Supreme Court New South Wales Medium Neutral Citation: In the matter of Healthia Limited (No 2) [2023] NSWSC 1519 Hearing dates: 29 November 2023 Date of orders: 29 November 2023 Decision date: 07 December 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 250N, 250P, 411, 412, 1319 Cases Cited: - Re Billabong International (No 2) [2018] FCA 496 - Re Boart Longyear Ltd (No 2) (2017) 122 ACSR 437; [2017] NSWSC 1105 - Re ELMO Software Ltd (No 2) [2023] NSWSC 81 - Re Healthia Limited [2023] NSWSC 1296 - Re InvoCare Ltd (No 2) [2023] NSWSC 1350 - 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 Staging Connections Group Ltd (No 2) [2015] FCA 1102 - Sierra Mining Ltd, in the matter of Sierra Mining Ltd [2014] FCA 694 - Snowside Pty Ltd as trustee for the Snowside Trust v Boart Longyear Ltd (2017) 122 ACSR 291; [2017] NSWCA 215 Category: Principal judgment Parties: Healthia Limited (Plaintiff) Harold BidCo Pty Ltd (Bidder) Representation: Counsel: I M Izzo SC/E Bathurst (Plaintiff) J Williams SC (Bidder) Solicitors: Clayton Utz (Plaintiff) Allen & Overy (Bidder) File Number(s): 2023/305711 Judgment Nature of the application and background 1. By Originating Process filed on 26 September 2023, Healthia Ltd ("Healthia") applied under s 411 of the Corporations Act 2001 (Cth) ("Act") to convene a meeting to consider a proposed scheme of arrangement, and for associated orders under s 1319 of the Act. I made the orders sought by Healthia at the end of the first Court hearing on 16 October 2023 for the reasons set out in my judgment delivered on 31 October 2023 (Re Healthia Limited [2023] NSWSC 1296). The scheme meeting was held on 22 November 2023 and the statutory majorities in favour of the scheme were achieved. 2. Healthia 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 29 November 2023 and these are my reasons for doing so. I have drawn on the helpful submissions of Mr Izzo, with whom Ms Bathurst appeared for Healthia in this application, in this judgment. Affidavit evidence 1. Healthia reads the affidavit dated 27 November 2023 of Ms Nah, who is a Client Relationship Manager with Link Market Services Pty Ltd ("Link") which provides registry services to Healthia and was engaged to arrange dispatch of communications to Healthia shareholders in connection to the scheme, conduct the scheme meeting and provide associated services. Ms Nah outlines the steps which were taken to dispatch scheme documents to Healthia shareholders prior to the scheme meeting by the several means contemplated by the Court's orders at the first Court hearing. She also addresses the position in respect of a delay in responding to a request by two shareholders for a hard copy of the scheme booklet, which had the result that it was too late for hard copies of the scheme booklet to be dispatched to those shareholders. Those shareholders did not hold a material number of shares in Healthia and one of those shareholders voted at the scheme meeting by proxy. 2. Ms Nah also addressed the receipt of completed election forms as to the option to receive scrip rather than cash under the scheme and completed proxy forms for the scheme meeting and addressed the conduct of the shareholder information line in respect of the scheme. Ms Nah also described the conduct of the scheme meeting and led evidence as to voting at the scheme meeting, where the scheme resolution passed by the applicable majorities. 3. Healthia also reads the affidavit dated 27 November 2023 of Mr Richards, its chairman and non-executive director, who was the chair of the scheme meeting. Mr Richards described the manner in which the scheme meeting was conducted and also sets out the result of voting at the scheme meeting. Mr Richards also addressed the voter turnout at the scheme meeting, which comprised a relatively high percentage of Healthia's issued share capital but a significantly lower percentage of the number of Healthia shareholders entitled to vote on the scheme. 4. Healthia also read the affidavit dated 28 November 2023 of its solicitor, Ms Tolhurst, who referred to registration of the scheme booklet with the Australian Securities and Investments Commission ("ASIC") and gave evidence of notification of the date of the second Court hearing to Healthia shareholders by an announcement made to the Australian Securities Exchange ("ASX"). She also addressed an announcement made by Healthia, at ASIC's request, to correct an error in the scheme booklet as to the status of ASIC relief allowing an extension of time for Healthia to hold its 2023 annual general meeting and as to the length of that relief. That error was not material to the matters addressed by the scheme. 