Supreme Court New South Wales Medium Neutral Citation: In the matter of Pendal Group Limited (No 2) [2022] NSWSC 1648 Hearing dates: 21 November 2022 Date of orders: 21 November 2022 Decision date: 05 December 2022 Jurisdiction: Equity - Corporations List Before: Black J Decision: Orders made convening scheme meeting and approving the scheme booklet for distribution to shareholders. Catchwords: CORPORATIONS – Arrangements and reconstructions – Schemes of arrangement or compromise – Application under s 411 of the Corporations Act 2001 (Cth) for orders convening meeting of members to consider and, if thought fit, to agree to proposed scheme of arrangement – Whether requirements to order scheme meeting are satisfied. Legislation Cited: - Corporations Act 2001 (Cth), ss 110D-110E, 411 Cases Cited: - Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15 - FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 - Re 3Q Holdings Ltd [2022] FCA 1259 - Re Abacus Funds Management Ltd (2006) 24 ACLC 211; [2005] NSWSC 1309 - Re Adelaide Bank Ltd [2007] FCA 1582 - Re APN News & Media Ltd (2007) 62 ACSR 400; [2007] FCA 770 - Re Ardent Leisure Ltd [2018] NSWSC 1665 - Re Atlas Iron Ltd (2016) 112 ACSR 554; [2016] FCA 366 - Re Aveo Group Ltd and Aveo Funds Management Ltd [2019] NSWSC 1348 - Re Boart Longyear Ltd (2017) 121 ACSR 328; [2017] NSWSC 567 - Re Bolnisi Gold NL (No 2) (2007) 65 ACSR 510; [2007] FCA 2078 - Re Cashcard Australia Ltd (2004) 48 ACSR 738; [2004] FCA 223 - Re Centrebet International Ltd [2011] FCA 870 - Re Centro Retail Ltd [2011] NSWSC 1320 - Re CSR Ltd (2010) 183 FCR 358; [2010] FCAFC 34 - Re DUET Finance Ltd [2017] NSWSC 415 - Re DUET Management Company I Ltd [2013] NSWSC 817 - Re DWS Ltd [2020] FCA 1590 - Re Ellerston Global Investments Ltd [2020] NSWSC 879 - Re Foster's Group Ltd (No 2) [2011] VSC 547 - Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742 - Re GBST Holdings Ltd [2019] NSWSC 1280 - Re Hills Motorway Ltd (2002) 43 ACSR 101; [2002] NSWSC 897 - Re Huon Aquaculture Group Ltd [2021] FCA 1170 - Re Kidman Resources Ltd [2019] FCA 1226 - Re Mydeal.com.au [2022] NSWSC 1094 - Re Pendal Group Ltd [2022] NSWSC 1575 - Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 - Re PM Capital Asian Opportunities Fund Ltd [2021] FCA 1380 - Re rhipe Ltd [2021] NSWSC 1170 - Re Signature Gold Ltd [2017] FCA 766 - Re Simavita Holdings Ltd [2013] FCA 1274 - Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525; [2015] VSC 789 - Re Staging Connections Group Ltd [2015] FCA 1012 - Re Tassal Group Ltd [2022] NSWSC 1414 - Re TPG Telecom Ltd [2020] NSWSC 772 - Re Trust Co (Re Services) Ltd as responsible entity of VitalHarvest Freehold Trust [2021] NSWSC 108 - Re Villa World Ltd [2019] NSWSC 1207 - Re Walsh & Company Investments Ltd [2020] NSWSC 1746 Category: Principal judgment Parties: Pendal Group Limited (Plaintiff) Representation: Counsel: J Williams SC/H Atkin (Plaintiff) R Jameson (Bidder) Solicitors: King & Wood Mallesons (Plaintiff) Herbert Smith Freehills (Bidder) File Number(s): 2022/320227 Judgment Nature of the application and background 1. By Further Amended Originating Process dated 15 November 2022, the Plaintiff, Pendal Group Ltd ("Pendal"), seeks an order under s 411(1) of the Corporations Act 2001 (Cth) ("Act") that it convene a meeting of its members for the purpose of considering and, if thought fit, agreeing to a proposed scheme of arrangement, by which Perpetual Group Ltd ("Perpetual") would acquire all of its shares. Pendal initially also sought other relief and I have previously determined, as a preliminary issue, an application by Pendal for a declaration as to the proper construction of the scheme implementation deed dated 25 August 2022 ("SID") between Perpetual and Pendal, by my judgment delivered on 17 November 2022 ([2022] NSWSC 1575). If the scheme is approved by the requisite majorities at the scheme meeting, Pendal will seek orders at the second Court hearing that it be approved pursuant to s 411(4)(b) of the Act. 2. By way of background, Pendal is an Australian public company limited by shares and has been listed on the Australian Securities Exchange ("ASX") since 2007. Pendal is an independent investment manager which seeks to provide returns for clients with active management, and has offices in and outside Australia. 