Re Decmil Group Ltd
[2024] WASC 243
•3 JULY 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE DECMIL GROUP LTD; EX PARTE DECMIL GROUP LTD [2024] WASC 243
CORAM: HILL J
HEARD: 24 JUNE 2024
DELIVERED : 24 JUNE 2024
PUBLISHED : 3 JULY 2024
FILE NO/S: COR 77 of 2024
MATTER: IN THE MATTER OF DECMIL GROUP LTD
EX PARTE
DECMIL GROUP LTD
Plaintiff
MACMAHON HOLDINGS LTD
Interested Party
Catchwords:
Corporations law - Scheme of arrangement - Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth) - Whether requirements to order scheme meeting are satisfied - Orders made convening scheme meeting
Legislation:
Corporations Act 2001 (Cth) s 411, s 1319
Corporations Regulations 2001 (Cth) sch 8
Supreme Court (Corporations) (WA) Rules 2004 (WA) r 3.2
Result:
Orders made convening scheme meeting
Category: B
Representation:
Counsel:
| Plaintiff | : | J M Healy |
| Interested Party | : | C E McKay |
Solicitors:
| Plaintiff | : | Steinepreis Paganin |
| Interested Party | : | HWL Ebsworth |
Case(s) referred to in decision(s):
Re Amcom Telecommunications Ltd [2015] FCA 341
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re Kangaroo Resources Ltd [2018] WASC 327
Re Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
Re Pacific Energy Ltd [2019] WASC 443
Re SRG Ltd [2018] FCA 1092
Re Wesfarmers Ltd [2018] WASC 308
HILL J:
On 16 April 2024, Decmil Group Ltd (Decmil) announced that it had entered into a Scheme Implementation Deed (SID) with Macmahon Holdings Ltd (Macmahon) for two inter-conditional schemes of arrangement (Schemes).[1] Under the proposed Schemes, Macmahon will acquire all the issued shares (Share Scheme) and redeemable convertible preference shares (RCPS Scheme) in Decmil.
[1] Affidavit of James Patrick McAuliffe filed 10 May 2024, 'JPM-1'.
By an originating process dated 10 May 2024, Decmil sought orders pursuant to s 411 and s 1319 of the Corporations Act 2001 (Cth) (Act) convening a meeting of its members to consider the proposed Schemes. The application came before me for the first court hearing on 24 June 2024.
On that date, I made orders pursuant to s 411(1) of the Act to convene two meetings of Decmil's members to consider and vote on the proposed Schemes. Orders were also made approving the distribution of a Scheme booklet to Decmil's securityholders under s 412(1)(a) of the Act as well as ancillary orders as to the convening and conduct of the Scheme meetings under s 1319 of the Act.
In making those orders, I stated that I would subsequently publish written reasons for my orders. These are my reasons for decision.
Evidence for the first court hearing
Decmil and Macmahon relied on ten affidavits for the first court hearing. These were:
(a)two affidavits of James Patrick McAuliffe, a solicitor employed by Steinepreis Paganin, the solicitors for Decmil, filed 10 May 2024 and 31 May 2024;
(b)three affidavits of Benjamin John Rogers, a solicitor employed by Steinepreis Paganin, filed 10 June 2024, 20 June 2024 and 21 June 2024;
(c)an affidavit of Pia Melanie Drummond, a partner at Steinepreis Paganin and the proposed chairperson for the Scheme meetings, filed 20 June 2024;
(d)an affidavit of Rodney Lewis Heale, the chief executive officer and executive director of Decmil, filed 20 June 2024;
(e)an affidavit of Jonathan Heath Stuart Murray, a partner at Steinepreis Paganin and the proposed alternate chairperson for the Scheme meetings, filed 20 June 2024;
(f)an affidavit of Michael John Finnegan, the chief executive officer and managing director of Macmahon, filed 20 June 2024; and
(g)an affidavit of Carmen Anne Leah Boothman, a partner at HWL Ebsworth, the solicitors for Macmahon, filed 20 June 2024.
Nature of proposed schemes
Decmil is a publicly listed company that delivers integrated construction and engineering solutions across the resources, infrastructure and renewable sectors.[2] As at 20 June 2024, Decmil had an issued capital of 155,586,158 fully paid ordinary shares (Shares), 4,593,238 unlisted options (Options), 131,342,687 redeemable convertible preference shares (RCPS), four unlisted warrants (exercisable into 50,769,231 Decmil shares) (Warrants) and 38,413,631 unlisted performance rights (Performance Rights).[3]
[2] Scheme booklet [13.1].
[3] Affidavit of Rodney Lewis Heale filed 20 June 2024 [16].
Macmahon is a publicly listed company providing end-to-end mining services encompassing mine development and materials delivery, engineering, civil construction, on-site surface and underground mining services, rehabilitation and site remediation.[4]
[4] Scheme booklet [14.1].
