AWA Mutual Limited, in the matter of AWA Mutual Limited (No 2) [2024] FCA 104

Federal Court of Australia

AWA Mutual Limited, in the matter of AWA Mutual Limited (No 2) [2024] FCA 104 File number(s): VID 935 of 2023

Judgment of: ANDERSON J

Date of judgment: 15 February 2024

Date of publication of reasons: 21 February 2024

Catchwords: CORPORATIONS – scheme of arrangement – second court hearing – approval of scheme – approval granted

Legislation: Corporations Act 2001 (Cth) Federal Court (Corporations) Rules 2000 (Cth)

Cases cited: Re 86 400 Holdings Ltd (No 2) [2021] FCA 524 Re Amcor (No 2) [2019] FCA 842 Re Equinox Resources Ltd (2004) 49 ACSR 692 Re Glendale Land Development Ltd (In Liq) (1982) 7 ACLR 171 Re Infinite Water Holdings Limited (administrators appointed) [2024] FCA 78 Re iSelect Ltd (No 2) (2022) 166 ACSR 41 Re Mosaic Oil NL (No 2) [2010] FCA 1186 Re Security Matters Limited (No 3) [2023] FCA 140 Re TriAusMin Ltd (No 2) [2014] FCA 833 Re United Medical Protection Ltd [2007] FCA 631

Division: General Division

Registry: Victoria

National Practice Area: Commercial and Corporations

Sub-area: Corporations and Corporate Insolvency

Number of paragraphs: 52

Date of hearing: 15 February 2024

Counsel for the Plaintiff: Mr B K Holmes

Solicitor for the Plaintiff: HWL Ebsworth

Counsel for the Interested Person Mr M Hoffmann KC

Solicitor for the Interested Person Wallmans Lawyers

ORDERS VID 935 of 2023 IN THE MATTER OF AWA MUTUAL LIMITED ACN 087 651 652 AWA MUTUAL LIMITED ACN 087 651 652 Plaintiff

order made by: ANDERSON J DATE OF ORDER: 15 february 2024

OTHER MATTERS:

A. There has been produced to the Court a statement in writing by the Australian Securities and Investments Commission (ASIC) in accordance with section 411(17)(b) of the Corporations Act 2001 (Cth) (Act) that ASIC has no objection to the Scheme of Arrangement between the plaintiff (AWA) and its members which was agreed to by the members at a meeting on 29 January 2024, the terms of which are set out in Annexure A to the orders of the Court made on 1 December 2023 (Scheme).

THE COURT ORDERS THAT:

1. Pursuant to section 411(4)(b) of the Act, the Scheme be and is hereby approved. 2. Pursuant to section 411(12) of the Act, AWA be exempted from compliance with section 411(11) of the Act in respect of the Scheme. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

ANDERSON J:

Introduction 1 At the First Court Hearing on 1 December 2023, the Court made orders requiring the plaintiff (AWA) to convene and hold a meeting of its members on 29 January 2024 (Scheme Meeting) to consider a proposed scheme of arrangement (Scheme): Re AWA Mutual Limited [2023] FCA 1551 (FCH Reasons). As I explained in the FCH Reasons at [3], the commercial purpose of the Scheme is to effect the acquisition of all AWA member shares by Beyond Bank Australia Limited (Beyond), which is also a mutual financial services organisation which provides banking services to its members. 2 On 11 December 2023, the Court made orders amending the 1 December 2023 orders to provide for certain amendments to be made to the Scheme booklet prior to its dispatch to members and amending the date of dispatch. The 1 December 2023 orders, as amended by the 11 December 2023 orders, are referred to below as the FCH Orders. 3 The Scheme Meeting was held on 29 January 2024. At the Scheme Meeting, the resolution to agree to the Scheme was approved by 98.83% of the votes cast. Under the AWA Constitution, a member of AWA may only hold one share in AWA, and each share confers the right to one vote at member meetings (save in respect of minors, who are not permitted to vote): FCH Reasons at [22], [24]. It follows that the resolution to agree to the Scheme was approved by 98.83% of shareholders present and by proxy voting. 4 At a hearing listed on 15 February 2024, AWA sought an order approving the Scheme (Second Court Hearing). The intervener, Beyond, appeared at the hearing to make brief submissions in further support of the orders sought by AWA. 5 At the hearing, I was satisfied that all applicable statutory and procedural requirements for approval of the Scheme had been met, and that it was appropriate that the Court exercise its discretion in favour of approving the Scheme. I accordingly made orders in the terms sought by AWA. My reasons follow.

