Re Latin Resources Limited
[2024] WASC 513
•22 JANUARY 2025
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE LATIN RESOURCES LIMITED; EX PARTE LATIN RESOURCES LIMITED [2024] WASC 513
CORAM: STRK J
HEARD: 28 NOVEMBER 2024
DELIVERED : 28 NOVEMBER 2024
PUBLISHED : 22 JANUARY 2025
FILE NO/S: COR 171 of 2024
MATTER: IN THE MATTER OF LATIN RESOURCES LIMITED
EX PARTE
LATIN RESOURCES LIMITED
Plaintiff
Catchwords:
Corporations law - Scheme of arrangement - Share scheme - Option scheme - Application for orders convening scheme meetings under Corporations Act 2001 (Cth) s 411(1) - Share scheme meeting - Option scheme meeting - Demerger of wholly owned subsidiary - Demerger condition precedent - Demerger meeting - Performance rights - Loan funded shares - Ineligible foreign holders - Electing small scheme participants - Foreign regulatory approval required - Bridging loan facility - Whether the formal requirements of the Corporations Act 2001 (Cth) s 411(1) had been satisfied - Court's discretion enlivened - Orders made convening scheme meetings - Distribution of scheme booklet containing the explanatory statement required by the Corporations Act 2001 (Cth) s 412(1)(a) approved - Ancillary orders
Legislation:
Corporations Act 2001 (Cth)
Corporations Regulations 2001 (Cth)
Supreme Court (Corporations) (WA) Rules 2004 (WA)
Result:
Application granted
Orders made convening scheme meetings
Category: B
Representation:
Counsel:
| Plaintiff | : | AJ Papamatheos SC & CE Joyce |
| Interested Party | : | K Sleiman |
Solicitors:
| Plaintiff | : | King & Wood Mallesons |
| Interested Party | : | Corrs Chambers Westgarth |
Cases referred to in decision:
Allkem Ltd, the matter of Allkem Limited [2023] FCA 1397
Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485
Blackmores Limited, in the matter of Blackmores Limited [2023] FCA 624
Cortona Resources Limited, in the matter of Cortona Resources Limited [2012] FCA 1295
Coventry Resources Ltd, in the matter of Coventry Resources Ltd [2012] FCA 1252
Creso Pharma Limited [2019] WASC 472
CSR Limited, in the matter of CSR Limited [2010] FCAFC 34; (2010) 183 FCR 358
DDH1 Limited, in the matter of DDH1 Limited [2023] FCA 982
Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 1101
Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 240
Excelsior Gold Limited, in the matter of Excelsior Gold Ltd [2018] FCA 2064
First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 320 FLR 78
Gazal Corporation Limited, in the matter of Gazal Corporation Limited [2019] FCA 701
Healthscope Limited, in the matter of Healthscope Limited [2019] FCA 542; (2019) 139 ACSR 608
In the matter of Coca-Cola Amatil Limited [2021] NSWSC 270
In the matter of InvoCare Ltd [2023] NSWSC 1180
In the matter of Link Administration Holdings Limited [2022] NSWSC 650
In the matter of Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
In the matter of Tatts Group Limited [2017] VSC 552
Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [2018] WASC 327
OreCorp Limited, in the matter of OreCorp Limited [2023] FCA 1359
Re Advance Bank Australia Ltd [No 2] (1997) 136 FLR 281
Re Amcom Telecommunications Ltd [2015] FCA 341
Re Anatolia Energy Limited [2015] FCA 1134
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re Doray Minerals Ltd; Ex Parte Doray Mineral Ltd [2019] WASC 57
Re Dreamscape Networks Ltd [2019] WASC 412
Re Exore Resources Ltd; Ex Parte Exore Resources Ltd [2020] WASC 285
Re Firefly Resources Ltd [2021] WASC 376
Re Galaxy Resources Ltd; Ex parte Galaxy Resources Ltd [2021] WASC 277
Re Mod Resources Ltd; Ex Parte Mod Resources Ltd [2019] WASC 326
Re NRMA Insurance Ltd (No 1) (2000) 156 FLR 349
Re NTM Gold Ltd; Ex parte NTM Gold Ltd [2021] WASC 22
Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd [2019] WASC 189
Re Pacific Energy Ltd [2019] WASC 443
Re Swick Mining Services Ltd; Ex Parte Swick Mining Services Ltd [2022] WASC 79
Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308
Re Westgold Resources Ltd [26] citing Sovereign Life Insurance Company v Dodd [1892] 2 QB 573
Re Zenith Energy Ltd; Ex Parte Zenith Energy Ltd [2020] WASC 266
Security Matters Limited, in the matter of Security Matters Limited [2023] FCA 19
Seven Network Ltd (ACN 052 816 789), in the matter of Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583
Seven Network Ltd (ACN 052 816 789), in the matter of Seven Network Ltd [2010] FCA 220
SRG Limited, in the matter of SRG Limited [2018] FCA 1092
Talon Energy Ltd, in the matter of Talon Energy Ltd [2023] FCA 1362
Tawana Resources NL, in the matter of Tawana Resources NL [2018] FCA 1456
Technology Metals Australia Limited v Australian Vanadium Limited [2024] WASC 26
Vita Group Ltd, in the matter of Vita Group Ltd [2023] FCA 400; (2023) 165 ACSR 576
Westgold Resources Ltd [2012] WASC 301
Zenyth Therapeutics Ltd v Smith [2006] VSC 436; (2006) 60 ACSR 548
Table of Contents
Introduction
Evidence
First affidavit of David Vilensky
Second affidavit of Mr Vilensky
Affidavit of Nicholas Wilson affirmed 27 November 2024
First affidavit of James Yu-Wen Wang affirmed on 27 November 2024
Exhibits tendered
Second affidavit of Mr Wang affirmed on 28 November 2024
Third affidavit of Mr Wang affirmed on 28 November 2024
The scheme booklet
The proposed transaction - overview
Share Scheme
Option Scheme
Demerger
Ineligible foreign holders
Electing scheme participants - small scheme participants and optionholders
Performance rights
Latin Resources loan funded shares
Position of the directors of Latin Resources
Voting intention statement
Independent expert's report
Legal principles
Disposition
Principle matters - s 411(1)
Consideration by ASIC
The explanatory statement
Procedural matters
Discretion enlivened - no reason not to convene the Scheme Meetings
Despatch of the scheme booklet and proxy form
Proposed shareholder communications outside of the scheme booklet
Conclusion and orders for the first court hearing
STRK J:
Introduction
Latin Resources Limited is an Australian public company listed on the Australian Securities Exchange (ASX), trading under the security code 'LRS'. It is an Australian‑based critical mineral exploration company with projects in South America and Australia. Latin Resources' main project is the Salinas Project, a lithium development project in the district of Minas Gerais, Brazil.[1]
[1] First affidavit of D Vilensky sworn on 6 November 2024 par 12.
Pilbara Minerals Limited is an Australian public company also listed on the ASX, trading under the security code 'PLS'. It is a lithium production company which owns and operates the Pilgangoora lithium operation, located in the Pilbara region of Western Australia.[2]
[2] Affidavit of N Wilson affirmed on 27 November 2024 par 7.
Latin Resources and Pilbara Minerals agreed to implement a scheme of arrangement under pt 5.1 of the Corporations Act 2001 (Cth) between Latin Resources and Latin Resources shareholders (Share Scheme), and Latin Resources and Latin Resources optionholders (Option Scheme) (together, the Schemes), on and subject to the terms of a scheme implementation agreement entered into on 14 August 2024.[3] On 15 August 2024, Latin Resources and Pilbara Minerals made a joint announcement to the ASX that they had entered into the scheme implementation agreement.[4]
[3] First affidavit of D Vilensky sworn on 6 November 2024 par 25, DXV-6; affidavit of N Wilson affirmed on 27 November 2024 par 10.
[4] First affidavit of D Vilensky sworn on 6 November 2024, DXV-8.
The directors of Latin Resources are David Vilensky; Christopher Peter Gale; Brent Jones; Pablo Tarantini; and Peter Oliver.[5]
[5] First affidavit of D Vilensky sworn on 6 November 2024 par 15.
As at 4 November 2024, Latin Resources had 2,801,419,463 fully paid ordinary shares; three tranches of options totalling 137,486,160; 89,500,000 performance rights; and 4,000,000 loan funded shares.[6] The proposed Schemes, if implemented, would affect the acquisition by Pilbara Minerals of 100% of the Latin Resources shares and 100% of the Latin Resources options.
[6] First affidavit of D Vilensky sworn on 6 November 2024 par 20, DXV-1 (pages 107 - 108).
Under the Share Scheme, it is proposed that Latin Resources shareholders will receive 0.07 Pilbara Minerals share for each Latin Resources share held (Share Scheme Consideration).[7] Under the Option Scheme, Latin Resources optionholders will be entitled to 0.002 Pilbara Minerals share per option designation 'LRSAAF'; and 0.025 Pilbara Minerals share per option designation 'LRSAY' (Option Scheme Consideration). There are also mechanisms to deal with ineligible foreign shareholders, small scheme participants, Latin Resources performance rights, and loan funded shares.[8] In effect, for an implied value of over $600 million (as at 18 November 2024), Pilbara Minerals will acquire Latin Resources.[9]
[7] First affidavit of D Vilensky sworn on 6 November 2024 par 48, DXV-6 (pages 869 - 870), see definition of 'Scheme Consideration' under cl 1 of the share scheme of arrangement (page 861).
[8] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (pages 782 - 784, 869 - 874) (scheme implementation agreement cl 4.8, cl 4.10, cl 4.11).
[9] Outline of submissions par 3.
In conjunction with the proposed Schemes, Latin Resources intends to demerge its wholly owned subsidiary ESG Minerals Limited, by way of a pro rata in‑specie distribution of 100% of the fully paid ordinary shares in ESG Minerals to eligible Latin Resources shareholders in satisfaction of a capital reduction in Latin Resources (Demerger).[10] If approved at a general meeting of Latin Resources shareholders (Demerger Meeting) (which is to be held immediately prior to the Share Scheme Meeting and the Option Scheme Meeting), the Demerger will be implemented prior to the implementation of the Schemes.[11]
[10] First affidavit of D Vilensky sworn on 6 November 2024 par 33; second affidavit of D Vilensky sworn on 26 November 2024, DXV-32.
