Re Edge Minerals Ltd; [No 2]
[2022] WASC 440
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE EDGE MINERALS LTD; EX PARTE EDGE MINERALS LTD [No 2] [2022] WASC 440
CORAM: STRK J
HEARD: 26 OCTOBER 2022
DELIVERED : 26 OCTOBER 2022
PUBLISHED : 15 DECEMBER 2022
FILE NO/S: COR 156 of 2022
MATTER: IN THE MATTER OF EDGE MINERALS LTD
EX PARTE
EDGE MINERALS LTD
Plaintiff
Catchwords:
Corporations law - Scheme of arrangement - Application for orders pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) - Whether statutory and procedural requirements observed - Whether court ought to exercise its discretion to approve the scheme - Three of four board members not independent of the proposed acquirer - The proposed acquirer and the scheme proponent have common directors - Public policy - Director's duties - Whether there has been full and frank disclosure of all information material to the members' decision - The position of the Australian Securities and Investments Commission - Application unopposed - Ancillary relief sought - Declarations sought pursuant to s 1322(4) of the Corporations Act 2001 (Cth) - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 411, s 1322
Result:
Application granted
Ancillary relief granted
Category: B
Representation:
Counsel:
| Plaintiff | : | J Healy |
Solicitors:
| Plaintiff | : | Steinepreis Paganin |
Case(s) referred to in decision(s):
Bell Group Ltd v Westpac Banking Corporation [No 9] [2008] WASC 239; (2008) 39 WAR 1
Cleary v Australia Co-operative Foods Ltd [1999] NSWSC 973; (1999) 32 ACSR 582
Darvall v North Sydney Brick & Tile Co Ltd [No 2] (1989) 16 NSWLR 260
Fitzgerald v FJ Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215
Gnych v Polish Club Ltd [2015] HCA 23; (2015) 255 CLR 414
Grimaldi v Chameleon Mining NL [No 2] [2012] FCAFC 6; (2012) 200 FCR 296
Howard v Federal Commissioner of Taxation [2014] HCA 21; (2014) 253 CLR 83
ICAL Ltd v County NatWest Securities Australia Ltd (1988) 39 NSWLR 214
Pilmer v The Duke Group Ltd [2001] HCA 31; (2001) 207 CLR 165
R v Byrnes (1995) 183 CLR 501
Re Amcor Ltd [2000] VSC 157; (2000) 34 ACSR 199
Re Anaconda Nickel Holdings Pty Ltd [2003] WASC 19; (2003) 44 ACSR 229
Re Arthur Yates & Co Ltd [2001] NSWSC 40; (2001) 36 ACSR 758
Re Big River Gold Ltd [No 2] [2022] WASC 314
Re Bolnisi Gold NL [No 2] [2007] FCA 2078; (2007) 165 FCR 45
Re Coles Group -[No 2] [2007] VSC 523; (2007) 215 FLR 411
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re Drexel Burnham Lambert UK Pension Plan [1995] 1 WLR 32
Re DWS Ltd [2020] FCA 1590; (2020) 148 ACSR 616
Re Edge Minerals Ltd [2022] WASC 395
Re Gazal Corp Ltd [2019] FCA 701
Re Kidman Resources Ltd [2019] FCA 1226; (2019) 375 ALR 76
Re Linter Textiles Corp Ltd [1991] 2 VR 561
Re Macquarie Private Capital A Ltd [2008] NSWSC 323; (2008) 26 ACLC 366
Re Mascot Home Furnishers Pty Ltd [1970] VR 539
Re Mincom Ltd [2007] QSC 37; (2007) 61 ACSR 266
Re Nusantara Resources Ltd [2021] WASC 334
Re Ozgrowth Ltd [No 2] [2022] WASC 167
Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583
Re SMS Management and Technology Ltd [2017] VSC 257
Re Tanwar Resources NL [No 3] [2018] FCA 1952
Re Vimy Resources Ltd [No 2] [2022] WASC 257
Re Wesfarmers Ltd [No 2] [2018] WASC 357
Re Western Areas Ltd [No 2] [2022] WASC 198
Revlon Inc v MacAndrews & Forbes Holdings Inc, 506 A 2d 173 (Del, 1986)
Rosetex Co Pty Ltd v Licata (1994) 12 ACSR 779
Streeter v Western Areas Exploration Pty Ltd [No 2] [2011] WASCA 17
The State of South Australia v Clark (1996) 66 SASR 199
Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1
Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; (1978) 139 CLR 410
Table of Contents
Overview
Evidence for the second court hearing
Legal principles in respect of scheme approval
Disposition
Compliance with statutory and procedural requirements
Additional matters brought to the court's attention
Finding
Three of four Edge directors were not independent of Trek
Public policy
Directors' duties
Findings
Good faith and proper purpose
Fairness and reasonableness
Full and fair disclosure
Oppression of minorities
Other matters brought to the court's attention
Conditions precedent
Shareholder engagement campaign
Exemption from s 411(11) of the Corporations Act
Section 411(17) of the Corporations Act
Conclusion and orders
Sch A: Orders made
STRK J:
Overview
On 26 October 2022, the plaintiff, Edge Minerals Ltd, moved for orders approving a scheme of arrangement between Edge and its shareholders, pursuant to s 411(4) and, if necessary, s 411(6) of the Corporations Act 2001 (Cth).
Section 411 of the Corporations Act envisages three steps. First, the court approves the convening of a scheme meeting and the draft explanatory statement to be sent to the scheme members. Secondly, the members vote on the proposed scheme of arrangement at the scheme meeting. Thirdly, assuming the first two stages have occurred, a further application to the court for approval of the arrangement.
At the conclusion of the first court hearing, which was heard on 14 and 16 September 2022, orders were made pursuant to s 411(1) of the Corporations Act to convene a meeting of holders of fully paid ordinary shares in the capital of Edge. Orders were also made approving distribution of a scheme booklet which comprised the explanatory statement required by s 412(1)(a) of the Corporations Act. Ancillary orders were made as to the convening and conduct of the meeting. The reasons which ground the orders made at the first court hearing are set out in Re Edge Minerals Ltd [2022] WASC 395. I do not intend to repeat what was said in those reasons. These reasons should be read with and as if they incorporate the earlier reasons.
On 20 October 2022, the scheme meeting was convened to consider the proposed scheme of arrangement. Edge shareholders were asked to vote on the following resolution:[1]
That pursuant to and in accordance with section 411 of the Corporations Act, the scheme of arrangement proposed between Edge and Edge Scheme Shareholders, as contained in and more particularly described in the document of which the notice convening this meeting forms part, is approved (with or without modification as approved by the Supreme Court of Western Australia).