Evidence 6 At the Second Court Hearing, AWA relied on the following affidavit evidence: (a) the affidavit of Peter Richardson affirmed on 12 February 2024 (Richardson Affidavit). Mr Richardson is a director and the Chairman of AWA. Mr Richardson deposes to, amongst other things, the purpose of the Scheme, the dispatch of the Scheme booklet, the conduct of the Scheme Meeting on 29 January 2024, including shareholder participation in that meeting, and the conduct of a General Meeting on the same day, following the Scheme Meeting; and (b) the affidavit of Jonathan Alan Kramersh affirmed on 12 February 2024 (Kramersh Affidavit). Mr Kramersh is a lawyer at HWL Ebsworth Lawyers. The Kramersh Affidavit deposes to the registration of the Scheme booklet with the Australian Securities and Investments Commission (ASIC) and AWA's advertisement of the Second Court Hearing. 7 AWA prepared its evidence consistently with the Court's Schemes of Arrangement Practice Note (GPN-SOA) dated 13 October 2023, and the approach outlined by Jackman J in Re Vita Group (No 2) [2023] FCA 623. 8 In Re Vita Group (No 2), Jackman J accepted as sufficient, for the purposes of approving a scheme at a second court hearing: (a) a short affidavit annexing the results of the poll taken at the scheme meeting and annexing the announcement advising shareholders of the details of the second court hearing; (b) the tender of conditions precedent certificates to the effect that all conditions precedent had been satisfied or waived; (c) the tender of a letter from ASIC pursuant to s 411(17)(b) of the Corporations Act 2001 (Cth) stating that ASIC had no objection to the scheme: at [2]. 9 Subsequent to Jackman J's decision in Re Vita Group (No 2), this Court issued GPN-SOA, which requires a scheme proponent to include some additional matters in its evidence for a second court hearing. In particular, GPN-SOA requires evidence concerning the dispatch of the Scheme materials and evidence of shareholder participation at the Scheme Meeting, by way of percentages by number of shares and headcount of the shareholders who cast a vote compared to the total number of shares on issue and shareholders. I am satisfied that this evidence is addressed in the Richardson Affidavit. 10 In advance of the Second Court Hearing, AWA and Beyond emailed to my chambers a no objection letter under s 411(17)(b) of the Act received from ASIC, as well as conditions precedent certificates to the effect that all conditions precedent had been satisfied or waived. After the case management hearing those documents were annexed to an affidavit by Sandra Anderson, Chair of Beyond, affirmed on 15 February 2024 and a further affidavit of Mr Kramersh affirmed on 15 February 2024.

