Re Kangaroo Resources Ltd
[2018] WASC 327
•25 OCTOBER 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE KANGAROO RESOURCES LTD; EX PARTE KANGAROO RESOURCES LTD [2018] WASC 327
CORAM: VAUGHAN J
HEARD: 16 OCTOBER 2018
DELIVERED : 16 OCTOBER 2018
PUBLISHED : 25 OCTOBER 2018
FILE NO/S: COR 171 of 2018
EX PARTE
KANGAROO RESOURCES LTD
Plaintiff
Catchwords:
Corporations law - Scheme of arrangement - Proposed acquisition - Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth)
Legislation:
Corporations Act 2001 (Cth), s 411, s 412
Supreme Court (Corporations) (WA) Rules 2004 (WA)
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | A J Papamatheos |
| Interested Party (PT Bayan Resources Tbk) | : | S K Dharmanada SC |
Solicitors:
| Plaintiff | : | Hopgood Ganim Lawyers (Perth) |
| Interested Party (PT Bayan Resources Tbk) | : | Allens (Perth) |
Case(s) referred to in decision(s):
MDA National Ltd v Medical Defence Australia Ltd [2014] FCA 954
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re Aston Resources Ltd [2012] FCA 229
Re Capilano Honey Ltd [2018] FCA 1568
Re SABMiller Plc [2016] EWHC 2153 (Ch); [2017] Ch 173
Re Skilled Group (No 1) [2015] VSC 789
Re Tawana Resources NL [2018] FCA 1456
Re Toll Holdings Ltd [2015] VSC 123
Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308
VAUGHAN J:
Overview
The plaintiff, Kangaroo Resources Ltd (Kangaroo), is an Australian public company listed on the official list as conducted by the ASX Ltd (ASX). Its ordinary shares are quoted for trading. Some 56.05% of Kangaroo's ordinary shares are held by an Indonesian company, PT Bayan Resources Tbk (PT Bayan).
PT Bayan seeks to acquire the remainder of the ordinary shares in Kangaroo for a consideration of $0.15 per share by way of a scheme of arrangement.
By an originating process dated 28 September 2018 Kangaroo sought orders under s 411 of the Corporations Act 2001 (Cth) in relation to the proposed scheme of arrangement. The application came before me for hearing during the afternoon of 16 October 2018. The application was supported by PT Bayan.
After hearing submissions I made orders pursuant to s 411(1) of the Act to convene a meeting of Kangaroo's members (other than PT Bayan) to consider and vote on the proposed scheme. Ancillary orders were made as to the convening and conduct of the meeting. Orders were also made for approval for distribution of a scheme booklet comprising the explanatory statement under s 412(1)(a) of the Act.
These are my reasons for the orders made on 16 October 2018.
Evidence and background facts
Kangaroo relied on some 13 affidavits sworn by ten deponents. The deponents, their relationship with Kangaroo or PT Bayan, and the nature of the evidence in their affidavits is summarised in annexure 'A' to these reasons.
Based on that affidavit evidence I record the following matters.
Kangaroo is a mineral resources company with its corporate head office in Perth. Kangaroo was incorporated in June 2006 and listed on the ASX in April 2007. Kangaroo has a portfolio of coal development and exploration assets in East Kalimantan, Indonesia. There are three main projects: the Pakar Coal Project, the GPK Coal Project and the Mamahak Coal Project. A large proportion of Kangaroo's coal mining concessions are in close proximity to the existing coal mining and infrastructure assets of PT Bayan.
PT Bayan is, as previously mentioned, the controlling shareholder of Kangaroo. PT Bayan describes itself as an integrated coal group primarily engaged in open cut mining. It is listed on the Indonesian stock exchange. The independent expert report obtained by Kangaroo, as appears in the draft scheme booklet, notes PT Bayan as having a market capitalisation of approximately $6.26 billion as at 16 August 2018.
Kangaroo has an issued share capital of 3,434,430,012 fully paid ordinary shares as at 6 October 2018.
At present Kangaroo has six directors. Two are nominees of PT Bayan. They are not considered to be independent directors for the purpose of the proposed scheme of arrangement.
On 17 August 2018 Kangaroo announced that it had entered into a scheme implementation deed (SID) with PT Bayan. Under the SID it was proposed that:
·PT Bayan would acquire all of the ordinary shares in Kangaroo that it did not already own.
·The acquisition would occur through a proposed scheme of arrangement - the terms of the scheme being an annexure to the SID.
·The consideration payable by PT Bayan would be $0.15 per share.
·Upon Kangaroo becoming a wholly‑owned subsidiary of PT Bayan its shares would be de‑listed from the ASX.
Based on the ordinary Kangaroo shares on issue, the scheme consideration of $0.15 per share represents a transaction value of some $226.4 million.
