that all formal and procedural matters had been satisfied: (1) the Scheme Booklet, substantially in the form approved at the first court hearing, was dispatched to Xplore Shareholders and Xplore Option Holders in accordance with the December 2020 Orders; (2) on 21 December 2020, the December 2020 Orders were lodged with the Australian Securities and Investments Commission (ASIC); (3) the Scheme Meeting and the Option Meeting were held in accordance with the December 2020 Orders. Those meetings were held on 12 February 2021 at the time and in the manner specified in the Scheme Booklet, in that they were conducted electronically through an online platform, and were chaired by Alexander Hutchison; (4) the statutory majorities were obtained at the Scheme Meeting and the Option Meeting. As set out at [5] above, the evidence before me established that 99.99% of all votes cast, representing 98.43% of Xplore Shareholders present and voting, either in person or by proxy, voted in favour of the resolution to approve the Share Scheme and 100% of Xplore Option Holders present and voting, either in person or by proxy, representing 20 option holders and 100%, by value, of the total amount of the debts and claims of Xplore Option Holders present and voting, voted in favour of the Option Scheme; (5) a notice of the second court hearing was published in The Australian newspaper on 10 February 2021 in accordance with the December 2020 Orders; and (6) I was informed by counsel appearing for Xplore Wealth that his instructing solicitors had not received any communication from any party notifying an intention to appear at the second court hearing and, upon the matter being called three times outside the courtroom, there was no appearance by any other party. The second court hearing took place by use of the technology known as Microsoft teams and without the need for parties or interested persons to attend personally. However, no person contacted my associate prior to the hearing indicating an intention to appear in response to the invitation published by the Court in its daily list of business. 10 By letter dated 17 February 2021 from ASIC to the directors of Xplore Wealth, ASIC indicated that, pursuant to s 411(17)(b) of the Act, it has no objection to the Share Scheme or the Option Scheme. Exercise of the Court's discretion 11 For the following reasons I was satisfied that orders approving the Share Scheme and the Option Scheme should be made. 12 First, I was satisfied that the Share Scheme and Option Scheme (together, Schemes) are fair and reasonable in the sense that an intelligent and honest person in the position of an Xplore Shareholder and/or an Xplore Option Holder, properly informed and acting alone, might approve the Schemes as applicable: (1) there was overwhelming support by Xplore Shareholders and Xplore Option Holders in respect of each of the Schemes; (2) the directors of Xplore Wealth recommended that Xplore Shareholders and Xplore Option Holders vote in favour of the Schemes; (3) the Xplore Shareholders and Xplore Option Holders were provided with full and fair disclosure about the Share Scheme and the Option Scheme in the Scheme Booklet. There is nothing in the evidence before me to suggest that there was any deficiency in the disclosure made by Xplore Wealth in the Scheme Booklet. Further, there was no evidence to suggest that Xplore Shareholders or Xplore Option Holders voted other than in good faith or cast their votes for an improper purpose; (4) the independent expert concluded that the Share Scheme was fair and reasonable and that the Option Scheme was not fair but was reasonable. I considered the effect of that view about the Option Scheme at [27]-[33] of Xplore (No 1). The independent expert's opinion was disclosed to Xplore Shareholders and Xplore Option Holders and, notwithstanding the view held about the Option Scheme, it was passed by the requisite majorities. No Xplore Option Holder appeared at the second court hearing to make submissions opposing the approval of the Option Scheme. In the circumstances, the expert's opinion in relation to that scheme did not cause me to conclude that the Option Scheme is not fair and reasonable nor prevent me from approving the Option Scheme; and (5) there was no suggestion that the Schemes were proposed other than in good faith or that any Xplore Shareholder or Xplore Option Holder was oppressed. 13 Secondly, I was satisfied that Xplore Wealth had brought to the Court's attention all matters that could be considered relevant to the exercise of its discretion. This included the following matters. 14 Xplore Wealth made an additional communication to Xplore Shareholders and Xplore Option Holders in which it: (1) reminded Xplore Shareholders and Xplore Option Holders to submit proxies; and (2) explained that the bank account details to be used to deposit any cash consideration to under the Share Scheme and Option Scheme would be the account details held by Xplore Wealth's share registrar, Registry Direct and, to ensure prompt payment, recommended that certain steps be undertaken in order to provide or update bank account details with Registry Direct. In the absence of updated bank account details, a cheque would be sent to the registered address held with Registry Direct. 15 As submitted by Xplore Wealth, this additional communication was a mechanical reminder and request for bank account information. It did not contain any comment on the Share Scheme or the Option Scheme and I was not concerned that it amounted to a communication of any supplementary information that would have required the Court's approval. 16 Xplore Wealth also brought to my attention a matter concerning the potential ownership of a parcel of its shares by an entity related to the acquirer, HUB24 Limited (HUB24). 17 In particular, as at the date of the Scheme Meeting and the Option Meeting a wholly owned subsidiary of HUB24, HUB24 Custodial Services Pty Ltd (HUB24 Custodial), had an equitable interest in 3,560,025 shares in Xplore Wealth as custodian on behalf of underlying beneficial owners. Those shares were held in the name of BNP Paribas Nominees Pty Ltd as nominee of BNP Paribas Security Services, as sub-custodian for HUB24 Custodial. 18 Jason Entwistle, Director of Strategic Development at HUB24, explained why, in his opinion, HUB24 does not hold a "Relevant Interest" as defined in the Act in any Xplore Wealth shares and why the disclosure in section 13.2(a) of the Scheme Booklet that "[a]s at the date of this Scheme Booklet, HUB24 does not hold a Relevant Interest in any Xplore Shares" is correct. I accept Mr Entwistle's evidence to that effect and Xplore Wealth's submission that the Court did not need to determine whether that was so. That is because first, as Mr Entwistle explained, the Xplore Wealth shares held under this arrangement were not in fact voted on the resolution to approve the Share Scheme such that the Court would be concerned that HUB24 affected the outcome at the Share Scheme Meeting; and secondly, HUB24 and HUB24 Custodial will not have any beneficial entitlement to any Share Scheme consideration. Rather, HUB24 Custodial will have to account for that consideration to the ultimate beneficiaries of those shares. conclusion 19 For those reasons I made the orders sought by Xplore Wealth at the second court hearing. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic. Associate: Dated: 4 March 2021