[11] Outline of submissions par 13; first affidavit of D Vilensky sworn on 6 November 2024 pars 36 - 37, DXV‑1 (pages 439 - 504).
The Schemes and the Demerger are separate but related transactions. The Share Scheme is conditional on the Demerger resolution being approved and the Demerger becoming effective, unless the Demerger condition precedent is waived by Pilbara Minerals. While the Option Scheme is not conditional on the Demerger, it is conditional on the Share Scheme being effective. The Demerger is conditional on the Share Scheme being approved by Latin Resources shareholders, although Latin Resources retains the discretion to waive this condition.[12]
[12] Outline of submissions par 14, which references the first affidavit of D Vilensky sworn on 6 November 2024 pars 33 - 35, DXV-6 (pages 775, 865, 903 - 904) (scheme implementation agreement cl 3.1(o)(i) and share scheme of arrangement cl 3.1(b)); and the second affidavit of D Vilensky sworn on 26 November 2024, DXV-32 (page 123) (demerger implementation deed cl 2.1(a)).
By an originating process filed on 6 November 2024, Latin Resources sought orders under s 411 and s 1319 of the Corporations Act in relation to the proposed Schemes. The first court hearing took place on 28 November 2024. At the hearing, counsel for Pilbara Minerals sought and was granted leave to appear as an interested party.[13] The Australian Securities and Investments Commission (ASIC) did not seek to be heard.[14]
[13] ts 2 (28 November 2024).
[14] Third affidavit of JY Wang affirmed on 28 November 2024, JYW-8 (page 4).
With the benefit of counsel's comprehensive outline of submissions filed in advance of the first court hearing, after hearing counsel and on the evidence read, orders were made in accordance with s 411(1) of the Corporations Act to convene on 16 January 2025 a meeting of the holders of shares in Latin Resources and a meeting of the holders of options in Latin Resources to consider and vote on the proposed Schemes (together, the Scheme Meetings). Orders were also made approving the distribution of a scheme booklet which comprised the explanatory statement required by s 412(1)(a) of the Corporations Act. Ancillary orders were made as to the convening and conduct of the Scheme Meetings.
At the conclusion of the first court hearing, I said that I would publish written reasons for the orders made. These are my reasons.
Evidence
Six affidavits were filed and read in support of Latin Resources' application.
First affidavit of David Vilensky
Mr Vilensky swore his first affidavit on 6 November 2024, attaching documents marked DXV‑1 to DXV‑23. Mr Vilensky is one of the founding directors of Latin Resources. He has been a director since October 2008, and is the non‑executive chairman.
Among other things, Mr Vilensky deposed to Latin Resources' background, projects and capital structure; the basis of his belief as to the solvency of Latin Resources; the background to the proposed acquisition of Latin Resources and the Schemes; the proposed Demerger of ESG Minerals and the mechanism by which it was proposed that the Demerger occur; the key terms of both the Share Scheme and the Option Scheme; the proposed treatment of ordinary shares, options and other securities (including ineligible foreign shareholders, small scheme participants, performance rights and loan funded shares); the negotiation of a bridging loan facility between Latin Resources and Pilbara Minerals, which had been negotiated in connection with the implementation of the Schemes, the purpose of which being the provision of general working capital to fund the ordinary course of business of Latin Resources during the transaction; the material terms of the bridging loan facility; the preparation of the proposed scheme booklet and explanatory statement; and the due diligence and verification undertaken of the information in the proposed scheme booklet.
Mr Vilensky also deposed to the unanimous recommendation of the directors of Latin Resources that Latin Resources shareholders vote in favour of the Share Scheme and that Latin Resources optionholders vote in favour of the Option Scheme subject to no superior proposal in relation to Latin Resources emerging and the independent expert concluding (and continuing to conclude) that the Schemes are in the best interests of the securityholders of Latin Resources; the relevant interests of each director of Latin Resources in the outcome of the Schemes; Latin Resources having engaged an independent expert to prepare a report to be provided to the board of Latin Resources and to securityholders stating whether the Schemes are in the best interest of the securityholders of Latin Resources; how Latin Resources intended to despatch the scheme booklet and notice of the relevant Scheme Meetings; and how the relevant Scheme Meetings were intended to be conducted. Mr Vilensky further deposed to the implementation of the scheme implementation agreement; the proposed conduct of the Demerger Meeting and Scheme Meetings; the details of the break fee and exclusivity arrangements in the scheme implementation agreement; these clauses being agreed to by both parties following arm's length commercial negotiations; and the conditions precedent set out in the scheme implementation agreement for both the Share Scheme and the Option Scheme. Mr Vilensky particularly described what he referred to as the 'Regulatory Authority Condition Precedent', being a condition precedent of the Share Scheme.
The attachments to Mr Vilensky's affidavit included the draft scheme booklet dated 6 November 2024; the company extract for Latin Resources as at 6 November 2024; the constitution of Latin Resources; Latin Resources' half year annual report for the period ending 30 June 2024; the signed notice of voting intention by Jose Lui Manzano (Latin Resources' largest shareholder (excluding custodian accounts)); the executed scheme implementation agreement dated 14 August 2024; a letter from Latin Resources to Pilbara Minerals dated 14 August 2024 regarding detailed matters in relation to the scheme implementation agreement; Latin Resources and Pilbara Minerals' joint announcement to the ASX dated 15 August 2024; Latin Resources' investor presentation dated 15 August 2024; Latin Resources' ASX announcement dated 15 August 2024; the option valuation model prepared by Barrenjoey; the share register dated 4 November 2024; the option register dated 4 November 2024; the pro‑forma opt‑in notice; the pro-forma exercise notice; the pro‑forma agreement with loan funded shareholders; the executed bridging loan agreement dated 9 September 2024; the general security deed executed on 9 September 2024; the due diligence process memorandum adopted on 5 November 2024; the verification guidelines dated 2 September 2024; the verification report dated 5 November 2024; the executed due diligence committee report dated 6 November 2024; and the executed circulating resolution of the board of Latin Resources dated 6 November 2024.
Second affidavit of Mr Vilensky
Mr Vilensky swore a second affidavit on 26 November 2024, to which he attached documents marked DXV‑24 to DXV‑34.
Among other things, Mr Vilensky deposed to the preparation of and attached to his affidavit a copy of the template emails, template notice and access letters, and proxy forms required for the despatch of the scheme booklet; the preparation of and attached to his affidavit a copy of final version of the opt‑in notice to be provided to small scheme participants or Latin Resources optionholders (as applicable); the ASX announcements made on 29 and 30 October 2024 respectively, which released to the market an investor presentation and quarterly activities report for the period ending 30 September 2024; Latin Resources having engaged Georgeson Shareholder Communications Pty Ltd (a firm experienced in shareholder engagement on corporate resolutions) to operate both an information telephone line for any Latin Resources securityholders and an outbound telephone call campaign in relation to the Schemes; Georgeson being instructed to provide and include information that reflected and was consistent with information contained in the scheme booklet in which Georgeson would use a script based on the information set out in the scheme booklet; the intention of Latin Resources to publish ASX announcements regarding the outcome of the first court hearing, the registration of the scheme booklet with ASIC, and confirmation of the despatch of the scheme booklet; the status of the 'Regulatory Authority Condition Precedent' (described by Mr Vilensky in his first affidavit); the execution of the demerger deed on 22 November 2024; the execution of an appointment agreement between Pilbara Minerals and Computershare Dealing Services Pty Ltd on 22 November 2024; and Pilbara Minerals advancing $5,000,000 to Latin Resources as a first draw down on the bridging loan and to that draw down being announced on the ASX on 19 November 2024.
Mr Vilensky also deposed that in his first affidavit, the calculation of the value of the break fee contained typographical errors. In his second affidavit, Mr Vilensky corrected those errors so that the fully diluted equity value in Latin Resources was accurately reflected as approximately $605,000,000.
The attachments to Mr Vilensky's second affidavit included a bundle of template emails that were intended to be provided to Latin Resources securityholders who had elected to receive communications from Latin Resources via email; a bundle of template notices and access letters to securityholders who had not elected to receive communications from Latin Resources via email or post in respect of the Scheme Meetings and the Demerger Meeting; a bundle of template proxy forms for Latin Resources securityholders in respect of the Scheme Meetings and Demerger Meeting; a copy of the opt‑in notice; the investor presentation dated 29 October 2024; Latin Resources' quarterly activities report for the period ending 30 September 2024; a draft Georgeson retail engagement script; a draft Georgeson scheme information line 'frequently asked questions'; a copy of the executed demerger deed dated 22 November 2024; a copy of the executed appointment agreement between Pilbara Minerals and Computershare dated 22 November 2024; and an ASX announcement released by Latin Resources on 19 November 2024 regarding the first draw down of Pilbara Minerals loan facility and a scheme process update.
Affidavit of Nicholas Wilson affirmed 27 November 2024
Nicholas Wilson is a senior legal counsel of Pilbara Minerals, having commenced employment in June 2024. On 27 November 2024 Mr Wilson affirmed an affidavit in support of the application made by Latin Resources, and attached to his affidavit documents marked NW‑1 to NW‑4.
Among other things, Mr Wilson deposed to the background of Pilbara Minerals; the proposed Schemes and his involvement in the negotiation of the scheme implementation agreement; the verification by Pilbara Minerals of the Pilbara Minerals information in the scheme booklet and the verification process; a deed poll having been executed on 26 November 2024 by Pilbara Minerals in favour of Latin Resources shareholders undertaking to provide Share Scheme Consideration (Share Scheme Deed Poll); a deed poll having been executed on 26 November 2024 by Pilbara Minerals in favour of Latin Resources optionholders undertaking to provide the Option Scheme Consideration (Option Scheme Deed Poll); the Schemes being subject to conditions precedent and to the status of the 'Regulatory Authority Condition Precedent' (described by Mr Vilensky in his first affidavit); the provision of a voting intention statement by Mr Manzano as to the proposed Share Scheme; and Mr Wilson not being aware of any benefit or inducement, separate to the Share Scheme Consideration, having been given or offered to Mr Manzano for or in relation to his voting intention statement.