The proposed scheme of arrangement is subject to a number of conditions precedent. These are incorporated into the terms of the proposed scheme through the SID. Apart from the necessary approvals under s 411 of the Act, chief among these conditions precedent is Foreign Investment Review Board (FIRB) approval. FIRB approval was in fact obtained on 21 August 2018. There are other conditions precedent which, if not satisfied or waived, might see the transaction fall over. But the evidence did not suggest that Kangaroo considered there would be any difficulties in obtaining satisfaction or waiver of those other conditions.
The papers before me included the SID, the proposed terms of the scheme of arrangement and a deed poll provided by PT Bayan in favour of the scheme participants. I will make further reference to these instruments in due course. For now it is enough to mention that the SID contained various exclusivity arrangements and provision for a break fee.
The papers also included various drafts of the scheme booklet.
The scheme booklet is a lengthy document that contains the following sections:
·Important notices.
·Letter from Kangaroo's independent directors.
·Frequently asked questions.
·1: Outline of the scheme.
·2: Scheme meeting and voting information.
·3: Key considerations relevant to voting.
·4: Scheme conditions.
·5: Information about Kangaroo.
·6: Information about PT Bayan.
·7: Summary of key risks.
·8: Tax implications for scheme participants.
·9: Other information.
·10: Definitions and interpretation.
·Schedule 1: Independent expert's report.
·Schedule 2: Scheme Implementation Deed.
·Schedule 3: Deed Poll.
·Schedule 4: Scheme of Arrangement.
·Schedule 5: Notice of court ordered scheme meeting.
The independent expert report has been verified by Jason Hughes of KPMG Financial Advisory Services (Australia) Ltd. In part Mr Hughes' report is based on an independent specialist report as to the Indonesian coal assets of Kangaroo compiled by Jeames McKibben of SRK Consulting (Australasia) Pty Ltd. Mr McKibben has verified the opinions proffered in his independent specialist report.
The independent expert report concludes that the proposed scheme is fair and reasonable to the scheme participants and therefore is in the best interests of the scheme participants in the absence of a superior proposal.
Mr Hughes, for KPMG, reaches that view having assessed the value of the ordinary shares in Kangaroo. It is said that KPMG assesses the value of a Kangaroo share, inclusive of a premium for control, to lie in the range of $0.12 to $0.16. The scheme consideration of $0.15 per share lies within the upper level of the assessed range. It is also said that the valuation represents the estimated full underlying value of Kangaroo and exceeds the price at which, based on market conditions, KPMG would expect Kangaroo shares to trade on the ASX.
Mr Hughes also notes that:
(1)In the 12 months before Kangaroo announced that PT Bayan was seeking to obtain confidential information with a view to making a proposal, Kangaroo shares traded within a low to high range of $0.016 (February 2018) and $0.041 (May 2017) at a volume weighted average price of $0.024.
(2)After that announcement and in the period between receipt of the request for confidentiality and the August 2018 announcement of the proposed scheme, Kangaroo shares traded between a low of $0.021 and a high of $0.095 at a volume weighted average price of $0.073.
(3)Following the announcement of the proposed scheme Kangaroo shares have traded between a low of $0.110 and a high of $0.135 at a volume weighted average price of $0.121.
The independent expert report suggests that, in the absence of the proposed scheme of arrangement, the Kangaroo share price would fall from current levels.
The independent directors acknowledge that there are possible disadvantages and risks relating to the proposed scheme. For example, if the scheme proceeds the scheme participants will no longer be Kangaroo shareholders and will not participate in any advantageous exploitation of Kangaroo's resources. That said, the independent directors' ultimate position is that there is a compelling rationale for the scheme. The independent directors consider the scheme to be in the best interests of Kangaroo's shareholders and recommend that the shareholders vote in favour of the scheme proposal in the absence of a superior proposal.
Legal framework
I described the applicable legal framework for an application of the nature brought by Kangaroo in Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd.[1] I do not intend to repeat what I stated in Re Wesfarmers Ltd. I adopt and will apply what I stated in Re Wesfarmers Ltd.
[1] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 [46] ‑ [78].
There is usually said to be six matters to be proved at this first stage of the process under s 411 of the Act. Those matters are that:
(1)The plaintiff is a Pt 5.1 body.
(2)The proposed scheme is a compromise or an arrangement within the meaning of s 411 of the Act. Here, relevantly, the question is whether the proposed scheme is an 'arrangement'.
(3)The scheme booklet will provide proper disclosure to members.
(4)The scheme is bona fide and properly proposed.
(5)The Australian Securities and Investments Commission (ASIC) has had at least 14 days' notice of the proposed hearing date and has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and to make submissions.
(6)The various procedural requirements of the Act and the Supreme Court (Corporations) (WA) Rules 2004 (WA) have been met.
