Re Kangaroo Resources Ltd; Ex Parte Kangaroo Resources Ltd [No 2]
[2018] WASC 388
•11 DECEMBER 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE KANGAROO RESOURCES LTD; EX PARTE KANGAROO RESOURCES LTD [No 2] [2018] WASC 388
CORAM: VAUGHAN J
HEARD: 3 DECEMBER 2018
DELIVERED : 3 DECEMBER 2018
PUBLISHED : 11 DECEMBER 2018
FILE NO/S: COR 171 of 2018
EX PARTE
KANGAROO RESOURCES LTD
Plaintiff
Catchwords:
Corporations law - Scheme of arrangement - Proposed cash acquisition - Application for orders approving scheme under s 411(b) of the Corporations Act 2001 (Cth)
Legislation:
Corporations Act 2001 (Cth), s 411, s 412
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):
BCBC Singapore PTE Ltd v PT Bayan Resources TBK [No 4] [2018] WASC 338
Re EcoBiotics Ltd [No 2] [2017] FCA 1031
Re Investor Info Ltd [2005] FCA 1848; (2005) 24 ACLC 44
Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [2018] WASC 327
Re Prime Infrastructure Holdings Ltd [2010] NSWSC 1337
Re TriAusMin Ltd [No 2] [2014] FCA 833
Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [2018] WASC 357
VAUGHAN J:
(These reasons were delivered orally at the conclusion of the hearing. They have been edited to correct matters of grammar and infelicity of expression. Authorities and other references have also been footnoted rather than appearing in the body of the reasons.)
Overview
On 16 October 2018 I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) to convene a meeting of the holders of ordinary shares in Kangaroo Resources Ltd (Kangaroo) other than its majority shareholder PT Bayan Resources Tbk (PT Bayan). The meeting was convened to consider a proposed scheme of arrangement. I also made orders approving distribution of a scheme booklet.
PT Bayan holds some 56.05% of Kangaroo’s ordinary shares. The proposed scheme of arrangement provides for PT Bayan to acquire the remainder of the ordinary shares for a consideration of $0.15 per share.
The scheme meeting was held on 26 November 2018. Kangaroo's members (other than PT Bayan) approved the scheme of arrangement by 99.9% of votes cast and 98.58% of members present in person or by proxy.
This morning’s application is made pursuant to s 411(4)(b) of the Act for orders approving the scheme. I will make orders approving the proposed scheme of arrangement with minor alterations. These are my reasons for those orders.
Background and additional evidence
Incorporation of earlier reasons
I gave reasons for my 16 October 2018 orders in Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd.[1]
[1] Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [2018] WASC 327.
I do not intend to repeat what was said in those reasons. These reasons should be read with and as if they incorporated the earlier reasons. In particular, I rely on what was stated in the earlier reasons as to:
(1) the relevant entities, Kangaroo and PT Bayan ([8] to [11]);
(2) the announcement of the acquisition proposal ([12] to [13]);
(3) the nature of the proposed scheme of arrangement ([12] to [15] and [46] to [52]);
(4) the description of the scheme booklet ([16] to [17]); and
(5) the opinion expressed in the independent expert report ([18] to [22]) and the position of Kangaroo’s independent directors ([23]).
Additional evidence
Kangaroo relied on 13 affidavits filed for the purpose of the first hearing.[2] That material was also formally relied on for this second hearing. In addition, Kangaroo relied on the following affidavits:
(1) affidavit of Susmit Shah sworn 28 November 2018. Mr Shah was the chairperson of the scheme meeting. Among other things, Mr Shah confirmed the outcome of the meeting;
(2) affidavits of Robyn Ferguson sworn 27 and 29 November 2018 and 3 December 2018. Ms Ferguson is Kangaroo’s solicitor and deposed to a number of formal matters;
(3) affidavit of Jason van Rooy sworn 28 November 2018 as to the conduct and outcome of the scheme meeting;
(4) affidavit of Low Kwong sworn 29 November 2018 confirming that certain entities, including PT Bayan, did not vote at the scheme meeting; and
(5) affidavits sworn by employees of various external service providers to Kangaroo who deposed as to the printing and dispatch of the scheme booklet (including the electronic dispatch of the scheme booklet to those members who had nominated for electronic dispatch).[3]
[2] Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [6].
