Re International Goldfields Ltd
[2003] WASC 86
RE INTERNATIONAL GOLDFIELDS LTD [2003] WASC 86
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2003] WASC 86 | |
| Case No: | COR:101/2003 | 22 APRIL 2003 | |
| Coram: | BARKER J | 12/05/03 | |
| 14 | Judgment Part: | 1 of 1 | |
| Result: | Approval granted | ||
| B | |||
| PDF Version |
| Parties: | INTERNATIONAL GOLDFIELDS LTD (ABN 89 091 744 437) |
Catchwords: | Corporations Act 2001 (Cth) Application under s 411 for approval of court to convene meeting of members to consider a scheme of arrangement "Reverse takeover" proposal Relevance of ch 6 of Act Whether "explanatory statement" should be approved |
Legislation: | Corporations Act 2001 (Cth), s 411(1), s 412(1)(a), s 412(1) Corporations Regulations 2001, reg 5.1.01(b) |
Case References: | Re ACM Gold Ltd (1992) 34 FCR 530 Re Bond Corporation Holdings Ltd (1991) 5 ACSR 304 Re Foundation Health Care Ltd [2002] FCA 472; 42 ACSR 252 Re NRMA Ltd (No 1) (2000) 156 FLR 349 Re Stockbridge Ltd (1993) 9 ACSR 637 Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Applicant
Catchwords:
Corporations Act 2001 (Cth) - Application under s 411 for approval of court to convene meeting of members to consider a scheme of arrangement - "Reverse takeover" proposal - Relevance of ch 6 of Act - Whether "explanatory statement" should be approved
Legislation:
Corporations Act 2001 (Cth), s 411(1), s 412(1)(a), s 412(1)
Corporations Regulations 2001, reg 5.1.01(b)
Result:
Approval granted
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Category: B
Representation:
Counsel:
Applicant : Mr M J Feutrill & Ms D F J Branston
Solicitors:
Applicant : Steinepreis Paganin
Case(s) referred to in judgment(s):
Re ACM Gold Ltd (1992) 34 FCR 530
Re Bond Corporation Holdings Ltd (1991) 5 ACSR 304
Re Foundation Health Care Ltd [2002] FCA 472; 42 ACSR 252
Re NRMA Ltd (No 1) (2000) 156 FLR 349
Re Stockbridge Ltd (1993) 9 ACSR 637
Case(s) also cited:
Nil
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- BARKER J:
Introduction
1 By Originating Process dated 4 April 2003, the applicant makes application under s 411 of the Corporations Act2001 for this Court's approval:
(1) to convene a meeting of the holders of certain shares in the applicant; and
(2) of the explanatory statement for use by it as the explanatory statement required by s 412(1)(a) of the Act to accompany the notice of the meeting.
- The applicant also seeks specific orders to carry such approval into effect.
2 The application is an ex parte application made in a summary way by the applicant pursuant to s 411(1) of the Act.
3 The applicant desires to obtain the approval of the holders of fully paid ordinary shares in the capital of the applicant for the scheme of arrangement proposed between the applicant and its shareholders.
Proposed scheme of arrangement
4 The purpose of the scheme is to implement a merger between the applicant and Hamill Resources Ltd (ABN 71 095 047 920) (Hamill Resources).
5 The scheme is in a customary form with an exchange of listed shares whereby the members of the applicant will receive six Hamill Resources shares for every seven shares in the applicant transferred to Hamill Resources. The scheme will result, if approved, in the merger, namely, the applicant will become a 100 per cent subsidiary of Hamill Resources.
6 There are also option holders in the applicant, but the scheme of arrangement does not affect them and no approval or orders are sought in respect of the option holders.
7 The applicant is a publicly listed company listed on the Official List of the Australian Stock Exchange and is actively involved in gold and base metal exploration in Australia and Romania. Hamill Resources is also an Australian resources company listed on the Official List of the Australian Stock Exchange and is an active explorer of gold and base metals, holding interests in various projects in Australia.
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8 The proposed merger involves what is sometimes called a "reverse takeover". The effect of the merger, if approved, is that 40.74 per cent of the expanded issued capital of Hamill Resources will be held by the existing shareholders of Hamill Resources and 59.26 per cent will be held by the existing shareholders of the applicant.
