Federal Court of Australia Over the Wire Holdings Limited, in the matter of Over the Wire Holdings Limited [2022] FCA 26 File number(s): NSD 2 of 2022 Judgment of: HALLEY J Date of judgment: 21 January 2022 Date of publication of reasons: 25 January 2022 Catchwords: CORPORATIONS – members' scheme of arrangement – first court hearing – application under ss 411 and 1319 of the Corporations Act (Cth) for orders convening a meeting of members to consider and agree a proposed scheme of arrangement – proposed acquisition of shares in target company in exchange for cash and scrip consideration – break fee – exclusivity – performance risk secured by deed poll – existing director to become director of target company – whether benefits of director appropriately disclosed – scheme booklet to be sent by electronic communication unless hard copy requested – application granted Legislation: Corporations Act 2001 (Cth) ss 411, 1319 Treasury Laws Amendment (2021 Measures No. 1) Act 2021 s 253RA Cases cited: Adelaide Bank Limited, in the matter of Adelaide Bank Limited [2007] FCA 1582 Alstom Signalling Solutions Pty Ltd, in the matter of Alstom Signalling Solutions Pty Ltd v Alstom Transport Australia Pty Limited [2016] FCA 838 Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 APN News & Media Limited, in the matter of APN News & Media Limited (2007) 62 ACSR 400; [2007] FCA 770 Associated Advisory Practices Limited, in the matter of Associated Advisory Practices Limited [2013] FCA 761 Australian Leaders Fund Ltd v Equity Trustees Ltd, in the matter of Australian Leaders Fund Ltd [2021] FCA 88 Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15 CSR Limited, in the matter of CSR Limited (2010) 183 FCR 358; [2010] FCAFC 34 Dragontail Systems Limited, in the matter of Dragontail Systems Limited [2021] FCA 834 FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 Integra Mining Limited, in the matter of Integra Mining Limited [2012] FCA 1414 In the matter of BINGO Industries Limited [2021] NSWSC 798 In the matter of Coca-Cola Amatil Limited [2021] NSWSC 270 Japara Healthcare Limited, in the matter of Japara Healthcare Limited [2021] FCA 1150 Re Archaean Gold NL (1997) 23 ACSR 143 Re Central Pacific Minerals NL [2002] FCA 239 Re Sonodyne International Ltd (1994) 15 ACSR 494 Signature Capital Investments Limited, in the matter of Signature Capital Investments Limited [2016] FCA 258 Staging Connections Group Limited, in the matter of Staging Connections Group Limited [2015] FCA 1012 Westfield Holdings Limited (2004) 49 ACSR 734; [2004] NSWSC 458 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: 48 Date of hearing: 21 January 2022 Counsel for the Plaintiff: Mr Oakes SC Solicitor for the Plaintiff: McCullough Robertson Counsel for the Interested Person: Mr Jesse Rudd Solicitor for the Interested Person: Gadens ORDERS NSD 2 of 2022 IN THE MATTER OF OVER THE WIRE HODINGS LIMITED ACN 151 872 730 OVER THE WIRE HOLDINGS LIMITED ACN 151 872 730 Plaintiff AUSSIE BROADBAND LIMITED ACN 132 090 192 Interested Person order made by: HALLEY J DATE OF ORDER: 21 January 2022 THE COURT ORDERS THAT: 1. Pursuant to section 411(1) and section 1319 of the Corporations Act 2001 (Cth) (Act): (a) the Plaintiff convene and hold a meeting (Scheme Meeting) of holders of fully paid ordinary shares in the Plaintiff (Scheme Shareholders) for the purpose of considering and, if thought fit, approving (with or without modification) a scheme of arrangement (Scheme) proposed between the Plaintiff and the Scheme Shareholders, being the scheme of arrangement set forth in Annexure E of the explanatory statement in relation to the Scheme (Scheme Booklet), which is the document marked Exhibit 3 in the proceeding; (b) the Scheme Meeting be held on Thursday, 24 February 2022 commencing at 11.00am AEST; (c) the Scheme Meeting be held as a virtual meeting, in accordance with Rule 3.3(2) of the Federal Court (Corporations) Rules 2000 (Cth) (Rules), to the extent it is not displaced by these orders, such meeting to be accessed through the online platform specified in Annexure I to the Scheme Booklet; (d) the Scheme Meeting be convened by sending on or before 25 January 2022: (i) in the case of Scheme Shareholders for whom the Plaintiff holds an email address and who have elected to receive shareholder communications