3. On 4 April 2022, Pendal announced to ASX that it had received an indicative proposal from Perpetual for the acquisition of its shares and, on 12 April 2022, it announced that the Pendal board had then determined that that proposal was not in the best interests of Pendal's shareholders. Subsequently, on 25 August 2022, Pendal entered into the SID with Perpetual which provides for Perpetual Acquisition Company Ltd ("PACL") to acquire all of the issued shares in Pendal by way of scheme of arrangement. On 16 November 2022 Pendal and Perpetual entered into an agreement ("SID Amending Agreement") to amend the SID and vary the scheme consideration provided in the SID. The proposed scheme now provides for each scheme shareholder to receive a cash amount equal to $1.650 less the Permitted Dividend Amount (as defined and since determined to be 3.5 cents per Pendal share) and 1 fully paid ordinary shares in the capital of Perpetual for each 7 shares in Pendal, in consideration for each scheme share held by them at the Scheme Record Date (as defined). 4. I made the orders sought by Pendal at the end of the first Court hearing and these are my reasons for doing so. I have drawn on the helpful submissions of Mr Williams, who appears for Pendal in the application, in this judgment. Affidavit evidence 1. Pendal relies on the affidavit dated 26 October 2022 of its solicitor, Mr Alexander Morris, which referred to Pendal's intent to bring this application. 2. By his affidavit dated 21 November 2022, Mr Cameron Williamson, who is the group chief financial officer of Pendal, refers to the nature of Pendal's business. Mr Williamson also outlines the scope of a sale facility which will be made available in respect of shares held by Ineligible Foreign Shareholders (as defined) and as held by Non-Marketable Parcel Shareholders (as defined), unless they make an election to receive a Non-Marketable Parcel (as defined). Mr Williamson also addressed the conditions precedent to the scheme and the negotiation of exclusivity and reimbursement fee provisions. Mr Williamson also outlines the approach which will be taken by Pendal in respect of performance incentives of Key Employees (as defined). Mr Williamson also addresses certain payments which will be made to Pendal employees, by way of retention payments, in respect of the scheme, and also discloses payments which would be made to Mr Nick Good, the chief executive officer and an executive director of Pendal, by way of retention payments and discretionary payments and in respect of an incentive plan. Mr Williamson notes that it is proposed that the scheme meeting will be conducted as a hybrid meeting, with Pendal shareholders able to attend and participate either in person or by an online meeting platform. 3. By her affidavit dated 21 November 2022, Ms Joanne Hawkins, who is the group company secretary and head of corporate governance at Pendal, addresses the position in respect of Pendal's share register; the appointment of Kroll Australia Pty Ltd ("Kroll") to prepare an independent expert's report whether the proposed scheme is fair and reasonable and in the best interests of Pendal shareholders; the appointment of KPMG Financial Advisory Services (Australia) Pty Ltd ("KPMG") to provide a limited assurance investigating accountant's report in respect of financial information included in the scheme booklet; and the manner in which shareholder materials including the scheme booklet will be sent to Pendal shareholders. Ms Hawkins also addresses the process which has been undertaken to verify the scheme booklet which is in common form, and indicates that Pendal proposes to make certain documents available on a "microsite" on its website directed to the proposed scheme. Ms Hawkins also addresses Pendal's engagement of Morrow Sodali, a shareholder communications firm, to provide a shareholder information line; undertake outbound calls to Pendal shareholders to provide information about the scheme and encourage them to vote in respect of the scheme; and facilitate meetings between proxy advisers and independent directors on the Pendal board. Ms Hawkins also notes that, as is now common practice, Pendal proposes to send reminder to vote communications to its shareholders prior to the scheme meeting. 