FEDERAL COURT OF AUSTRALIA Carbon Revolution Limited, in the matter of Carbon Revolution Limited (No 2) [2023] FCA 1173 File number(s): VID 428 of 2023 Judgment of: BEACH J Date of judgment: 28 September 2023 Date of publication of reasons: 2 October 2023 Catchwords: CORPORATIONS – scheme of arrangement – mergers and acquisitions – supplementary disclosure to shareholders – where plaintiff sought to merge with special purpose acquisition company – where plaintiff entered into structured equity facility – directions concerning publication of supplementary scheme booklet Legislation: Corporations Act 2001 (Cth) ss 411, 1319 ASIC Regulatory Guide 60 Schemes of Arrangement Cases cited: Re Billabong International Limited (No 2) [2018] FCA 496 Re Carbon Revolution Limited [2023] FCA 1081 Re Prime Media Group Limited [2019] NSWSC 1888 Re Security Matters Limited (No 2) [2023] FCA 40 Re Security Matters Limited (No 3) [2023] FCA 140 Damian, T and Rich, A, Schemes, Takeovers and Himalayan Peaks (4th ed, 2021) Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 104 Date of hearing: 28 September 2023 Counsel for the Plaintiff: Mr B Holmes Solicitor for the Plaintiff: Herbert Smith Freehills Solicitor for Twin Ridge Capital Acquisition Corporation: Ashurst ORDERS VID 428 of 2023 IN THE MATTER OF CARBON REVOLUTION LIMITED BETWEEN: CARBON REVOLUTION LIMITED (ACN 128 274 653) Plaintiff order made by: BEACH J DATE OF ORDER: 28 September 2023 OTHER MATTERS: In order 1, exhibit A is to be taken as a reference to the document handed to Beach J, but amended to contain a hyperlink to "OIC Announcement" where that appears in section 5 of the Chairman's letter and to contain references in section 4 of that letter to the proposal to change "N" in the formula for the Scheme Consideration in the Scheme, and to change the proposed listing for the quotation for trading of New MergeCo Shares as referred to in the Scheme to the Nasdaq Global Market. THE COURT ORDERS THAT: 1. Pursuant to sections 411(1) and 1319 of the Corporations Act 2001 (Cth), on or before 2 October 2023, the plaintiff (CBR) be permitted to publish, if so advised, an electronic copy of a supplementary scheme booklet, which is substantially in the form provided to Beach J and marked exhibit A at the hearing on 28 September 2023, on the ASX Market Announcements Platform and on CBR's website. 2. If CBR so publishes the supplementary scheme booklet, at the time that it does so it must also send to each Email Shareholder (as defined in order 2 of Moshinsky J's orders of 6 September 2023) email notification that it has done so, including making reference to its ASX announcement on 22 September 2023. 3. Valid proxy forms for the meeting of CBR's members to be held on 9 October 2023 referred to in paragraph 1 of the orders of Moshinsky J made on 6 September 2023 (Scheme Meeting) that have been lodged by CBR shareholders remain valid for the purposes of the Scheme Meeting, in accordance with their terms, but any appointment pursuant to those proxy forms may be varied or revoked by the appointing shareholder at any time up to 1:30 pm (Melbourne time) on 7 October 2023. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BEACH J 1 On 6 September 2023, Moshinsky J ordered that Carbon Revolution Limited (CBR) convene and hold a scheme meeting of its members on 9 October 2023 to consider a proposed scheme of arrangement (Re Carbon Revolution Limited [2023] FCA 1081). He also ordered that CBR send a scheme booklet to its shareholders by 8 September 2023 for the purposes of that meeting. 2 CBR sent the scheme booklet, which embodied the statutorily required explanatory statement, to its shareholders on 8 September 2023. The scheme booklet included disclosure of a proposed structured equity facility (SEF) that was being pursued to fortify the merged group's funding position at implementation. 3 The scheme booklet contained a discussion of the anticipated key features of the SEF and stated that if the SEF was entered into following despatch of the scheme booklet but before the scheme meeting, then CBR would make supplementary disclosure to shareholders. 4 On 22 September 2023 the SEF was entered into with Orion Infrastructure Capital LP (OIC). Accordingly, CBR has sought directions to publish a supplementary scheme booklet (SSB) on the ASX market announcements platform and on CBR's website setting out the relevant details of the SEF. It sought orders that it be permitted to publish the SSB on 29 September 2023, 10 days in advance of the scheme meeting, which remains scheduled for 9 October 2023. 5 The matter came before me on 28 September 2023 as the corporations duty judge. After hearing from counsel for CBR and after much discussion I made orders, which I modified from those originally propounded, concerning further communication with shareholders in the form of publishing the SSB. These are my reasons for making those orders. 6 Now it is not in doubt that CBR, as the proponent of a members' scheme of arrangement, has a continuing obligation right up until the second court hearing, including up to the vote at the scheme meeting, to draw to the attention of shareholders any new, altered or only recently discovered material information that has arisen or come to light since the despatch of the scheme booklet. 7 Materiality in this context means material to a shareholder's decision concerning how to vote. There are a number of non-exhaustive possibilities. 8 First, the information may concern a proposed alteration to the terms or effect of the proposed scheme. 9 Second, the information may concern changes to the value of the scheme shares or the value of the consideration offered for the scheme shares, where that consideration is in the form of scrip in the acquirer or a related entity. 10 Now as to the first category, if the amended terms or effect are potentially more advantageous to the scheme shareholders, the court at the second court hearing may look more benignly on the level of disclosure than the case where the amended terms or effect were less advantageous. 11 But as to the second category, whether the information has a positive or negative effect on the value of the scheme shares or the value of the consideration if it is a scrip offer, proper verification of the information will be required either way and in either case. Positive or negative information concerning either case can have a distortive effect one way or the other on the vote and needs proper verification. Further, as to information in this second category, there is another level of materiality in the sense that one is considering whether a reasonable shareholder voting at the scheme meeting would expect the information to have a material effect on the value of the scheme shares or the value of the consideration offered for the scheme shares where the consideration was in the form of scrip. For completeness I should also note that a change in the value of the scheme shares may, inter-alia, arise from a change in the internal financial fundamentals of the scheme company, an exogenous change from the surfacing of a competing bidder or offer or a change more generally from altered market or economic conditions to the extent that they may impact on the scheme company's business or operations. 