electronically by way of email (Email Shareholders), an email substantially in the form of the document marked MNO-7 and exhibited to the affidavit of Michael Nictarios Omeros dated 20 January 2022 (Omeros Affidavit) and which contains links to: A. an electronic copy of a document substantially in the form of the Scheme Booklet, which contains, among other things, the Notice of Scheme Meeting at Annexure C to the Scheme Booklet; and B. an online portal or website that is accessible by the Email Shareholder and which enables the Email Shareholder to lodge their proxy for the Scheme Meeting and voting instructions online, and make a scheme consideration election; (ii) in the case of Scheme Shareholders who are not Email Shareholders (Postal Shareholders) and whose registered address is in Australia, by pre-paid post addressed to the relevant addresses recorded in the Plaintiff's register a document substantially in the form of the document marked 'MNO-8' and exhibited to the Omeros Affidavit, with the words "would like a hard copy of the Scheme Booklet or if you" inserted between "If you" and "have any questions" on the second page of the document, which contains links to: A. an electronic copy of the Scheme Booklet, which contains, among other things, the Notice of Scheme Meeting at Annexure C to the Scheme Booklet, a proxy form at Annexure G to the Scheme Booklet, an election form at Annexure H to the Scheme Booklet and a link to a website that is accessible by the Postal Shareholder and which enables the Postal Shareholder to lodge their proxy for the Scheme Meeting and voting instructions online; and B. an online portal that is accessible by the Postal Shareholder and which enables the Postal Shareholder to make a scheme consideration election; and (iii) in the case of Postal Shareholders and whose registered address is outside Australia, by airmail addressed to the relevant addresses recorded in the Plaintiff's register a document substantially in the form of the document marked 'MNO-8' and exhibited to the Omeros Affidavit, with the words "would like a hard copy of the Scheme Booklet or if you" inserted between "If you" and "have any questions" on the second page of the document, which contains links to: A. an electronic copy of the Scheme Booklet, which contains, among other things, the Notice of Scheme Meeting at Annexure C to the Scheme Booklet, a proxy form at Annexure G to the Scheme Booklet, an election form at Annexure H to the Scheme Booklet and a link to a website that is accessible by the Postal Shareholder and which enables the Postal Shareholder to lodge their proxy for the Scheme Meeting and voting instructions online; and B. an online portal that is accessible by the Postal Shareholder and which enables the Postal Shareholder to make a scheme consideration election; (e) a proxy in respect of the Scheme Meeting will be valid and effective if, and only if, it is completed and delivered by email, hand or post in accordance with its terms by 11.00am AEST on Tuesday, 22 February 2022; (f) Stephe Peter Wilks or, in his absence, Catherine Ann Aston, act as Chairperson of the Scheme Meeting; (g) the Chairperson of the Scheme Meeting shall have the power to adjourn the meeting to such time, date and place as he or she considers appropriate; (h) the Plaintiff may provide access to the Scheme Meeting for such other persons as it thinks fit; (i) at the Scheme Meeting, the resolution to approve the Scheme be decided by way of poll; and (j) rule 2.15 of the Rules shall not apply to the scheme meeting. 2. Pursuant to subsection 411(1) of the Act, a document substantially in the form of the Scheme Booklet be approved for distribution to the Scheme Shareholders of the Plaintiff. 3. The Plaintiff publish a notice of hearing of any application to approve the Scheme on or before 22 February 2022, in The Australian newspaper by an advertisement substantially in the form of Annexure A to these Orders, and the Plaintiff shall otherwise be exempted from compliance with rule 3.4(3)(b) of the Rules. 4. The proceeding be stood over to 10.15 am AEDT on Thursday, 3 March 2022 before Halley J for the hearing of any application to approve the scheme of arrangement. 5. There be liberty to apply. