FEDERAL COURT OF AUSTRALIA
Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 240
File number: WAD 49 of 2023 Judgment of: BANKS-SMITH J Date of judgment: 17 March 2023 Date of publication of reasons: 21 March 2023 Catchwords: CORPORATIONS - scheme of arrangement - application under s 411(1) of the Corporations Act 2001 (Cth) to convene a meeting to consider a proposed scheme of arrangement by acquisition of shares - performance risk - break fee - director benefits and recommendation - shareholder communications - call scripts - orders made Legislation: Corporations Act 2001 (Cth) ss 9, 411, 412
Corporations Regulations 2001 (Cth) Schedule 8
Property Law Act 1969 (WA) s 11
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- AGLC
- Re Essential Metals Ltd [2023] FCA 240
- Case
- [2023] FCA 240
- Decision Date
CaseChat Overview and Summary
The Court found that the scheme was appropriate for shareholder consideration as it was a conventional form of arrangement likely to gain approval if passed by the necessary majority. The Court was satisfied that the explanatory statement, including the independent expert's report, had adequately disclosed the relevant information required by the Corporations Act. The Court also noted that the scheme's terms had been thoroughly reviewed and that there was no reason to believe the scheme would not be approved if considered and adopted by the members.
Consequently, the Court made orders convening the meeting, approving the scheme booklet for distribution, and detailing the conduct of the scheme meeting. The orders also included provisions for the distribution of the scheme booklet to shareholders, the convening of the meeting, and the method of voting on the resolution to approve the scheme. The Court further ordered that the hearing of the application to approve the scheme be adjourned to a later date to allow for adequate consideration by the shareholders.
In summary, the Court held that the proposed scheme was not inappropriate and was one that sensible business people might consider to be of benefit to its members. The Court concluded that the scheme was fit for consideration by a meeting of members and was a commercial proposition likely to gain the Court's approval if passed by the necessary majority. The Court granted the orders sought by the applicant, including those relating to the convening of the meeting, approving the scheme booklet for distribution, and the conduct of the scheme meeting.
Orders
Orders of the court
1. Pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act):
(a) the plaintiff convene and hold a meeting of the holders of its ordinary shares (Shareholders) (Scheme Meeting), for the purpose of considering, and if thought fit, agreeing, a scheme of arrangement (with or without modification) proposed to be made between the plaintiff and the Shareholders (Scheme), being the scheme substantially in the form set out in Annexure C of the scheme booklet, which is annexure NAO-7 to the second affidavit of Nino Anthony Odorisio sworn on 16 March 2023 (Second Odorisio Affidavit) (Scheme Booklet);
(b) the Scheme Meeting be held at 9.00 AM (AWST) on 20 April 2023 at the Quest Apartment Hotels, 54 Kings Park Road, West Perth Western Australia;
(c) the Scheme Booklet, which contains the explanatory statement required by s 412(1)(a) of the Act, be approved for distribution to Shareholders, subject to:
(i) correction of any typographical or grammatical errors and final typesetting and formatting;
(ii) any minor amendments required or approved by the Australian Securities and Investments Commission (ASIC) for registration under s 412(6) of the Act;
(iii) the correction or update of any relevant date references; and
(iv) any other amendments approved by the Court.
2. Subject to these orders and pursuant to s 1319 of the Act, the Scheme Meeting be:
(a) convened, held and conducted in accordance with the provisions of Part 2G.2 of the Act that apply to members of a company, and the provisions of the plaintiff's constitution that apply to meetings of members that are not inconsistent therewith;
(b) convened using a notice of scheme meeting substantially in the form contained in Schedule 4 of the Scheme Booklet (Notice of Scheme Meeting);
(c) held and conducted pursuant to the arrangements for attending, participating and voting described in the Notice of Scheme Meeting including in respect of the effect of a Shareholder's attendance at the Scheme Meeting on a proxy or attorney appointment by that Shareholder, and in accordance with the provisions of Part 2G.2 of the Act; and
(d) convened, held and conducted as if rule 2.15 of the Federal Court (Corporations) Rules 2000 (Rules) does not apply.
