Re Alto Metals Ltd
[2024] WASC 455
•3 DECEMBER 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE ALTO METALS LTD; EX PARTE ALTO METALS LTD [2024] WASC 455
CORAM: HILL J
HEARD: 11 OCTOBER 2024, 5 & 29 NOVEMBER 2024
DELIVERED : 11 OCTOBER 2024, 5 & 29 NOVEMBER 2024
PUBLISHED : 3 DECEMBER 2024
FILE NO/S: COR 147 of 2024
MATTER: IN THE MATTER OF ALTO METALS LTD
EX PARTE
ALTO METALS LTD
Plaintiff
Catchwords:
Corporations law - Scheme of arrangement - Application for orders convening scheme meeting under s 411(1) of Corporations Act 2001 (Cth) - Independent expert of opinion that proposed scheme is not fair but reasonable and in best interests of shareholders - Whether requirements to order scheme meeting are satisfied - Orders made convening scheme meeting
Corporations - Scheme of arrangement - Application for orders pursuant to s 1319 of Corporations Act 2001 (Cth) - Supplementary disclosure to address ASX announcements by bidder - Whether court should order dispatch of supplementary disclosure - Orders made for dispatch
Corporations - Scheme of arrangement - Application for orders approving scheme under s 411(4)(b) of the Corporations Act 2001 (Cth) - Orders made approving scheme
Legislation:
Corporations Act 2001 (Cth) s 411, s 412, s 1319
Corporations Regulations 2001 (Cth) sch 8
Supreme Court (Corporations) (WA) Rules 2004 (WA) r 3.2
Result:
Orders made convening scheme meeting
Orders made approving supplementary disclosure
Orders made approving scheme
Category: B
Representation:
Counsel:
| Plaintiff | : | J R C Sippe |
Solicitors:
| Plaintiff | : | Gilbert + Tobin |
Case(s) referred to in decision(s):
Re Amcom Telecommunications Ltd (No 3) [2015] FCA 596
Re Amcom Telecommunications Ltd (No 4) [2015] FCA 720
Re Amcom Telecommunications Ltd [2015] FCA 341
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re Azure Minerals Ltd [2024] WASC 58
Re Beadell Resources Ltd [2018] WASC 410; (2018) 133 ACSR 600
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re Foster's Group Ltd (No 2) [2011] VSC 547
Re Hills Motorway Ltd (2002) 43 ACSR 101
Re International Goldfields Ltd [2004] WASC 112
Re Kangaroo Resources Ltd [2018] WASC 327
Re NRMA Ltd (No 1) (2000) 156 FLR 349
Re Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
Re Orica Ltd [2010] VSC 231
Re Pacific Energy Ltd [2019] WASC 443
Re Pensana Metals Ltd [No 2] [2020] WASC 17
Re Prime Media Group Ltd [2019] NSWSC 1888
Re Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583
Re SRG Ltd [2018] FCA 1092
Re Wesfarmers Ltd [2018] WASC 308
Re Wesfarmers Ltd [No 2] [2018] WASC 357
Sovereign Life Assurance Co v Dodd [1892] 2 QB 573
HILL J:
Alto Metals Limited (Alto) is an Australian public company listed on the Australian Securities Exchange (ASX). On 1 August 2024, it announced the entry into a Scheme Implementation Deed (SID) with Brightstar Resources Limited (Brightstar).[1] Under the proposed scheme of arrangement, Brightstar will acquire all the issued ordinary shares in Alto, and Alto will become a wholly‑owned subsidiary of Brightstar and be delisted from the ASX (Scheme).
[1] Affidavit of Jamie Matthew Ammendolea filed 26 September 2024, 'JMA-3'.
By an originating process dated 26 September 2024, Alto sought orders pursuant to s 411 and s 1319 of the Corporations Act 2001 (Cth) (Act) to convene a meeting of its members to consider the proposed Scheme. The application came before me for the first court hearing on 11 October 2024. On that date, I made orders pursuant to s 411(1) of the Act to convene a meeting of Alto's shareholders (Shareholders) to consider and vote on the proposed Scheme. Orders were also made approving the distribution of a Scheme booklet to Shareholders, as well as ancillary orders for the convening and conduct of the Scheme meeting under s 1319 of the Act.
On 4 November 2024, Alto applied to have the matter relisted as a result of announcements made by Brightstar to the ASX. Orders were made on 5 November 2024 authorising the dispatch of supplementary materials to shareholders for the Scheme meeting.
The Scheme meeting was held on 19 November 2024. At the meeting, the resolution was passed by the requisite statutory majorities.
The originating process was listed before me for the second court hearing on 29 November 2024. On this date, I made orders approving the Scheme.
In making each of these orders, I stated that I would subsequently publish written reasons for my orders. These are my reasons for decision.
