Re Greenstone Resources Ltd
[2024] WASC 171
•14 MAY 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE GREENSTONE RESOURCES LTD; EX PARTE RE GREENSTONE RESOURCES LTD [2024] WASC 171
CORAM: HILL J
HEARD: 30 APRIL 2024
DELIVERED : 30 APRIL 2024
PUBLISHED : 14 MAY 2024
FILE NO/S: COR 53 of 2024
MATTER: IN THE MATTER OF GREENSTONE RESOURCES LTD
EX PARTE
GREENSTONE RESOURCES LTD
Plaintiff
Catchwords:
Corporations law - Two interconditional schemes of arrangement - First court hearing - Application for orders convening scheme meetings under s 411(1) of the Corporations Act 2001 (Cth) - Voting intention statements received from shareholders in favour of proposed Schemes - Independent expert of the opinion that each proposed scheme is fair and reasonable and in the best interests of the securityholders - Whether requirements to order scheme meetings are satisfied - Orders made convening meetings
Legislation:
Corporations Act 2001 (WA), s 411, s 1319
Corporations Regulations 2001 (Cth) sch 8
Supreme Court (Corporations) (WA) Rules 2004 (WA) r 3.2
Result:
Orders made convening scheme meetings
Category: B
Representation:
Counsel:
| Plaintiff | : | J M Healy |
Solicitors:
| Plaintiff | : | Steinepreis Paganin |
Cases referred to in decision:
Re Amcom Telecommunications Ltd [2015] FCA 341
Re Azure Minerals Ltd [2024] WASC 58
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
Re SRG Ltd [2018] FCA 1092
Re Wesfarmers Ltd [2018] WASC 308
HILL J:
The plaintiff, Greenstone Resources Ltd (Greenstone), is an Australian public company listed on the Australian Securities Exchange (ASX). On 12 February 2024, Greenstone entered into a scheme implementation deed (SID) with Horizon Minerals Ltd (Horizon) in respect of two inter-conditional schemes (Schemes). Under the terms of the Schemes, it is proposed that Horizon will acquire all of the shares and listed options in Greenstone, and that Greenstone will become a wholly-owned subsidiary of Horizon.
By an originating process dated 4 April 2024, Greenstone sought orders pursuant to s 411 and s 1319 of the Corporations Act 2001 (Cth) (Act) convening meetings of its shareholders and listed optionholders to consider the proposed Schemes (Scheme meetings). The first court hearing was listed before me on 30 April 2024. On that date, I made orders pursuant to s 411(1) and s 1319 of the Act to convene the meetings and approve the distribution of a Scheme booklet to Greenstone's shareholders and listed optionholders, as well as ancillary orders with respect to the convening and conduct of the Scheme meetings.
In making these orders, I indicated that I would subsequently publish written reasons for my decision. These are those reasons.
Evidence for the first court hearing
Greenstone relied on eleven affidavits for the purposes of the first court hearing on 30 April 2024, being:
(a)six affidavits of Anna Barningham, a solicitor employed by Steinepreis Paganin, the solicitors for Greenstone, filed 4 April 2024, 23 April 2024, 26 April 2024, two on 29 April 2024, and 30 April 2024;
(b)an affidavit of Jonathan Heath Stuart Murray, a partner of Steinepreis Paganin and the proposed chairperson of the Scheme meetings, filed 29 April 2024;
(c)an affidavit of Toby Albert Hicks, a partner of Steinepreis Paganin and the proposed alternate chairperson of the Scheme meetings, filed 29 April 2024;
(d)an affidavit of Christopher Lawrence Roby Hansen, the chief executive officer and managing director of Greenstone, filed 29 April 2024;
(e)an affidavit of Julian Simon Mahesan Tambyrajah, the chief financial officer and company secretary of Horizon, filed 29 April 2024; and
(f)an affidavit of Meredith Nancy Campion, a partner of Allen & Overy, the solicitors for Horizon, filed 29 April 2024.