5. Ms Tolhurst also addressed Healthia shareholders' elections to receive scrip consideration, the despatch of the scheme booklet and the conduct of an outbound call campaign which was foreshadowed at the first Court hearing. Ms Tolhurst addressed the position in respect of conditions precedent to the scheme and identified an inconsistency between information contained in the scheme booklet and the terms of the scheme of arrangement as to those persons who would be treated as ineligible foreign shareholders, in respect of the election to receive scrip rather than cash consideration. The persons excluded from making such an election, as identified in the scheme booklet, included a category of persons not identified in the scheme of arrangement, namely a scheme shareholder who had a registered address in New Zealand and had not completed and returned a New Zealand investor certificate certifying that the shareholder was a "wholesale investor". Healthia seeks to amend the scheme to reflect the position identified in the scheme booklet and I address that matter below. 6. Healthia also tendered a letter dated 28 November 2023 from ASIC indicating that it had no objection to the proposed scheme under s 411(17(b)) of the Act and condition precedent certificates executed by each of Healthia and Harold BidCo Pty Ltd ("Bidder"). Role of the Court at the second Court hearing 1. The general principles which guide the Court's discretion to approve a scheme at a second Court hearing are well established and I have here drawn on Mr Izzo's and Ms Bathurst's submissions and my summary of those principles in Re InvoCare Ltd (No 2) [2023] NSWSC 1350. 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: Sierra Mining Ltd, in the matter of Sierra Mining Ltd [2014] FCA 694 at [31]; Re ELMO Software Ltd (No 2) [2023] NSWSC 81 ("ELMO") at [7]. 2. 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 ("Seven Network") at [31]; Re Staging Connections Group Ltd (No 2) [2015] FCA 1102 at [12]. 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]; Seven Network at [35]-[40]; Re Pendal Group Ltd (No 3) [2023] NSWSC 14 at [10]; ELMO at [8]. 3. Healthia here seeks an order under s 411(6) of the Act amending the scheme of arrangement to address the issue noted above as to eligibility of New Zealand registered Healthia shareholders to make a scrip election under the scheme. Mr Izzo submits and I accept that the Court's jurisdiction in respect of the amendment of a scheme of arrangement under that section is to be exercised judicially, having regard to its statutory purpose and in light of the whole of the circumstances surrounding the matter. The power can be exercised in relation to technical or minor alterations and also extends to where an amendment to a scheme of arrangement is of a substantive character, a relevant factor is whether the proposed variation is so novel or substantial as to take the varied scheme of arrangement beyond the reasonable contemplation of shareholders at the time they agreed it; and the Court may be against modification if the explanatory statement for the scheme would then be falsified or proven irrelevant: Re Boart Longyear Ltd (No 2) (2017) 122 ACSR 437; [2017] NSWSC 1105 at [92], [100], [104]-[105], [108], approved in Snowside Pty Ltd as trustee for the Snowside Trust v Boart Longyear Ltd (2017) 122 ACSR 291; [2017] NSWCA 215 at [22]; Re Billabong International (No 2) [2018] FCA 496 at [13]. Submissions and determination 1. Mr Izzo points to the evidence that, subject to the issue noted above in respect of two shareholders who unsuccessfully requested hard copies of the scheme booklet, the scheme booklet was despatched in electronic and hard copy form in accordance with the orders made at the first Court hearing, and the version of the scheme booklet that was despatched was in substantially the same form as the copy of the scheme booklet approved by the Court at the first Court hearing, subject to several immaterial amendments. I have referred above to the evidence of Link's delay in dealing with two requests for a hard copy of the scheme booklet, which had the result that it was too late to send those documents to the requesting