Re Kingwest Resources Ltd

[2023] WASC 190

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   RE KINGWEST RESOURCES LTD; EX PARTE KINGWEST RESOURCES LTD [2023] WASC 190

CORAM:   HILL J

HEARD:   5 APRIL 2023, 8 MAY 2023 & 18 MAY 2023

DELIVERED          :   5 APRIL 2023 & 18 MAY 2023

PUBLISHED           :   2 JUNE 2023

FILE NO/S:   COR 48 of 2023

MATTER:   IN THE MATTER OF KINGWEST RESOURCES LTD

EX PARTE

KINGWEST RESOURCES LIMITED

Plaintiff

Catchwords:

Corporations law - Scheme of arrangement - Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth) - Whether requirements to order scheme meeting are satisfied - Orders made convening meeting

Corporations law - Scheme of arrangement - Communications with shareholders without court approval - Whether court approval required

Corporations law - Scheme of arrangement - Application for orders approving the scheme under s 411(b) of the Corporations Act 2001 (Cth) - Orders made approving scheme

Legislation:

Corporations Act 2001 (WA), s 411(1), s 411(4)(b), s 411(6), s 411(11), s 411(17), s 412(1)(a), s 1319

Corporations Regulations 2001 (Cth) sch 8

Supreme Court (Corporations) (WA) Rules 2004 (WA) r 3.2

Result:

Orders made convening scheme meeting
Orders made approving scheme

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 APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400

Re Asaleo Care Limited (No 2) [2021] FCA 636

Re CannPal Animal Therapeutics Ltd [2021] WASC 37

Re CSG Limited (No 2) [2020] NSWSC 39

Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358

Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381

Re Doray Minerals Ltd [2019] WASC 57

Re Edge Minerals Ltd [2022] WASC 395

Re Galaxy Resources Ltd [2021] WASC 314

Re Health House International Ltd [2023] WASC 133

Re International Goldfields Ltd [2004] WASC 112

Re Kangaroo Resources Ltd [2018] WASC 327

Re MAC Services Group Ltd [2010] NSWSC 1474

Re National Australia Bank Ltd [2016] VSC 62

Re Nusantara Resources Ltd [2021] WASC 334

Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20

Re Ozgrowth Ltd [No 2] [2022] WASC 167

Re Pacific Energy Limited [2019] WASC 443

Re PetroNor E&P Ltd [2021] WASC 426

Re Piedmont Lithium Ltd [2021] WASC 76

Re Saracen Mineral Holdings Ltd [2020] WASC 483

Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583

Re SRG Ltd [2018] FCA 1092

Re Swick Mining Services Ltd [2022] WASC 79

Re Tassal Group Ltd [2022] NSWSC 1414

Re Tawana Resources NL [2018] FCA 1456

Re TriAusMin Limited [No 2] [2014] FCA 833

Re Vita Group Ltd [2023] FCA 400

Re Walsh & Company Investments Ltd as responsible entity of Fort Street Real Estate Capital Fund I, Fort Street Real Estate Capital Fund II, Fort Street Real Estate Capital Fund III and Fort Street Real Estate Capital Fund IV [2020] NSWSC 1746

Re Wesfarmers Ltd [2018] WASC 308

Re Wesfarmers Ltd [No 2] [2018] WASC 357

Re Western Areas Ltd [2022] WASC 193

HILL J:

1. The plaintiff, Kingwest Resources Limited (Kingwest) is an Australian public company listed on the Australian Securities Exchange (ASX).  On 22 December 2022, Kingwest entered into a Scheme Implementation Deed (SID) with Brightstar Resources Limited (Brightstar) for two interconditional schemes, which was varied by agreement on 14 March 2023.[1]  It is proposed that Brightstar will acquire all the shares in Kingwest and that shareholders will receive 1 Brightstar share for every 0.38 Kingwest Share held.  In respect of the Kingwest options on issue, it is proposed that all Kingwest options will be cancelled and optionholders will receive 1 Brightstar option for every 0.38 Kingwest Option held.  If the Schemes are implemented, Kingwest will become a wholly-owned subsidiary of Brightstar. 

   [1]Affidavit of Benjamin John Purser filed 27 March 2023, 'BJP-1'.

2. By an originating process dated 22 March 2023, Kingwest sought orders pursuant to s 411 and s 1319 of the Corporations Act 2001 (Cth) (Act) convening meetings of its shareholders and optionholders to consider the proposed Schemes. The application came before me on 5 April 2023. On that date, I made orders pursuant to s 411(1) of the Act to convene a meeting of Kingwest's shareholders to consider and vote on the proposed Share Scheme, as well as a separate meeting of Optionholders to consider and vote on the proposed Option Scheme. Orders were also made approving the distribution of a Scheme booklet to Kingwest's shareholders and optionholders under s 412(1)(a) of the Act as well as ancillary orders as to the convening and conduct of the Scheme meetings under s 1319 of the Act.

3. The Scheme meetings were held on 12 May 2023.  At this meeting, both the Shareholder Scheme and the Option Scheme were approved by the requisite statutory majority.

4. On 18 May 2023, I made orders approving the Schemes following the second court hearing. 

5. In making orders on 5 April 2023 and 18 May 2023, I stated that I would subsequently publish written reasons for my orders.  These are my reasons for decision. 

Evidence for the first court hearing

1. For the purpose of the first court hearing, Kingwest read eight affidavits.  Each is briefly described below.

   (a)An affidavit of Pia Melanie Drummond, a partner at Steinepreis Paganin, the solicitors for Kingwest, filed 27 March 2023. Ms Drummond was nominated to be chairperson of the Scheme meetings. By her affidavit, Ms Drummond consented to act as chairperson of the Scheme meetings and provided the necessary disclosures required by r 3.2 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules).

   (b)An affidavit of Philip Michael Greaney, a partner at Steinepreis Paganin, filed 27 March 2023. Mr Greaney was nominated as the alternate chairperson of the Scheme meetings. By his affidavit, Mr Greaney consented to act as alternative chairperson of the Scheme meetings and provided the necessary disclosures required by r 3.2 of the Corporations Rules.

   (c)An affidavit of Benjamin John Purser, a senior associate at Steinepreis Paganin, filed 27 March 2023.  Mr Purser's affidavit annexed, among other things, copies of the amended draft Scheme booklet, the Share and Option Schemes, various ASX announcements of Kingwest, documents setting out the terms of the Options and Share Appreciation Rights, and Kingwest's 2022 annual financial report.

   (d)An affidavit of Gregory John Bittar, the Executive Chairman of Kingwest, filed 29 March 2023.  Mr Bittar provided an overview of the SID, the Schemes, as well as the various Kingwest securities on issue and described the drafting and verification process of the Scheme booklet.  Annexed to his affidavit were, among other things, lists of Kingwest's securityholders, copies of various circular resolutions by the Kingwest directors as well as the draft proxy forms.  Mr Bittar also annexed a copy of the waiver that Kingwest had received from the ASX for ASX Listing Rule 6.23.2, which requires the approval of shareholders to cancel options.

   (e)An affidavit of Alexander Bevington Rovira, the Managing Director of Brightstar, filed 3 April 2023.  Mr Rovira deposed to the verification process in relation to the information about Brightstar in the Scheme booklet.  His affidavit annexed the verification pack, a signed verification certificate, as well as copies of the deed polls executed by Brightstar.

   (f)A second affidavit of Mr Bittar filed 3 April 2023.  Mr Bittar deposed to the queries Kingwest had received from ASIC as to the circumstances in which Kingwest and Brightstar renegotiated the Share Scheme Consideration and Option Scheme Consideration following the receipt of a draft independent expert report.  His affidavit annexed the correspondence between Steinepreis Paganin and ASIC, the engagement letter between Kingwest and BDO and email correspondence between Steinepreis Paganin and Mr Bittar. 

   (g)A second affidavit of Mr Purser filed 3 April 2023, which annexed correspondence between Steinepreis Paganin and ASIC about the Scheme booklet, as well as updated copies of the Share Scheme and Option Scheme. 

   (h)A third affidavit of Mr Purser filed 4 April 2023, which annexed an updated Scheme booklet.  His affidavit also annexed ASIC's letter of intention regarding the first court hearing. 

Factual background

Kingwest

1. Kingwest is public company limited by shares based in Perth, Western Australia.[2]  Kingwest owns the Menzies Gold Project, as well as a greenfields project, the Goongarie Gold Project.[3]

   [2] Affidavit of Gregory John Bittar filed 29 March 2023, 'GB-1'.

   [3] Scheme booklet [6.1].

