Supreme Court New South Wales Medium Neutral Citation: In the matter of ELMO Software Ltd (No 2) [2023] NSWSC 81 Hearing dates: 8 February 2023 Date of orders: 8 February 2023 Decision date: 13 February 2023 Jurisdiction: Equity - Corporations List Before: Black J Decision: Orders made approving a scheme of arrangement. Catchwords: CORPORATIONS – Arrangements and reconstructions – Schemes of arrangement or compromise – Application under s 411 of the Corporations Act 2001 (Cth) for orders approving scheme of arrangement – Where formal requirements satisfied – Whether scheme of arrangement should be approved. Legislation Cited: • Corporations Act 2001 (Cth), ss 411, 1319 Cases Cited: • Re Aveo Group Ltd [2019] NSWSC 1679 • Re Centro Properties Ltd (2011) 86 ACSR 584; [2011] NSWSC 1465 • Re David Jones Ltd (No 3) [2014] FCA 753 • Re ELMO Software Ltd [2023] NSWSC 12 • Re GBST Holdings Ltd [2019] NSWSC 1503 • Re Pendal Group Ltd (No 3) [2023] NSWSC 14 • Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 • Re Seven Network Ltd (No 3) (2010 ) 267 ALR 583 • Re Sierra Mining Ltd [2014] FCA 694 • Re Staging Connections Group Ltd (No 2) [2015] FCA 1102 • Re Texon Petroleum Ltd (No 2) [2013] FCA 147 Category: Principal judgment Parties: ELMO Software Ltd (Plaintiff) Representation: Counsel: M Izzo SC/E Bathurst (Plaintiff) J Williams SC (Acquirer) Solicitors: Arnold Bloch Leibler (Plaintiff) Gilbert & Tobin (Acquirer) File Number(s): 2022/336936 Judgment Background 1. By Originating Process filed on 10 November 2022, the Plaintiff, ELMO Software Ltd ("ELMO") applied for an order under s 411 of the Corporations Act 2001 (Cth) ("Act") convening scheme meetings (with shareholders voting in two classes) concerning a proposed scheme of arrangement relating to the proposed acquisition of all of ELMO's shares by Manhattan Bondi Hold Co Inc ("MBH") or its nominated affiliate, Cookie Monster AcquireCo Pty Ltd ("CMA"). On 16 December 2022, I made orders approving the despatch of the scheme booklet and convening a meeting of ELMO's members excluding Relevant Shareholders (as defined) ("Rollover Shareholders") ("General Scheme Meeting") and a separate meeting of Rollover Shareholders ("Rollover Shareholders Scheme Meeting") (together, "Scheme Meetings"), for the reasons set out in my judgment delivered on 23 January 2023 ([2023] NSWSC 12). 2. ELMO shareholders have now approved the scheme at both Scheme Meetings held on 30 January 2023 by both a majority in number present and voting and by more than 75% of the votes cast. ELMO now seeks orders at the second Court hearing that the scheme be approved pursuant to s 411(4)(b) of the Act. I made the orders sought at the end of the second Court hearing on 8 February 2023 and these are my reasons for doing so. I have drawn on the helpful submissions of Mr Izzo, with whom Mr Bathurst appeared for ELMO in this application, in this judgment. Affidavit evidence 1. ELMO reads the second affidavit dated 7 February 2023 of Mr Barry Lewin, the independent non-executive chair of ELMO, who gives evidence as to the conduct of the General Scheme Meeting and Rollover Shareholders Scheme Meeting, and as to the passage of the scheme resolutions at each of those meetings. 2. ELMO also reads the affidavit dated 6 February 2023 of Ms Kirsten O'Hara, who is a client relationship manager at Link Market Services Ltd ("Link"). Ms O'Hara outlines the scope of the services provided by Link to ELMO in respect of its share register and facilitating the despatch documents relating to the scheme in hard copy and electronic form, refers to the despatch of a reminder to vote email to ELMO shareholders on 13 January 2023, then additional despatch of scheme materials to new ELMO shareholders, and the receipt of election forms from Rollover Shareholders in respect of the form of scheme consideration. She also refers to voting at and the conduct of the General Scheme Meeting and to the Rollover Shareholders Scheme Meeting, and addresses the poll reports which were prepared in respect of the result of the Scheme Meetings and the voting results for those meetings. She notes that, in total, approximately 0.43% of ELMO's shareholders holding approximately 80.06% of ELMO shares voted on the scheme resolutions, and notes that this is a significantly higher percentage of both shareholders and number of shares that voted in ELMO's annual general meetings in November 2021 and November 2022. 