Ex Parte
[2019] WASC 479
•3 JANUARY 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: EX PARTE PENSANA METALS LIMITED [2019] WASC 479
CORAM: HILL J
HEARD: 29 NOVEMBER 2019
DELIVERED : 29 NOVEMBER 2019
PUBLISHED : 3 JANUARY 2020
FILE NO/S: COR 215 of 2019
EX PARTE
PENSANA METALS LIMITED
Plaintiff
Catchwords:
Corporations law - Scheme of arrangement - Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth) - Members' scheme of arrangement to effect re-domicile of group to United Kingdom - Whether requirements to order scheme meeting are satisfied - Whether directors should make a voting recommendation to members - Orders made convening meeting
Legislation:
Corporations Act 2001 (Cth), s 411
Supreme Court (Corporations) (WA) Rules 2004 (WA)
Result:
Orders made convening scheme meeting
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr S K Dharmananda SC & Ms K J Hall |
Solicitors:
| Plaintiff | : | DLA Piper Australia - Perth |
Case(s) referred to in decision(s):
Re Amcom Telecommunications Ltd [2015] FCA 341
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381
Re Doray Minerals Ltd; Ex Parte Doray Minerals [2019] WASC 57
Re Dreamscape Networks Ltd; Ex parte Dreamscape Networks Ltd [2019] WASC 412
Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34
Re Investa Properties Ltd [2007] FCA 1104
Re Kangaroo Resources Ltd; Ex Parte Kangaroo Resources Ltd [No 2] [2018] WASC 388
Re Macquarie Private Capital A Ltd [2008] NSWSC 323
Re Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
Re Scarborough Equities Ltd [No 2] [2009] FCA 484
Re SRG Limited [2018] FCA 1092
Re Wellcom Group Ltd [2019] FCA 1655
Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308
HILL J:
Overview
The plaintiff, Pensana Metals Limited (Pensana), is an Australian public company listed on the official list of the Australian Securities Exchange (ASX).
On 1 November 2019, Pensana announced its proposal to re-domicile in the United Kingdom by way of a scheme of arrangement (Scheme).[1] Under the Scheme, it is proposed that Pensana Rare Earths Plc (Pensana UK), a newly incorporated special-purpose public limited company established under the laws of England and Wales, will acquire all of the fully paid ordinary shares of Pensana by way of a scheme of arrangement[2] and that shareholders will receive one fully paid ordinary share in Pensana UK for each Pensana share held.[3]
[1] Affidavit of Paul Campbell Atherley filed 13 November 2019, [7], 'PCA-2'.
[2] Affidavit of Paul Campbell Atherley filed 13 November 2019, [4].
[3] Affidavit of Paul Campbell Atherley filed 13 November 2019, [11]; Scheme booklet, p 12; Scheme cl 4.6.
By originating process dated 13 November 2019, Pensana sought orders under s 411 of the Corporations Act 2001 (Cth) (Act) in relation to the proposed Scheme. The application came before me for the first court hearing on 29 November 2019.
On 29 November 2019, I made orders pursuant to s 411(1) of the Act to convene a meeting of Pensana's members to consider and vote on the proposed Scheme. Orders were also made for the approval for distribution of a scheme booklet under s 412(1)(a) of the Act. I also made ancillary orders as to the convening and conduct of the Scheme meeting under s 1319 of the Act. I said that I would publish written reasons for my orders subsequently. These are my reasons for decision.
Factual background
Pensana
The plaintiff was incorporated on 29 September 2006 and listed on the ASX on 21 December 2007.[4]
[4] Affidavit of Paul Campbell Atherley filed 13 November 2019 [24].
Pensana is developing a neodymium and praseodymium (NdPr) project located in Longonjo, Angola, in which they own an 84% share. NdPr are critical rare earth metals that are utilised in modern energy technologies, such as the motors of electric vehicles.[5]
[5] Scheme booklet, par 7.1.
As at 8 November 2019, the plaintiff had 147,365,277 fully paid ordinary shares (Shares) on issue.[6] As at 11 November 2019, there were also 1,200,000 options and 13,716,074 performance rights on issue with varying expiry dates and vesting conditions.[7] Following the lapsing of certain options and the conversion of performance rights into shares, as of 26 November 2019, Pensana had 152,973,314 Shares, 700,000 options and 8,858,037 performance rights on issue.[8]
Pensana UK
[6] Affidavit of Paul Campbell Atherley filed 13 November 2019 [25], 'PCA-7'.