4. By her affidavit dated 18 November 2022, Ms Deborah Page, an independent non-executive director and chair of Pendal, consents to act as chair of the proposed scheme meeting. By his affidavit also dated 18 November 2022, Mr Benjamin Heap, who is an independent non-executive director of Pendal, consents to act as chair of the scheme meeting if Ms Page does not do so. 5. By his affidavit dated 21 November 2022, Mr Ian Jedlin, a managing director of Kroll in its valuation advisory services practice, addresses his independent expert's report in respect of the proposed scheme. He confirms that, in undertaking the preparation of that report, he had regard to Regulatory Guide 111 (Content of expert reports) and Regulatory Guide 112 (Independence of experts) issued by the Australian Securities and Investments Commission's ("ASIC"), and that he has also been provided with and read a copy of the expert witness code of conduct set out in Sch 7 to the Uniform Civil Procedure Rules 2005 (NSW) and agrees to be bound by it. He confirms that he holds the opinions expressed in the independent expert report at the date of his affidavit; that he has made all inquiries that he believes are desirable and appropriate for the purposes of preparing that report and that no matters that he considers to be of significance have been omitted from it; and that he is not aware of any facts or circumstances which would cause him to change the opinions expressed in that report. 6. By his affidavit dated 21 November 2022, Mr Craig Mennie, who is an authorised representative of KPMG addresses the preparation of the limited assurance investigating accountant's report contained in the scheme booklet. 7. By her affidavit dated 18 November 2022, Ms Lucy Chiu, who is a client relationship manager of Link Market Services Ltd ("LMS"), which provides registry services to Pendal, addresses the proposed use of an electronic platform maintained by LMS to allow access for Pendal shareholders who attend the scheme meeting remotely, and the process which will be adopted for in person voting at that scheme meeting. 8. By his affidavit dated 21 November 2022, Mr Robert Kelly, who is a partner in the firm of solicitors acting for Pendal in respect of the scheme, addresses correspondence with ASIC in respect of the scheme and a waiver obtained from ASX in respect of the scheme. Mr Williams noted in the course of submissions that that correspondence included ASIC's comments on the proposed scripts for communication between Pendal and its shareholders, which I also reviewed in the course of the application. 9. By her affidavit dated 21 November 2022, Ms Jaysintha Moodley, the general counsel of Perpetual, refers to her involvement in negotiating the SID, the SID Amending Agreement and transaction documents on behalf of Perpetual and to the process which had been adopted to verify information concerning Perpetual in the scheme booklet and also addressed the negotiation of exclusivity and break fee provisions. 10. Pendal also tendered a deed poll dated 21 November 2022 executed by Perpetual and PACL in favour of registered holders of fully paid ordinary shares in Pendal as at the Scheme Record Date (as defined) (Ex P1); a letter dated 21 November 2022 from ASIC to Pendal, in which ASIC reserved its position in respect of s 411(17) of the Act in the usual way, and indicated that it did not currently propose to appear to make submissions or to oppose the scheme at the first Court hearing (Ex P2); the form of a note that is to be included on the title page of the SID, contained in the scheme booklet, which refers to the amendments made to the SID by the SID Amending Agreement (Ex P3); a mark-up of amendments to the scheme booklet as between the version initially provided to the Court on 18 November 2022 and the final version (Ex P4); and the final version of the typeset scheme booklet (Ex 1). Relevant principles and their application 1. Mr Williams points out and I accept that the Court will order the convening of the scheme meeting and approve the draft explanatory statement if it is satisfied of several matters, including that the plaintiff is a Pt 5.1 body; the proposed scheme is an arrangement within the meaning of s 411 of the Act; the scheme booklet will provide proper disclosure to members; the scheme is bona fide and properly proposed; ASIC has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions and has had 14 days' notice of the proposed hearing date; the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) have been met; and there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of votes is achieved: Re Staging Connections Group Ltd [2015] FCA 1012 ("Staging Connections") at [19]-[20]; Re Atlas Iron Ltd (2016) 112 ACSR 554; [2016] FCA 366 at [30]; Re DUET Finance Ltd [2017] NSWSC 415 ("DUET Finance") at [15]; Re Villa World Ltd [2019] NSWSC 1207 ("Villa World") at [15]. 