[1] Affidavit of PM Drummond par 9.
At the scheme meeting, the resolution was passed by the requisite statutory majorities for the purposes of s 411(4)(a)(ii) of the Corporations Act.[2] 215 shareholders were present at the scheme meeting in person and by proxy.[3] 94.69% of shareholders who voted at the scheme meeting voted in favour of the resolution, and 99.57% of votes cast on the scheme resolution were cast in favour of the resolution.[4] Excluding the votes of the Edge directors, which had been tagged, 99.39% of the shareholders who voted at the meeting and 94.36% of votes cast on the scheme resolution were cast in favour of the resolution.[5]
[2] Affidavit of PM Drummond par 20.
[3] Affidavit of RP Hardwick, RPH-4; affidavit of NB Lewis, NBL-3.
[4] Affidavit of RP Hardwick, RPH-4; affidavit of NB Lewis, NBL-3; second outline of submissions par 1.
[5] Affidavit of RP Hardwick, RPH-2; second outline of submissions par 2.
The second court hearing took place on 26 October 2022. Neither Trek Minerals Ltd, the Australian Securities and Investments Commission (ASIC), any shareholder of Edge, nor any other interested person sought to be heard.
After hearing submissions made by counsel on behalf of Edge, I made orders in accordance with s 411(4) of the Corporations Act to approve the scheme of arrangement. I also made orders pursuant to s 1322 of the Corporations Act. A copy of the orders made at the conclusion of the second court hearing are reproduced at sch A to these reasons. My reasons for approving the scheme of arrangement are set out below.
Evidence for the second court hearing
In addition to the affidavits that were read at the first court hearing, Edge filed nine affidavits prior to the second court hearing. All were read in support of the application. They were as follows.
First, the affidavit of Emilia Varga affirmed on 6 October 2022, which attached documents EV-1 to EV-7. Ms Varga is a project coordinator at Computershare Investor Services Pty Ltd, which maintains Edge's share register. Among other things, Ms Varga deposed to the electronic dispatch of notices of meeting, proxy forms and the scheme booklet; to a discrepancy between the court orders from the first court hearing and the dispatch process executed on behalf of Edge; and to reviewing Edge's share register database, which disclosed that there were no new Edge shareholders between the date of dispatch of the scheme meeting documents and 4 October 2022. The attachments to Ms Varga's affidavit included a sample copy of the formatted version of the email notification sent to shareholders; a screenshot of the InvestorVote login page; a copy of the email received post-dispatch confirming the number of email recipients; a copy of the bounce back report; a copy of email correspondence between Ms Varga and Ms Zollo dated 28 September 2022; a copy of email correspondence from Ms Zollo to Ms Varga and Mr Hardwick dated 29 September 2022; and a copy of the new shareholder report dated 4 October 2022.
The second was the affidavit of Suzanne Thelma Zollo affirmed on 6 October 2022, to which Ms Zollo attached documents marked STZ‑1 to STZ-17. Ms Zollo is a manager of Specialist Mail Services and, among other things, deposed to overseeing the preparation and postal distribution of materials for the scheme meeting (being the notices of access, pre-populated proxy forms and opt-in notices) to Edge shareholders; and to printing and dispatching a hardcopy proxy form, notice of access and opt-in notice to the one Edge shareholder for whom electronic dispatch had bounced back. Ms Zollo annexed to her affidavit copies of her email communications with Mr Hardwick and Steinepreis Paganin; her email communications with Ms Varga; her email communications with Vanguard Press; her email communications with Specialist Mail Data; and copies of Australia Post order confirmations.
The third was the affidavit of Valerie Jean Hodgins sworn on 11 October 2022, to which Ms Hodgins attached documents marked VJH‑1 to VJH‑3. Ms Hodgins has been a director of Trek since 1 July 2022 and is also a director of Indorita Pty Ltd. Ms Hodgins deposed that she had become aware that Indorita held shares in Edge, which information had not been disclosed in the scheme booklet. Attached to her affidavit were copies of an announcement made by Bardoc Gold Ltd to the Australian Stock Exchange (ASX) on 13 April 2022; the circular resolution of the Trek directors dated 22 August 2022; and an email communication issued on 22 September 2022 from Computershare to Ms Hodgins' husband, Tracy Caspersz, in his capacity as the contact person for Indorita.
The fourth was the affidavit of Jamie George Michael Ogilvie sworn on 11 October 2022, to which Mr Ogilvie attached documents marked JGMO‑1 and JGMO‑2. Mr Ogilvie is a partner at Blackwall Legal LLP who acts for Trek. Mr Ogilvie deposed to becoming aware that the Trek information contained in the scheme booklet omitted certain required information as it did not reference Ms Hodgins' interest in the Edge shares. Mr Ogilvie attached to his affidavit signed counterparts of the circular resolution of the Trek directors dated 22 August 2022; and an email communication from Computershare to Mr Caspersz in his capacity as the contact person for Indorita.
The fifth was the affidavit of Russell Paul Hardwick, company secretary of Edge, sworn on 21 October 2022, to which Mr Hardwick attached documents marked RPH‑1 to RPH‑4. Mr Hardwick deposed to the publication of the notice of the second court hearing; that no hardcopy proxy forms were received in Edge's post office box; and that Edge had received no requests from Edge shareholders for physical copies of the scheme booklet. He further deposed to having received three general queries from shareholders and to having responded to the same; to the tagging of certain votes at the scheme meeting; to the results of the retail shareholder engagement campaign conducted by Georgeson Shareholder Communications Australia Pty Ltd as recorded in Georgeson's statistical report; and to the result of the voting at the scheme meeting. Mr Hardwick annexed to his affidavit copies of the notices published in The West Australian and The Australian; results of the tagged votes; the report prepared by Georgeson; and the results of the scheme meeting as published on Edge's website.
The sixth was the affidavit of Nicole Brooke Lewis affirmed on 21 October 2022, to which Ms Lewis annexed documents marked NBL‑1 to NBL‑3. Ms Lewis is a relationship manager at Computershare and acted as the returning officer for the scheme meeting. Among other things, Ms Lewis deposed to the receipt of proxy forms by Computershare; to having generated a proxy report and a shareholder eligibility report prior to the scheme meeting; to the registration and voting procedure adopted at the scheme meeting; and as the returning officer for the scheme meeting, to having prepared a poll report which set out the results of voting at the scheme meeting. Ms Lewis attached to her affidavit a copy of the proxy report, the shareholder report, and the poll report for the scheme meeting.