2. As of 29 March 2023, Kingwest had the following securities on issue:[4]

   (a)281,726,818 fully paid ordinary shares (Shares);

   (b)61,839,334 unlisted options (Options);

   (c)1,125,000 Share Appreciation Rights expiring 15 September 2023 and 2,970,000 Share Appreciation Rights expiring 7 October 2024 (Share Appreciation Rights).   

Brightstar

[4] Affidavit of Gregory John Bittar filed 29 March 2023 [19].

1. Brightstar is a gold mining company, whose shares are also listed on the ASX.  Brightstar is focused on the exploration and development of gold projects in Western Australia.  It has three major development projects; namely, the Cork Tree Well Project, Beta Project and Alpha Project.[5] 

Nature of proposed Schemes

[5] Scheme booklet [7.1].

1. On 22 December 2022, Kingwest and Brightstar entered into the SID, which was announced to the ASX on 23 December 2022.  Kingwest and Brightstar propose the implementation of two interconditional schemes: a Share Scheme and an Option Scheme.[6]  The purpose of the proposed Schemes is to form a combined group to leverage Brightstar's processing infrastructure to unlock the development potential of the Menzies Gold Project and enhance the combined group's financial position which will optimise and potentially accelerate development of its projects.[7]

   [6] SID, cl 2.1.

   [7] Scheme booklet, Kingwest Chairman's letter.

2. If the Schemes are implemented, Brightstar will acquire all the Kingwest Shares on issue as at the Scheme Implementation Date.  Kingwest's shareholders will receive one Brightstar share for every 0.38 Kingwest Share as consideration for the acquisition of their Shares (Share Scheme Consideration).[8]

   [8] Share Scheme, cl 4.4.

3. Kingwest has determined that shareholders who do not have a registered address in Australia, Hong Kong or New Zealand will be ineligible to receive the Brightstar Shares under the Schemes (Ineligible Foreign Shareholders).[9]  Ineligible Foreign Shareholders will not be issued shares in Brightstar.  Instead, the Share Scheme Consideration they would otherwise be entitled to will be issued to a Sale Agent and sold under a sale facility.  They will receive the net sale proceeds of their Share Scheme Consideration after the proportional share of brokerage and other costs have been deducted.[10]

   [9] Affidavit of Gregory John Bittar filed 29 March 2023 [29].

   [10] Share Scheme, cl 5.7.

4. The Options and Share Appreciation Rights are the subject of the separate interconditional Option Scheme. 

5. At the time of the first court hearing, there were 61,839,334 Options and 4,095,000 Share Appreciation Rights on issue.  The Share Appreciation Rights were issued under the Kingwest Performance Rights Plan approved by shareholders on 10 September 2019 and form part of the Option Scheme.[11]  Kingwest has ten different classes of Options with various exercise prices and expiry dates.[12]

   [11] Option Scheme, cl 1.1 (definition of 'KWR Share Appreciation Right'). 

   [12] Affidavit of Gregory John Bittar filed 29 March 2023 [19(b)].

6. It is proposed that all the Kingwest Options will be cancelled and extinguished and all optionholders will receive 1 New Brightstar Option for every 0.38 Kingwest Option held (Option Scheme consideration).  The Brightstar Options which will be issued to Optionholders will have the same exercise period and price, as well as the same vesting terms, as the Kingwest Options they are replacing, ignoring any deemed vesting which arises by reason of the Share Scheme.[13]

   [13] Option Scheme, cl 1.1.

7. Kingwest's directors have unanimously recommended that securityholders vote in favour of the Schemes, in the absence of a superior proposal.

8. Kingwest 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.[14]  In reaching this conclusion on the Share Scheme, the independent expert considered the value of a Kingwest Share prior to the proposed Scheme (on a minority basis), and the value of the Share Scheme Consideration post the proposed Share Scheme on a minority basis.  Specifically, the independent expert report (IER) expresses the opinion that the value of a Kingwest Share prior to the proposed Scheme was between $0.017 (low) and $0.037 (high), with a preferred value of $0.027 and that the range of the value of a Kingwest Share after the proposed Scheme on a minority basis is between $0.018 (low) and $0.035 (high), with a preferred value of $0.026.   

   [14] Affidavit of Benjamin John Purser filed 3 April 2023, 'BJP-11', p 270 - 435.

9. In respect of the Option Scheme, the IER considers each of the 10 tranches of Options, and values each of these Options prior to the implementation of the Scheme compared to the value of the Option Scheme Consideration on a low, preferred and high basis.  In respect of each of these tranches, the low value of each tranche of the Option Scheme Consideration is equal or greater than the low value of the Options prior to implementation of the Schemes.

10. The basis for the valuation and the methodology used are set out in the IER.  The consideration of advantages, disadvantages and other factors that are likely to impact securityholders are also set out comprehensively in the IER. 

11. 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.[15]

    [15] Scheme booklet [12.2].

12. The SID sets out the procedures that have been agreed for the implementation of the proposed Scheme.  The obligations of Brightstar under the Schemes are supported by Deed Polls which have been executed by Brightstar (Deed Polls).[16]

    [16] Affidavit of Alexander Bevington Rovira filed 3 April 2023, 'ABR-5', 'ABR-6'.

13. I was provided with the draft Scheme booklet which was submitted to ASIC on 17 March 2023[17] and the amendments that have been made to the document since then.[18]

    [17] Affidavit of Benjamin John Purser filed 27 March 2023, 'BJP-6'.

    [18] The final version of the draft Scheme booklet is annexure 'BJP-2' to the affidavit of Benjamin John Purser filed 4 April 2023.

14. The Scheme booklet contains the following sections:

    (a)reasons to vote in favour of or against the Schemes;

    (b)a section on important dates and the expected timetable for the Schemes;

    (c)a letter from the executive chairman of Kingwest;

    (d)a letter from the non-executive chairman of Brightstar;

    (e)a section on meeting details and how to vote;

    (f)a 'frequently asked questions' table, which addresses all essential matters;

    (g)an overview of the Schemes;

    (h)an overview of Kingwest and Brightstar, as well as the proposed combined group;

    (i)a section on potential risk factors;

    (j)a section on Australian tax implications;

    (k)key terms of the SID;

    (l)a section on additional information, which includes details of the relevant interests of Kingwest's directors and the benefits they will obtain if the Schemes are approved; and

    (m)a glossary of defined terms.

15. The Scheme booklet includes several important annexures which will form part of the Scheme booklet.  These include the IER, the Share Scheme and Option Scheme, the Deed Polls and Notice of the Scheme meetings. 

Legal principles in respect of the scheme

1. 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.

2. 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 scheme 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.[19]

   [19] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7].

3. 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:[20]

   (a)there is a pt 5.1 body;

   (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[21] and provides proper disclosure;[22]

   (d)the scheme is bona fide and properly proposed;

   (e)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;[23]

   (f)the procedural requirements of the Act and the Supreme Court (Corporations) (WA) Rules 2004 have been met;

   (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.

   [20] Re SRG Ltd [2018] FCA 1092 [11]; Re Wesfarmers Ltd [2018] WASC 308 [60].

   [21] Corporations Act 2001 (Cth) s 412(1)(a)(ii); Corporations Regulations 2001 (Cth) reg 5.1.01, Sch 8 cl 8301 ‑ 8310.

   [22] Corporations Act 2001 (Cth) s 412(1)(a)(i).

   [23] Corporations Act 2001 (Cth) s 411(2)(b).

4. Any issue about classes of members is usually determined at the first hearing.[24]  This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[25]

   [24] Re CSR Ltd [73].

   [25] Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 [20].

5. 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.[26]  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.[27]

   [26] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].

   [27] Re SRG Ltd [12]; Re Wesfarmers Ltd [72] - [76].

Disposition

1. The formal matters Kingwest has to prove are satisfied.

2. Kingwest is a company and, accordingly, is a pt 5.1 body.  The proposed Scheme constitutes an 'arrangement' of a type that has been approved by courts as an arrangement on numerous occasions. 

3. Affidavits have been filed, as required by r 3.2 of the Corporations Rules, by the persons who have been nominated to be the chairperson and alternate chairperson for each of the Scheme Meetings.[28]

   [28] Affidavit of Pia Melanie Drummond filed 27 March 2023; Affidavit of Philip Michael Greaney filed 27 March 2023.

4. By letter dated 4 April 2023, 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 explanatory statement or 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.[29]  

   [29] Affidavit of Benjamin John Purser filed 4 April 2023, 'BJP-3'.

1. On the materials before me, there was nothing to suggest the Schemes were not properly proposed.  The constitution of Kingwest does not prevent the Schemes.[30]

   [30] Affidavit of Benjamin John Purser filed 27 March 2023, 'BJP-11'.