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. ANNEXURE A Notice of hearing to approve compromise or arrangement (rule 3.4) No. NSD2 of 2022 Federal Court of Australia District Registry: NEW SOUTH WALES Division: GENERAL IN THE MATTER OF OVER THE WIRE HOLDINGS LIMITED ACN 151 872 730 OVER THE WIRE HOLDINGS LIMITED ACN 151 872 730 Plaintiff TO all the creditors and members of Over the Wire Holdings Limited ACN 151 872 730 (OTW) TAKE NOTICE that at 9.15am AEST on Thursday, 3 March 2022, the Federal Court of Australia at the Law Courts Building, Queen's Square, Sydney will hear an application by OTW seeking the approval of a compromise or arrangement between the above-named company and its members, proposed by a resolution to be considered, and if thought fit, passed (with or without modification) at the meeting of the members of the company to be conducted on Thursday, 24 February 2022, commencing at 11.00am AEST. If you wish to oppose the approval of the compromise or arrangement, you must file and serve on the Plaintiff, OTW, 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, OTW, at their address for service at least one day before the date fixed for the hearing of the application. The address for service of the Plaintiff is McCullough Robertson Lawyers, Level 32, 19 Martin Place, Sydney, NSW. Name of person giving notice or of person's legal practitioner: Peter Stokes, McCullough Robertson Lawyers – 07 3233 8714. REASONS FOR JUDGMENT HALLEY J: introduction 1 By an originating process filed on 4 January 2022, the plaintiff, Over the Wire Holdings Limited (OTW), applies pursuant to ss 411(1) and 1319 of the Corporations Act 2001 (Cth) (Act) for orders to convene a meeting (Scheme Meeting) of its members to consider and vote upon the proposed scheme of arrangement (Scheme) between OTW and its shareholders (Scheme Participants). 2 The Scheme, if approved and implemented, will result in the acquisition of all the shares in OTW by Aussie Broadband Limited (ABB) and shareholders in OTW will be given the opportunity to elect to receive scheme consideration (Scheme Consideration), subject to scaleback provisions, as follows: (a) 80% cash consideration and 20% scrip consideration, equating to $4.60 cash and 0.2300 new ABB shares for each OTW share (Default Consideration); (b) 100% cash consideration equating to $5.75 cash per OTW share (All Cash Consideration); (c) 100% scrip consideration equating to 1.1500 new ABB shares for each OTW share (All Scrip Consideration); or (d) at least 1% but less than 100% scrip consideration with the balance payable as cash consideration (Mix and Match Consideration). 3 Shareholders who do not make any election will receive the Default Consideration. 4 The scaleback provisions provide for a pro-rata scaleback, if necessary, to ensure that the maximum cash required to be paid as cash consideration to OTW shareholders does not exceed approximately $275.2 million and the maximum number of new ABB shares to be issued by ABB does not exceed approximately 39.6 million. 5 The Scheme includes a break fee, exclusivity provisions and provides for an existing director of OTW to become a director of ABB. EVIDENCE RELIED UPON BY OTW 6 The application is supported by an affidavit of Michael Nictarios Omeros, affirmed on 20 January 2022. Mr Omeros is the managing director and group chief executive officer of OTW. In his affidavit, Mr Omeros: (a) explains that OTW is a provider of telecommunications, cloud and IT solutions and its product offerings include data networks and internet, voice, hosting and security and managed services for a mix of small and midsize businesses, enterprise and government customers; (b) annexes copies of the constitution of OTW and a company search of OTW and also describes its capital structure; (c) explains the negotiation of the Scheme Implementation Deed with ABB and the content of the booklet that has been prepared for the Scheme (Scheme Booklet); (d) explains the content and rationale for the inclusion in the Scheme of the exclusivity provisions and the break fee of approximately 1% of the total equity value of the Scheme Shares; (e) explains the due diligence and verification process undertaken by the OTW board for the Scheme; (f) confirms that the OTW board unanimously recommends to shareholders that they vote in favour of the Scheme in the absence of a superior proposal; and (g) describes the process for the dispatch of the Scheme Booklet to shareholders. 