Cannatrek Ltd, in the matter of Cannatrek Ltd (No 2) [2026] FCA 657

This was the second Federal Court hearing for a scheme of arrangement involving Cannatrek Ltd. Cannatrek wanted the Court to approve a transaction under which Little Green Pharma Ltd, or LGP, would acquire all Cannatrek shares. The structure of the consideration mattered. Cannatrek shareholders were not simply being paid cash. They were to receive 1.835806 new LGP ordinary shares and 0.727502 new LGP CV shares for each Cannatrek share they held.

The contingent value shares were commercially important because their value could be affected by Cannatrek liabilities, including losses arising from litigation, prosecution or other proceedings. That became central later when a TGA regulatory matter developed after the shareholder vote. The case is therefore not just about whether the paperwork for a scheme was done properly. It is also about how the Court deals with a significant post-meeting development that may affect part of the consideration.

The Court had already made convening orders on 3 March 2026. Those orders required Cannatrek to convene a scheme meeting and send the scheme booklet to shareholders. The second hearing on 25 May 2026 was the approval hearing. At that stage, the Court's role was not to renegotiate the commercial bargain. Its task was to decide whether the statutory and procedural requirements had been met and whether, in the exercise of its discretion, the scheme should be approved.

The judgment gives a detailed picture of the mechanics the Court expects to see. Cannatrek lodged an office copy of the convening orders with ASIC on 3 March 2026. On 4 March 2026, a copy of the scheme booklet was registered with ASIC. The convening orders required the booklet to be sent to shareholders on 4 March 2026. All Cannatrek shareholders were email shareholders, so the primary method was an email containing a hyperlink to a document from which the shareholder could view and download the scheme booklet and lodge an electronic proxy appointment.

Six emails bounced back. The orders had already anticipated that possibility. On 6 March 2026, hard copies of the scheme booklet and proxy form, together with a reply-paid envelope, were sent to those six shareholders. The Court treated this as important evidence of compliance with the orders, not as a minor administrative detail.

The process then changed because LGP's proposed contract to sell and lease back its Busselton production facility in Western Australia was terminated. That proposed transaction had been referred to in sections 7, 8, 9 and 10 of the original scheme booklet. Cannatrek therefore prepared a supplementary scheme booklet. It provided a draft to ASIC on 26 March 2026. ASIC said it did not propose to make submissions on, or intervene to oppose, dispatch of the supplementary booklet, and also noted that it does not register supplementary disclosures for schemes of arrangement.

Cannatrek then sought supplementary court orders. On 31 March 2026, the Court made those orders, requiring the supplementary booklet to be sent in the same way as the original booklet and requiring an office copy of the supplementary orders to be lodged with ASIC. The supplementary booklet was dispatched on 31 March 2026.

The Court specifically considered timing. The supplementary booklet was sent ten days before the scheme meeting, but only eight days before the proxy deadline. ASIC Regulatory Guide 60 generally treats ten days as the appropriate amount of time for supplementary information before the proxy due date. Even so, the Court held that eight days was sufficient here because the supplementary disclosure was confined and there was no change to the directors' recommendation or the independent expert's opinion.

The Court set out the usual matters it considers at an approval hearing under s 411(4)(b) of the Corporations Act. First, it checks that the Court's own orders about convening the meeting and the approval hearing have been complied with. Secondly, it checks that the members passed the scheme resolution with the required majorities. Thirdly, it considers whether there has been full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme. Fourthly, it considers whether the scheme is fair and reasonable, in the sense that an intelligent and honest member of the relevant class, properly informed and acting alone, might approve it.

The Court also considers whether the company has brought to its attention all matters relevant to the exercise of discretion, whether ASIC has had the opportunity to raise concerns, whether the conditions precedent have been satisfied or waived apart from court approval, and whether the requirement in s 411(17) has been met. In this case, ASIC provided a no-objection statement dated 22 May 2026 under s 411(17)(b).

The more difficult issue was the later TGA development. After the scheme meeting, Cannatrek's solicitors received a without prejudice letter from the Australian Government Solicitor on behalf of the TGA. On 30 April 2026, Cannatrek and the TGA reached an in-principle agreement concerning alleged contraventions and an associated civil penalty. The Court had to decide whether that later development should stop approval.

The Court adopted the established approach from earlier scheme cases. The question was whether reasonable shareholders, if they had known of the new information before the meeting, would have altered their position to such a degree as to be likely to alter the result of the meeting. That is a practical threshold. It is not enough that some shareholders might have wanted more information or might have viewed the deal less favourably. The issue is whether the later event was likely to change the outcome of the vote.

The scheme meeting was held on 10 April 2026 at the offices of K&L Gates in Melbourne and was also accessible online. It was conducted in compliance with Pt 2G.2 of the Corporations Act and Cannatrek's constitution. Mr Dennison chaired the meeting. Voting was conducted by poll, and proxy forms lodged by the deadline were counted.

The voting result was strong. The scheme resolution passed by 98.44% of votes cast and by 96.15% of shareholders present and voting. The number of shares voted represented 77% of Cannatrek's total issued share capital eligible to vote. The number of shareholders who voted represented 19.16% of the total number of eligible shareholders. Cannatrek also gave evidence that shareholder turnout at its 2024 annual general meeting had been only 1.95%, and the Court accepted that the scheme meeting turnout was relatively high, so the concerns that can arise in very low turnout cases did not arise here.