2. There are a number of conditions precedent to the Schemes.[31]  Directors from each of Kingwest and Brightstar 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.[32]

Disclosure and Scheme booklet

[31] SID, cl 2.

[32] Affidavit of Gregory John Bittar filed 29 March 2023 [27], [39]; Affidavit of Alexander Bevington Rovira filed 3 April 2023 [24].

1. I have read the initial draft of the Scheme booklet (as provided to ASIC).  I have also been provided with the correspondence between ASIC and Kingwest's solicitors relating to ASIC's review of the draft Scheme booklet and its amendments.[33]  The final amended Scheme booklet was provided to ASIC on 4 April 2023.[34]

   [33] Affidavit of Benjamin John Purser filed 3 April 2023, 'BJP-7' - 'BJP-13', 'BJP-17'; Affidavit of Benjamin John Purser filed 4 April 2023, 'BJP-3'.

   [34] Affidavit of Benjamin John Purser filed 4 April 2023, 'BJP-2'.

2. In relation to the Option Scheme, Kingwest applied for[35] and was granted a waiver from the requirement for options schemes to include the creditor scheme information requirements in the Scheme booklet on the basis that the Scheme booklet contained the information suitable for a members' scheme.[36]

   [35] Affidavit of Benjamin John Purser filed 27 March 2023, 'BJP-7'.

   [36] Affidavit of Benjamin John Purser filed 4 April 2023, 'BJP-1'.

3. 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 Kingwest. 

4. There is evidence before me as to the due diligence and verification process that was undertaken by both Kingwest and Brightstar.  On the basis of this evidence, I accept that:

   (a)Kingwest undertook a process of due diligence and verification to verify the accuracy of statements attributable to Kingwest in the Scheme booklet;[37]

   (b)Brightstar undertook a similar process to verify the statements attributable to them;[38] and

   (c)appropriate steps have been taken to satisfy Kingwest and Brightstar that the Scheme booklet does not omit any material information. 

   [37] Affidavit of Gregory John Bittar filed 29 March 2023 [69] - [83], 'GJB-9', 'GJB-10'.

   [38] Affidavit of Alexander Bevington Rovira filed 3 April 2023 [10] - [19], 'ABR-2' - 'ABR-4'.

5. Based on the checklist provided by counsel for Kingwest, 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), subject to the exemption granted by ASIC in relation to the Option Scheme.

6. In written and oral submissions, counsel for the plaintiff drew my attention to some specific matters.  I address each of these below. 

Amendment to the Share Scheme Consideration and Option Scheme Consideration

1. Counsel for Kingwest drew to my attention the fact that, following receipt of an initial draft of the IER, the directors of Kingswest renegotiated an increase in the consideration for the Share Scheme and the Option Scheme.  The relevant background to the renegotiation is as follows. 

2. The original terms of the SID were negotiated at arm's length between Kingwest and Brightstar.  Following agreement of the terms of the Schemes as reflected in the SID dated 22 December 2022, Kingwest engaged BDO to provide a draft independent expert report, which was received on 8 March 2023.[39]  In the draft IER, BDO expressed the opinion that, on the current terms of the proposed Scheme, the Schemes were not fair, not reasonable and, as a result, not in the best interests of Shareholders and Optionholders.[40] 

   [39] Affidavit of Gregory John Bittar filed 3 April 2023 [6(a)].

   [40] Affidavit of Gregory John Bittar filed 3 April 2023, 'GJB-3'.

3. Following receipt of the draft IER, Kingwest informed Brightstar that unless increased consideration could be agreed, Kingwest would have to terminate the SID.  Kingwest and Brightstar then renegotiated the Share Scheme Consideration and Option Scheme Consideration as well as amended terms of the Schemes and SID.[41]  A deed of amendment of the SID was entered into on 14 March 2023.[42]  Following this, Kingwest advised the independent expert of the revised Share Scheme Consideration and Option Scheme Consideration.  On 16 March 2023, Kingwest received an updated IER.[43]

   [41] Affidavit of Gregory John Bittar filed 3 April 2023 [6(f)].

   [42] Affidavit of Benjamin John Purser filed 27 March 2023, 'BJP-2'.

   [43] Affidavit of Benjamin John Purser filed 27 March 2023, 'BJP-5', p 267.

4. Counsel for Kingwest submitted these circumstances were not an uncommon practice.  It was emphasised that the renegotiation of the Share Scheme Consideration and Option Scheme Consideration was conducted at arm's length, in good faith and in the best interests of shareholders.[44]  In addition, the initial conclusion of the independent expert together with the renegotiations were disclosed to shareholders in the Scheme booklet.[45]

   [44] Outline of submissions filed 4 April 2023 [59] - [60].

   [45] Scheme booklet [5.5]. 

5. I am satisfied on the evidence before me that BDO was not involved in the negotiations of the amended consideration for either Scheme or the amendments to the SID.  I accept that the manner in which the draft IER was used by Kingwest did not impair the independence of BDO and is not contrary to the purpose or policy of the provisions governing schemes of arrangement under the Act.  Importantly, the existence of the draft opinion and its revision are matters that are disclosed to shareholders in the IER, which is annexed to the Scheme booklet.  For these reasons, I do not consider that this is a matter which should prevent the court from approving the Schemes at the second court hearing.

Performance risk

1. I was and am satisfied that the nature and terms of each of the proposed Schemes are such that the securityholders are adequately protected against the risk that they will not receive the Share Scheme Consideration or Option Scheme Consideration and have no capacity to sue Brightstar to recover their securities or damages. 

2. In that respect, I have had regard to the terms of the Schemes and the Deed Polls.  Pursuant to the Schemes:

   (a)Brightstar is required to issue and allot the Share Scheme Consideration to each Share Scheme Shareholder and to the Sale Agent on the implementation date;[46]

   (b)transfer of the Scheme shares to Brightstar is subject to provision of the Share Scheme Consideration;[47]

   (c)beneficial title in Kingwest Shares does not pass unless the Share Scheme Consideration has been issued in accordance with the Scheme;[48]

   (d)Brightstar is required to issue and allot the Option Scheme Consideration to each Option Scheme Optionholder on the implementation date;[49] and

   (e)cancellation of the Options is subject to provision of the Option Scheme Consideration.[50]

   [46] Share Scheme, cl 5.2.

   [47] Share Scheme, cl 4.2.

   [48] Share Scheme, cl 4.5.

   [49] Option Scheme, cl 5.2.

   [50] Option Scheme, cl 4.2.

3. The arrangements under the terms of the proposed Schemes are supported by a Scheme Deed Poll and an Option Deed Poll.  By these documents, Brightstar covenants in favour of each Kingwest 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 Kingwest securityholder in accordance with its terms.[51]  In my view, the securityholders are sufficiently identified within the Deed Polls to enable them to enforce the Deed Polls against Brightstar. 

Exclusivity provisions and Reimbursement Fee

[51] Share Scheme Deed Poll, cl 2; Option Scheme Deed Poll, cl 2.

1. The SID contains the customary lock up devices in the form of 'no shop', 'no talk', 'no due diligence restriction' and 'notification obligations' provisions.[52]  The 'no talk', the 'no due diligence restriction' and the 'notification obligations' provisions are subject to a fiduciary carve out.[53]  In certain circumstances, a Reimbursement Fee of $125,000 is payable by Kingwest to Brightstar and by Brightstar to Kingwest.[54]

   [52] SID, cl 12.

   [53] SID, cl 12.7.

   [54] SID, cl 13.

2. In considering whether the exclusivity provisions impact on completion of the transaction and the duties of directors, the court has regard to:[55]

   (a)the period of the exclusivity, which should be no more than a reasonable period and capable of precise ascertainment;

   (b)whether the provisions are subject to an overriding obligation that the directors not breach their fiduciary duties or are otherwise unlawful; and

   (c)whether there is adequate prominence given to these provisions in the Scheme booklet.

   [55] Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [29] - [35]; Re Kangaroo Resources Ltd [2018] WASC 327 [57] - [61]; RePacific Energy Limited [2019] WASC 443 [58].

3. In this case, the exclusivity arrangements apply for no more than six months from the date of entry into the SID.[56]   

   [56] SID, cl 1.1 (definition of 'Exclusivity Period').

4. In his evidence, Mr Bittar set out the commercial justification for the exclusivity provisions and the Reimbursement Fee.[57]  I accept his evidence that the inclusion of these provisions in the SID followed arm's length commercial negotiations in which all parties were separately advised and represented by external legal advisers. 

   [57] Affidavit of Gregory John Bittar filed 29 March 2023 [93] - [105].