The seventh was the affidavit of Pia Melanie Drummond sworn on 24 October 2022, to which Ms Drummond annexed documents marked PMD‑1 and PMD‑2. Ms Drummond is a partner of Steinepreis Paganin and acts for Edge. Ms Drummond deposed to having acted as the chairperson at the scheme meeting. She also deposed to the procedure adopted and the voting results of the scheme meeting. Ms Drummond attached to her affidavit a copy of her address to Edge shareholders at the scheme meeting, together with a copy of the minutes of the scheme meeting.
The eighth was the affidavit of Rachel Elizabeth Barclay sworn on 24 October 2022, to which Ms Barclay annexed documents marked REB‑1 to REB‑14. Ms Barclay is a solicitor at Steinepreis Paganin and acts for Edge. Ms Barclay's affidavit deposed on 24 October 2022 was the tenth affidavit deposed by Ms Barclay for the purpose of this proceeding. Among other things, Ms Barclay deposed to her correspondence with ASIC, including with respect to the registration of the scheme booklet, the orders of the court made at the first court hearing and the orders of the court made on 23 September 2022 approving the shareholder engagement campaign. Ms Barclay further deposed to the basis for her belief that no new Edge shareholders had come onto the Edge register since the dispatch of the scheme booklet; and to the results of voting at the scheme meeting. Annexed to Ms Barclay's tenth affidavit were copies of all referenced correspondence, as well as copies of documents referenced by counsel in the outline of submissions filed on 21 October 2022 for the second court hearing.
The ninth was a further affidavit of Ms Barclay sworn on 26 October 2022, to which Ms Barclay attached documents marked REB‑1 to REB‑8. Among other things, Ms Barclay deposed to the execution of conditions precedent certificates by Edge and Trek on 20 October 2022; to not having received notice from any shareholder of an intention to appear at the second court hearing, or otherwise raising objection to the scheme of arrangement; to having received from ASIC at 4.29 pm on 25 October 2022 a letter indicating that, under s 411(17)(b) of the Corporations Act, ASIC had no objection to the scheme of arrangement; and to the process by which the outbound shareholder engagement campaign had been conducted by Georgeson. Ms Barclay annexed to her affidavit copies of email communications between Steinepreis Paganin and Blackwall Legal; the Edge and Trek conditions precedent certificates; correspondence with ASIC; ASIC's no objection letter dated 25 October 2022; and correspondence between Georgeson and Steinepreis Paganin.
At the second court hearing, Edge relied upon a written outline of submissions filed on 21 October 2022 (in respect of public policy issues and the potential breach of fiduciary duties by three of the Edge directors); a further outline of submissions filed on 24 October 2022 (in respect of compliance issues concerning the holding of the scheme meeting); and a minute of proposed orders filed on 25 October 2022.
Legal principles in respect of scheme approval
As noted above, approval of the proposed scheme pursuant to s 411(4)(b) of the Corporations Act at the second court hearing is the third stage of approval for a scheme of arrangement. Justice Hill in Re Western Areas Ltd [No 2] [2022] WASC 198 summarised the legal principles relevant at the second court hearing, which I reproduce below and applied in determining Edge's application:[6]
[6] See also second outline of submissions pars 9 ‑ 13.
[8]At the second court hearing, the court has two tasks:
(a)to ensure that all statutory and procedural requirements have been satisfied. This includes confirming that:
(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;
(b)to determine, in the exercise of the court's discretion, whether to approve the proposed arrangement.
[9]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. 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.
[10]The factors that inform the court's discretion whether or not to approve a scheme are:
(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 an objection to the scheme; and
(h)whether the scheme offends public policy.
(footnotes omitted)
Disposition
No shareholder of Edge or other interested person sought to be heard at the second court hearing. There was no opposition to the court approving the scheme of arrangement by ASIC or otherwise. Of course, while the lack of opposition was informative, it was not the end of the matter.
Compliance with statutory and procedural requirements
On the basis of the additional affidavits filed on behalf of Edge, I was satisfied that:
(a)a copy of the orders made at the first court hearing was formally lodged with ASIC on 19 September 2022;[7]
[7] First affidavit of RE Barclay par 4, REB-1.
(b)a copy of the scheme booklet as approved for distribution by the court at the first court hearing was lodged with ASIC and registered on 19 September 2022;[8]
(c)the scheme booklet had been dispatched to shareholders, and Edge provided a detailed account of the dispatch process;[9]
(d)notice of the second court hearing had been given by way of publication in The West Australian newspaper on 15 October 2022 and The Australian newspaper on 17 October 2022;[10]
(e)from 21 September 2022, the scheme booklet had been available for inspection by Edge shareholders on Edge's website and at Edge's registered office;[11]
(f)the scheme meeting was convened and held on 20 October 2022, in accordance with the orders of the first court hearing;
(g)Ms Drummond acted as chairperson of the scheme meeting;[12]
(h)the proposed scheme of arrangement was approved by the requisite statutory majorities by Edge shareholders;[13] and
(i)pursuant to s 411(17)(b) of the Corporations Act, ASIC had informed Edge on 25 October 2022 that it has no objection to the proposed Scheme.[14]
Additional matters brought to the court's attention
[8] Affidavit of ST Zollo par 16, STZ-6.
[9] With respect to the procedures for physical dispatch of the materials, I had regard to the affidavit of ST Zollo. With respect to the procedures for electronic dispatch of the materials, I had regard to the affidavit E Varga. The extent to which dispatch was not in accordance with the orders from the first court hearing is described and addressed at [28] to [33] below.
[10] Affidavit of RP Hardwick par 3, RPH-1.
[11] Affidavit of RP Hardwick par 8.
[12] Affidavit of PM Drummond par 6.
[13] Affidavit of RP Hardwick, RPH-4.
[14] Second affidavit of RE Barclay, REB-6.
In written and oral submissions, counsel for Edge drew my attention to the following matters with respect to Edge's compliance with the statutory and procedural requirements.
Voter turnout
Counsel for Edge addressed the voting majorities obtained and confirmed that 5,169,248 shares were voted at the meeting out of the 22,790,317 Edge shares on issue, representing 22.7% of the total number of voting shares.[15] Approximately 4.66% of all eligible Edge shareholders by number had voted at the scheme meeting (that is, 215 of the 4,610 shareholders).[16]
[15] Affidavit of RP Hardwick, RPH-4; affidavit of NB Lewis, NBL-3; first affidavit of RE Barclay par 19; second outline of submissions par 17.
[16] Affidavit of RP Hardwick, RPH-4; affidavit of NB Lewis par 12, NBL-2 and NBL-3; first affidavit of RE Barclay par 19.