It is also necessary that the court be satisfied that the scheme is of such a nature and cast in such terms that, if it receives a statutory majority at the scheme meeting, the court would be likely to approve the scheme at the hearing of an application which is unopposed. This does not require me to descend into the commercial merits or demerits of Kangaroo's proposed scheme. It is enough if the scheme is one that it would be open to the members of Kangaroo to adopt. I need only consider whether the proposed scheme is one that sensible business people might consider to be of benefit to the members.
The proposed scheme, being an acquisition scheme, was predicated on certain exclusivity arrangements including a break fee. I will deal with the applicable principles as to such provisions in addressing my reasons for granting the orders to convene the s 411 scheme meeting.
Disposition
Formal matters
The formal matters that Kangaroo had to prove were satisfied. Kangaroo is a company. The proposed scheme constitutes an 'arrangement'; this type of acquisition scheme has been approved of as an arrangement on numerous occasions. By letter dated 16 October 2018 the ASIC confirmed satisfaction of the service requirement and that it had been provided with the reasonable opportunity required under s 411(2). The ASIC also gave notice that it did not propose to appear to make submissions or intervene to oppose the scheme at the first hearing.
The various procedural requirements for making the orders were all attended to in the evidence; for example, there was the necessary consent and disclosure by the proposed chairperson of the meeting and his alternate.
Properly proposed
On the materials before me there was nothing to suggest that the proposed scheme was unlawful or not properly proposed. There was no obvious flaw in the scheme such that it would be inappropriate for it to be submitted to Kangaroo's shareholders for their consideration. More detailed discussion as to my consideration of the nature and terms of the proposed scheme is best deferred until I deal with counsel's submissions as to performance risk.
Disclosure and scheme booklet
I have read through the various drafts of the scheme booklet and carefully considered the various amendments made to the initial draft. I was and am satisfied, to the necessary prima facie level given the interlocutory nature of the application before me, that there will be proper disclosure as to the effect of the proposed scheme and the material considerations to which shareholders ought to have regard. In that regard I made one minor suggestion by way of amendment that was embraced by counsel for Kangaroo.
As to the content of the disclosure, I also observe that there was active engagement by the ASIC in its review of the contents of the draft scheme booklet. The disclosures made as to PT Bayan's ability to fund the acquisition, the exclusivity arrangements and the break fee were considerably enhanced as a result of conferral between the ASIC and Kangaroo's legal representatives as to the draft scheme booklet.
As to the due diligence and verification process undertaken by Kangaroo and PT Bayan, I had regard to, and accept, the evidence given by Mr Shah (at pars 38 to 53 of his affidavit), Mr Jurman (at pars 3 to 14 of his affidavit) and Mr Heng (at pars 5 to 15 of his affidavit). In substance:
·There has been verification of the various statements attributed to Kangaroo and PT Bayan in the final scheme booklet.
·Appropriate steps have been taken to satisfy Kangaroo and PT Bayan that the final scheme booklet does not omit any material information.
The independent directors of Kangaroo have approved the final version of the draft scheme booklet as was in evidence before me on 16 October 2018.
Otherwise, as to disclosure, I was satisfied that 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). Those requirements have been modified in one respect by the ASIC's letter dated 16 October 2018 (attachment 'RAF‑34'). In locating and satisfying myself as to disclosure of the prescribed requirements, as well as the ASIC Regulatory Guide RG60, I was assisted by a checklist provided by Kangaroo's counsel as an appendix to the written submissions.
Matters raised by Kangaroo
There were five particular matters to which counsel for Kangaroo drew my attention in oral submissions given the ex parte nature of the application. These did not, in my view, provide a reason not to make the orders convening the scheme meeting as sought. However, it was appropriate that these matters were raised for my consideration and, consequently, it is appropriate that I now mention them.
Freezing order against PT Bayan
First, counsel referred to the circumstance that a freezing order has been made in this court against PT Bayan. The fact of the freezing order was disclosed in Kangaroo's affidavits and a copy of it was provided with Kangaroo's written submissions. Among other things, the freezing order prevents certain transfers and encumbering of PT Bayan's shares in Kangaroo. Also, PT Bayan may not dispose of, deal with or otherwise diminish the value of any of its Kangaroo shares without seven business days' notice.
Based, in part, on the announcement as to the proposed scheme, the party who obtained the freezing order (BCBC Singapore Pte Ltd) has applied to vary the terms of the freezing order. That application was heard at a special appointment before Le Miere J on 12 October 2018. Judgment has been reserved. The transcript of that hearing was included in the evidence before me.
Counsel for Kangaroo submitted, and I accept, that neither the current terms of the freezing order nor the terms as sought by the variation application will affect the implementation of the proposed scheme of arrangement if approved. Having reviewed the transcript of the hearing before Le Miere J it is apparent that this is the way in which BCBC Singapore Pte Ltd approached the variation application. Indeed, in submissions in reply senior counsel for BCBC Singapore Pte Ltd, Dr Higgins SC, suggested that the variation could take effect upon the implementation of the scheme.[2]
[2] ts 474.