2. Mr Williams also rightly recognises that the Court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting, the court would be likely to approve it on the hearing of a petition which is unopposed: FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, approved in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504; [1993] HCA 15. He also refers to the often cited observations of French J in Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742 at [36] and [44], approved in Re CSR Ltd (2010) 183 FCR 358 at [58], that: "It is however important to bear in mind that, by granting leave to convene the meeting, the court does not give its imprimatur to the proposed scheme. If the arrangement is one that seems fit for consideration by the meeting of members or creditors and is a commercial proposition likely to gain the court's approval if passed by the necessary majorities, then leave should be given: Re ACM Gold Ltd (1992) 34 FCR 530; 107 ALR 359; 7 ACSR 231; 10 ACLC 573 (O'Loughlin J). The court is not required to give close consideration to the effects of the scheme upon individual members of the classes of members or creditors affected. So to do would be to "introduce burdensome and to a large extent ineffectual consideration at this interlocutory stage": Re Jax Marine Pty Ltd [1967] 1 NSWR 145 at 148 (Street J). The court at the stage of ordering a meeting to approve a scheme does not ordinarily go very far into the question of whether the arrangement is one which warrants the approval of the court … That question is to be answered when the scheme returns to the court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further." 1. Mr Williams also submits, and I accept that, at the first hearing, the Court is concerned not with whether final approval should be given to the scheme, but whether the scheme is one which is adequately explained to those who have a financial interest in it, and whether there is any obvious flaw in the scheme, such that it would be inappropriate even for it to be submitted for consideration, and the Court is also not required to be satisfied that no better scheme could have been proposed, but will have regard \to whether sensible business people might consider the arrangement proposed is of benefit to members: Re Centrebet International Ltd [2011] FCA 870 at [29]; Re Ellerston Global Investments Ltd [2020] NSWSC 879 at [25]-[27]: 2. I am satisfied that the procedural requirements for a scheme are established. The evidence establishes that Pendal is a Pt 5.1 body; the text of the scheme (contained in Annexure D of the scheme booklet) provides prima facie evidence that there is an "arrangement" within the meaning of s 411 of the Act; and the SID (contained in Annexure C of the scheme booklet) and the SID Amending Agreement provides prima facie evidence that Pendal has committed itself to propounding the scheme and that accordingly the scheme is bona fide and has been properly proposed: Staging Connections at [55]-[61]; Re Simavita Holdings Ltd [2013] FCA 1274 at [2]. Ms Page and Mr Heap have consented to act as chair and alternate chair of the scheme meeting; there is evidence that ASIC was notified of the hearing and provided with a draft of the scheme booklet and the scheme in sufficient time; and there is evidence as to virtual meeting technology to be provided by LMS for the proposed scheme meeting. 3. I am also satisfied that, subject to the particular matters addressed below, the Court should exercise its discretion to convene the scheme meeting. Pendal's directors have unanimously recommended that Pendal shareholders vote in favour of the scheme, in the absence of a Superior Proposal (as defined) and subject to the independent expert continuing to conclude that the scheme is fair and reasonable and in the best interests of Pendal shareholders. Mr Jedlin has also concluded that the scheme is fair and reasonable and in the best interests of Pendal shareholders, in the absence of a Superior Proposal, forming the view that the scheme is fair on the basis that the amended scheme consideration is within Kroll's assessed value range for Pendal shares, and