[7] Affidavit of Paul Campbell Atherley filed 13 November 2019 [27], 'PCA-8'.
[8] Affidavit of Christopher John George Seotis filed 26 November 2019 [9], 'CJS-7' and 'CJS-8'; Submissions [4].
Pensana UK was incorporated in England and Wales on 13 September 2019 for the sole purpose of re-domiciling Pensana and each of its related bodies corporate (Pensana Group) in the UK.[9] As a result, Pensana UK has not conducted and will not conduct any business other than performing the acts required under the Scheme.[10]
[9] Affidavit of Paul Campbell Atherley filed 13 November 2019 [35]; Scheme booklet par 8.1.
[10] Scheme booklet, par 8.1.
If the Scheme is implemented, Pensana UK's business will be the current business of Pensana, which will become a wholly owned subsidiary of Pensana UK.[11]
Proposed Scheme
[11] Scheme booklet, par 8.1.
The purpose of the proposed Scheme between Pensana and Pensana UK is to re-domicile the Pensana Group in the UK. Several reasons are given for the proposed re-domicile of the Pensana Group including better access to international capital markets, potentially enhanced legal protection through the relationship between the United Kingdom and the Republic of Angola, and the potential for an additional public market listing of securities to attract a broader investor base.[12]
[12] Scheme booklet, Chairman's letter.
If the Scheme is implemented, the plaintiff's shareholders will receive one Pensana UK share in the form of a CHESS depository interest (CDI) for each Pensana share as consideration for the acquisition of their shares under the Scheme.[13] A CDI is an instrument which is used to enable securities of foreign companies to be traded on the ASX.
[13] Scheme, cl 4.6.
On 31 October 2019, the plaintiff and Pensana UK entered into a scheme implementation agreement (SIA) for the proposed acquisition.[14]
[14] Affidavit of Paul Campbell Atherley filed 13 November 2019 [6].
Both the options and the performance rights are being dealt with outside the Scheme. The SIA proposes that each holder of options and performance rights enter into a deed to cancel these securities in return for the grant of equivalent securities in Pensana UK.[15]
[15] Affidavit of Paul Campbell Atherley filed 13 November 2019 [30], [33].
The independent directors of Pensana unanimously recommend that their shareholders vote in favour of the Scheme.[16]
[16] Scheme Booklet, par 1.4.
Pensana has retained an independent expert to give an opinion on the proposed Scheme. The independent experts, Mr Adam Myers and Mr Sherif Andrawes of BDO Corporate Finance (WA) Pty Ltd, have concluded that, in the absence of a superior proposal, the Scheme is in the best interests of the shareholders.[17]
[17] Scheme Booklet, par 1.5, Annexure '1'.
Evidence for first court hearing
Pensana and Pensana UK relied on five affidavits that were filed prior to the first hearing. These were:
(a)an affidavit of Paul Campbell Atherley sworn 12 November 2019. Mr Atherley is a non‑executive director of Pensana. Mr Atherley confirmed a number of formal matters, outlined the nature of the proposed Scheme and attested to the verification process that had been undertaken by Pensana in relation to the draft scheme booklet. His affidavit annexed the draft scheme booklet, the ASX announcement of the proposed Scheme, information about Pensana obtained from the Australian Securities and Investments Commission (ASIC), Pensana's constitution, the various security registers of Pensana and the proxy form proposed to be given to shareholders.
(b)an affidavit of Timothy Ralph George sworn 26 November 2019. Mr George is the executive director of Pensana UK and the chief executive officer of Pensana. The affidavit provided a further explanation of the Scheme, the interests held by directors in Pensana and the verification of the scheme booklet undertaken by Pensana UK. Annexed to the affidavit was a certificate of incorporation of Pensana UK, the Articles of Pensana UK and the executed Deed Poll.