Accordingly, I accepted - at the prima facie standard that presently prevails given the interlocutory nature of the application - that the freezing order and any variation thereto would not prevent implementation of the proposed scheme. Otherwise, as to disclosure of the freezing order and its likely effect on implementation of the proposed scheme, I observe that the fact of the freezing order and its implications for the scheme is disclosed in section 6.7 of the scheme booklet.
Excluded shareholders
Second, counsel addressed me as to the reasons for Kangaroo proposing that certain shareholders be excluded from the scheme meeting.
It was pointed out that there was but one class: the ordinary shareholders other than PT Bayan. I accept that is the position. Self‑evidently, as the acquirer, PT Bayan is an excluded shareholder; it is not proposed that the scheme bind PT Bayan qua shareholder. Thus, necessarily PT Bayan is not entitled to vote at the scheme meeting.
Counsel pointed out that there was also a small block of shares, some 3.79% of the ordinary shareholders, who were associated with the majority shareholder of PT Bayan. PT Bayan and Kangaroo have agreed that no votes are to be cast in respect of those shares and, in the event that votes are cast in respect of those shares, those votes will be excluded for the purpose of determining whether the resolution has been approved. The agreement to that effect was in evidence before me (attachment 'OKH‑2').
I was referred to cases suggesting that it is not an uncommon practice for certain members to voluntarily exclude themselves from a class, to which it might otherwise be said that they belonged, to avoid giving dissentients an opportunity to attack a favourable vote on class grounds.[3] Counsel submitted that, in substance, that is what is proposed even though there is no specific agreement on the part of the shareholder. I accept that the outcome achieved by what has been agreed is the same even if the means is different. Importantly, however, the mechanism employed involves no confiscation of the shareholder's rights and no injustice to the shareholder or the other members. What is proposed is a practical and pragmatic mechanism which can and should be condoned by the court.
[3] Re Aston Resources Ltd [2012] FCA 229 [34]; Re SABMiller Plc [2016] EWHC 2153 (Ch); [2017] Ch 173 [40] ‑ [45], [49].
If, however, contrary to the agreement, the subject shares are in fact voted at the scheme meeting, that should be expressly disclosed at any second hearing.
Performance risk
Third, counsel addressed me on performance risk. Counsel sought to highlight that:
(1)PT Bayan is to pay the aggregate scheme consideration into a trust account maintained by Kangaroo at least two business days before the implementation date (scheme, cl 5.3(a)).
(2)The transfer of the share participants' shares to PT Bayan is subject to the payment of the scheme consideration into the trust account (scheme, cl 4.2(a)).
(3)PT Bayan does not obtain any beneficial entitlement to the shares unless it has paid the scheme consideration into the trust account (scheme, cl 8.4). So too PT Bayan's entitlement to act as sole proxy in respect of the subject shares is subject to the payment of the scheme consideration into the trust account (scheme, cl 8.6).
I acknowledge those provisions of the proposed scheme of arrangement and the comfort they provide as to performance risk.
Nevertheless it is, I consider, worthwhile to direct attention to the observations of Lindgren J in Re APN News & Media Ltd. There Lindgren J identified the concept of performance risk, namely, that shareholders may be left in a position, once a scheme has become effective, where their shares have been transferred but there is a delay in payment of the scheme consideration and the only remedy is to sue on the deed poll.[4] His Honour then stated:
Such 'performance risk' has been addressed here by requiring that the Scheme Consideration be paid to APN before 8.00 am on the implementation date to be held by it in trust for the purpose of being paid, free of deductions, to the Scheme participants before they are divested in their shares in APN later on the implementation date. This is provided for in the Deed Poll.[5] (emphasis added)
[4] Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [23].
[5] Re APN News & Media Ltd [23].
In the present case the proposed scheme terms are arguably deficient in not making the transfer (together with the beneficial entitlement and the grant of right as proxy) dependent on the scheme consideration being paid out to the scheme participants before the transfer takes effect.
I took the view that this was a drafting issue that could be dealt with practically between 16 October 2018 and any second hearing (assuming shareholder approval is forthcoming). It might otherwise be addressed by an appropriate condition or alteration under s 411(6) of the Act. In any case, I was and am conscious of the terms of cl 5.4 of the SID. This provides for the appointment of replacement directors to Kangaroo on implementation of the proposed scheme. This is to occur on the implementation date:
[B]ut subject to the Scheme Consideration having been paid in full to Scheme Shareholders …
Counsel for Kangaroo confirmed, when questioned at the first hearing, that this meant that the current board - with its four independent directors - would remain in place until the scheme consideration was paid out to the scheme participants. There is no reason to believe that the independent directors will act in a manner that is inconsistent with Kangaroo's duties as trustee and their duties as directors of such a trustee. I also note that, when senior counsel for PT Bayan addressed me, he did not suggest that cl 5.4 of the SID had any different operation.