Healthia shareholders. Mr Izzo submits and I accept that this should not affect the Court's approval of the Scheme, where the two Healthia shareholders together held 37,191 shares in Healthia, which was not material to the result of the resolution approving the scheme, and one of the two shareholders (holding 16,191 shares) voted at the scheme meeting in any event. Mr Izzo also addresses the process for the receipt of scrip election and proxy forms which gave rise to no difficulties. Mr Izzo also refers to the outbound call campaign and an outbound email campaign in respect of the scheme, which was drawn to the Court's attention at the first Court hearing, where I noted that I had no difficulty with the email and the script for the call campaign and no further difficulty has arisen from this process. 2. Mr Izzo points to the evidence relating to the conduct of the scheme meeting and notes that approximately 78.71% of Healthia shares on issue voted on the scheme resolution, and 279 Healthia shareholders voted, representing approximately 13% of the 2,099 shareholders who were eligible to vote at the scheme meeting; the resolution was approved by the relevant statutory majorities; and the results of the scheme meeting was announced to the ASX by Healthia on 22 November 2023. As I noted above, on 16 October 2023, Healthia also announced details of the second Court hearing on the ASX as required by Order 11 made at the first Court hearing. Healthia and its solicitors received no notice of any person proposing to appear at the second Court hearing and no shareholder appeared to oppose the scheme at that hearing. 3. I am satisfied that the relevant statutory requirements for the approval of the scheme are satisfied. On 16 October 2023, the scheme booklet was registered with ASIC as required by s 412(6) of the Act. As I noted above, a letter from ASIC was tendered at the second Court hearing indicating that it has no objection to the scheme in accordance with s 411(17) of the Act. 4. Clause 3.1 of the scheme implementation deed ("SID") provides that "subject to this clause 3, the Scheme will not become Effective, and the respective obligations of the parties in relation to the implementation of the Scheme are not binding, until each of the following Condition Precedent is satisfied or waived to the extent and in the manner set out in this clause 3". Clause 3.1(a) to (j) of the SID then provide the conditions precedent. Certificates dated 29 November 2023 as to the conditions precedent provided by Healthia and the Bidder, pursuant to cl 3.3 of the scheme of arrangement, were tendered at the second Court hearing. 5. Mr Izzo also points out that the scheme provides for Healthia shareholders (other than those who made a valid election to receipt a scrip consideration option) to receive $1.80 cash per Healthia share ("Cash Consideration") in respect of all their Healthia shares held on the Record Date (as defined). There is evidence as to the number of Healthia shareholders who made elections to receive scrip consideration and whether they elected to receive all scrip consideration, all cash consideration or a mix of scrip and cash consideration (Nah 27.11.23 [48], Ex BYN-1, 412-414). On 17 November 2023, Healthia announced the indicative outcome of the elections of scrip consideration to the ASX (Tolhurst 28.11.23 [19]), as calculated by Monash Advisory, Healthia's financial adviser in relation to the scheme, and the elections made are such that Healthia shareholders who made valid elections for scrip consideration are not expected to be subject to a Scrip Scale Back (as defined) if the holdings of those shareholders who have lodged elections does not change. 6. For completeness, Healthia also draws attention to an inconsistency raised by ASIC between section 12.5 of the scheme booklet registered with ASIC and Healthia's application for relief from ASIC pursuant to s 250P of the Act for an extension of time from the requirement under s 250N of the Act to hold its 2023 annual general meeting within five months after the end of the financial year. I have noted the evidence as to that matter above and I am satisfied that it is not material to approval of the scheme, was corrected by an ASX announcement made by Healthia and does not provide any reason not to make the orders now sought by Healthia. 