5. The amount of the Reimbursement Fee (of $125,000) is approximately 1% of the equity value of Kingwest based on the value of the Share 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,[58] is payable by both Brightstar and Kingwest in certain circumstances, and is not payable if shareholders do not vote in favour of the Schemes.  Accordingly, I consider the amount of the Reimbursement Fee in this case is unlikely to influence shareholders in their decision to vote on the Schemes.

   [58] SID, cl 13.

6. Importantly, the exclusivity arrangements and Reimbursement Fee provisions are prominently disclosed in the Scheme booklet.[59]

No collateral benefit which should prevent approval of the Schemes

[59] Scheme booklet, Frequently Asked Questions, [3.4], [5.12], [13.2] - [13.5].

1. The court must examine whether a benefit exists for one shareholder in particular, so as to bring into question the overall fairness of the Schemes.[60]  To determine whether there is a collateral benefit, the court considers the 'net benefits' test, to ensure that there is no overall disparity in favour of the party to the non-scheme transaction.[61]  If no net benefit is present, then prima facie, the equality principle under s 602(c) of the Act is satisfied. 

   [60] Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381 [16] - [21] (Farrell J).

   [61] Takeovers Panel, Guidance Note 21: Collateral Benefits [15].

2. On the evidence before me, no issue of collateral benefit arises in this application. 

Class issue for Option Scheme

1. The Act does not define the term 'class'.  To determine whether separate classes of members are required, the test involves three questions.  First, what are the rights which existing members have against the company and to what extent are they different.  Second, to what extent are these rights affected differently by the scheme.  Third, does the different treatment of rights make it impossible for the members in question to consider the scheme as one class.  The test is not one of identical treatment but of 'community of interest'.  It is necessary for the court to determine whether the rights of different groups, viewed in the context of the proposed scheme, are so dissimilar as to make it impossible for them to consult together with a view to their common interests.  Ordinarily, divergent commercial interests external to share membership will not be a factor which differentiates classes, although this is a question of degree. 

2. In approaching the issue of classes, a practical, business‑like approach should be adopted by the court.  As Finkelstein J noted in Re Opes Prime Stockbroking, there is a built‑in safeguard against majority oppression in that the court is not bound by the decision of the meeting.[62]

   [62] Re Opes Prime Stockbroking Ltd [66].

3. In this case, counsel for Kingwest drew to my attention that the terms and conditions of each of the 10 different tranches of Options were not homogenous.[63]  Under the proposed Option Scheme, the Optionholders will receive options in Brightstar which reflect the most favourable terms of each of these Options.

   [63] ts 3 - 4.

4. Counsel for Kingwest submitted, which I accept, that in circumstances where the Option Scheme proposed that all Optionholders receive the same Option Scheme Consideration, there was only one class of optionholders and there should be only one meeting of optionholders to consider the proposed Option Scheme.[64]

Director benefits and recommendations

[64] Outline of submissions filed 4 April 2023 [33].

1. Kingwest directors have unanimously recommended that, in the absence of a superior proposal, securityholders vote in favour of the Scheme.

2. Counsel drew my attention to the fact that: [65]

   (a)Mr Bittar has a relevant interest in 1,975,824 Shares, 2,250,000 Options exercisable at $0.15 expiring on 30 December 2023, and 230,769 Options exercisable at $0.10 on or before 29 February 2024;

   (b)Mr Parekh holds 1,250,000 Options exercisable at $0.25, on or before 28 April 2025; and

   (c)Mr Downes holds 3,425,180 Shares, 76,923 Options exercisable at $0.10 on or before 29 February 2024, and 750,000 Share Appreciation Rights with a strike price of $0.28 expiring on 7 October 2024. 

   [65] Affidavit of Gregory John Bittar filed 29 March 2023, 'GB-10'. 

3. In the event the Schemes are approved, it is proposed that:[66]

   (a)Mr Bittar will be appointed non-executive chair of the combined group and will be paid a fee of $75,000 plus statutory superannuation per annum; and

   (b)Mr Downes will be appointed a non-executive director of the combined group and will be paid a fee of $48,000 plus statutory superannuation per annum. 

   [66] Scheme booklet, 'Important information regarding Director's Recommendations'.

4. 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 Scheme. 

5. First, the securities in Brightstar 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 Kingwest.  They will receive the same consideration as every other securityholder of Kingwest.

6. Second, prior to making a recommendation, the directors considered whether they could and should make a recommendation on the Schemes to securityholders.  On 22 December 2022, the directors unanimously resolved at a meeting of directors of Kingwest that each director could make a recommendation on the Schemes should they wish to, given the importance of the proposed transaction.[67]

   [67] Affidavit of Gregory John Bittar filed 29 March 2023 [117].

7. Third, neither of the proposed payments to Mr Bittar or Mr Downes, which will be paid if the Schemes are implemented, 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 company.  Neither of these proposed payments are of such a magnitude that could lead to an inference being drawn that these proposed payments are excessive, unwarranted, or provide an inappropriate incentive for these directors to recommend to their securityholders to vote in favour of the Schemes. 

8. Finally, and importantly, each of the matters referred to in [64] is prominently disclosed in the Scheme booklet.  I am satisfied that given this disclosure, securityholders of Kingwest are able to assess the weight given to each of the directors' recommendations.

Deemed warranties

1. Counsel drew my attention to the deemed warranty provisions in the proposed Schemes.[68]

   [68] Share Scheme, cl 6.5; Option Scheme, cl 6.5.

2. Each Scheme provides that every securityholder is deemed to have warranted their Kingwest security is unencumbered.  Further, every securityholder 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.

3. The existence of this provision is drawn to the attention of securityholders in the Scheme booklet.[69]  Deemed warranty clauses are not unusual and are acceptable provided there is adequate disclosure that it is a condition.[70]

   [69] Scheme booklet [12.7].

   [70] Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [60]; Re Tawana Resources NL [2018] FCA 1456 [28] - [29]; Re Doray Minerals Ltd [2019] WASC 57 [71].

4. I was and am satisfied that adequate disclosure has been given of these clauses. 

No liability when acting in good faith

1. Counsel for Kingwest drew to my attention the inclusion of cl 9.1 in each Scheme which provides Kingwest and Brightstar with an exclusion from liability for acts or omissions done in good faith in performance of the Schemes or Deed Polls. 

2. On its proper construction, it is my view that this clause will not exclude liability for acts or omissions in breach of the Schemes or the Deed Polls.  Any such acts or omissions could not be in performance of the Schemes or Deed Polls.[71]  For this reason, I do not consider that this clause will deprive members of their intended benefits under the Schemes. 

Electronic despatch of the Scheme booklet

[71] This is consistent with the conclusions reached in other cases including Re Wesfarmers Ltd [No 2] [2018] WASC 357 [49] and Re Health House International Ltd [2023] WASC 133 [85] - [86].

1. Kingwest sought orders pursuant to s 1319 of the Act for electronic despatch of the Scheme booklet and applicable proxy form by email to Kingwest securityholders that nominated to receive communications from Kingwest electronically (Email Securityholders).  These orders are now common.[72]  Details concerning the terms of the proposed electronic notification were provided, namely that email notices would be sent to Kingwest's securityholders containing links to the Scheme booklet and proxy form.

   [72] See, for example, Re SRG Limited [48]; Re Doray Minerals Ltd [2019] WASC 57 [72]; Re Saracen Mineral Holdings Ltd [2020] WASC 483 [81]. See too Re CannPal Animal Therapeutics Ltd [2021] WASC 37 [73] - [75]; Re Piedmont Lithium Ltd [2021] WASC 76 [69] (given the uncertainties of COVID-19); Re Nusantara Resources Ltd [2021] WASC 334 [66] - [68]; Re PetroNor E&P Ltd [2021] WASC 426 [64] - [65]; Re Swick Mining Services Ltd [2022] WASC 79 [79]; Re Western Areas Ltd [2022] WASC 193 [82].

2. I was and am satisfied that an order for electronic despatch of the Scheme booklet is appropriate. 

3. In respect of the remaining Kingwest securityholders (who were not Email Securityholders and those Email Securityholders in respect of whom electronic delivery has been notified as being ineffective), Kingwest proposed the despatch of hardcopy documents by post (Non-Email Securityholders).

4. I was and am satisfied that the proposed orders for the hardcopy despatch to Non-Email Securityholders is appropriate. 

Conclusion and orders from first court hearing

1. At the first hearing before me, I was 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 Kingwest's members.

1. For these reasons, at the conclusion of the hearing on 5 April 2023, I made orders in terms of 'Annexure A' to this judgment in respect of the Scheme.