Nature of proposed Schemes
Greenstone is a gold exploration and development company primarily focussed on what is described in the Scheme booklet as the 'Coolgardie Mining Centre'. As at 29 April 2024, Greenstone had the following securities on issue:
(a)1,373,257,274 fully paid ordinary shares (Shares);
(b)93,176,956 listed options exercisable at $0.025 and expiring on 21 September 2025 (Options);
(c)8 million unlisted options exercisable at $0.065 and expiring 10 May 2024;
(d)15 million unlisted options exercisable at $0.085 and expiring 8 July 2025;
(e)10 million unlisted options exercisable at $0.035 and expiring 3 September 2024; and
(f)59,650,000 performance rights (Performance Rights).
Horizon is a West Australian based mining company listed on the ASX. It is a mid-tier gold producer with prospective gold projects located in the Western Australian goldfields.
The Shares are the subject of a proposed share scheme (Share Scheme) under which Greenstone shareholders will receive 0.2868 shares in Horizon for each share they hold in Greenstone (subject to rounding up or down) (Share Scheme Consideration).
The Options are the subject of a separate scheme (Option Scheme). Under the Option Scheme, it is proposed that all Options be either transferred to Horizon or cancelled and that for every Option held, holders of these Options will receive 0.2868 options in Horizon (subject to rounding up or down) (Option Scheme Consideration).
The unlisted options are not part of the Option Scheme. In respect of these options, Greenstone is required to take all necessary steps to cause these options to be exercised, transferred or cancelled prior to the implementation date, for the consideration set out in the SID.
In respect of the Performance Rights, Greenstone is required to take such action as required to ensure that the Performance Rights vest and that the relevant Shares are issued prior to the record date of the Share Scheme. These Shares will then be dealt with as part of the Share Scheme, if implemented.
Greenstone securityholders whose address is outside of Australia or New Zealand are ineligible to receive Horizon securities under the Schemes (Ineligible Foreign Securityholders). The Ineligible Foreign Securityholders will have the securities they would otherwise be entitled to under the Schemes issued to a sale agent and sold on market on the ASX. These securityholders will receive an amount equivalent to the average price per Horizon security obtained, less any applicable brokerage and other selling costs, taxes and charges. The evidence before me is that there are eleven Ineligible Foreign Securityholders.[1]
[1] Affidavit of Christopher Lawrence Roby Hansen filed 29 April 2021 [32], 'CH-5'.
Greenstone's directors have unanimously recommended that securityholders of Greenstone vote in favour of the Schemes, in the absence of a superior proposal.
Greenstone retained an independent expert, BDO Corporate Finance (WA) Pty Ltd (BDO), to provide an opinion on each of the proposed Schemes. In relation to both Schemes, BDO concluded that, in the absence of a superior proposal, each of the proposed Schemes is fair and reasonable and in the best interests of securityholders of Greenstone.[2]
[2] Affidavit of Anna Maree Lorna Jean Barningham filed 23 April 2024, 'AB-1' p 164 - 243.
In reaching this conclusion on the Share Scheme, BDO considered the value of a Share prior to the implementation of the proposed Scheme (on a control basis), compared to the value of the Share Scheme Consideration on a minority basis. The independent expert report (IER) expresses the opinion that the value of a Share prior to the proposed Scheme was between $0.018 (low) and $0.032 (high), with a preferred value of $0.025 and that the range of the value of the Share Scheme Consideration on a minority basis is between $0.018 (low) and $0.033 (high), with a preferred value of $0.025.[3]
[3] Affidavit of Anna Maree Lorna Jean Barningham filed 23 April 2024, 'AB-1' p 170 [2.4.1].