also having regard to other matters, including the alternatives to the scheme available to Pendal, in forming the view that the scheme is reasonable and therefore in the best interests of Pendal shareholders. There is no reason to doubt that the scheme booklet provides proper disclosure to Pendal shareholders, and there is evidence of the verification of the factual information related to Pendal and Perpetual in the scheme booklet; the affidavit evidence of Mr Jedlin addresses the independent expert's report and Mr Mennie's affidavit addresses the limited assurance investigating accountant's report. Subject to the particular issues which I address below, there is no reason to doubt that the proposed scheme is bona fide and properly proposed and could be approved at the second Court hearing if it receives the requisite shareholder approvals, and I am satisfied that the orders sought should be made in respect of the scheme meeting. Particular aspects of the scheme 1. Following the practice noted by Barrett J in Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at 603; [2002] NSWSC 1177, Mr Williams draws several aspects of the scheme to the Court's attention. Pendal employee incentives and transaction related payments 1. Mr Williams points out that Pendal operates equity incentive schemes under which "Pendal Employee Rights" (comprising options, performance rights and restricted shares) have been issued to corporate staff, distribution staff and investment staff, which are described in section 5.10(a) of the scheme booklet. Under clause 4.4(b) of the SID, Pendal must ensure that, by no later than 5.00pm on the Effective Date (as defined), there are no outstanding Pendal Employee Rights, and it is a condition precedent to the scheme becoming effective that Pendal has done so before 8.00am on the Second Court Date (as defined). The manner in which Pendal proposes to comply with this requirement is described in section 5.10(b) of the scheme booklet and in paragraphs 44-52 of Mr Williamson's affidavit, to which I referred above. For employees other than certain Key Employees, Pendal Employee Rights will vest, lapse or be cancelled in accordance with their terms or by exercise of a discretion of the Pendal Board provided by the terms of issue. On the other hand, arrangements have been reached with the Key Employees which are described as "Incentive Rollover Arrangements" and provide for a portion of the Key Employee's existing Pendal Employee Rights as at the Effective Date to vest on or prior to the date on which the scheme becomes effective, so that the Pendal shares issued on vesting will be entitled to participate in the scheme; the remainder of the Key Employee's existing Pendal Employee Rights will lapse or be cancelled, on the basis that the relevant Key Employee will be provided with Perpetual equity-based incentives of equivalent value which will be subject to time-based vesting conditions consistent with those that applied to the lapsed or cancelled Pendal Employee Rights; and certain Key Employees will also be granted additional Perpetual equity incentives or rights to deferred cash payments to which are intended to "align their interests with the Combined Group's shareholders". Mr Williamson's evidence is that the Incentive Rollover Arrangements agreed with the Key Employees were the subject of commercial negotiations, and the structure adopted is intended to promote the retention of Key Employees following implementation of the scheme. 2. The commercial aspects of that approach are matters for Pendal and Perpetual. I accept that those arrangements do not have the result that holders of Pendal Employee Rights who are (or will become) Pendal shareholders are in a separate class of members by reason only that they also hold incentive rights: Re Cashcard Australia Ltd (2004) 48 ACSR 738; [2004] FCA 223; Re Foster's Group Ltd (No 2) [2011] VSC 547 at [38]-[43]; Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525; [2015] VSC 789 at [82]. 