Nature of proposed scheme
Alto is a gold exploration company and owns the Sandstone Gold Project in Western Australia. As at 8 October 2024, Alto had 721,523,172 fully paid ordinary shares (Shares) and 18,250,000 performance rights (Performance Rights) on issue.[2]
[2] Affidavit of Matthew Craig Bowles filed 8 October 2024 [19(a)].
Brightstar is an ASX listed gold mining company focused on the exploration and development of gold projects in Western Australia. It owns the Brightstar processing plant and other infrastructure near Laverton, Western Australia, as well as a number of other gold projects currently in production or development.[3]
[3] Scheme booklet [6.2].
If the Scheme is implemented, Brightstar will acquire all of the Shares on issue, and Shareholders will receive four new Brightstar shares for every one Share held at the Record Date (Scheme Consideration).[4] In relation to the Performance Rights, Alto is required to ensure all Performance Rights will vest or lapse in accordance with their terms and be exercised (if applicable) prior to the Record Date.[5]
[4] Scheme booklet [3.1].
[5] SID, cl 5.4.
Any Shareholder who, based on their shareholding on the Record Date, would be entitled to receive less than a marketable parcel of Brightstar shares on the implementation of the Scheme is a Small Shareholder. Small Shareholders who do not opt‑in to receive Brightstar shares on or before the Record Date are treated as a Non‑electing Small Shareholder.[6] Shareholders whose address is outside of Australia or New Zealand (Ineligible Foreign Shareholders) as well as Non‑electing Small Shareholders are ineligible to receive Brightstar shares under the Scheme. The shares that would have otherwise been issued to Ineligible Foreign Shareholders and Non‑electing Small Shareholders will be issued to a sale agent on their behalf and sold on the ASX. The sale proceeds will be remitted to Brightstar, who will subsequently make the relevant pro‑rata payment to these shareholders.[7]
[6] Scheme, cl 5.7(a).
[7] Scheme, cl 5.7(b) ‑ cl 5.7(c).
Alto's directors have unanimously recommended that, in the absence of a superior proposal, Shareholders vote in favour of the Scheme.
Alto retained an independent expert, BDO Corporate Finance (WA) Pty Ltd (BDO), to provide an opinion on the proposed Scheme. BDO concluded that, in the absence of a superior proposal, the proposed Scheme is not fair but reasonable and is in the best interests of Shareholders.[8] The basis for this conclusion, including the valuation and methodology used by BDO, are set out in the IER.[9]
[8] Scheme booklet, Appendix 1.
[9] Scheme booklet, Appendix 1, pages 259 ‑ 263.
The Scheme will not be implemented unless and until a number of conditions precedent are satisfied or waived. The conditions precedent which are required to be satisfied or waived are contained in the SID.[10]
[10] SID, cl 2.1.
The SID between Alto and Brightstar also sets out the agreed procedures for the implementation of the proposed Scheme. The obligations of Brightstar under the Scheme are supported by a Deed Poll which has been executed by Brightstar (Deed Poll).[11]
[11] Affidavit of Alexander Bevington Rovira filed 9 October 2024, 'ABR-05'.
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 which is binding on members where:
(a)the arrangement is agreed by the requisite majorities 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. 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.[12]
[12] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7] (Keane CJ & Jacobson J).
There are well‑established principles which apply to the first stage of proceedings. The court will order the convening of the scheme meeting if it is satisfied that:[13]
(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[14] and provides proper disclosure;[15]
(d)the scheme is bona fide and properly proposed;
(e)the Australian Securities and Investments Commission (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;[16]
(f)the procedural requirements of the Act and the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules) have been met; and
(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.
[13] Re SRG Ltd [2018] FCA 1092 [11]; Re Wesfarmers Ltd [2018] WASC 308 [60].
[14] Corporations Act 2001 (Cth) s 412(1)(a)(ii); Corporations Regulations 2001 (Cth) reg 5.1.01, sch 8 cl 8301 ‑ cl 8310.
[15] Corporations Act 2001 (Cth) s 412(1)(a)(i).
[16] Corporations Act 2001 (Cth) s 411(2)(b).
Any issue about classes of members is usually determined at the first hearing.[17] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[18]
[17] Re CSR Ltd [73] (Finkelstein J).
[18] 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 businesspeople might consider is of benefit to its members.[19] 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.[20]
Should orders be made for the convening of the Scheme meeting and the dispatch of the Scheme booklet?
[19] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[20] Re SRG Ltd [12]; Re Wesfarmers Ltd [72] - [76].
At the first court hearing, Alto relied on four affidavits being:
(a)two affidavits of Jamie Matthew Ammendolea, a senior associate employed by Gilbert + Tobin, the solicitors for Alto, filed 26 September 2024 and 10 October 2024;
(b)an affidavit of Matthew Craig Bowles, the managing director and chief executive officer of Alto, filed 8 October 2024; and
(c)an affidavit of Alexander Bevington Rovira, the managing director of Brightstar, filed 9 October 2024.
These affidavits prove the formal matters Alto is required to establish. As a company, Alto is a pt 5.1 body and the proposed Scheme is an 'arrangement' of the type regularly approved by courts.