(c)an affidavit of Michael Choon Ming Ng sworn 26 November 2019. Mr Ng is a solicitor employed by DLA Piper, the solicitors for the plaintiff and is the proposed chairperson of the Scheme meeting. By his affidavit, Mr Ng consented to act as chairperson of the meetings and provided the necessary disclosures required by r 3.2 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules). Mr Ng gave evidence that Hedley James Roost, a special counsel employed by DLA Piper, who is nominated as the alternate chairperson for the scheme meeting, consented to this nomination and provided the necessary disclosures required by r 3.2 of the Corporations Rules on behalf of Mr Roost.
(d)an affidavit of Christopher John George Seotis sworn 26 November 2019. Mr Seotis is a solicitor employed by DLA Piper. Mr Seotis confirmed that the draft scheme booklet was submitted to ASIC and that ASIC had been given notice of the first court hearing. The affidavit annexed correspondence from ASIC, an updated report from the plaintiff's share registry and a register of Pensana's options and performance rights as of 26 November 2019.
(e) a second affidavit of Christopher John George Seotis sworn 28 November 2019. Mr Seotis annexed the correspondence between ASIC and DLA Piper in relation to the scheme booklet, the final version of scheme booklet as well as a letter of variation that had been entered into between Pensana and Pensana UK, following conferral with ASIC. Mr Seotis confirmed the verification process that had been undertaken on the amended scheme booklet. He also annexed the letter from ASIC confirming that ASIC did not propose appearing at the first court hearing.
Nature of proposed Scheme
The proposed Scheme contemplates that Pensana UK will acquire all of the fully paid ordinary shares of Pensana and that shareholders will receive one Pensana UK share for each Pensana share held. That is, the effect of the scheme is to make Pensana a wholly owned subsidiary of Pensana UK. The entitlement to each Pensana UK share will be held in the form of a Pensana UK CDI which can be traded on the ASX.
Shareholders whose address in the Pensana register is in a jurisdiction other than Australia, New Zealand, the United Kingdom, Hong Kong or Singapore are considered Ineligible Foreign Shareholders and will not receive the Scheme consideration. The Pensana UK CDIs that would otherwise have been issued to these shareholders will be issued to a sale agent and sold as soon as reasonably practicable, or in any event, 20 business days following the Scheme implementation date.[18] The net proceeds will be paid by Pensana UK to the Ineligible Foreign Shareholders on a pro rata basis. As at 8 November 2019, there were 11 Ineligible Foreign Shareholders holding 1,606,855 shares which comprises approximately 1.09% of the Shares on issue.[19]
[18] Scheme, cl 1.2.
[19] Affidavit of Paul Campbell Atherley filed 13 November 2019 [18].
The Pensana options and performance rights stand outside the proposed Scheme and are to be dealt with by entry into cancellation deeds with each of the relevant security holders. Pensana and Pensana UK have already entered into cancellation deeds with each of these security holders.[20] Each option holder and performance right holder has agreed to cancel its options or performance rights in exchange for an equivalent interest in Pensana UK.[21]
[20] Submissions [44].
[21] Scheme booklet, par 11.15.
If the Scheme is implemented, Pensana will become a wholly owned subsidiary of Pensana UK and will be delisted from the ASX. The Scheme will not be effective unless and until a number of conditions precedent are satisfied or waived. The conditions precedent which are required to be satisfied are disclosed in the scheme booklet.[22]
[22] Scheme booklet, par 11.2.
The SIA between Pensana and Pensana UK sets out the procedures for the implementation of the proposed restructure.
If the Scheme is approved by shareholders and by the court at the second court hearing, on the implementation date, all existing shares will be transferred to Pensana UK and Pensana UK will be entered in the Register as the holder of all Pensana shares.[23] Pensana UK will provide the scheme consideration to shareholders in return for their shares in Pensana.[24]
[23] Scheme, cl 2.10(c).
[24] Scheme, cl 2.10(d); 2.11.
Pensana UK is obliged to provide the Scheme consideration prior to the transfer of the shares.[25] The obligations of Pensana UK under the Scheme are supported by a deed poll dated 31 October 2019 which has been executed by Pensana UK (Deed Poll).[26]
[25] Scheme, cl 4.5.
[26] Affidavit of Timothy Ralph George filed 26 November 2019, 'TRG-3'.
The independent directors of Pensana unanimously recommend that shareholders vote in favour of the Scheme.[27]
[27] Scheme Booklet, par 1.4.