12 Now in terms of the period up to the vote at the scheme meeting, the timing, mode and form that such supplementary disclosure takes depends upon the context of what has already been disclosed, whether in the scheme booklet already despatched or by other means, the time available for its consideration between when the scheme company first became aware of the information and when the scheme meeting is to occur and, in terms of mode, the real utility of the new information and how it can be expressed in a meaningful way for shareholders such as to avoid information flooding and cognitive overload, particularly for less sophisticated individuals. The twin virtues of accessibility and comprehensibility must guide both the mode and form of communication of the supplementary disclosure. 13 It should also go without saying that the supplementary information should be the subject of the same rigorous verification process as occurred for the information in the scheme booklet, allowing of course for differences in the limited time available before the scheme meeting and the nature of the new information. 14 Now the primary matter addressed in the draft SSB relates to the SEF. In particular, the purpose of the SSB is to provide CBR shareholders with further information regarding the implications of the SEF on the transaction and the ownership, control, funding position and proposed operations of Carbon Revolution Plc (MergeCo), an Irish company, and the merged group. Importantly, the key features of the signed SEF as disclosed in the draft SSB are generally consistent with what was anticipated and disclosed in the scheme booklet. This includes the fact that as a result of the SEF, the merger ratio used to calculate the scheme consideration will change, and CBR shareholders' ultimate ownership of MergeCo following implementation will be diluted. 15 Further, the fact of the SEF being entered into has not resulted in any change to the recommendation of the directors of CBR that shareholders vote in favour of the scheme, or any change to the opinion of the independent expert that the scheme is in the best interests of CBR shareholders. These matters are also addressed in the draft SSB. 16 Now in addition to addressing the SEF, the draft SSB also provides information in relation to an amendment to the new debt program, a revision to CBR's financial forecasts and an update on the redemption process for shares in the entity that CBR is merging with, which I will identify in a moment. 17 Further, it is now proposed that the shares in MergeCo to be issued as scheme consideration will be listed on the Nasdaq Global Market, rather than the New York Stock Exchange as was proposed at the time the scheme booklet was prepared. The draft SSB refers to this change. 18 Further, a copy of the draft SSB was provided to ASIC which has stated that it does not object to the draft SSB. 19 Now as I say, on 28 September 2023 I made the necessary orders to facilitate the supplementary disclosure. Let me elaborate on various aspects. Overview of the scheme 20 The proposed scheme is part of a broader transaction with the commercial purpose of the business operated by CBR becoming listed on Nasdaq and having potential access to funding sources which are required to continue its operations. To this end, CBR proposes to merge with Twin Ridge Capital Acquisition Corporation, a special purpose acquisition company (SPAC) incorporated in the Cayman Islands and listed on the NYSE. This will be effected by each of CBR and SPAC becoming wholly-owned subsidiaries of MergeCo, currently a shelf company, the shares in which will be listed on Nasdaq as part of the transaction. 21 In order to achieve this outcome, the transaction has two main elements. 22 First, it is proposed that MergeCo will acquire all shares in SPAC via a business combination agreement. In particular, SPAC will merge with a wholly-owned subsidiary of MergeCo and SPAC's shareholders will exchange their shares in SPAC for shares in MergeCo, which must be approved by SPAC shareholders under either or both of US and Cayman Islands law. 23 Second, it is proposed that CBR will be acquired by MergeCo. This acquisition is to be effected by the cancellation of all CBR shares pursuant to an equal capital reduction in exchange for the issue of shares in MergeCo pursuant to the scheme, which shares will be listed on Nasdaq. CBR will then issue one share to MergeCo and thereby become a wholly-owned subsidiary of MergeCo, and CBR will be de-listed from the ASX. 24 Upon implementation of the transaction, CBR and SPAC will both be wholly-owned subsidiaries of MergeCo, and the securities in MergeCo will be owned by the former CBR shareholders and the former SPAC securityholders. 25 The directors of CBR unanimously recommend that CBR shareholders vote in favour of the scheme and capital reduction, and intend to vote any CBR shares held or controlled by them in favour of the scheme and capital reduction. 26 An independent expert report has been prepared by Grant Thornton Corporate Finance Pty Ltd. In the IER, Grant Thornton concludes that the scheme and the capital reduction is not fair but is reasonable, and is in the best interests of CBR shareholders, in the absence of a superior proposal. And as I have said, notwithstanding the new information and further circumstances to be the subject of the supplementary disclosure, that principal conclusion has not changed. Contents of supplementary disclosure 27 The three principal matters the subject of the draft SSB were raised with Moshinsky J at the first court hearing and discussed in detail in the scheme booklet sent to shareholders in the circumstances of the position then known. 28 The first two of these three matters, being SPAC redemption rates and the SEF, are addressed in the draft SSB, and they are interrelated in terms of their impact upon the merger ratio used to determine the scheme consideration. 29 As to the third matter, being the release of CBR's audited financial results for the year ended 30 June 2023, it is anticipated that these audited results will be lodged with the ASX on or around 29 September 2023, which is addressed in the draft SSB. Whether these audited results are unqualified or qualified, and if the latter the nature of any such qualification, is not unimportant in terms of any effect on CBR or the considerations of CBR shareholders concerning the scheme. It is not desirable for me to be less cryptic. SPAC redemption rates 30 The SPAC redemption rates are ultimately relevant to the merger ratio and so important information for CBR shareholders to know at the time of the scheme meeting. Let me go back a step. 31 As a result of the initial public offering of SPAC, gross proceeds of US$200 million were raised from the issue of class A SPAC shares and SPAC public warrants. The net proceeds of the sale of these shares and warrants were placed in a SPAC trust account to be held there until the earlier of the completion of SPAC's shareholders exchanging their shares in SPAC for shares in MergeCo or the distribution of the funds in the trust account to SPAC shareholders in certain events. 