Alto filed an affidavit, as 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.[21]
[21] Affidavit of Matthew Craig Bowles filed 8 October 2024 [100] ‑ [102].
By letter dated 10 October 2024, ASIC confirmed it had been given 14 days' notice of the hearing and a reasonable opportunity to examine the terms of the Scheme and the draft Scheme booklet. ASIC also gave notice that it did not propose to appear at the first court hearing to make submissions or intervene to oppose the Scheme.[22]
[22] Affidavit of Jamie Matthew Ammendolea filed 10 October 2024, 'JMA-5'.
On the materials before me, there was nothing to suggest the Scheme was not properly proposed. The constitution of Alto does not prevent the Scheme.[23]
[23] Affidavit of Jamie Matthew Ammendolea filed 26 September 2024, 'JMA-2'.
There are a number of conditions precedent to the Scheme.[24] Neither Alto nor Brightstar has any basis to believe that any of these conditions precedent will not be satisfied or waived prior to implementation of the Scheme.[25]
Disclosure and Scheme booklet
[24] SID, cl 2.1.
[25] Affidavit of Matthew Craig Bowles filed 8 October 2024 [58]; Affidavit of Alexander Bevington Rovira filed 9 October 2024 [35].
I was provided with a final copy of the draft Scheme booklet, which incorporated changes to address comments that were received from ASIC,[26] and provided to ASIC on 8 October 2024.[27]
[26] Affidavit of Matthew Craig Bowles filed 8 October 2024, 'MCB-1'.
[27] Affidavit of Matthew Craig Bowles filed 8 October 2024 [85(d)].
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.
There is evidence before me as to the due diligence and verification process undertaken by both Alto and Brightstar. On the basis of this evidence, I accept that Alto and Brightstar have undertaken processes to verify the accuracy of statements attributable to each of them in the Scheme booklet and to ensure that the Scheme booklet does not omit any material information.[28]
[28] Affidavit of Matthew Craig Bowles filed 8 October 2024 [69] ‑ [89], 'MCB-9'; Affidavit of Alexander Bevington Rovira filed 9 October 2024 [13] ‑ [28].
Based on the checklist provided by counsel for Alto,[29] I was satisfied 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).
[29] Plaintiff's submissions filed 8 October 2024, Annexure A.
In written and oral submissions, counsel for Alto drew my attention to some specific matters, which are addressed below.
Class Issue
Counsel for Alto drew my attention to the fact that one of the conditions precedent to the Scheme was that Brightstar undertake a capital raising. The capital raising was not conditional on the Scheme proceeding and was completed on 23 September 2024.[30] Brightstar shares were allocated in accordance with a policy agreed between Alto and Brightstar which, relevantly, ensured that no undertakings or representations were sought or obtained from investors who were also Shareholders.
[30] Scheme booklet [3.6(b)], [7.9(d)].
The Act does not define the term 'class'. The test to determine whether separate classes of members are required involves three questions. First, what are the rights which existing members have against the company and to what extent are they different. Second, to what extent are these rights affected differently by the scheme. Third, does the different treatment of rights make it impossible for the members in question to consider the scheme as one class.
The test is not one of identical treatment but of 'community of interest'.[31] It is necessary for the court to determine whether the rights of different groups, viewed in the context of the proposed scheme, are so dissimilar as to make it impossible for them to consult together with a view to their common interests. Ordinarily, divergent commercial interests external to share membership will not be a factor which differentiates classes; although, this is a question of degree.[32]
[31] Re Foster's Group Ltd (No 2) [2011] VSC 547 [19]; Re Orica Ltd [2010] VSC 231 [13]; Re Hills Motorway Ltd (2002) 43 ACSR 101 [12]; Sovereign Life Assurance Co v Dodd [1892] 2 QB 573, 583 (Bowen LJ).
[32] Re NRMA Ltd (No 1) (2000) 156 FLR 349, 371 (Santow J).
In approaching the issue of classes, a practical, business‑like approach should be adopted by the court. As Finkelstein J noted in Re Opes Prime Stockbroking, there is a built‑in safeguard against majority oppression in that the court is not bound by the decision of the meeting.[33]
[33] Re Opes Prime Stockbroking Ltd [66].
Counsel for Alto submitted that the fact a shareholder holds shares in both the bidder and the target is not class creating.[34] I accept that there is nothing in the participation by some Shareholders in Brightstar's capital raising that would make it 'impossible' for those shareholders to meet with the other Shareholders and consider the terms of the Scheme. Given this, I accept that there is one class of Shareholders and that there should be one Shareholder meeting to consider the proposed Scheme.
Independent expert's report on Scheme
[34] Re Amcom Telecommunications Ltd (No 4) [2015] FCA 720 [62] ‑ [70].
The independent expert, BDO, concluded that the proposed Scheme is not fair but reasonable. In the absence of a superior proposal, BDO concluded that the proposed Scheme is in the best interests of Shareholders.