Counsel submitted that turnout of approximately 23% of the Edge shares on issue was a significant turnout, and accordingly the court could be satisfied that there had not been such a low turnout which may have suggested an error in dispatch of the scheme booklet.[17]
[17] Second outline of submissions par 18.
In Re Big River Gold Ltd [No 2] [2022] WASC 314, Hill J had cause to consider the implications that might flow from low voter turnout in respect to a scheme meeting, and observed as follows:
[16]As was stated by Farrell J in Re TriAusMin Ltd [No 2] [2014] FCA 833 [10] - [11]:
It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme; apathy should not be presumed to be antagonism.
Nonetheless it does call for consideration to ensure that the vote [was] not unrepresentative, since the court retains the discretion to withhold its approval in that case. It is relevant to consider whether members have been deterred from attending or voting at the meeting. (footnotes omitted)
[17]Relatively low shareholder turnout does not prevent the court from making orders approving a scheme of arrangement.
As to Hill J's observation at [17], I had regard to the various authorities cited at footnote 28 to her Honour's decision in Re Ozgrowth Ltd [No 2] [2022] WASC 167.
I was satisfied that there was sufficient turnout at the scheme meeting to proceed. Having given careful consideration to the evidence of distribution of scheme materials, I did not consider that the low voter turnout by number of Edge shareholders suggested there had been an error in the dispatch of the scheme booklet, nor that turnout should prevent the court from making orders under s 411(4)(b) of the Corporations Act. In so concluding, I had regard to the following:
(a)by reason of being demerged from Bardoc Gold Ltd on 12 April 2022, Edge had no historical voting information to allow a comparison of voter turnout at the scheme meeting against past meetings to be made.[18] I accepted that it could not be said that a turnout of 4.66% of eligible shareholders by number at a meeting swayed against a trend of greater previous engagement;
(b)a significant majority of shareholders (by number) who voted at the scheme meeting voted in favour of the scheme resolution;
(c)there was no evidence which suggested any irregularity in the dispatch of the scheme booklet that would have affected voter turnout; and
(d)there was no evidence of any issue which would have deterred Edge shareholders from voting at or attending the scheme meeting.
Dispatch of materials to shareholders
[18] First affidavit of RE Barclay par 20.
The orders made at the first court hearing contemplated a process of dispatch for shareholders who had nominated an electronic address for the purpose of receiving electronic communication from Edge, as well as a process of dispatch for shareholders who had nominated to receive hard‑copy correspondence from Edge. The orders made at the first court hearing did not expressly deal with dispatch to Edge shareholders who did not fall into either category (that is, shareholders who had not made a nomination). The evidence filed in advance of the second court hearing revealed as follows.
The 30 Edge shareholders who had opted to receive hardcopy correspondence were sent a physical copy of the scheme booklet, proxy form and opt‑in notice.[19]
[19] Affidavit of ST Zollo pars 7(e), 23(a), 25.
4,030 of the 4,610 Edge shareholders had not nominated either way. To these shareholders, Edge dispatched a physical copy of the notice of access, proxy form and opt‑in notice.[20] The same materials were sent to the one shareholder who had nominated an electronic address and for whom electronic delivery had bounced back.[21]
[20] Affidavit of E Varga par 17; affidavit of ST Zollo pars 7(f), 23(b), 25.
[21] Affidavit of ST Zollo pars 30 - 36, STZ-13 to STZ-14.
With respect to the dispatch of materials to the 550 Edge shareholders who had nominated an electronic address for the purposes of receiving notice of meeting from Edge, an email communication was issued on 21 September 2022 which contained, among other things, instructions as to how to access the scheme documents.[22] Counsel for Edge brought to the court's attention that the email communication was not in a form approved by the court (that is, it was not in the form annexed to the first affidavit of Mr Boys affirmed on 9 September 2022 and marked CJB‑5). Despite this, I was satisfied that the email communication sent to shareholders contained substantially the same information as the notice of access approved by the court, including:[23]
(a)an overview of the proposed scheme of arrangement (with details such as the consideration ratio and counterparty);
(b)the time and date of the scheme meeting;
(c)a link to the relevant website to access the scheme meeting documents; and
(d)instructions on how to vote by proxy.
[22] Affidavit of E Varga pars 9 - 13, 18 - 19, EV-1.
[23] Affidavit of E Varga par 20.
At the second court hearing Edge sought an order under s 1322(4) of the Corporations Act with respect to this issue. I was satisfied that all preconditions prescribed in s 1322(6) were satisfied as the irregularity was essentially of a procedural nature; Edge had acted honestly; it was just and equitable that the order be made; and in circumstances where the information dispatched to shareholders was materially the same as the notice which had been approved by the court, no substantial injustice had been or was likely to be caused to any person.
I was also satisfied that it was appropriate to exercise discretion so as to grant the validation order in circumstances where the scheme of arrangement had received the support of Edge's members who voted. Accordingly, I made an order pursuant to s 1322(4) of the Corporations Act that the email notification to Edge's shareholders issued on 21 September 2022 was not invalid by reason of not being sent in strict compliance with the order 5(a) of the orders made at the conclusion of the first court hearing on 16 September 2022.[24]
Finding
[24] See order 3(b) of the orders made at the second court hearing, reproduced at sch A to these reasons.
I was satisfied that all statutory and procedural preconditions to the court's approval had been satisfied. I so concluded having regard to the additional matters properly brought to the court's attention by counsel.
Three of four Edge directors were not independent of Trek
In granting the orders sought at the first court hearing, I observed that potential conflicts which existed by virtue of the common directors' involvement in the proposed scheme of arrangement were matters relevant to the court's consideration of the scheme of arrangement at the first court hearing, and the draft explanatory statement.[25]
[25] Re Edge Minerals Ltd [103].
After considering the authorities referred to in my reasons for decision and having regard to the circumstances of the application,[26] I concluded that provided there was clear and unambiguous disclosure to shareholders, the potential breach of directors' duties was not a reason not to convene the scheme meeting. In the end, I was satisfied that the possible breach of fiduciary duty was not determinative of whether the court would grant the application at the second court hearing if it were unopposed.[27] That is, I was satisfied that it was appropriate for shareholders to be given the opportunity to consider the proposed scheme at a scheme meeting, with the benefit of an independent expert's report and the amended scheme booklet.[28]
[26] Re Edge Minerals Ltd [133] - [136], referring to Re Mincom Ltd [2007] QSC 37; (2007) 61 ACSR 266, and Re Bolnisi Gold NL [No 2] [2007] FCA 2078; (2007) 165 FCR 45. The eight matters weighed in the balance were described at Re Edge Minerals Ltd [138] - [149].