3. ELMO reads the second affidavit dated 7 February 2023 of Mr James Haslam, its Chief Financial Officer, who addresses the scheme consideration to be provided to ELMO shareholders generally and to to Rollover Shareholders, and refers to elections made by the rollover shareholders as to the form of scheme considerations they would receive. Mr Haslam also refers to an email received from one ELMO shareholder referring to a difficulty in inputting shareholder details in order to ask a question remotely at the General Scheme Meeting on 30 January 2023 and to the information which was then provided to the shareholder, after that meeting, in response to that question. Mr Haslam also refers to the opening of a trust Account with an Australian Authorised deposit-taking institution to receive payment of the Scheme Consideration. 4. By his second affidavit dated 7 February 2023, Mr Gavin Hammerschlag, who is a partner of the solicitors acting for ELMO in this application, refers to the registration of the scheme booklet with the Australian Securities and Investments Commission ("ASIC"), the despatch of the reminder to vote email, the advertisement published in respect of the second Court hearing and the fact that no notice of appearance has been received from any ELMO shareholder, and also refers to ELMO's announcement of the results of the Scheme Meetings to the Australian Securities Exchange. Role of the Court at the second Court hearing 1. Mr Izzo rightly points out that the general principles which guide the Court's discretion to approve a scheme at the second court hearing are well established. He submits that the matters of which the Court must be satisfied in approving the scheme at the second Court hearing are whether there was compliance with the orders of the Court convening the scheme meeting or meetings; whether the resolution to approve the scheme was passed by the requisite majority and whether other statutory requirements have been satisfied; and whether all conditions to which the scheme is subject (other than Court approval and lodgement of the Court's orders with ASIC) have been met or waived: Re Sierra Mining Ltd [2014] FCA 694 at [31]. He recognises that the Court also has, in exercising its power of approval, a residual discretion whether to approve a scheme and is not bound to approve it merely because it has made orders for the convening of meetings or because the statutory majorities have been achieved: Re Seven Network Ltd (No 3) (2010) 267 ALR 583 at [31]; Re Staging Connections Group Ltd (No 2) [2015] FCA 1102 at [12] (Gleeson J). 2. Mr Izzo also submits, uncontroversially, that, in exercising that residual discretion, the (non-exhaustive) matters the Court will take into account include whether the scheme is fair and reasonable so that an intelligent and honest member of the relevant class, properly informed and acting alone, might approve it; whether there was full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme; and whether the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [8]; Re Seven Network at [35]-[40]; Re Centro Properties Ltd (2011) 86 ACSR 584; [2011] NSWSC 1465 at [32]-[33]; Re Texon Petroleum Ltd (No 2) [2013] FCA 147 at [6]-[17]; Re David Jones Ltd (No 3) [2014] FCA 753 at [3]; Re GBST Holdings Ltd [2019] NSWSC 1503 at [11]; Re Aveo Group Ltd [2019] NSWSC 1679 at [15]; Re Pendal Group Ltd (No 3) [2023] NSWSC 14 at [10]. Determination 1. Mr Izzo points to evidence that the scheme booklet was despatched in electronic and hard copy form in accordance with the orders made at the first Court hearing; the version of the scheme booklet that was despatched is in substantially the same form as the copy of the scheme booklet approved by the Court at the first Court hearing; and a "Reminder to Vote" email was despatched by ELMO in the form that was approved by the Court at the first Court hearing. Mr Izzo notes that Morrow Sodali Pty Ltd was engaged by ELMO to conduct an outbound call campaign to provide ELMO Shareholders with information about the scheme and to encourage them to vote at the Scheme Meetings. Those calls used scripts that were approved by the Court at the first Court hearing, and calls were made to approximately 330 shareholders, of which approximately 126 shareholders answered. There is evidence that no call operators reported any material departures from those scripts. 