32 However, SPAC shares contain a redemption feature, which was explained by Moshinsky J in his reasons as follows (at [41] to [49]): As is customary for special purpose acquisition companies, the SPAC's ordinary shares that are held by the public (referred to in the Scheme Booklet as Class A SPAC Shares) contain a redemption feature that allows for the redemption of those shares in the event of a shareholder vote in connection with both the extension of the SPAC's business combination deadline (that is, the time by which it must "combine" with an operating business) and a business combination itself (which the Transaction will amount to). Each redeeming share is entitled to its pro rata portion of the proceeds of the SPAC's trust account. After all redemptions, the remaining proceeds from the trust account will be available to the group for which MergeCo will be the ultimate parent upon implementation. On 6 March 2023, SPAC shareholders approved an extension to complete a business combination … The redemption rate in connection with this approval was 70.6%. The SPAC's public shareholders may make another election to redeem their shares in connection with their vote on the Merger. In particular, the Merger requires SPAC shareholder approval, which will be sought by way of a proxy statement for an extraordinary general meeting of SPAC shareholders (SPAC Meeting), which forms part of a Form F-4 registration statement (F-4) that has been submitted in preliminary form with the United States Securities and Exchange Commission (SEC). The proxy statement may not be despatched to SPAC shareholders to convene the SPAC Meeting until such time as the SEC declares the F-4 "effective". It is currently anticipated that the SEC will declare the F-4 effective on 6 September 2023, being today. Based on this, the SPAC Meeting to vote on the Merger is expected to be held on 26 September 2023, prior to the date of the Scheme Meeting. The deadline for SPAC shareholders to submit redemption requests in connection with the Merger is two business days prior to the SPAC Meeting. After that date and up until the date of the SPAC Meeting, SPAC shareholders can withdraw their redemption requests but cannot submit new redemption requests. Accordingly, if the Court makes the orders sought by CBR, the Scheme Booklet will be dispatched prior to the final redemption rate being known, although the final redemption rate will be known before proxies are due for the Scheme Meeting, which is to take place on 9 October 2023 (on the currently anticipated timetable). CBR has raised this issue with ASIC, and noted that the following approach has been taken to deal with this issue in the Scheme Booklet: (a) CBR has disclosed multiple redemption scenarios, including a scenario of 100% redemptions, so as to enable CBR shareholders to understand the funding and ownership implications of different redemption scenarios….; (b) the independent expert has, in the IER, assumed the worst case scenario for CBR shareholders with 100% redemptions as its primary redemption assumption, and included sensitivity analysis should the redemption rate be more favourable. In each case, the independent expert has found that the transaction is not fair, but is reasonable and in the best interests of scheme security holders; (c) the Scheme Booklet clearly and prominently discloses the intention to provide supplementary disclosure to inform CBR shareholders of the redemption rate once that information becomes available, via an ASX announcement and on the CBR website (see section 6 of the Chairman's Letter, the Key dates section, FAQs section and section 12.10 of the Scheme Booklet); and (d) however, as noted above, the proxy statement cannot be despatched to SPAC shareholders to convene the SPAC Meeting until such time as the SEC declares the F-4 "effective". ASIC has not taken issue with this proposed approach to disclosure in the Scheme Booklet. CBR submits, and I accept, that the above proposals in relation to notifying CBR shareholders of the redemption rate are appropriate in the circumstances, and that these issues do not provide a reason for the Court declining to make orders that CBR convene the Scheme Meeting. In particular: (a) while the redemption rate will not be known at the time of despatch of the Scheme Booklet, CBR has taken all reasonable steps to deal with this uncertainty in the disclosures in the Scheme Booklet, and the independent expert's opinion takes into account all relevant possibilities in relation to the ultimate redemption rate; and (b) it is very difficult to see how the independent expert could alter its opinion based on the actual redemption rate given the fact that the IER in its current form already considers all relevant possible redemption scenarios and the independent expert concludes that the transaction is not fair, but is reasonable and in the best interests of CBR shareholders, in all redemption scenarios. 33 Accordingly, the scheme booklet as despatched noted that the SPAC shareholder meeting was anticipated to be held on 26 September 2023, and that the final redemption deadline was accordingly expected to be on 22 September 2023, which is two business days prior to the SPAC shareholder meeting. The scheme booklet also stated that CBR shareholders would be informed via an ASX announcement and an announcement on CBR's website of the date of the SPAC shareholder meeting and the final redemption rate, once these matters were known. 34 Although the final redemption deadline is two days before the SPAC shareholder meeting, the actual final redemption rate will not be known until the conclusion of the SPAC shareholder meeting. This is because SPAC shareholders can withdraw any redemption requests up until the date of the SPAC shareholder meeting, although they cannot submit any new redemption requests after the final redemption deadline, which is two days before the SPAC shareholder meeting. 35 Now consistently with what I have just said, the key dates section of the scheme booklet set out the following expected dates: (a) SPAC redemption deadline: 22 September 2023 (New York time); (b) SPAC shareholder meeting: 26 September 2023 (New York time); (c) CBR release of ASX announcement(s) containing maximum and final redemption figures from class A SPAC shareholders: 25 to 27 September 2023; (d) Proxy cut-off time: 1:30pm on 7 October 2023; (e) Scheme Meeting: 1:00 pm on 9 October 2023. 36 But relevantly to the present context, in light of the signing of the SEF, the date of the SPAC shareholder meeting has had to be extended to 3 October 2023, to give SPAC shareholders time to consider the key features of the SEF. And this was the subject of an ASX announcement by CBR on 25 September 2023. 