Supreme Court New South Wales Medium Neutral Citation: In the matter of Prospa Group Limited (No 3) [2024] NSWSC 962 Hearing dates: 31 July 2024 Date of orders: 31 July 2024 Decision date: 06 August 2024 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 Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 at 240; [2003] WASC 19 - Re Amcor Ltd (No 2) [2019] FCA 842 - Re Atlas Iron Ltd (No 2) [2016] FCA 481 - Re Bellamy's Australia Ltd [2019] NSWSC 1889 - Re Central Pacific Minerals NL [2002] FCA 239 - Re Coca-Cola Amatil Ltd [2021] NSWSC 489 - Re Ellerston Global Investments Ltd [2020] NSWSC 110 - Re GBST Holdings Ltd [2019] NSWSC 1503 - 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; [2002] NSWSC 1177 - Re Prospa Group Ltd [2024] NSWSC 790 - Re Redcape Property Fund Ltd and the Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) [2012] NSWSC 486 - Re Seven Network (No 3) (2010) 267 ALR 583; [2010] FCA 400 - Re Signature Capital Investments Ltd (No 2) [2016] FCA 385 - Re Solution 6 Holdings Ltd (2004) 50 ACSR 113; [2004] FCA 1049 Category: Principal judgment Parties: Prospa Group Limited (Plaintiff) Representation: Counsel: J Williams SC (Plaintiff) M Izzo SC (Bidder) Solicitors: Herbert Smith Freehills (Plaintiff) Clayton Utz (Bidder) File Number(s): 2024/199539 Judgment 1. By Originating Process filed on 29 May 2024, the Plaintiff, Prospa Group Ltd ("Prospa") sought orders under ss 411 and 1319 of the Corporations Act 2001 (Cth) ("Act") in respect of a proposed scheme of arrangement. By way of background, Prospa is an Australian and New Zealand online lender to small business and is admitted to the official list of the financial market operated by the Australian Securities Exchange ("ASX"). On 27 February 2024, Prospa announced to ASX that it had entered into a Scheme Implementation Deed ("SID") with a consortium led by Salter Brothers Asset Management Pty Ltd ("SBAM") as trustee for Salter Brothers Tech Trust No 1 ("SBTF") ("Consortium"). The proposed scheme provides for the acquisition, under a scheme of arrangement, of all of the issued shares in Prospa (other than those held by Excluded Shareholders, as defined) by Salkbridge Pty Ltd ("BidCo") which is an entity ultimately owned by members of the Consortium, and for Prospa shareholders (other than Excluded Shareholders and Ineligible Foreign Shareholders, as defined) to elect to receive either $0.45 in cash or a share in an unlisted company, PGL HoldCo Ltd, for each Prospa share they hold at the scheme record date. 2. On 12 June 2024, I made the order convening the scheme meeting for the reasons set out in my judgment in Re Prospa Group Ltd [2024] NSWSC 790 ("Prospa 1"). On 8 July 2024, I made further orders directing the publication of supplementary disclosure to Prospa shareholders by way of an ASX announcement. The scheme meeting was held on 16 July 2024 at around 3:25pm (Sydney time), immediately following a general meeting of Prospa shareholders. The scheme was then approved by the requisite majorities for the purposes of s 411(4)(a)(ii) of the Act. Approximately 82.42% of Prospa shareholders by number present and voting (either in person or by proxy, attorney or corporate representative) and approximately 99.74% of Prospa shares were voted in favour of the resolution. 3. At this second Court hearing, Prospa now seeks orders approving the scheme. No Prospa shareholder or other person indicated an intention to appear at the second Court hearing on 31 July 2024 or appeared to oppose the approval of the scheme. I made the orders sought by Prospa at the conclusion of the second Court hearing on 31 July 2024. These are my reasons for making those orders, and I have drawn on the helpful submissions of Mr Williams, who appears for Prospa, in this judgment. Affidavit and other evidence 1. Prospa reads the affidavit dated 30 July 2024 of its chief financial officer, Mr Aucutt, whose evidence addresses the registration of the scheme booklet with the Australian Securities & Investments Commission ("ASIC"); the dispatch of scheme documents to Prospa shareholders; the conduct of the general meeting and scheme meeting, to which I referred above, and the passage of the relevant resolutions at those meetings; the voting participation rate; the publication of an ASX Announcement giving notice of the second Court hearing; and the tender of a letter from ASIC confirming that it has no objection to the scheme, evidencing satisfaction of the requirements of s 411(17) of the Act and of a conditions precedent certificate, evidencing satisfaction of the conditions precedent to the scheme, other than the condition relating to Court approval of the scheme. 