In Re Beadell Resources Ltd, Vaughan J (as his Honour then was) summarised the approach that the court should take where the independent expert reaches this conclusion on the proposed scheme.[35] In essence, provided that shareholders are adequately informed of the independent expert's conclusion and the basis for it, it is ultimately a decision for shareholders, and not the court, whether the scheme is in their best interests.
[35] Re Beadell Resources Ltd [2018] WASC 410; (2018) 133 ACSR 600 [60] ‑ [64].
The basis for BDO's assessment that the proposed Scheme is not fair is based on its assessment of the value of a Share (on a control basis) compared to the value of the Scheme Consideration (on a minority basis). BDO assessed the value of a Share (on a control basis) to be between $0.05 and $0.10 per Share, with a preferred value of $0.08. This was higher than their assessment of the value of the Scheme Consideration (on a minority basis) of between $0.05 and $0.09, with a preferred value of $0.07.
BDO concluded that the proposed Scheme is reasonable because the advantages of the Scheme outweigh its disadvantages. The advantages include the creation of a merged entity with a larger market presence that will mitigate risks associated with the development of the Sandstone Project, as well as provide immediate access to capital to fund ongoing exploration programs. The IER also observed that the Scheme is value accretive on a like‑for‑like basis.
I carefully considered the explanations contained in the IER to determine the basis for the assessment that the Scheme is not fair but reasonable. I was and am satisfied that the matters referred to in the IER (as summarised above) justify the conclusion that the Scheme is reasonable. In my view, there is appropriate disclosure of the basis for the independent expert's opinion. Sufficient information is provided to Shareholders to give them an opportunity to understand and assess the basis of the independent expert's opinion, and make an informed decision whether or not to approve the Scheme.
In my view, the conclusion of the IER that the Scheme is not fair but reasonable was not a basis to refuse to convene the Scheme meeting. The independent expert's opinion (that the Scheme is reasonable) was open and the Scheme is one that sensible businesspeople may consider will be of benefit to Shareholders. Accordingly, it was and is my view that the Scheme was fit for consideration by Shareholders.
Performance risk
On the evidence before the court, 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 Brightstar to recover their shares or damages.
Under the terms of the Scheme and the Deed Poll:[36]
(a)Brightstar must issue (or procure the issue of) the Scheme Consideration and enter each Shareholder's name and registered address into Brightstar's share register on the Implementation Date;
(b)Brightstar is required to issue the Scheme Consideration on the Implementation Date;
(c)transfer of the Shares is subject to provision of the Scheme Consideration;
(d)beneficial title does not pass unless the Scheme Consideration has been issued in accordance with the Scheme;
(e)Alto and each Shareholder will have individual rights against Brightstar in the event that Brightstar fails to provide the Scheme Consideration; and
(f)these arrangements are supported by the Deed Poll, which can be enforced by any Shareholder.
Exclusivity provisions and break fee
[36] Scheme, cl 5.1; Deed Poll, cl 5.2.
The SID contains the customary lock-up devices in the form of 'no shop', 'no talk', 'no due diligence' and 'notification obligations'.[37] The 'no talk', 'no due diligence' and 'notification obligations' provisions are subject to a fiduciary carve out.[38] In certain circumstances, Alto may be liable to pay a break fee of $440,000 (Break Fee).[39] A reverse break fee of $880,000 may also be payable by Brightstar if it does not complete the transaction (Reverse Break Fee).[40]
[37] SID, cl 12.1 ‑ cl 12.4.
[38] SID, cl 12.7.
[39] SID, cl 13.
[40] SID, cl 13.
In considering whether the exclusivity provisions impact on completion of the transaction and the duties of directors, the court has regard to: [41]
(a)the period of the exclusivity, which should be no more than a reasonable period and capable of precise ascertainment;
(b)whether the provisions are subject to an overriding obligation that the directors do not breach their fiduciary duties or are otherwise unlawful; and
(c)whether there is adequate prominence given to these provisions in the Scheme booklet.
[41] Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [29] ‑ [35]; Re Kangaroo Resources Ltd [2018] WASC 327 [57] ‑ [61]; RePacific Energy Ltd [2019] WASC 443 [58].
In this case, the exclusivity period is, at most, a period of approximately six months.
Mr Bowles' affidavit set out the commercial justification for the exclusivity provisions, the Break Fee and the Reverse Break Fee.[42] I accept his evidence that in the commercial negotiations of the SID, all parties were separately advised and represented by external legal advisers.[43]
[42] Affidavit of Matthew Craig Bowles filed 8 October 2024 [63] ‑ [68].
[43] Affidavit of Matthew Craig Bowles filed 8 October 2024 [23].
The amount of the Break Fee, being $440,000, is approximately 1% of the equity value of Alto based on the Scheme Consideration at the date of entering into the SID and is within generally accepted commercial parameters for break fees. The Break Fee is intended to compensate Brightstar for the costs (both costs incurred and opportunity costs) if the Scheme does not proceed and is not payable if Shareholders do not vote in favour of the Scheme. Accordingly, I consider the amount of the Break Fee in this case is unlikely to influence Shareholders in their decision to vote on the Scheme.
