Re Doray Minerals Ltd
[2019] WASC 57
•27 FEBRUARY 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: RE DORAY MINERALS LTD; EX PARTE DORAY MINERALS LTD [2019] WASC 57
CORAM: VAUGHAN J
HEARD: 15 FEBRUARY 2019
DELIVERED : 15 FEBRUARY 2019
PUBLISHED : 27 FEBRUARY 2019
FILE NO/S: COR 21 of 2019
EX PARTE
DORAY MINERALS LTD
Plaintiff
Catchwords:
Corporations law - Scheme of arrangement - Proposed merger acquisition - Share scheme - Option scheme - Application for orders convening scheme meetings under s 411(1) of the Corporations Act 2001 (Cth)
Legislation:
Corporations Act 2001 (Cth), s 411, s 412
Insolvency Practice Rules (Corporations) 2016 (Cth)
Supreme Court (Corporations) (WA) Rules 2004 (WA)
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | A J Papamatheos |
Solicitors:
| Plaintiff | : | Bellanhouse |
Case(s) referred to in decision(s):
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [2018] WASC 327
Re Tawana Resources NL [2018] FCA 1456
Re Viralytics Ltd [2018] FCA 637
Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308
Re Westgold Resources Ltd [2012] WASC 301
VAUGHAN J:
Overview
The plaintiff, Doray Minerals Ltd (Doray), is an Australian public company listed on the official list as conducted by the ASX Ltd (ASX).
On 14 November 2018 Doray made an ASX announcement as to a proposed merger with another ASX listed company, Silver Lake Resources Ltd (Silver Lake). It was proposed to effect the merger through two schemes of arrangement by which Silver Lake would acquire all of the issued ordinary shares in Doray (by way of a share scheme) and certain options issued by Doray (by way of an option scheme). The ASX announcement followed entry into a scheme implementation deed (SID) on 13 November 2018.
By an originating process dated 31 January 2019 Doray sought orders under s 411(1) of the Corporations Act 2001 (Cth) in relation to the proposed schemes of arrangement. The application came before me for hearing on 15 February 2019.
After hearing from counsel for Doray I made orders pursuant to s 411(1) of the Act to convene meetings of Doray's members and relevant option holders to consider and vote on the proposed schemes. Ancillary orders were made as to the convening and conduct of the meetings. Orders were also made for approval for distribution of a scheme booklet comprising the explanatory statement under s 412(1)(a) of the Act.
I said that I would prepare written reasons for the orders in due course. These are my reasons for the orders made on 15 February 2019.
Evidence and background facts
Doray relied on eight affidavits sworn by six deponents. Those deponents were:
(1)Deanna Carpenter: Ms Carpenter is Doray's solicitor. Ms Carpenter deposed as to various background materials and provided a copy of the SID (attachment 'DJC-1'). Ms Carpenter also proved the service of various materials and detailed the conferral that had occurred between herself and the Australian Securities and Investments Commission (ASIC) as to the terms of the two schemes and the draft scheme booklet. Finally, an affidavit filed shortly before the hearing included deed polls executed by Silver Lake as were contemplated under the SID.
(2)Leigh Junk: Mr Junk is Doray's managing director. Mr Junk provided detailed evidence as to the proposed schemes, Doray's capital structure and business, Silver Lake, the draft scheme booklet including its drafting and verification, the intended scheme meetings, and the rationale for and negotiations in respect of the exclusivity provisions, matching right and break fee as found in the SID. Mr Junk also confirmed that, in the absence of a superior proposal, Doray's board unanimously supported the schemes and recommended that all members and relevant option holders vote in favour of the schemes.
(3)Julius Matthys: Mr Matthys is the non-executive chairperson of Doray. Insofar as Mr Matthys is the proposed chairperson of the scheme meetings he provided an affidavit making the necessary disclosures in accordance with r 3.2 of the Supreme Court (Corporations) (WA) Rules 2004 (WA).
(4)Peter Alexander: Mr Alexander is a non-executive director of Doray and the proposed alternate chairperson of the scheme meetings. He too provided an affidavit making the necessary disclosures in accordance with r 3.2.
(5)David Berg: Mr Berg is the company secretary and general counsel for Silver Lake. Mr Berg explained the process undertaken to verify the Silver Lake information as contained in the draft scheme booklet.