7 OTW also relies on the following affidavits: (a) an affidavit of Stephe Peter Wilks, a non-executive director and chair of the OTW board, affirmed 13 January 2022, confirming that he has agreed to chair the Scheme Meeting; (b) an affidavit of Catherine Ann Aston, a non-executive director of OTW, affirmed 18 January 2022, confirming that she has agreed to be the alternate chair of the Scheme meeting, if required; (c) an affidavit of Brian Maher, the Chief Financial Officer and company secretary of ABB, affirmed 20 January 2022, providing information about ABB and the verification process undertaken by ABB; (d) an affidavit of Andrea De Cian, a Director of Grant Thornton Corporate Finance Pty Ltd ABN 59 003 265 987 (GTCF) and a Partner of Grant Thornton Australia Limited, affirmed 20 January 2022, annexing his independent expert's report in which he concludes that the Scheme is fair and reasonable and therefore in the best interests of OTW shareholders; (e) an affidavit of Cameron Arthur Bradley, a Partner of PKF Brisbane Audit (PKF), affirmed 20 January 2022, annexing his independent limited assurance report for the Scheme; (f) an affidavit of BeeYen Nah, a Client Relationship Manager employed by Link Market Services Limited (Link), affirmed 20 January 2022, confirming that Link is the share registry engaged by OTW to assist with the dispatch of Scheme materials and the conduct of the Scheme; (g) two affidavits of Naomi Gabriella Omundson, a solicitor at McCullough Robertson, the solicitors acting for OTW in the Scheme, the first, affirmed 20 January 2022 annexing communications with ASIC and the second, affirmed 21 January 2022, annexing a revised and final version of the Scheme Booklet; and (h) an affidavit of Peter William Stokes, a partner at McCullough Robertson, affirmed 4 January 2022, annexing company searches for OTW and ABB. 8 Mr Oakes SC, who appeared for OTW, also tendered a copy of ASIC's usual first court hearing letter dated 20 January 2022. Consideration Formal requirements to exercise s 411(1) power 9 Section 411(1) of the Act confers a power on the Court to order a meeting of members to be convened and to approve the relevant explanatory statement. 10 I am satisfied that the evidence upon which OTW relies is sufficient to establish each of the following matters that have been considered necessary preconditions to the Court making orders for the convening of a scheme meeting: Australian Leaders Fund Ltd v Equity Trustees Ltd, in the matter of Australian Leaders Fund Ltd [2021] FCA 88 (Leaders Fund) at [16] (Stewart J) citing Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 (Amcon) at [12] (McKerracher J); Staging Connections Group Limited, in the matter of Staging Connections Group Limited [2015] FCA 1012 at [19]-[20] (Gleeson J); and Xplore Wealth Limited, in the matter of Xplore Wealth Limited [2020] FCA 1868 at [23] (Markovic J); see also Signature Capital Investments Limited, in the matter of Signature Capital Investments Limited [2016] FCA 258 at [12] (Farrell J): (a) OTW is a Part 5.1 body; (b) the Scheme Participants are members of OTW; (c) the Scheme Meeting will be convened between members of the same class; (d) the Scheme is bona fide and properly proposed; (e) ASIC has had a reasonable opportunity to examine the terms of the Scheme and the Scheme Booklet and make any submissions to the Court; (f) the Scheme Booklet provides adequate disclosure; and (g) the Scheme can properly be described as an arrangement or a compromise. 11 Once the preconditions to the exercise of power under s 411(1) to order the convening of a meeting have been satisfied, it is then necessary to consider whether that power ought to be exercised pursuant to the Court's discretion. Relevant principles for the exercise of discretion 12 In Dragontail Systems Limited, in the matter of Dragontail Systems Limited [2021] FCA 834 (DTS), I summarised at [10]-[14] the relevant principles for the exercise of the discretion to order the convening of a meeting to consider approving a proposed scheme of arrangement. For ease of reference, I set out below those paragraphs of that judgment. 