3. Pursuant to s 1319 of the Act:
(a) Mr Nino Odorisio, or failing him, Mr Gregory Fitzgerald, be the chairperson of the Scheme Meeting (Chairperson) and report the result of the Scheme Meeting to this Court;
(b) the Chairperson of the Scheme Meeting have power to adjourn or postpone the Scheme Meeting in the Chairperson's absolute discretion for such time that the Chairperson thinks appropriate, to a time and place advised by the Chairperson;
(c) at the Scheme Meeting, two Shareholders entitled to vote, present in person or by proxy or by an attorney under power, or by a corporate representative (if applicable), shall constitute a quorum;
(d) at the Scheme Meeting, each Shareholder, present and entitled to vote, 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 5:00pm (AWST) on 18 April 2023; and
(e) at the Scheme Meeting, voting on the resolution on whether to approve the Scheme is to be conducted by way of a poll (declared by the Chairperson).
4. The board of the directors of the plaintiff shall have the power to approve for lodgement on the plaintiff's ASX announcements platform announcements regarding corrections, clarifications or changes to the arrangements for the Scheme Meeting where, in the board's discretion, such corrections, clarifications or changes are necessary to ensure that Shareholders as a whole will have a reasonable opportunity to participate in the Scheme Meeting, and such announcements will be taken to be sufficient notice of any corrections, clarifications or changes to the Meeting Arrangements provided they are made on or before 20 April 2023 and are explained by the Chairperson at the commencement of the Scheme Meeting.
5. Subject to registration of the Scheme Booklet with ASIC pursuant to s 412(6) of the Act, the plaintiff shall, on or before 21 March 2023, despatch the Scheme Booklet substantially in the form approved in paragraph 1(c) above to each Shareholder registered on the plaintiff's register of members at 5.00pm (AWST) on 18 March 2023, by sending:
(a) in the case of each Shareholder who has nominated an email address for the purpose of receiving shareholder communications (Email Shareholder), an email substantially in the form annexed to the Second Odorisio Affidavit as annexure NAO-14 with such email to contain website links accessible by the Email Shareholder which enable the Email Shareholder to:
(i) access and download the Scheme Booklet; and
(ii) complete and lodge their proxy form for the Scheme Meeting online; and
(b) in the case of each Shareholder who has expressly elected to receive shareholder communications by post (Postal Shareholder), using the methods of service set out in paragraph 6 below:
(i) a letter substantially in the form annexed to the Second Odorisio Affidavit as annexure NAO-13;
(ii) a copy of the Scheme Booklet;
(iii) a proxy form in respect of the Scheme Meeting substantially in the form annexed to the Second Odorisio Affidavit as annexure NAO-15;
(iv) in the case of each Shareholder who has a registered address in Australia, a priority pre-paid post envelope addressed to Automic; and
(v) in the case of each other Shareholder who has a registered address outside Australia, an unpaid airmail or air courier envelope addressed to Automic;
(c) in the case of each Shareholder who is not an Email Shareholder or Postal Shareholder, using the methods of service set out in paragraph 6 below:
(i) a letter substantially in the form annexed to the Second Odorisio Affidavit as annexure NAO-13 with such notice to contain:
A. the address of a website which enables those Shareholders to access and download the Scheme Booklet;
B. the address of a website which enables those Shareholders to access, complete and lodge their proxy form for the Scheme Meeting online; and
C. a phone number by which those Shareholders may request to be sent print copies of the Scheme Booklet;
(ii) a proxy form in respect of the Scheme Meeting substantially in the form annexed to the Second Odorisio Affidavit as annexure NAO-15;
(iii) in the case of each Shareholder who has a registered address in Australia, a priority pre-paid post envelope addressed to Automic; and
(iv) in the case of each other Shareholder who has a registered address outside Australia, an unpaid airmail or air courier envelope addressed to Automic.
6. The plaintiff shall despatch the documents identified in paragraph 5(b) above:
(a) to each Shareholder who has a registered address in Australia, by priority prepaid post; and
(b) to each other Shareholder who has a registered address outside Australia, by prepaid international airmail or air courier.
7. If it comes to the attention of the plaintiff that any email despatched in accordance with paragraph 5(a) results in the return of a receipt or notice that the email was undeliverable, then, in respect of that Shareholder, the plaintiff will forthwith thereafter despatch the documents identified in paragraph 5(c) using the method of service set out in paragraph 6.
8. Despatch of the documents referred to above, in accordance with the terms of the orders above, shall be taken to be sufficient notice of the Scheme Meeting.
9. The time by which the Shareholders must return their Scheme Proxy Form (or lodge an electronic proxy in respect of the Scheme) is 9:00 AM (AWST) on 18 April 2023.
