Federal Court of Australia United Malt Group Limited, in the matter of United Malt Group Limited [2023] FCA 1071 File number: NSD 787 of 2023 Judgment of: YATES J Date of judgment: 7 September 2023 Date of publication of reasons: 11 September 2023 Catchwords: CORPORATIONS – scheme of arrangement – first court hearing – application for order under s 411(1) of the Corporations Act 2001 (Cth) to convene meeting of members Legislation: Corporations Act 2001 (Cth) ss 411, 412 Federal Court (Corporations) Rules 2000 (Cth) r 3.2(b) Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 34 Date of hearing: 7 September 2023 Counsel for the Plaintiff: Mr J Williams SC and Ms B Ng Solicitor for the Plaintiff: Gilbert + Tobin Counsel for Malteries Soufflet SAS: Ms T Wong SC Solicitor for Malteries Soufflet SAS: Allens ORDERS NSD 787 of 2023 IN THE MATTER OF UNITED MALT GROUP LIMITED BETWEEN: UNITED MALT GROUP LIMITED (ACN 140 174 189) Plaintiff order made by: YATES J DATE OF ORDER: 7 SEPTEMBER 2023 THE COURT ORDERS THAT: 1. Pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act), the plaintiff convene and hold a meeting of the ordinary shareholders of the plaintiff (UMG Shareholders) (Scheme Meeting) to consider and, if thought fit, to approve (with or without modification) the scheme of arrangement (Scheme) proposed to be made between the plaintiff and UMG Shareholders, the terms of which are set out in the document at Attachment B to the document comprising Exhibit 1 in the proceeding (Scheme Booklet). 2. The Scheme Booklet substantially in the form set out in Exhibit 1 be approved for distribution to UMG Shareholders, with distribution to occur in accordance with Order 3. 3. The plaintiff provide the Scheme Booklet to UMG Shareholders by sending on or before 12 September 2023: (a) in the case of UMG Shareholders who have elected to receive shareholder communications electronically (Email Recipients), an email which includes access by an embedded link to the following: (i) an electronic copy of the Scheme Booklet; and (ii) an online portal or website that is accessible by Email Recipients and which enables Email Recipients to lodge their proxy (including voting instructions, where applicable) for the Scheme Meeting; and (b) in the case of UMG Shareholders who have elected to receive hard copy shareholder communications (Electing Postal Recipients) and whose registered address is in Australia, the following documents by pre-paid ordinary post addressed to the relevant addresses recorded in the plaintiff's register: (i) a printed copy of the Scheme Booklet; (ii) a personalised Proxy Form; and (iii) a reply paid envelope for the return of the Proxy Form; (c) in the case of UMG Shareholders who have not specifically elected to receive electronic or hard copy communications (Non-Electing Postal Recipients) and whose registered address is in Australia, the following documents by pre-paid post addressed to the relevant addresses recorded in the plaintiff's register: (i) a letter in respect of the Scheme Meeting, which contains the address of a website which enables Non-Electing Postal Recipients to access a copy of the Scheme Booklet (Non-Electing Postal Shareholder Letter); (ii) a personalised Proxy Form; and (iii) a reply paid envelope for the return of the Proxy Form; (d) in the case of Electing Postal Recipients whose registered address is outside Australia, the following documents by pre-paid airmail post addressed to the relevant addresses recorded in the plaintiff's register: (i) a printed copy of the Scheme Booklet; (ii) a personalised Proxy Form; and (iii) a self-addressed envelope for the return of the Proxy Form; and (e) in the case of Non-Electing Postal Recipients whose registered address is outside Australia, the following documents by pre-paid airmail post addressed to the relevant addresses recorded in the plaintiff's register: (i) a Non-Electing Postal Shareholder Letter; (ii) a personalised Proxy Form; and (iii) a self-addressed envelope for the return of the Proxy Form. 4. If the plaintiff receives (through its share register provider, Link Market Services Limited) a "bounce back" notification in relation to the notification to an Email Recipient that the email was not delivered to the nominated email address of the Email Recipient, the plaintiff send to those Email Recipients the documents despatched to the Non-Electing Postal Recipients as described at Order 3(c) or Order 3(e) (as applicable) above. 5. The plaintiff cause a copy of the Scheme Booklet to be provided to any UMG Shareholder upon request before the date of the Scheme Meeting. 6. Subject to these orders, the Scheme Meeting be convened, held and conducted in accordance with the provisions of: (a) Part 2G.2 of the Act (save for any applicable replaceable rule) that apply to a meeting of the plaintiff's members; and (b) the plaintiff's Constitution that apply in relation to meetings of members and that are not inconsistent with Part 2G.2 of the Act. 7. The Scheme Meeting be held as a hybrid meeting and conducted simultaneously on Thursday, 12 October 2023 commencing at 10:00am (Sydney time) with the physical venue of the Scheme Meeting at Warrane Theatre, Level 1, Museum of Sydney, Corner of Phillip Street and Bridge Streets, Sydney NSW 2000 and via an online platform that allows for remote participation as set out in the Notice of Scheme Meeting which is Attachment D to the Scheme Booklet. 