Hearing on 8 May 2023

1. On 2 May 2023,[73] the solicitors for Kingwest became aware that in April 2023, Kingwest and Brightstar had undertaken a webinar[74] and made announcements to the ASX in respect of the proposed Schemes.[75] 

   [73] Affidavit of Gregory John Bittar filed 5 May 2023 [20].

   [74] Affidavit of Gregory John Bittar filed 5 May 2023, 'GJB-6'.

   [75] Affidavit of Gregory John Bittar filed 5 May 2023, 'GJB-5'.

2. It was also drawn to my attention that Kingwest had engaged Peloton Capital Pty Ltd (Peloton Capital) on 12 February 2023 to provide assistance in managing proxy solicitation in connection with the Scheme meetings,[76] Automic Pty Ltd (Automic) had been engaged to respond to all inbound queries received from Kingwest securityholders,[77] and that representatives of Kingwest and Mr Rovira, the managing director of Brightstar had communicated with Kingwest Shareholders in respect of the proposed Schemes.[78]

   [76] Affidavit of Gregory John Bittar filed 5 May 2023 [12] - [13].

   [77] Affidavit of Gregory John Bittar filed 5 May 2023 [15].

   [78] Affidavit of Gregory John Bittar filed 5 May 2023 [17] - [18]; Affidavit of Alexander Bevington Rovira filed 5 May 2023; Affidavit of Jonathan Charles Downes filed 8 May 2023; Affidavit of Dean Alan Vallve filed 8 May 2023.

3. After receiving advice from Kingwest's solicitors, on 3 May 2023, Kingwest instructed Peloton Capital to end the proxy solicitation campaign.[79]

   [79] Affidavit of Gregory John Bittar filed 5 May 2023 [14].

4. On 4 May 2023, the plaintiff's solicitors requested that the originating process be relisted for directions.[80]

   [80] Email from Mr Purser to Associate to Hill J dated 4 May 2023.

5. At the directions hearing on 8 May 2023, Kingwest relied on seven affidavits as well as an outline of submissions.  These affidavits were:

   (a)an affidavit of Calista Chia, a customer success manager at Automic, filed 4 May 2023, who deposed to the despatch of the Scheme booklet to Kingwest securityholders;

   (b)an affidavit of Mr Bittar filed 5 May 2023.  Mr Bittar addressed the circumstances which led to the online webinar and investor presentation, the retention of Peloton Capital, the inbound securityholder line run by Automic and his communications with Kingwest shareholders about the Schemes.  His affidavit annexed the slides used for the webinar, a transcript of the webinar, the call scripts used by Peloton Capital and Automic and copies of his communications with shareholders;

   (c)an affidavit of Mr Rovira filed 5 May 2023.  Mr Rovira explained the circumstances which led to the webinar, as well as his communications with shareholders of Kingwest regarding the Schemes.  His affidavit annexed a list of the people who pre-registered to attend the webinar, as well as copies of the emails he sent to Kingwest shareholders;

   (d)an affidavit of Madeline Sky Ardon, an associate at Steinepreis Paganin, filed 5 May 2023.  Ms Ardon oversaw a verification process of the investor presentation, which took place after the webinar on 4 and 5 May 2023.  A copy of the verification document was annexed to her affidavit;

   (e)an affidavit of Jonathan Charles Downes, a non-executive director of Kingwest, filed 8 May 2023, who gave evidence of his communications with eight shareholders of Kingwest in relation to the Schemes and annexed a document which summarised the content of these discussions;

   (f)an affidavit of Dean Alan Vallve, the chief operating officer of Kingwest, filed 8 May 2023 who deposed to his role in the webinar on 19 April 2023 and his communications with one Kingwest shareholder in relation to the Schemes; and

   (g)an affidavit of Benjamin John Purser filed 8 May 2023, annexing copies of an email from ASIC. 

6. Prior to the hearing, the solicitors for Kingwest informed ASIC that these disclosures had occurred.  Kingwest proposed to make an announcement to the ASX informing its securityholders that neither the webinar nor the disclosures made to the market on 17 April 2023 should be relied upon and that securityholders should refer to the information in the Scheme booklet when considering how to vote in respect of the Scheme.  In response, ASIC requested that Kingwest provide it with the affidavits proposed to be filed and information (if any) about what was disclosed in the webinar and inbound or outbound calls that were not included in the Scheme booklet.[81]

   [81] Affidavit of Gregory John Bittar filed 5 May 2023, 'GJB-16'.

7. Shortly prior to the hearing, ASIC raised a number of concerns in relation to the webinar, including that it contained information which was 'materially different to the Scheme Booklet disclosures', as well as concerns regarding the lack of balance and qualifications in the proxy solicitation script.[82]  However, ASIC did not attend the directions hearing nor sought to be heard in relation to any matter.

   [82] Affidavit of Benjamin John Purser filed 8 May 2023, 'BJP-1'.

8. Counsel for Kingwest submitted that while a practice had developed for scheme of arrangement for approval to be sought prior to any additional information being provided to shareholders, these authorities were concerned with the 'integrity' of the process and whether the communications may impact approval of the Schemes at the second court hearing based on public policy grounds.[83]

   [83] Outline of submissions filed 5 May 2023 [8].

9. The question of whether it is necessary for a proponent of a scheme to seek the court's approval of inbound and outbound communications with shareholders (including where proxy solicitation agents have been retained) has been the subject of a number of recent decisions.[84] 

   [84] See for example Re Tassal Group Ltd [2022] NSWSC 1414 [34]; Re Edge Minerals Ltd [2022] WASC 395 [184] - [195]; Re Vita Group Ltd [2023] FCA 400 [27] - [35].

10. I have previously expressed the view that where a proxy solicitation agent was proposed to be used, this should be drawn to the attention of the court at the first hearing and approval sought for the proposed script to ensure there is consistency with the disclosures in the Scheme booklet and that only information that has been approved by the court should be provided to members.[85]  This approach is consistent with the guidance that has previously been given by ASIC to scheme proponents.[86]

    [85] Re Western Areas Ltd [85]; see also Re Galaxy Resources Ltd [2021] WASC 314 [31] - [33].

    [86] ASIC Report 539 'ASIC Regulation of Corporate Finance: January to June 2017' 28 August 2017 [126]. See also Damian and Rich (4^th ed, 2021) Schemes, Takeovers and Himalayan Peaks [3.8.2].

11. In Re Walsh & Company Investments Ltd as responsible entity of Fort Street Real Estate Capital Fund I, Fort Street Real Estate Capital Fund II, Fort Street Real Estate Capital Fund III and Fort Street Real Estate Capital Fund IV, Black J noted that courts have repeatedly emphasised that where the court has ordered the convening of a scheme meeting, approval of the court should be sought before any additional material is despatched to shareholders.[87]  However, his Honour accepted that where this has not occurred, the ultimate question for the court in considering the impact of any communications which have not been authorised by the court is whether these communications comprise the integrity of the voting process.[88]

    [87] Re Walsh & Company Investments Ltd as responsible entity of Fort Street Real Estate Capital Fund I, Fort Street Real Estate Capital Fund II, Fort Street Real Estate Capital Fund III and Fort Street Real Estate Capital Fund IV [2020] NSWSC 1746 [66].

    [88] Re Walsh & Company Investments Ltd as responsible entity of Fort Street Real Estate Capital Fund I, Fort Street Real Estate Capital Fund II, Fort Street Real Estate Capital Fund III and Fort Street Real Estate Capital Fund IV [67].

12. Jackman J recently considered the basis for this view (that approval of the court should be sought) in Re Vita Group Ltd.  I note that while his Honour was not asked to approve the communications, the scheme proponent disclosed to the court at the first court hearing that it had engaged a shareholder advisory firm and the instructions to that firm, which was considered to be 'sufficient disclosure to the court'.[89]  His Honour expressed the view that there was nothing in pt 5.1 of the Act which required a scheme company to seek the approval of the court for all communications with its shareholders.  His Honour went on to note that:[90]

    The scheme company is to be at its own risk concerning such communications with shareholders, including as to whether they are misleading, and whether they may potentially jeopardise Court approval at the second court hearing. 

    [89] Re Vita Group Ltd [34].

    [90] Re Vita Group Ltd [32].

13. After accepting that he had taken a different approach to the issue from a number of judges, his Honour expressed the view at [33] that previous authorities provided useful guidance to scheme companies to minimise the risk of conduct which might jeopardise approval at the second court hearing.  In particular, his Honour noted that it was unlikely that any issue would arise where the communications largely mirror the information in the scheme booklet and direct recipients to read the scheme booklet before making any decision on the proposed merger, although a degree of advocacy is permissible, provided it is fair and honest.

14. In this case, approval had not been sought for any communications nor was it drawn to the court's attention at the first court hearing that Kingwest proposed to do a webinar or engage in communications with its shareholders.  The evidence before the court is that the representatives of Kingwest did not inform their solicitors of these matters either. 