13 The Court will not ordinarily make orders for the convening of a scheme meeting unless the scheme is of such a nature and cast on such terms that if it receives the statutory majority at the meeting, the Court would be likely to approve it on the hearing of an application that was not opposed: FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 (Street CJ, with whom Hutley and Samuels JJA agreed); approved in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15 at 504; Re Central Pacific Minerals NL [2002] FCA 239 at [8]; and CSR Limited, in the matter of CSR Limited (2010) 183 FCR 358; [2010] FCAFC 34 at [12]. 14 At the first court hearing, the Court exercises its supervisory jurisdiction in order to review the scheme and the explanatory statement and to raise any queries that it might have with the plaintiff: Alstom Signalling Solutions Pty Ltd, in the matter of Alstom Signalling Solutions Pty Ltd v Alstom Transport Australia Pty Limited [2016] FCA 838 at [21] (Gleeson J). The Court needs to be satisfied that there are no obvious flaws in the scheme and that there is an adequate explanation provided to persons who have a financial interest in the proposed scheme: In the matter of Coca-Cola Amatil Limited [2021] NSWSC 270 at [13] (Black J) (Coca-Cola Amatil). 15 The Court should consider at the first court hearing whether the proposed scheme is not inappropriate and whether it is one that sensible business people might consider is of benefit to its members: Leaders Fund at [15] citing Re Sonodyne International Ltd (1994) 15 ACSR 494 at 499 (Hayne J); Integra Mining Limited, in the matter of Integra Mining Limited [2012] FCA 1414 at [11] (McKerracher J); and Amcon at [10]. 16 The Court does not need to be satisfied that no better scheme could have been proposed and ultimately that is a question for the members themselves to determine at the scheme meeting: Associated Advisory Practices Limited, in the matter of Associated Advisory Practices Limited [2013] FCA 761 at [22] (Farrell J); Coca-Cola Amatil at [13]; and Leaders Fund at [15]. 17 Although the second court hearing is when the Court makes its final determination, in practice, the first court hearing is where the Court will typically intervene if it has concerns. A reason that has been advanced for this is that the market views the approval by the Court of the convening of scheme meetings as providing assurance that the scheme, at least in form and substance, has received a preliminary clearance by the Court and that trading in the company's securities thereafter will proceed on that basis: Re Archaean Gold NL (1997) 23 ACSR 143 at 147; and Leaders Fund at [15]. Specific considerations 18 Given the ex parte nature of an application for orders pursuant to s 411(1) of the Act, the following matters were specifically drawn to my attention by Mr Oakes SC, in the course of his oral and written submissions. For the reasons outlined below, I am satisfied that none of these matters would cause me to decline to convene a meeting in the present case. Break fee and exclusivity provisions 19 Pursuant to cl 12.2 of the Scheme Implementation Deed, OTW must pay ABB a reimbursement fee, often referred to as a break fee, of $3,439,682 in the specific circumstances there prescribed (OTW Break Fee). 20 Broadly speaking, the OTW Break Fee is payable if: (a) a competing transaction is announced within 6 months of the date of the Scheme Implementation Deed (Exclusivity Period) and within 12 months of such announcement that transaction is completed; (b) during the Exclusivity Period, a director of OTW fails to recommend the Scheme or otherwise withdraws or adversely changes or qualifies his or her recommendation unless the Independent Expert for the Scheme concludes that the Scheme is not in the best interests of the shareholders of OTW (for a reasons other than the existence of a competing transaction), OTW is entitled to terminate the Scheme Implementation Deed or there is a 17.5% or greater fall in the share price of ABB; (c) ABB validly terminates the Scheme Implementation Deed. 21 The OTW Break Fee represents 1.000006% of the equity value of OTW of $343,966,127, being $5.75 per OTW share multiplied by the fully diluted share capital of OTW (59,820,196 shares). 