8. The UMG Shareholders who are entitled to attend, take part in, and vote at the Scheme Meeting are those UMG Shareholders who are registered in the plaintiff's share register as ordinary shareholders of the plaintiff as at 10.00 am (Sydney time) on 10 October 2023. 9. Subject to Order 8, UMG Shareholders may vote at the Scheme Meeting by attending in person or by proxy, attorney or corporate representative (if applicable). 10. Graham Bradley, or failing him, Mark Palmquist, be the chairperson of the Scheme Meeting. 11. The chairperson of the Scheme Meeting shall have the power to adjourn the Scheme Meeting to such time, date and place as he considers appropriate. 12. The plaintiff may provide access to the Scheme Meeting for such other persons as it thinks fit. 13. Voting on the resolution to approve the Scheme be conducted by way of a poll. 14. A Proxy Form in respect of the Scheme Meeting be valid and effective if, and only if, it is completed and received in accordance with the instructions set out in the Scheme Booklet by 10.00 am (Sydney time) on Tuesday, 10 October 2023. 15. Pursuant to r 1.3 of the Federal Court (Corporations) Rules 2000 (Cth) (Rules), compliance with the following requirements of the Rules be dispensed with: (a) r 2.4(1), to the extent that rule requires the affidavit filed with the Originating Process to state the facts in support of the process; and (b) r 2.15. 16. The plaintiff publish in The Australian newspaper once on or before 6 October 2023 an advertisement substantially in the form of Annexure A to these Orders, and the plaintiff otherwise be relieved from compliance with r 3.4 and Form 6 of the Rules to the extent necessary. 17. The further hearing of the Originating Process in respect of the plaintiff's application pursuant to s 411(4), and if necessary s 411(6), of the Act for approval of the Scheme, be adjourned to 10.15 am (Sydney time) on 16 October 2023. 18. The plaintiff be granted liberty to apply. 19. These orders be entered forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. Annexure A Notice of hearing to approve Scheme of Arrangement TO all the members of United Malt Group Limited (ACN 140 174 189) (UMG): TAKE NOTICE that at 10:15am (Sydney time) on 16 October 2023, the Federal Court of Australia (NSW Registry) at Queens Square, 184 Phillip Street, Sydney, New South Wales, 2000, will hear an application by UMG seeking the approval of a scheme of arrangement between UMG and its members (the Scheme) as proposed by a resolution to be passed by the members of UMG at a meeting to be held at 10:00am (Sydney time) on 12 October 2023. If you wish to oppose the approval of the compromise or arrangement, you must file and serve on UMG a notice of appearance, in the prescribed form, together with any affidavit upon which you intend to rely at the hearing. The notice of appearance and affidavit must be served on UMG at its address for service at least 1 day before the date fixed for the hearing of the application. The address for service of UMG is c/o Gilbert + Tobin, Tower Two, International Towers Sydney, Level 35, 200 Barangaroo New South Wales, 2000 (Attention: Alexandra Whitby, email awhitby@gtlaw.com.au) REASONS FOR JUDGMENT YATES J: Introduction 1 The plaintiff, United Malt Group Limited, seeks an order under s 411(1) of the Corporations Act 2001 (Cth) (the Act) that a meeting of its members be convened and held to consider, and if thought fit approve (with or without modification), a scheme of arrangement (the Scheme) under which, if implemented, the shares of those members (referred to in the Scheme as the Scheme Shareholders) on issue at the Record Date (referred to in the Scheme as the Scheme Shares) will be transferred to Malteries Soufflet SAS (Malteries) for the Scheme Consideration. 2 It is proposed that the meeting be held as a hybrid meeting on 12 October 2023 commencing at 10.00 am (Sydney time) at which members will be able to participate by physical attendance or online via an online scheme meeting platform. 3 The Scheme Consideration, in respect of each Scheme Share, is: (a) a cash amount of A$5.00; less (b) the cash amount (per Scheme Share) of any Permitted Dividend which Scheme Shareholders become entitled to receive on or before the Implementation Date. 4 The Permitted Dividend is defined in the Scheme by reference to the Scheme Implementation Deed into which the plaintiff and Malteries entered on 1 July 2023, and does not require elaboration for the purpose of these reasons. I note, however, that, as at 5 September 2023, the plaintiff's directors had not determined to pay any dividend or other distribution. The evidence before me is that if the directors determine that a Permitted Dividend will be paid, or declared and paid, that fact will be communicated to members by way of announcement to the Australian Securities Exchange (ASX) before the date of the proposed meeting. 