The attachments to Mr Wilson's affidavit included the ASIC extract for Pilbara Minerals; the template verification certificate; the executed Share Scheme Deed Poll dated 26 November 2024; and the executed Option Scheme Deed Poll dated 26 November 2024.
First affidavit of James Yu-Wen Wang affirmed on 27 November 2024
James Yu-Wen Wang is a partner at King & Wood Mallesons (KWM), which firm acts for Latin Resources in this proceeding. On 27 November 2024 Mr Wang affirmed an affidavit in support of the application, to which he attached documents marked JYW‑1 to JYW‑6.
Among other things, Mr Wang deposed to the service of various documents filed in this proceeding on ASIC; amendments having been made to the draft scheme booklet so as to address the comments of ASIC; the amended draft scheme booklet having been provided to ASIC for final review; as at 27 November 2024, Mr Wang not being aware of ASIC having any further comments on the draft scheme booklet; the provision to ASIC of the draft telephone scripts and frequently asked questions annexed to Mr Vilensky's second affidavit; and amendments having been made to the draft telephone scripts and frequently asked questions annexed to Mr Vilensky's second affidavit in response to the comments of ASIC.
The attachments to Mr Wang's first affidavit included the amended pages of the draft scheme booklet; the amended draft Georgeson retail engagement script; the draft ASX announcement regarding the outcome of the first court hearing; the draft ASX announcement confirming the registration of the scheme booklet with ASIC; the draft ASX announcement confirming the despatch of the scheme booklet; and the draft ASX announcement regarding the second court hearing.
Exhibits tendered
At the hearing of the application on 28 November 2024, counsel also tendered updated versions of the draft ASX announcement regarding the outcome of the first court hearing; the draft ASX announcement confirming the registration of the scheme booklet with ASIC; and the draft ASX announcement confirming the despatch of the scheme booklet (that is, a mark-up of annexures JYW‑3, JYW‑4 and JYW‑5 to Mr Wang's first affidavit).[15]
Second affidavit of Mr Wang affirmed on 28 November 2024
[15] ts 3 - 4 (28 November 2024); exhibits A, B and C.
Mr Wang affirmed a second affidavit on 28 November 2024 in support of the application, to which he attached the final version of the scheme booklet (including the Demerger annexure and independent expert's report), marked JYW-7.
Third affidavit of Mr Wang affirmed on 28 November 2024
Mr Wang affirmed a third affidavit on 28 November 2024, to which he attached documents marked JYW‑8 to JYW‑10.
The documents attached were a copy of ASIC's standard 'indication of intent' letter in advance of the first court hearing dated 28 November 2024; communications from ASIC granting relief from various requirements of the Corporations Regulations 2001 (Cth); and a copy of an email from Sheranga Perera of ASIC to Cathryn Joyce of KWM, as to the inclusion of the independent expert's report in the scheme booklet.
The scheme booklet
The documents before the court at the first court hearing included the draft scheme booklet which was lodged with ASIC on 6 November 2024.[16] The final draft of the scheme booklet presented to the court for consideration was annexed to Mr Wang's second affidavit affirmed on 28 November 2024, marked JYW‑7.
[16] First affidavit of D Vilensky sworn on 6 November 2024 par 92.
The scheme booklet was over 400 pages and contained the following introductory documents:
(a)important notices;
(b)a letter from the chairman of Latin Resources, Mr Vilensky, to Latin Resources securityholders;
(c)a letter from the chairman of Pilbara Minerals, Ms Kathleen Conlon, to Latin Resources securityholders; and
(d)important dates in relation to the approval of the Schemes and the Demerger.
The scheme booklet also addressed:
(a)matters relevant to Latin Resources securityholders' vote on the Schemes including reasons to vote in favour of the Schemes and possible reasons to vote against the Schemes;
(b)frequently asked questions;
(c)an overview of the Schemes including key steps to implement the Schemes, scheme consideration, and conditions precedent;
(d)details of the Scheme Meetings and how to vote;
(e)information about Latin Resources including key projects, its financial position and capital structure;
(f)information about Pilbara Minerals;
(g)information concerning the enlarged group if the Share Scheme were to be implemented including the corporate structure, board and management, and capital structure;
(h)risk factors associated with the implementation of the Schemes; and
(i)Australian tax implications of the Schemes.
The following documents were annexed to the proposed scheme booklet:
(a)the independent expert's report;
(b)a summary of the scheme implementation agreement;
(c)the share scheme of arrangement;
(d)the option scheme of arrangement;
(e)the Share Scheme Deed Poll;
(f)the Option Scheme Deed Poll;
(g)the notice of Share Scheme Meeting;
(h)the notice of Option Scheme Meeting; and
(i)the Demerger Meeting materials.
The proposed transaction - overview
Share Scheme
As noted above, on 14 August 2024 Latin Resources and Pilbara Minerals entered into a scheme implementation agreement, which was announced to the ASX the next day.[17]
[17] First affidavit of D Vilensky sworn on 6 November 2024 pars 25, 30, DXV-6; DXV-8.
If the Share Scheme is implemented, Pilbara Minerals will acquire all of the shares of Latin Resources on issue as at the 'record date'.[18] Latin Resources shareholders will receive the Share Scheme Consideration, that is 0.07 fully paid ordinary Pilbara Minerals share for each Latin Resources share as consideration for the acquisition of their Latin Resources shares under the Share Scheme.[19] If the Share Scheme is made effective, all Latin Resources shares will be transferred to Pilbara Minerals for the Share Scheme Consideration (subject to the arrangement for ineligible foreign holders and electing scheme participants), irrespective of whether a Latin Resources shareholder attends the Share Scheme Meeting, votes at that meeting or votes against the Share Scheme at that meeting.[20]
Conditions precedent - regulatory authority condition precedent
[18] As defined on page 762 of DXV-6, first affidavit of D Vilensky sworn on 6 November 2024.
[19] First affidavit of D Vilensky sworn on 6 November 2024 par 48, DXV-6 (page 781).
[20] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (pages 864 - 865, 866 - 868) (share scheme of arrangement cl 2.4, cl 5.2, cl 5.3, cl 5.5); outline of submissions par 6.
The Share Scheme is subject to the satisfaction or waiver of a number of conditions precedent set out at cl 3.1 of the Share Scheme, which is annexure A to the scheme implementation agreement.[21]
[21] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (page 865).
In his first affidavit, Mr Vilensky noted that cl 3.3(a) of the Share Scheme provides that at the second court hearing, both Latin Resources and Pilbara Minerals must provide to the court certificates in a form agreed by Latin Resources and Pilbara Minerals, confirming within their knowledge whether or not the conditions precedent have been satisfied or waived.[22]
[22] First affidavit of D Vilensky sworn on 6 November 2024 par 151, DXV-6 (pages 865 - 866).
Among other things, it is a condition precedent that:[23]
all other approvals of a Regulatory Authority which [Latin Resources] and [Pilbara Minerals] (acting reasonably) agree are (i) necessary or desirable to implement the [Share Scheme] or (ii) material to the development of the Salinas Project, are obtained and those approvals have not been withdrawn or revoked.
[23] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (page 772).
As was deposed by Mr Vilensky in his first affidavit, Latin Resources and Pilbara Minerals had agreed that the approval by the Brazilian National Mining Agency of the Integrated Plan of Economic Development (Plano Integrado de Aproveitamento Econdmico) (PIAE) submitted by Latin Resources (insofar as it related to the exploitation of lithium in Mineral Rights N. 831.799/2005, 831.219/2017 and 830.691/2017) was material to the development of the Salinas Project and therefore 'Regulatory Authority' (as defined in cl 1.1 of the scheme implementation agreement) approval was required for the purposes of the regulatory authority condition precedent reproduced at [39] above.[24]
[24] First affidavit of D Vilensky sworn on 6 November 2024 par 146, DXV-7 (pages 939 - 940).
Before the first court hearing, the Brazilian National Mining Agency had not made a decision on the approval of the PIAE.[25]
[25] First affidavit of D Vilensky sworn on 6 November 2024 par 147; second affidavit of D Vilensky sworn on 26 November 2024 par 19.
As was noted by Mr Vilensky in his first affidavit, the draft scheme booklet at s 3.5(b) recorded that if the regulatory authority condition precedent was not satisfied or waived in advance of the Share Scheme Meeting, the board of Latin Resources may consider delaying the Scheme Meetings and/or the second court hearing until such time as that condition precedent was satisfied or waived.[26] It was intended that the board of Latin Resources would continue to keep its securityholders informed as to the status of the regulatory authority condition precedent, including via ASX announcement.[27]
Option Scheme
[26] First affidavit of D Vilensky sworn on 6 November 2024 par 148.
[27] First affidavit of D Vilensky sworn on 6 November 2024 par 149.
As noted above, under the Option Scheme, Latin Resources optionholders will be entitled to Option Scheme Consideration, that is 0.002 Pilbara Minerals share per option designation 'LRSAAF'; and 0.025 Pilbara Minerals share per option designation 'LRSAY'.[28] It was intended that all Latin Resources options would be transferred to Pilbara Minerals for the Option Scheme Consideration (subject to certain arrangements for ineligible foreign holders and electing scheme participants), irrespective of whether an optionholder were to attend the Option Scheme Meeting, were to vote at that meeting or were to vote against the Option Scheme at that meeting.[29]
[28] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (pages 781 - 782); see 'Option Scheme Consideration' at sch 4 to the scheme implementation agreement (page 851); outline of submissions par 8.
[29] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (pages 903, 905 - 906); outline of submissions par 9.
