Facilitate Digital Holdings Limited [2013] QSC 301

SUPREME COURT OF QUEENSLAND CITATION: Re Facilitate Digital Holdings Limited [2013] QSC 301 PARTIES: FACILITATE DIGITAL HOLDINGS LIMITED ACN 093 823 253 (applicant) FILE NO/S: BS 10058 of 2013 DIVISION: Trial Division PROCEEDING: Originating Application ORIGINATING COURT: Supreme Court of Queensland DELIVERED ON: 30 October 2013 DELIVERED AT: Brisbane HEARING DATE: 30 October 2013 JUDGE: Philip McMurdo J ORDERS: 1. Pursuant to section 411(2) of the Corporations Act 2001 (“the Act”), time is abridged to the extent necessary to allow this matter to proceed today. 2. The applicant is to convene a meeting of those members of the applicant who come within the meaning of the term “Scheme Shareholders” within the proposed scheme in the manner contemplated by the notice of meeting set out in the schedule to this order (“Notice of Meeting”) and to consider the business set out in the Notice of Meeting. 3. Approval be given for the publication of the explanatory statement forming exhibit RR-02 to the affidavit of Rocco Russo filed by leave today to accompany the Notice of meeting on condition that: a. paragraph 6.8 be amended to state the last recorded sale price on the day before lodgement of the statement with ASIC provided that the statement must be lodged no later than 31 October 2013; and b. the notice of meeting in appendix 3 be that referred to in these orders; c. the table in paragraph 7.7(d) be amended in accordance with the attachment to Exhibit MMH20 to the affidavit of Michelle Marie -- 1 of 5 -- 2 Hyams filed by leave today; and d. a statement be included in paragraph 7.7(d) explaining that the table in that section differs from the table in section 5.3 of the Independent Expert’s Report because it is based on a share price of 13 cents (the closing price of Adslot Ltd shares on 25 October 2013) whereas the table in the Independent Expert’s Report is based on a share price of 5.5 cents (Adslot Ltd’s 90-day volume weighted average price of $0.055 on 11 September 2013). CATCHWORDS: CORPORATIONS – ARRANGEMENTS AND RECONSTRUCTIONS – SCHEMES OF ARRANGEMENT OR COMPROMISE – APPLICATION FOR ORDER FOR MEETING – where the proposed arrangement is for the applicant company to obtain shares in another company in exchange for that company transferring shares to the applicant company – whether the court should order for a meeting of the applicant company’s shareholders to be convened COUNSEL: N H Ferrett for the applicant SOLICITORS: Cooper Grace Ward for the applicant -- 2 of 5 -- HIS HONOUR: This is the first hearing of an application for the approval of a scheme under section 411 of the Corporations Act 2001. The applicant, Facilitate Digital Holdings Limited, is a company listed on the ASX. Clearly it is a part 5.1 body and the proposed arrangement is an arrangement within section 411. The scheme is for the acquisition of the shares in the applicant by Adslot Limited, another ASX listed company, 5 in exchange for shares in Adslot. The scheme provides for the transfer of one share in the applicant for 1.216 shares in Adslot. The proposed timing of the scheme is that a meeting would be held to consider the scheme on 4 December 2013 and if approved at that meeting, the scheme would be further considered by the court in the second hearing on 9 December 2013. If approved by the court, the scheme would be implemented in effect 10 within 10 business days of then. The shares in the applicant consist of one class and number 225,107,552 shares. There is a small percentage, or precisely 0.017 per cent of those shares, which are held by members outside Australia. It is proposed that those shareholders would receive cash by the 15 equivalent number of Adslot shares being allocated to them but then immediately sold and the proceeds paid to them. There are some employees of the company who hold share options, but in each case the employee has agreed to cancel the option. In these circumstances, there is no need for the scheme to be considered by separate classes of shareholders. 20 As I have said, the group of foreign shareholders is relatively very small. Those proposing the scheme have also considered the position of any shareholder in the company who could be described as affiliated with Adslot. But the material shows that with one possible exception, there is no shareholder of that kind. The possible exception is Mr Lowe, who is 25 the CEO of Adslot, but he has undertaken not to vote his shares at a meeting to consider this scheme. The board of the company has appointed Pitcher Partners as experts to assess the scheme. Their report is within the proposed explanatory statement. The opinion of Pitcher Partners 30 is that the scheme is fair and reasonable in the interests of shareholders and the applicant. The board of the applicant accepts that advice and is unanimously of the view that the scheme should be recommended to shareholders. The Australian Securities and Investments Commission has been advised of this hearing, 35 although with less notice than the period of 14 days prescribed by section 411(2). ASIC, however, agrees to that short notice in its letter to the applicant’s solicitors of 29 October 2013 and it is appropriate then for the court to permit, in terms of subsection 411(2), this application to proceed with less than the required notice of 14 days. In the same letter ASIC advises that in accordance with its usual practice it will not provide