Importantly, the exclusivity arrangements, the Break Fee and the Reverse Break Fee are prominently disclosed in the Scheme booklet.[44]
Director benefits and recommendations
[44] Scheme booklet [10.11(d)] - [10.11(f)].
The directors of Alto have unanimously recommended that, in the absence of a superior proposal and subject to BDO continuing to conclude the Scheme is in the best interests of Shareholders, Shareholders vote in favour of the Scheme.
Alto drew my attention to the fact that three Alto directors have interests in Shares and directly or indirectly hold Performance Rights.[45] In addition, two of the directors, Mr Bowles and Mr Smith, will be entitled to receive termination payments of their employment with Alto. It is also proposed that Mr Bowles will be appointed as a non‑executive director of the merged group in the event the proposed Scheme is implemented.
[45] Affidavit of Matthew Craig Bowles filed 8 October 2024 [19(d)] ‑ [19(e)].
Each of the directors considered whether they should make a recommendation on the Scheme to Shareholders and believed it was appropriate for them to do so, given the importance of the proposed Scheme.
For the following reasons, I do not consider that it was or is inappropriate for each of the directors to make a recommendation in respect of the Scheme.
First, the consideration each director will receive if the Scheme is implemented is being issued to them as consideration for the Shares each owns in Alto. That is, they will receive the same consideration as every other Shareholder.
Second, in relation to the termination payments to Mr Bowles and Mr Smith, these payments are being made in accordance with their employment contracts with Alto. These obligations arose under arrangements entered into prior to the Scheme being proposed or the SID being executed.
I accept that neither of these interests should prevent the directors from making a recommendation to Shareholders.
Finally, and subject to amendments to the Scheme booklet I required to be made at the first court hearing, I am satisfied the Alto directors' respective interests in Alto and the Scheme are fully disclosed in the Scheme booklet.
Loan agreement
Brightstar has provided Alto with an unsecured loan of $2 million to assist Alto with working capital until the implementation of the Scheme (Loan Agreement).[46] The terms of the Loan Agreement are disclosed in the Scheme booklet.[47] As at 8 October 2024, Alto had not drawn down any funds under the Loan Agreement.[48]
[46] Affidavit of Matthew Craig Bowles filed 8 October 2024, 'MCB-17'.
[47] Scheme booklet [10.12].
[48] Affidavit of Matthew Craig Bowles filed 8 October 2024 [107].
In considering agreements where a bidder has provided a loan to the target, the court considers whether it operates as a lock‑up device or is a break fee that might prevent Shareholders freely considering the proposed scheme.[49]
[49] Re Nzuri Copper Ltd [2019] WASC 189 [67] ‑ [68] (Vaughan J).
In this case, I was and am satisfied that the Loan Agreement is not a lock‑up device that would have a coercive effect on Shareholders preventing them from considering the merits of the proposed Scheme. This is primarily because there is a commercial rationale for the Loan Agreement, the interest rates are on arm's-length terms, and the repayment dates provide Alto sufficient time to seek alternative financing arrangements if the Scheme is not implemented. In my view, this is a matter for Shareholders to consider at the Scheme meeting.
Shareholder voting intention statement
The Scheme booklet discloses that Alto has received a statement from Windsong Valley Pty Ltd, which holds 14.85% of the Shares, of its intention to vote in favour of the proposed Scheme.[50] I was and am satisfied this statement is appropriately disclosed in the Scheme booklet, consistent with both the Takeovers Panel Guidance Note 23: Shareholder Intention Statements, and previous authorities.[51]
Deemed warranties
[50] Affidavit of Matthew Craig Bowles filed 8 October 2024 [59] – [60], 'MCB-7'.
[51] See Re Azure Minerals Ltd [2024] WASC 58 [66].
Alto also drew my attention to the deemed warranty provisions in the proposed Scheme.[52]
[52] Scheme, cl 6.5.
The proposed Scheme provides that each Shareholder is deemed to have warranted their Shares are unencumbered. Further, pursuant to the proposed Scheme, each Shareholder is taken to have full power and capacity to sell and transfer their Shares to Brightstar.
The existence of this provision is drawn to the attention of Shareholders in the Scheme booklet. Deemed warranty clauses are not unusual and are acceptable provided there is adequate disclosure that it is a condition.
I was and am satisfied that adequate disclosure has been given of these clauses.
Electronic dispatch of the Scheme booklet
As is now common, Alto sought orders pursuant to s 1319 of the Act for electronic dispatch of the Scheme booklet and applicable proxy forms by email to those Shareholders that have nominated to receive communications electronically (Email Shareholders). In respect of its Shareholders who have nominated to receive communications in hardcopy, Alto proposed the dispatch of hardcopy documents by post.