Role of the Court 11 Section 411(4) of the Act provides that a members' scheme of arrangement is binding if, at a meeting of members, it is agreed to by the requisite majorities of members present and voting and by number of votes cast, and it is subsequently approved by order of the Court. 12 Before approving a scheme, the Court will need to be satisfied not only that the resolution to agree to the scheme has been passed in accordance with the statutory majorities, but that all other statutory and procedural requirements in relation to the convening and conduct of the meeting have been observed. The Court must be satisfied that the meeting was properly convened and conducted in accordance with the orders made at the First Court Hearing, and that all requirements of the Act and the Federal Court (Corporations) Rules 2000 (Cth) have been complied with. Once satisfied that all statutory and procedural requirements have been met, the Court has a discretion to approve a scheme pursuant to s 411(4)(b) of the Act: Re iSelect Ltd (No 2) (2022) 166 ACSR 41 (Anderson J) at [7] (and the authorities there cited). 13 The considerations relevant to the exercise of the Court's discretion to approve a scheme are well established, and they have been considered in a number of decisions. In Re Amcor (No 2) [2019] FCA 842, Beach J held that: 7. In essence, my role at the second court hearing is to assess the Scheme taking into account whether the Scheme is sufficiently fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it. Of course, I can only approve a scheme of arrangement if the requisite majority of shareholders vote in favour of it, but I am not bound to approve the Scheme simply because I previously made orders for the convening of a Scheme meeting and subsequently the requisite majority agreed to it. But I accept that shareholders voting collectively at the Scheme meeting are better judges than I of what is to their commercial advantage and in their interests and accordingly, absent good reason, I should give effect to their intentions. … 11. Now as I have said, my task is to consider whether the Scheme is fair and reasonable with the test of fairness and reasonableness including a consideration of whether "an intelligent and honest [shareholder], properly informed, acting alone, might approve [the scheme]" … But the Scheme shareholders' vote in favour of the Scheme is evidence of its inherent fairness. Put another way, if a majority of the Scheme shareholders have approved the Scheme, it is unlikely that the Scheme would be unreasonable. Further, I do not have to be satisfied that no better Scheme could have been devised. 14 The above paragraphs have been quoted with approval in a number of subsequent decisions: see, eg, Re iSelect at [8] and Re 86 400 Holdings Ltd (No 2) [2021] FCA 524 (Anderson J) at [11].