3. Mr Williams also submits and I also accept that, to the extent that Key Employees will receive additional Perpetual equity incentives or deferred cash payments under their Incentive Rollover Arrangements, and that benefit is not available to other Pendal shareholders, it is a benefit obtained by them as employees and not as shareholders, which depends upon their continued service with the "Combined Group" following implementation of the scheme, and is directed to promoting the retention of the Key Employees to preserve the value of Pendal's business. Mr Williams submits that, to the extent this matter could be described as a "collateral benefit" and gives rise to a different commercial interest between shareholders, rather than different rights under a scheme (or different treatment of the same rights under a scheme), it does not require the creation of separate classes but may instead be relevant to the Court's discretion to approve the scheme at the second Court hearing: Re Boart Longyear Ltd (2017) 121 ACSR 328; [2017] NSWSC 567 at [69]; Re Trust Co (Re Services) Ltd as responsible entity of VitalHarvest Freehold Trust [2021] NSWSC 108 ("VitalHarvest") at [35]; Re PM Capital Asian Opportunities Fund Ltd [2021] FCA 1380 at [61]; Re Huon Aquaculture Group Ltd [2021] FCA 1170 at [33]. I also accept that any issue arising from that matter does not require that the Key Employees vote as a separate class and is sufficiently addressed by Pendal's "tagging" the votes of Key Employees, so that any impact of those votes can be identified at the second Court hearing and taken into account in the exercise of the Court's discretion: Re Mydeal.com.au [2022] NSWSC 1094 at [49]; Re 3Q Holdings Ltd [2022] FCA 1259 at [75]. 4. Mr Williams also notes that, as disclosed in section 10.2 of the scheme booklet, a number of Pendal employees whose roles have been determined by the Pendal board to be critical to implementation of the scheme will be entitled to receive a one-off cash "Retention Payment" (as defined), the aggregate amount of which will be no more than $3.0 million; and Pendal also proposes to make one-off "Discretionary Payments" (as defined) to certain employees in recognition of their contribution to facilitate implementation of the scheme, the aggregate amount of which will be no more than $2.5 million. I accept that employees who receive either a Retention Payment or Discretionary Payment are not in a separate class by reason only of the payments made to them, for the same reason the holders of equity incentives are not in a separate class. 5. Mr Williams points out that Pendal's chief executive officer, Mr Nick Good, is eligible to receive a Retention Payment and Discretionary Payment of up to $804,840 upon implementation of the scheme; under his existing short term incentive plan, he will be entitled to scheme related payments of $2,112,989 referable to key performance indicators; and these payments are disclosed in section 10.2 of the scheme booklet. The chairman's letter and section 2.1 of the scheme booklet also draw that matter to shareholders' attention as relevant to their consideration of Mr Good's participation in the Pendal directors' unanimous recommendation in relation to the scheme. Mr Williams submits and I accept that, where that disclosure is made, the fact that Mr Good makes a recommendation with other directors is not a reason to decline to convene the scheme meeting: Re Kidman Resources Ltd [2019] FCA 1226 at [115]; Villa World at [38]; Re GBST Holdings Ltd [2019] NSWSC 1280 at [24]–[30]; Re DWS Ltd [2020] FCA 1590 at [41]–[49]. These matters do not give rise to any reason not to convene the scheme meeting. Funding of scheme consideration and performance risk 1. Mr Williams submits and I accept that the provision for payment of the cash scheme consideration to a trust account operated by Pendal, prior to transfer of the Pendal shares, is a sufficient safeguard against the risk that scheme shareholders will suffer delay or default in the provision of the scheme consideration after their shares have been transferred to PACL, so that scheme shareholders will not be relegated to the remedy of suing on the deed poll: Re APN News & Media Ltd (2007) 62 ACSR 400; [2007] FCA 770 ("APN News & Media"); Re Signature Gold Ltd [2017] FCA 766 at [66]; DUET Finance at [47]. He also notes that, as described in sections 6.10 and 7.6 of the scheme booklet, Perpetual proposes to fund the cash component of the scheme consideration through a debt facility entered into with four relationship banks. There is no reason to doubt the availability of funding for the the scheme consideration and payment of related transaction costs. Proposed manner of dispatch of scheme materials to Pendal shareholders 1. Mr Williams notes that details of the proposed