Atlassian shareholders to vote on UK move: Federal Court

The Australian Federal Court has ordered the company to put the issue of moving its shares and operations to the UK to the vote of its shareholders and option holders.
Written by Corinne Reichert, Contributor

Australia's most successful startup, software company Atlassian, has been ordered by the Federal Court to put the location of its future operations and shares to a vote by its shareholders and option holders at the end of January.

Atlassian filed with the Australian Securities and Investments Commission (ASIC) at the end of 2013 to move its head operations and shares to the United Kingdom, where it believes it can more easily expand as an international company.

The decision, handed down on Monday, states that Atlassian must put the matter to the vote of its shareholders and option holders, pursuant to the Corporations Act. If the majority agree to the scheme, it will go ahead with the Federal Court's final acquiescence. The schemes are inter-conditional, however, so if the majority of any of the six classes of shareholders and option holders do not vote in support of the restructure, it will not take place.

The meetings will be held from 9am AEDST on January 29, 2014, in Sydney. The court has ordered that either co-CEO Scott Farquhar or Michael Cannon-Brookes preside over the meetings in the position of chairperson, as Atlassian chairperson Douglas Burgum is based in the US and will be unable to attend.

Atlassian UK was incorporated on November 14, 2013, for the purpose of the anticipated restructure. If agreed to, the company's shareholders will have their Australian Atlassian shares substituted on a one-for-one basis with Atlassian UK shares. Atlassian AU Holdco, incorporated on November 15, 2013, would be Atlassian's direct holding company should the redomiciliation go ahead.

Financial services company KPMG has been hired by Atlassian to prepare a report on whether the move will benefit shareholders, with Atlassian's directors arguing that it would lead to increased chances of listing the company on a US stock exchange, and enhance its appeal to foreign investors.

At the end of 2012, Deloitte released a study that revealed only 4.7 percent of startups across Sydney and Melbourne are successful in scaling up. The major problems are the smaller financial ecosystem, and the fact that startups generally receive less funding in Australia.

"I think the local tax laws are a struggle, and I think equity-raising laws are a struggle, too. I'd like to see more of the policy changes to make the startup scene better," Atlassian's Farquhar said in an interview with ZDNet in February last year.

"Most people, including myself, would recommend to startups to incorporate their companies overseas. I think the government can do a lot more with startups, and I'll keep pounding on that until we see some meaningful traction."

The Silicon Beach Action Group, headed by Google, was formed last year to research the state of startups and venture capital within Australia.

"Look at the venture capital industry in Australia. It is dead. Last year, the entire venture capital industry as a whole raised AU$40 million total across three funds," Freelancer CEO Matt Barrie said at the time. Freelancer later went on to list on the ASX, and at the time of writing, has a market cap in excess of AU$630 million.

"A company like Atlassian, for example — its last financing was $60 million. The entire Australian venture capital industry did not raise enough to even do that round in one company."

At Microsoft's TechEd 2013 conference four months ago, George Slavov of social application startup Nubis said the major challenge faced by Australian startups lies with securing and maintaining funding.

"There is money available from venture capital, but it is difficult to get and quite limited, so unless you are student just starting out with an idea, or a very small team which needs very little money and has very little expenses, it is quite difficult," he said.

"You either have to go overseas to find investment or you have to find a way to self-fund."

Despite warnings of tech innovators abandoning Australia for the more startup-friendly cultures overseas, in December last year, Australia's Assistant Treasurer Arthur Sinodinos passed 37 tax and superannuation measures and dismissed 55, resulting in further pressure being placed on the startup and venture capital industries.

Some of the measures dismissed by the assistant treasurer included a move for research and development tax credits to be provided in quarterly instalments, and a notion to improve taxation arrangements under Venture Australia and encourage angel investors by lowering requirements for Early Stage Venture Capital Limited Partnerships (ESVCLP) from AU$10 million to AU$5 million.

"Abandoning these reforms is a major setback for Australia's innovation agenda," Australian Private Equity and Venture Capital Association Limited CEO Yasser El-Ansary said in a statement at the time.

"These reforms would not have a significant net cost to the Budget bottom line; in fact, these reforms would likely lead to more tax revenue over time as investment increases and businesses become more profitable more quickly."

Atlassian has customers in 134 countries and employs around 750 staff members worldwide.

Final approval over Atlassian's matter will be made by the Federal Court on February 4, although Justice Yates said yesterday that if the shareholders and option holders vote in favour of the move, "the court will be likely to approve the schemes".

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