37 The draft SSB includes the following disclosure in relation to this issue: As announced to ASX on 25 September 2023, to allow SPAC Shareholders further time to consider the Structured Equity Facility with OIC (as announced by Carbon Revolution to ASX on 22 September 2023) before voting on the business combination, the SPAC has determined that the meeting of SPAC Shareholders to consider the business combination will now occur on 3 October 2023. This means the expected redemption deadline is now 29 September 2023, and Carbon Revolution is expected to announce the maximum and final results of the redemptions from 2 October to 4 October 2023. 38 Accordingly, CBR shareholders will now have 5 to 7 days' notice of the final redemptions ahead of the scheme meeting, rather than 12 to 14 days' as previously proposed. But given the matters referred to by Moshinsky J that I have just set out, this is sufficient notice in the circumstances. Moreover, there is a commercial imperative to maintain the date of the scheme meeting on 9 October 2023 so that the transaction can be implemented by 23 October 2023. 39 First, it is only at implementation that CBR will obtain funds from the SPAC trust account net of transaction costs (if any). Further, the funds available from the SEF are only expected to be available by the end of October should the transaction proceed on the timetable planned. 40 Second, CBR does not yet derive positive net operating cash flows. If receipt of funds following implementation is materially delayed beyond October 2023 then there is a real risk that CBR's current available cash reserves will be exhausted, with various possibilities then arising concerning a form of external administration. 41 And to reinforce this point and as noted in the draft SSB, the principal reason which led Grant Thornton to conclude that the scheme and the capital reduction is in the best interests of CBR shareholders is that if the transaction does not proceed, the CBR directors may be forced to place CBR into liquidation or voluntary administration if an alternative course of action does not emerge in the short term; as to the latter, Grant Thornton considered this to be a remote possibility in the circumstances. 42 As such, if there is a material delay in the timing of implementation, this is likely to result in adverse implications for CBR, CBR shareholders and creditors of CBR. These matters are the subject of disclosure in the scheme booklet and in the draft SSB. 43 Let me turn to the second matter concerning the entry into and effect of the SEF. The Structured Equity Facility 44 In relation to the second matter, being the further equity funding being sought by CBR and the SPAC, the scheme booklet included a detailed discussion of the anticipated terms of the SEF and its likely impact on CBR shareholders who participate in the scheme. This included a reduction in the merger ratio used to calculate CBR shareholders' entitlement to the scheme consideration. In particular, the Chairman's letter in the scheme booklet included the following information: … The consideration to be provided by MergeCo to Carbon Revolution Shareholders and SPAC Shareholders is MergeCo Shares. … As a result, Carbon Revolution and the combined SPAC/Merger Sub entity will become subsidiaries of MergeCo (the resulting group being the Combined Group) and the existing Carbon Revolution Shareholders and SPAC Shareholders will jointly own MergeCo, which will be listed on NYSE American. Additional stakeholders may also have ownership interests in MergeCo after Implementation of the Transaction should MergeCo securities be issued to them in connection with funding arrangements for MergeCo as discussed below and in section 8. … For the purpose of determining the number of MergeCo Shares received for each Carbon Revolution Share, the Scheme uses an enterprise value of Carbon Revolution of US$200 million (A$298.0 million). Based on Carbon Revolution's cash and debt position as at 31 March 2023 and applicable adjustments, this corresponds to an equity value of US$186.7 million (A$278.2 million) as at 31 March 2023. Taking into account the number of Carbon Revolution Shares expected to be on issue at the Scheme Record Date (being 213,029,945) and the deemed value of MergeCo Shares of US$10 each this will mean that each Carbon Revolution Share is expected to be exchanged for approximately 0.0877 MergeCo Shares … However, Carbon Revolution is seeking additional equity funding for MergeCo of US$60 million or more, which may take the form of, or include, a Structured Equity Facility (discussed further below). If documents to give effect to this equity funding are entered into prior to Implementation, the SPAC's consent will be required and it is possible that the SPAC only provides its consent on the basis that SPAC Shareholders are not diluted. If this occurs in respect of the proposed Structured Equity Facility, whilst the notional enterprise value of Carbon Revolution will not change, the effective equity value for the purpose of determining the number of MergeCo Shares received for each Carbon Revolution Share will fall as low as US$142.7 million (A$212.5 million) assuming no further redemptions of Class A SPAC Shares (beyond redemptions in connection with the Extension Approval) and depending on the size and final terms of the Structured Equity Facility. Taking into account the number of Carbon Revolution Shares expected to be on issue at the Scheme Record Date (being 213,029,945) and the deemed value of MergeCo Shares of US$10 each this will mean that each Carbon Revolution Share would instead be exchanged for approximately 0.0670 MergeCo Shares. 45 Further details in relation to the proposed SEF were included in the Chairman's letter in the scheme booklet, which included the following statements: Additional equity funding: Carbon Revolution and the SPAC are seeking further equity funding for the Combined Group in connection with the Transaction … This funding may be obtained (if at all) either before or after Implementation of the Transaction. The funding, if signed prior to Implementation, is subject to the consent of the SPAC under the Scheme Implementation Deed. Whilst the form of equity funding has not yet been determined, one form of equity funding which is being sought would involve the issue of non-convertible SEF Preference Shares and SEF Warrants to raise up to US$100 million (Structured Equity Facility) … 46 It was also stated in the Chairman's letter in the scheme booklet that should a SEF be entered into it was likely to have the following features. 47 First, the SEF preference shares would have a term of up to five years and would be entitled to a fixed rate of dividend between 10% and 15% and a liquidation preference over MergeCo shares. 48 Second, the SEF preference shares were expected to have associated board and/or observer appointment rights, negative control rights over certain corporate matters and positive control rights to determine certain corporate matters, which may be effected through the appointment to the MergeCo board of additional directors constituting a majority of directors. 49 Third, the SEF warrants were expected to have a nominal exercise price and when exercised were expected to convert into such number of MergeCo shares that equals between 15% and 20% of the aggregate number of MergeCo shares on issue at implementation, excluding the number of MergeCo shares received by SPAC shareholders in exchange for their class A SPAC shares. This may give rise to a potential dilutive effect on CBR shareholders. 