a statement in 40 this first hearing under section 411(17)(b) of the Act, but that it may wish to do so on the second hearing. In that letter, ASIC continues that it has had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement and that it does not “currently propose 45 to appear to make submissions or intervene to oppose the schemes at the first hearing”. I mentioned the proposed timing of the implementation of this scheme. Having regard to that and the other mechanics of the implementation which are explained in the evidence, it is my view that there is no significant “performance risk” in this case. There are exclusivity provisions agreed between the applicant and Adslot in not uncommon terms 50 -- 3 of 5 -- 4 which would prevent the applicant, to an extent, from dealing with other persons in a way which would put paid to this proposal. Those provisions need not be discussed. As I have said, they are in not uncommon terms. But mention should be made of the break fee agreed in this case which in an amount of 5 $300,000. This well exceeds the threshold of 1 per cent of the total consideration under proposed scheme or, in the present case amounting to the same thing, the assessed value of the company’s equity. In effect, the break fee represents about 3.9 per cent of that consideration or value. The concern then is that a fee of that size might unduly influence the members’ consideration of the merits of the scheme. But I am persuaded that the size 10 of the fee in the context of this company should not have that effect and that the fee can be seen to be not unreasonable, having regard to the following circumstances. The first is that the size of this transaction is relatively small. Any transaction of this kind is likely to involve substantial expense to the company in the position of Adslot here regardless of the relative size of the consideration. There is evidence from Mr Dixon, an executive director 15 and acting CEO of the applicant, to the effect that he believes that the fee is reasonable when assessed against what he understands to be the expense to Adslot. Further, he says that Adslot has resisted a lower fee. Therefore, I am prepared to allow the scheme to go forward, notwithstanding the size of that fee. 20 More generally, I am satisfied that the scheme is one which should be allowed to go forward for consideration by creditors at a meeting convened under section 411. I am asked to approve the explanatory statement. The draft statement with one exception would comply with all of the relevant regulations. 25 The exception is that Adslot must be updated to show the last recorded sale price of shares yesterday, having regard to regulation 8308. The explanatory statement is also supported by evidence from Mr Dixon, more particularly in paragraph 42 of his affidavit, that all statements of fact contained within it, to the extent that they relate to the applicant 30 company, have been verified by appropriate officers, employees and advisers of the applicant as being true and correct, and by his evidence in paragraph 43 that he has confirmed that the statements relating to the applicant in the draft explanatory statement accurately set out the opinions of all of the directors in relation to the scheme. 35 Overall, I am persuaded to approve the draft with the exception, as I have mentioned, of that matter being updated as to the sale price, and also upon condition that the draft be updated to show the proposed notice of the meeting. Accordingly, there’ll be orders that pursuant to section 411 (2) of the Corporations Act, time be abridged to the extent necessary to allow this hearing to proceed today. It will be 40 ordered that the applicant is to convene a meeting of those members of the applicant who come within the meaning of the term “scheme shareholders” within the proposed scheme in the manner contemplated by the notice of meeting set out in the schedule to the court’s order, and to consider the business set out in the notice of meeting. It will be further ordered that approval be given for the publication of the explanatory statement forming 45 exhibit RR2 to the affidavit of Rocco Russo filed by leave today to accompany the notice of meeting on the conditions that: (a) paragraph 6.8 of that statement be amended to state the last recorded sale price on 29 October 2013; and 50 -- 4 of 5 -- 5 (b) the notice of meeting in appendix 3 of that statement be in terms of that referred to in these orders. And I’ll ask counsel to prepare a formal order incorporating those orders and present it to 5 me for signing. ADJOURNED [1.12 pm] 10 RESUMED [4.41 pm] HIS HONOUR: Earlier today, I made orders at the conclusion of the first hearing of an 15 application for approval of a scheme for this company. This afternoon, correspondence between the solicitors for the company and ASIC has raised a matter which has caused the company to wish to amend the explanatory statement. The concern raised by ASIC is, in my view, satisfactorily met by the changes to the statement which are now proposed and which are reflected in the order which I have signed. Those changes appear at paragraph 20 3(c) of these orders. I have also changed paragraph 3(a) of the orders made earlier today for the circumstance that the documents may not be able to be lodged with ASIC today and instead will be lodged tomorrow. For these reasons, I have made the further order which I have signed and placed with the file. -- 5 of 5 --