The SIA and Scheme were amended following conferral with ASIC. By a letter of variation executed 27 November 2019, the parties agreed to amend the definition of the record date to the second business day following the effective date and amend the indicative timetable in Sch 1 of the SIA.[28]
[28] Second affidavit of Christopher John George Seotis filed 28 November 2019 [9], 'CJS-12'.
An independent expert report (IER) has been prepared by BDO Corporate Finance Pty Ltd. The IER expresses the opinion that, in the absence of a superior proposal, the Scheme is in the best interests of the shareholders.[29] In reaching this conclusion, the IER determined that there will be no material change in value to shareholders if the Scheme is approved. The consideration of advantages, disadvantages and other factors that are likely to impact shareholders are set out comprehensively in the IER.
[29] Scheme Booklet, Annexure 1.
I was provided with the draft scheme booklet which was submitted to ASIC on 12 November 2019[30] and the various amendments that have been made to the document since then.[31]
[30] Affidavit of Christopher John George Seotis filed 26 November 2019 [3], 'CJS-1' and 'CJS-2'; Affidavit of Paul Campbell Atherley filed 13 November 2019, 'PCA-1'.
[31] Second affidavit of Christopher John George Seotis filed 28 November 2019, 'CJS-10' and 'CJS-11'.
The scheme booklet contains the following sections:
(a)a letter from the Chairman of Pensana which contains the reasons for the re-domiciling of Pensana in the UK;
(b)important notices giving an overview of the Scheme and advising shareholders to obtain independent financial and taxation advice;
(c)a listing of all important dates and times for the Scheme;
(d)an overview of the Scheme and actions for shareholders to take;
(e)a section on reasons to vote for or against the Scheme;
(f)a 'frequently asked questions' table, which addresses all the essential matters;
(g)information on the Scheme meeting and voting;
(h)key considerations for shareholders in relation to the Scheme;
(i)the directors' recommendation;
(j)information on Pensana and Pensana UK;
(k)a section on risk factors;
(l) a section on the taxation implications for Pensana shareholders;
(m)information on certain sections of the SIA; and
(n)a section on additional information, which included details of the relevant interests of Pensana's directors and the benefits they will obtain if the Scheme is approved.
The scheme booklet includes a number of important annexures which will form part of the scheme booklet. These include the IER, the SIA, the proposed Scheme, the Deed Poll, a summary of CDIs, a comparison of Australian and UK legal regimes and the relevant notice of meeting.
Legal principles in respect of the Scheme
Pursuant to s 411 of the Act, a scheme of arrangement can be used to re‑organise a company in a manner which will be binding on its members provided that:
(a)the arrangement is agreed by the requisite majorities as prescribed by s 411(4)(a) of the Act, namely 75% of shareholders by value and 50% by number; and
(b)the court approves the arrangement pursuant to s 411(4)(b) of the Act.
There are three stages to an application under s 411 of the Act. First, the court approves the convening of a scheme meeting and the draft explanatory statement to be sent to the scheme members. Second, the members vote on the proposed scheme at the scheme meeting. Third, assuming the first two stages have occurred, the court approves the proposed scheme.[32]
[32] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7].
There are well‑established principles which apply to the first stage of proceedings. The court will order the convening of the scheme meeting and approve the dispatch of the scheme booklet if is satisfied that:[33]
(a)there is a pt 5.1 body;
(b)there is a compromise or arrangement within the meaning of s 411 of the Act;
(c)the proposed scheme booklet contains the prescribed information[34] and provides proper disclosure;[35]
(d)the scheme is bona fide and properly proposed;
(e)ASIC has had at least 14 days' notice of the proposed hearing date and a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions;[36]
(f)the procedural requirements of the Act and the Corporations Rules have been met;
(g)the scheme is of such a nature that, if it receives the necessary statutory majority at the scheme meeting, the court will be likely to approve it.
[33] Re SRG Limited [2018] FCA 1092 [11]; Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308 [60].
[34] Corporations Act, s 412(1)(a)(ii); Corporations Regulations 2001 (Cth), reg 5.1.01 and Sch 8 cl 8301 ‑ 8310.
[35] Corporations Act, s 412(1)(a)(i).
[36] Corporations Act, s 411(2)(b).
Any issue about classes of members is usually determined at the first hearing.[37] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[38]
[37] Re CSR Ltd [73].
[38] Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 [20].