50 Fourth, the SEF may be dilutive to CBR shareholders only, if the SPAC provides its consent to such equity financing on the condition that it is not dilutive to SPAC shareholders and there is therefore a reduction in the number of MergeCo shares received for each CBR share. 51 The Chairman's letter concluded that: In the event that agreements in respect of the Structured Equity Facility or any other further funding are signed prior to the Scheme Meeting, Carbon Revolution will issue supplementary disclosure to this Scheme Booklet … 52 The scheme booklet also noted that: In the event that any agreements in respect of additional equity funding (including any Structured Equity Facility) are signed prior to the Scheme Meeting this will be announced to the ASX and the Carbon Revolution Board will obtain the Independent Expert's confirmation of whether the agreement changes the Independent Expert's opinion that the Scheme is not fair but reasonable and in the best interests of Carbon Revolution Shareholders in the absence of a Superior Proposal. This confirmation will be announced to the ASX in advance of the Scheme Meeting. If the Independent Expert opinion has changed, the matter will be relisted before the Court prior to the Scheme Meeting. Carbon Revolution Shareholders are strongly encouraged to read about any additional equity funding (and the confirmation of whether the Independent Expert's opinion changes) before deciding how to vote at the Scheme Meeting. 53 The scheme booklet further addressed this issue, stating that: However, if agreements for additional equity funding are executed prior to Implementation and the SPAC provides its consent to this on the basis that SPAC Shareholders are not diluted, this will impact the ratio of MergeCo Shares received per Carbon Revolution Share (ie it will no longer be 0.0877). For example, if a Structured Equity Facility is entered into, the number of MergeCo Shares received per Carbon Revolution Share is likely to vary depending on the final number of SEF Warrants issued in connection with the Structured Equity Facility and the level of redemptions of Class A SPAC Shares. Assuming the SEF Warrants are issued in an amount equal to 17.5% [This is the mid-point of the 15–20% range discussed in section 8.4] of the aggregate number of MergeCo Shares on issue at Implementation (excluding the number of MergeCo Shares received by SPAC Shareholders in exchange for their Class A SPAC Shares) …. it is anticipated that the number of MergeCo Shares to be received per Carbon Revolution Share will be between 0.0670 (assuming no further redemptions of Class A SPAC Shares beyond those received in accordance with the Extension Approval) and 0.0672 (assuming 100% redemptions of Class A SPAC Shares). 54 The potential dilutive effect of the SEF on CBR shareholders was also addressed in detail in the scheme booklet. In particular, in the absence of the SEF, the CBR shareholders will own between 62.34% and 78.83% of MergeCo shares, depending upon the final rates of redemption by SPAC shareholders. 55 This is explained in the scheme booklet as follows: The proportional ownership of MergeCo Shares on Implementation (as between existing Carbon Revolution Shareholders and SPAC Shareholders and assuming agreements with respect to additional equity funding (eg a proposed Structured Equity Facility) are not entered into prior to Implementation) will largely be a function of the SPAC redemption rate. This is because, whilst the aggregate number of MergeCo Shares to be received by Carbon Revolution Shareholders is fixed, Class A SPAC Shareholders will receive 1 MergeCo Share for each Class A SPAC Share that has not been redeemed at Implementation, and the SPAC Founder Shareholders and DDGN Advisors will receive 1.65 million MergeCo Shares and 3.35 million MergeCo Shares respectively for the 5.3 million Class B SPAC Shares held by the SPAC Founder Shareholders. In addition 15,000 MergeCo Shares will be issued to Yorkville shortly after Implementation pursuant to the commitment fee in connection with the CEF. 56 Similarly, the scheme booklet stated as follows: … assuming a Structured Equity Facility is entered into, an estimated 4,407,483 SEF Warrants expected to be issued in connection with a Structured Equity Facility concurrently with or following Implementation. [Assumes a Structured Equity Facility is entered into, and SEF Warrants convert into such number of MergeCo Shares that equals to 17.5% of the aggregate number of MergeCo Shares on issue at Implementation (excluding MergeCo Shares received by SPAC Shareholders in exchange for their Class A SPAC Shares)… This is the mid-point of the range discussed in section 8.4.] Should a Structured Equity Facility be entered into, given the expected nominal exercise price of the SEF Warrants, these may be converted into the equivalent number of MergeCo Shares for nominal consideration and will substantially dilute existing MergeCo Shareholders. Furthermore, given entry into a Structured Equity Facility prior to Implementation will require the consent of the SPAC, which may only be provided on the basis that the facility does not dilute SPAC Shareholders, entry into this facility may result in a reduction in the merger ratio of 0.0877 for CBR shareholders to as low as 0.0670 which will have an effective dilutionary impact on Carbon Revolution Shareholders. Similar impacts may arise should the proposed additional equity funding take a different form to a Structured Equity Facility. 57 Finally, the scheme booklet included a table which set out the potential maximum impact on ownership of MergeCo shares and the maximum dilution for CBR shareholders arising from the additional securities and arraignments disclosed, including the proposed SEF. The table disclosed that depending on the rate of redemptions of class A SPAC shares, the CBR shareholders will own between 30.97% and 36.74% of MergeCo shares, and the SEF warrants would represent between 9.57% and 11.17% of MergeCo shares. These figures assume that SEF warrants convert into such number of MergeCo shares that equals to 17.5% of the aggregate number of MergeCo shares on issue at implementation, excluding MergeCo shares received by SPAC shareholders in exchange for their class A SPAC shares. This is the midpoint of the range that I discussed earlier of between 15% and 20%. 58 On 22 September 2023, CBR announced to the ASX that the SEF had been signed (SEF ASX announcement), which announcement contained a detailed explanation of the key features of the SEF, including the impact upon the merger ratio used to calculate the scheme consideration, and the dilution of CBR shareholders' interests in MergeCo as a result of the SEF. The draft SSB also contains detailed disclosure in relation to these matters. 