(6)Sherif Andrawes: Mr Andrawes is a director of BDO Corporate Finance (WA) Pty Ltd. Mr Andrawes' curriculum vitae shows him to be very experienced in providing valuation reports. In that regard Mr Andrawes prepared an independent expert report (IER) in connection with the two schemes. By his affidavit Mr Andrawes confirmed the opinions expressed in the IER.
Based on that affidavit evidence I record the following matters.
Doray was incorporated in August 2009. Doray is an Australian public company admitted to the official list of the ASX; its ordinary shares are quoted for trading on the ASX's official list. Doray is a gold and copper producer. Its key project is the Deflector Gold Copper project, located in the southern Murchison region in Western Australia.
Doray has a number of securities on issue: (1) 446,685,438 fully paid ordinary shares; (2) 4,432,816 options exercisable at 40 cents on or before 30 January 2020 (it is these options that are to be the subject of the option scheme); (3) 1,197,773 options exercisable at 63 cents on or before 19 February 2019 (these will lapse before the intended scheme meetings); and (4) 8,645,481 unlisted performance rights.
Silver Lake is another ASX listed public company operating in Western Australia. It is a gold producer and exploration company operating in the eastern goldfields district of Western Australia. Silver Lake's key project is Mount Monger. This hosts three independent mining centres.
On 13 November 2018 Doray and Silver Lake entered into the SID. The SID provides for the terms and conditions on which Doray and Silver Lake agreed to merge through the acquisition by Silver Lake of:
(1)all of the shares in Doray (through the share scheme); and
(2)the 40 cent options exercisable on or before 30 January 2020 (through the option scheme).
The proposed consideration to be provided to Doray shareholders in accordance with the share scheme is 0.6772 of a fully paid ordinary share in Silver Lake for each Doray share. Based on the closing price for Silver Lake shares as at 30 January 2019 the share scheme consideration represents an implied value of $0.3928 per Doray share. The proposed consideration to be provided to the relevant Doray option holders under the option scheme is $0.0781 cash for each Doray option. Accordingly, the evidence suggests that the total value of the proposed transaction is in the order of $179 million.
If effected the merger acquisition scheme would see the current shareholders of Doray holding approximately 37.3% of the issued ordinary shares in Silver Lake.
The terms of the SID were announced on the markets announcement platform of the ASX on 14 November 2018. The announcement provided that the rationale for the merger was to combine two complementary Western Australian gold operations to create an ASX mid-tier growth-focused gold producer. It was said that the exchange ratio represented no premium to either party based on the 30-day volume weighted average price on the ASX for each of Doray and Silver Lake to 13 November 2018.
According to the papers as filed in support of the application, if the share scheme is approved and effectuated, the merged enterprise is expected to be the twelfth largest ASX listed gold producer by production and the eleventh largest by market capitalisation.
The SID was amended on 23 December 2018. The amendments were to accommodate the proposed sale of two of Doray's non-core projects to a third party. Although I was provided with a copy of the deed of amendment it is unnecessary to detail the amendments. The amendments to the SID were immaterial for the purpose of the first court hearing.
Doray's directors unanimously recommend that its shareholders vote in favour of the scheme in the absence of a superior proposal. No competing proposal has emerged. In his affidavit Mr Junk deposes that he is not aware of any basis to believe that any superior proposal will be forthcoming from any other party at this time. The directors' recommendation is, however, subject to an independent expert opining that the scheme is in the best interests of the shareholders. As will be seen, that has occurred.
Nature of the proposed schemes
By the proposed share scheme Silver Lake will acquire all of the ordinary shares in Doray for a consideration of 0.6772 new Silver Lake shares for each Doray share (cl 2.5, cl 4.2, cl 4.4, cl 5.1, cl 5.2). Where there is a fractional entitlement the shares to be issued will be rounded to the nearest whole number of Silver Lake shares (cl 5.2(a)(1)).
There are two relevant exceptions to the proposed share scheme consideration of 0.6772 new Silver Lake shares for each Doray share:
•Ineligible Foreign Holders (this includes shareholders whose address is outside Australia or New Zealand) will have their Silver Lake shares dealt with in accordance with a sale facility under the scheme and the net sale proceeds remitted to them (cl 5.7). A brokerage commission will apply.