dispatch of scheme materials are set out in Ms Hawkin's affidavit dated 21 November 2022. Those materials will be sent either electronically or in hard copy in accordance with shareholders' previous elections, or in hard copy for shareholders who have previously made no such election. Mr Williams submits and I accept that the proposed manner of dispatch is consistent with ss 110D-110E of the Act. This matter does not give rise to any reason not to convene the scheme meeting. Other shareholder communications 1. Pendal seeks an order approving the proposed script for an outbound call campaign to Pendal shareholders to be conducted by Morrow Sodali, consistent with the principle that the Court should approve any proposed supplementary disclosure in circumstances where it is being called upon to approve the explanatory material: Re Centro Retail Ltd [2011] NSWSC 1320 at [11]; Re Walsh & Company Investments Ltd [2020] NSWSC 1746 at [66]; Re Tassal Group Ltd [2022] NSWSC 1414 ("Tassal") at [34]. The proposed outbound call campaign is described in Ms Hawkins' affidavit dated 21 November 2022, to which I referred above. I have reviewed the proposed script, which reflects the information contained in the scheme booklet, and there is no reason not to approve it. Ms Hawkins also refers to the reminder communications which Pendal proposes to have LMS send to Pendal shareholders to remind them to vote ahead of or at the scheme meeting, which are uncontroversial in character. 2. Pendal also draws the Court's attention to the inbound call script for the shareholder information line and a presentation document proposed to be used in meetings with proxy advisers, although no order is sought approving the form of such documents is necessary for the reasons explained in Re Tassal Group Ltd [2022] NSWSC 1414 at [33], [35]. Mr Williams submits that the relevant scripts do not travel beyond the information in the scheme booklet and present information in a balanced manner, draw attention to advantages and disadvantages of the scheme, and encourage shareholders to read the scheme booklet in its entirety. I have reviewed those documents and I did not raise any concerns in respect of them at the first Court hearing. These matters do not give rise to any reason not to convene the scheme meeting. Exclusivity 1. Clause 11 of the SID imposes "no talk", "no shop" and notification obligations on Pendal and confers a matching right in favour of Perpetual. The "no talk" obligation is subject to a fiduciary exception as set out in cl 11.4 of the SID. Mr Williams submits and I accept that exclusivity provisions in this form are now commonplace in schemes of arrangement and not inconsistent with Guidance Note 7: Lock-up devices issued by the Takeovers Panel: Villa World at [23]. In reviewing such provisions, the Court will consider whether any exclusivity period is for no more than a reasonable period capable of precise ascertainment; whether any exclusivity clause directed at dealing with an unsolicited alternative merger proposal is subject to a fiduciary carve out; and whether the provision is clearly disclosed in the explanatory statement sent to shareholders: Re TPG Telecom Ltd [2020] NSWSC 772 ("TPG") at [22]. 2. I accept that the exclusivity period is here defined in the SID and capable of precise ascertainment. It lasts from the date of the SID until the earlier of the termination of the SID; or the End Date 13 June 2023 or such other date as is agreed by Perpetual and Pendal. Although the End Date is a date well beyond the date of the proposed scheme meeting, either party may terminate the SID if the scheme resolution is not approved at the scheme meeting by the requisite majorities (SID, cl 16.1(c)), so the exclusivity period will not operate as a fetter upon Pendal's assets if the scheme does not proceed: VitalHarvest at [40]. With that limitation, I accept that the exclusivity period of approximately 10 months between the date of the SID and the End Date is a reasonable period given the complexity and size of the transaction and the need for foreign regulatory approvals. I also recognise that the "no talk" restriction is subject to the overriding obligation not to breach the directors' fiduciary and statutory duties under cl 11.4 of the SID and, although the "no shop" restriction is not subject to this exception, that has been accepted in the case law: Re DUET Management