Otherwise, counsel for Kangaroo drew my attention to the deed poll and the undertaking thereby proffered to scheme participants by PT Bayan (cl 3). Counsel also noted, and I accept, that there is evidence from an Indonesian lawyer to the effect that, under Indonesian law, the deed poll has been duly executed and constitutes a legal, valid and binding obligation of PT Bayan enforceable against it according to the terms of the deed poll.
Finally, before departing from the subject of performance risk, I observe that Mr Heng's affidavit addressed PT Bayan's ability to fund the acquisition. It was said that PT Bayan proposes to fund the scheme consideration through a combination of existing cash reserves and uncommitted debt facilities. Reference was made to uncommitted cash reserves of approximately US$134.7 million and US$125 million in undrawn facilities that could be used. Based on that evidence, which I accept, PT Bayan is in a position where it is likely to be able to pay the aggregate scheme consideration.
Exclusivity provisions and break fee
Fourth, counsel drew my attention to the exclusivity provisions in the SID. These included a provision providing for a break fee of $2.25 million.
The exclusivity provisions took the form of relatively standard clauses dealing with 'no shop' (SID, cl 11.2), 'no talk' (SID, cl 11.3) and 'no due diligence' (SID, cl 11.4). The no talk and no due diligence clauses were, however, subject to an overriding directors' fiduciary and statutory duties carve‑out which could accommodate a competing proposal which is, or may reasonably be expected to lead to, a superior proposal. In the event of a competing proposal PT Bayan was also provided with a 'matching' right (SID, cl 11.6).
The break fee is provided for under cl 12 of the SID. It is payable only in specified circumstances. Importantly, as is disclosed in the scheme booklet in section 9.13, the break fee is not payable solely because Kangaroo shareholders other than PT Bayan do not approve the scheme.
Provisions as to 'no shop', 'no talk', 'no due diligence', 'matching rights' and 'break fees' are now commonplace in the context of an acquisition scheme of arrangement.
Affidavit evidence should be provided directed to showing two things with respect to such provisions. First, that the provisions are the result of normal arms' length commercial negotiations and explaining the factual basis for that statement. Second, that the directors of the target company believe that the provisions do not operate against the interests of offeree shareholders and that it was in the interests of the shareholders that the directors agreed to the inclusion of the provisions in the transaction implementation agreement.[6]
[6] Re APN News & Media Ltd [55]; MDA National Ltd v Medical Defence Australia Ltd [2014] FCA 954 [33].
If the independent expert is in a position to express an opinion on the matter, he or she should state whether the no shop, no talk and break fee provisions appear to be reasonable and not detrimental to the interests of shareholders and the basis for that opinion.[7]
[7] Re APN News & Media Ltd [55].
The independent expert report contained no relevant observations. However, the affidavit evidence of Mr Shah addressed the exclusivity provisions (pars 57 - 70). Mr Shah confirms that there were arms' length commercial negotiations and that, having taken external advice (both legal and financial), the independent directors were satisfied that the exclusivity provisions were in the interests of the Kangaroo members other than PT Bayan. Mr Heng also confirms the fact that the exclusivity provisions followed arms' length negotiations (par 22).
More specifically as to 'no shop', 'no talk' and 'no due diligence' provisions, the authorities suggest that the court should be satisfied of the following:
(1)The period of the obligation should be for no more than a reasonable period of precise ascertainment. A 'reasonable' period is not disproportionately long having regard to the transaction that is sought to be achieved.[8]
(2)The provisions should be framed so as to be subject to the overriding obligation not to breach the directors' fiduciary duties or be otherwise unlawful (although a failure to comply with this requirement may not be fatal to court approval).[9]
(3)The existence of the provisions should be given adequate prominence in the explanatory statement sent to shareholders.[10]
[8] MDA National Ltd v Medical Defence Australia Ltd [34].
[9] See eg Re Skilled Group (No 1) [2015] VSC 789[55]; Re Toll Holdings Ltd [2015] VSC 123[39].
[10] Re APN News & Media Ltd [29].
I have mentioned that there is an appropriate directors' fiduciary and statutory duty carve-out in the present case. Accordingly, while the SID makes provision for exclusivity, the independent directors have made appropriate arrangements to permit consideration of a competing proposal - where it is or may reasonably be expected to be superior - should one emerge. Similarly, the exclusivity provisions were appropriately disclosed in section 9.13 of the scheme booklet.
The exclusivity period is relatively lengthy. Depending on circumstances it may subsist until 1 June 2019. Given the date of execution of the SID the exclusivity period is about nine and half months.