In reaching their conclusion on the Option Scheme, the independent expert considered the value of an Option prior to the implementation of the proposed Option Scheme (on a control basis), compared to the value of the Option Scheme Consideration on a minority basis. Specifically, the IER expresses the opinion that the value of a Option prior to the proposed Option Scheme was between $0.007 (low) and $0.018 (high), with a preferred value of $0.012 and that the range of the value of the Option Scheme Consideration on a minority basis is between $0.012 (low) and $0.027 (high), with a preferred value of $0.019.[4]
[4] Affidavit of Anna Maree Lorna Jean Barningham filed 23 April 2024, 'AB-1' p 170 [2.4.2].
The basis for the valuation and the methodology used by BDO in forming their conclusions are set out in the IER. BDO's consideration of advantages, disadvantages and other factors that are likely to impact securityholders of Greenstone are also set out comprehensively in the IER.[5]
[5] Affidavit of Anna Maree Lorna Jean Barningham filed 23 April 2024, 'AB-1' p 201 - 225.
The Schemes will not be implemented unless and until a number of conditions precedent are satisfied or waived. The conditions precedent which are required to be satisfied or waived are disclosed in the Scheme booklet.
The SID sets out the procedures that have been agreed for the implementation of the proposed Scheme. The obligations of Horizon under the Schemes are supported by deed polls which have been executed by Horizon (Deed Polls).
Legal principles
Pursuant to s 411 of the Act, a scheme of arrangement can be used to re-organise a company in a manner which will be binding on its members, provided that:
(a)the arrangement is agreed by the requisite majorities as prescribed by s 411(4)(a) of the Act, namely 75% of shareholders by value and 50% by number; and
(b)the court approves the arrangement pursuant to s 411(4)(b) of the Act.
There are three stages to an application under s 411 of the Act. First, the court approves the convening of a scheme meeting and the draft explanatory statement to be sent to the members. Second, the members vote on the proposed scheme at the scheme meeting. Third, assuming the first two stages have occurred, the court approves the proposed scheme.[6]
[6] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7].
There are well‑established principles which apply to the first stage of proceedings. The court will order the convening of the scheme meeting and approve the dispatch of the scheme booklet if it is satisfied that:[7]
(a)there is a pt 5.1 body within the meaning of s 9 of the Act;
(b)there is a compromise or arrangement within the meaning of s 411 of the Act;
(c)the proposed scheme booklet contains the prescribed information[8] and provides proper disclosure;[9]
(d)the scheme is bona fide and properly proposed;
(e)the Australian Securities and Investments Commission (ASIC) has had at least 14 days' notice of the proposed hearing date and a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions;[10]
(f)the procedural requirements of the Act and the Supreme Court (Corporations) (WA) Rules 2004 have been met; and
(g)the scheme is of such a nature that, if it receives the necessary statutory majority at the scheme meeting, the court will be likely to approve it.
[7] Re SRG Ltd [2018] FCA 1092 [11]; Re Wesfarmers Ltd [2018] WASC 308 [60].
[8] Corporations Act 2001 (Cth) s 412(1)(a)(ii); Corporations Regulations 2001 (Cth) reg 5.1.01, Sch 8 cl 8301 ‑ 8310.
[9] Corporations Act 2001 (Cth) s 412(1)(a)(i).
[10] Corporations Act 2001 (Cth) s 411(2)(b).
Any issue about classes of members is usually determined at the first hearing.[11] This is to ensure that unnecessary costs and court time are not wasted, which would otherwise occur if this issue was left to the second hearing.[12]
[11] Re CSR Ltd [73].
[12] Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 [20].
The standard of review that is undertaken by the court at the first hearing is whether the proposed scheme is not inappropriate and is one that sensible businesspeople might consider is of benefit to its members.[13] If the proposed arrangement is one that appears fit for consideration by a meeting of members and is a commercial proposition likely to gain the court's approval if passed by the necessary majority, leave should be given to convene the meeting.[14]
[13] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[14] Re SRG Ltd [12]; Re Wesfarmers Ltd [72] - [76].
Disposition
Greenstone have proved each of the formal matters it is required to.