[3] See affidavit of Chad van Heemst sworn 27 November 2018; affidavit of Nainesh Bhatt sworn 23 November 2018; affidavit of Addie Leung sworn 29 November 2018.
Counsel for Kangaroo provided comprehensive written submissions dated 29 November 2018. These attached a schedule headed 'Second Court Hearing Checklist'. The checklist identified the location within the evidence where the various formal requirements to be satisfied for the purpose of this second hearing are to be found.
Disposition
Applicable legal principles
I identified the applicable legal principles on an application for approval of a proposed scheme of arrangement under s 411(4)(b) of the Act in Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2].[4]
[4] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd[No 2] [2018] WASC 357 [11] - [19].
In short, there are two main tasks. First, the court must be satisfied that all statutory and procedural requirements under s 411(4)(b) have been observed. Second, the court must determine in the exercise of its discretion whether to approve the scheme.
On the latter question, acknowledging that the members are better judges of what is in their commercial interests than the court, consideration is usually given to:
(1) whether shareholders voted in good faith and not for an improper purpose;
(2) whether the proposal is fair and reasonable;
(3) whether the scheme proponent has brought all relevant matters to the court’s attention;
(4) whether there has been full and fair disclosure to members of all material information;
(5) whether minority shareholders would be oppressed; and
(6) whether the scheme offends public policy.
Formal matters
Kangaroo’s further affidavit evidence establishes that:
(1) a copy of the court’s orders made 16 October 2018 were lodged with the Australian Securities and Investments Commission (ASIC) on 17 October 2018;
(2) a copy of the scheme booklet as approved for distribution was lodged with the ASIC and registered on 17 October 2018;
(3) the scheme booklet was dispatched to Kangaroo’s members (other than PT Bayan) on 22 October 2018 in accordance with par 4 of the orders of the court made 16 October 2018. Only one electronic notification failed. That member was sent a hard copy of the scheme booklet in accordance with par 6 of the orders made 16 October 2018; and
(4) the scheme meeting was held on 26 November 2018 in accordance with pars 2 and 7 to 12 of the orders of the court made 16 October 2018.
At the scheme meeting the proposed scheme of arrangement was approved by resolution with the required statutory majorities.
As to votes, 99.9% of the votes cast were in favour of the resolution (599,069,981 in favour and 587,000 against). As to head count, 98.58% of members in attendance by person or proxy voted in favour of the resolution (208 in favour and three against). Some 17.46% of the shares on issue were voted.
A turnout of only 17.46% may be thought to be low. However, it must be remembered that PT Bayan holds 56.05% of the ordinary shares and was excluded from voting. Also, as discussed at par 43 of the earlier reasons, some 3.79% of the ordinary shareholders were associated with PT Bayan, and it had been agreed between Kangaroo and PT Bayan that they were not to vote. The affidavit evidence establishes that this is what occurred. Accordingly, the 17.46% who voted comprise approximately 43.37% of Kangaroo’s ordinary shares on issue that were capable of being voted. Further, based on the shareholder spread there are a large number of shareholders with small parcels of limited economic value, which in part might also explain a lesser voter turnout.
Based on this analysis counsel for Kangaroo submitted, and I accept, that there is not such a low voter turnout as might signify an error in dispatch procedures.[5] I note also that those members who did vote voted overwhelmingly in support of the proposed scheme of arrangement.
[5] See Re TriAusMin Ltd [No 2] [2014] FCA 833 [9] - [12]; Re EcoBiotics Ltd [No 2] [2017] FCA 1031 [17] - [23].
Notice of the second court hearing was given by way of an advertisement in The Australian newspaper on 28 November 2018. That occurred in compliance with par 13 of the court’s orders made 16 November 2018. No party has sought to appear to oppose the approval of the proposed scheme of company arrangement.
Finally, to complete satisfaction of the various formal matters, by letter dated 30 November 2018 the ASIC informed Kangaroo pursuant to s 411(17) of the Act that it had no objection to the proposed scheme of arrangement.
Accordingly, all statutory and procedural preconditions to the court’s approval were satisfied.
Exercise of discretion: usual matters
I was satisfied at the first hearing that the proposed scheme of arrangement was one that was fit for consideration by Kangaroo's members other than PT Bayan. A sensible business person might consider that the scheme will be of benefit to the members.[6] In so holding, I relied in part on the opinion expressed by the independent expert report[7] and the views of the independent directors.[8] I was satisfied that those opinions were reasonably open.