•Small Shareholders (those holding 1,500 Doray shares or less) may elect to have their Silver Lake shares dealt with in accordance with the sale facility under the scheme, thus also receiving remittance of the net sale proceeds applicable to their shares (cl 5.8).
Accordingly, Ineligible Foreign Holders (and Small Shareholders who elect to do so) will receive a cash amount. The cash so received will be the net proceeds of the sale of their scheme consideration.
On effectuation of the proposed share scheme Doray will become a wholly owned subsidiary of Silver Lake. Doray will then be de-listed from the ASX. The new Silver Lake shares as issued to the former Doray shareholders will be listed on the ASX (cl 5.4).
The share scheme will not become effective unless and until a number of conditions are satisfied (cl 3.1). This includes the satisfaction or waiver of various conditions precedent in cl 2.1 of the SID. These are in relatively standard terms for a transaction of this type, as are the conditions in cl 3.1 of the share scheme. Notably, the material conditions precedent do not include a requirement that the option scheme be approved. Accordingly, if the share scheme is approved, but the option scheme is not, the share scheme will still proceed.
The performance rights stand outside the share scheme. The holders of the performance rights are or are associated with the directors and management of Doray. It is a condition of the schemes that Doray provide confirmation that the performance rights will vest and be exercised with effect from the effective dates of the schemes.[1] Doray has procured deeds with each performance rights holder to this effect (attachment 'LSJ-17'). Thus, in effect, Doray shares will be issued to the performance rights holders and they will be dealt with by the share scheme.
[1] Share scheme, cl 3.1(a) (read with SID sch 1 item 2(f)); Option scheme, cl 3.1(a) (read with SID sch 1 item 2(f)).
By the proposed option scheme Silver Lake will acquire all of the 40 cent Doray options for a cash consideration of $0.0781 for each option (cl 2.5, cl 4.2, cl 4.4, cl 5.1 and cl 5.2). The option scheme is also conditional on satisfaction of a number of conditions precedent (cl 3.1). These include the satisfaction or waiver of the conditions precedent in cl 2.1 of the SID. Importantly, the option scheme is conditional on approval of the share scheme (cl 3.1(c) and (e)).
It is a condition precedent to both the share scheme and the option scheme that an independent expert provide an independent expert report stating that the share scheme is in the best interests of Doray shareholders[2] and the option scheme is in the best interests of the relevant Doray option holders.[3]
[2] Share scheme, cl 3.1(a) (read with SID sch 1 item 1(a)).
[3] Option scheme, cl 3.1(a) (read with SID sch 1 item 2(e)).
The IER has been provided by BDO Corporate Finance (WA) Pty Ltd and verified by Mr Andrawes. In part it relies on a Technical Assessment and Valuation Report prepared by Optiro Pty Ltd.
Mr Andrawes opines that, in the absence of a superior proposal, the share scheme is fair and reasonable to Doray shareholders. Accordingly, he concludes that it is in the best interests of the shareholders. In coming to that conclusion Mr Andrawes determines values for a Doray share as follows (on a control basis):
Low
$Preferred
$High
$Value of a Doray share prior to implementation of the scheme (control)
0.231
0.257
0.284
Value of 0.6772 of a Silver Lake share following implementation of the scheme (minority)
0.240
0.284
0.330
This is presented graphically as follows:
The basis of the valuations, and the methodology employed, are set out comprehensively in the IER. The IER employs the 'Sum‑of‑Parts' as the primary methodology and a 'Quoted Market Price' basis as a secondary methodology.
The Black-Scholes option pricing model was used to value the 40 cent options. Mr Andrawes assessed the value of the 40 cent options (on a control basis) as being between 2.3 cents (low) and 4.4 cents (high) with a preferred value of 3.3 cents. Those values are to be compared with the cash consideration under the option scheme of 7.81 cents per option. On that basis Mr Andrawes concludes that, in the absence of a superior proposal, the option scheme is fair and reasonable to the relevant option holders. For that reason it is concluded that the option scheme is in the best interests of the 40 cent option holders.
The schemes are proposed pursuant to the SID as amended. The SID provides for comprehensive terms as to the implementation of the transaction contemplated by the proposed schemes of arrangement. I will deal separately with certain exclusivity provisions. Otherwise, for now, it is only necessary to mention that the SID contemplates the execution of deed polls by Silver Lake to assist in the effectuation of the schemes (cl 6.4(g)). Those deed polls have been executed and are in evidence (attachments 'DJC-24' and 'DJC-25').