The standard of review that is undertaken by the court at the first hearing is whether the proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members.[39] If the proposed arrangement is one that appears fit for consideration by a meeting of members and is a commercial proposition likely to gain the court's approval if passed by the necessary majority, leave should be given to convene the meeting.[40]
[39] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[40] Re SRG Limited [12]; Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [72] ‑ [76].
Disposition
The formal matters that Pensana had to prove are satisfied.
Pensana is a company and, accordingly, is a pt 5.1 body. The proposed Scheme constitutes an 'arrangement'. This type of share acquisition scheme has been approved by courts as an arrangement on numerous occasions.
Pensana filed the affidavit required by r 3.2 of the Corporations Rules regarding the persons who have been nominated to be the chairperson and alternate chairperson for the Scheme Meeting.[41]
[41] Affidavit of Michael Choon Ming Ng filed 26 November 2019 [5].
By letter dated 28 November 2019, ASIC confirmed that it had been given 14 days' notice of the hearing and had a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement or scheme booklet.[42] ASIC also gave notice that it did not propose to appear at the first hearing to make submissions or intervene to oppose the Scheme.[43]
[42] Second Affidavit of Christopher John George Seotis filed 28 November 2019, 'CJS-13'.
[43] Second Affidavit of Christopher John George Seotis filed 28 November 2019, 'CJS-13'.
On the materials before me, there was nothing to suggest that the proposed Scheme was not properly proposed. The constitution of Pensana does not prevent the Scheme.[44]
[44] Affidavit of Paul Campbell Atherley filed 13 November 2019, 'PCA-6'.
No class issue arose in relation to the Scheme. All shareholders are being treated equally and, as a result, constitute a single class.
There are number of conditions precedent to the Scheme.[45] Both Mr Atherley and Mr George have deposed that they are not aware of any basis to believe that any condition precedent will not be satisfied by the necessary time.[46]
[45] Scheme, cl 2.1.
[46] Affidavit of Paul Campbell Atherley filed 13 November 2019 [66] ‑ [67]; Affidavit of Timothy Ralph George filed 26 November 2019 [17] ‑ [18].
I have read the initial draft of the scheme booklet (as provided to ASIC). I have also been provided with the communications between ASIC and Pensana's solicitors in relation to ASIC's review of the draft scheme booklet. Clarification was sought only on the issue of capital gains tax roll-over relief, which was relevantly disclosed in the scheme booklet.[47]
[47] Scheme, par 10.1.
I was and am satisfied that there will be proper disclosure as to the effect of the proposed Scheme and the material considerations for shareholders of Pensana.
There is evidence before me as to the due diligence and verification process that was undertaken by both Pensana and Pensana UK.[48] On the basis of this evidence, I accept that:
(a)Pensana undertook a process of due diligence and verification to verify the accuracy of statements attributable to Pensana in the Scheme booklet;
(b)Pensana UK undertook a similar process to verify the statements attributable to it;
(c)appropriate steps have been taken to satisfy Pensana and Pensana UK that the scheme booklet does not omit any material information.
[48] Affidavit of Paul Campbell Atherley filed 13 November 2019 [42] ‑ [54]; Affidavit of Timothy Ralph George filed 26 November 2019 [23] ‑ [29]; Second Affidavit of Christopher John George Seotis filed 28 November 2019 [11] ‑ [15].
The directors of Pensana have resolved to approve the scheme booklet in its final form.[49]
[49] Second Affidavit of Christopher John George Seotis filed 28 November 2019 [15].
Based on the checklist provided by counsel for Pensana,[50] I was satisfied that the scheme booklet contained the prescribed information in accordance with s 412(1)(a)(ii) of the Act and Sch 8 of the Corporations Regulations 2001 (Cth).
[50] Submissions, p 22.
In written and oral submissions, counsel for Pensana drew my attention to some specific matters. I address each of these below.
Performance risk
I was and am satisfied that the nature and terms of the proposed Scheme are such that the shareholders are adequately protected against the risk that they will not receive the Scheme consideration and have no capacity to sue Pensana UK to recover their shares or damages.
