Re Equinox Resources Ltd
[2004] WASC 114
RE EQUINOX RESOURCES LTD [2004] WASC 114
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2004] WASC 114 | |
| Case No: | COR:108/2004 | 10 MAY 2004 | |
| Coram: | EM HEENAN J | 10/05/04 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Leave to convene meeting of shareholders to consider proposed scheme granted | ||
| B | |||
| PDF Version |
| Parties: | EQUINOX RESOURCES LTD (ACN 060 581 777) |
Catchwords: | Corporations Scheme of arrangement Proposed reconstruction Leave granted to commence meeting of shareholders No effect on creditors Notice to be given to Treasurer pursuant to Foreign Acquisitions and Takeovers Act 1975 (Clth) |
Legislation: | Corporations Act 2001 (Clth), s 411 Foreign Acquisitions and Takeovers Act 1975 (Clth) Rules of the Supreme Court, O 81G r 27 |
Case References: | Re Amcor Ltd (2000) 34 ACSR 1999 Re Bulong Nickel Pty Ltd (2002) 42 ACSR 52 Re Crusader Ltd (1995) 13 ACLC 1008; 17 ACSR 336 Re Glencore Nickel Pty Ltd (2003) 44 ACSR 210 Re Stockbridge (1993) 11 ACLC 201; 9 ACSR 637 Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
EQUINOX RESOURCES LTD (ACN 060 581 777)
Applicant
Catchwords:
Corporations - Scheme of arrangement - Proposed reconstruction - Leave granted to commence meeting of shareholders - No effect on creditors - Notice to be given to Treasurer pursuant to Foreign Acquisitions and Takeovers Act 1975 (Clth)
Legislation:
Corporations Act 2001 (Clth), s 411
Foreign Acquisitions and Takeovers Act 1975 (Clth)
Rules of the Supreme Court, O 81G r 27
Result:
Leave to convene meeting of shareholders to consider proposed scheme granted
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Category: B
Representation:
Counsel:
Applicant : Mr C D Belyea & Ms M N Campion
Solicitors:
Applicant : Clayton Utz
Case(s) referred to in judgment(s):
Re Amcor Ltd (2000) 34 ACSR 1999
Re Bulong Nickel Pty Ltd (2002) 42 ACSR 52
Re Crusader Ltd (1995) 13 ACLC 1008; 17 ACSR 336
Re Glencore Nickel Pty Ltd (2003) 44 ACSR 210
Re Stockbridge (1993) 11 ACLC 201; 9 ACSR 637
Case(s) also cited:
Nil
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1 EM HEENAN J: Today I have been considering an application by Equinox Resources Ltd, a company incorporated in Australia, made pursuant to the provisions of s 411 of the Corporations Act of the Commonwealth. By that application Equinox Resources Ltd seeks leave to convene a meeting of shareholders for the purpose of considering and, if thought fit agreeing to, a proposed scheme of reconstruction of the company, that meeting to be held in Perth on 15 June 2004.
2 Briefly described, the position is that Equinox Resources Ltd is an Australian company listed on the Australian Stock Exchange carrying on the business of mining exploration and development activities in Australia and abroad, notably with interests in Zambia and in Peru, for the exploration of copper.
3 I am told that there are approximately 215 million shares in Equinox Resources Ltd presently issued together with approximately 12 million options to employees or officers of the company. I am also informed that 92 per cent or more of the shareholders are Australian shareholders, either corporations or individuals, but that there is somewhere in excess of 7 per cent foreign shareholding.
4 The latest balance sheet of the company, as at 31 December 2003, shows net assets of the company of approximately $7.4 million. However, the shares trading on the stock exchange have been fluctuating at prices reaching in excess of 30 cents. So applying a shareholding value of 30 cents to all the issued capital, an exercise which admittedly has some artificialities, would give a market capitalisation to the company of something less than $75 million, but substantially in excess of the stated balance sheet equity. There is no criticism implied in that observation. It merely reflects perhaps the optimism and the potential for the company which the market appreciates is prospective.
5 The application for the reconstruction of the company which is to be put to its shareholders is to effect what has been described to me as a "relocation" of the company from Australia to Canada and in further explanation of the reason for this proposal there is evidence in the affidavits of the desire by the company to have access to North American capital markets for the purpose of raising additional capital.