59 The key features of the SEF as disclosed in the SEF ASX announcement and the draft SSB are consistent with the anticipated key features disclosed in the scheme booklet. In particular, the SEF ASX announcement and the draft SSB disclose the following key features of the SEF. 60 MergeCo will issue class A preferred shares in MergeCo and warrant(s) to OIC in exchange for initial gross proceeds of US$35 million, with further proceeds to be available in tranches, comprising up to US$35 million that will be deposited by OIC in an escrow account, which funds are subject to release upon satisfaction of further conditions and up to a further US$40 million in aggregate proceeds upon satisfaction of further conditions. 61 The preferred shares have a term of up to five years and are entitled to a fixed rate of dividend of 12% per annum. This is consistent with the statements in the Chairman's letter and in the scheme booklet, which stated that the preferred shares were expected to have a term of up to 5 years and be entitled to a fixed rate of dividend of between 10% and 15%. 62 The preferred shares will result in OIC being provided with substantial positive and negative control rights in respect of MergeCo, including the right to appoint up to 2 directors of the MergeCo board, and a requirement to obtain OIC's prior written approval on certain corporate matters. This is consistent with the matters disclosed in the Chairman's letter and in the scheme booklet, which stated that the preferred shares are expected to have associated board and/or observer appointment rights, negative control rights over certain corporate matters and positive control rights. 63 The SEF warrant(s) will have an exercise price of US$0.01 per MergeCo share and will entitle OIC to be issued up to 19.99% of the MergeCo shares on issue on implementation of the scheme on a fully diluted basis. This is within the expected range contemplated in the scheme booklet where it was stated that, when exercised, the SEF warrant(s) may convert into such number of MergeCo shares that equals between 15% and 20% of the aggregate number of MergeCo shares on issue at implementation. 64 As a result of the funding expected to be provided under the SEF, CBR has agreed to revise the merger ratio with the SPAC from 0.0877 MergeCo shares per CBR share to between 0.0640 and 0.0643 MergeCo shares per CBR share, depending upon the redemption rate of class A SPAC shares. As noted in the SEF ASX announcement and the draft SSB, this is because SPAC has provided its consent under the scheme implementation deed to MergeCo entering into the SEF on the condition that it was not dilutive to SPAC shareholders, resulting in a reduction in the number of MergeCo shares received for each CBR share. The reduction in the agreed ratio to between 0.0640 and 0.0643 MergeCo shares as a result of the signed SEF is slightly lower than the ratio of 0.0670 to 0.0672 MergeCo shares foreshadowed in the scheme booklet. This is because the scheme booklet disclosed that the warrant(s) proposed to be issued under the SEF would potentially amount to 15 to 20% of the fully diluted issued capital of MergeCo at implementation of the transaction subject to certain exceptions, and the possible revised merger ratio disclosed in the scheme booklet took the midpoint of this range and assumed that the warrant(s) representing 17.5% of the issued capital of MergeCo would be issued. Instead, the SEF warrant(s) to be issued under the signed SEF will represent 19.99% of the fully diluted issued capital of MergeCo subject to exceptions. As a result, the revised merger ratio will be lower than the potential merger ratios disclosed in the scheme booklet. 65 The SEF ASX announcement and the draft SSB sets out tables which address the capital structure of the combined group on implementation. Now the scheme booklet included a table which set out the potential maximum impact on ownership of MergeCo shares, and the maximum dilution for CBR shareholders, arising from the additional securities and arrangements disclosed including the proposed SEF. The table disclosed that depending on the rate of redemptions of class A SPAC shares, the CBR shareholders will own between 30.97% and 36.74% of MergeCo shares, and the SEF warrant(s) would represent between 9.57% and 11.17% of MergeCo shares. However, these figures assumed that the SEF warrant(s) would convert into such number of MergeCo shares that equals 17.5% of the aggregate number of MergeCo shares on issue at implementation. Given that the agreements in relation to the SEF provide for the SEF warrant(s) to convert into 19.99% of the aggregate number of MergeCo shares on issue at implementation, the CBR shareholders will in aggregate own slightly less than between 30.97% and 36.74% of MergeCo shares. In particular, they will own between 29.23% and 34.73%, as explained in the tables in the SEF ASX announcement and the draft SSB. 66 Now from what I have just said, it should be obvious that there is a need for supplementary disclosure of such matters. SPAC redemptions, scheme consideration and scheme amendments 67 Now as I have said, although the draft SSB discloses that the merger ratio will be between 0.0640 and 0.0643 MergeCo shares per CBR share, the precise final figure within this range will depend upon the final rate of redemptions by SPAC shareholders, which will not be known until between 2 October and 4 October 2023. 68 Accordingly, the draft SSB contains the following general statement: Once the final redemption rate of Class A SPAC Shares is known and the Scheme Consideration is finalised, Carbon Revolution will announce this to the ASX and on the Carbon Revolution website in order to make the information available to Carbon Revolution Shareholders for their consideration prior to the Scheme Meeting and General Meeting. This will include providing an update scheme of arrangement to replace the version that was included as Annexure 2 to the Scheme Booklet. 69 Now an amendment to the scheme is necessary in order to amend the definition of "Scheme Consideration" (see clause 1.1 and Schedule 1 to the scheme). The definition in the current version of the scheme annexed to the scheme booklet defines "Scheme Consideration" as: the consideration to be provided by MergeCo to each Scheme Shareholder for the cancellation of each Scheme Share, determined in accordance with the following formula: NMS = N / A NMS is the number of MergeCo Shares per Scheme Share; A is the total number of Carbon Revolution Shares on issue as at the Scheme Record Date (or which would be on issue if all securities of Carbon Revolution convertible into Carbon Revolution Shares had converted on that date); and N is 18,672,889. 70 The figure for "N" represents a number calculated by taking the equity value of CBR less outstanding debt plus cash, all divided by US$10; US$10 is the deemed value of each MergeCo share. The current calculation results in a merger ratio of 0.0877 MergeCo shares for each CBR share. But in light of the SEF and the condition that the SPAC shareholders are not diluted, the effective equity value of CBR for the purposes of determining the number of MergeCo shares received for each CBR share is reduced, but of course the final amount of that reduction will depend upon the final SPAC shareholder redemptions. I should say at this point that I discussed this matter with Mr Brad Holmes, counsel for CBR, who said that the redemption rate was then around 70% but that it was likely to rise to 100%. 