[27] Re Edge Minerals Ltd [137]. See also discussion at [133] - [136] of Re Edge Minerals Ltd regarding Re Mincom Ltd and Re Bolnisi Gold NL [No 2].
[28] Re Edge Minerals Ltd [150].
In advance of the second court hearing, counsel filed written submissions which further addressed public policy considerations and the potential breach of duty by three of the Edge directors. Counsel's submissions are summarised below.
Public policy
As to public policy, counsel for Edge acknowledged that, generally speaking, public policy 'affords a measure of discretion to the courts',[29] and accepted that at a second court hearing, it is appropriate to consider whether the proposed scheme offends public policy.[30]
[29] First outline of submissions par 9, citing Fitzgerald v FJ Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215, 248.
[30] First outline of submissions par 8, citing Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583 [35] - [40], Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358, 373, 375 [51] - [54]; 381 [82]; Re Wesfarmers Ltd [No 2] [2018] WASC 357 [14], [37]. See also Re Vimy Resources Ltd [No 2] [2022] WASC 257 [101].
As to the consideration of public policy in the context of an application made pursuant to s 411(4)(b) of the Corporations Act, counsel made a number of general observations which I adopted.[31]
[31] First outline of submissions pars 16 ‑ 20.
First, policy considerations in this context are not at large and should be confined to considering the interests of shareholders of the target, its creditors and anyone else that may deal with the company in the future, or invest in its shares.[32] At [82] of Re CSR Ltd, Finkelstein J further noted that in his Honour's view, their respective interests are adequately protected by an inquiry as to whether the scheme is fair or reasonable, such that considerations of public policy seem to add nothing to existing principles.[33]
[32] Re CSR Ltd [82].
[33] Citing Re CSR Ltd [51] ‑ [54], [82]; and Re Mascot Home Furnishers Pty Ltd [1970] VR 539.
Secondly, considerations as to whether the court should refuse approval on the grounds of public policy ought to be viewed in the context that the court's power is supervisory under s 411 of the Corporations Act.[34]
[34] Citing Re Amcor Ltd [2000] VSC 157; (2000) 34 ACSR 199 [33]; and Re Anaconda Nickel Holdings Pty Ltd [2003] WASC 19; (2003) 44 ACSR 229 [47].
Thirdly, when considering whether public policy has been breached, it is relevant to consider whether the breach was innocent or whether there was a deliberate intention to set out to breach the law.[35]
[35] First outline of submissions par 50, citing Fitzgerald v FJ Leonhardt Pty Ltd and Gnych v Polish Club Ltd [2015] HCA 23; (2015) 255 CLR 414 [75].
Fourthly, there is no prohibition in the Corporations Act which would make unenforceable the implementation of a scheme implementation deed, even if it were found to have been executed in breach of the directors' fiduciary duties. That is, there is no statutory provision which may render the scheme implementation deed unlawful.[36]
Directors' duties
[36] Citing Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; (1978) 139 CLR 410, 413.
In advance of the second court hearing, counsel on behalf of Edge filed submissions as to the nature and scope of directors' duties.[37] In this regard, well-established principles were recited, which included the following:
(a)the general duty of the director is to act in the best interests of the company and for proper purposes;[38]
(b)a company is entitled to the unbiased and independent judgment of each of its directors;[39]
(c)directors, as fiduciaries, have a duty of undivided loyalty to the company to which the person is appointed as a director. Ordinarily, that means a director cannot have personal interests that conflict with interests of the company;[40]
(d)conflict, or real substantial possibility of a conflict, between the personal interests of the directors and the company to whom the fiduciary duty is owed should be avoided.[41] However, a company director can be a director of more than one company, but needs to take into account the interests of each company and be mindful as to management of fiduciary duties owed where they may conflict;[42]
(e)overlaying the nature and scope of the duties owed by a director to a company is a necessity to consider substance over form and identify with particularity the actual circumstances in which the exercise of duty is to be considered.[43] The framing of the particular fiduciary duty said to be owed and the particular factual circumstances in which the duty is said to arise are essential in determining whether there has been a breach and whether there are any defences which can be raised in respect to such conduct; and
(f)there is a general reluctance for courts to review business judgments of boards.[44]
[37] First outline of submissions pars 21 - 34.
[38] First outline of submissions par 22, citing Bell Group Ltd v Westpac Banking Corporation [No 9] [2008] WASC 239; (2008) 39 WAR 1 [4553].
[39] First outline of submissions par 22, citing R v Byrnes (1995) 183 CLR 501, 516 ‑ 517.
[40] First outline of submissions par 26, citing Streeter v Western Areas Exploration Pty Ltd [No 2] [2011] WASCA 17 [67].
[41] First outline of submissions par 28, citing Pilmer v The Duke Group Ltd [2001] HCA 31; (2001) 207 CLR 165 [78].
[42] First outline of submissions par 28, citing Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1, 5; R v Byrnes (516 ‑ 517); The State of South Australia v Clark (1996) 66 SASR 199, 223 - 224; Rosetex Co Pty Ltd v Licata (1994) 12 ACSR 779, 782 - 783.
[43] First outline of submissions par 30, citing Streeter v Western Areas Exploration Pty Ltd [No 2] [450].
[44] First outline of submissions par 24, citing by way of example, ICAL Ltd v County NatWest Securities Australia Ltd (1988) 39 NSWLR 214; Darvall v North Sydney Brick & Tile Co Ltd [No 2] (1989) 16 NSWLR 260; Re Arthur Yates & Co Ltd [2001] NSWSC 40; (2001) 36 ACSR 758.
Counsel further observed that within Australia there is presently no accepted general duty that in the context of a change of control transaction the directors must attempt to achieve the highest price.[45]
Submissions made on behalf of Edge
[45] Accepted in Re Edge Minerals Ltd [139], counsel again contrasted the Delaware position, as was outlined in Revlon Inc v MacAndrews & Forbes Holdings Inc, 506 A 2d 173 (Del, 1986).
I understood counsel for Edge to make six submissions with respect to how the court ought to proceed at the second court hearing, having regard to the surrounding circumstances.
First, counsel submitted that there had been no suggestion in this matter that the common directors had diverted any corporate opportunity from Edge which would disqualify them from participating in the proposed transaction.[46] Counsel further submitted that in circumstances where the directors had not derived any personal benefit to their own account specifically to the detriment of shareholders as a whole, it could readily be seen that they had taken no advantage of their position.[47] Counsel distinguished these circumstances from that of other cases, such as those described in Howard v Federal Commissioner of Taxation [2014] HCA 21; (2014) 253 CLR 83, which concerned the question of whether the director had retained a benefit for himself to the exclusion of the company.
