Gold Mines of Sardinia Limited

[2002] FCA 1648

FEDERAL COURT OF AUSTRALIA

Gold Mines of Sardinia Limited [2002] FCA 1648

CORPORATIONS – arrangements – arrangements with members – order for approval of arrangement

Corporations Act 2001 (Cth) ss 411(1), 411(2), 411(4), 411(11), 411(12)

Re ACM Gold Ltd (1992) 34 FCR 530 cited

Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 cited

Re NRMA Insurance Ltd (2000) 33 ACSR 595 cited

Re Sonodyne International Ltd (1995) 13 ACLC 221 cited

IN THE MATTER OF GOLD MINES OF SARDINIA LIMITED
(ACN 009 234 851)
W3015 OF 2002

LEE J
12 NOVEMBER 2002
PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W3015 OF 2002

IN THE MATTER OF GOLD MINES OF SARDINIA LIMITED (ACN 009 234 851)

APPLICANT

JUDGE:	LEE J
DATE OF ORDER:	12 NOVEMBER 2002
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1.The scheme of arrangement (“the arrangement”) between the applicant and its members being Appendix 4 to the explanatory statement booklet which was tabled at the meeting of shareholders convened and held on 28 October 2002 pursuant to the Order of this Court dated 6 September 2002 and which was agreed to by a resolution of the members of the company in compliance with subs 411(4) of the Corporations Act 2001 (Cth), be approved.

2.An office copy of this Order may be lodged with the Australian Securities and Investments Commission upon or contemporaneously with the allotment by Gold Mines of Sardinia PLC of shares to the former shareholders of the applicant in accordance with par 3.1(b) of the arrangement.

3.If the applicant for any reason has not made the lodgement referred to in these Orders within 14 days of the date of these Orders then the applicant to have liberty to apply for further directions and further orders from the Court.

4.In the accordance with subs 411(12) of the Corporations Act 2001 (Cth), the applicant is exempt from compliance with subs 411(11) of the Act.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W3015 OF 2002

IN THE MATTER OF GOLD MINES OF SARDINIA LIMITED (ACN 009 234 851) APPLICANT
JUDGE:	LEE J
DATE:	12 NOVEMBER 2002
PLACE:	PERTH

REASONS FOR JUDGMENT

1. On 6 September 2002 I made an order under subs 411(1) of the Corporations Act 2001 (Cth) (“the Act”) granting Gold Mines of Sardinia Limited (“the company”) liberty to convene a meeting of the holders of shares in the company for the purpose of considering an arrangement (“the arrangement”) proposed between the company and its members. The company duly convened and conducted that meeting on 28 October 2002 at which the arrangement was approved by the requisite majority. The company now makes application under subs 411(4) of the Act for an order that the Court approve the arrangement.

2. The company is on the Official List of the Australian Stock Exchange Limited and its shares are traded on the Alternative Investment Market of the London Stock Exchange (“AIM”).

3. As at 9 July 2002, the issued capital of the company was 263,239,404 shares of which 232,096,997 were registered on the company’s Channel Islands share register and the balance, 31,142,407, registered on the Australian share register.  As at 6 September 2002, options granted by the company for the acquisition of 12,225,000 shares in the company remained on foot, exercisable at various prices on various dates until 2007. 

4. The company’s principal asset is a 90 per cent interest, through two wholly-owned subsidiaries, in Sardinian Gold Mining S.p.A. (“SGM”), a company incorporated in Italy.  SGM holds the rights to explore for, and mine, gold and other minerals on the island of Sardinia.  The remaining 10 per cent in SGM is held by an Italian corporation related to the regional government of Sardinia.

5. Gold Mines of Sardinia PLC (“GMS (UK)”) was incorporated under the laws of England and Wales on 5 July 2000.  The issued capital in GMS (UK) consists of forty fully paid shares held in equal allocations by two directors of the company.

6. It is proposed that the shares held by members of the company be transferred to GMS (UK) and that GMS (UK) issue to each member one share in GMS (UK) for each share transferred.  The arrangement did not extend to the holders of options, all of whom had accepted an offer to relinquish the options held in return for the issue of options to purchase shares in GMS (UK) on similar terms.  The aim of the arrangement is to make GMS (UK) “the holding company”, in place of the company, and for the company to become a wholly owned subsidiary of GMS (UK).  Upon implementation of the arrangement GMS (UK) will be owned and controlled by the same persons who own and control the company, although their interests may be diluted to the extent that, if the arrangement is approved, GMS (UK) will grant 2.5m options to “London brokers” for services rendered, exercisable within three years at a price of 15 pence per share.

7. The order granting leave to convene a meeting of shareholders was made upon the Court being satisfied that the arrangement, if approved by members of the company, would be capable of being approved by the Court, and that the proposed date for the meeting and the draft explanatory statement to be distributed to members with notice of the meeting were adequate to provide the members with sufficient time and information to make an informed decision at the meeting, having regard to the fact that most members of the company were of foreign domicile.