71 Accordingly, the figure "N" in the definition will need to be amended once the final rate of redemptions is known. 72 I should say here that I required to be inserted in the draft SSB further identification of the proposed scheme changes concerning "N" in the relevant definition and the proposed Nasdaq listing, which originally was stipulated to be the NYSE (see clause 5.7(c) of the scheme). 73 Now although the final merger ratio will not be disclosed to shareholders until 5 to 7 days before the scheme meeting, this is sufficient notice in circumstances where a possible reduction to the merger ratio was foreshadowed in the scheme booklet sent on 8 September 2023, and the certainty of such a reduction as well as a narrow range for the final ratio will be disclosed in the draft SSB to be published. Other matters 74 The draft SSB also provides information in relation to an amendment to the new debt program, a revision to CBR's financial forecasts and the proposal that MergeCo shares will be listed on Nasdaq rather than the NYSE. Relevant principles 75 It is clear that the information the subject of the draft SSB is material and that it is appropriate for CBR to make supplementary disclosure. The information that I have discussed concerning both the SEF and the SPAC redemption rates impacts the merger ratio in relation to the scheme consideration to be received by CBR shareholders, as well as the funding position of the merged group at implementation. 76 Now there are a number of cases which have considered the obligation to seek court approval of supplementary disclosure, but in the context where the court has already approved the scheme booklet at the first court hearing. In these circumstances, those cases have supported the view that any additional explanatory material ought also to be approved by the court prior to being sent. 77 But in the present case, Moshinsky J did not approve the scheme booklet at the first court hearing, a position I also usually adopt given that ASIC registration is required of the explanatory statement. But CBR considers that it is nevertheless appropriate to obtain the court's direction to make supplementary disclosure, particularly as the scheme booklet which was before Moshinsky J at the first court hearing that he ordered be despatched included disclosure in relation to the SEF and SPAC redemptions, which now require updating. 78 Moreover, as noted by Damian, T and Rich, A in Schemes, Takeovers and Himalayan Peaks (4th ed, 2021) at p 671, courts in more recent times have encouraged and generally expect such an approach to seeking court directions concerning supplementary disclosure. Further, ASIC Regulatory Guide 60 Schemes of Arrangement indicates at [60.94] that any proposed supplementary disclosure should be given to the court prior to being sent to shareholders. 79 Now to be precise, although CBR sought my approval of the draft SSB, I did not give this. Rather, I have considered it more appropriate to direct that CBR is within its rights and acting appropriately by giving the supplementary disclosure in the form proposed. 80 First, consistently with the fact that Moshinsky J did not formally approve the scheme booklet, I do not consider it appropriate to formally approve of the draft SSB. 81 Second, I can in any event give the required direction by utilising the foundation of s 411(1) with the directions power under s 1319 of the Corporations Act 2001 (Cth). 82 Third, my direction which is permissive rather than mandatory, taken together with ASIC's non-opposition to the supplementary disclosure, is sufficient for CBR to make the proposed disclosure. Of course if it chooses not to do so or makes some other disclosure that has not been drawn to my attention, then that may have ramifications for it and the CBR shareholders at the second court hearing before Moshinsky J. 83 Let me return to the proposed disclosure. 84 The draft SSB contains sufficient information and provides adequate disclosure to enable shareholders to evaluate the supplementary information. It is also relevant that the scheme booklet already provides detailed disclosure in relation to the principal matters addressed in the draft SSB. 85 Now as to the timing of the supplementary disclosure, RG 60 addresses the issue of timing in the following way (at [60.95] and [60.96]): If a scheme company proposes to amend the terms of a scheme, or otherwise provide supplementary information to its members, after the dispatch of the explanatory statement, it is important that all members who are required to vote on a scheme have adequate time to consider that supplementary information before they decide to accept or reject the scheme. It will generally be appropriate for scheme participants, including those voting by proxy, to be given at least 10 days to consider any supplementary documentation distributed before being required to vote on the scheme. 86 In the present case, the proxy deadline provided for in the 6 September 2023 orders is 7 October 2023, being 8 days after the SSB is proposed to be made available. 87 Now although it is appropriate to take into account ASIC's general rule of 10 days, which is taken to refer to the period up to the deadline for the proxy returns, it is a matter for me to assess whether there is sufficient time for shareholders to consider the information and to understand its effect (Re Prime Media Group Limited [2019] NSWSC 1888 at [8] per Black J). In my view there is such sufficient time in the circumstances proposed. 88 In the present case, not only has the market already been informed of the new developments by way of the SEF ASX announcement on 22 September 2023, but those developments were foreshadowed in detail in the scheme booklet. In these circumstances, given the information that has already been made available to shareholders, 8 days is ample time for them to consider and understand the information in the SSB for the purposes of the scheme meeting. 89 Further, the views of Grant Thornton in relation to the matters the subject of the draft SSB are also relevant to timing. As stated in the draft SSB: The Carbon Revolution Directors appointed Grant Thornton Corporate Finance Pty Ltd as the Independent Expert to assess the merits of the Scheme. The Independent Expert has confirmed that, notwithstanding the developments discussed in this Supplementary Scheme Booklet (in particular the entry into the Structured Equity Facility) and the release by the Company of the audited financial statements for the year ended 30 June 2023, the Scheme and the Capital Reduction are still not fair but reasonable and in the best interests of Carbon Revolution Shareholders, in the absence of a Superior Proposal. 