If the Schemes are implemented, Macmahon will acquire all Shares and RCPS on issue as at the Implementation Date. Under the Share Scheme, Decmil's shareholders will receive $0.30 for each Share (Share Scheme Consideration). Under the RCPS Scheme, RCPS securityholders will receive $0.343 for each RCPS (RCPS Scheme Consideration).[5] All Options, Warrants and Performance Rights are required to either vest or be cancelled prior to the Record Date.[6]
[5] Scheme booklet [12.2].
[6] SID cl 4.4, cl 4.5.
Decmil's directors have unanimously recommended that securityholders vote in favour of the Schemes, in the absence of a superior proposal.
Decmil has retained an independent expert to provide an opinion and recommendation on the proposed Schemes. The independent expert, Nexia Perth Corporate Finance Pty Ltd (Nexia), has concluded that, in the absence of a superior proposal, the proposed Schemes are fair and reasonable and in the best interests of securityholders.[7]
[7] Affidavit of Benjamin John Rogers filed 10 June 2024, 'BJR-1'.
In reaching this conclusion, Nexia compared the value of a Share prior to the implementation of the proposed Share Scheme (on a controlling interest basis) to the Share Scheme Consideration. The independent expert report (IER) expresses the opinion that the value of a Share prior to the proposed Share Scheme was between $0.241 (low) and $0.347 (high), with a preferred value of $0.293 as compared to the Share Scheme Consideration of $0.300. For the RCPS Scheme, Nexia compared the value of an RCPS prior to the implementation of the proposed RCPS Scheme to the RCPS Scheme Consideration. The IER expresses the opinion that the range of a RCPS was between $0.29 (low) and $0.395 (high), with a preferred value of $0.341 as compared to the RCPS Scheme Consideration of $0.343. The basis for the valuation and the methodology used are set out in the IER. The consideration of advantages, disadvantages and other factors that are likely to impact securityholders are set out comprehensively in the IER.
The Schemes 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 disclosed in the SID.[8]
[8] SID, cl 2.1.
The SID between Decmil and Macmahon sets out the agreed procedures for the implementation of the proposed Schemes. The obligations of Macmahon under the Schemes are supported by Deed Polls which have been executed (Deed Polls).[9]
[9] Affidavit of Carmen Anne Leah Boothman filed 20 June 2024, 'CALB-1', 'CALB-2'.
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.[10]
[10] 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 it is satisfied that:[11]
(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[12] and provides proper disclosure;[13]
(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;[14]
(f)the procedural requirements of the Act and the Supreme Court (Corporations) (WA) Rules 2004 (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.
[11] Re SRG Ltd [2018] FCA 1092 [11]; Re Wesfarmers Ltd [2018] WASC 308 [60].
[12] Corporations Act 2001 (Cth) s 412(1)(a)(ii); Corporations Regulations 2001 (Cth) reg 5.1.01, sch 8 cl 8301 ‑ 8310.
[13] Corporations Act 2001 (Cth) s 412(1)(a)(i).
[14] Corporations Act 2001 (Cth) s 411(2)(b).
Any issue about classes of members is usually determined at the first hearing,[15] so that costs and court time are not wasted which would occur if this was left to the second hearing.[16]
[15] Re CSR Ltd [73].
[16] 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.[17] 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.[18]
[17] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[18] Re SRG Ltd [12]; Re Wesfarmers Ltd [72] - [76].
Should orders be made for the convening of meetings to consider the proposed Schemes?
The formal matters that Decmil has to prove are satisfied. Decmil is a company and, accordingly, is a pt 5.1 body. There is no doubt that the proposed Schemes constitute an 'arrangement' of a type that has been approved by courts on numerous occasions.
Decmil filed two affidavits, as required by r 3.2 of the Corporations Rules, from the persons who have been nominated to be the chairperson and alternate chairperson for the Scheme meetings.[19]
[19] Affidavit of Pia Melanie Drummond filed 20 June 2024; Affidavit of Jonathan Heath Stuart Murray filed 20 June 2024.
By letter dated 21 June 2024, ASIC confirmed that it had been given 14 days' notice of the hearing and a reasonable opportunity to examine the terms of the Schemes and the draft explanatory statement or 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 Schemes.[20]
[20] Affidavit of Benjamin John Rogers filed 21 June 2024, 'BJR-13'.
On the materials before me, there was nothing to suggest the Schemes were not properly proposed. The constitution of Decmil does not prevent the Schemes.[21]
[21] Affidavit of James Patrick McAuliffe filed 10 May 2024, 'JPM-9'.