2. Prospa also reads an affidavit dated 30 July 2024 of Mr Salter addressing the reasons for a proposed change in the entities associated with SBAM that would subscribe for about 3.2% of HoldCo shares in connection with the transaction. I address that matter below. Applicable principles 1. The Court must be satisfied of several matters in order to approve a scheme of arrangement at the second Court hearing, namely that the plaintiff has complied with the orders of the Court convening the meeting of members; the meeting of members so convened has approved the scheme with the requisite majorities; all other statutory requirements have been satisfied; the scheme is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it; 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; and there was full and fair disclosure to members of all information material to the decision whether to vote for or against the applicable scheme: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 at [8]-[10]; Re Central Pacific Minerals NL [2002] FCA 239 ("Central Pacific Minerals") at [8]-[14]; Re Seven Network (No 3) (2010) 267 ALR 583; [2010] FCA 400 ("Seven Network") at [35]-[39]; Re Solution 6 Holdings Ltd (2004) 50 ACSR 113; [2004] FCA 1049 at [18]-[24]; Re Redcape Property Fund Ltd and the Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) [2012] NSWSC 486 at [7]; Re Signature Capital Investments Ltd (No 2) [2016] FCA 385 at [4]; Re Atlas Iron Ltd (No 2) [2016] FCA 481 at [5]–[6]; Re Amcor Ltd (No 2) [2019] FCA 842 at [7]-[11]; Re Ellerston Global Investments Ltd [2020] NSWSC 1108 ("Ellerston") at [10]-[12]; Re Coca-Cola Amatil Ltd [2021] NSWSC 489 at [9]; Re Pendal Group Ltd (No 3) [2023] NSWSC 14 at [9]. The Court will also have regard to shareholders' assessment of their interests as manifested in the voting results on the scheme resolution in recognising that shareholders are "the best judges of whether an arrangement is to their commercial advantage": Central Pacific Minerals at [13]; Ellerston at [10]. 2. I also summarised the applicable principles in Re InvoCare Ltd (No 2) [2023] NSWSC 1350 at [8]-[9], to which Mr Williams refers, as follows: "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 ELMO Software Ltd (No 2) [2023] NSWSC 81 ("ELMO") at [7]. 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]." Submissions and determination 1. Mr Williams submits and I accept that Prospa, with one qualification, complied with the Court's orders in respect of the distribution of scheme documents to Prospa shareholders. The qualification is that orders made by the Court at the first Court hearing provided for the dispatch of scheme materials on or around 12 June 2024. The dispatch of those materials was delayed to 17 June 2024, to allow Prospa to satisfy the requirement under s 260B(5) of the Act that it lodge with ASIC a copy of the notice of meeting relating to the financial assistance resolution before the notice of meeting is sent to members. Mr Williams points out that Prospa shareholders were given 28 days' notice of the scheme meeting and I am satisfied this delay was not material. 2. On 8 July 2024, in accordance with the orders made by the Court that day, Prospa made supplementary disclosure to Prospa shareholders by publishing an announcement to ASX titled "Business and Scheme Update" in accordance with an order for supplementary disclosure made by the Court on that date. 3. Mr Williams notes that resolutions were approved by Prospa shareholders at the general meeting, conditional upon the scheme becoming effective, authorising the giving of financial assistance by Prospa to BidCo for the purposes of ss 260A(1)(b) and 260B of the Act and the giving of a financial benefit by Prospa to BidCo for the purposes of s 208(1)(a) of the Act. As I noted above, the scheme was approved at the scheme meeting by the requisite statutory majorities. Approximately 79.24% by number of Prospa shares were voted and approximately 6.07% by number of Prospa shareholders voted at the scheme meeting. That is plainly not a high level of shareholder participation, although it is better than that achieved at Prospa's last three annual general meetings. This matter does not suggest any defect in the notice of the scheme given to Prospa shareholders and does not give rise to any reason not to approve the scheme. 