5 The consideration of $5.00 per share is a significant premium to the trading prices of the plaintiff's shares before its announcement to the ASX that it had received an indicative proposal from Malteries to acquire the shares. 6 The terms Record Date and Implementation Date are also defined in the Scheme. They, too, do not require elaboration in these reasons beyond noting that the Record Date for the purposes of the Scheme is expected to be 19 October 2023 and the Implementation Date is expected to be 15 November 2023. 7 The Scheme is a standard acquisition scheme for cash consideration with no unusual features. It is conditional upon the satisfaction (or waiver) of a number of conditions precedent. Expert Report 8 The plaintiff's directors have appointed Kroll Australia Pty Ltd (Kroll) to prepare a report setting out whether, in its opinion, the Scheme is in the best interests of the members concerned, in the absence of a superior proposal. 9 Kroll has assessed whether the Scheme is fair by comparing the Scheme Consideration to its assessed value of the plaintiff's shares on a controlling interest basis. Kroll has assessed the value of each share on a controlling interest basis to be in the range of $4.28 to $5.17. The Scheme Consideration of $5.00 per share falls within the assessed value range. For that reason, Kroll considers the Scheme to be fair. 10 Kroll has assessed whether the Scheme is reasonable by assessing the implications of the Scheme for the members, the alternatives to the Scheme that are available, and the consequences for members of not approving the Scheme. Its consideration of those matters, taken with its conclusion on fairness, have led Kroll to the view that the Scheme is reasonable. 11 In light of its views on fairness and reasonableness, Kroll has expressed the opinion that the Scheme is in the best interests of members, in the absence of a superior proposal. Directors' recommendation 12 The plaintiff's directors unanimously recommend that the members vote in favour of the Scheme in the absence of a superior proposal, subject to Kroll continuing to conclude that the Scheme is in the best interests of members. With the same qualifications, each of the plaintiff's directors who holds shares in the plaintiff intends to vote, or cause to be voted, all the shares that he or she holds or controls in favour of the Scheme at the proposed meeting. Verification of the Scheme Booklet 13 There is evidence before me of the verification procedure that was undertaken to ensure that the information given in the Scheme Booklet (which will stand as the explanatory statement required by s 412(1)(a) of the Act) is complete and accurate in all material respects. Performance risk 14 Performance risk under the Scheme is managed by requiring Malteries to deposit, or cause to be deposited, before the Implementation Date the aggregate Scheme Consideration into an Australian dollar-denominated trust account operated by the plaintiff with an Australian bank. On the Implementation Date, the plaintiff will pay the Scheme Consideration to each Scheme Shareholder and the Scheme Shares will be transferred to Malteries. The prior deposit of the aggregate Scheme Consideration is a precondition to the Scheme Shares being transferred to Malteries. 15 On 4 September 2023, Malteries entered into a Deed Poll in favour of the Scheme Shareholders under which it has covenanted to observe and perform the obligations contemplated, and the actions attributed to it, under the Scheme. The Deed Poll is expressed as being governed by the laws of New South Wales and Malteries has irrevocably submitted to the non-exclusive jurisdiction of all courts having jurisdiction in New South Wales. Exclusivity provisions 16 The Scheme Implementation Deed imposes a number of exclusivity restrictions and obligations on the plaintiff in relation to negotiations with third parties, namely "no shop", "no talk", and "no due diligence" restrictions, a "notification of approach" obligation, and a "matching right" provision. These provisions are clearly disclosed in the Scheme Booklet (as are other key provisions of the Scheme Implementation Deed). 17 Each exclusivity provision is referable to an Exclusivity Period, which is defined in the Scheme Implementation Deed to mean the period commencing on 1 July 2023 and ending on the earlier of the termination of the deed in accordance with its terms, the Implementation Date, and the End Date. The End Date sets the maximum extent of the Exclusivity Period, which is the period of 12 months from 1 July 2023. The plaintiff submits, and I accept, that this maximum period is not unreasonable in the circumstances. Indeed, even at the first court hearing I was informed that, on the previous day, the French Ministry of Economy had commenced a second phase review of one of the approvals that is presently a condition precedent to the Scheme coming into effect, with that process possibly taking up to 45 business days (i.e., until 9 November 2023). 