Statutory and procedural requirements

Dispatch of the Scheme materials 15 The Scheme booklet and associated materials were dispatched to members in accordance with the FCH Orders, save in respect of two departures, which are deposed to in the Richardson Affidavit at [7]–[8]. 16 Pursuant to s 1322(2) of the Act, any procedural irregularity in connection with a proceeding under the Act which has not caused any substantial injustice is automatically validated. No express order curing the irregularity is required. 17 In my opinion, the procedural irregularities identified by AWA engaged s 1322, such that they were automatically validated. My reasons follow. 18 The FCH Orders relevantly provided as follows with respect the dispatch of Scheme materials: 3. Pursuant to subsection 411(1) and section 1319 of the Act, the Scheme Meeting be convened by sending on or before [2 January 2024]: (a) in the case of each AWA Member for whom AWA has an email address on record (other than any AWA Member who has elected to receive member communications from AWA in hardcopy) (Email Member) an email containing hyperlinks which: (i) enable the Email Member to view and download an electronic copy of a document substantially in the form of the document which is [Annexure GH13 to the affidavit of Gavin John Heathcote affirmed on 8 December 2023] filed in this proceeding (Scheme Booklet); (ii) provide access to an online portal or website which enables the Email Member to lodge a proxy and voting instructions for the Scheme Meeting online; and (iii) provide access to an online portal or website which enables the Email Member to view, listen to and participate in the Scheme Meeting online. (b) in the case of each AWA Member who is not an Email Member (Hardcopy Members): (i) an access postcard setting out URL addresses from which Hardcopy Member can: (A) view and download an electronic copy of the Scheme Booklet; (B) lodge online a proxy for the Scheme Meeting and voting instructions; and (C) view, listen to and participate in the Scheme Meeting online; (ii) a hardcopy of the Scheme Booklet; (iii) a hardcopy proxy form and a reply-paid envelope to lodge the proxy form and voting instructions for the Scheme Meeting. 4. The documents referred to in order 3(b) be sent by prepaid ordinary post to the AWA Member's address recorded in AWA's register of members. 19 There were two areas of non-compliance with the above orders. 20 First, contrary to order 3(b), a letter was sent rather than a postcard. The letter was otherwise in compliance with orders 3(b) and 4. In my opinion, the difference between a postcard and a letter is immaterial and on no view could that difference have caused substantial injustice. 21 Secondly, the material dispatched by letter and email to minors – being anyone who was not 18 years of age as at the "Scheme Record date – departed in form to the material dispatched to other members. The FCH Orders did not, however, differentiate between minors and other members for the purposes of specifying the material to be dispatched. 22 The relevant departures were described in the Richardson Affidavit. The letter sent to minors (Minor Letter) included a URL address from which the minor could view and download an electronic copy of the Scheme booklet. Contrary to order 3(b), the Minor Letter did not enclose a hardcopy of the Scheme booklet, but included instructions for how a minor could obtain a hardcopy of the Scheme booklet. The Minor Letter also did not include a URL address for the online meeting platform for online participation in the Scheme meeting, a URL address from which the minor could lodge a proxy online, a hardcopy proxy form, or a reply-paid envelope. 23 The Minor Letter was sent by email to minors who were Email Members. In this respect, AWA did not comply with the requirements of order 3(a)(ii) and (iii) of the FCH Orders, which respectively required all Email Members to be sent an email containing links which enabled the member to lodge proxy and voting instructions online and participate in the Scheme Meeting online. The other requirement of order 3(a) was complied with, namely, the email included a link which enabled the member to view and download an electronic version of the Scheme booklet. 24 In assessing the significance of this departure, it is important to bear in mind that the position with respect to the voting rights of minors was addressed at the First Court Hearing, and the FCH Orders were made on the basis that, although minors are entitled to participate in the Scheme if it is implemented, they would not be entitled to vote at the Scheme Meeting. It is apparent from the Richardson Affidavit that the reason for the departure from the FCH Orders was that minors had no right to vote at the Scheme Meeting. 25 I was satisfied that AWA's non-compliance with the FCH Orders in dispatching materials to minors did not cause any substantial injustice, and that the proceedings at the Scheme Meeting were therefore automatically validated by reason of s 1322. In reaching this conclusion, I had regard to the following: (a) all members received more than the required 21 days' notice of the Scheme Meeting; (b) although minors who were Hardcopy Members did not receive a hard copy of the Scheme booklet, they were provided a URL address from which they could view and download an electronic copy of the Scheme booklet, and were provided instructions for how to obtain a hard copy of the Scheme booklet; (c) the fact that the resolution to agree the Scheme was approved by 98/83% of votes cast, reflecting overwhelming support for the Scheme at the Scheme Meeting: Re Mosaic Oil NL (No 2) [2010] FCA 1186 at [14]–[15] (Jacobson J); (d) the lack of evidence that any member held any concerns in relation to the receipt of the Scheme materials, or of any injustice or prejudice having been suffered: Re 86 400 at [44]. 26 In the circumstances, I was of the opinion that, it could not be said that there was any realistic possibility the irregularities could have affected the outcome of the Scheme Meeting. 27 Where there is no substantial injustice, s 1322(2) operates in relation to the meeting, such that the meeting and the resolution are valid, notwithstanding any irregularity. Accordingly, pursuant to s 1322(2), the resolution passed at the Scheme Meeting was not invalid merely because of the procedural irregularity: Tri-Force Enterprise Limited v Infinite Water Holdings Limited, in the matter of Infinite Water Holdings Limited (administrators appointed) [2024] FCA 78 at [76] (Goodman J). 28 Apart from the matters noted above, there were no issues or irregularities with respect to dispatch, and I was satisfied that all other statutory and procedural requirements have been complied with.

Results of Scheme Meeting 29 In accordance with the FCH Orders, the Scheme Meeting commenced at approximately 6.01pm on 29 January 2024. It was conducted simultaneously in-person and online via an online meeting platform. Mr Richardson was chairperson of the Scheme Meeting. 30 At the Scheme Meeting, the resolution to agree to the Scheme was approved by 98.83% of the votes cast and by 98.83% of shareholders present and by proxy voting. It follows that the resolution was passed by the requisite statutory majorities. 31 In addition, as noted in the FCH Reasons at [82], ASIC proposed that AWA tag votes of non-joint members at the Scheme Meeting. This was to identify whether there was a significant discrepancy in the votes of non-joint members and joint members which may warrant further scrutiny by the Court. 32 The tagging of the votes of non-joint members at the Scheme Meeting revealed no such discrepancy, as 98.58% of non-joint members voted were in favour of the Scheme.