It was brought to the court's attention that Latin Resources options designation 'LRSAAE' were to expire on 30 December 2024 and would lapse prior to the record date for the Option Scheme if they had not been exercised prior to the expiry date.[30]
[30] First affidavit of D Vilensky sworn on 6 November, DXV-1 (page 107); outline of submissions par 8; ts 6 (28 November 2024).
As was explained by Mr Vilensky, it was intended that the implementation of the Demerger would occur before the implementation of the Option Scheme. In accordance with the terms of the Latin Resources options and ASX Listing Rule 7.22.3, the exercise price would be reduced by the same value as the capital that was returned on a per share basis to Latin Resources shareholders pursuant to the Demerger. The Option Scheme Consideration would remain as agreed in the scheme implementation agreement without the impact of post‑scheme implementation agreement events which included the Demerger, even though the impact of the Demerger to adjust the exercise price would result (based on the Black-Scholes valuation methodology) in an immaterial increase in value to each of the Option Scheme participants.[31]
Conditions precedent
[31] First affidavit of D Vilensky sworn on 6 November 2024 par 58.
Similar to the Share Scheme, the Option Scheme was subject to the satisfaction or waiver of a number of conditions precedent set out at cl 3.1(a) of the Option Scheme at Annexure C to the scheme implementation agreement.[32]
[32] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (page 903).
Of note, the Option Scheme is conditional on approval of the Share Scheme.[33]
[33] First affidavit of D Vilensky sworn on 6 November 2024 pars 26, 143, DXV-6 (pages 903 - 904) (option scheme of arrangement cl 3.1).
At the second court hearing, it is contemplated that both Latin Resources and Pilbara Minerals will provide the court with certificates under cl 3.3(a) of the Option Scheme to demonstrate whether or not the conditions precedent had been satisfied or waived.[34]
Demerger
[34] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (page 904).
As noted above, in conjunction with the proposed Schemes, Latin Resources intends to demerge its wholly‑owned subsidiary ESG Minerals by way of a pro rata in-specie distribution of 100% of the fully paid ordinary shares in ESG Minerals to eligible Latin Resources shareholders in satisfaction of a Latin Resources capital reduction.[35]
[35] First affidavit of D Vilensky sworn on 6 November 2024 par 33.
A demerger deed was executed on 22 November 2024 which details the steps of the Demerger and each party's obligations in respect of those steps, including the in‑specie distribution.[36]
[36] Second affidavit of D Vilensky sworn on 26 November 2024, DXV-32.
The scheme implementation agreement provides that certain assets and businesses held by Latin Resources that are considered 'non-core' by both Latin Resources and Pilbara Minerals are to be demerged from Latin Resources' ownership immediately prior to implementation of the Share Scheme.[37]
[37] First Affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (page 761); see definition of 'Non-Core Assets Disposal Program' in cl 1.1 of the scheme implementation agreement (page 761); DXV-7 (pages 932 ‑ 948); outline of submissions par 12.
It was submitted on behalf of Latin Resources that although the Schemes and the Demerger are separate, they are related transactions.[38] The Share Scheme is conditional on the Demerger of ESG Minerals being approved and the Demerger becoming effective.[39]
[38] Outline of submissions par 14.
[39] First affidavit of D Vilensky sworn on 6 November 2024 par 46, DXV-6 (pages 775, 865) (scheme implementation agreement cl 3.1(o)(i) and share scheme of arrangement cl 3.1(b)).
Further, the Demerger is conditional on the Share Scheme being approved by the shareholders of Latin Resources, although Latin Resources retains the discretion to waive this condition.[40]
[40] Second affidavit of D Vilensky sworn on 26 November 2024, DXV-32 (page 123) (demerger implementation deed cl 2.1(a), cl 2.2).
While the Option Scheme is not conditional on the Demerger, it is a related transaction as the Option Scheme is conditional on the Share Scheme becoming effective.[41]
[41] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (pages 775, 903 - 904) (scheme implementation agreement cl 3.2(a) and option scheme of arrangement cl 3.1(b)).
Latin Resources intends to call a general meeting of the shareholders of Latin Resources to vote on the Demerger resolution in succession with the Share Scheme Meeting and the Option Scheme Meeting.[42] The directors of Latin Resources unanimously recommend that the shareholders of Latin Resources vote in favour of the Demerger resolution.[43]
Ineligible foreign holders
[42] First affidavit of D Vilensky sworn on 6 November 2024 par 37.
[43] First affidavit of D Vilensky sworn on 6 November 2024 par 44, DXV-1 (pages 453 - 454) (draft scheme booklet, Annexure I, demerger meeting materials s 2.8).
Share Scheme Participants or Option Scheme Participants (as applicable) will be ineligible to receive the Share Scheme Consideration or Option Scheme Consideration (as applicable) if, on the record date, their address (or the address of the person to which they are acting on behalf of), as shown in the relevant register of Latin Resources, is in a jurisdiction other than Australia, New Zealand, Switzerland, Brazil, Canada, Hong Kong, the United Kingdom and the United States (unless Pilbara Minerals makes a relevant determination).[44]
[44] First affidavit of D Vilensky sworn on 6 November 2024 par 62.
Pilbara Minerals will not be under an obligation to issue any new Pilbara Shares to any ineligible foreign holders and instead, if the Schemes (as applicable) become effective, the proposed treatment of ineligible foreign holders will be as follows.
Pilbara Minerals will issue shares to a sale nominee; the sale nominee will sell those Pilbara Minerals shares through a sale facility; and each ineligible foreign holder will receive a pro rata share of the net proceeds from the sale of the Pilbara Minerals shares.[45]
[45] First affidavit of D Vilensky sworn on 6 November 2024 par 63.
As at 4 November 2024 there were 26 ineligible foreign holders who held approximately 0.15% of the total number of Latin Resources shares on issue and were 0.25% of the total of Latin Resources shareholders. As at 4 November 2024 there were no Latin Resources optionholders who were ineligible foreign holders.[46]
Electing scheme participants - small scheme participants and optionholders
[46] First affidavit of D Vilensky sworn on 6 November 2024 pars 67 - 68, DXV-12.
Shareholders (other than ineligible foreign shareholders) who hold less than a marketable parcel of Latin Resources shares on the record date will be designated as small scheme participants for the purpose of the Share Scheme.
Small scheme participants and participants in the Option Scheme who do not wish to receive new Pilbara Minerals shares may elect to participate in the sale facility by completing and returning an opt‑in notice so it is received before 5.00 pm (AWST) on 24 January 2025 (being the business day prior to the record date).[47]
[47] First affidavit of D Vilensky sworn on 6 November 2024, DXV-1 (page 83) (draft scheme booklet s 3.4(d)); DXV-6 (pages 370, 910) (share scheme of arrangement cl 6.4(b), option scheme of arrangement cl 6.4(b)).
Small scheme participants and participants of the Option Scheme who have provided the registry with a valid opt-in notice will have the Share Scheme Consideration or Option Scheme Consideration (as the case may be) to which they would otherwise be entitled issued to the sale nominee. The sale nominee will sell those new Pilbara Minerals shares and remit to electing scheme participants their pro rata share of the net cash proceeds under the sale facility.
Performance rights
As at 6 November 2024 Latin Resources had issued 89,500,000 performance rights.[48] Under the scheme implementation agreement, Latin Resources is obliged to take all action necessary to ensure that arrangements are made to ensure there will be no outstanding Latin Resources performance rights upon the 'implementation date' (as defined in the draft scheme booklet).
[48] First affidavit of D Vilensky sworn on 6 November 2024 pars 20(c), 73(a), DXV-1 (pages 107 - 108) (draft scheme booklet s 5.10(c)).
Latin Resources is obliged to cause all of the outstanding performance rights to vest and, following such vesting, cause the relevant number of Latin Resources shares to be transferred or issued to the relevant former holder to allow that holder to participate in the Share Scheme; and to take such action as may be necessary to cancel any outstanding Latin Resources performance rights which it does not cause to vest.[49]
Latin Resources loan funded shares
[49] First affidavit of D Vilensky sworn on 6 November 2024 pars 74 ‑ 75, DXV-1 (pages 48 - 49).
As at 6 November 2024 Latin Resources had 4,000,000 Latin Resources loan funded shares.[50]
[50] First affidavit of D Vilensky sworn on 6 November 2024 pars 20(d), 73(b), DXV-1 (page 108) (draft scheme booklet s 5.10(d)).
Under the scheme implementation agreement, Latin Resources and Pilbara Minerals agreed that Latin Resources loan funded shares will be treated in all respects consistently with Latin Resources shares under the Share Scheme.[51]
[51] First affidavit of D Vilensky sworn on 6 November 2024, DXV-1 (page 89) (draft scheme booklet s 3.6(b)); DXV‑6 (pages 783 ‑ 784) (scheme implementation agreement cl 4.11).
Subject to the Share Scheme resolution being passed, each holder of Latin Resources loan funded shares has irrevocably instructed a broker appointed by Latin Resources to sell on their behalf all of the Latin Resources loan funded shares that they hold. In accordance with the terms of the 'Target Latin Resources Loan Funded Share Plan' (as defined in the scheme implementation agreement),[52] all outstanding loans in respect of the Latin Resources loan funded shares will be deemed repaid (to the limited recourse extent required under their terms) from the proceeds (net any brokerage fees or transaction costs) of such sale, so that there will be no outstanding loans in respect of the Latin Resources loan funded shares. The Latin Resources loan funded shares will, following repayment of the relevant loan, be treated as Latin Resources shares under the Share Scheme.
[52] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (page 765).
Mr Vilensky deposed in his first affidavit that to the best of his knowledge and belief, each person who holds Latin Resources loan funded shares had irrevocably agreed with Latin Resources that all outstanding loans in respect of the Latin Resources loan funded shares will be repaid (to the limited recourse extent required under the loan terms) by no later than the 'effective date' (as defined in the draft scheme booklet).[53]
Position of the directors of Latin Resources
[53] First affidavit of D Vilensky sworn on 6 November 2024 par 79, DXV-1 (page 48).