6 The relevant structure of the shareholding of Equinox Resources Ltd at present is, as I have described, the existence of some 215 million shares plus options. The options are exercisable at various prices between 12 cents and 20 cents by officers of the company and are presumably in
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- return for services rendered by those officers or as incentives for continued services by those officers. None of those options has presently been exercised.
7 In addition Equinox Resources Ltd holds the one and only issued share in its subsidiary Equinox Minerals Ltd. The scheme which is to be put up for consideration would involve Equinox Minerals Ltd cancelling the share to Resources and for Equinox Minerals Ltd to obtain all the issued capital in Equinox Resources Ltd. This would be achieved by the options being cancelled in terms which are set out in the explanatory memorandum and the shareholders in Equinox Resources Ltd exchanging their shares in that company for shares in Equinox Minerals Ltd on a basis of one share in Equinox Minerals Ltd for every three shares held in Equinox Resources Ltd. There is a more complicated formula for the exchange of shares in Equinox Minerals Ltd for the options which are to be cancelled in Equinox Resources Ltd which I need not describe.
8 One important feature of this proposed reconstruction is that Equinox Minerals Ltd, which if this proposal is implemented would become the parent and the holder of all the issued capital in Equinox Resources Ltd, is a company incorporated in Canada and whose shares will be listed on the Toronto stock exchange and equivalent securities described in the affidavits would be listed on the Australian Stock Exchange. In practical terms present shareholders in Equinox Resources Ltd would exchange their shares in that company for shares in the Canadian based Equinox Minerals Ltd on a one for three basis.
9 If and when that reconstruction is implemented, Equinox Minerals Ltd would undertake a capital raising by the issue of up to 40 million shares, or thereabouts, in that company on a placement not pro rata to existing shareholders, although existing shareholders may participate in the placement if they are offered the opportunity but they have no right to any such opportunity, so that if that placement is fully subscribed, the capital of the new company will increase by approximately $40 million.
10 From this description it is apparent that all that would be altered by the implementation of this reconstruction is the ownership of Equinox Resources Ltd. Its ownership by its existing shareholders would be replaced by complete ownership by Equinox Minerals Ltd but that company in turn, instead of being owned by Equinox Resources Ltd as it is at the moment, would be owned by all the shareholders of Equinox Resources and by any new shareholders that may come in as a result of the capital issue.
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11 This is sufficient to demonstrate that the proposal will not involve the disposition or dilution of the assets of Equinox Resources Ltd available for creditors or affect creditors, whether secured or unsecured, of the company. It does, however, mean that if the proposal is approved as proposed, any dissentient shareholder would be faced with the compulsory exchange of his, her or its shares in Equinox Resources Ltd for a third of the number of shares in Equinox Minerals Ltd.
12 However, that seems to me to be an entirely commercial consequence and a matter which should be determined by the shareholders voting en bloc in their own commercial interests. The dissentient shareholder, if there might be one, has other avenues to alleviate his, her or its discontent by selling, in advance of this proposal, shares in Equinox Resources Ltd on the market or after the proposal selling shares in Equinox Minerals Ltd or the equivalent securities also on the market. As I say, these seem to be matters of commercial advantage and disadvantage which can be weighed by the shareholders themselves and the alternatives which I have mentioned show that a dissentient shareholder will not be locked in to a situation if he, she or it should disapprove.
13 The principles upon which a court should act when deciding whether or not to authorise meetings to be convened under s 411 are well canvassed. They are referred to in passing by Warren J, as her Honour then was, in Re Amcor Ltd (2000) 34 ACSR 1999, a decision of the Supreme Court of Victoria, 25 February and 11 April 2000, and they have been canvassed in recent decisions of this Court, one case a decision of my own Re Bulong Nickel Pty Ltd (2002) 42 ACSR 52 and more recently in Re Glencore NickelPty Ltd (2003) 44 ACSR 210, a decision of McLure J.
14 I am satisfied that if these meetings are conducted in accordance with the Act and regulations and the directions which are proposed and approved by the requisite majority of the shareholders, effect could be given to that determination by final approval by this Court under s 411 of the Act subject only to one, what seems to me, remote contingency.
15 The remote contingency to which I have alluded is the possibility that the implementation of this transaction either alone or in association with the subsequent capital raising by Equinox Minerals Ltd could be regarded as a transaction falling within the purview of the Foreign Acquisitions and Takeovers Act 1975 and hence require approval by the
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- treasurer of the Commonwealth of Australia acting on the advice of the Foreign Investments Review Board ("FIRB").