I was provided with the draft proposed scheme booklet as provided to the ASIC on 30 January 2019 (attachment 'LSJ-5') and the various amendments that have been made to the document since then (attachments 'DCJ‑10' and 'DJC‑15'). At the hearing Doray relied on a final version of the draft scheme booklet dated 13 February 2019 (attachment 'DJC‑15').
The scheme booklet itself comprises sections as follows:
1.Important information.
2.Corporate directory.
3.Important dates and times.
4.Letter from the Chairman of Doray.
5.Letter from the Chairman of Silver Lake.
6.Action required by Doray securityholders.
7.Key considerations relevant to your vote.
8.Frequently asked questions.
9.Overview of the schemes.
10.Profile of Doray.
11.Profile of Silver Lake.
12.Profile of the merged group.
13.Intentions of Silver Lake.
14.Potential risk factors.
15.Taxation implications for scheme participants.
16.Implementing the scheme.
17.Key terms of the Scheme Implementation Deed.
18.Additional information.
19.Glossary and interpretation.
20.Directors' authorisation.
The scheme booklet will be accompanied by substantial attachments. These include the IER and accompanying Technical Assessment and Valuation Report. Also attached will be the terms of the share scheme of arrangement, the terms of the option scheme of arrangement, the executed deed polls for the share scheme and the option scheme and notices for the two scheme meetings. The SID will not be attached. However, the terms of the SID are summarised in the part of the scheme booklet that contains the key terms of the SID.
Legal framework
I described the applicable legal framework for an application of the nature brought by Doray in Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd.[4] I do not intend to repeat what I stated in Re Wesfarmers Ltd. I adopt and will apply what I stated in Re Wesfarmers Ltd.
[4] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 [46] ‑ [78] (Re Wesfarmers Ltd).
There is usually said to be six matters to be proved at this first stage of the process under s 411 of the Act. Those matters are that:
(1)The plaintiff is a pt 5.1 body.
(2)The proposed scheme is a compromise or an arrangement within the meaning of s 411 of the Act. Here, relevantly, the question is whether each proposed scheme is an 'arrangement'.
(3)The proposed scheme booklet will provide proper disclosure.
(4)The schemes are bona fide and properly proposed. (For present purposes it is convenient, by reference to this hearing, to also consider the lawfulness and any class issues in relation to the proposed schemes of arrangement.)
(5)The ASIC has had at least 14 days' notice of the proposed hearing date and has had a reasonable opportunity to examine the terms of the schemes and the scheme booklet and to make submissions.
(6)The various procedural requirements of the Act and the Supreme Court (Corporations) (WA) Rules 2004 (WA) have been met.
It is also necessary that the court is satisfied that the schemes are of such a nature and cast in such terms that, if they receive a statutory majority at the scheme meetings, the court would be likely to approve the schemes at the hearing of an application which is unopposed. This does not require me to descend into the commercial merits or demerits of Doray's proposed schemes. It is enough if the schemes are such that it would be open to the members and the relevant option holders of Doray to adopt. I need only consider whether each proposed scheme is one that sensible business people might consider to be of benefit to the members or the relevant option holders.
There are some specific legal considerations that apply to the schemes of arrangement as proposed by Doray. It is convenient to defer consideration of those matters and deal with them in providing my reasons for the orders as made.
Disposition: standard matters
Formal matters
The formal matters that Doray had to prove are satisfied.
Doray is a company; it is therefore a pt 5.1 body. The proposed schemes each constitute an 'arrangement'. As to the share scheme, this type of merger acquisition scheme has been approved by courts as an arrangement on numerous occasions. The option scheme is also an arrangement; as counsel for Doray reminded me, the option scheme is a creditors' scheme, not a members' scheme, as option holders are generally considered to be contingent creditors.[5]
[5] Re Westgold Resources Ltd [2012] WASC 301 [16].
By letter dated 15 February 2019 (attachment 'DJC-1' to Ms Carpenter's 15 February 2019 affidavit) the ASIC confirmed satisfaction of the service requirement and that it had been provided with the reasonable opportunity required under s 411(2). The ASIC also gave notice that it did not propose to appear to make submissions or intervene to oppose the schemes at the first hearing.