I am satisfied that Greenstone is a company and, accordingly, a pt 5.1 body pursuant to the Act, and that the proposed Schemes are an 'arrangement'.
Although Practice Direction 9.5.2.3(d) provides that the consent of the chairperson and alternate chairperson of the Scheme meetings can be given on information and belief, in this case, affidavits have been filed by the persons who have been nominated to be the chairperson and alternate chairperson for each of the Scheme meetings.
By letter dated 29 April 2024, ASIC confirmed it had been given 14 days' notice of the hearing and a reasonable opportunity to examine the terms of the Schemes and the draft Scheme booklet. ASIC gave notice that it did not propose to appear at the first court hearing to make submissions or intervene to oppose the Schemes.[15]
[15] Affidavit of Anna Maree Lorna Jean Barningham filed 29 April 2024, 'AB-1' p 9 - 10.
On the materials before me at the time of the first hearing, there was nothing to suggest the Schemes were not properly proposed.
There are a number of conditions precedent to the Schemes. Representatives of each of Greenstone and Horizon have deposed they are not aware of any basis to believe that any condition precedent will not be satisfied or waived prior to implementation of the Schemes.
Disclosure and Scheme booklet
I have been provided with various copies of the Scheme booklet as well as the final Scheme booklet, which was provided to ASIC on 30 April 2024.
In relation to the Option Scheme, Greenstone applied for and was granted a waiver by ASIC from the requirement that approval be obtained from its shareholders for the cancellation of the Options for the Option Scheme Consideration.
I was and am satisfied that there will be proper disclosure as to the effect of the proposed Schemes and the material considerations for securityholders of Greenstone.
There is evidence before me as to the due diligence and verification process that was undertaken by both Greenstone and Horizon. On the basis of this evidence, I accept that Greenstone has undertaken a process of due diligence and verification to verify the accuracy of statements attributable to it in the Scheme booklet, and that Horizon has undertaken a similar process. I am also satisfied that appropriate steps have been taken by both companies to satisfy themselves that the Scheme booklet does not omit any material information.
Based on the checklist provided by counsel for Greenstone, I was satisfied the Scheme booklet contained the prescribed information in accordance with s 412(1)(a)(ii) of the Act and sch 8 of the Corporations Regulations 2001 (Cth).
Performance risk
I was and am satisfied that the nature and terms of each of the proposed Schemes are such that the securityholders of Greenstone are adequately protected against the risk that they will not receive the Share Scheme Consideration or Option Scheme Consideration and will have no capacity to sue Horizon to recover their securities or damages.
In that respect, I have had regard to the terms of the Schemes and the Deed Polls. Pursuant to the Schemes:
(a)Horizon is required to issue and allot the Share Scheme Consideration to each shareholder of Greenstone and, for Ineligible Foreign Securityholders, to their sale agent on the implementation date;
(b)transfer of the Scheme shares to Horizon is subject to provision of the Share Scheme Consideration;
(c)beneficial title in the Shares does not pass unless the Share Scheme Consideration has been issued in accordance with the Scheme;
(d)Horizon is required to issue and allot the Option Scheme Consideration to each Option holder of Greenstone on the implementation date and, for Ineligible Foreign Securityholders, to their sale agent on the implementation date; and
(e)cancellation of the Options is subject to provision of the Option Scheme Consideration.
The arrangements under the terms of the proposed Schemes are supported by a scheme deed poll and an option deed poll. By these documents, Horizon undertakes in favour of each Greenstone securityholder that it will perform all actions attributed to it under the Schemes. There is also an acknowledgement that the Deed Polls may be relied on and enforced by any Greenstone securityholder in accordance with its terms. In my view, the Greenstone securityholders are sufficiently identified within the Deed Polls to enable them to enforce the Deed Polls against Horizon.