In that respect I have had regard to the terms of the Scheme and the Deed Poll. Pursuant to these documents:
(a)Pensana UK must allot and issue (or procure the allotment and issue) one CDI to each eligible shareholder for each Pensana share they hold by 7.00 pm on the record date;[51]
(b)Pensana UK is required to issue the Scheme consideration on the implementation date.[52]
[51] Scheme, cl 4.3.
[52] Scheme, cl 4.3.
The Scheme provides that the appointment of Pensana UK as sole proxy will occur only following the provision of the Scheme consideration.[53] This addresses any concern that the incoming board of Pensana UK may potentially interfere with the implementation of the Scheme.[54]
[53] Scheme, cl 2.15.
[54] Re Kangaroo Resources Ltd; Ex Parte Kangaroo Resources Ltd [No 2] [2018] WASC 388 [28] ‑ [31].
The arrangements under the terms of the proposed Scheme are supported by the Deed Poll. By the Deed Poll, Pensana UK covenants in favour of each Pensana shareholder that it will perform all actions attributed to it under the Scheme. There is also an acknowledgement that the Deed Poll may be relied on and enforced by any Scheme shareholder in accordance with its terms and that Pensana and each of its directors may act as agent and attorney to enforce the Deed Poll on behalf of the Pensana shareholders. In my view, the shareholders are sufficiently identified within the deed poll to enable them to enforce the deed poll as against Pensana UK.[55]
No collateral benefit which should prevent the approval of the Scheme
[55] Property Law Act 1969 (WA), s 11(1).
The court must examine whether a benefit exists for one shareholder in particular so as to bring into question the overall fairness of the Scheme.[56] To determine whether there is a collateral benefit, the court considers the 'net benefits' test, to ensure that there is no overall disparity in favour of the party to the non‑Scheme transaction.[57] If no net benefit is present, then, prima facie, the equality principle under s 602(c) of the Act is satisfied.
[56] Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381 [12] ‑ [16] (Farrell J).
[57] Takeovers Panel, Guidance Note 21: Collateral Benefits [15].
Pensana drew my attention to one matter which may constitute a collateral benefit, that is, the consideration received by two of Pensana's directors, Mr Atherley and Mr John Hammond, for the performance rights they hold.
I accept there is no collateral benefit that accrues to shareholders who also hold performance rights. Any additional consideration received by these shareholders is consideration for the cancellation of the performance rights they hold and not for their shares. The evidence is that there is no material benefit, as holders of performance rights will be granted equivalent rights in Pensana UK. The consideration provided to performance right holders (and option holders) is disclosed in the Scheme booklet.[58]
Director benefits and director recommendations
[58] Scheme booklet, par 11.15.
The terms of the SIA requires the directors of Pensana to state that the Pensana board unanimously:
(a)consider the Scheme to be in the best interests of shareholders; and
(b)recommend that shareholders approve the Scheme resolution in the absence of a superior proposal and provided that the independent expert's report continued to conclude that the Scheme is in the best interests of shareholders.
In respect of the directors of Pensana, counsel drew my attention to the fact that two of them hold performance rights. These performance rights will be dealt with outside the terms of the Scheme by way of deeds of cancellation. Under the deeds, each of the directors will receive equivalent rights for the cancellation of their performance rights. The two directors do not consider that these arrangements should prevent them from making a recommendation in relation to the Scheme. Counsel drew my attention to the fact that the consideration is in substitution for existing rights. On this basis, counsel contended that it did not provide a material benefit to the performance right holders.
As I noted in Re Dreamscape Networks Ltd; Ex parte Dreamscape Networks Ltd, in a number of recent decisions, courts have considered the appropriateness of a director, who is to receive an additional financial benefit if the scheme is approved, making a recommendation to shareholders about voting in favour of the scheme.[59] It is not necessary for me to repeat what I said there. Those reasons for decision reflect my views on this matter.
[59] Re Dreamscape Networks Ltd; Ex parte Dreamscape Networks Ltd [2019] WASC 412 [78] ‑ [80].
For the following reasons, this is not the occasion to address the apparently divergent views as to whether it is appropriate for the independent directors who will receive an additional financial benefit if the Scheme is approved to make a recommendation to shareholders.[60]
[60] See for example Re Wellcom Group Ltd [2019] FCA 1655 [51] ‑ [60] and the cases referred to therein.