15. Counsel for Kingwest explained that in order to address any concerns in relation to these communications, Kingwest had disabled the link to the webinar and proposed to make an announcement to the ASX.  At the hearing before me on 8 May 2023, the court was provided with a copy of the proposed ASX announcement, which had been provided to ASIC and discussed with them.  The proposed ASX announcement emphasised that Kingwest securityholders should read and consider the Scheme booklet and rely on this when deciding how to vote at the Scheme meetings and should not rely on the webinar. 

16. Kingwest did not seek any orders and no orders were made by the court at this hearing.  Counsel for Kingwest submitted, which I accept, that this was a matter to be addressed at the second court hearing.

Scheme meetings

1. The Scheme meeting was convened and held on 12 May 2023.  At the meeting, the resolution was passed by the requisite statutory majorities. 

2. 297 shareholders were present at the Share Scheme meeting in person and by proxy,[91] comprising approximately 19.11% of shareholders by number.[92] 57.86% of shareholders who voted at the meeting were in favour of the resolution.[93]  79.4% of votes cast on the Scheme resolution were cast in favour of the resolution.[94] 

   [91] Affidavit of Pia Melanie Drummond filed 16 May 2023 [18].

   [92] Affidavit of Benjamin John Purser filed 17 May 2023 [18].

   [93] Affidavit of Pia Melanie Drummond filed 16 May 2023 [18].

   [94] Affidavit of Pia Melanie Drummond filed 16 May 2023 [18].

3. In respect of the meeting to consider the Option Scheme, 34 optionholders were present at the Option Scheme meeting in person and by proxy,[95] comprising approximately 11.22% of optionholders by number.[96]  73.53% of optionholders who voted at the meeting were in favour of the resolution.[97]  97.7% of votes cast on the Option Scheme resolution were cast in favour of the resolution.[98]

   [95] Affidavit of Pia Melanie Drummond filed 16 May 2023 [18].

   [96] Affidavit of Benjamin John Purser filed 17 May 2023 [19].

   [97] Affidavit of Pia Melanie Drummond filed 16 May 2023 [18].

   [98] Affidavit of Pia Melanie Drummond filed 16 May 2023 [18].

Approval of Schemes

1. The originating process was listed before me for the second court hearing on 18 May 2023. 

2. In addition to the affidavits relied upon at the first court hearing and the directions hearing on 8 May 2023, Kingwest relied on an additional eight affidavits filed prior to the second court hearing.  These were as follows. 

   (a)An affidavit of Brayden McCormack filed 11 May 2023.  Mr McCormack is the chief strategy office of Baza Capital Holdings Pty Ltd, an institutional investor and shareholder of Kingwest.  Mr McCormack deposed that Baza acquired shares in Kingwest following the announcement and because of the proposed Schemes.  Consistent with this, Baza voted in favour of the proposed Schemes at the Scheme meetings.  Mr McCormack gave evidence of the communications that had occurred between representatives of Baza and Kingwest and Brightstar and annexed copies of relevant emails.

   (b)A third affidavit of Mr Rovira filed 12 May 2023 which annexed an exchange of emails between him and Baza, which he inadvertently omitted from his second affidavit.

   (c)A second affidavit of Ms Drummond filed 16 May 2023.  Ms Drummond provided a report on the conduct and results of the Scheme Meetings and annexed copies of the minutes of the Scheme meetings.

   (d)A fourth affidavit of Mr Bittar filed 16 May 2023.  In his affidavit, Mr Bittar deposed to enquiries and communications he had received about the Schemes from shareholders, including from a 'shareholder activist group' and his responses to these.  He annexed copies of the advertisements of the second court hearing in the West Australian and Australian newspapers on 27 April 2023, ASX announcements made by Kingwest since the first court hearing, as well as the communications he received and sent to shareholders in relation to the proposed Schemes.

   (e)An affidavit of Giullio Luciano Balla filed 16 May 2023, a customer success manager of Automic, the plaintiff's share registry and related service provider.  Mr Balla deposed to the dispatch of the Scheme booklet, proxy form and, where relevant, notice to securityholders, including what steps were taken when a bounce back was received from electronic despatch, and to dispatch meeting materials to shareholders who came onto the register after the initial dispatch.  Mr Balla also gave evidence of the receipt of proxy votes lodged for the Scheme meetings, the collection and processing of voting cards at the Scheme meetings, and preparation of the poll reports for the Scheme meetings.

   (f)A fifth affidavit of Mr Purser filed 17 May 2023.  Mr Purser confirmed the Orders had been lodged with ASIC on 5 April 2023, the Scheme booklet was registered with ASIC on 6 April 2023 and that all court documents had been served on ASIC.  His affidavit annexed copies of the correspondence between Steinepreis Paganin and ASIC regarding the communications between Kingwest and its shareholders, including in relation to the webinar, and provided details of voter turn out at the annual general meetings of Kingwest in 2021 and 2022.

   (g)A second affidavit of Mr Balla filed 18 May 2023 correcting an error in his earlier affidavit regarding the number of new shareholders who were registered between 1 May 2023 and 8 May 2023.

   (h)A sixth affidavit of Mr Purser filed 18 May 2023 attaching the certificates executed by both Kingwest and Brightstar confirming that each of the conditions precedent of the Schemes had been satisfied or waived (apart from court approval), as well as a letter from ASIC confirming ASIC had no objection to the proposed Schemes under s 411(17) of the Act.

3. These additional affidavits address the matters Kingwest were required to establish at the second court hearing.

Legal Principles in respect of the Scheme Approval

1. The approval of the proposed Scheme pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Act), or the second court hearing, is the third stage of approval for a scheme of arrangement. The second stage is the approval of the Scheme by the requisite statutory majorities, which occurred at the Scheme meeting.

2. At the second court hearing, the court has two tasks:[99]

   (a)to ensure that all statutory and procedural requirements have been satisfied.  This includes confirming that:[100]

   (i)the meeting was convened and held in accordance with the court's earlier orders;

   (ii)the resolutions were passed with the requisite statutory majorities; and

   (iii)the plaintiff otherwise complied with the court's earlier orders;

   (b)to determine, in the exercise of the court's discretion, whether to approve the proposed arrangement.

   [99] Re Wesfarmers Ltd [No 2] [2018] WASC 357 [12].

   [100] Re International Goldfields Ltd [2004] WASC 112 [7].

3. The court has a discretion to approve a scheme under s 411(4)(b) of the Act and is not bound to approve a scheme just because the court previously made orders for the convening of a meeting or because the statutory majorities have been achieved.[101]  That said, the court will usually approach the task on the basis that shareholders are better judges of what is in their commercial interests than the court.[102]

   [101] Re Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583 [31].

   [102] Re Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd [No 3] [32] - [33].

4. The factors that inform the court's discretion whether or not to approve a scheme are:[103]

   (a)whether the members have voted in good faith and not for an improper purpose;

   (b)whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it;

   (c)whether the plaintiff has brought to the attention of the court all matters that could be considered relevant to the exercise of the court's discretion;

   (d)whether there has been full and frank disclosure of all information material to the members' decision;

   (e)whether minority shareholders would be oppressed by the scheme;

   (f)whether the court is satisfied that the scheme has not been proposed to avoid ch 6 of the Act;

   (g)whether ASIC has an objection to the scheme; and

   (h)whether the scheme offends public policy.

   [103] Re Seven Network Ltd [No 3] [35] - [40], [50], [52].

Disposition

Compliance with statutory and procedural requirements

1. I was and am satisfied, on the basis of the additional affidavits that were filed by Kingwest, that:

   (a)a copy of the Orders was lodged with ASIC;[104]

   (b)a copy of the Scheme booklet that was approved for distribution by the court at the first court hearing was lodged with ASIC and registered on 6 April 2023, ASIC registered the Scheme booklet;[105]

   (c)the Scheme booklet was despatched to shareholders in accordance with the Orders;[106]

   (d)in accordance with the Orders, the Scheme booklet was available for inspection on Kingwest's website and at its registered office;[107]

   (e)the Scheme meetings were convened and held on 12 May 2023 in accordance with the Orders;[108]

   (f)the Schemes were approved by the requisite statutory majorities;[109]

   (g)notice of the second court hearing was given by way of advertisement in The West Australian newspaper and The Australian newspaper on 27 April 2023;[110] and

   (h)ASIC informed Kingwest on 18 May 2023, pursuant to s 411(17)(b) of the Act, that it has no objection to the proposed Scheme.[111]

   [104] Affidavit of Benjamin John Purser filed 17 May 2023, 'BJP-1'.