Voter turnout 33 The number of shares voted at the Scheme Meeting as a percentage of AWA's total issued share capital was relatively low, at 14.26%. The number of members who voted as a percentage of the total number of AWA's members was the same. 34 AWA submitted, and I accepted, that this did not give rise to any concern that members were deterred from attending the meetings or did not have notice of them. The leading authority on the Court's approach to low voter turnout is Re TriAusMin Ltd (No 2) [2014] FCA 833. In that case, Farrell J approved a scheme where 10.94% of shareholders, holding 52.90% of shares, voted at the scheme meeting. Justice Farrell held as follows (at [10]): Although the statutory requirement under s 411(4)(a)(ii) has been satisfied, it is the usual practice of the court at the second court hearing to consider the number of shareholders who attended the Scheme Meeting in person or by proxy. Low shareholder turnout may be an indication that some procedural irregularity occurred. It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme: Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [7] and Re Seven Network Ltd (No 3) (2010) 267 ALR 583 (Re Seven Network Ltd) at [61] per Jacobson J; apathy should not be presumed to be antagonism: Re Matine Ltd (1998) 28 ACSR 268 at 295 per Santow J. 35 Similarly, in Re Amcor (No 2) at [18]–[20], Beach J held as follows: 18. Now I would note that shareholder turnout was relatively low, although the number of shares voted as a percentage of Amcor's total issued share capital was high. In particular: (a) 6.70% of Amcor's shareholders voted on the resolution; and (b) 72.20% of shares were voted on the resolution. 19. But the low voter turnout at the Scheme meeting does not give rise to any concern that shareholders were deterred or did not have notice of the Scheme meeting. In this respect: (a) except for minor procedural irregularities, there is nothing to suggest that there was any irregularity in the manner of dispatch of material to the shareholders; (b) shareholders were provided with notice of the Scheme meeting; (c) there is no evidence of any issue that would have deterred shareholders from voting at or from attending the Scheme meeting; and (d) those shareholders who did vote voted overwhelmingly in favour of the Scheme. 20. Moreover, the comments of Santow J in Re Matine Ltd (1998) 28 ACSR 268 at 295 that: "[t]he apathetic shareholder who chooses not to vote upon a scheme should not be presumed to be antagonistic to the scheme or to warrant paternalistic protection" are entirely apposite to the present context." 36 The approach taken in Re Amcor and in Re TriAusMin Ltd (No 2) has been consistently applied in numerous subsequent cases: see Re iSelect at [33] (and the cases there cited). 37 I was satisfied that the observations in Re Amcor and in Re TriAusMin Ltd (No 2) set out above applied equally to the present matter, and that the relatively low voter turnout did not give rise to any concern that members were deterred from attending or did not have notice of the meeting. In particular: (a) all members were provided with notice of the meeting; (b) there was no evidence of any issue that would have deterred members from voting at or from attending the meeting; (c) the evidence was that AWA had not received any complaint from any member that they did not receive notice of the meeting; and (d) those members who did vote, voted overwhelmingly in favour of the Scheme.

Notice of Second Court Hearing 38 Order 8 of the FCH Orders required that, by no later than 9 February 2024, AWA publish an announcement on its website setting out the details for the Second Court Hearing and the process for any person wishing to appear at that hearing to oppose the approval of the Scheme. 39 I was satisfied, on the basis of the Kramersh Affidavit, that this order had been complied with, and no notice had been received from any person wishing to appear at the Second Court Hearing to oppose the approval of the Scheme. Conditions Precedent 40 The Scheme was subject to a number of conditions precedent, including that AWA members vote in favour of the Scheme AWA Constitutional Amendments, APRA approves the Statutory Transfer, and the Court approves the Scheme at the Second Court Hearing. 41 Before approving a scheme, the Court will ordinarily require that all conditions precedent to the scheme (other than the Court's approval of the scheme and the scheme coming into effect) have been satisfied or waived. The concern of the Court in this respect is to remove any future doubt as to the binding nature of the scheme: Re Glendale Land Development Ltd (In Liq) (1982) 7 ACLR 171 at [178]-[179]; Re United Medical Protection Ltd [2007] FCA 631 at [19]. 42 I was satisfied that all conditions precedent to the scheme had been satisfied or waived. AWA filed an affidavit of Mr Kramersh made on 15 February 2024 which exhibited certificates that the conditions precedent had been satisfied. The intervener, Beyond, also provided to my chambers an affidavit of Ms Anderson made on 15 February 2024 which confirmed that all conditions precedent had been satisfied.