90 Now in Re Security Matters Limited (No 3) [2023] FCA 140, the expert changed his opinion as to whether the proposed schemes were in the best interests of shareholders. The expert's supplementary report expressing that view was published on the ASX announcements platform and the company's website on 14 February 2023, along with a supplementary scheme booklet setting out the scheme company's views, for a scheme meeting to be held on 20 February 2023. Nevertheless it was considered that this provided shareholders sufficient time to consider and evaluate the new information, including because it had previously been foreshadowed in the scheme booklet, prior supplementary disclosure and ASX announcements (see the discussion of O'Callaghan J at [23] to [29], [98] to [107], and [154]). 91 But in the matter before me the time frame to be allowed is even more justifiable. There is no change to the independent expert's opinion, and CBR is proposing to give shareholders more time than was discussed in Re Security Matters Ltd (No 3) (see also Re Security Matters Limited (No 2) [2023] FCA 40). 92 Further, courts have permitted the supplementary disclosure to be given by way of an ASX announcement, including because shareholders had previously been told that this would be the approach adopted to bring those matters to their attention. Now subject to one qualification that I will refer to later, it is appropriate to adopt the same approach in the present case, given that shareholders were informed in the scheme booklet that supplementary disclosure in relation to the SEF and SPAC redemption rates would be made via an ASX announcement and on CBR's website. Moreover, subject to the qualification that I will refer to later, this method of notifying shareholders appropriately balances the commercial imperative of maintaining the scheme meeting date of 9 October 2023, with the importance of giving shareholders as much time as possible to consider the information in the SSB. 93 Let me say something about proxies that have already been lodged. There are a number of examples in the cases where, in the context of ordering supplementary disclosure, courts have also ordered that valid proxy forms already lodged remain valid, but that any appointment pursuant to those proxy forms can be varied or revoked by the appointing shareholder. I have made a similar order here, so that CBR shareholders who have already lodged proxies will not be disadvantaged. 94 Finally, in relation to the amendments required to the concept of scheme consideration in the scheme, CBR proposes to seek an order at the second court hearing approving the scheme in its modified form pursuant to s 411(6) of the Act rather than to have shareholders pass a resolution approving of the modified scheme. The alternative would be to seek shareholder approval of new resolutions at the scheme meeting being, first, a resolution amending the terms of the scheme and, second, a resolution agreeing to the amended scheme. But in my view, the former approach is more efficient in the present circumstances. It will involve the following steps. 95 An amended scheme of arrangement will be provided to CBR shareholders via an ASX announcement as soon as the final SPAC redemption rate is known, which is anticipated to be between 2 and 4 October 2023. Shareholders will be informed in that ASX announcement and at the scheme meeting that CBR will seek an order at the second court hearing under s 411(6) approving the scheme as amended. But the approval resolution to be put to members at the scheme meeting will remain as set out in the notice of meeting annexed to the scheme booklet, that is, to approve the scheme in the form attached to the scheme booklet despatched under the orders made at the first court hearing. 96 Now I note that in this respect, the notice of scheme meeting annexed to the scheme booklet set out the resolution to be considered at the scheme meeting in the following terms: That, pursuant to and in accordance with the provisions of section 411 of the Corporations Act 2001 (Cth), the scheme of arrangement proposed between Carbon Revolution Limited and the holders of its fully paid ordinary shares (the terms of which are described in the scheme booklet of which the notice convening this meeting forms part of) is agreed to (with or without amendment or any alterations or conditions as approved by the Federal Court of Australia to which Carbon Revolution Limited and Twin Ridge Capital Acquisition Corp agree). 97 Now although shareholders may vote on the original scheme as proposed, they will be doing so in the knowledge that the Court's approval will be sought for an amended form of the scheme. Moreover, at the time that they will vote they will know of the proposed amendments. In such circumstances, at the second court hearing, orders approving the scheme in its modified form pursuant to s 411(6) can then be made on the assumption that shareholders were aware of the proposed amendments and took that into consideration in voting in favour. I should say that this manner of proceeding is not without precedent (see, for example, Re Billabong International Limited (No 2) [2018] FCA 496 although the context was of course different). 98 This approach is also appropriate despite the fact that shareholders who have already cast their vote by proxy did so without any knowledge of the proposed modifications to the scheme. The proxies cast can be treated as valid notwithstanding this. Any proxies that have been cast were in the knowledge that the scheme consideration may change as a result of the SEF. Further, this proposal is discussed in the draft SSB to be published. And I have also provided in my orders that any proxies that have now been lodged can be varied or revoked up to 1:30 pm on 7 October 2023. 99 Now it seems to me that how CBR proposes to proceed concerning the proposed amendments to the scheme is sound. But I am not here to bestow my final blessing on such an arrangement. That will be a matter for Moshinsky J at the second court hearing when the occasion for exercising the power under s 411(6) arises. Conclusion 100 Because of the foregoing matters, I made the necessary direction and consequential orders to facilitate publication of the supplementary disclosure in the form of the draft SSB. 101 But concerning the making of the supplementary disclosure it was necessary to go further than what was proposed by CBR. 102 First, I additionally required a short email to be sent to each shareholder who had provided to CBR an email address, positively drawing to their attention that the SSB had in fact been digitally posted on both the relevant ASX platform and CBR's website. It was not sufficient just to use the latter modes of publication without telling the shareholders that something in fact had been put on the platform and the website, even though the scheme booklet said that such modes were all that would be utilised without any further communication. The shareholders needed to be told that important information had in fact been placed on both the ASX platform and CBR's website. 103 Second, I required such an email to also draw to the shareholders' attention the SEF ASX announcement that contained important information concerning the SEF. 104 For all of these reasons I made last Thursday's orders. I certify that the preceding one hundred and four (104) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Beach. Associate: Dated: 2 October 2023