[6] Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [80].
[7] Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [19] - [22].
[8] Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [23].
In short, the proposed scheme was one which was open to Kangaroo’s members (other than PT Bayan) to adopt.
My conclusions reached at the interlocutory first stage hearing have not altered. I remain satisfied that the proposed scheme is fair and reasonable such that an intelligent and honest shareholder properly informed might approve it. My view is bolstered by the overwhelming support that has been expressed for the scheme and the absence of any opposition to it.
There is nothing to suggest an absence of good faith or an improper purpose on the part of the members in approving the proposed scheme. Nothing in the scheme is oppressive. Nor is the scheme offensive to public policy. This is an acquisition scheme which follows a familiar path employed in numerous schemes of arrangement that have been approved by various courts over the years.
As to disclosure, at the first hearing, based on the evidence then before the court and for the reasons that I gave, I was satisfied that the draft scheme booklet would provide proper disclosure to members other than PT Bayan.[9] The additional affidavit evidence establishes that the scheme booklet as distributed was substantially in the form approved for distribution by the 16 October 2018 orders. Nothing has arisen to suggest that there has not been full and fair disclosure. For the reasons I gave in approving the draft scheme booklet for distribution, I am satisfied that the scheme booklet as distributed met the requirements under s 411(3) and s 412(1) of the Act.
[9] Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [31] - [35].
Otherwise, more generally, there was nothing to suggest that Kangaroo had not brought to my attention all matters that could be considered relevant to the exercise of the discretion to approve the scheme. To the contrary, it is readily apparent that Kangaroo, by its legal representatives, has left no stone unturned and has directed my attention to anything that has risen from that investigation.
Exercise of discretion: specific matters
Three specific matters were drawn to my attention that ought to be recorded.
First, in my earlier reasons I mentioned freezing order proceedings that had been pursued against PT Bayan.[10] Reasons have now been delivered on an application to vary the freezing order.[11] No orders have yet been made following those reasons, although counsel for Kangaroo has informed me that reasons in that regard are to be delivered at 10 am today, 3 December 2018. Nevertheless, while Le Miere J is prepared to expand the scope of operation of the freezing order, it is apparent from his Honour’s reasons that the altered operation of the freezing order will not prevent the implement of the scheme.
[10] Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [37] - [40].
[11] BCBC Singapore PTE Ltd v PT Bayan Resources TBK [No 4] [2018] WASC 338.
Second, in my earlier reasons I made observations as to performance risk.[12] Among other things I noted the desirability of providing for scheme consideration to be paid out to the scheme participants before any transfer takes effect.[13] I took the view, however, that this was a drafting issue that could be dealt with practically before the second hearing. I was also conscious that the current board with its four independent directors would remain in place until the scheme consideration was paid.[14]
[12] Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [46] - [51].
[13] Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [49].
[14] Re Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [50] - [51].
Kangaroo, with the agreement of PT Bayan, now proposes alterations to the terms of the proposed scheme of arrangement to address my concerns. In particular:
(1) Clause 4.2A would now read:
Transfer of Scheme Shares
On the Implementation Date:
(a) subject to payment of the Scheme Consideration to the Trust Account, and subject to the payment of the Scheme Consideration to the Scheme Shareholders pursuant to clauses 5.3(b) and 5.3(d), the Scheme Shares, together with all rights and entitlements attaching to the Scheme Shares at the Implementation Date, will be transferred to Bayan …
(2) Clause 8.4 would now read:
Beneficial entitlement to Kangaroo shares
Subject to the payment of the Scheme Consideration to the Scheme Shareholders
Trust Accountpursuant to clauses 5.3(b) and 5.3(d)5.3(a)of this scheme, on and from the Implementation Date, Bayan will be beneficially entitled to the Kangaroo Shares transferred to it under this scheme pending registration by Kangaroo of Bayan in the Kangaroo Share Register as the holder of the Kangaroo Shares.The terms of the proposed alterations fully address the matter I raised. In accordance with s 411(6) of the Act my approval of the proposed scheme will be subject to the alterations as proposed by Kangaroo. In my view, those alterations are of a minor kind which do not affect the details of the scheme. They are simply amendments to improve the smooth working of the scheme without affecting its substance. On that basis they are within the alteration power under s 411(6) of the Act.[15]
[15] See Re Investor Info Ltd [2005] FCA 1848; (2005) 24 ACLC 44 [7].