22 Break fees are not uncommon features in schemes of arrangement and have not been an obstacle to the making of orders under s 411(1) of the Act. They have been justified by reference to the costs incurred by the bidder, the benefit the bidder confers on scheme participants by increasing the value of the target company and the desirability, from the perspective of members, of the making of takeover offers to them: APN News & Media Limited, in the matter of APN News & Media Limited (2007) 62 ACSR 400; [2007] FCA 770 (APN News) at [43]-[44] (Lindgren J); Japara Healthcare Limited, in the matter of Japara Healthcare Limited [2021] FCA 1150 (Japara) at [44]-[50] (Moshinsky J); In the matter of iCar Asia Limited [2021] NSWSC 1713 at [28] (Black J). 23 The OTW Break Fee of 1.000006% of the equity value of OTW is consistent with the Takeovers Panel's guideline that break fees should not exceed 1% of the target's equity value: Australian Government Takeovers Panel, Guidance Note 7, Lock-up devices, Fourth Issue, 11 February 2010 (Guidance Note 7) at [9]; and APN News at [46]-[55]. 24 I am satisfied that the evidence of Mr Omeros, for OTW, and Mr Maher, for ABB, establishes that the OTW Break Fee was arrived at as a result of negotiation between OTW and ABB, that the directors of OTW consider that the amount of the break fee was reasonable and appropriate in the circumstances to secure the benefits to OTW and the Scheme Participants from the Scheme and that ABB would not have entered into the Scheme Implementation Deed in the absence of the OTW Break Fee. 25 Further, the triggers for the payment of the OTW Break Fee, such as a change in the directors' recommendation or the completion of a competing proposal, are consistent with the principles set forth in the Guidance Note 7 at [9]. 26 No entitlement to the break fee arises if the shareholders do not approve the Scheme by the requisite majorities. I am therefore satisfied that it does not give rise to an inappropriate disincentive to Scheme Participants in their consideration of the proposed merger: Adelaide Bank Limited, in the matter of Adelaide Bank Limited [2007] FCA 1582 at [31] (Lander J); and In the matter of BINGO Industries Limited [2021] NSWSC 798 at [23]. 27 I also note that both OTW and ABB are represented by firms with extensive mergers and acquisitions experience and the existence of the OTW Break Fee is prominently disclosed in section 12 of the Scheme Booklet. 28 The Scheme Implementation Deed also includes exclusivity provisions which OTW had granted in favour of ABB. These provisions include provisions that are commonly referred to as "no shop", "no talk" and "no due diligence" clauses. They also include obligations to notify ABB of any alternative offers and gives ABB a right to make a counter-proposal. These restrictions and obligations are subject to exceptions to the extent that they are inconsistent with fiduciary or statutory duties owed by the directors of OTW. 29 As I explained in DTS at [27]; Exclusivity restrictions in this form are now common in s 411 schemes and are consistent with the terms of the Takeovers Panel Guidance Note 7: Australian Government Takeovers Panel, Guidance Note 7, Lock-up devices, Fourth Issue, 11 February 2010 (Guidance Note 7). They have not been regarded as an impediment to the convening of a meeting to approve a scheme, subject to appropriate disclosure in the scheme booklet: Re Toll Holdings Limited [2015] VSC 123 at [36] (Robson J); Re Skilled Group Limited (No 1) (2015) 113 ACSR 525; [2015] VSC 789 at [50] (Robson J); Coca-Cola Amatil at [20]; and BINGO Industries at [25] (Black J). 30 I am satisfied that the exclusivity provisions in the Scheme Implementation Deed are sufficiently and appropriately disclosed in the Scheme Booklet. Proposed dispatch of the Scheme Booklet 31 OTW proposes to dispatch the Scheme Booklet to each OTW shareholder appearing on the registry as at the date of dispatch, by the following alternative mechanisms: (a) for each shareholder who has authorised notices to be given by electronic mail – an email containing a website link to a copy of the Scheme Booklet; (b) for each shareholder who has not authorised notices to be given by electronic mail and whose address for receiving notices is in Australia – a letter sent by ordinary pre-paid post containing details of a website link to a copy of the Scheme Booklet; and (c) for each shareholder who has not authorised notices to be given by electronic mail and whose address for receiving notices is outside Australia – a letter sent by airmail containing details of a website link to a copy of the Scheme Booklet. 