As is noted above, the directors of Latin Resources have unanimously recommended that Latin Resources shareholders vote in favour of the Share Scheme and that Latin Resources optionholders vote in favour of the Option Scheme subject to no superior proposal emerging and the independent expert concluding (and continuing to conclude) that the Schemes are in the best interests of the securityholders of Latin Resources.[54] As is also noted above, the directors have also unanimously recommended that in the absence of a superior proposal, the Latin Resources shareholders vote in favour of the Demerger resolution.[55]
[54] First affidavit of D Vilensky sworn on 6 November 2024 par 115.
[55] First affidavit of D Vilensky sworn on 6 November 2024 par 44, DXV-1 (draft scheme booklet, Annexure I, demerger meeting materials s 2.8).
The Latin Resources directors' additional interests in Latin Resources have been disclosed in the draft scheme booklet. They were also summarised in the outline of submissions filed in advance of the hearing at par 82(a) ‑ (e), which summary (accurate as at 4 November 2024) is convenient to reproduce here:
(a)Mr Chris Gale has 31,000,000 Latin Performance Rights and 2,000,000 Latin Loan Funded Shares. The value of those incentives calculated based on the price per Pilbara Share as at 14 August 2024 (being the date that the [scheme implementation agreement] was executed), totals $6,184,500. Mr Gale will also receive a once off lump sum payment of $529,167 to be made under the Consultancy Agreement and Pilbara Consultancy Agreements. The total of Mr Gale's interests is approximately $6,713,667.
(b) Mr David Vilensky has 3,000,000 Latin Performance Rights and 1,000,000 Latin Loan Funded Shares. The value of those incentives calculated based on the price per Pilbara Share as at 14 August 2024 (being the date that the [scheme implementation agreement] was executed), totals approximately $598,500.
(c)Mr Peter Oliver has 20,000,000 Latin Performance Rights. The value of those Latin Performance Rights calculated based on the price per Pilbara Share as at 14 August 2024 (being the date that the [scheme implementation agreement] was executed), totals approximately $3,990,000.
(d) Mr Brent Jones has 3,000,000 Latin Performance Rights and 1,000,000 Latin Loan Funded Shares. The value of those incentives calculated based on the price per Pilbara Share as at 14 August 2024 (being the date that the SIA was executed), totals approximately $598,500.
(e) Mr Pablo Tarantini has 3,000,000 Latin Performance Rights. The value of those Latin Performance Rights calculated based on the price per Pilbara Share as at 14 August 2024 (being the date that the SIA was executed), totals approximately $598,500. (footnotes omitted)
Voting intention statement
A voting intention statement was provided by Latin Resources' major shareholder Mr Manzano (representing 7.2%), by which he indicated his intention to vote in favour of the proposed Share Scheme, subject to no superior proposal emerging and the independent expert concluding (and continuing to conclude) that the Share Scheme is in the best interests of the shareholders of Latin Resources. That intention is disclosed in the draft scheme booklet. [56]
Independent expert's report
[56] Outline of submissions par 87; first affidavit of D Vilensky sworn on 6 November 2024 [23] - [24], DXV‑5, DXV-1 (pages 43 - 46); second affidavit of JY Wang affirmed on 28 November 2024, JYW-7 (pages 17 and 31).
Latin Resources engaged an independent expert to provide an opinion as to whether the proposed Schemes were in the best interests of Latin Resources securityholders.[57] The independent expert, BDO Corporate Finance Australia Pty Ltd, concluded that in the absence of a superior proposal, they considered the Schemes to be fair and reasonable, and in the best interests of Latin Resources shareholders and optionholders.[58]
[57] First affidavit of D Vilensky sworn on 6 November 2024 par 126, DXV-1 (draft scheme booklet, Annexure A, Independent Expert's Report s 2.1) (page 204).
[58] First affidavit of D Vilensky sworn on 6 November 2024, DXV-1 (draft scheme booklet, Annexure A, Independent Expert's Report s 2.3) (page 205).
Legal principles
In Re Western Areas Ltd; Ex Parte Western Areas Ltd [2022] WASC 193, Hill J succinctly summarised the legal principles to be applied at a first court hearing, which I reproduce below and I applied in determining Latin Resources' application:
[26]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.
[27]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.[59]
[59] CSR Limited, in the matter of CSR Limited [2010] FCAFC 34; (2010) 183 FCR 358 [7].
[28]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:[60]
[60] SRG Limited, in the matter of SRG Limited [2018] FCA 1092 [11]; Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 [60].
(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[61]and provides proper disclosure;[62]
(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;[63]
(f)the procedural requirements of the Act and the Corporations Rules 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.
[29]Any issue about classes of members is usually determined at the first hearing.[64] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[65]
[30]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.[66] 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.[67]
[61] Corporations Act s 412(1)(a)(ii); Corporations Regulations 2001 (Cth) reg 5.1.01, sch 8 cl 8301 ‑ cl 8310.
[62] Corporations Act s 412(1)(a)(i).
[63] Corporations Act s 411(2)(b).
[64] CSR Limited, in the matter of CSR Limited [73].
[65] In the matter of Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 [20].
[66] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[67] SRG Limited, in the matter of SRG Limited [12]; Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [72] ‑ [76].
Disposition
Principle matters - s 411(1)
The formal matters that Latin Resources was required to establish were satisfied. They were comprehensively addressed in the outline of submissions filed on behalf of Latin Resources in advance of the hearing. I address them briefly below.
Part 5.1 body
The term 'Part 5.1 body' is defined in s 9 of the Corporations Act to mean, relevantly a company. The term 'company' is defined in s 9 to mean, relevantly, a company registered under the Corporations Act. Latin Resources is a public company registered under the Corporations Act, and therefore a pt 5.1 body.
A compromise or arrangement within the meaning of s 411
As to the Share Scheme, the Share Scheme participants are members of Latin Resources. The term 'member' is defined in s 9 of the Corporations Act to mean, in relation to a company, a person who is a member under s 231.
The proposed Share Scheme if approved would be between Latin Resources and its shareholders, as shown on its register of members. The proposed Share Scheme is an 'arrangement' of a type that has been accepted by courts on numerous occasions.
As to the Option Scheme, it is a creditors' scheme, not a members' scheme, as optionholders are generally considered to be contingent creditors.[68]
[68] Westgold Resources Ltd [2012] WASC 301 [16] as cited in Re Doray Minerals Ltd; Ex Parte Doray Mineral Ltd [2019] WASC 57 [40].
Latin Resources optionholders are creditors within the meaning of s 411 of the Corporations Act, and the proposed Option Scheme is a 'compromise' in that its proposed terms affect the Latin Resources optionholders in their capacity as creditors.[69] The proposed Option Scheme is a 'compromise' of a type that has been accepted by courts on numerous occasions.
Members or creditors of the same class
[69] Outline of submissions par 19, referring to Security Matters Limited, in the matter of Security Matters Limited [2023] FCA 19 [35(b)] (and authorities cited therein).
An arrangement to which s 411(1) of the Corporations Act applies is one between a company and its members or creditors or any class of them. Section 411 does not define the term 'class'. In determining whether a new or separate class is required, the following threefold test is to be applied.[70]
[70] First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 320 FLR 78 [77] - [81]; Re Zenith Energy Ltd; Ex Parte Zenith Energy Ltd [2020] WASC 266 [36].
First, what are the rights which existing members have against the company and to what extent are they different? Secondly, to what extent are those rights affected by the scheme? Thirdly, does the different treatment of rights make it impossible for the members in question to consider the scheme as one class?
For the reasons set out below, I was satisfied that the Scheme Meetings will be convened between members of the same class and creditors of the same class.
Share Scheme
As to the Share Scheme, the orders sought on behalf of Latin Resources assumed that the Latin Resources shareholders form only one class for purposes of voting on the proposed Share Scheme as they have the same rights in the Share Scheme, mainly the right to receive the Share Scheme consideration for their Latin Resources shares.[71]
[71] Outline of submissions par 21 citing DDH1 Limited, in the matter of DDH1 Limited [2023] FCA 982 [16]; Allkem Ltd, the matter of Allkem Limited [2023] FCA 1397 [86]; Technology Metals Australia Limited v Australian Vanadium Limited [2024] WASC 26 [28].
I was satisfied that the proposed Share Scheme and the existence of mechanisms to deal with ineligible foreign shareholders, small scheme participants, Latin Resources performance rights and Latin Resources loan funded shares were not class‑creating.
Option Scheme
For the purposes of the Option Scheme, the optionholders have been treated as a group. A class of company creditors can be treated as a group when they are 'not so dissimilar as to make impossible for them to consult together with a view to their common interest'.[72] The following factors support a conclusion that Latin Resources optionholders form a single class for the purposes of s 411 of the Corporations Act.
[72] Re Westgold Resources Ltd [26] citing Sovereign Life Insurance Company v Dodd [1892] 2 QB 573, 583.
First, the Option Scheme Consideration has been calculated consistently with respect to each tranche of Latin Resources options using the Black‑Scholes option valuation model,[73] which is an appropriate valuation methodology[74] and was used by the independent expert.[75] While the volatility percentage used in the Black‑Scholes option valuation model differed between each tranche of Latin Resources options, the percentage was calculated consistently in accordance with customary valuation practice.[76]
[73] First affidavit of D Vilensky sworn on 6 November 2024 par 58, DXV-11 (page 1184).
[74] Outline of submissions par 24 citing Coventry Resources Ltd, in the matter of Coventry Resources Ltd [2012] FCA 1252 [23]; Security Matters Limited, in the matter of Security Matters Limited [72] (and authorities cited therein).
[75] First affidavit of D Vilensky sworn on 6 November 20204, DXV-1 (pages 258, 260 - 261).
[76] First Affidavit of D Vilensky sworn on 6 November 2024 par 57(d), DXV-11 (page 1184).