The matters to be considered under s 411(1)
9 Under s 411(1) of the Act, the Court may:
(a) order a meeting of the members of the applicant to be convened in such manner and to be held in such place as the Court directs; and
(b) where the Court makes such an order, the Court may approve the explanatory statement required by s 412(1)(a) of the Corporations Act to accompany notices of the meeting.
10 It is clear that the application is the first stage of a three-part process involved in Part 5.1 of the Corporations Act: Re Bond Corporation Holdings Ltd (1991) 5 ACSR 304 at 316 per Owen J; Re Stockbridge Ltd (1993) 9 CSR 637 at 646 per Murray J.
11 In Re NRMA Ltd (No 1) (2000) 156 FLR 349, at 354 - 356, Santow J usefully summarised the matters to which the Court is required to have regard in considering an application of this nature, namely:
(a) Proper disclosure: s 412(1);
(b) that the scheme can properly be described as an arrangement or compromise: s 411(1);
(c) that the applicant is a Part 5.1 body as defined in the Corporations Act: s 411(1);
(d) that the scheme is properly proposed: s 411; and
(e) that the Australian Securities and Investments Commission (ASIC) has had a reasonable opportunity to examine the terms of the scheme and to make submissions to the Court: s 411(2).
12 At the stage of convening a meeting pursuant to s 411(1), the Court should be satisfied, at least in a prima facie way:
(a) as to the legality of what is proposed;
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- (b) that there has been proper disclosure with nothing misleading or deceptive in a material sense; and
(c) the scheme will, if and when approved by the members, be likely to be approved by the Court, as being "so far fair and reasonable as an intelligent and honest man may approve."
13 The Court is not required to determine the business or commercial efficacy of what is proposed. The terms of s 411(6) make it clear that questions going to whether the scheme of arrangement is "just" or "fair" are to be considered after the scheme has been approved by the members of the applicant: Re NRMA Ltd (supra) at 351 and 358, and also at 359 - 361.
Disclosure
14 Proper disclosure requires that all the main facts as will enable members to exercise their judgment on the proposed scheme are, or have been previously placed, before them: Re NRMA Ltd (supra) at 354.
15 The relevant disclosure requirements for the explanatory statement required by s 412(1)(a) are contained in s 412(1) of the Corporations Act, reg 5.1.01(b) of the Corporations Regulations 2001, sch 8 of the Corporations Regulations, ASIC Policy Statement 60 at pars 60.6 to 60.10 and 60.17 to 60.19, and ASIC Policy Statement 142 at pars 142.16 to 142.17, 142.30, 142.41 to 142.42, 142.46 and 142.60.
16 On its face, the explanatory statement presented for approval complies with the disclosure requirement and conveys the information necessary for a member to make an informed decision whether or not to approve the proposed scheme. It is said by the applicant that the explanatory statement also contains additional information which meets the requirements of Ch 6 of the Corporations Act for a scrip takeover scheme, thus ensuring that the applicant's members receive equivalent treatment and protection as they would if the merger with Hamill Resources were effected under a takeover scheme under the Act. I accept that this may be so.
17 The Scheme Booklet (which is annexure "KMH-9" to the affidavit of Kent Michael Hunter sworn 4 April 2003) includes the explanatory statement relevant to the proposal. It appears to provide a clear statement of the overview and the features of the merger and also includes an independent expert's report in relation to the scheme prepared by Stanton Partners Corporate Pty Ltd which, in turn, refers to independent
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- geological opinions concerning the properties of both the applicant and Hamill Resources.
Arrangement
18 The term "arrangement" has been given a liberal meaning and there is little doubt that the proposed scheme is an "arrangement": Re NRMA Ltd (supra) at 356.
Part 5.1 body
19 A "Part 5.1 body" is defined in s 9 of the Corporations Act as a company or registrable body that is registered under Div 1 or 2 of Part 5B.2 of the Act. There is no doubt that the applicant is a Part 5.1 body.
Properly proposed
20 Whether the scheme has been properly proposed is not generally a matter for the Court at the approval stage of an application under s 411; that is, unless something improper emerges at the outset: Re NRMA Ltd (supra) at 356 and 357. In this case, I accept that nothing improper emerges at this point.
21 For example, there is nothing in the applicant's constitution which is contrary to any term of the proposed scheme.
22 On the face of it, the scheme has not been proposed by either the applicant or Hamill Resources for the purpose of enabling any person to avoid the operation of Ch 6 of the Corporations Act. The directors of the applicant and those of Hamill Resources have agreed upon the merger and formed the opinion that the scheme is the most cost and time efficient method of securing the consent of all members of the applicant to the merger.