16 I have heard submissions to the effect that on a strict analysis and in particular having regard to subs 18(7) of the Foreign Acquisitions and Takeovers Act this is not such a transaction and no reporting obligation to the treasurer, nor approval by the treasurer, or a reference to the FIRB is required. It is not necessary for me to express any concluded view about that and I am certainly not deciding that this is a transaction which does fall within the purview of the Act.
17 However, it does seem to me that there is a possibility that it might and that it is in the interests of all concerned that formal notification of the transaction should be given to the treasurer in accordance with the provisions of the Foreign Acquisitions and Takeovers Act and the regulations made thereunder. If this proves to be unnecessary, no harm will come of it. If it is an examinable transaction, there is the prospect that it is not a transaction which the treasurer would wish to inhibit, prevent or direct and that notification to that effect could be achieved within 30 days in time for any eventual approval of a resolution of shareholders to approve the entry into this scheme.
18 It is for that reason that I have directed in the order granting leave to convene the meeting of shareholders that such notification to the Commonwealth treasurer should be given in accordance with the Foreign Acquisitions and Takeovers Act and the regulations. The other features of the orders which I have been asked to make involve relatively minor considerations. The first concerns the role of those shareholders in the company who have the benefit of the options which I have already mentioned.
19 As the quoram of the proposed meeting need only be two shareholders, it is at least theoretically possible that the meeting may comprise only option holders and that their vote could determine the result. I hasten to add that that is a most unlikely practical consequence, but if it were to be the case that the general body of shareholders or a sufficient number of them were opposed to this scheme and its approval turned upon the vote of the option holders, there is a possibility that the self-interest of the option holders may be a factor which could cause a court to withhold eventual approval. I hasten to add that that may not necessarily be so, nor would there be any impropriety in the option holders who are shareholders in voting in their own personal interests.
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20 However, what this proposal entails is that the option holders, who under present circumstances would have to pay a stipulated consideration for the exercise of their options, would, under the converted rights arising from approval of this reconstruction, take shares in Equinox Minerals Ltd without the payment of any consideration. There is clearly a substantial economic benefit for them in that consequence.
21 For that reason I have directed that those shareholders voting at the meeting to consider this scheme who hold options to acquire shares in Equinox Resources Ltd shall be recorded separately from the votes of other shareholders, although they may be counted as part of any majority in favour of the resolution. When counted separately that should be reported to the Court at the hearing required under s 411(4)(b) of the Act in order to see whether any material effect on the outcome is caused by those option shareholders' votes. It seems to me unlikely that that will be the situation but to cater for that contingency the separate recording which I described is ordered.
22 The second feature of the orders which I have been asked to make, and which I shall make, involves some abridgment of the times for the advertisement required under O 81G r 27 of the Rules of the Supreme Court set out in form 6 of the seventh schedule of the rules. I am asked to authorise a time scale which will allow that notification to be published in advance of the meeting of shareholders, rather than afterwards, and for the format of the notice to be amended slightly to speak of, in the future tense, the meeting to be held and the resolutions to be put rather than the current form which is appropriate for a notice published after the shareholders meeting when the results are known. I am content to make that order and I am satisfied on the authority of the decision in Re Amcor Ltd (supra), that that can be done and should be done.
23 One final feature of this proposed reconstruction is that it does in effect amount to a takeover of Equinox Resources Ltd by Equinox Minerals Ltd which in other circumstances would be regulated by the takeover provisions of the Act. However, on the basis of the decision of Murray J in Re Stockbridge (1993) 11 ACLC 201; 9 ACSR 637 and the decision of Thomas J, Supreme Court of Queensland in Re Crusader Ltd (1995) 13 ACLC 1008; 17 ACSR 336, I am satisfied that that can be done and that the existence of the requirements of the takeovers code is no inhibition to the implementation of a similar result by this current procedure.
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24 In that regard I should add that, upon examination of the capital structure of this company and the likely consequences of the implementation of the reconstruction upon creditors, secured or otherwise or any potential third parties, I see no reason to insist otherwise. Accordingly I shall make orders as sought in the minute of amended proposed orders of 10 May in the version most recently handed to me supplemented by the provision relating to notification to be given to the treasurer under the Foreign Acquisitions and Takeovers Act. I will make orders in those terms.
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