In the matter of Ansarada Group Limited

By Originating Process filed on 26 March 2024, the Plaintiff, Ansarada Group Ltd (“Ansarada”), sought an order under s 411 of the Corporations Act 2001 (Cth) (“Act”) that it convene and hold a shareholder meeting to consider a proposed scheme of arrangement and associated orders. By way of background, Ansarada is a public company limited by shares that is listed on the Australian Securities Exchange (“ASX”), which provides a software-as-a-service platform with products used by companies and governments to govern information and processes. The proposed scheme of arrangement provides for DS Answer Pty Ltd (“Datasite BidCo”) to acquire all of the fully paid ordinary shares in Ansarada under the proposed scheme for a total cash consideration of $2.50 per share. The proposed scheme is conditional upon Ansarada’s shareholders approving, under ASX Listing Rule 10.1 and Chapter 2E of the Act, the acquisition of certain of Ansarada’s businesses (“Carve-Out Assets”), which Datasite BidCo did not wish to acquire, by an entity associated with Mr Sam Riley, Ansarada’s Chief Executive Officer and founder.

On 12 April 2024, I made the order convening the scheme meeting for the reasons set out in my judgment in Re Ansarada Group Ltd [2024] NSWSC 411. The scheme meeting was held on 21 August 2024 and the scheme was then approved by the requisite majorities for the purposes of s 411(4)(a)(ii) of the Act. At this second Court hearing, Ansarada now seeks orders approving the scheme. No Ansarada shareholder or other person indicated an intention to appear at the second Court hearing or appeared to oppose the approval of the scheme. I made the orders sought by Ansarada at the conclusion of the second Court hearing. These are my reasons for making those orders, and I have drawn on the helpful submissions of Mr Izzo, with whom Ms Taylor appears for Ansarada, in this judgment.

Ansarada reads the affidavit dated 23 August 2024 of its chief financial officer, Mr James Drake, who gives evidence as to the dispatch of the scheme documents and the operation of a shareholder information line, which received only two telephone calls, and an outbound call campaign, conducted in the manner drawn to the Court’s attention at the first Court hearing. Mr Drake also referred to numerous communications with shareholders which had not been foreshadowed at the first Court hearing and updated the information concerning those communications in a further affidavit dated 26 August 2024. I address these matters below.

Mr Drake also addressed announcements which had been made to ASX in respect of the deferral of the scheme meeting, while the Australian Competition & Consumer Commission (“ACCC”) was reviewing the proposed transactions, reminder to vote emails, and the manner in which the general meeting to approve the Carve-Out Transaction and the scheme meeting were conducted. Mr Drake gives evidence as to the approval of the Carve-Out Transaction (as defined) by the necessary majority and of the scheme by a substantial majority of votes cast and by number of shareholders at the relevant meetings. He also points out to a relatively high turnout of shareholders, both by number of shareholders and number of shares voted, in comparison with the participation of Ansarada shareholders at recent annual general meetings. Mr Drake notes that he had not been informed of any objections or complaints concerning the scheme and no shareholder appeared at the second Court hearing to oppose approval of the scheme. Mr Drake also addresses publication of notice of the second Court hearing on Ansarada’s and ASX’s websites, consistent with the practice now commonly adopted in schemes of arrangement.

Ansarada also read the affidavit dated 23 August 2024 of its solicitor, Mr Ryan, which addressed the ACCC’s review of the proposed transaction, the registration of the scheme booklet and the giving of notice of the second Court hearing. Ansarada also tendered a letter dated 26 August 2024 from ASIC which indicated, for the purposes of s 411(17)(b) of the Act, that ASIC had no objection to the proposed scheme and a conditions precedent certificate.

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].

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:

I accept that Ansarada complied with the Court’s orders in respect of the distribution of scheme documents to Ansarada shareholders. The necessary resolutions were approved by Ansarada shareholders in respect of the Carve-Out Transaction and, as I noted above, the scheme was approved at the scheme meeting by the requisite statutory majorities with a relatively high level of shareholder participation. This matter does not suggest any defect in the notice of the scheme given to Ansarada shareholders and does not give rise to any reason not to approve the scheme. 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.

As I noted above, an issue arose in respect of communications between Ansarada and its shareholders, outside the framework of the shareholder information line and outbound call campaign, including several email communications and telephone communications, particularly those involving Mr Riley, in the period after the announcement of the proposed scheme and the first Court hearing. Those calls appear to have reflected the content of a document prepared by Ansarada prior to the first Court hearing, headed “Project Answer Q&A Focus Questions”, which was not drawn to the Court’s attention at the first Court hearing, but was in evidence at this hearing. Mr Drake’s evidence, on information and belief from Mr Riley, is that an important focus of the calls was, understandably, on how the Carve-Out Assets were valued and that investors had also asked Mr Riley about his motivations in respect of the transaction. There were also further communications responding to inquiries by Ansarada shareholders in relation to the scheme including questions as to the delay in the scheme resulting from the ACCC’s review of the transactions.