2. The General Scheme Meeting was held at the time and place specified in the Court's orders. I recognise that one ELMO shareholder emailed ELMO after the General Scheme Meeting saying that they "had difficulty inputting shareholder details and was unable to ask a question at the hybrid scheme meeting". The shareholder then asked a question about the material adverse change clause in the scheme implementation deed, and a response was provided. There is no suggestion that shareholder wished to vote against the scheme or was deprived of an opportunity to do so. The Rollover Shareholders Scheme Meeting was also held at the time and place specified in the Court's orders. All Rollover Shareholders appointed Mr Lewin as proxy to vote at the Rollover Shareholders Scheme Meeting, and he voted each proxy that he held in accordance with its instructions or otherwise in the manner set out in the scheme booklet. The resolutions to approve the scheme were passed by the requisite majorities under s 411(4)(a)(ii) of the Act at each of the General Scheme Meeting and the Rollover Shareholders Scheme Meeting. Mr Izzo also points out that the level of attendance at the scheme meeting was relatively high and raises no question as to the despatch of scheme documents or the conduct of that meeting, where approximately 80% of ELMO shares on issue voted on the scheme resolutions, including Rollover Shareholders. 3. Under the scheme, ELMO Shareholders (as defined) will receive $4.85 for each Scheme Share (as defined) held by them on the Scheme Record Date (as defined). Rollover Shareholders were able to elect to receive their Scheme Consideration (as defined) partly in the form of Scrip Consideration (as defined) and partly in the form of Cash Consideration (as defined) and any Rollover Shareholder who had not made a valid election to receive the Scrip Consideration in respect of their Scheme Shares was deemed to have elected to receive the Cash Consideration in respect of each Scheme Share held by that Rollover Shareholder. There is evidence as to the elections made by the Rollover Shareholders. Based on those elections, and on the assumption that 470,718 ELMO Performance Rights (as defined) will be converted to ELMO Shares on or after the Effective Date (as defined) as described in the Scheme Booklet (as defined) (including at section 10.4), ELMO has determined that the indicative Cash Consideration amount will be approximately $485,410,873. CMA's funding for the scheme exceeds that amount. 4. Mr Izzo points out that other statutory requirements in respect of the scheme were also satisfied. On 16 December 2022, the scheme booklet was registered with ASIC as required by s 412(6) of the Act and ASIC has now indicated that it has no objection to the scheme in accordance with s 411(17) of the Act. ELMO and CMA tendered certificates confirming (in respect of matters within their knowledge) that, as at 8.00am on the second Court date, relevant conditions precedent had been satisfied or waived in accordance with the terms of the scheme. Mr Izzo also points out that, on 25 January 2023, ELMO published a notice of the second Court hearing in a national newspaper in the form required by the orders made at the first Court hearing. No notice was given to Elmo's solicitors of any person proposing to appear at the second Court hearing and no shareholder appeared to oppose approval of the scheme. Mr Izzo also submits, and I accept, that the Court should be satisfied that the scheme is fair and reasonable where the independent expert report indicates that, in the absence of any other information or a superior proposal, the scheme is fair and reasonable and therefore in the best interests of ELMO shareholders; the scheme received the support of 91.62% of ELMO shareholders who voted on it and 100% of Rollover Shareholders who voted on it; ELMO has not received notification that any person will come forward to oppose the scheme and, I should add, no shareholder opposed the scheme at the second Court hearing. 5. For these reasons, I made the orders sought by ELMO at the conclusion of the second Court hearing on 8 February 2023. ********** 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: 14 February 2023