[46] First outline of submissions par 44.
[47] First outline of submissions par 44, citing Re Drexel Burnham Lambert UK Pension Plan [1995] 1 WLR 32, 41 ‑ 42.
Secondly, it was submitted that there was no evidence that the common directors had disregarded the interests of Edge in entering into the scheme implementation deed. Further, counsel submitted that the absence of any recommendation made by the common directors in relation to the proposed scheme would further mitigate against any issue arising from any potential, yet unproven, breach of fiduciary duty.[48]
[48] First outline of submissions par 45, citing Re DWS Ltd [2020] FCA 1590; (2020) 148 ACSR 616; Re Kidman Resources Ltd [2019] FCA 1226; (2019) 375 ALR 76; Re SMS Management and Technology Ltd [2017] VSC 257 [26]; Re Gazal Corp Ltd [2019] FCA 701 [27] ‑ [34].
Thirdly, even if the court considered it likely that the common directors had breached their fiduciary duties, a scheme approval hearing under s 411 of the Corporations Act was not the appropriate forum to determine that issue or sanction any such breach.[49] Counsel submitted that relief or sanction of the court against the common directors would need to be determined in separate curial proceedings, at which time the court would have wide powers to grant relief and the directors would be entitled to advance possible defences.[50]
[49] First outline of submissions par 46.
[50] Counsel cited Re Bolnisi Gold NL [No 2] [9].
Fourthly, in light of the evidence as to how the scheme was negotiated and the context of the same (which I summarised in Re Edge Minerals Ltd [42] - [55]), it was open for the court to conclude that the Edge board had committed to a regime intended to promote the implementation of the scheme which was in the best interests of Edge shareholders, with consideration fixed by reference to the top end of the valuation obtained for the purposes of the Bardoc demerger.[51]
[51] First outline of submissions par 54.
Fifthly, even if the court were to conclude that there had been a potential breach of fiduciary duties, that would not prevent the implementation of the scheme of arrangement because there is no relevant principle which might see the scheme implementation agreement being declared void ab initio. Counsel submitted that, at best, the remedies available from such a breach would be retrospective in operation or may involve an order for compensation to any party who suffered loss by reason of the breach.
Sixthly, the court could be confident that any claim by a shareholder for loss and damage would be unlikely because concomitant with the shareholders' approval of the scheme of arrangement was an acceptance that the shareholders believed the scheme to be in their best interests and that a fair and reasonable price has been paid by Trek.[52] Further, counsel submitted that there were no aspects of the proposed scheme of arrangement that were otherwise against public policy, and the scheme had been propounded at a price which an independent expert had determined to be fair and reasonable.
Findings
[52] First outline of submissions par 55.
At the end of the first court hearing, I concluded that the lack of independence of three of the Edge directors was not a basis to refuse to convene the scheme meeting. In circumstances where:
(a)changes had been made to the scheme booklet so as to ensure appropriate disclosure to shareholders; and
(b)an independent expert had opined that in the absence of a superior proposal the scheme of arrangement was fair and reasonable and therefore was in the best interests of Edge shareholders,
I determined it appropriate for the proposed scheme of arrangement to be considered by shareholders. In so doing, I had regard to and followed the decisions of Fryberg J in Re Mincom Ltd and Lindgren J in Re Bolnisi Gold NL.
At the second court hearing, I had regard to the following.
First, I had before me evidence of proper distribution of the scheme booklet.
Secondly, in the period prior to the scheme meeting, Edge received no complaint or query beyond administrative matters related to the scheme.[53]
[53] Affidavit of RP Hardwick par 7.
Thirdly, at the scheme meeting, the chairperson made the following statement to shareholders:[54]
I bring to your attention that, in considering the proposed transaction you should note that three of the four directors of Edge constituted the whole of the Board of Trek when the terms of the proposed acquisition were negotiated and agreed.
You should also be aware that only one of the four directors of Edge consider themselves to be independent of Trek. For this reason, only the independent director, being Mr Cameron Boys, makes a recommendation on the Scheme.
[54] Affidavit of PM Drummond, PMD-1, section 6.
The minutes of the scheme meeting revealed that no questions were asked of the chairperson about the directors' potential conflicts or otherwise.[55]
[55] Affidavit of PM Drummond, PMD-2.
Fourthly, the resolution was passed by the requisite statutory majorities for the purposes of s 411(4)(a)(ii) of the Corporations Act.[56]
[56] Affidavit of PM Drummond par 20.
Fifthly, neither ASIC nor any shareholder appeared at the second court hearing to oppose the court's approval of the scheme.
In these circumstances, at the conclusion of the second court hearing, I was prepared to approve the scheme of arrangement. I did not consider that public policy considerations or the potential that there had been a breach of fiduciary duty on the part of the Edge directors, grounded a basis to refuse to approve the scheme of arrangement. In the end, I was satisfied that the circumstances did not give rise to public policy grounds that warranted withholding approval to the unopposed scheme.
Good faith and proper purpose
There was no evidence that the Edge shareholders had voted in favour of the scheme of arrangement for an improper purpose.[57] I was satisfied on the evidence that Edge members voted in good faith and for a proper purpose, when regard was had to the following.[58]
[57] Second outline of submissions par 41.
[58] Second outline of submissions par 42, distinguishing Grimaldi v Chameleon Mining NL [No 2] [2012] FCAFC 6; (2012) 200 FCR 296 [190] ‑ [193], [212].
First, the purpose of the proposed scheme of arrangement was to effect the acquisition by Trek of all Edge shares on issue, a transaction of a kind ordinarily approved by the court. The transaction did not involve any novel or exotic treatment of shareholder rights and, as such, voting in favour was unlikely to be motivated by some improper purpose. Indeed, I had regard to the fact that Edge shares were not capable of being traded on the ASX, and a transaction with Trek would provide Edge shareholders with securities capable of being traded on the ASX platform.
Secondly, the independent expert opined that in the absence of a superior proposal (and none since emerged), the scheme of arrangement was fair and reasonable and therefore is in the best interests of Edge shareholders.[59]
[59] Re Edge Minerals Ltd [59].
Finally, I had regard to the fact that neither ASIC nor any shareholder appeared at the second court hearing to object to approval of the proposed scheme of arrangement.[60] In an application such as this, the court relies on ASIC, as it is not for the court to fulfil the role of contradictor.[61]
[60] First affidavit of RE Barclay pars 9, 13, REB-6.
[61] Re Seven Network Ltd [No 3] [43]; Re Mincom Ltd [36]; Re Edge Minerals Ltd [90].