Ansarada also tendered correspondence with ASIC, which had rightly sought further information concerning these communications and whether they had been drawn to the Court’s attention at the first Court hearing. Ansarada’s solicitors responded to ASIC’s inquiries as follows:

I will reach the same conclusion as was put by Ansarada’s legal representatives to ASIC below, but I do not accept aspects of their reasoning in support of that conclusion. It seems to me that the extent of Ansarada’s communications with shareholders prior to the first Court hearing should have been drawn to the Court’s attention at that hearing, and I did not understand Mr Izzo to contend to the contrary at this hearing. The fact that the Court will be concerned with whether those communications adversely affected the integrity of subsequent steps taken in respect of the scheme, recognised in the case law noted below, was sufficient reason for those matters to be drawn to the Court’s attention, although any assessment of their impact would likely have been deferred to the second Court hearing. I also do not accept the proposition that communications concerning the Carve-Out Resolution (as defined) “are not subject to the same prescriptions” as those relating to voting on the scheme. Putting aside those communications for which the Court’s approval is required, the Court will have regard to the content of communications between a scheme company and its shareholders at the second Court hearing, and that review will likely extend to communications concerning a transaction that is closely connected to the scheme. I also refer below to the risk that communications prior to the announcement of a scheme, including with sophisticated shareholders, will affect their response to the explanatory booklet and the scheme. Having said that, I will accept below the submission put by Ansarada’s legal representatives to ASIC that the communications in this matter are not reason for the Court to withhold approval for the proposed scheme.

Mr Izzo also addresses these communications in comprehensive submissions. He points out that Mr Riley; Mr Brake; Mr Duong, who is a financial advisor to Ansarada in relation to the scheme; Mr James, who is Ansarada’s Non-Executive Chairman; and a Client Service Relationship Manager at Ansarada’s share registry had communications with shareholders in respect of the scheme and he refers to a “log” (“Communications Log”) of these communications exhibited to Mr Drake’s second affidavit read at this hearing. Mr Izzo submits, by reference to the case law to which I refer below, that the Court is concerned to assess whether those communications compromised the integrity of the voting process at the scheme meeting or the adequacy of the disclosure and that the communications in this case do not give rise to any reason not to approve the scheme. He submits that:

I have addressed the issues in respect of communications of this kind in Re ResApp Health Ltd [2022] NSWSC 1353 (“ResApp Health”) and more recently in Re Altium Ltd [2024] NSWSC 736 and Re Altium Ltd (No 2) [2024] NSWSC 935 (“Altium 2”). In ResApp Health (at [43]), I did not accept a submission that the Court should not be concerned with communications with shareholders that took place before the first Court hearing, in deciding whether to approve a scheme at a second Court hearing. I there noted that the Court would be concerned about such communications if they adversely affected the integrity of the subsequent steps taken in respect of the scheme. I also there accepted (at [44]) that:

I there accepted (at [46]) that:

I also there accepted (at [47]) a further submission that there would be a real difficulty with setting prescriptive rules for communications with shareholders where the companies which propound schemes of arrangement differ in size, and there is a real distinction between, on the one hand, a scheme between a company and a large number of retail shareholders and, on the other hand, a scheme between a company and small number of sophisticated shareholders who already have a detailed understanding of its operation. Counsel there also pointed to the significance of ex parte disclosure obligations in a scheme of arrangement, and fairly accepted that reliance on those obligations will generally require counsel and solicitors acting in a scheme of arrangement to make inquiries as to the communications between the scheme company or the acquirer and shareholders in respect of the scheme. I also there accepted that the imposition of prescriptive limitations on a company’s or directors’ communications with shareholders would be potentially inconsistent with other obligations arising under the Act, including the directors’ duties provisions.

However, I also there noted (at [48]) that:

In Altium 2 (at [11]), I noted that the Court’s role at this second Court hearing involves an assessment whether these communications compromised the integrity of the voting process at the scheme meeting or the adequacy of the disclosure in respect of the scheme: ResApp Health at [33]; Re Walsh and Company Investments Ltd [2020] NSWSC 1746 at [66]-[67]. I also recognise that a degree of advocacy in respect of a scheme is permissible so long as it is fair and honest: Re Investa Listed Funds Management Ltd [2016] NSWSC 344 at [5]; ResApp at [38].

I again recognise here that the Court has reason to consider communications prior to the first Court hearing, which may have the capacity to adversely affect the scheme process, and at least to shape the view of shareholders as to a scheme in a manner that may well influence their response to the information later included in scheme documents or, to put it differently, “precondition” the market before it has access to that information. There is a further practical reason for concern with communications of this kind, where the Court is reliant on the evidence led by the target company in a scheme as to those communications, and that evidence cannot readily be tested where there is typically no contradictor at a second Court hearing. Having said that, I note that these matters were drawn to ASIC’s attention; it has not intervened to oppose the approval of the scheme at the second Court hearing; no shareholder opposes approval of the scheme at the second Court hearing; and these communications were largely responses to questions which were understandably asked by shareholders where the “carve-out” transaction was an unusual element of the scheme, and the transaction was then delayed by the ACCC’s review, and the responses to those inquiries would not have adversely affected the integrity of the scheme process. The communication of the then voting position to a shareholder was unfortunate but would not have affected the outcome of the scheme. I am satisfied that these communications did not undermine the integrity of disclosure or the voting at the scheme meeting and do not give rise to any reason not to approve the scheme where it has been approved by shareholders by the requisite statutory majorities at the scheme meeting.

Turning now to the exercise of the Court’s discretion in respect of the scheme, 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 Ansarada shareholders in the absence of a superior proposal. No Ansarada 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 Ansarada shareholder, properly informed and acting alone, might approve it. I am satisfied that there is otherwise no reason to doubt that Ansarada 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 Ansarada 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.

Ansarada 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 Ansarada’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 Ansarada 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].

For these reasons, I made the orders sought by Ansarada at the conclusion of the second Court hearing on 27 August 2024.