In relation to its Shareholders who have not made an election, and for those Email Shareholders in respect of whom electronic delivery has been notified as being ineffective, Alto proposed that these Shareholders be sent a letter with details of the website from which the Scheme booklet can be accessed, together with a copy of the applicable proxy form.
I was and am satisfied that the proposed orders for electronic dispatch of the Scheme booklet are appropriate.
Conclusion and orders
At the first hearing before me, I was satisfied that the substantive and procedural requirements under s 411(1) and s 1319 of the Act had been satisfied and that the proposed Scheme was fit for consideration by Alto's members. For these reasons, at the conclusion of the hearing on 11 October 2024, I made orders in terms of 'Annexure A' to this judgment in respect of the Scheme.
Should the court approve supplementary disclosure to shareholders?
On 5 November 2024, the matter was relisted on the application of Alto for orders authorising the dispatch of supplementary materials to shareholders for the Scheme meeting. The supplementary disclosure was sought in relation to the content of announcements made by Brightstar to the ASX on 29 October 2024, following the dispatch of the Scheme booklet.
In support of its application, Alto relied on the affidavit of Matthew Craig Bowles filed 4 November 2024.
Under s 1319 of the Act, the court has power to authorise the dispatch of further explanatory materials in relation to a scheme of arrangement.[53] Where a meeting has been convened by order of the court under s 411 of the Act, only material which has been approved by the court for dispatch should be provided to shareholders.[54] In general, shareholders should be given at least 10 days' notice of any material new information in relation to a scheme.[55] However, it is a matter for the court to assess whether there is sufficient time for shareholders to consider the information and to understand its effect.[56]
[53] Re Amcom Telecommunications Ltd (No 3) [2015] FCA 596 [14] and the authorities cited therein.
[54] Re Amcom Telecommunications Ltd (No 3) [15] and the authorities cited therein.
[55] ASIC Regulatory Guide 60 [RG 60.92].
[56] Re Prime Media Group Ltd [2019] NSWSC 1888 [8].
After the initial orders were made for the convening of the Scheme meeting and dispatch of the Scheme booklet, Alto became aware, following Brightstar's ASX announcement on 29 October 2024, that Brightstar was in discussions in respect of three proposed transactions, namely:[57]
(a)a potential joint venture with Aurumin Limited in relation to the Central Sandstone Project;
(b)a gold prepayment debt facility with Ocean Partners USA, Inc; and
(c)ore processing arrangements with various third parties in the Eastern Goldfields
(collectively the Proposed Transactions).
[57] Affidavit of Matthew Craig Bowles filed 4 November 2024 [19], 'MCB-25', 'MCB-26'.
For this reason, Alto proposed that a letter be dispatched to shareholders to address this matter (Shareholder Information Letter).[58]
[58] Affidavit of Matthew Craig Bowles filed 4 November 2024, 'MCB-21'.
The Shareholder Information Letter had been the subject of review and verification by both Alto and Brightstar.[59] A copy of a draft Shareholder Information Letter was provided to ASIC on 1 November 2024, who did not have any comments on its terms. ASIC did note that if any of the Proposed Transactions resulted in binding agreements, it expected Shareholders to be given at least 10 days to consider any supplementary documentation before being required to vote on the Scheme.[60]
[59] Affidavit of Matthew Craig Bowles filed 4 November 2024 [21] - [24], [27] - [30], 'MCB-28'.
[60] Affidavit of Matthew Craig Bowles filed 4 November 2024 [31].
Alto proposed that the Shareholder Information Letter be dispatched to Shareholders by 7 November 2024 in the manner approved by the court at the first hearing, and that it be announced to the ASX.[61]
[61] Affidavit of Matthew Craig Bowles filed 4 November 2024 [33], [34].
At that stage, none of the Proposed Transactions had resulted in any binding agreements and did not affect the terms of the Scheme. However, counsel for Alto submitted, which I accept, that the Proposed Transactions may be material to the decision of Shareholders on the Scheme.[62] For that reason, at the conclusion of the hearing on 5 November 2024, I made orders in terms of 'Annexure B' to this judgment.
[62] Plaintiff's submissions filed 4 November 2024 [9].
Scheme meeting
The Scheme meeting was convened and held on 19 November 2024.[63] At the meeting, the resolution was passed by the requisite statutory majorities.
[63] Affidavit of Mark Anthony Connelly filed 26 November 2024 [23].
200 shareholders were present at the Scheme meeting in person and by proxy. 99.98% of shareholders who voted at the meeting were in favour of the resolution to approve the Scheme.[64]
[64] Affidavit of Mark Anthony Connelly filed 26 November 2024 [32] ‑ [33], 'MAC-17'.
Should the Scheme be approved?
The originating process was listed before me for the second court hearing on 29 November 2024.
Alto relied on an additional three affidavits for the second court hearing:
(a)two affidavits of Mark Anthony Connelly, a non‑executive chairman of Alto, filed 26 November 2024 and 27 November 2024; and
(b)an affidavit of Matthew Craig Bowles, filed 26 November 2024.