This is at the upper end of what is considered generally acceptable. In Re Tawana Resources NL Banks‑Smith J found that nine months was not unreasonable. Her Honour referred to authorities in which periods of nine to 14 months had been found acceptable in the circumstances of that particular case.[11] In Re Capilano Honey Ltd, a decision delivered after my orders of 16 October 2018, Farrell J noted that a nine month exclusivity period was a long period and likely tested the outer limits of what might be regarded as reasonably required to effect the proposed transaction in that case.[12]
[11] Re Tawana Resources NL [2018] FCA 1456[33] - [34].
[12] Re Capilano Honey Ltd [2018] FCA 1568 [27].
I consider that the exclusivity period provided for in the SID is close to the limit of what ought to be accepted. The affidavit evidence addressing the length of the period is sparse. I am nevertheless persuaded that it is not unreasonable in the circumstances of the case. I have taken into account the necessity to obtain regulatory approvals and the fact that, given PT Bayan's position as controlling shareholder, the likelihood is that any competing bidder would need to accommodate PT Bayan in any event.
Turning to the principles applicable to break fees, material should be provided to the court explaining, by reference to calculations based on evidence before the court, the percentage that the break fee represents of, first, the equity value of the target company calculated in accordance with par 7.18 of the Takeovers Panel's Guidance Note 7, and second, the scheme consideration.[13]
[13] Re APN News & Media Ltd [55].
Kangaroo's written submissions dealt with the latter but not the former. The break fee is approximately 0.993% of the aggregate scheme consideration.
A break fee will only dissuade a court from making an order under s 411 of the Act where the amount is of such magnitude that it could influence shareholders' voting or if there are other unusual circumstances.[14]
[14] Re APN News & Media Ltd [43].
A company making an approach to the board of a target company is entitled to stipulate as a term of its offer that the target company agree to a provision for a break fee. It is entitled to inform the board of the target company that if the target company does not agree to the break fee, the offer will not be made to its shareholders. The question is what is the appropriate response of the target company's directors and, on the s 411 application, what is the response of the court.[15]
[15] Re APN News & Media Ltd [45].
Break fees are justified by reference to:
·the costs incurred by the offeror company;
·the benefit conferred by the bidder on the members of the target by increasing the target's value; and
·the desirability, from the viewpoint of the target members, that takeover offers be made to them.[16]
[16] Re APN News & Media Ltd [44].
I accept that the break fee under the SID is not coercive. It is not payable merely because the proposed scheme is not approved by Kangaroo shareholders other than PT Bayan. Nor, unsurprisingly, is it payable where the scheme becomes effective. There are other appropriate exclusions as to the circumstances in which the break fee is payable. Conversely, the situations in which the break fee is payable appear calculated to appropriately compensate PT Bayan for costs and the benefits accruing to the other shareholders by reason of the proposal under the SID. The break fee is less than the Takeover Panel's 1% guideline (although only marginally so). And there is evidence in the form of Mr Shah's affidavit (pars 65 and 68 - 70) that the break fee is the result of arms' length negotiations in which Kangaroo, by its independent directors, had external advice from a firm of commercial solicitors and a global accounting firm. There is also proper disclosure of the break fee in the scheme booklet (section 9.13).
Mr Heng, for PT Bayan, gives evidence in his affidavit that PT Bayan would not have agreed to the transaction unless provision for the break fee had been made (par 23). Based on that evidence I accept that the break fee is a necessary expedient.
In the circumstances of Kangaroo's proposed scheme the inclusion of the break fee in the SID did not provide a reason not to make orders convening a scheme meeting for members to consider the proposal.
Proposed resolution
Fifth, following a query that had been made through my chambers, counsel addressed me on the terms of the proposed resolution to be put at the scheme meeting.
The proposed resolution was in the following terms:
THAT, pursuant to and in accordance with section 411 of the Corporations Act 2001 (Cth), the scheme of arrangement proposed to be entered into between Kangaroo Resources and the holders of its fully paid ordinary shares (other than PT Bayan, Tbk and its Related Bodies Corporate), as contained in and more particularly described in the booklet of which the notice convening this meeting forms part, is agreed to (with or without modification as approved by the Supreme Court of Western Australia (Court)) and FURTHER that, the directors of Kangaroo Resources are authorised to agree to such alternations or conditions as are thought fit by the Court and, subject to approval of the Scheme by the Court, the directors are authorised to implement the Scheme with any such alterations or conditions.
Counsel submitted that this was a form of resolution in common usage. Reference was made to various examples. On that basis I was willing to allow the notice of motion to include a proposed resolution in those terms.
In my view, however, the portion of the resolution which commences with the words 'AND FURTHER …' to the end of the resolution is mere surplusage that does no work and is better omitted. The suggested authorisation is unnecessary. Where the scheme is approved with alterations or conditions under s 411(6) of the Act, implementation of the scheme with that alteration or condition takes place pursuant to the order of the court. The members' authorisation is not required.