23 The question of avoidance of the operation of ch 6 of the Corporations Act arises, even at this first stage of the three-stage approval process, because s 411(17) provides that "the Court must not approve a compromise or arrangement under this section unless 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 there is produced to the Court a statement in writing by
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- ASIC stating that the Commission has no objection to the compromise or arrangement.
24 In Re ACM Gold Ltd (1992) 34 FCR 530, O'Loughlin J concluded (at 538) that the provisions of ch 6 should not be regarded as being in a position of dominance over or automatically taking precedence over the provisions of ch 5. Thus, it could not be considered that an arrangement "must be struck down if it or any part of it could have been implemented as a takeover scheme or by means of a takeover announcement". O'Loughlin J accepted that the two chapters should be read in harmony in the factual circumstances. In Re ACM Gold Ltd, O'Loughlin J concluded that, because the takeover offer or scheme could not have emanated from the applicant company, it could not be said that the scheme was proposed for the purpose of enabling it to avoid the operation of the takeover provisions, and so it was considered that s 411(17) could not apply.
25 In Re Stockbridge Ltd (supra) at 653, Murray J adopted what O'Loughlin J stated in Re ACM Gold Ltd, but then added:
"But in my opinion, with respect, it was not necessary for me in this case to go so far and I confess to finding the distinction thus draw somewhat artificial. I see no reason within the wording of s 411(17) why one should not have regard to who truly are the sponsors of the scheme as it comes before the court in factual terms. And in that event I would conclude that the scheme is jointly sponsored by Stockbridge and Excalibur and indeed that both companies submissions in support of it were made to the court. Even if I had been of the view that it was the purpose of Stockbridge which was to be examined solely, I can see no reason why the operation of s 411(17) should not be attracted if it is open to conclude that the scheme is proposed by Stockbridge to enable Excalibur to avoid the operation of Chapter 6.
As to the question of purpose however, I am in entire agreement with O'Loughlin J's discussion at 243 - 4 of the report. His Honour concluded that one had to look at the effective structure of the scheme as it was put forward. I agree and I have noted that so far as this scheme is concerned, it is regarded as being a necessary condition of its implementation that it go forward in a form which enables the entire ownership of Stockbridge to be resolved in favour of Excalibur, or not, at one time. It is to be noted in that context of course, that the question of the options
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- could not be so resolved in the context of a takeover scheme and nor could the final process of reduction of capital. Those matters are important elements in the scheme as proposed in my opinion and of themselves go a long way to aid the affirmative conclusion that the scheme is not proposed for the purpose of enabling avoidance of Chapter 6.
Further, O'Loughlin J held that it was insufficient to see that the scheme might be regarded as having the effect of avoiding the operation of Chapter 6 or that its implementation might result in that occurrence. In the absence of direct evidence as to what the intention or purpose of the proposers of the scheme was, it was necessary to make an objective assessment of it and draw an inference from such circumstantial evidence. But in the end the court would be concerned to see what was the actual purpose of the scheme, at least I think, in the sense that a substantial purpose of the formulation of the scheme in the way that has occurred was the avoidance of the operation of Chapter 6."
26 Murray J further noted and accepted what O'Loughlin J in Re ACM Gold Ltd (supra) (at 542) stated of s 411(17) to the effect that, "if there are two ways of achieving the same object and one of them entails the use of Chapter 6, the adoption of the second does not mean, without more, that the second was proposed for the purpose of enabling some person to avoid the operation of any of the provisions of Chapter 6."
27 In Re Foundation Health Care Ltd [2002] FCA 742; 42 ACSR 252, French J also referred to the observations of O'Loughlin J in Re ACM Gold Ltd (supra) and seemingly accepted his Honour's further observation (at FCR 538) in respect of s 411(17) that:
"The mixture of strong control in Chapter 6 on the one hand … coupled with the legislature's willingness to make exceptions and grant exemptions from the provisions of Chapter 6 call for a liberal and practical interpretation of s 411(17)."