I took considerable comfort from receipt of ASIC's letter of 25 October 2022, in which ASIC indicated that it had no objection to the scheme of arrangement, and that such indication had been given having regard to ASIC's criteria for providing such indication, as set out in Regulatory Guide 60: Schemes of arrangement.[62]
Fairness and reasonableness
[62] Second affidavit of RE Barclay, REB‑6.
At the second court hearing, I considered whether the proposed scheme of arrangement was 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. In relation to the same, counsel for Edge submitted as follows:[63]
(a)proof of the relevant statutory majorities is prima facie evidence of the fairness and reasonableness of the proposed scheme;[64]
(b)the independent expert had opined that in the absence of an alternate proposal, the proposed scheme was in the best interests of Edge shareholders, and no alternate proposal had emerged since the announcement of the scheme implementation agreement to the ASX on 6 June 2022;
(c)Mr Boys, the independent director of Edge, had recommended that shareholders vote in favour of the scheme in absence of a superior proposal and while the independent expert maintained their opinion;[65]
(d)the proposed scheme was expected to yield commercial benefits for Edge shareholders and, as such, is fair and reasonable from the viewpoint of an intelligent and honest person;[66]
(e)no Edge shareholder, nor ASIC, appeared at the second court hearing to oppose the orders sought;[67] and
(f)there was no evidence that Edge may become insolvent after the scheme was implemented, nor any possibility of commercial immortality as a result of the scheme.[68]
[63] Second outline of submissions pars 45 ‑ 46.
[64] Re Tanwar Resources NL [No 3] [2018] FCA 1952 [37]; Re Wesfarmers Ltd [No 2] [41]; second outline of submissions par 45(a).
[65] ts 72 (26 October 2022).
[66] Re Seven Network Ltd [No 3] [36].
[67] Second affidavit of RE Barclay pars 9, 13, REB-6.
[68] Second outline of submissions par 46, contrasting Re Linter Textiles Corp Ltd [1991] 2 VR 561 and Cleary v Australia Co-operative Foods Ltd [1999] NSWSC 973; (1999) 32 ACSR 582.
At the end of the first court hearing I had concluded that the proposed scheme was fit for consideration by Edge's shareholders. My conclusion had not altered by the end of the second court hearing. On the evidence before me, I was satisfied that the proposed scheme was fair and reasonable and was a scheme that sensible businesspeople might consider to be of benefit to the shareholders of Edge.
Full and fair disclosure
Based on the evidence before the court at the first court hearing, I was satisfied the proposed scheme booklet substantially contained the prescribed information and provided proper disclosure to the shareholders of Edge. The additional affidavit evidence read by counsel at the second court hearing established that the scheme booklet dispatched to shareholders and made available at Edge's registered office was materially in the form approved for distribution by the court.[69] The scheme booklet had also been made available on Trek's ASX platform prior to the scheme meeting.[70] These matters indicated that there had been full and fair disclosure.
[69] Affidavit of E Varga pars 9 - 13, EV-1 to EV-3; affidavit of ST Zollo pars 8 - 36.
[70] Second outline of submissions par 56; ts 71 - 72 (26 October 2022).
I also note that at the second court hearing, the court's attention was drawn to an omission made in the scheme booklet. I understood that the nature of the omission and the circumstances which led to the same were as follows:[71]
(a)Ms Hodgins is a director of Indorita, which is the trustee for her family superannuation fund. Ms Hodgins is a beneficiary of that fund;
(b)Ms Hodgins' husband, Mr Casperz, is also a director of Indorita and has principal responsibility for the management of its everyday affairs;
(c)Indorita had held shares in Bardoc (of which Ms Hodgins had been aware). After Edge was demerged from Bardoc in April 2022, Indorita received 1,282 shares in Edge, and at the time Ms Hodgins became a director of Trek on 1 July 2022, Ms Hodgins was not aware of this shareholding;
(d)under the terms of this scheme of arrangement, if approved and implemented, Indorita would receive 2,320 Trek shares (which, as at 11 October 2022, had a total value of $125);
(e)whereas the interests of the Trek directors in the Edge securities were disclosed in the scheme booklet, Ms Hodgins' interest was not disclosed; and
(f)on 21 September 2022, in his capacity as the contact person for Indorita, Mr Caspersz received an email communication with links to the scheme booklet and proxy form, which he then forwarded to Ms Hodgins.
[71] Affidavit of JGM Ogilvie pars 8 - 9, JGMO-2; affidavit of VJ Hodgins pars 12 - 14, VJH-3.
Information about the Trek directors' interests in Edge was information that ought to have been accurately and fulsomely disclosed in the scheme booklet. The verification statements provided by Mr Ogilvie on behalf of Trek, insofar as Trek had confirmed that the 'Trek Information' did not omit any required material, was incorrect as no disclosure was made of Ms Hodgins' relevant interest in Edge.[72]
[72] Affidavit of JGM Ogilvie par 10.
Edge sought a validation order under s 1322(4) of the Corporations Act to cure this error. Counsel submitted that this was a minor error and should not affect the nature of the disclosure to Edge shareholders.[73] In this respect, I noted that Indorita held a very small number of Edge shares, the shareholding amounting to 0.0056% of the total Edge shares on issue. Counsel further submitted that the inadvertent error was brought to the court's attention at the first opportunity. In this respect, I noted that the error was brought to the court's attention on 7 October 2022 and a draft announcement correcting the error was approved by the court on 10 October 2022, which was released on the Trek ASX platform on 11 October 2022.
[73] Second outline of submissions par 57.
I was satisfied that all preconditions prescribed in s 1322(6) were satisfied as the omission was essentially of a procedural nature (being a defect in the explanatory statement); Edge had acted honestly; it was just and equitable that the order be made; and in the circumstances detailed above, no substantial injustice had been or was likely to be caused to any person.
Accordingly, I made an order pursuant to s 1322(4) of the Corporations Act that the scheme booklet dispatched to Edge's shareholders was not invalid by reason of any contravention of s 411(3) of the Corporations Act insofar as the shareholding interest of Ms Hodgins in Edge was not disclosed.
On balance, I was satisfied that, notwithstanding the omission of reference to Ms Hodgins' interest in Edge in the scheme booklet, the shareholders had full and fair disclosure prior to voting on the scheme of arrangement at the scheme meeting.
Oppression of minorities
There was no evidence before the court that any minority had been oppressed. Further, as was submitted by counsel, there was unlikely to be oppression in circumstances where shareholders were provided with the scheme booklet upon which they made an informed decision; where they had been afforded ordinary procedural rights in a scheme meeting; where the acquisition was subject to a commonly undertaken change of corporate control procedure; and where Edge shareholders were to receive scheme consideration that an independent expert had concluded was reasonable and in their best interests.[74]
Other matters brought to the court's attention
[74] Second outline of submissions par 60.