Exclusivity provisions and reimbursement fee
The SID contains the customary lock up devices in the form of 'no shop', 'no talk', 'no due diligence restriction' and 'notification obligations' provisions. The 'no talk', the 'no due diligence restriction' and the 'notification obligations' provisions are subject to a fiduciary carve out. In certain circumstances, a reimbursement fee of $151,527 (Reimbursement Fee) is payable by Greenstone to Horizon and by Horizon to Greenstone.
In this case, the exclusivity arrangements apply for no more than six months from the date of entry into the SID. The amount of the Reimbursement Fee is less than 1% of the equity value of Greenstone based on the implied value of the Share Scheme Consideration and Option Scheme Consideration at the date of entering into the SID. As such, it is within generally accepted commercial parameters for break fees. The Reimbursement Fee is intended to compensate the parties for the costs (both costs incurred and opportunity costs) if the Schemes do not proceed. The Reimbursement Fee is payable by both parties in certain circumstances, and is not payable if securityholders of Greenstone do not vote in favour of the Schemes. Accordingly, I consider the amount of the Reimbursement Fee in this case is unlikely to influence securityholders of Greenstone in their decision to vote on the Schemes.
Importantly, the exclusivity arrangements and Reimbursement Fee provisions are prominently disclosed in the Scheme booklet.
Director benefits and recommendations
The directors of Greenstone have unanimously recommended that, in the absence of a superior proposal, securityholders of Greenstone vote in favour of the Scheme.
Greenstone drew my attention to the fact that each of the directors of Greenstone (Directors) has an interest in Shares. In addition, in the event the Schemes are approved, it is proposed that:
(a)Mr Hansen will be appointed a non-executive director of the combined group and will be paid a fee of $54,000 plus statutory superannuation per annum; and
(b)Mr Poole will be appointed chief geologist of the combined group and will be paid a base salary of $240,000 plus statutory superannuation per annum (collectively, Proposed Payments).
For the following reasons, it was and is my view that it was not inappropriate for each of the Directors to make a recommendation in respect of the Schemes.
First, the securities in Horizon that each of the Directors will receive if the Schemes are implemented are being issued to them as consideration for the securities they own in Greenstone. That is, they will receive the same consideration as every other securityholder of Greenstone. In addition, prior to entry into the SID and in Mr Hansen's absence, the Directors considered whether Mr Hansen could participate and vote on any resolution considering the Schemes. The Directors resolved that Mr Hansen's interest did not disqualify Mr Hansen from being present while these matters were being considered or from voting.
Second, prior to making a recommendation, each of the Directors considered whether they could and should make a recommendation on the Schemes to securityholders of Greenstone and considered that, in light of the importance of the Schemes, it was appropriate for each of the Directors to do so. In circumstances where the primary matter identified in respect of the Directors is that they will receive the Share Scheme Consideration and Option Scheme Consideration if the Schemes are implemented, I accept that these interests should not prevent the Directors from giving the necessary recommendation.
Third, neither of the Proposed Payments are payable because of the implementation of the Schemes. These amounts will be payable as fees for the positions that each will hold in the combined group. Neither of the Proposed Payments are of such magnitude that could lead an inference being drawn that they are excessive, unwarranted, or provide an inappropriate incentive for Mr Hansen or Mr Poole to recommend to the securityholders of Greenstone to vote in favour of the Schemes.
Finally, and importantly, each of the matters referred to in [42] is prominently disclosed in the Scheme booklet at page iv. I am satisfied that given this disclosure, securityholders of Greenstone are able to assess the weight given to each of the Directors' recommendations.
Shareholder voting intention statements
The Scheme booklet discloses that voting intention statements to vote in favour of the proposed Scheme had been received by Greenstone. Those statements were expressly subject to no superior proposal emerging. The statements were given by FMR Investments Pty Ltd (who controls approximately 7.07% of the Shares on issue) and Yandal Investments Pty Ltd (who controls approximately 3.28% of the Shares on issue).