The various procedural requirements for making the orders were all attended to in the evidence; for example, there was the necessary consents and disclosures by the proposed chairperson of the meetings and his alternate.
Properly proposed
On the materials there is nothing to suggest that the proposed schemes are unlawful or not properly proposed.
There are no obvious flaws in the schemes such that it would be inappropriate for them to be submitted to Doray's shareholders and relevant option holders for their consideration.
As to the fact that there was proposed to be a single class of members, counsel for Doray drew my attention to the differential treatment proposed for Ineligible Foreign Holders and (at their election) the Small Shareholders. Differential treatment of this sort is commonplace in schemes of arrangement. It is not class creating as there is sufficient community of interest between the shareholders for them to consider whether the proposed scheme is in their collective interest.[6]
[6] Re Wesfarmers Ltd [91] ‑ [98].
I observe that the definition of 'Ineligible Foreign Holder' is wider than the equivalent concept in other recent schemes. It includes shareholders who are residents in jurisdictions other than Australia and New Zealand. On the evidence, however, the Ineligible Foreign Holders are relatively few in number. There are only 42 such members holding 3,984,869 shares (representing approximately 0.74% of the total Doray shares on issue).
Counsel for Doray drew my attention to various other matters concerning the proposed schemes. A more detailed discussion of those matters is best deferred and will be dealt with in the next main section of these reasons.
Disclosure and scheme booklet
I have read through the initial draft of the scheme booklet (as provided to the ASIC) and considered the various amendments made to that draft which are now reflected in the final scheme booklet. I was and am satisfied, to the necessary prima facie level given the interlocutory nature of the application before me, that there will be proper disclosure as to the effect of the proposed schemes and the material considerations to which shareholders and the relevant option holders ought to have regard.
Importantly, the scheme booklet gives disclosure as to the reasons that a shareholder may wish to vote against approval of the proposed scheme. These include:
•Disagreement with the directors' recommendation and the independent expert's conclusion.
•The uncertain value of the scheme consideration.
•A belief that there is a potential for increased value should Doray remain a standalone entity.
There is also a comprehensive section on the risk factors, both general and specific, associated with the proposed schemes (pars 1.3 and 8).
As to the option scheme, there is detailed disclosure as to the relationship between the share scheme and the option scheme. It is made clear that, if the share scheme is approved but the option scheme is not, the share scheme will proceed. The consequences of that for the relevant option holders are addressed within the scheme booklet (pars 1.4(d), 2, 8.5 and 10.10).
I have been provided with the communications between the ASIC and Doray's legal representatives consequential upon the ASIC's review of the contents of the draft scheme booklet. This resulted in a number of changes to the scheme booklet which enhanced disclosure. There were also a number of drafting changes to the terms of the schemes. While the contents of the scheme booklet remain a matter for Doray, the apparent rigour of the ASIC's review is a matter I take into account in reaching my provisional satisfaction that the scheme booklet will provide proper disclosure.
I am satisfied that the draft scheme booklet is a detailed and comprehensive explanatory statement. It sets out the advantages and disadvantages of the respective schemes. It expressly considers whether the schemes are fair and reasonable from the perspective of the shareholders and, separately, from the perspective of the relevant option holders. It also provides, by way of the IER, an independent expert opinion that sets out detailed reasons for the conclusions reached and the methodologies used.
As to the due diligence and verification process undertaken by Doray and Silver Lake, I had regard to, and accept, the evidence given by Mr Junk (at pars 77 to 91 and 116 of his affidavit) and Mr Berg (at pars 4 to 14 of his affidavit). In summary, there has been verification of the various statements in the scheme booklet. Steps have also been taken to satisfy Doray and Silver Lake that the scheme booklet does not omit any material information.
The directors of Doray have resolved to approve the scheme booklet in its final form (attachment 'DJC-30').
Otherwise, as to disclosure, in being 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) I was assisted by a checklist provided by Doray's counsel as an attachment to Doray's written submissions. Those requirements have been modified in respect of certain items by the ASIC's letters dated 14 February 2019 (attachment 'DJC‑17').
Disposition: specific matters
In written and oral submissions counsel for Doray drew a number of matters to my attention. These included the issue of performance risk, the exclusivity provisions and issues as to particular terms within the schemes.