Other matters
While not mentioned in oral submissions, in Kangaroo's written submissions counsel drew my attention to the 'deemed warranty' provision in the proposed scheme of arrangement (cl 8.3). The presence of the deemed warranty provision is disclosed in section 9.7 of the scheme booklet. Such deemed warranty clauses are not unusual and acceptable provided that, as here, their presence is adequately disclosed.[17]
[17] Re Tawana Resources NL [28] - [29] (referring to Re APN News & Media Ltd [57] ‑ [63]).
Additionally, Kangaroo sought orders for the electronic dispatch of the scheme booklet. I made such orders in Re Wesfarmers Ltd.[18] Details were provided as to the terms of the proposed electronic notification. Based on that material, an order for electronic dispatch of the scheme booklet was also appropriate in relation to Kangaroo's proposed scheme. Otherwise, orders were sought as to notice of the second hearing and the conduct of the scheme meeting. Those orders were in relatively standard terms and presented no difficulties.
[18] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [145] - [152].
Conclusion
On the evidence presented, and after hearing from counsel for Kangaroo, I was satisfied that it was appropriate to make orders convening a scheme meeting to consider whether to approve the proposed scheme. The scheme is one that is fit for consideration by Kangaroo's members (other than PT Bayan) in the sense that sensible business people might consider it will be of benefit to those members.
Given the matters I have mentioned as to being satisfied that the scheme booklet prima facie provides proper disclosure to Kangaroo's shareholders (other than PT Bayan) I also considered it appropriate to approve the draft scheme booklet for distribution.
Accordingly, I made orders in these terms:
1.The plaintiff convene a meeting of holders of fully paid ordinary shares in the capital of the plaintiff (other than PT Bayan Resources, Tbk or its related bodies corporate or any person holding shares on behalf of or for the benefit of PT Bayan Resources, Tbk or its related bodies corporate) to be held at the Duxton Hotel, 1 St Georges Terrace, Perth, Western Australia, on 26 November 2018 at 11.00 am (WST) (scheme meeting), for the purpose of considering and, if thought fit, approving (with or without modifications) the proposed scheme of arrangement being the document contained in pages 286 to 294 at Annexure PMJ-1 to the affidavit of Mr Paul Jurman sworn on 16 October 2018.
2.The scheme booklet contained in Annexure PMJ-1 to the affidavit of Mr Paul Jurman sworn on 16 October 2018 (including all annexures), which contains the explanatory statement required by section 412(1)(a) of the Corporations Act 2001 (Cth), be and is approved for distribution, subject to:
(a)correction of any minor typographical or grammatical errors and final typesetting, formatting and page numbering;
(b)any minor amendments required or approved by the ASIC for registration under section 412(6) of the Corporations Act 2001 (Cth); and
(c)correction or update of any relevant date or market price reference.
3.Subject to these orders, the scheme meeting is to be:
(a)convened, held and conducted in accordance with the plaintiff's constitution and to the extent not inconsistent with the constitution, the provisions of Part 2G.2 of the Corporations Act 2001 (Cth) that apply to members of a company and in particular the provisions that apply to meetings of members;
(b)convened, held and conducted as if rule 2.15 of the Supreme Court (Corporations) Rules 2004 (WA) does not apply; and
(c)convened using the notice of meeting substantially in the form of the notice contained in pages 295 to 298 of Annexure PMJ-1 to the affidavit of Mr Paul Jurman sworn on 16 October 2018.
4.Subject to registration of the scheme booklet with ASIC, pursuant to section 412(6) of the Corporations Act 2001 (Cth), the plaintiff is to dispatch, on or before 22 October 2018, a document substantially in the form of the scheme booklet (approved at order 2 above) and any applicable proxy form (or a link to a website for any electronic proxy lodgement) to shareholders of the plaintiff as follows:
(a)to each shareholder who has nominated an electronic address for the purposes of receiving notices of meeting from the plaintiff, an email to such address with a covering email text substantially in the form of Annexure DJH-1 to the affidavit of Damien John Henderson sworn on 12 October 2018; and
(b)to each other shareholder, by pre-paid or ordinary post, mail or courier to the address as set out in the register of the plaintiff's members.
5.Dispatch in accordance with order 4 on or before 22 October 2018 is taken to be sufficient notice of the scheme meeting.
6.If it after comes to the attention of the plaintiff that any email dispatched in accordance with order 4(a) above has returned an undeliverable or undelivered receipt for a shareholder's nominated email address then, in respect of that shareholder, the plaintiff is to dispatch, within a reasonable time thereafter, a document substantially in the form of the scheme booklet and any applicable proxy form in accordance with order 4(b).