First, the rights arise as a result of the cancellation of performance rights which were granted well before the SIA was entered into. Second, the rights are in substitution for existing rights held by each of the directors. The directors will receive the right to acquire Pensana UK CDIs of an equivalent (as near as reasonably practicable) number to their present right to acquire shares in Pensana under their existing performance rights. Third, importantly, the performance rights held by the two directors are fully disclosed in the Scheme booklet.[61]
[61] Scheme Booklet, par 11.15.
For these reasons, it was and is my view that the performance rights in Pensana UK to be received by two of the directors for cancellation of their Pensana performance rights did not make it inappropriate for the directors to make a recommendation in respect of the Scheme.
Other matters
Counsel for Pensana drew my attention to the 'deemed warranty' provision in the proposed Scheme.[62] The warranty provision is disclosed in the scheme booklet.[63] Deemed warranty clauses are not unusual and are acceptable provided there is adequate disclosure that it is a condition.[64]
[62] Scheme, cl 2.13.
[63] Scheme Booklet, 'Frequently Asked Questions', p 16.
[64] Re APN News and Media Ltd [57] ‑ [63]; Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34 [23]; Re Nzuri Copper Ltd [2019] WASC 189 [90]; Re Macquarie Private Capital A Ltd [2008] NSWSC 323 [13] ‑ [14]; Re Doray Minerals Ltd; Ex Parte Doray Minerals [2019] WASC 57 [71].
In addition, the Scheme provides that, to the extent permitted by law, the Pensana shares will transfer free from encumbrances and restrictions on transfer of any kind.[65] The terms of this clause is in standard terms and includes the opening words 'To the extent permitted by law'. The inclusion of these words address the concern that has previously been expressed as to whether third parties may otherwise gain the impression that their rights have been extinguished.[66]
[65] Scheme, cl 2.14.
[66] Re Investa Properties Ltd [2007] FCA 1104 [25] ‑ [30]; Re Scarborough Equities Ltd [No 2] [2009] FCA 484 [9] ‑ [10].
Additionally, the plaintiff sought orders pursuant to s 1319 of the Act for electronic dispatch of the scheme booklet. I note that these orders are now common.[67] Details were provided as to the terms of the proposed electronic notification.[68] I was satisfied, having read the terms of the proposed email communication to security holders, that an order for electronic dispatch of the scheme booklet was appropriate.
[67] See, for example, Re SRG Ltd, [48]; Re Doray Minerals; Ex parte Doray Minerals [72].
[68] Submissions, [97].
Taking into account all of these matters, I considered that there was no apparent reason why the Scheme should not, if the necessary special resolution of shareholders is passed, receive the court's approval.
Conclusion on first hearing
At the hearing before me, I was satisfied that the substantive and procedural requirements under s 411(1) of the Act had been satisfied and that the proposed Scheme was fit for consideration by Pensana's members.
For these reasons, at the conclusion of the hearing on 29 November 2019, I made orders in terms of Annexure 'A' to this judgment in respect of the Scheme.
Annexure 'A'
| IN THE SUPREME COURT OF WESTERN AUSTRALIA |
| COR/215/2019 |
| EX PARTE: PENSANA METALS LIMITED (ACN 121 985 |
| First Plaintiff |
| ORDER OF JUSTICE HILL MADE 29 November 2019 |
| UPON APPLICATION of the plaintiff by Originating Process filed 13 November 2019 AND UPON HEARING Mr SK Dharmananda SC AND Ms KJ Hall of counsel for the plaintiff IT IS ORDERED that: |
1. |
| Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (Corporations Act) the Plaintiff convene a meeting of holders of fully paid ordinary shares in the capital of the Plaintiff (Shareholders), to be held at Ground Floor, 10 Outram Street, West Perth, Western Australia, Australia, 6005 on 15 January 2020 at 10:00am (AWST) (Scheme Meeting) for the purpose of considering and, if thought fit, agreeing to (with or without amendment) a scheme of arrangement proposed to be made between the Plaintiff and its Shareholders (Scheme), being the Scheme substantially in the form set out in Annexure 3 of the scheme booklet attached as CJS-11 to the second affidavit of Christopher John George Seotis filed with the Supreme Court on 28 November 2019 (Scheme Booklet). |
2. |
| Subject to these orders and pursuant to section 1319 of the Corporations Act, the Scheme Meeting is to be: |
(a) |
| convened, held and conducted in accordance with the provisions of Part 2G.2 of the Corporations Act that apply to members of a company, and the provisions of the Plaintiff's constitution that are not inconsistent therewith and that apply to meetings of members; |