Performance risk
Counsel for Doray submitted that the nature and terms of the proposed schemes were such that the members and relevant option holders were adequately protected against the risk that Silver Lake would not perform its obligations under the schemes. I accept that submission.
The main matter for consideration is assurance that the members' shares will not be transferred until the members have received the share scheme consideration and the relevant option holders’ options will not be transferred until the option holders have received the option scheme consideration.
The share scheme is predicated on provision of the scheme consideration (recital D) and contemplates that the transfer of the members' shares to Doray is first 'subject to' the provision of the scheme consideration to the members (cl 2.5(b), cl 4.2). To that end cl 5.1 identifies the members' entitlement and cl 5.2 specifies Silver Lake's obligation to issue the new Silver Lake shares by way of the scheme consideration. So too Silver Lake's beneficial entitlement to the Doray shares is dependent on its provision of the scheme consideration (cl 4.5). The proposed arrangements for the Ineligible Foreign Holders and the electing Small Shareholders also provide for appropriate action on the part of Silver Lake (cl 5.7, cl 5.8) which is prima facie acceptable in terms of averting performance risk.
The SID provides for obligations, as between Doray and Silver Lake, for Silver Lake to provide the scheme consideration (cl 5.1, 6.4(h)). The covenant in cl 5.1(a) is expressed to be in favour of Doray in its own right and on behalf of the scheme participants. Of more significance is the deed poll that has been executed in accordance with Silver Lake's obligations under the SID. By this Silver Lake covenants in favour of the scheme shareholders to perform its obligations under the share scheme. There is an acknowledgement that the deed may be relied on and enforced by any scheme shareholder (cl 2(a)) and that Doray and its directors may as agent and attorney enforce the deed poll on behalf of the shareholders (cl 2(b)). Silver Lake also agrees to comply with its obligations under the SID (cl 5.1). In more specific terms Silver Lake agrees to issue and allot the share scheme consideration in terms as contemplated by the share scheme (cl 5.2, 5.4 and 5.5).
The deed poll will be enforceable by the Doray members as they are sufficiently identified within the deed poll.[7]
[7] Re Wesfarmers Ltd [121].
The option scheme provides a similar framework (including the option deed poll). Recognising, however, that the consideration is a cash consideration, provision is made to ensure payment. The option scheme provides for the creation of a trust account of which Doray is to be the trustee. The total of the option consideration is to be paid into the trust account by 5 pm on the day that is two business days before the implementation date (cl 5.2(a)). The transfer of the options is subject to the provision of the option scheme consideration (cl 2.5(b), cl 4.2).
Exclusivity provisions and break fee
The SID contains what are described as 'deal protection' (or, less pejoratively, 'exclusivity') terms. These include 'no shop' (cl 7.1), 'no talk' (cl 7.1), 'notification' (cl 7.5) and 'matching' (cl 7.6) provisions. Provision is also made for a 'break fee' of $1.55 million that is payable by one party to the other in certain circumstances (cl 8). This is reciprocal, ie there are circumstances in which the break fee is payable by Silver Lake for reimbursement of costs incurred by Doray (cl 8.4).
The various exclusivity provisions are subject to an exception to enable the respective boards of Doray and Silver Lake to comply with their statutory and fiduciary duties in the event of a competing proposal (cl 7.2 and cl 7.4).
In considering the propriety of exclusivity arrangements the authorities suggest that:[8]
• The exclusivity period should be certain and of reasonable duration.
• The exclusivity arrangements should be subject to a directors' duty carve-out, ie the directors should be able to consider an alternative proposal if it may result in a potentially superior transaction that will better serve the members' interests.
• The arrangements should be adequately disclosed in the explanatory statement.
• Appropriate affidavit evidence should be adduced to justify the exclusivity arrangements.
[8] See eg Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [2018] WASC 327 [57] ‑ [70].
The exclusivity provisions are - in terms of their drafting - not unusual. The exclusivity period extends to 30 April 2019, ie a duration of about five and a half months. That is not unreasonable; it should also be taken into account that this includes the Christmas break period where little could have been done to progress the scheme proposal. There is an appropriate directors' duty exception.