7.Mr Susmit Shah or, failing him, Mr Damien Henderson is to be authorised to act as chairperson of the scheme meeting and report the result of the scheme meeting to this Court.
8.The chairperson may adjourn the scheme meeting in his absolute discretion to such time, date and place as he considers appropriate.
9.At the scheme meeting, two shareholders present in person or by proxy, corporate representative or attorney under power and entitled to vote shall constitute a quorum for the scheme meeting.
10.At the scheme meeting, other than those expressed in the notice of meeting to be excluded from voting, each shareholder present and entitled to vote, will 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 7.00 pm (AEDT) on 24 November 2018.
11.At the scheme meeting, voting on the resolution to approve the scheme at the scheme meeting is to be conducted by way of poll.
12.The time by which proxy forms must be returned or lodged online in accordance with any instructions given on the proxy form is 11.00 am (AWST) on 24 November 2018.
13.If this matter is to be relisted, then on or before 28 November 2018 the plaintiff is to publish a completed notice of hearing substantially in the form of Annexure 'A' to these orders once in The Australian newspaper, and the plaintiff is otherwise, to the extent necessary, relieved from compliance with rule 3.4 of the Supreme Court (Corporations) (WA) Rules 2004 (WA).
14.The proceedings be stood over to 9.00 am on 3 December 2018 for the hearing of any application to approve the proposed scheme.
15.A copy of these orders be lodged with ASIC as soon as practicable after issue.
16.These orders be entered forthwith.
Annexure A
Kangaroo Resources Limited (ACN 120 284 040)
Notice of hearing to approve arrangement
TO all the creditors and members of Kangaroo Resources Limited ACN 120 284 040 (Kangaroo).
TAKE NOTICE that at 9.00am (AWST) on 3 December 2018 the Supreme Court of Western Australia (situated at the David Malcolm Justice Centre, 28 Barrack Street, Perth, Western Australia) will hear an application by Kangaroo seeking the approval of an arrangement between Kangaroo and its members, as agreed to by resolution considered by the members of Kangaroo at a meeting of such members held on Monday 26 November 2018 at the Duxton Hotel, 1 St Georges Terrace, Perth, in the State of Western Australia at 11.00am (AWST)
If you wish to oppose the approval of the arrangement, you must file and serve on Kangaroo 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 Kangaroo at its address for service at least one day before the date fixed for the hearing of the application.
The address for service on Kangaroo is, c/o HopgoodGanim, Level 27, Allendale Square, 77 St Georges Terrace, Perth, Western Australia 6000 (Reference: Robyn Ferguson).
Susmit Shah
Non-Executive DirectorKangaroo Resources Limited
ANNEXURE 'A'
AFFIDAVITS RELIED ON BY KANGAROO RESOURCES LTD
1.
Affidavit of Ryan Andrew White sworn 28 September 2018
Kangaroo solicitor. Attaches company search and scheme implementation deed.
2.
Affidavit of Susmit Shah sworn on 6 October 2018
Kangaroo independent director. Provides: explanation for proposed transaction and exclusivity arrangements; consent and disclosure to act as meeting chairperson; verification of scheme booklet.
3.
Affidavits of Jason Hughes sworn 9 October 2018 and 16 October 2018
Independent expert. Attaches initial draft report and CV and confirmation of revised and final independent expert report.
4.
Affidavit of Damien John Henderson sworn on 11 October 2018
Kangaroo director. Provides: consent to act as alternate chairperson; cover email to electronic dispatch.
5.
Affidavit of Christopher Brendan Blane sworn on 11 October 2018
Legal opinion on Indonesian law in relation to validity and execution of Deed Poll.
6.
Affidavits of Robyn Anne Ferguson sworn on 11, 15 and 16 October 2018
Kangaroo solicitor. Provides: detailed account of ASIC conferral; scheme booklet amendments; freezing order hearing; ASIC intention and relief.
7.
Affidavit of Tony Budidjaja sworn on 12 October 2018
Legal opinion on Indonesian law in relation to validity and execution of Deed Poll.
8.
Affidavit of Oliver Khaw Kar Heng sworn on 15 October 2018
PT Bayan in‑house counsel. Provides: verification of PT Bayan scheme booklet information; freezing order status; information as to funding available for acquisition; confirmation of receipt of FIRB approval.
9.
Affidavit of Joseph Andrew Jeames McKibben sworn on 16 October 2018
Technical specialist. Attaches revised report and CV.
10.
Affidavit of Paul Mario Jurman sworn on 16 October 2018
Kangaroo company secretary. Confirms amendments to scheme booklet and side letter amendment to scheme implementation deed and proposed scheme. Also collates and attaches final version of scheme booklet.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CC
RESEARCH ASSOCIATE TO THE HONOURABLE JUSTICE VAUGHAN25 OCTOBER 2018
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