There are a number of conditions precedent to the Schemes.[22] Mr Heale is not aware of any reason that any of these will not be satisfied or waived prior to the Implementation Date.[23]
Disclosure and Scheme booklet
[22] Affidavit of James Patrick McAuliffe filed 10 May 2024, 'JPM-2'.
[23] Affidavit of Rodney Lewis Heale filed 20 June 2024 [24].
I have been provided with a copy of the original Scheme booklet,[24] the correspondence between ASIC and Decmil's solicitors[25] and the updated Scheme booklet provided to ASIC on 20 June 2024.[26]
[24] Affidavit of Benjamin John Rogers filed 20 June 2024, 'BJR-1'.
[25] Affidavit of Benjamin John Rogers filed 21 June 2024, 'BJR-11' - 'BJR-13'.
[26] Affidavit of Benjamin John Rogers filed 20 June 2024, 'BJR-8' - 'BJR-9'.
I was and am satisfied that there will be proper disclosure as to the effect of the proposed Schemes and the material considerations for securityholders of Decmil, including as to the funding of the Consideration.[27]
[27] Scheme booklet [14.9].
There is evidence before me as to the due diligence and verification process that was undertaken by both Decmil and Macmahon. On the basis of this evidence, I accept that both Decmil and Macmahon have undertaken processes to verify the accuracy of statements attributable to each of them in the Scheme booklet[28] and to ensure that the Scheme booklet does not omit any material information.[29]
[28] Affidavit of Rodney Lewis Heale filed 20 June 2024 [92] - [98].
[29] Affidavit of Rodney Lewis Heale filed 20 June 2024 [100].
Based on the checklist provided by counsel for Decmil,[30] 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).
[30] Plaintiff's submissions filed 20 June 2024, Appendix B.
In written and oral submissions, counsel for the plaintiff 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 each of the proposed Schemes are such that the securityholders are adequately protected against the risk that they will not receive the Share Scheme Consideration or RCPS Scheme Consideration and have no capacity to sue Macmahon to recover their shares or damages.
Under the terms of the Schemes and the Deed Polls:[31]
(a)Macmahon must issue (or procure the issue of) the Share Scheme Consideration to Decmil's shareholders and RCPS Scheme Consideration to Decmil's RCPS holders no later than the business day prior to the Implementation Date;
(b)subject to receipt of the Share Scheme Consideration and RCPS Scheme Consideration from Macmahon, Decmil is required to issue the Share Scheme Consideration and RCPS Scheme Consideration to its securityholders on the Implementation Date;
(c)transfer of the Shares and RCPS is subject to provision of the Share Scheme Consideration and RCPS Scheme Consideration;
(d)beneficial title does not pass unless the Share Scheme Consideration and RCPS Scheme Consideration has been issued in accordance with the Schemes;
(e)Decmil and each securityholder will have individual rights against Macmahon in the event that Macmahon fails to provide the Share Scheme Consideration and RCPS Scheme Consideration; and
(f)these arrangements are supported by the Deed Polls, which can be enforced by any securityholder.[32]
Exclusivity provisions and reimbursement fee
[31] Share Scheme, cl 5; RCPS Scheme, cl 5; Share Scheme Deed Poll, cl 5; RCPS Scheme Deed Poll, cl 5.
[32] Share Scheme Deed Poll, cl 2(a); RCPS Scheme Deed Poll, cl 2(a).
The SID contains the customary lock up devices in the form of 'no existing discussions', 'no shop', 'no talk', 'no due diligence', 'notification obligations' and 'matching right' provisions.[33] The 'no talk' and 'no due diligence' provisions are subject to a fiduciary carve out.[34] In certain circumstances, a mutual reimbursement fee of $979,386 (Reimbursement Fee) is payable.[35]
[33] SID, cl 12.
[34] SID, cl 12.9.
[35] SID, cl 13.2, 13.3.
In considering whether the exclusivity provisions impact on completion of the transaction and the duties of directors, the court has regard to:[36]
(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 not breach their fiduciary duties or are otherwise unlawful; and
(c)whether there is adequate prominence given to these provisions in the Scheme booklet.
[36] 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 Heale has explained the commercial justification for the exclusivity provisions and the Reimbursement Fee.[37] I accept his evidence that the inclusion of these provisions in the SID followed arm's‑length commercial negotiations in which all parties were separately advised and represented by external legal advisers.[38]
[37] Affidavit of Rodney Lewis Heale filed 20 June 2024 [117] - [120].
[38] Affidavit of Rodney Lewis Heale filed 20 June 2024 [117].