The approval hearing itself was delayed twice. It had first been listed for 21 April 2026, then re-listed to 24 April 2026, and finally to 25 May 2026. The reason was that LGP still needed its own shareholders to vote on resolutions approving the scheme consideration. The LGP general meeting was first postponed because of delays in finalising and issuing its notice of meeting. It was then postponed again to allow more time for conditions precedent to be satisfied and because of the TGA development.

Cannatrek kept shareholders informed about the adjournments. The Boardroom website announcement had been published on 4 March 2026 in place of a newspaper notice, because the Court had dispensed with newspaper publication. After the first re-listing, Cannatrek updated the Boardroom website announcement on 31 March 2026. After the second adjournment, Cannatrek emailed shareholders on 24 April 2026 to notify them that the approval hearing had moved to 25 May 2026. There were two bounce-back notifications, but Cannatrek obtained an alternative email address for one shareholder and contacted the other by telephone. Neither raised any issue in relation to the scheme.

No shareholder or other person appeared to object at the approval hearing. LGP appeared and supported the orders sought by Cannatrek.

This is the most commercially useful part of the judgment. The Court accepted that the later TGA development required careful consideration. On 10 April 2026, after the scheme meeting, Cannatrek's solicitors received a without prejudice letter from the Australian Government Solicitor on behalf of the TGA. Cannatrek did not provide that letter to LGP at the time because it was confidential, without prejudice correspondence and was not subject to any requirement for ongoing disclosure under the scheme implementation deed. Then, on 30 April 2026, Cannatrek and the TGA reached an in-principle agreement concerning alleged contraventions and an associated civil penalty. The disclosed range was $2 million to $8 million, with the exact amount confidential and subject to court approval.

The Court noted that the ongoing TGA investigation had already been disclosed in the original scheme booklet, including in sections 6.8 and 10.4(c). The booklet also stated that the investigation was a matter that may impact the value of the new LGP CV shares. Because the contingent amount for those shares depended on Cannatrek liabilities, the likely consequence of the in-principle agreement was that the new LGP CV shares might be worth a negligible amount.

The Court then applied the post-meeting developments test and concluded that reasonable shareholders would not have changed position enough to be likely to alter the result of the meeting. The reasons were specific and cumulative. First, the underlying regulatory investigation and its potential impact on the contingent value shares had already been disclosed. Secondly, the independent expert was informed of the in-principle agreement and civil penalty position and confirmed that it did not change the expert's opinion that the scheme was fair, reasonable and in shareholders' best interests. Thirdly, Cannatrek's directors continued to support the scheme. Fourthly, even if the contingent value shares had negligible value, the non-contingent consideration, being the new LGP ordinary shares, still fell within the independent expert's valuation range for the scheme shares on a non-controlling basis.

That reasoning is important. The Court did not say that later regulatory developments are unimportant. It said that this particular development did not justify refusing approval because the risk had already been flagged, the fairness evidence remained intact, and the likely voting outcome would not have changed.

The Court approved the scheme under s 411(4)(b) of the Corporations Act and exempted Cannatrek from compliance with s 411(11) under s 411(12). The Court was satisfied that the statutory and procedural requirements for the convening and conduct of the scheme meeting had been met, that the required voting majorities had been achieved, that there had been full and fair disclosure of all material information, that ASIC had issued a no-objection statement, and that the conditions precedent had been satisfied apart from court approval.

The Court also exercised its discretion to approve the scheme because the evidence supported the conclusion that the scheme was fair and reasonable. The judgment emphasised that members are generally better judges of their own commercial interests than the Court, especially where there is no opposition and the statutory majorities are comfortably met. Here, the Court also relied on the directors' recommendation, the independent expert's opinion, the detailed scheme materials, the absence of oppression or opposition, and the measures in the scheme to protect shareholders against performance risk.

On the separate issue of s 411(11), the Court accepted that exemption was appropriate because the scheme would not alter Cannatrek's constitution or the rights of members, creditors or others dealing with the company, and because Cannatrek would become a wholly-owned subsidiary of LGP after implementation. In those circumstances, annexing the approval order to every copy of Cannatrek's constitution would serve no ongoing purpose.

Most businesses will never run a Federal Court scheme of arrangement, but the governance lessons are broader than public company M&A. The first lesson is that process evidence matters. Cannatrek succeeded because it could prove dispatch, bounce-back handling, supplementary disclosure, notice updates, voting mechanics, ASIC engagement and satisfaction of conditions precedent. If your business is raising capital, selling shares, restructuring ownership or seeking investor approval for a major transaction, the same discipline helps reduce execution risk.

The second lesson is that disclosure is not frozen at signing. If a material fact changes during the transaction period, you need to assess whether supplementary disclosure is required and whether the change is likely to affect stakeholder decisions. The Court's approach here gives a practical framework. Ask what was already disclosed, whether the new development changes the fairness analysis, whether experts and directors still support the transaction, and whether the likely voting result would realistically change.

The third lesson is to understand how the deal structure allocates risk. In this case, the TGA issue mattered because part of the consideration was contingent and exposed to Cannatrek liabilities. In other transactions, the same issue may arise through earn-outs, escrow, deferred consideration, indemnity claims, price adjustments or milestone-based securities. Directors should know which part of the consideration is vulnerable if a claim, investigation or penalty emerges before completion.