18 The "no talk" and "no due diligence" obligations are subject to a fiduciary carve-out. Break fee 19 The Scheme Implementation Deed imposes an obligation on the plaintiff to pay a break fee of $15 million (exclusive of GST) in certain circumstances. I note that no break fee is payable merely because the scheme resolution to be put before members at the proposed meeting is not approved by the majority as required under s 411(4)(a)(ii) of the Act. The break fee and the circumstances in which it is to be paid are clearly disclosed in the Scheme Booklet. I note that, based on the Scheme Consideration, the break fee represents approximately 1% of the implied equity value of the plaintiff on a fully diluted basis. Performance rights 20 The plaintiff operates employee incentive plans under which short-term incentives and long-term incentives are offered. These incentives are offered and issued to executives and other senior employees. Some of these incentives can mature into performance rights under which participants are entitled to ordinary shares in the plaintiff (performance rights). 21 The Scheme Implementation Deed requires that, as a condition precedent to the Scheme, the plaintiff take steps to ensure that all performance rights vest, lapse, or are cancelled, so that no such rights are in existence at the Record Date. 22 The Scheme Booklet informs members, in some considerable detail, of the nature of the performance rights and the plaintiff's board's intentions in satisfying the obligations imposed on the plaintiff under the Scheme Implementation Deed in that regard. 23 Mr Palmquist, who is the plaintiff's Managing Director and Chief Executive Officer, is the only director who holds performance rights. His entitlements are clearly disclosed in the Scheme Booklet. Shareholder warranties 24 Under the Scheme the Scheme Shareholders are taken to have given a number of warranties. These warranties are in standard form. The existence of these warranties is clearly disclosed in the Scheme Booklet. Outbound call campaign 25 The plaintiff has engaged Morrow Sodali, a shareholder advisory services firm, to act as the point of contact for any members who have questions about the Scheme or disclosures in the Scheme Booklet, or who would like a hard copy of the Scheme Booklet or other materials referred to therein. 26 The plaintiff has also engaged Morrow Sodali to conduct an outbound call campaign to institutional and high net worth shareholders. The engagement with these members will be in accordance with a script. The call operators employed by Morrow Sodali will be instructed not to depart from the script in any material way during an outbound call. Call operators will also be instructed to terminate an outbound call as soon as practicable if any member wishes to terminate the call. 27 The plaintiff does not seek an order from the Court approving the script. However, the script has been put in evidence so that the Court is properly informed about the plaintiff's intentions in relation to communications with the members. I observe that, in material respects, the information in the script mirrors information that is contained in the Scheme Booklet. ASIC 28 By letter dated 6 September 2023 to the plaintiff's directors, the Australian Securities and Investments Commission (ASIC) has confirmed that the requirement of s 411(2)(a) of the Act (concerning notice to ASIC of the first court hearing) has been satisfied. In that letter, ASIC has also confirmed that, in accordance with s 411(2)(b) of the Act, it has been given a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement, and to make submissions to the Court in relation to the Scheme and the draft explanatory statement. 29 ASIC has examined the terms of the Scheme and the draft explanatory statement in accordance with its policy in Regulatory Guide 60 Schemes of arrangement. Chairperson 30 Graham Bradley, who is the Chairman and a non-Executive Director of the plaintiff, will act as chairperson of the proposed meeting. In his absence, Mr Palmquist will act as chairperson. There is evidence of Mr Bradley's and Mr Palmquist's consent to act in this capacity. The disclosures required by r 3.2(b) of the Federal Court (Corporations) Rules 2000 (Cth) have been made. Generally 31 I am satisfied that the plaintiff is a Part 5.1 body and that the proposed scheme is an "arrangement" for the purposes of s 411(1) of the Act. 32 The formal requirements that are preliminary to the Court ordering, under s 411(1) of the Act, that a meeting of members be convened, have been satisfied. 33 I am satisfied that the proposed scheme is of such a nature and is cast in such terms that, if it receives the requisite statutory majorities at the proposed meeting, the Court is likely to approve it on an unopposed application. 34 Subject to my consideration of any matter that might be raised at a second court hearing, I am satisfied that the Scheme Booklet sufficiently discloses the detail and effect of the proposed scheme to enable members to make an informed decision on how to vote. I am satisfied that the Scheme Booklet, standing as the explanatory statement, should be approved. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates. Associate: Dated: 11 September 2023