4. Mr Williams also points out that, as noted at the hearing on 8 July 2024 in respect of supplementary disclosure, it was originally expected that all Consortium members would transfer their Prospa shares to BidCo in exchange for HoldCo shares prior to implementation of the scheme. The supplementary disclosure to Prospa shareholders that was approved on that date indicated that one of the Consortium members ("Tubbin") had advised that it may elect to retain its 0.69% holding in Prospa as a direct holding after the scheme, rather than exchanging that holding into HoldCo shares. That has now occurred and Tubbin has provided the undertaking contemplated by the SID by which it agrees to take any action required to ensure it is not advantaged by so electing and that it will dispose of its Prospa shares in compliance with the requirements applicable to HoldCo shares. All other Consortium members have transferred their Prospa shares to BidCo in exchange for HoldCo shares. 5. Mr Williams also notes that, as disclosed in the scheme booklet, the scheme is conditional on Prospa shareholders having made (or having been deemed to have made) as at the Election Time (as defined) and 8.00am on the Second Court Date, elections for the scrip consideration under the scheme in respect of Prospa shares which (together with any "Prospa Shares" held by a "BidCo Group Member", including the "BidCo Group Shareholding", each as defined) comprising at least 73.30% of the Prospa Shares on issue on the Scheme Record Date (as defined). On 30 July 2024, Prospa disclosed to ASX that, as at the Election Time, Prospa shareholders had made, or were deemed to have made, elections exceeding that requirement. Each of the other conditions precedent to the scheme have been satisfied or waived and ASIC has confirmed that it has no objection to the scheme for the purposes of s 411(17)(b) of the Act. I am satisfied that the procedural requirements for approval of the scheme are satisfied. 6. Mr Williams draws attention to one further matter that has arisen in respect of the implementation of the scheme. The scheme booklet disclosed that one of the Consortium members, SBAM as trustee for SBTF, would subscribe for 4,444,444 HoldCo shares at a total subscription price of $2,000,000, representing approximately 3.2% of HoldCo shares on issue assuming scrip elections of 73.3% (scheme booklet, p 72). SBAM now proposes that the $2,000,000 subscription of HoldCo shares be undertaken jointly by SBTF (as to 50%) and by another investment entity managed by SBAM, Salter Brothers Emerging Companies Ltd ("SB2") (as to the other 50%). The affidavit evidence addressed the reasons for that change of approach. I am satisfied that that change is neither material to the rights nor the economic interests of shareholders in respect of the scheme, and the fact that it has arisen after the scheme meeting and was not disclosed in the documents provided prior to the scheme meeting causes no difficulty, given its lack of materiality. 7. Turning now to the exercise of the Court's discretion in respect of the scheme, the scheme was recommended by Prospa's directors and the independent expert whose report was included in the scheme booklet expressed the view that the scheme was fair and reasonable and in the best interests of Prospa shareholders in the absence of a superior proposal. No Prospa shareholder or other person indicated an intention to appear at the second Court hearing to oppose the scheme and there was no such appearance. There is no reason to doubt that the scheme is fair and reasonable so that an intelligent and honest Prospa shareholder, properly informed and acting alone, might approve it. I am satisfied that there is otherwise no reason to doubt that Prospa has brought to the Court's attention all matters that could be considered relevant to the exercise of the Court's discretion and that there was full and fair disclosure to Prospa shareholders of all information material to the decision whether to vote for or against the applicable scheme. I am therefore satisfied that the scheme is appropriate for the Court's approval. 8. Prospa also seeks an exemption under s 411(12) of the Act from compliance with s 411(11) so that a copy of the Court order approving the scheme does not need to be annexed to any copy of Prospa's constitution that may be issued in the future. I am satisfied that such an order should be made where, as here, the rights of Prospa shareholders are not modified by the scheme: Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 at 240; [2003] WASC 19; Re GBST Holdings Ltd [2019] NSWSC 1503 at [15]; Re Bellamy's Australia Ltd [2019] NSWSC 1889 at [16]. Orders 1. For these reasons, I made the orders sought by Prospa at the conclusion of the second Court hearing on 31 July 2024. ********** 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 August 2024