Company I Ltd [2013] NSWSC 817 at [24]; Re Aveo Group Ltd and Aveo Funds Management Ltd [2019] NSWSC 1348 at [44]. The exclusivity provisions are sufficiently disclosed in section 4.17 of the scheme booklet and there is evidence that they were the product of arm's length negotiations between the parties. The exclusivity provisions do not give rise to any reason not to convene the scheme meeting. Reimbursement fee 1. Mr Williams draws attention to cl 12.2 of the SID which provides for Pendal to pay a Reimbursement Fee (as defined) to Perpetual if the scheme does not proceed in specified circumstances. Those circumstances do not include the failure by Pendal shareholders to approve the scheme at the scheme meeting or the failure of the Court to approve the scheme, and that provision is not a disincentive to Pendal shareholders in their consideration of the proposed scheme: Re Adelaide Bank Ltd [2007] FCA 1582 at [31]; Re Bolnisi Gold NL (No 2) (2007) 65 ACSR 510 at 513; [2007] FCA 2078. The Reimbursement Fee represents approximately 1% of the equity value of Pendal implied by the scheme consideration as at 25 August 2022, and I accept this is consistent with the guideline figure indicated by the Takeovers Panel in its Guidance Note 7, and that payment of "break fees" of that magnitude are now commonplace in schemes of this kind: TPG at [24]. There is evidence that the Reimbursement Fee was the product of arms' length commercial negotiations between Pendal and Perpetual, satisfying the expectation noted in APN News & Media at [46], [55]. A Reverse Reimbursement Fee (as defined) is also payable by Perpetual in certain circumstances under the SID. These matters do not give rise to any reason not to convene the scheme meeting. Ineligible foreign shareholders 1. Mr Williams notes that Pendal shareholders whose addresses are recorded in the share register as being outside Australia (and its external territories) and several other jurisdictions are Ineligible Foreign Shareholders (as defined) unless Pendal determines that it is lawful and not unduly onerous or impracticable to provide the Pendal shareholder with Perpetual shares. Although Ineligible Foreign Shareholders participate in the scheme, Perpetual shares will not be issued to them and the shares to which they would otherwise be entitled will be issued to a sale agent and sold by a sale facility, with the proceeds of sale distributed to them. These matters are disclosed in section 4.8 of the scheme booklet. Mr Williams submits and I accept that, consistent with the case law, Ineligible Foreign Shareholders need not constitute a separate class at the scheme meeting: Re Hills Motorway Ltd (2002) 43 ACSR 101 at 104; [2002] NSWSC 897. Deemed warranty 1. Clause 9.2 of the scheme provides that each scheme shareholder is taken to have given various warranties on the Implementation Date, including that all their Perpetual Shares are free from encumbrances and interests of third parties of any kind. The deemed warranty is sufficiently disclosed in the scheme booklet at section 10.6 and is also now commonplace in schemes: APN News & Media at [57]-[63]; Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26]; Re rhipe Ltd [2021] NSWSC 1170 at [26]. Section 411(7) of the Act 1. Mr Williams submits and I accept the question posed by s 411(17) of the Act is properly addressed on the application to approve the scheme at the second Court hearing: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [23]-[31] (Barrett J); TPG at [31]. Section 3(a)(10) of the Securities Act of 1933 (US) 1. Mr Williams points out that, if the scheme is passed by the requisite majorities and approved by the Court, Perpetual will rely on the Court's approval for the purpose of qualifying for exemption from the registration requirements of the Securities Act of 1933 (US), provided for by s 3(a)(10) of that Act, in connection with the issue of Perpetual shares under the scheme. I note that matter and the application of the exemption is otherwise appropriately deferred to the second Court hearing. Orders 1. For these reasons, I was satisfied that I should convene the scheme meeting and make the associated orders. I made orders at the conclusion of the first Court hearing on 21 November 2022 in accordance with the short minutes of order initialled by me and placed in the file. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 December 2022