Discretion 43 In exercising its discretion whether to approve a scheme, the Court will consider whether the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it: Re iSelect at [41]; Re 86 400 at [65]; Re Security Matters Limited (No 3) [2023] FCA 140 (O'Callaghan J); at [124]–[125]; Re Amcor at [7]–[11]. 44 AWA submitted that this test was satisfied in the present case in the light of the following: (a) the overwhelming support of the AWA members reflected in the voting results of the Scheme Meeting. The shareholders' vote in favour of a scheme is evidence of its inherent fairness: see, eg, Re Amcor (No 2) at [11]; (b) the recommendation from the directors that members vote in favour of the Scheme, for the reasons given in the Scheme booklet, and the fact that each AWA director stated their intention to vote the AWA shares held or controlled by them in favour of the Scheme: FCH Reasons at [8]; (c) the opinion of the independent expert that the Scheme was in the best interests of AWA members: FCH Reasons at [9]; (d) the disclosures in the Scheme booklet which set out a detailed description of the proposed Scheme, including its potential benefits and disadvantages: FCH Reasons at [10]; (e) there was no application to oppose the orders approving the Scheme, and no evidence suggesting any oppression in the conduct of the Scheme Meeting; and (f) the Scheme contained measures to protect shareholders against performance risk: FCH Reasons at [68]–[69]. 45 I accepted that, in the light of each of these matters, the Court ought to exercise its discretion in favour of approving the Scheme.

Section 411(17) 46 The Court's power to approve a members' scheme is restricted by s 411(17) of the Act. At the approval stage, the Court must be satisfied there is no proscribed purpose as described in s 411(17)(a), or there must be provided to the court a statement in writing by ASIC that it has no objection to the arrangement (see s 411(17)(b)): Re iSelect at [47]. 47 On 14 February 2024, ASIC wrote to the directors of AWA advising that it had no objection to the proposed scheme of arrangement under Part 5.1 of the Act. It follows that the bar to approval of the Scheme arising under s 411(17) was lifted, and it was not necessary for me to be satisfied that there is no proscribed purpose as described in s 411(17)(a) of the Act.

Exemption from section 411(11) 48 Section 411(11) of the Act requires, subject to s 411(12), that a copy of the Court's order approving a scheme of arrangement be annexed to every copy of the company's constitution issued after the order is made. Section 411(12) allows the Court to exempt a body from compliance with this provision or to determine the period during which it shall comply. 49 In Re Equinox Resources Ltd (2004) 49 ACSR 692 at [22], EM Heenan J indicated that the purpose of s 411(11) was: ... to ensure that any modification of the rights of shareholders of the company which is the subject of the scheme or any other provision in the scheme which may affect the interests of persons dealing with the company, such as prospective creditors or purchasers of shares, will be sure to have the opportunity of seeing what the exact rights of shareholders in the company or of its creditors are, as modified, if at all, by the scheme which has been approved. 50 The above passage has been quoted with approval in a number of subsequent decisions: see Re iSelect at [53] (and the cases there cited). 51 I was satisfied that exemption from compliance with s 411(11) was appropriate in the present case, given that: (a) the Scheme would not alter the constitution of AWA or the rights of AWA members, creditors or other persons dealing with the company; (b) no ongoing purpose would be served by requiring the orders approving the Scheme to be annexed to AWA's constitution; (c) current members of AWA were fully informed of the Scheme and would be informed upon the Court approving the Scheme; (d) immediately following implementation of the Scheme, AWA would be a wholly owned subsidiary of Beyond, which is well aware of the Scheme; and (e) an order under s 411(12) of the Act is regularly made on the above basis: Re iSelect at [54(d)] (and the authorities there cited).

Disposition 52 For the above reasons, I was satisfied all applicable statutory and procedural requirements for approval of the Scheme had been met and that it was appropriate that the Court exercise its discretion in favour of approving the Scheme. I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anderson.

Associate: Dated: 21 February 2024