Otherwise, I note two matters. Kangaroo adduced evidence, which I accept, of the procedures it has implemented to ensure an expeditious effectuation of the payment of the scheme consideration. It is also the case that Kangaroo will continue to have a majority of independent directors until 31 December 2018, that is, until well after the implementation date under the proposed scheme of arrangement.
Third, the additional affidavit evidence adduced for the second hearing dealt with the status of the various conditions precedent to the scheme of arrangement. Specifically, the affidavit of Ms Ferguson sworn this morning attaches certificates of satisfaction of conditions precedent on the part of both Kangaroo and PT Bayan. The certificates confirm satisfaction or waiver of all conditions precedent other than court approval. Accordingly, the evidence establishes that the only remaining substantive conditions precedent is the court’s approval under s 411(4)(b) of the Act.
Conclusion: proposed scheme of arrangement approved
In the circumstances I am satisfied that I should approve the proposed scheme of arrangement. I am satisfied that Kangaroo has met the various statutory and procedural preconditions for approval. I am also satisfied that in the exercise of discretion I should grant approval under s 411(4)(b) of the Act. I will, however, do so subject to the further alterations that Kangaroo has proposed.
Section 411(11) exemption
Kangaroo sought an exemption from s 411(11) of the Act. No ongoing purpose will be served by requiring the orders approving the scheme to be annexed to Kangaroo’s constitution. The orders will be irrelevant once Kangaroo becomes a wholly owned subsidiary of PT Bayan. Accordingly, I will make orders under s 411(12) exempting Kangaroo from this requirement.
Conclusion and orders
I am satisfied that I should approve the proposed scheme of arrangement and make orders substantially in the terms as sought by Kangaroo.
As to the form of the approval order, counsel for Kangaroo referred me to Re Prime Infrastructure Holdings Ltd.[16] Counsel submitted, and I accept, that the order and indeed the scheme terms themselves should specify who is within or outside the relevant class of members who are parties to the scheme of arrangement. The precise constitution of the affected group must be identified with clarity and precision.
[16] Re Prime Infrastructure Holdings Ltd [2010] NSWSC 1337 [6], [11].
This will be addressed in the orders I propose. It might have been dealt with a little more clearly in the scheme terms. There, in substance, a person is not a 'Scheme Shareholder' if he, she or it holds 'Excluded Shares'. These are shares held by PT Bayan or any of its related bodies corporate. The evidence is, however, that no related bodies corporate to PT Bayan holds any Kangaroo shares. On that basis I am satisfied that no amendment to the scheme terms is necessary.
Subject to hearing from counsel as to the precise terms, I will make orders in the following terms:
1.Pursuant to section 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the plaintiff and a class of its members (namely the ordinary shareholders excluding PT. Bayan Resources, Tbk) in the form contained in Schedule 4 of the scheme booklet which is annexed as Annexure "PMJ-1" of the affidavit of Mr Paul Mario Jurman sworn 16 October 2018 (Scheme of Arrangement) is approved, subject to the following alterations in accordance with section 411(6) of the Act:
(a)alteration of clause 4.2(a) of the Scheme of Arrangement to include the underlined: "subject to the payment of the Scheme Consideration to the Trust Account, and subject to the payment of the Scheme Consideration to the Scheme Shareholders pursuant to clauses 5.3(b) and 5.3(d), the Scheme Shares...";
(b)alteration of clause 8.4 of the Scheme of Arrangement to delete the strike-through text and include the underlined: "Subject to the payment of the Scheme Consideration to the Scheme Shareholders
Trust Accountpursuant to clauses 5.3(b) and 5.3(d)5.3(a)of this scheme..."; and(c)alteration of clause 4.1 of the Scheme of Arrangement to delete the strike-through text and include the underlined: "Kangaroo must lodge with ASIC office copies of any Court orders under section 411 of the Corporations Act approving this scheme by 5pm on the Business Day after the Court approves this scheme.
or by 5pm on the Business Day on which the Court orders are entered and made available to Kangaroo, whichever is the later.".2.Pursuant to section 411(12) of the Act, the plaintiff be exempted from compliance with section 411(11) of the Act, in relation to the Scheme of Arrangement referred to in order 1.
3.The plaintiff is to lodge a copy of these orders with the Australian Securities and Investments Commission on 4 December 2018.
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 VAUGHAN11 DECEMBER 2018
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