8. The granting of leave to convene a meeting does not mean that the Court provides a commercial or judicial imprimatur to the proposed arrangement or compromise.  It is enough that the proposal appears to be one that is appropriate to be considered at such a meeting in that it appears to be a commercial proposition which, subject to obtaining the statutory majority, may be approved by the Court on an uncontested motion.  (See:  Re ACM Gold Ltd (1992) 34 FCR 530 per O’Loughlin J at 535.)

9. The making of orders pursuant to s 411 of the Act places the Court in an unusual position. The process is, in part, supervisory and, in part, inquisitorial. It is also potentially adversarial. If the arrangement is opposed objectors to the proposed arrangement are entitled to be heard by the Court. A distinction should be drawn between the role of the Court on an application to approve the convening of a meeting, (i.e. to consider a proposed arrangement or compromise at the “convening stage”), and the role of the Court in considering whether to approve the proposal after the required majority of members or creditors have voted in favour of it (“the approval stage”). (See: Re NRMA Insurance Ltd (2000) 33 ACSR 595 at 12-13.)

10. At the convening stage the Court must be satisfied that the draft explanatory statement provides appropriate disclosure of the arrangement or compromise, being a proposal that may reasonably be supposed, by sensible business people, to be for the benefit of the members or creditors.  (See:  Re Sonodyne International Ltd (1995) 13 ACLC 221.) A reasonable compromise must be a compromise which can be regarded by reasonable people conversant with the subject, as beneficial to the parties who are making it. (See: Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 243.)

11. The principal reasons recited by the directors of the company for proposing the arrangement are as follows:

    a)The activities of the company are based in Europe rather than Australia, in particular, exploration and mining in Sardinia.  The directors formed the view that the Australian domicile of the company inhibited acceptance of the company in United Kingdom and European capital markets.  In the view of the directors, investors in the United Kingdom and Europe tend to be cautious and have reservations about investing in companies governed by market rules and company laws with which they are unfamiliar.  If GMS (UK) were to become the holding company and have its shares admitted to trading on AIM, these concerns would be mitigated putting GMS (UK), in a better position to raise funds in London and in other international financial centres to finance proposed mining activities.

    b)A large majority of the shareholders of the company have registered addresses out of Australia and New Zealand.  Approximately 78 per cent of the issued shares in the company are held by shareholders in the United Kingdom, 81 per cent are held by shareholders within Europe, and 88 per cent of shares are held by shareholders outside of Australia and New Zealand.  By number of shareholders, 80 per cent are registered in countries other than Australia and New Zealand, with 77 per cent registered in the United Kingdom.  It is reasonable to expect that continuing investor interest will continue to come from outside Australia and in particular from Europe.  By implementing the arrangement and replacing the company with a holding company incorporated in England subject to the laws of England and the European Union , the manner of corporate regulation will be more familiar and accessible to the majority of shareholders than Australian laws.

12. As required by subs 411(2) of the Act, full details of the proposed arrangement and the draft explanatory statement proposed to be distributed to members of the company, were submitted to the Australian Securities and Investment Commission (“ASIC”). ASIC informed the company that it had had sufficient time to examine the arrangement and did not intend either to make submissions to the Court or to oppose the arrangement.

13. Having read the papers and taken account of the following matters, I am satsified an order should be made approving the arrangement.  The vast majority of members reside outside Australia and the operations of the company are not concerned with Australia.  The proposal received overwhelming approval at the meeting, 96,258,530 votes were cast, of which 96,147,595 were in favour of the proposal.

14. Before the meeting, members had ample opportunity to consider the explanatory statement, which included an independent expert’s report, and gain an understanding of the proposed arrangement and what it entailed.  It was, therefore, a matter of commercial judgment to be made by the members as to whether it was in their interests to approve the arrangement, having regard to the present operations of the company and the prospective need for capital.

15. There was also sufficient opportunity for ASIC to consider the proposal to which it has raised no objection. I am satisfied that, in truth, this is not a takeover proposal designed to avoid compliance with other provisions of the Act which would require the proper value of the shares to be ascertained and notified to the shareholders whose shares were the subject of the takeover. The arrangement is a reconstruction of members’ interests where they continue to maintain control of the relevant corporate entity, and retain connection with the corporate structure and its operations. Furthermore, the interests of creditors of the company have not been affected.

16. In the circumstances, I am satisfied that the requirements of the Act have been satisfied and that the arrangement should be approved.

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.

Associate:

Dated:            12 August 2003

Counsel for the Applicant:	P I Jooste QC
Solicitor for the Applicant:	John Ralph
Date of Hearing:	12 November 2002
Date of Judgment:	12 November 2002