At the first court hearing, counsel for Edge drew to my attention a number of matters which I weighed in the balance in determining that the scheme of arrangement was fit to be considered by Edge's members. The matters were addressed in Re Edge Minerals Ltd at [151] to [176]. Counsel drew to my attention to two further matters at the second court hearing.
Conditions precedent
First, counsel noted that the implementation of the scheme was subject to the satisfaction or waiver of various conditions precedent prescribed in cl 3.1 of the scheme implementation agreement and cl 3.1 of the proposed scheme.[75] By the provision of conditions precedent certificates executed by both Edge and Trek and by the grant of court approval, I was satisfied all conditions precedent had been met.[76]
Shareholder engagement campaign
[75] Second outline of submissions pars 49 - 50.
[76] Second affidavit of RE Barclay, REB-2 and REB-3.
The second matter raised by counsel was the shareholder engagement campaign undertaken on behalf of Edge. As noted above, Edge engaged Georgeson to contact its shareholders regarding the scheme through an outbound telephone information campaign. A proposed call script (Script), as well as a question and answer sheet (Q&A Sheet) were approved by the court on 23 September 2022, for the reasons outlined in Re Edge Minerals Ltd [184] ‑ [195]. The orders made approving the Script and the Q&A Sheet on 23 September 2022 were reproduced at sch B to those reasons.
At the second court hearing I understood that 209 shareholders (representing approximately 5% of all Edge shareholders), who collectively held 4,728,096 shares (representing 21% of the total number of voting shares) were targeted by the shareholder engagement campaign.[77] The 209 shareholders were selected based on a 'top down approach', that is based on value of shareholding.[78] The affidavit evidence before me revealed that telephone numbers available for 166 shareholders. Of this group, Georgeson was unable to contact 85 shareholders; spoke to 57 shareholders and six advisors; and 18 shareholders discontinued an initiated telephone call.[79]
[77] Affidavit of RP Hardwick, RPH-3.
[78] Second affidavit of RE Barclay par 18, REB-8; ts 75 (26 October 2022).
[79] Affidavit of RP Hardwick, RPH-3.
Edge confirmed that the outbound telephone campaign was conducted in accordance with the Script and the Q&A Sheet that had been approved by the court.[80] In the circumstances deposed to, I was satisfied that the process by which the engagement campaign was conducted was not a reason to refuse to approve the scheme of arrangement.
Exemption from s 411(11) of the Corporations Act
[80] Second affidavit of RE Barclay par 17, REB-7; ts 75 - 76 (26 October 2022).
I note that Edge sought an exemption from s 411(11) of the Corporations Act at the second court hearing. This exemption has become ordinary practice for transactions of this kind.[81] Overall, I was satisfied there is no utility in requiring that the court's orders approving the scheme be annexed to Edge's constitution,[82] and it was appropriate in the circumstances to make the orders sought pursuant to s 411(12) of the Corporations Act.
Section 411(17) of the Corporations Act
[81] Re Nusantara Resources Ltd [2021] WASC 334 [103]; second outline of submissions par 50.
[82] Second outline of submissions par 51.
Section 411(17) of the Corporations Act makes the court's approval of the proposed scheme conditional on satisfaction of one of two alternative conditions, providing as follows:[83]
(17)The Court must not approve a compromise or arrangement under this section unless:
(a)it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or
(b)there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement;
but the Court need not approve a compromise or arrangement merely because a statement by ASIC stating that ASIC has no objection to the compromise or arrangement has been produced to the Court as mentioned in paragraph (b).
[83] Second outline of submissions par 61.
It was observed by Vaughan J in Re Wesfarmers Ltd [No 2] that production of a 'no objection' letter from ASIC pursuant to s 411(17)(b) is usually the end of the issue. The court then does not need to consider the s 411(17)(a) issue. That said, a 'no objection' letter does not bring to the end the court's discretion.[84] His Honour further observed that, for example, if the court were to find that a scheme had been proposed for the purpose of avoiding the operation of provisions within Ch 6 of the Corporations Act, such finding might be considered in the exercise of the discretion to approve the scheme under s 411(4)(b).[85]
[84] Re Macquarie Private Capital A Ltd [2008] NSWSC 323; (2008) 26 ACLC 366 [29] ‑ [30], as referenced in Re Wesfarmers Ltd [No 2] [18]; second outline of submissions par 63.
[85] Re Wesfarmers Ltd [No 2] [18], citing Re Coles Group [No 2][2007] VSC 523; (2007) 215 FLR 411 [75] ‑ [78].
It is well accepted that significance ought attach to an ASIC 'no objection' letter given in the terms of ASIC Regulatory Guide 60: Schemes of Arrangement. The Regulatory Guide confirms that a primary consideration for ASIC is whether, having regard to the principles in s 602 of the Corporations Act, shareholders are adversely affected by the takeover being implemented by a scheme of arrangement rather than a takeover bid.[86] Further, ASIC will only issue a 'no objection' letter if satisfied as to the disclosure and that there are no other reasons to oppose the scheme.[87]
[86] ASIC Regulatory Guide 60: Schemes of Arrangement [RG 60.17]; as noted in Re Wesfarmers Ltd [No 2] [19].
[87] ASIC Regulatory Guide 60: Schemes of Arrangement [RG 60.106]; as noted in Re Wesfarmers Ltd [No 2] [19].
ASIC provided a written statement on 25 October 2022, by which ASIC indicated that it did not object to the scheme pursuant to s 411(17)(b) of the Corporations Act, and indicated that it did not intend to appear and make submissions at the second court hearing.[88] A copy of ASIC's letter was before the court. As a result, the requirements of s 411(17) were satisfied.
[88] Second affidavit of RE Barclay, REB-6.
In any event, having regard to the nature of the proposed transaction, I was satisfied that it could not be said the scheme was proposed to avoid the operation of Ch 6 of the Corporations Act.
Conclusion and orders
Upon considering the affidavit evidence filed prior to the second court hearing and read in support of Edge's application, and upon considering the submissions made by counsel, I was satisfied that the substantive and procedural requirements of s 411(4) of the Corporations Act had been satisfied and that the court's discretion ought to be exercised so as to approve the proposed scheme of arrangement. The matters described at [55] to [60] were particularly weighed heavily in the balance.
Sch A: Orders made
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AI
Associate to the Honourable Justice Strk
15 DECEMBER 2022
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