Counsel for Alto also tendered a letter from ASIC,[65] as well as certificates signed by each of Alto and Brightstar confirming that all conditions precedent, other than court approval, had been satisfied.[66]
[65] Exhibit A.
[66] Exhibit B.
These materials address the matters Alto was required to establish at the second court hearing.
Legal principles in respect of the Scheme approval
The approval of the proposed Scheme pursuant to s 411(4)(b) of the Act, or the second court hearing, is the third stage of approval for a scheme of arrangement. The second stage is the approval of the Scheme by the requisite statutory majorities, which occurred at the Scheme meeting.
At the second court hearing, the court has two tasks:[67]
(a)to ensure that all statutory and procedural requirements have been satisfied. This includes confirming that:[68]
(i)the meeting was convened and held in accordance with the court's earlier orders;
(ii)the resolutions were passed with the requisite statutory majorities; and
(iii)the plaintiff otherwise complied with the court's earlier orders, and
(b)to determine, in the exercise of the court's discretion, whether to approve the proposed arrangement.
[67] Re Wesfarmers Ltd [No 2] [2018] WASC 357 [12].
[68] Re International Goldfields Ltd [2004] WASC 112 [7].
The court has a discretion to approve a scheme under s 411(4)(b) of the Act and is not bound to approve a scheme just because the court previously made orders for the convening of a meeting or because the statutory majorities have been achieved.[69] That said, the court will usually approach the task on the basis that shareholders are better judges of what is in their commercial interests than the court.[70]
[69] Re Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583 [31].
[70] Re Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd (No 3) [32] - [33].
The factors that inform the court's discretion whether or not to approve a scheme are:[71]
[71] Re Seven Network Ltd (No 3) [35] - [40], [50], [52].
(a)whether the members have voted in good faith and not for an improper purpose;
(b)whether the proposal 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;
(c)whether 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;
(d)whether there has been full and frank disclosure of all information material to the members' decision;
(e)whether minority shareholders would be oppressed by the scheme;
(f)whether the court is satisfied that the scheme has not been proposed to avoid ch 6 of the Act;
(g)whether ASIC has any objection to the scheme; and
(h)whether the scheme offends public policy.
Compliance with statutory and procedural requirements
I was and am satisfied, on the basis of the additional affidavits that were filed by Alto, that:
(a)a copy of the court's orders made 11 October 2024 was lodged with ASIC that same day;[72]
(b)a copy of the Scheme booklet substantially in the form that was approved for distribution by the court at the first court hearing was lodged with ASIC and registered on 14 October 2024;[73]
(c)a copy of the court's orders made 5 November 2024 approving the Shareholder Information Letter was lodged with ASIC that same day;[74]
(d)a copy of the Shareholder Information Letter substantially in the form that was approved for distribution by the court at the interlocutory hearing was lodged with ASIC and registered on 6 November 2024;[75]
(e)the Scheme materials and supplementary Scheme materials were dispatched to Shareholders in accordance with the orders of the court;[76]
(f)in accordance with the orders of the court, the Scheme booklet and the Shareholder Information Letter were available for inspection on Alto's website and ASX announcements platform respectively;[77]
(g)the Scheme meeting was convened and held on 19 November 2024 in accordance with the orders;[78]
(h)the Scheme was approved by the requisite statutory majorities;[79]
(i)notice of the second court hearing was given by way of an ASX announcement by Alto on 15 November 2024;[80] and
(j)ASIC informed Alto on 28 November 2024, pursuant to s 411(17)(b) of the Act, that it has no objection to the proposed Scheme.[81]
[72] Affidavit of Mark Anthony Connelly filed 26 November 2024 [41(a)], 'MAC-20'.
[73] Affidavit of Matthew Craig Bowles filed 4 November 2024 [7], 'MCB-18'.
[74] Affidavit of Mark Anthony Connelly filed 26 November 2024 [41(b)], 'MAC-21'.
[75] Affidavit of Mark Anthony Connelly filed 26 November 2024 [15], 'MAC-8'.
[76] Affidavit of Mark Anthony Connelly filed 26 November 2024 [9] - [19], 'MAC-1' ‑ 'MAC-12'.
[77] Affidavit of Mark Anthony Connelly filed 26 November 2024 [10], [16], [19].
[78] Affidavit of Mark Anthony Connelly filed 26 November 2024 [23].
[79] Affidavit of Mark Anthony Connelly filed 26 November 2024 [29], 'MAC-17'.
[80] Affidavit of Mark Anthony Connelly filed 26 November 2024 [20], 'MAC-13'.
[81] Exhibit A (ASIC No Objection Letter).
Counsel for Alto drew to my attention the voter turnout at the Scheme meeting. The vote turnout was approximately 76.57% of Shares and 9.49% of Shareholders by number.[82] I accept that, on the evidence before me, this was materially higher than the voter turnout at Alto's three previous annual general meetings.[83]
[82] Affidavit of Mark Anthony Connelly filed 26 November 2024 [27(b)], [32], 'MAC-17'.