To the extent that a Latin Resources securityholder holds both Latin Resources shares and Latin Resources options, it is true that there is separate value for these separate securities dealt with by separate schemes, and that the different tranches of options have different expiry dates and exercise prices. That said, it is well‑accepted that treatment of two types of securities is not class‑creating.[77]
[77] SRG Limited, in the matter of SRG Limited [18], [29] - [33]; Tawana Resources NL, in the matter of Tawana Resources NL [2018] FCA 1456 [40] - [43]; Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 240 [36] - [39]; In the matter of InvoCare Ltd [2023] NSWSC 1180 [20].
As to option tranche designation 'LRSAAE' that expired on 30 December 2024, counsel for Latin Resources submitted that this tranche of options was not class-creating because those options were due to expire before the Option Scheme Meeting, leaving those optionholders ineligible to vote at that meeting.[78] I accepted the same.
Ineligible foreign shareholders
[78] ts 11 (28 November 2024).
There is a sensible commercial justification for the proposed sale mechanisms and for not requiring scheme companies to ascertain and comply (if possible) with numerous sets of foreign securities laws.[79] As was noted by counsel, in this case ineligible foreign shareholders will be treated by the common mechanism of a sale facility, and the cash proceeds they would otherwise be entitled to receive after sale of the Share Scheme Consideration will be remitted to them.[80]
[79] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [96], [97]; SRG Limited, in the matter of SRG Limited [18], [25] - [28].
[80] Outline of submissions par 23.
In the circumstances, I accepted that the mechanism proposed to deal with ineligible foreign shareholders was not class‑creating.
Small scheme participants
As was noted by counsel, small scheme participants who opt in will be treated by the common mechanism of the sale facility, and will be remitted the cash proceeds they would otherwise be entitled to receive after sale of the Share Scheme Consideration.[81]
[81] Outline of submissions par 23.
I also accepted that the mechanism proposed to deal with electing small scheme participants was not class-creating.
Performance rights
Latin Resources performance rights are not being dealt with by a separate scheme of arrangement as between Latin Resources and the holders of that class of securities. Instead, it is intended that Latin Resources performance rights will convert to Latin Resources shares and they will be dealt with by the Share Scheme.[82]
[82] First affidavit of D Vilensky sworn on 6 November 2024 par 75.
I accepted the submission made on behalf of Latin Resources that holders of Latin Resources performance rights are not in a separate class by reason of holding two different securities (being ordinary shares and Latin Resources performance rights) as they will not be treated differently under the proposed Share Scheme on account of holding these two different securities.[83]
Loan funded shares
[83] Outline of submissions par 22(a) citing SRG Limited, in the matter of SRG Limited [18], [29] - [33]; Excelsior Gold Limited, in the matter of Excelsior Gold Ltd [2018] FCA 2064 [36]; Re Firefly Resources Ltd [2021] WASC 376 [68]; Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 240 [38] - [39].
Latin Resources loan funded shares are ordinary shares subject to a holding lock while an outstanding loan for their purchase remains unpaid by each holder.
Under the scheme implementation agreement, Latin Resources and Pilbara Minerals agreed that the Latin Resources loan funded shares will be treated in all respects consistently with Latin Resources shares under the Share Scheme.
By agreements entered into between Latin Resources and each Latin Resources loan funded shareholder, the loans will be repaid (including by recourse to the shares if needed) by no later than the effective date (as defined in the scheme implementation agreement).[84]
[84] First affidavit of D Vilensky sworn on 6 November 2024 par 79, DXV-16 (pages 1368 ‑ 1369); outline of submissions par 22(b).
In light of the proposed treatment of the Latin Resources loan funded shares, I was satisfied that the loan funded shareholders are not in a separate class as they are not to be treated differently under the proposed Share Scheme on account of holding both the Latin Resources loan funded shares and ordinary shares, and are to receive specific value for each of the securities.[85]
Consideration by ASIC
[85] First affidavit of D Vilensky sworn on 6 November 2024 par 73(b); outline of submissions par 22(b).
Section 411(2) of the Corporations Act requires that before making an order, the court be satisfied of two matters. First, that ASIC has been given 14 days' notice of the hearing, or such lesser period of notice as the court or ASIC permits.[86] Secondly, that ASIC has had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement, and to make submissions to the court.[87]
[86] Corporations Act s 411(2)(a).
[87] Corporations Act s 411(2)(b).
ASIC considers that its role is to assist the court by, among other things, reviewing the content of the scheme's documents; reviewing the nature and function of the scheme; representing the interests of investors and creditors; and bringing all relevant matters to the court's attention before it orders a scheme meeting or confirms a scheme.[88]
[88] ASIC, Regulatory Guide 60: Schemes of arrangement [60.4].
The role of ASIC has been referred to by the High Court, which observed that its predecessor, the Australian Securities Commission, had an obligation to assist the court by presenting argument if it deemed that course necessary or desirable.[89] In an application such as this, the court relies on ASIC, as it is not for the court to fulfil the role of contradictor.[90]
[89] Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485, 506; Re Advance Bank Australia Ltd [No 2] (1997) 136 FLR 281, 287, cited in Seven Network Ltd (ACN 052 816 789), in the matter of Seven Network Ltd [2010] FCA 220 [15].
[90] Seven Network Ltd (ACN 052 816 789), in the matter of Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583 [43].
The draft scheme booklet was lodged with ASIC on 6 November 2024.[91] Copies of the sealed originating process, the first affidavit of Mr Vilensky, the second affidavit of Mr Vilensky, Latin Resources' outline of submissions filed on 27 November 2024, the draft proposed minute of orders dated 27 November 2024, and the affidavit of Mr Wilson were also provided to ASIC via email between 6 November 2024 and 27 November 2024.[92]
[91] First affidavit of D Vilensky sworn on 6 November 2024 par 92.
[92] First affidavit of JY Wang affirmed on 28 November 2024 pars 5 - 7.
I was satisfied that ASIC was given 14 days' notice of the first court hearing and had a reasonable opportunity to examine the terms of the Schemes, the draft explanatory statement, and the draft scheme booklet. The affidavit evidence made clear that there had been communications with ASIC, and that ASIC's comments had been reflected in amendments subsequently made to the scheme booklet.
On 28 November 2024, ASIC issued a letter regarding the scheme booklet and the proposed Schemes. By that letter, ASIC confirmed that it did not propose to appear to make submissions or intervene to oppose the Schemes at the first court hearing.[93] A copy of ASIC's letter was attached and marked JYW‑8 of the third affidavit of Mr Wang. In determining whether to make orders convening the Scheme Meetings I had regard to the same.
The explanatory statement
[93] Third affidavit of JY Wang affirmed on 27 November 2024, JYW-8.
I had regard to whether the proposed scheme booklet contained the prescribed information and provided proper disclosure.
The court was informed that the explanatory statement had been registered with ASIC and that ASIC had had a reasonable opportunity to examine the draft explanatory statement in accordance with s 412(6) of the Corporations Act.[94] There was various correspondence before the court between ASIC and KWM (on behalf of Latin Resources) that indicated ASIC had reviewed the explanatory statement and had waived certain requirements of the Corporations Regulations on the basis that various steps would be taken by Latin Resources to ensure proper disclosure.[95] I took comfort from ASIC's engagement.
[94] First affidavit of D Vilensky sworn on 6 November 2024 pars 90, 92.
[95] Third affidavit of JY Wang affirmed on 28 November 2024, JYW-9.
As to the standard of disclosure required by the explanatory statement, it was submitted on behalf of Latin Resources that the court will have regard to established considerations about the need for all the main facts and a fair and balanced picture being presented, such that it is satisfied, to a prima facie level, that there has been proper disclosure and there is nothing misleading or deceptive in any material sense.[96]
[96] Outline of submissions par 31 citing Re Wesfarmers Ltd [54] - [58]. See also Re NRMA Insurance Ltd (No 1) (2000) 156 FLR 349 [16].
Having considered the affidavits read, I was satisfied that in this case there would be proper disclosure as to the effect of the proposed Schemes and the material considerations for shareholders and optionholders of Latin Resources. In so concluding I had regard to the components of the scheme booklet, including the frequently asked questions, summaries and key considerations; the independent expert's report; the key notices of meeting and instruments annexed to the scheme booklet; and the scheme booklet overview which set out the framework of the proposed Schemes in clear terms.
There was also evidence before me as to the due diligence and verification process that had been undertaken by Latin Resources,[97] and by Pilbara Minerals in the preparation of the draft scheme booklet.[98] On the basis of this evidence, I accepted that:
(a)Latin Resources had conducted due diligence and had verified the information in the draft scheme booklet to ensure the inclusion of all information required under Australian law, ensure no omission of any material information, ensure the information was true and accurate, and was not false, misleading or deceptive, or likely to mislead or deceive (including by omission);
(b)Latin Resources had established a due diligence committee and was responsible for the due diligence process, which had included undertaking detailed due diligence enquiries in relation to, among other things, the preparation of the draft scheme booklet;
(c)the Latin Resources directors and representatives of KWM and Macquarie Capital had also attended meetings of the due diligence committee to provide updates and advice to the due diligence committee as required; and
(d)Pilbara Minerals had also undertaken a verification process in respect of Pilbara Minerals information in the scheme booklet.
Procedural matters
[97] Affidavit of D Vilensky sworn on 6 November 2024 pars 94 - 111.
[98] Affidavit of N Wilson affirmed on 27 November 2024 pars 13 - 25.
I was satisfied that the procedural requirements of the Supreme Court (Corporations) (WA) Rules 2004 had been met.
The requirements include compliance with r 3.2, which requires Latin Resources to file an affidavit stating the names of the persons nominated to be the chairperson and alternate chairperson of the scheme meeting; and that each person nominated is willing to act as chairperson, has had no previous relationship or dealing with Latin Resources or any other person interested in the scheme except as disclosed in the affidavit, and has no interest or obligation that may give rise to a conflict of interest or duty if the person were to act as chairperson of the scheme meeting, except as disclosed in the affidavit. The first affidavit of Mr Vilensky satisfied this requirement.[99]
Discretion enlivened - no reason not to convene the Scheme Meetings
[99] Affidavit of D Vilensky sworn on 6 November 2024 pars 132 - 135.