10. The plaintiff is to give notice of the hearing of its application pursuant to s 411(4) of the Act, and that notice of the hearing of an application pursuant to ss 411(4)(b) of the Act for orders approving the Scheme is to be published once in The Australian newspaper by an advertisement substantially in the form of Annexure A to these orders, with such advertisement to be published on or before 22 April 2023, and the plaintiff is to be otherwise exempted from compliance with r 3.4 of the Corporations Rules.
11. The proceeding be adjourned to 10:15 AM (AWST) on 24 April 2023, for the hearing of an application to approve the Scheme.
12. The plaintiff have liberty to apply on upon giving 24 hours' notice to ASIC.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Annexure A
Essential Metals Limited (ABN 44 103 423 981)
NOTICE OF HEARING TO APPROVE COMPROMISE OR ARRANGEMENT
TO: All members of Essential Metals Limited ABN 44 103 423 981 (Essential Metals)
TAKE NOTICE that at 10:15am (AWST) on 24 April 2023 the Federal Court of Australia (situated at the Peter Durack Commonwealth Law Courts Building, 1 Victoria Avenue, Perth,
Western Australia 6000) will hear an application by Essential Metals seeking the approval of an arrangement between Essential Members and its members, as agreed to by resolution considered by the members of Essential Metals at a meeting of such members held on Thursday, 20 April 2023 at the Quest Apartment Hotels, 54 Kings Park Road, West Perth,
Western Australia 6005 at 9:00am (AWST).
If you wish to oppose the approval of the arrangement, you must file and serve on Essential Metals a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on Essential Metals at its address for service at least one day before the date fixed for the hearing of the application.
The address for service on Essential Metals is:
c/- HopgoodGanim Lawyers
Level 27, Allendale Square
77 St Georges Terrace
Perth WA 6000
Attention: Nino Odorisio
Telephone: 08 9211 8111 Craig McGown
Facsimile: 08 9221 9100 Non-Executive Chairman
Email: n.odorisio@hopgoodganim.com.au Essential Metals Ltd
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
In summary, the standard of review is whether the proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members. It is not necessary for the Court to descend into the commercial merits of the proposed scheme. If the proposed arrangement is one that seems fit for consideration by a meeting of members and is a commercial proposition likely to gain the Court's approval if passed by the necessary majority, then leave should be given to convene the meeting.Consideration - threshold matters The following are relevant in this proceeding.Part 5.1 body Section 411 of the Corporations Act confers jurisdiction on the Court in respect of a Part 5.1 body. The term 'Part 5.1 body' is defined in s 9 to mean, relevantly, a company. Essential is a company duly incorporated in Australia.Arrangement The proposal before the Court is an arrangement. It concerns a change in the rights of members in their capacity as members of Essential.Explanatory statement - the Scheme Booklet I have considered the Scheme Booklet in the final form in which it was provided to ASIC on 16 March 2023. It is a detailed document which includes sections dealing with important dates and notices; an outline and overview of the Scheme; additional key information including the directors' recommendations; information as to any effect on creditors and other regulatory matters; a summary of the conclusion of the expert reflected in the Report; information about both Essential and TLEA; a summary of the key risks and implications; disclosure of directors' interests; and voting information. The Scheme Booklet also has a number of schedules and annexures, including the proposed Scheme, the SIA, the Report and the proposed notice of scheme meeting. The explanatory statement provided to shareholders must provide proper disclosure as required by s 411(3) of the Corporations Act. I have reviewed the affidavit evidence to ensure that the matters which must be disclosed have been properly disclosed (including the prescribed matters referred to in s 412(1)(a) of the Corporations Act and Schedule 8 of the Corporations Regulations 2001 (Cth)) and I consider that is the case. I had the assistance of a compliance schedule provided with the written submissions.Independent expert As noted, BDO provided the Report. The preparation of the Report included consideration of how the value of an Essential share compares to the value being offered by way of consideration under the Scheme (a formal valuation exercise); the likelihood of an alternative proposal offer being made; factors relevant to shareholders in assessing the Scheme; advantages and disadvantages to shareholders; and the position if the Scheme does not proceed. The conclusion of BDO as stated in the Report is that, in the absence of a superior offer, the Scheme is fair and reasonable and therefore in the best interests of shareholders. More specifically as to value, the Report concludes that the value of a share in Essential prior to the Scheme (on a controlling and diluted basis) is in the range of $0.283 to $0.468, compared with the offered scheme consideration of $0.50 per share.