The amount of the Reimbursement Fee of $979,386 is less than 1% of the equity value of Decmil based on the Share Scheme Consideration and RCPS Scheme Consideration at the date of entry into the SID. As such, it is within generally accepted commercial parameters for break fees. The Reimbursement Fee is intended to compensate the parties for the costs (both costs incurred and opportunity costs) if the Schemes do not proceed, and is not payable if Decmil securityholders do not vote in favour of the Schemes. For this reason, I consider the amount of the Reimbursement Fee in this case is unlikely to influence securityholders in their decision to vote on the Schemes.
Importantly, the exclusivity arrangements and Reimbursement Fee provisions are prominently disclosed in the Scheme booklet.[39]
Director benefits and recommendations
[39] Scheme booklet [18.2] - [18.7].
The directors of Decmil have unanimously recommended that, in the absence of a superior proposal, securityholders of Decmil vote in favour of the Schemes.
Decmil drew my attention to the fact that each of the Decmil directors have interests in Decmil securities. Notwithstanding this, each Decmil director considers it is appropriate for them to make a recommendation in relation to the Schemes.
For the following reasons, it was and is my view that it was not inappropriate for each of the directors to make a recommendation in respect of the Schemes.
First, the consideration each of the directors will receive if the Schemes are implemented is being issued to them as consideration for the securities they own in Decmil. That is, they will receive the same consideration as every other securityholder of Decmil.
Second, each of the directors has considered whether they should make a recommendation on the Schemes to securityholders of Decmil and considered that it was appropriate for each to do so. In circumstances where the primary matter identified in respect of the directors is that they will receive the Share Scheme Consideration and RCPS Scheme Consideration if the Schemes are implemented, I accept that these interests should not prevent the Directors from making a recommendation to securityholders.
In my view, the full disclosure of the Decmil directors' respective interests in Decmil and the Schemes in the Scheme booklet in making their recommendation to Decmil securityholders is entirely appropriate.
Bonding Facility Agreement
At the hearing, counsel for the plaintiff drew my attention to the Bonding Facility Agreement entered into between Decmil and Macmahon on 3 June 2024.[40]
[40] Affidavit of Rodney Lewis Heale filed 20 June 2024, 'RH-21'.
The facility has a $20 million limit. Its purpose is to enable Decmil to provide bonds to cover any ongoing and upcoming works undertaken by Decmil. If the Schemes are not approved by securityholders, Decmil has 60 days to refinance this facility. Mr Heale explained the rationale for entry into this agreement, namely that as at May 2024, Decmil had fully drawn on its existing bond facilities and would have had to go to market to negotiate a new bond facility if it had not entered into this agreement with Macmahon.[41]
[41] Affidavit of Rodney Lewis Heale filed 20 June 2024 [142] - [148].
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 securityholders freely considering the proposed scheme or schemes.[42]
[42] Re Nzuri Copper Ltd [2019] WASC 189 [67] - [68].
In this case, I was and am satisfied that the Bonding Facility Agreement is not a lock-up device that would have a coercive effect on Decmil's securityholders preventing them from considering the merits of the proposed Scheme. This is primarily because there is a commercial rationale for the Facility Agreement, the interest rates are on 'arm's length terms', and there is sufficient time for Decmil to enter into refinancing arrangements if the Schemes are not implemented. The key terms of Bonding Facility Agreement are disclosed in the Scheme booklet. In my view, this is a matter for securityholders to consider at the Scheme meetings.
Deemed warranties
Decmil also drew my attention to the deemed warranty provisions in the proposed Schemes.
The proposed Schemes provide that each securityholder of Decmil is deemed to have warranted their Shares and RCPS are unencumbered. Further, pursuant to the proposed Schemes, each securityholder of Decmil is taken to have full power and capacity to sell and transfer their Shares and/or RCPS.
The existence of this provision is drawn to the attention of securityholders 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 despatch of the Scheme booklet
Decmil sought orders pursuant to s 1319 of the Act for electronic despatch of the Scheme booklet and applicable proxy form by email to those Decmil securityholders that have nominated an electronic address for the purpose of receiving communications from Decmil. These orders are now common. Details were provided as to the terms of the proposed electronic notification, namely that email notices would be sent to Decmil's securityholders containing links to the Scheme booklet and proxy form.
Securityholders who have elected to receive hard copy correspondence will receive all documents, including a copy of the Scheme booklet, by post.
In respect of the remaining Decmil securityholders (including those securityholders in respect of whom electronic delivery has been notified as being ineffective), Decmil proposed the despatch of a letter detailing how the relevant documents can be accessed and a proxy form by post.
I was and am satisfied that the proposed orders in relation to the despatch of the Scheme booklet and notice of the Scheme meetings to Decmil securityholders 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 Schemes were fit for consideration by Decmil's members.
For these reasons, at the conclusion of the hearing on 24 June 2024, I made orders in terms of Annexure 'A' to this judgment in respect of the Schemes.
Annexure A
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KC
Associate to the Honourable Justice Hill
3 JULY 2024
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