Having found that the formal and procedural matters had been satisfied, the court's discretion as to whether to convene the Scheme Meetings had been enlivened.[100] I then turned to consider whether the proposed Schemes were not inappropriate and whether the Schemes were of such a nature that sensible business people might consider to be of benefit to its members.[101] Further, I considered whether the Schemes offered a commercial proposition likely to gain the court's approval if passed by the necessary majority.[102]
[100] In the matter of InvoCare Ltd [16]; Technology Metals Australia Limited v Australian Vanadium Limited [34], cited in the outline of submissions par 37.
[101] Re Amcom Telecommunications Ltd [10].
[102] SRG Limited, in the matter of SRG Limited [12]; Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [72] ‑ [76].
As the application was made ex parte, counsel for Latin Resources properly raised and addressed a number of matters. When considered separately and together, I did not consider them to warrant the refusal of the application. They are discussed below.
Conditions precedent
It was emphasised by counsel that the implementation of the Schemes was subject to the satisfaction of conditions precedent, which included the regulatory authority condition precedent.[103]
[103] Outline of submissions pars 43 - 51; ts 5 - 6 (28 November 2024).
As to the risk attached to the regulatory authority condition precedent, I had regard to the following.
First, the regulatory authority condition precedent was adequately disclosed to Latin Resources securityholders in the scheme booklet. It was clearly recorded that the conditions precedent were beyond the control of Pilbara Minerals and Latin Resources, and that there could be no guarantee that the conditions precedent would be satisfied or waived in a timely manner or at all.[104]
[104] Second affidavit of JY Wang affirmed on 28 November 2024, JYW-7 (draft scheme booklet s 3.5(b), s 8.2(b)) (pages 65 - 66, 137).
Secondly, some amendments were made to the scheme booklet to emphasise that the regulatory authority condition precedent may result in a potential delay of the Scheme Meetings and the second court hearing.[105]
[105] ts 6 - 7 (28 November 2024); first affidavit of JY Wang affirmed on 27 November 2024 par 11, JYW-1 (amended draft scheme booklet) (see amendments at pages 14, 27, 40).
Thirdly, as noted above, in an application such as this, the court relies on ASIC, as it is not for the court to fulfil the role of contradictor,[106] and after amendments were made to the scheme booklet, ASIC did not seek to be heard with respect to or in opposition to the application at the first court hearing.
[106] Seven Network Ltd (ACN 052 816 789), in the matter of Seven Network Ltd (No 3) [43].
Fourthly, courts have previously convened meetings despite there having been some uncertainty as to the timing of satisfaction of regulatory approvals, or indeed whether certain conditions precedent would be satisfied.[107]
[107] In the matter of Tatts Group Limited [2017] VSC 552 [25] - [28]; as discussed in Damian T & Rich A, Schemes, Takeovers and Himalayan Peaks (2021, 4th edition) [4.28(a)] (pages 222 - 225).
Fifthly, if there were to be a change with respect to the likelihood or expected timeframe for satisfaction of the conditions precedent, there was ample scope for Latin Resources to seek further orders.[108]
[108] Outline of submissions par 47.
On balance, having regard to all of the circumstances, I accepted that uncertainty as to the grant and timing of foreign regulatory approvals did not warrant withholding approval to convene the Scheme Meetings.
I also considered the risk attached to the implementation of the Share Scheme being conditional on the Option Scheme. I understood that if any of the conditions precedent to the Option Scheme were not satisfied (or waived) but the conditions precedent to the Share Scheme were satisfied (or waived), Latin Resources optionholders would retain their Latin Resources options in the existing, but no longer listed, Latin Resources entity. If this were to occur, I also understood that Pilbara Resources had indicated that its present intention would be to acquire the Latin Resources options by compulsory acquisition under ch 6A of the Corporations Act.[109]
[109] Outline of submissions par 50.
Counsel noted that the consideration to be paid in such circumstances must represent fair value as assessed by an independent expert nominated by ASIC,[110] and therefore there was a possibility that the consideration for the options paid if compulsorily acquired would be higher (or lower) than the Option Scheme Consideration.
[110] Corporations Act s 667A.
I was satisfied that this potential outcome was prominently disclosed to Latin Resources optionholders at s 1.5(h) and s 7.4 of the scheme booklet,[111] and that they would be provided with the information necessary for them 'to make a sensible commercial judgment in [their] own interests whether it was better to go along with the scheme or take [their] chance'.[112] This was not a matter fatal to the application.
Performance risk
[111] First affidavit of D Vilensky 6 November 2024, DXV-1 (pages 59 - 60, 143 - 144).
[112] Zenyth Therapeutics Ltd v Smith [2006] VSC 436; (2006) 60 ACSR 548 [91].
As was observed by counsel, performance risk or credit risk concerns the risk that after transferring shares or options, securityholders in a target will be left with no scheme consideration and no capacity to sue the acquirer to recover their shares or damages, or delay in the provision of the scheme consideration with the only remedy being to sue on a deed poll.[113]
[113] Outline of submissions par 52, citing Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [23].
I was satisfied that the nature and terms of the proposed Schemes were such that in this case, performance risk to Latin Resources securityholders was minimal,[114] and was not a basis to refuse to convene the Scheme Meetings.
[114] Outline of submissions par 58.
First, the mechanisms for the implementation of the Schemes were set out at cl 5.2 of the Share Scheme,[115] and cl 5.2 of the Option Scheme.[116] The obligations for Pilbara Minerals to provide Share Scheme Consideration and Option Scheme Consideration were set out at cl 6 of the Share Scheme and cl 6 of the Option Scheme, respectively. Under the Schemes, Pilbara Minerals is only entitled to the relevant securities subject to the provision of the Share Scheme Consideration and Option Scheme Consideration, respectively.[117]
[115] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (pages 866 - 867).
[116] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (page 905).
[117] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (pages 866 - 867, 906) (share scheme of arrangement cl 5.2(a)); option scheme of arrangement cl 5.2(a)).
These arrangements are supported by the Share Scheme Deed Poll and the Option Scheme Deed Poll, which were executed by Pilbara Minerals prior to the first court hearing.[118] By the deed polls, Pilbara Minerals undertook, in favour of the Latin Resources securityholders, to provide or procure the provision of the Share Scheme Consideration in accordance with the Share Scheme (Share Scheme Deed Poll, cl 3.1),[119] and the Option Scheme Consideration in accordance with the Option Scheme (Option Scheme Deed Poll, cl 3.1).[120] Separately, Latin Resources and Latin Resources securityholders participating in the Schemes have separate rights against Pilbara Minerals which include the right to rely on and enforce the deed polls against Pilbara Minerals for failing to provide the Share Scheme Consideration to Latin Resources shareholders (Share Scheme Deed Poll, cl 1.3),[121] and the Option Scheme Consideration to Latin Resources optionholders (Option Scheme Deed Poll, cl 1.3).[122]
[118] Affidavit of N Wilson affirmed on 27 November 2024 pars 26 - 27, NW-3; NW-4.
[119] Affidavit of N Wilson affirmed on 27 November 2024, NW-3 (page 204).
[120] Affidavit of N Wilson affirmed on 27 November 2024, NW-4 (page 240).
[121] Affidavit of N Wilson affirmed on 27 November 2024, NW-3 (page 203).
[122] Affidavit of N Wilson affirmed on 27 November 2024, NW-4 (page 239).
It was submitted that the text, structure and mechanisms of the scheme implementation agreement and the Schemes were such that no beneficial title could be obtained to the Latin Resources shares or to the Latin Resources options by Pilbara Minerals until the Share Scheme Consideration and the Option Scheme Consideration (as applicable) was provided.[123] When regard was had to the same, bolstered by the separate rights afforded to securityholders by the deed polls, I was satisfied that performance risk was not a reason to refuse the application.
Earlier communications - investor presentations
[123] Outline of submissions par 56.
In the course of the hearing, counsel addressed earlier announcements that had been made in relation to the Schemes, being the investor presentation dated 15 August 2024 annexed to Mr Vilensky's first affidavit marked DXV‑9; and the investor presentation dated 29 October 2024 annexed to Mr Vilensky's second affidavit marked DXV‑28.[124] It was acknowledged that there was no reference to an imminent despatch of a scheme booklet in either announcement.[125] Viewed in isolation, the announcements did not provide proper disclosure.
[124] ts 8 (28 November 2024).
[125] ts 8 (28 November 2024).
While unfortunate, the failure to record that a scheme booklet would be despatched was not so problematic as to put the application at risk. I agreed that the proposed despatch of the scheme booklet in conjunction with the communications to accompany the scheme booklet and the proposed ASX announcements would provide proper disclosure, and the more recently despatched documents would more likely be front of mind before the Scheme Meetings.
Demerger
Counsel for Latin Resources also sought to make plain what was intended in relation to the Demerger in the context of the transaction as a whole.[126]
[126] Outline of submissions pars 76 - 79; ts 12 (28 November 2024).
Among other things, it was emphasised by counsel that no separate scheme of arrangement was required for the Demerger.[127] Latin Resources' constitution provides for the reduction of capital by way of distribution of shares in ESG Minerals, and Latin Resources shareholders had already consented to receive securities of any other body corporate for the purposes of the Demerger.[128]
[127] ts 12 (28 November 2024).
[128] Outline of submissions pars 76 - 77.
As noted above, while separate transactions, the Demerger and the Schemes are related as the Share Scheme is conditional on the Demerger resolution being approved at a stand-alone meeting. Given the proposed timing of the meetings, the Latin Resources securityholders attending the Scheme Meetings will know whether or not the Demerger condition precedent had been satisfied before the Scheme Meetings.
It was also noted that had the Demerger been implemented by a scheme, then a court would generally have looked to be satisfied of the solvency and adequacy following a capital reduction under s 256B of the Corporations Act.[129] It was submitted that here, and for completeness, the court could be prima facie satisfied of the same when regard was had to the following:[130]
[129] Outline of submissions par 79.