   [105] Affidavit of Benjamin John Purser filed 17 May 2023, 'BJP-2'.

   [106] Affidavit of Calista Astrid Chia filed 4 May 2023; Affidavit of Giulio Luciano Balla filed 16 May 2023 [5] - [21], 'GLB-1' - 'GLB-12'.

   [107] Affidavit of Gregory John Bittar filed 16 May 2023 [13].

   [108] Affidavit of Giulio Luciano Balla filed 16 May 2023 [22] - [44], 'GLB-13' - 'GLB-16'; Affidavit of Pia Melanie Drummond filed 16 May 2023.

   [109] Affidavit of Pia Melanie Drummond filed 16 May 2023 [16] - [18], 'PMD-3', 'PMD-4'; Affidavit of Gregory John Bittar filed 16 May 2023, 'GJB-6'; Affidavit of Giulio Luciano Balla filed 16 May 2023 [40] ‑ [44], 'GLB-15', 'GLB-16'.

   [110] Affidavit of Gregory John Bittar filed 16 May 2023, 'GJB-1'.

   [111] Affidavit of Benjamin John Purser filed 18 May 2023, 'BJP-5'.

1. In written and oral submissions, counsel for the plaintiff drew my attention to three matters in relation to the Scheme meetings.

2. The first concerned the votes of Baza Capital.  The evidence before the court was that Mr Rovira of Brightstar and representatives of Baza Capital exchanged emails at the end of April 2023 in relation to the proposed Schemes.  In the emails, Mr Rovira informed the representatives of Baza Capital that at that stage, if the voting closed, the resolutions would be comfortably passed, not many of the top 50 shareholders had voted and that when this occurred, he anticipated that there should 'well and truly be sufficient support'.  Mr Rovira encouraged the representatives of Baza Capital to vote, although I note that this did not extend to an encouragement to vote in favour of the resolutions.[112] 

   [112] Affidavit of Alexander Bevington Rovira filed 5 May 2023, 'ABR-9', p 9.

3. In correspondence between Kingwest's solicitors and ASIC, ASIC expressed a concern that the disclosure of the votes that had been received in this matter could be used to influence an undecided shareholders rather than the shareholder basing their decision on the information in the Scheme booklet.[113]  The evidence of the representative of Baza Capital, which I accept, is that they purchased shares in Kingwest following the announcement of the Schemes and at all times intended to vote in favour of the Schemes.[114] 

   [113] Affidavit of Benjamin John Purser filed 8 May 2023, 'BJP-1'.

   [114] Affidavit of Brayden Hugh McCormack filed 11 May 2023.

4. In any event, even if the votes of Baza Capital at the Share Scheme meeting were excluded, the resolution to approve the Share Scheme would have still passed by votes (77.6%) and number of shareholders (57.96%).[115] 

   [115] Affidavit of Benjamin John Purser filed 17 May 2023 [22], 'BJP-13'.

5. The second matter was the voter turnout at the Scheme meetings.  At the Share Scheme Meeting approximately 19.11% of Kingwest Shareholders voted, representing 45.35% of all shares on issue.[116]  At the Option Scheme Meeting only 11.22 % of Kingwest Optionholders voted, representing 37.49% of all Share Appreciation Rights and Options on issue.[117]

   [116] Affidavit of Benjamin John Purser filed 17 May 2023 [18].

   [117] Affidavit of Benjamin John Purser filed 17 May 2023 [19].

6. As was stated by Farrell J in Re TriAusMin Limited [No 2]:[118]

   It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme; apathy should not be presumed to be antagonism. 

   Nonetheless it does call for consideration to ensure that the vote [was] not unrepresentative, since the court retains the discretion to withhold its approval in that case.  It is relevant to consider whether members have been deterred from attending or voting at the meeting.  (footnotes omitted)

   [118] Re TriAusMin Limited [No 2] [2014] FCA 833 [10] - [11].

7. Relatively low shareholder turnout does not prevent the court from making orders approving a scheme of arrangement.[119]

   [119] See, for example, Re Ozgrowth Ltd [No 2] [2022] WASC 167 [18] (14.03% of shareholders holding 56.07% of shares) (for COR 27 of 2022) and the authorities cited at fn 28.

8. I was and am satisfied that there was sufficient turnout at the Scheme meetings. I do not consider the low voter turnout by number of shareholders suggested there had been an error in the despatch of the Scheme booklet, nor that this should prevent the court from making orders under s 411(4)(b) of the Act. In this respect, I have had regard to the following matters:

   (a)the number of shareholders who voted at the Share Scheme meeting, being approximately 19.11% of all eligible shareholders, significantly exceeded the number of shareholders who voted at the two preceding general meetings of Kingwest;[120]

   (b)as set out below at [134], shareholders received communications from a shareholder of Kingwest who opposed the Scheme urging all Shareholders to vote at the Scheme meetings;

   (c)a majority of securityholders (by number) who voted at the Scheme meetings voted in favour of the Schemes;

   (d)there was no evidence which suggested any irregularity in the despatch of the Scheme booklet; and

   (e)there was no evidence of any issue which would have deterred securityholders from voting at or attending the Scheme meetings. 

   [120] Being approximately 4.11% at the 2021 annual general meeting and 2.2% at the 2022 annual general meeting: Affidavit of Benjamin John Purser filed 17 May 2023 [20], 'BJP-12'.

9. Finally, counsel for Kingwest also drew my attention to the fact that the results of the polls were announced after each of the Scheme meetings was closed.  Ms Drummond was the chairperson of each of the Scheme meetings.  Ms Drummond deposed that at each of the Scheme meetings, she advised attendees that the results of the poll would be announced to the ASX platform shortly after the meetings once the votes were counted.  She then declared the meetings closed.[121]

   [121] Affidavit of Pia Melanie Drummond filed 16 May 2023 [13] - [15].

10. The approach of a chairperson advising the meeting that results will be the subject of an announcement pursuant to s 251AA of the Act, following completion of counting of the poll and after the meeting has formally been closed, has been approved by the courts on numerous occasions.[122]  No issue arises in the present case concerning the manner in which the polls were conducted or announced.

    [122] Re Ozgrowth Ltd [No 2] [22] - [23]; Re Asaleo Care Limited (No 2) [2021] FCA 636 [26] - [28]; Re CSG Limited (No 2) [2020] NSWSC 39 [6] - [8]; Re National Australia Bank Ltd [2016] VSC 62 [56]; Re MAC Services Group Ltd [2010] NSWSC 1474.

11. Accordingly, I was and am satisfied that all statutory pre-conditions have been met.  I now turn to consider the discretionary considerations. 

Good faith and proper purpose

1. There is no evidence that the Kingwest shareholders voted for an improper purpose.  I am satisfied on the evidence filed by Kingwest that its members voted in good faith and for a proper purpose as:

   (a)the purpose of the proposed Share Scheme is to effect the acquisition by Brightstar of all Kingwest shares on issue, a transaction of a kind ordinarily approved by the court.  It does not involve any novel treatment of rights;

   (b)the purpose of the proposed Option Scheme is to effect the cancellation of all current Kingwest Options and replace them with Brighstar Options.  This also does not involve any novel treatment of rights;

   (c)the independent expert opined that, in the absence of an alternate proposal (and none has since emerged), each of the Schemes is in the best interests of shareholders or optionholders (as the case may be); and

   (d)neither ASIC nor any securityholder appeared at the second court hearing to object to approval of the proposed Schemes.

Fairness and reasonableness

1. At the first court hearing, based on the evidence before the court, I was satisfied the proposed Schemes were of such a nature that there was no apparent reason that they should not receive approval if the requisite voting majorities were achieved at the Scheme meetings. 

2. Nothing has occurred since the date of the first hearing to change this view.  The securityholders who voted at the Scheme meetings overwhelmingly supported the proposed Schemes as well as a clear majority of securityholders by number. 

3. No securityholder appeared to oppose the orders sought at the second court hearing.  I was and am satisfied that the proposed Schemes are fair and reasonable and are Schemes that sensible businesspeople might consider to be of benefit to securityholders.

All relevant matters brought to the court's attention

1. At the first court hearing, counsel for Kingwest drew my attention to a number of matters.  These are summarised above at [43] - [79].

2. There were three further matters that counsel drew to my attention at the second court hearing. 

3. First, the satisfaction of the conditions precedent to the implementation of the Scheme.  The remaining conditions precedent (apart from court approval at the second court hearing) were satisfied or waived as evidenced by the certificates put before me.[123]

   [123] Affidavit of Benjamin John Purser filed 18 May 2023, 'BJP-1', 'BJP-2'.