32 Section 253RA of the Act, which was introduced by the Treasury Laws Amendment (2021 Measures No. 1) Act 2021, with effect from 14 August 2021, relevantly provides that a document that is required to be provided under the Act that relates to a Chapter 2G meeting: (1) The document may be given to the recipient by means of an electronic communication. (2) The document may be given by giving the recipient (by means of an electronic communication or otherwise) sufficient information to allow the recipient to access the document electronically. (3) However, an electronic communication or electronic access may only be used if, at the time the electronic communication is used or information about the electronic access is given: (a) it is reasonable to expect that the document would be readily accessible so as to be useable for subsequent reference; and (b) an election by the recipient to receive documents in hard copy only is not in force in relation to the document under section 253RB (for a document relating to a company) or section 253RC (for a document relating to a registered scheme). 33 I am informed by Mr Oakes that he is instructed that no shareholder of OTW has made an election pursuant to s 253RB of the Act to receive documents in hard copy only. The absence of any such election will be confirmed by an affidavit at the second scheme hearing. If, contrary, to the instructions provided to Mr Oakes, any shareholder of OTW has made such an election I expect that shareholder to be provided with a hard copy of the Scheme Booklet as soon as possible. 34 I also note that the letter that will be sent to "hard copy shareholders" providing them with the details of the electronic link to access the Scheme Booklet online, rather than a hard copy of the Scheme Booklet, concludes with the following statement: If you would like a hard copy of the Scheme Booklet or if you have any questions regarding the Scheme, please contact the Scheme Information Line on +61 1800 645 237. Performance Risk 35 Subject to the satisfaction or waiver of the conditions precedent specified in clause 3 of the Scheme Implementation Deed, by 8.00 am on the date of the Second Court Hearing, the Scheme will be self-executing upon the making of orders at the Second Court Hearing and the registration of the orders with ASIC. 36 In addition, in considering whether to approve a scheme involving the participation of persons other than the company and its members, the Court typically wishes to ensure that those persons (commonly referred to as outsiders) are bound to perform the role assigned to them and that those obligations are able to be enforced. The obligations of outsiders are not captured by s 411 of the Act, which is confined to the plaintiff company and its members, unless the outsider is formally joined to the proceedings: Westfield Holdings Limited (2004) 49 ACSR 734; [2004] NSWSC 458 at 739 (Barrett J). 37 In this case the relevant outsider is ABB. 38 The obligations of ABB are secured by a deed poll in favour of the Scheme Participants executed on 20 January 2022. The deed poll enables the shareholders of OTW to directly enforce the obligations of ABB to provide the Scheme Consideration. 39 Further, from a timing perspective, the Scheme Consideration must be provided before the transfer of OTW shares thus mitigating against any performance risk. Existing director of OTW to become a director of ABB and receipt of incentive payment 40 The Scheme Booklet discloses that upon implementation of the Scheme, Mr Omeros, the current managing director and group chief executive officer of OTW, will be appointed as a director of ABB and that he will receive a long-term incentive cash payment of $266,667. 