The draft scheme booklet discloses that failure to approve the schemes will not trigger an obligation to pay the break fee (par 1.4(c)). There is otherwise prominent disclosure of the exclusivity arrangements as a whole (pars 2 and 11.5 to 11.6).
Mr Junk's affidavit provides sufficient commercial justification for the exclusivity provisions (pars 92, 95 - 113). His evidence, which I accept, is that he believes the exclusivity provisions and the matching rights are reasonable and appropriate (Mr Junk's affidavit, par 113). The provisions followed arm's length commercial negotiations in which both parties were separately advised and represented by external legal and financial advisers. The amount of the break fee represents 0.96% of Doray's equity value (Mr Junk's affidavit, par 112(e)(i)) and 0.99% of the implied value of the share scheme consideration (Mr Junk's affidavit, par 112(e)(ii)). It is thus within generally accepted commercial parameters.
In approving the convening of the two scheme meetings I was satisfied, necessarily on a provisional basis given the nature of the first court hearing, that the presence of the exclusivity provisions and the break fee were unlikely to be coercive.
Other matters
Counsel for Doray drew my attention to the 'deemed warranty' provision in the proposed schemes (cl 6.5). The presence of the deemed warranty provision is disclosed at par 10.7 of the scheme booklet. Such deemed warranty clauses are not unusual and are acceptable provided that, as here, their presence is adequately disclosed.[9]
[9] Re Tawana Resources NL [2018] FCA 1456 [28] - [29] (referring to Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [60]).
Additionally, Doray sought orders for the electronic dispatch of the scheme booklet. I made such orders in Re Wesfarmers Ltd. For the reasons I gave there such orders are now commonplace.[10] Details were provided as to the terms of the proposed electronic notification (attachment 'DJC-29'). Based on that material, an order for electronic dispatch of the scheme booklet was also appropriate in relation to Doray's proposed schemes.
[10] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [145] - [152].
Otherwise, orders were sought as to notice of the second hearing and the conduct of the scheme meeting. Save in one respect those orders were in relatively standard terms and presented no difficulties. The only matter to note is that, following counsel for Doray's oral submissions, pursuant to s 1319 of the Corporations Act 2001 (WA) I made an order that r 75-15(2) of the Insolvency Practice Rules (Corporations) 2016 (Cth) would apply for the purpose of the scheme meetings. I was satisfied that so doing was consistent with the current state of practice in the Federal Court.[11]
[11] See eg Re Viralytics Ltd [2018] FCA 637 [37] - [40].
Conclusion and orders
On the evidence presented, and after hearing from counsel for Doray, I was satisfied that it was appropriate to make orders convening scheme meetings to consider whether to approve the proposed share scheme and the proposed option scheme. The schemes are fit for consideration by Doray's members and the relevant option holders in the sense that sensible business people might consider the schemes will be of benefit to them. That is particularly the case given the opinions expressed in the IER.
I was also satisfied that the scheme booklet prima facie provides proper disclosure to Doray's members and the relevant option holders. Accordingly, I considered it appropriate to approve the draft scheme booklet for distribution.
For the reasons given I made orders in these terms:
1.Pursuant to section 411(1) of the Corporations Act 2001 (Cth):
(a)the plaintiff convene a meeting of holders of fully paid ordinary shares in the capital of the plaintiff to be held at the Perth Office of BDO, at 38 Station Street, Subiaco, Western Australia, on 22 March 2019 at 10:00am (WST) (share scheme meeting), for the purpose of considering and, if thought fit, approving (with or without modifications) the proposed scheme of arrangement (share scheme) being the document contained in Annexure DJC-15 (pages 497-501) to the affidavit of Deanna Jayne Carpenter sworn on 14 February 2019, amended to remove the following words in clauses 5.7(a)(2) and 5.8(a)(1): 'after its securities are reinstated to official quotation on ASX' and '(or if its securities have not been reinstated to official quotation on ASX, then off market)'; and
(b)the plaintiff convene a meeting of holders of those options convertible into shares of the plaintiff exercisable at $0.40 each on or before 30 January 2020 to be held at the Perth Office of BDO, at 38 Station Street, Subiaco, Western Australia, on 22 March 2019 at 10:30am (WST), or (if later) immediately following the share scheme meeting (option scheme meeting), for the purpose of considering and, if thought fit, approving (with or without modifications) the proposed scheme of arrangement (option scheme) being the document contained in Annexure DJC-15 (pages 502‑506) to the affidavit of Deanna Jayne Carpenter sworn on 14 February 2019
(together, the scheme meetings).