4. Second, counsel for Kingwest raised the communications with shareholders (apart from the Scheme booklet) that had occurred, including the matters raised at the hearing on 8 May 2023.  In addition to the webinar, the information line and the proxy solicitation, there was evidence that representatives of both Kingwest and Brightstar had spoken with various shareholders of Kingwest.

5. The evidence before the court was that on 17 April 2023, Brightstar and Kingwest announced on their respective ASX platforms that a webinar would be held on 19 April 2023 and provided information on how to access it.[124]  A transcript of the webinar was in evidence,[125] together with a copy of the slide deck used for the presentation, which was released to the ASX on 19 April 2023.[126]  The link to the webinar on Kingwest's investor page was disabled on 5 May 2023, following the receipt of advice from their solicitors.[127]

   [124] Affidavit of Gregory John Bittar filed 5 May 2023, 'GJB-5'.

   [125] Affidavit of Gregory John Bittar filed 5 May 2023, 'GJB-8'.

   [126] Affidavit of Gregory John Bittar filed 5 May 2023, 'GJB-6'.

   [127] Affidavit of Gregory John Bittar filed 5 May 2023 [8].

6. After the solicitors for Kingwest were informed the webinar had occurred, they verified the information contained in the webinar cross-referenced against the Scheme booklet and other ASX announcements made by Kingwest or Brightstar.[128]  Kingwest's solicitors verified that virtually all the statements in the webinar and presentation were contained in the Scheme booklet, an earlier presentation made by Kingwest and Brightstar on the proposed Schemes, or ASX announcements made by Kingwest.  The remaining matters were described as 'management opinions'.

   [128] Affidavit of Madeline Sky Ardon filed 5 May 2023, 'MSA-1'.

7. On 9 May 2023, Kingwest released an ASX announcement which informed shareholders that they should not rely on the webinar or the presentation released to the ASX on 19 April 2023.[129]  A copy of this announcement was sent to all Shareholders and Optionholders who attended the webinar.[130]  Kingwest is not aware of any Shareholder or Optionholder who changed their vote after receiving any targeted communications from Kingwest.[131]

   [129] Affidavit of Gregory John Bittar filed 16 May 2023, 'GJB-5'. 

   [130] Affidavit of Giulio Luciano Balla filed 16 May 2023 [19] - [21], 'GLB-11', 'GLB-12'.

   [131] Affidavit of Benjamin John Purser filed 17 May 2023, 'BJP-10', p 27.

8. Peloton Capital was engaged by Kingwest to undertake a proxy solicitation campaign using a list of shareholders provided by Kingwest's share registry, Automic, after the dispatch of the Scheme booklet.  The employees of Peloton Capital used a script in all of their communications with the 962 shareholders that they spoke to until they were instructed to end the campaign on 3 May 2023.[132]  I have reviewed the script and find that the information in this script was not inconsistent with the Scheme booklet.

   [132] Affidavit of Gregory John Bittar filed 5 May 2023 [13] - [14], 'GJB-10'. 

9. In addition, Automic ran an inbound shareholder information line for the Schemes which also used a call script.[133]  This call script was based on the frequently asked questions in the Scheme booklet and Automic representatives were told not to depart from the script.

   [133] Affidavit of Gregory John Bittar filed 5 May 2023 [15], 'GJB-12'. 

10. Prior to the Scheme meetings, a number of Shareholders of Kingwest emailed or spoke with representatives of Kingwest about the Scheme.[134]  The Shareholders raised questions about the disclosures in the Scheme booklet, as well the rationale for the proposed Schemes.  Summaries of each of these discussions have been provided to me.[135] 

    [134] Affidavit of Gregory John Bittar filed 5 May 2023, 'GJB-14', 'GJB-15'; Affidavit of Dean Alan Vallve filed 8 May 2023; Affidavit of Jonathan Charles Downes filed 8 May 2023.

    [135] Affidavit of Gregory John Bittar filed 5 May 2023 'GJB-14', 'GJB-15'; Affidavit of Dean Alan Vallve filed 8 May 2023; Affidavit of Jonathan Charles Downes filed 8 May 2023.

11. There was also evidence before the court that Mr Cohen, a shareholder of Kingwest, requested a copy of the shareholder register, set up a shareholder action group, and sent various emails to Kingwest Shareholders.  These emails set out reasons to vote against the proposed Schemes, highlighted various matters in the Scheme booklet for the consideration of securityholders, and both urged securityholders to vote against and explained how to vote in relation to the proposed Schemes.[136]

    [136] Affidavit of Gregory John Bittar filed 16 May 2023 'GJB-4'.

12. As has previously been noted by ASIC, efforts by companies to promote shareholder engagement should be supported.[137]  Given the relatively low attendance at previous general meetings of shareholders of Kingwest, I consider that any attempt by Kingwest to improve attendance was both understandable and, in this case, ultimately successful.

    [137] ASIC Report 539 'ASIC Regulation of Corporate Finance: January to June 2017' 28 August 2017 [124]. See also Damian and Rich (4^th ed, 2021) Schemes, Takeovers and Himalayan Peaks [3.8.2].

13. In this particular case, for the following reasons, I do not consider these matters are a reason to refuse approval of the scheme. 

14. First, in addition to what might be described as a campaign undertaken by both Kingwest and Brightstar to encourage securityholders to vote in favour of the Schemes, a campaign was run by a shareholder of Kingwest which urged securityholders to vote against the proposed schemes.  The information circulated by this shareholder emphasised various reasons to vote against the proposed Schemes. 

15. Second, the scripts that were used by Peloton Capital and Automic are broadly consistent with information in the Scheme booklet, as well as the content of the webinar, and do not contain any information that is misleading.  In particular, the script used by Automic was in terms of the frequently asked questions in the Scheme booklet.  However, while the webinar and script used by Peloton Capital provided information as to why a shareholder should support the scheme, they do not refer to the reasons to vote against the schemes, nor do they alert the shareholders to the qualifications around the directors' recommendations.  However, in my view, this lack of balance was, to a degree, counteracted by the campaign run by the shareholder of Kingwest. 

16. Third, while ASIC raised a number of concerns prior to the directions hearing on 8 May 2023, ASIC did not appear at the second court hearing and provided an unqualified letter of no objection prior to the second court hearing.

17. In these circumstances, there is no evidence before the court which supports any inference being drawn that the conduct of Kingwest and Brightstar comprised the integrity of the voting process.

18. Finally, counsel for Kingwest drew to my attention that Kingwest had received one complaint about the Scheme booklet concerning an inconsistency in the description of the exchange ratio of shares to be issued.  The copy of the chairman's letter in the Scheme booklet, which was registered with ASIC and released to the ASX on 6 April 2023, contained a typographical error in expressing the consideration ratio the wrong way around.  This error was corrected, the document replaced and the shareholder informed of this. 

Full and fair disclosure

1. At the first court hearing, based on the evidence before the court, I was satisfied the draft Scheme booklet would provide full and fair disclosure to securityholders. 

2. The additional affidavit evidence filed by Kingwest establishes the Scheme booklet despatched to securityholders was in the form approved for distribution by the court.  Nothing has arisen to suggest there has not been full and fair disclosure of all material information prior to securityholders voting on the Schemes.

Oppression of minorities

1. There was no evidence that any minority has been oppressed.

Satisfaction of s 411(17) of the Act and ASIC's view

1. ASIC has provided a written statement to the effect that it does not object to the Schemes pursuant to s 411(17)(b) of the Act.[138]  As a result, the requirements of s 411(17) have been satisfied.  In any event, having regard to the nature of the proposed transaction, it cannot be said the Schemes were proposed to avoid the operation of ch 6 of the Act. 

Public policy

[138] Affidavit of Benjamin John Purser filed 18 May 2023, 'BJP-5'.

1. There is no evidence before the court that the proposed Schemes offend any aspect of public policy.  Given the nature of the proposed Schemes, it is my view that it could not be sensibly suggested that the Schemes offend public policy.

Exemption from s 411(11) of the Act

1. Kingwest seeks an exemption from s 411(11) of the Act.  In my view, there is no utility in requiring the court's orders approving the Schemes to be annexed to Kingwest's constitution as the orders do not effect any change to the constitution.  This exemption has become ordinary practice for transactions of this kind. 

Conclusion and orders

1. At the second court hearing before me, I was satisfied the substantive and procedural requirements under s 411(4) of the Act had been satisfied and that I should approve the proposed Schemes.

2. For these reasons, at the conclusion of the hearing on 18 May 2023, I made orders in terms of 'Annexure B' to this judgment in respect of the Schemes. 

Annexure A

Annexure B

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

JN

Associate to the Honourable Justice Hill

2 JUNE 2023