41 Mr Omeros has recommended to the shareholders of ABB that they approve the Scheme. Whether it is appropriate for a director to make a recommendation to approve a scheme, if that director stands to receive a substantial benefit if that scheme is implemented, was recently considered by Moshinsky J in Japara at [71]-[72]: 71. Differing views have been expressed on the question whether a director who is entitled to receive an additional benefit should make a voting recommendation: (a) in some cases, the court has taken the view that, as a general rule, a director who will receive a substantial benefit should decline to make a recommendation to shareholders as to how they should vote, but that the making of such a recommendation may not preclude the court making orders convening a meeting if the benefits are adequately disclosed in the scheme booklet – see, eg, Re Gazal Japara Healthcare Limited, in the matter of Japara Healthcare Limited [2021] FCA 1150 17 Corporation Ltd [2019] FCA 701 at [27]-[34], Re Ruralco Holdings Ltd (2019) 136 ACSR 628 at [26]-[28]; Re Navitas Ltd; Ex parte Navitas Ltd (No 2) [2019] WASC 218 at [31]-[32]; and (b) in other cases, the court has taken a different approach, holding that it will ordinarily be appropriate for a director who is to receive a financial benefit to make a recommendation, but to fully and prominently disclose the benefit in the Scheme Booklet – see, eg, Re SMS Management & Technology Ltd [2017] VSC 257 at [24]- [26]; Re Kidman Resources Ltd (2019) 139 ACSR 122 at [104]-[115]; Re QMS Media Ltd [2019] FCA 2172 at [85]-[88]; Re DWS Ltd (2020) 148 ACSR 616 at [42]-[49]; Re RXP Services Ltd [2021] FCA 38 at [41]-[48]; Re BINGO Industries Ltd [2021] NSWSC 798 at [14]-[16]; Re Villa World Ltd (2019) 139 ACSR 550 at [27]-[40]; Re ERM Power Ltd [2019] NSWSC 1502 at [16]-[18]; Re Isentia Group Ltd [2021] NSWSC 910 at [19]. It has been observed that the divergence in the authorities on this question "may be more apparent than real": see Re Wellcom Group Ltd [2019] FCA 1655 at [51], [59]. 72 In my view, for the reasons set out in the cases referred to in paragraph (b) above, ordinarily the preferable approach is for a director who is to receive a financial benefit to make a recommendation, but to disclose the benefit in the Scheme Booklet. 42 With respect, I agree with the view expressed by Moshinsky J. In my view it is highly desirable that, other than in exceptional cases, every director, in particular a managing director and group chief executive officer, makes a recommendation to shareholders as to whether or not they should vote in favour of a proposed scheme, provided that any substantial benefits to be received by them are fully disclosed to shareholders in the scheme booklet. 43 I am satisfied in the present case that the benefits to be received by Mr Omeros are not of a nature that would preclude him from making a recommendation to OTW shareholders. 44 Mr Omeros has more than 20 years' experience in the telecommunications and IT service sectors and was a co-founder of OTW. The payment to be made to Mr Omeros upon implementation of the Scheme is to be made by a vesting of his current entitlement to a long term cash incentive of $266,667. If the Scheme is not implemented, long term incentive cash payments of $200,000 would become payable to Mr Omeros, subject to vesting conditions being satisfied, in both September 2023 and September 2024 (in aggregate $400,000). 45 Further, I am satisfied that the benefits to be received by Mr Omeros are appropriately disclosed with sufficient prominence in the Scheme Booklet. Approval of the Scheme Booklet by the Court 46 The plaintiff seeks an order that the Court approve the distribution of the explanatory statement to Scheme Participants. Sub-section 411(1) of the Act provides that if the Court has made an order convening a meeting of members or creditors, it may also "approve the explanatory statement". 47 I am satisfied in this case, for the reasons outlined above, that it is appropriate for an order to be made approving the distribution of the Scheme Booklet to Scheme Participants. Disposition 48 On the basis of the material provided to the Court and the considerations outlined above, I am satisfied that the formal requirements contained in s 411 of the Act for the convening of a meeting of members to consider the Scheme and to approve the Scheme Booklet for circulation to members of OTW have been met. I am satisfied that the discretion of the Court should otherwise be exercised to order the convening of a meeting of the shareholders of OTW and to approve the Scheme Booklet for distribution to Scheme Participants. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley. Associate: Dated: 25 January 2022