I was satisfied these statements were appropriately (and prominently) disclosed in the Scheme booklet, consistent with both the Takeovers Panel Guidance Note 23: Shareholder Intention Statements, and previous authorities.[16]
Loan facility agreement and general security deed
[16] See Re Azure Minerals Ltd [2024] WASC 58 [66].
On 13 February 2024, Greenstone and Horizon entered into a loan facility agreement and general security deed. Under the loan facility agreement, Horizon agreed to loan up to $450,000 to Greenstone for paying its creditors and the costs of implementation of the Schemes. The repayment date of the facility is the earlier to occur of 31 December 2024; the date upon which Greenstone completes a capital raising of not less than $1,000,000; 90 days after an event of default (which includes securityholders not approving the Schemes); or 45 days from the date Horizon issues a notice to Greenstone upon a change of control by Greenstone. Pursuant to the loan facility agreement, interest of 4.35% is payable by Greenstone in arrears on the repayment date, with 5.35% per annum payable on any overdue amounts.
In considering agreements where a bidder has provided a loan to the target, the court considers whether it operates as a lock-up device or is a break fee that might prevent securityholders freely considering the proposed scheme or schemes.[17]
[17] Re Nzuri Copper Ltd [2019] WASC 189 [67] - [68].
In this case, I was and am satisfied that these agreements (particularly in terms of the quantum of the loan and the obligations for repayment) are not a lock-up device that would have a coercive effect on the securityholders of Greenstone and would prevent them from considering the merits of the proposed Schemes. These agreements are the subject of disclosure in the Scheme booklet and are, in my view, a matter for securityholders of Greenstone to consider at the Scheme meetings.
Shareholder communications
At the hearing, counsel for the plaintiff drew my attention to the steps which will be taken by Greenstone in terms of shareholder communications.
I was provided with a draft script of these communications. The communications are consistent with the disclosure in the Scheme booklet, in respect of which approval is sought.
Deemed warranties
Greenstone also drew my attention to the deemed warranty provisions in the proposed Schemes.
Each of the proposed Schemes provides that each securityholder of Greenstone is deemed to have warranted their security is unencumbered. Further, pursuant to the proposed Schemes, each securityholder of Greenstone is taken to have full power and capacity to sell and transfer their Shares or to agree to the cancellation of their Options as the case may be.
The existence of this provision is drawn to the attention of securityholders in the Scheme booklet. Deemed warranty clauses are not unusual and are acceptable provided there is adequate disclosure that it is a condition.
I was and am satisfied that adequate disclosure has been given of these clauses.
Electronic despatch of the Scheme booklet
As is now common, Greenstone sought orders pursuant to s 1319 of the Act for electronic despatch of the Scheme booklet and applicable proxy form by email to Greenstone securityholders that have nominated to receive communications electronically (Email Securityholders). In respect of its securityholders who have nominated to received communications in hardcopy, Greenstone proposed the despatch of hardcopy documents by post.
In relation to its security holders who have not made any election and for those Email Securityholders in respect of whom electronic delivery has been notified as being ineffective, Greenstone proposed that these securityholders be sent a letter with details of the website from which the Scheme booklet can be accessed, together with a copy of the applicable proxy form.
I was and am satisfied that the proposed orders for despatch of these materials are appropriate.
Conclusion
For these reasons, I was and am satisfied that the substantive and procedural requirements under s 411(1) and s 1319 of the Act had been satisfied and that the proposed Scheme was fit for consideration by Greenstone's members.
At the conclusion of the first court hearing, I made orders in terms of 'Annexure A'.
Shortly after making these orders, I was provided with a copy of a further amended Scheme booklet that had been provided to ASIC that day. These amendments corrected the calculation of the implied value of the Shares proposed to be issued to the directors, as disclosed on p iv of the Scheme booklet. Greenstone sought approval for the dispatch of the amended Scheme booklet. Orders were made to approve the dispatch of the updated Scheme booklet on 30 April 2024.
Annexure A
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KC
Associate to the Honourable Justice Hill
14 MAY 2024
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