2.The scheme booklet contained in Annexure DJC-15 to the affidavit of Deanna Jayne Carpenter sworn on 14 February 2019 (including all annexures and notices of scheme meetings), which contains the explanatory statement required by section 412(1)(a) of the Corporations Act 2001 (Cth), be and is approved for distribution to members and optionholders, subject to:
(a)correction of any minor typographical or grammatical errors and final typesetting, formatting and page numbering;
(b)any minor amendments required or approved by the ASIC for registration under section 412(6) of the Corporations Act; and
(c)correction or update of, or as a result of, any relevant date or market price reference.
3.Subject to these orders, the scheme meetings are to be:
(a)convened, held and conducted in accordance with the plaintiff's constitution and to the extent not inconsistent with the constitution, the provisions of Part 2G.2 of the Corporations Act that apply to members of a company and in particular the provisions that apply to meetings of members;
(b)convened, held and conducted as if rule 2.15 of the Supreme Court (Corporations) Rules 2004 (WA) does not apply, but that Rule 75-15(2) of the Insolvency Practice Rules (Corporations) 2016 (Cth) does apply; and
(c)convened using the notices of meetings substantially in the form of the notices contained in Annexure DJC-15 (pages 497-506) to the affidavit of Deanna Jayne Carpenter sworn on 14 February 2019.
4.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 20 February 2019, a document substantially in the form of the scheme booklet (approved at order 2 above) and any applicable proxy form (or a link to a website for any electronic proxy lodgement) to shareholders and optionholders of the plaintiff as follows:
(a)to each shareholder who has nominated an electronic address for the purposes of receiving notices of meeting from the plaintiff, an email to such address with a covering email text substantially in the form of Annexure DJC-29 (pages 574-575) to the affidavit of Deanna Jayne Carpenter sworn on 14 February 2019; and
(b)to each other shareholder and all optionholders, by pre-paid or ordinary post, mail or courier to the address as set out in the register of the plaintiff's members.
5.Dispatch in accordance with order 4 on or before 20 February 2019 is taken to be sufficient notice of the scheme meetings.
6.If it after comes to the attention of the plaintiff that any email dispatched in accordance with order 4(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 order 4(b).
7.Mr Julius Matthys or, failing him, Mr Peter Alexander is to be authorised to act as chairperson of the scheme meetings and report the result of the scheme meetings to this Court.
8.The chairperson may adjourn either or both of the scheme meetings in his absolute discretion to such time, date and place as he considers appropriate.
9.At the share scheme meeting, two shareholders present in person or by proxy, corporate representative or attorney under power and entitled to vote will constitute a quorum for the share scheme meeting.
10.At the option scheme meeting, two optionholders present in person or by proxy, corporate representative or attorney under power and entitled to vote will constitute a quorum for the option scheme meeting.
11.At the share 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 (WST) on 20 March 2019.
12.At the option scheme meeting, each optionholder present and entitled to vote, will be entitled to one vote for each option in the plaintiff that the optionholder is registered as holding at 4:00pm (WST) on 20 March 2019.
13.At the scheme meetings, voting on the resolutions to approve the schemes at the scheme meetings is to be conducted by way of poll.
14.The time by which proxy forms must be returned or lodged online in accordance with any instructions given on the proxy form is 10:00am (AWST) on 20 March 2019 in respect of the share scheme meeting, and 10:30am (AWST) on 20 March 2019 in respect of the option scheme meeting.
15.If this matter is to be relisted, then on or before 21 March 2019 the plaintiff is to publish a completed notice of hearing substantially in the form of Annexure 'A' to these orders once in The Australian newspaper, and the plaintiff is otherwise, to the extent necessary, relieved from compliance with rule 3.4 of the Supreme Court (Corporations) (WA) Rules 2004 (WA).
16.The proceedings be stood over to 8.30am (AWST) on 28 March 2019 for the hearing of any application to approve the proposed schemes.
17.A copy of these orders be lodged with ASIC as soon as practicable after issue.
18.These orders be entered forthwith.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EP
Research Associate to the Honourable Justice Vaughan
27 FEBRUARY 2019
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