(b) |
| convened using the notice of meeting substantially in the form of the notice contained in Annexure 7 of the Scheme Booklet; and |
(c) |
| convened, held and conducted as if rule 2.15 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) does not apply. |
3. |
| Michael Choon Ming Ng or, failing him, Hedley James Roost, is to be appointed to act as chairperson of the Scheme Meeting (Chairperson) and report the result of the Scheme Meeting to this Court. |
4. |
| Two Shareholders present in person or by proxy, corporate representative or attorney under power and entitled to vote shall constitute a quorum for the Scheme Meeting. |
5. |
| Voting on the resolution to approve the Scheme is to be conducted by way of poll. |
6. |
| At the Scheme Meeting each Shareholder present and entitled to vote, will be entitled to one vote for each fully paid ordinary share in the capital of the Plaintiff that the Shareholder is registered as |
| holding at 4:00pm (AWST) on 13 January 2020. |
| 7. |
| The Scheme Booklet with the explanatory statement required by section 412(1)(a) of the Corporations Act, be and is approved for distribution to members, subject to: |
(a) |
| the correction of any minor typographical errors or grammatical errors and final typesetting and formatting; |
(b) |
| any minor amendments required or approved by the Australian Securities and Investments Commission (ASIC); and |
(c) |
| correction or update of any relevant date references or last trading prices. |
8. |
| Subject to registration of the Scheme Booklet with ASIC pursuant to section 412(6) of the Corporations Act, the Plaintiff is to dispatch on or before 9 December 2019 the Scheme Booklet in colour, substantially in the form of the document referred to in paragraph 7 above, and the proxy form to the Shareholders who appear on the register of members by: |
(a) |
| in the case of each Shareholder who has nominated an electronic address for the purposes of receiving notifications of notices of any meeting, by email (on the first day on which dispatch of the Scheme Booklet is initiated, or such other date as directed by the Court) to the nominated email address, with such email to contain a link to a website at which those Shareholders can access the relevant documents, and lodge a proxy form on the Scheme; |
(b) |
| in the case of each other Shareholder who has a registered address in Australia, ordinary pre-paid post; or |
(c) |
| in the case of each other Shareholder who has a registered address outside Australia, pre- paid airmail or air courier, |
| and dispatch on or before 9 December 2019 is to be taken to be sufficient notice of the Scheme Meeting. |
9. |
| If it comes to the attention of the Plaintiff that any email dispatched in accordance with order 8(a) above has returned an undeliverable or undelivered receipt for a shareholder's nominated email address, then in respect of that shareholder the Plaintiff is to dispatch within a reasonable time thereafter a document substantially in the form of the Scheme Booklet and any applicable proxy form in accordance with 8(b) or 8(c) as is applicable. |
10. |
| Shareholders must return their proxy form for the Scheme Meeting by 10:00am (AWST) on 13 January 2020. |
11. |
| The matter be relisted at 10:00am (AWST) on 22 January 2020 following the Scheme Meeting for an application under section 411(4) and 411(6) of the Corporations Act for approval of the Scheme. |
12. |
| If the matter is relisted, the Plaintiff is to give notice of the hearing of the application pursuant to section 411(4)(b) of the Corporations Act by placing an advertisement in the "The Australian" and "The West Australian" newspapers, substantially in the form annexed to these orders and marked 'A' (which form departs from the wording in Form 6 of the Supreme Court (Corporations) WA Rules 2004 (Rules) (including by not stating the outcome of the Scheme Meeting)), such advertisement to be published at least five days before any date allocated for the hearing and the Plaintiff is otherwise exempted from compliance with rule 3.4 of the Rules. |
13. |
| There be liberty to the Plaintiff to apply upon the giving of 24 hours' notice to ASIC. |
14. |
These orders be entered forthwith. |
15. |
| An office copy of these orders shall be lodged with ASIC as soon as practicable after these orders are made. |
| BY THE COURT |
| THE HONOURABLE JUSTICE J HILL |
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MG
Research Orderly to the Honourable Justice Hill
3 JANUARY 2020
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