28 In relation to this case, it is contended by the applicant that the plurality of members means that, if Hamill Resources were to make a takeover bid under s 6 of the Corporations Act, it could not be guaranteed 100 per cent ownership of the applicant, or a sufficient number of acceptances of the bid by the members to allow Hamill Resources to acquire the remaining shares through the compulsory acquisition provisions of Ch 6A of the Act. The proposed scheme provides a greater
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- level of certainty in reaching 100 per cent ownership of the applicant. It is said that Hamill Resources would not agree to its obligations associated with the proposed merger if it could not be guaranteed of acquiring a 100 per cent interest in the applicant within a reasonable time-frame. I accept that these are rational reasons for the proposed scheme and that, looking at the proposal objectively, there is no reason to conclude that the arrangement has been proposed "for the purpose of" enabling Hamill Resources or the applicant to avoid the operation of ch 6 of the Act.
Reasonable notice to ASIC
29 The Court needs to be satisfied, having regard to s 411(2), that, in all the circumstances, ASIC has had a reasonable opportunity to examine the terms of the proposed scheme and make submissions to the Court: Re NRMA Ltd (supra) at 357.
30 In this case, ASIC has been apprised of the proposed scheme and draft explanatory statement: see affidavit of Kent Michael Hunter sworn 4 April 2003 at par 38 and affidavit of Danielle Francoise Julmy Branston sworn 16 April 2003 at pars 3 and 4 and annexure "DFB-1". ASIC has chosen not to attend at the hearing of this application. It was given at least 14 days' notice of the hearing of the application: see affidavit of Ms Branston sworn 16 April 2003 at par 3.
31 By letter dated 7 April 2003, which is an attachment to the affidavit of Ms Branston sworn 16 April 2003, ASIC by Stefan Pheifle, senior lawyer, Corporate Finance of ASIC at their Perth office, advised the solicitors for the applicant as follows:
"On the basis of the information provided to date, ASIC has no objection to the proposed scheme. However, ASIC reserves the right to change its view should further material come to its notice prior to the confirmation hearing.
ASIC does not propose to attend the hearing of the application for Court Orders that the meeting be held.
Please note that this letter is not the 'statement in writing' referred to in section 411(17)(b) of the Corporations Act 2001."
32 I am satisfied, having regard to the affidavits and the ASIC letter dated 7 April 2003, that ASIC has had reasonable time to examine the proposed scheme and make submissions to the Court which it has chosen not to do. Instead, ASIC has elected to signal its intention to the Court
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- that it has no opposition to orders in the terms sought being made at this time by the Court and that it will review its final position in relation to the proposed scheme if and when the matter returns to the Court for a confirmation hearing in the later stage of the process previously adverted to.
Conclusion
33 The proposed scheme booklet containing the explanatory memorandum contains an independent expert's report which concludes that the proposed scheme to effect a merger between the applicant and Hamill Resources is in the best interests of the applicant's members: affidavit of Kent Michael Hunter sworn 4 April 2003 at "KHM-9". Ultimately, it is for the members to make that decision for themselves. There is no good reason why they should not have that opportunity.
34 On its face, the purpose of the proposed scheme is acceptable and able to be considered by the persons affected by it. It is now for the members of the applicant to consider the proposed scheme from their point of view.
35 I am satisfied that the Court should make an order to the effect of the minute of proposed orders dated 16 April 2003.
36 In that regard, so far as par 4 of that minute is concerned, I note the affidavit of Ms Branston sworn 16 April 2003 in accordance with r 25 that each of Mr Sage and Mr McMahon is willing to act as a chairperson of the meeting, has had no previous relationship or dealing with the applicant or any person interested in the proposed arrangement except as disclosed in her affidavit, has no interest or obligation that may give rise to a conflict of interest or duty if the person were to act as chairperson of the meeting, except as disclosed in her affidavit, and has undertaken to report the results of the meeting to the Court.
37 I note that Mr Sage is the chairman and an executive director of the applicant and that he appears to hold a relevant interest, as that term is defined in the Corporations Act, in 6,130,000 fully paid ordinary shares in the capital of the applicant.
38 I also note that Mr McMahon is a non-executive director of the applicant and has a relevant interest in 690,000 fully paid ordinary shares in the capital of the applicant.
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39 On the basis of this information, I accept that neither Mr Sage nor Mr McMahon fall within ss 411(7)(a) - (f) of the Corporations Act, except to the extent disclosed above.
Order
40 I make orders in terms of the Minute of Proposed Orders dated 16 April 2003, which is attached to these reasons. However, I will hear from counsel for the applicant as to whether any amendments should be made to the Minute concerning the timing of the meeting.
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