[83] Affidavit of Mark Anthony Connelly filed 26 November 2024 [36].
Relatively low shareholder turnout does not prevent the court from making orders approving a scheme of arrangement.[84]
[84] Re Pensana Metals Ltd [No 2] [2020] WASC 17 [12] ‑ [15] (6.41% of shareholders holding 37.08% of shares) as well as the cases referred to.
In this case, I was and am satisfied that there was a sufficient turnout at each of the Scheme meetings. I do not consider that the low voter turnout by number of Shareholders, in itself, suggested there had been an error in the dispatch of the Scheme booklet or Shareholder Information Letter, nor that this should prevent the court from making orders under s 411(4)(b) of the Act.
For these reasons, I was and am satisfied that all statutory pre‑conditions have been met.
Good faith and proper purpose
I am satisfied on the evidence filed by Alto that its members voted in good faith and for a proper purpose. The proposed Scheme is to effect the acquisition of shares and does not involve any novel treatment of rights. No‑one appeared at the second court hearing to object to the approval of the proposed Scheme.
Fairness and reasonableness
At the first court hearing, based on the evidence before the court, I was satisfied the proposed Scheme was of such a nature that there was no apparent reason that it should not receive approval if the requisite voting majorities were achieved at the Scheme meeting. This was notwithstanding the fact that BDO concluded that the Scheme was not fair but reasonable. At this hearing, I expressed my view that the Scheme was fit for consideration by Shareholders.
Nothing has occurred since the date of the first court hearing to change this view. The Shareholders who voted at the meeting overwhelmingly supported the proposed Scheme.
No Shareholder appeared at the second court hearing to oppose the orders sought by Alto. I was and am satisfied that the proposed Scheme is a Scheme that sensible businesspeople might consider to be of benefit to shareholders.
All relevant matters brought to the court's attention
At the first court hearing, counsel for Alto drew my attention to a number of matters which are summarised at [31] ‑ [65]. Counsel drew my attention to two additional matters at the second court hearing.
First, Alto received a communication from a shareholder querying whether the Scheme attributed appropriate value to Alto and its assets. Mr Bowles' evidence was that he considered this query and believed that it had been addressed in the Scheme booklet. On this basis, he did not respond to the email. Counsel for Alto noted that this query had not been raised by this Shareholder or any other Shareholder at or subsequent to the Scheme meeting.[85] No‑one appeared at the second court hearing to oppose orders being made for the approval of the Scheme. Given these matters, I do not consider the concern expressed by the Shareholders of itself is a basis on which approval of the Scheme should be withheld.
[85] Affidavit of Matthew Craig Bowles filed 26 November 2024 [12] - [13], 'MCB-33'; Affidavit of Mark Anthony Connelly filed 26 November 2024, 'MAC-18', page 89.
Second, counsel for Alto confirmed that none of the Proposed Transactions had resulted in completed transactions.
All remaining conditions precedent (apart from court approval at the second court hearing) have been satisfied or waived.[86]
Full and fair disclosure
[86] Exhibit B.
At the first court hearing and the interlocutory hearing, based on the evidence before the court, I was satisfied that the draft Scheme booklet and Shareholder Information Letter would provide full and fair disclosure to Shareholders.
The additional affidavit evidence filed by Alto establishes that the Scheme booklet and Shareholder Information Letter dispatched to Shareholders were in the form approved for distribution by the court. Nothing has arisen to suggest that there was not full and fair disclosure of all information that was material to the decision of Shareholders prior to them voting on the Scheme.
Satisfaction of s 411(17) of the Act and ASIC's view
ASIC has provided a written statement to the effect that it does not object to the Scheme pursuant to s 411(17)(b) of the Act,[87] which satisfies the requirements of s 411(17). Having regard to the nature of the proposed transaction, it cannot be said the Scheme was proposed to avoid the operation of ch 6 of the Act.
Public policy and oppression of minorities
[87] Exhibit A (ASIC No Objection Letter).
There is no evidence before the court that the proposed Scheme offends any aspect of public policy. Given the nature of the proposed Scheme, it is my view that it could not be sensibly suggested that the Scheme offends public policy.
Should Alto be exempt from compliance with s 411(11) of the Act?
Alto sought an exemption from s 411(11) of the Act. In my view, there is no utility in requiring the court's orders approving the Scheme to be annexed to Alto's constitution as the orders do not effect any change to the constitution. This exemption has become ordinary practice for transactions of this kind.
Conclusion
At the second hearing, I was satisfied that the substantive and procedural requirements under s 411(4) of the Act had been satisfied and that it was appropriate for the proposed Scheme to be approved.
For these reasons, at the conclusion of the hearing on 29 November 2024, I made orders in terms of 'Annexure C' to this judgment in respect of the Scheme.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JN
Associate to the Honourable Justice Hill
3 DECEMBER 2024
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