7. As I noted above, Healthia also seeks an order under s 411(6) of the Act amending the scheme of arrangement to address the issue noted above as to eligibility of New Zealand registered shareholders to make a scrip election under the scheme. Mr Izzo points out that this amendment is sought to address an inconsistency in the definition of "Foreign Target Shareholder" as between the scheme of arrangement and the scheme booklet. Ms Tolhurst's affidavit (Tolhurst 28.11.23 [33]) notes that cl 1.1 of the scheme of arrangement defines a "Foreign Target Shareholder" as: "a Scheme Shareholder whose address in the Target Share Register as at the Scheme Record Date is a place outside Australia or New Zealand unless Target and Bidder agree in writing that it is lawful and not unduly onerous or impracticable to issue TopCo Shares to the Scheme Shareholder if the Scheme Shareholder so elects under the Scheme". 1. As Mr Izzo points out, that definition is different to the definition of "Ineligible Foreign Shareholder" in the scheme booklet, as described in the Chairman's letter and in sections 4, 6.3(g), 9.6(c) and 13 of the scheme booklet, which is defined as a: "Scheme Shareholder whose address shown in the Healthia Share Register at 7.00pm on the Scheme Record Date is: (a) a place outside Australia or New Zealand; or (b) a place in New Zealand and that Scheme Shareholder does not complete and return a New Zealand investor certificate certifying the shareholder is a "wholesale investor" (as defined in Schedule 1 of the Financial Markets Conduct Act 2013 [(NZ)]), unless Healthia and PEP BidCo agree in writing in accordance with the Scheme Implementation Deed". 1. Ms Tolhurst's evidence (Tolhurst 28.11.23 [35]) is that the effect of the definition of "Ineligible Foreign Shareholder" in the scheme booklet is that a scheme shareholder whose address shown in the Healthia share register at the relevant time is a place in New Zealand is an "Ineligible Foreign Shareholder" unless they complete and return a New Zealand investor certificate certifying the shareholder is a "wholesale investor" (as defined in Schedule 1 of the Financial Markets Conduct Act 2013). She recognises that the definition of "Foreign Target Shareholder" in the scheme of arrangement does not contain an equivalent provision. Healthia thus seeks an order under s 411(6) of the Act that the definition of "Foreign Target Shareholder" in the scheme be amended to reflect the definition of "Ineligible Foreign Shareholder" as contained in the scheme booklet. 2. Mr Izzo submits that: "This is a technical amendment, such that it is just to make the order. This is particularly in circumstances where there were no New Zealand Shareholders who made an election for Scrip Consideration … Thus, while the assessment of whether a Scheme Shareholder is a Foreign Target Shareholder under the [s]cheme is made at the Record Date such that it is theoretically possible that a person who made an election for Scrip Consideration will change their registered address to a New Zealand address as at the Record Date, that possibility is unlikely… It is also relevant that that amendment reflects the intention of Healthia and the Bidder; and the bidder consents to the amendment ..." 1. I am satisfied that the amending order should be made, where no shareholders are presently affected by this matter, because no New Zealand shareholders made an election for scrip consideration; I accept that the possibility that that position may change if a shareholder who had made a scrip election becomes a New Zealand shareholder and does not submit the relevant certificate prior to the scrip election being finalised; and it seems to me that shareholders would not be surprised that this matter would be addressed in the manner disclosed in the scheme booklet. 2. Mr Izzo also submits, and I accept, that the Court should be satisfied that the scheme is fair and reasonable on several grounds. The scheme received substantial support at the scheme meeting, well in excess of the requisite statutory requirements, and no shareholder has opposed its approval at this second Court hearing. The independent expert report of Lonergan Edwards & Associates, which I summarised in my previous judgment, 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 the Healthia shareholders. 3. For these reasons, I made the orders sought by Healthia at the conclusion of the second Court hearing on 29 November 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: 08 December 2023