[130] Outline of submissions pars 79(a) - (e), 80.
(a) the Latin Board has provided the relevant confirmation for section 256B(1) of the Act, as set out in a circular resolution of 6 November 2024, that 'the Capital Reduction will not materially affect the Company's ability to pay its creditors';
(b) the Demerger Annexure, which includes Notice of General Meeting to consider the Demerger, is in evidence, which includes confirmations in section 2.8 of Schedule 1 that the directors believe that the Demerger is in the best interests of Latin Shareholders and Latin as a whole, and that the Demerger is the best available option to realise the value of the 'non-core' assets in the current circumstances;
(c) Latin has access to the Bridging Facility Loan for short term cash requirements, …;
(d) the half yearly report to 30 June 2024 (as set out in Scheme Booklet at section 5.7(d)) for Latin records net assets of $103,647,197,125 such that even with the capital reduction of the 'non-core' assets to form ESG Minerals there will likely be a significant surplus of net assets; and
(e)Pilbara, as the proposed acquirer of Latin following the approval and implementation of the Demerger, has agreed to the Demerger under the [scheme implementation agreement] - and this is a reasonable indication that it does not see Latin's ability to pay its creditors as likely to be adversely impacted when, if the Schemes are implemented, it will be Pilbara's wholly owned subsidiary.
80.Accordingly, the Court can be satisfied that the Demerger is appropriate and consistent with the Act.
Having had regard to the above, I was satisfied that the Demerger was appropriate and not inconsistent with the requirements of the Corporations Act. I was prima facie satisfied that the Demerger did not undermine the statutory objects of the Corporations Act, and the proposed Demerger was not a basis to refuse to convene the Scheme Meetings.
Bridging loan facility
Counsel also emphasised that a bridging loan facility agreement had been executed on 9 September 2024 between Pilbara Minerals and Latin Resources, and had been secured by a general security deed against all Latin Resources' assets signed on the same day.[131]
[131] ts 13 (28 November 2024); outline of submissions pars 68 - 74. See the first affidavit of D Vilensky sworn on 6 November 2024 par 86(e), DXV-18; outline of submissions par 70.
By way of further context, counsel noted that:
(a)on 15 August 2024 Latin Resources announced to the ASX that Pilbara Minerals had agreed in principle to provide a bridging loan to Latin Resources for the amount of $10,000,000 which would be available for drawdown by Latin Resources towards the end of the anticipated process for the Schemes;[132]
(b)on 9 September 2024 Latin Resources and Pilbara Minerals executed a bridging loan facility agreement in respect to the bridging loan;[133]
(c)on about 19 November 2024 Pilbara Minerals advanced $5,000,000 to Latin Resources as a first draw down on the bridging loan;[134]
(d)pursuant to the general security deed executed on 9 September 2024, the bridging loan was secured over all of Latin Resources' present and future property and includes anything in respect of which Latin Resources has at any time a sufficient right, interest or power to grant a security interest;[135] and
(e)the bridging loan and the terms of the bridging loan facility agreement, including the circumstances which trigger the repayment of the bridging loan by Latin Resources, had been prominently disclosed in the scheme booklet at s 5.9 and s 8.6(a)(v).[136]
[132] Outline of submissions par 69; first affidavit of D Vilensky sworn on 6 November 2024 par 84, DXV-8.
[133] Outline of submissions par 69; first affidavit of D Vilensky sworn on 6 November 2024 par 85, DXV‑17.
[134] Outline of submissions par 69; second affidavit of D Vilensky sworn on 6 November 2024 par 25, DXV‑34.
[135] Outline of submissions par 70; first affidavit of D Vilensky sworn on 6 November 2024 par 86(e), DXV‑18.
[136] Outline of submissions par 71; first affidavit of D Vilensky sworn on 6 November, DXV-1 (pages 106 ‑ 107, 168 - 169).
Counsel for Latin Resources properly acknowledged that the court will examine loans and other agreements between targets and acquirers to ensure that their terms do not constitute a lock‑up device by preventing competition by a competing bidder for control of the target.[137] It was Latin Resources' position that the bridging loan facility agreement and general security deed in this case did not provide an unacceptable lock‑up device. It is convenient to reproduce here the reasons advanced:[138]
[137] Outline of submissions par 68, citing Cortona Resources Limited, in the matter of Cortona Resources Limited [2012] FCA 1295 [42] - [45]; Re Anatolia Energy Limited [2015] FCA 1134 [44] - [46]; Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd [2019] WASC 189 [64] ‑ [71]; Talon Energy Ltd, in the matter of Talon Energy Ltd [2023] FCA 1362 [23] - [26] (and authorities cited therein).
[138] Outline of submissions par 72 (original emphasis); see also ts 13 (28 November 2024).
(a) First, and most importantly, the Bridging Loan Facility Agreement does not contain an event of default making funds immediately repayable which is triggered by a no vote at the Scheme Meeting or upon the making of a superior proposal by a competing bidder. If there is a no vote, then the mandatory process for consultation under clauses 3.8 and 3.9 of the [scheme implementation agreement] applies, and termination can only occur under clauses 3.9 and 14.1(h)(i)-(ii) of the [scheme implementation agreement] after that period, and clause 6.2(b) of the Bridging Loan Facility Agreement 5 months after such staggered termination of the [scheme implementation agreement]. Similarly, Latin's recommendation of a superior proposal then permits 5 days prior to repayment falling due under clause 6.3, however this is common and the Latin Board and any suitor would have accommodated this in their superior proposal.
(b) Secondly, the terms of the Bridging Loan Facility Agreement are not, having regard to Latin's financial position at time of entry to the Bridging Loan Facility Agreement, extravagant, unreasonable or totally uncommercial so as to constitute a 'poison pill' and deter competing bidders:
(i) Latin required financing to fund its short-term working capital in the ordinary course of its business during the Transaction and the Latin Directors were satisfied with the terms of the Bridging Loan Facility Agreement;
(ii) the interest rate of 10% p.a. prescribed by clause 6 (and defined in clause 1.1) of the Bridging Loan Facility Agreement is a rate not inconsistent with higher risk commercial lending and not out of the ordinary;
(iii) the acceleration clause in 16.13 of the Bridging Loan Facility Agreement is a right that is limited to the Events of Default in clause 6, which must be continuing and they are not related to the proposal of the Schemes;
(iv) the existence of security, as featured also in other cases, is not problematic because provision by a competing bidder to pay out the principal outstanding under the Bridging Loan Facility Agreement should mean that Pilbara need not have recourse to it. While there is an acceleration right (clauses 9.1 and 9.2 of the General Security Deed), it is only if there is an Event of Default within clause 6 of the Bridging Loan Facility Agreement;
(v) the repayment period where the SIA is terminated is similar to other relevant market precedents, and the Latin Board considered it provides Latin with enough time to plan and execute a capital raising or other transaction to raise capital to repay the Bridging Loan; and
(vi) the events of default under the Bridging Loan Facility Agreement are of an ordinary kind and to be expected. For a number of Events of Default (save for the failure to pay any amount owing), Latin is allowed 15 business days to remedy any default before Pilbara is entitled to exercise any rights: clause 16.3, 16.4 and 16.8 of the Bridging Loan Facility Agreement. This provides time for Latin to remedy any Event of Default, or alternatively for Latin and any successful competing bidder (or alternative financier) to arrange repayment. There are shorter periods (immediate or 3 Business Days) for other Events of Default.
(c) Thirdly, the directors turned their minds to and considered the terms of the Bridging Loan Facility Agreement, including the risk that Latin may need to raise cash at short notice if Latin is not entitled to access the Bridging Loan, or Latin is required to repay the Bridging Loan on short notice. The repayment periods are referable to various termination triggers which sought to recognise the time that Latin would reasonably need to repay the Bridging Loan in certain circumstances. The repayment period of 5 days in the event the Latin Board recommends a superior proposal is short, however, the trigger event is within Latin's control as the Latin Board would not recommend a superior proposal unless the alternative proposal provided a funding solution to repay the Bridging Loan within the 5-day period.
(d) Fourthly, Latin has a successful history of equity capital raising and Latin could plan and execute a capital raising in the repayment periods agreed in the event the Schemes do not proceed. The size of the Bridging Loan, being $10,000,000, is a modest sum compared to Latin's market capitalisation of more than $500,000,000. Viewed in this context, the Bridging Loan simply operates as a mechanism for deferring a dilutive capital raising. Latin could also seek to reactivate its funding strategies process which was paused when the decision was taken to pursue to the Transaction opportunity.
(e) Fifthly, the Bridging Loan Facility Agreement has been disclosed to the market. It is also outlined in the Scheme Booklet in the FAQs and section 5.9. Shareholders know the terms. Any competing bidder can know what amount is outstanding and that they might have to address in making any competing proposal.
(f) Sixthly, the Independent Expert considered the Bridging Loan Facility Agreement in forming his opinion that the Schemes were in the best interests of Latin Securityholders.
(g) Seventhly, ASIC had enquired of the circumstances of the Bridging Loan Facility Agreement and has indicated that its queries have been satisfactorily resolved.
Having weighed these matters and all of the circumstances, I was satisfied that the bridging loan facility agreement did not constitute a lock‑up device and that the bridging loan facility agreement was not a basis to refuse to convene the Scheme Meetings.
Recommendation of the directors of Latin Resources
At [69] and [70] above, the position taken by the directors of Latin Resources in regard to the Schemes and their respective interests are summarised.
The appropriateness of a recommendation by directors with an interest in the outcome of a proposed scheme has been considered on a number of occasions by this court.[139]
[139] See for example Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd [72] - [89]; Re NTM Gold Ltd; Ex parte NTM Gold Ltd [2021] WASC 22 [64] ‑ [69]; Re Dreamscape Networks Ltd [2019] WASC 412 [78] ‑ [83]; Creso Pharma Limited [2019] WASC 472[57] ‑ [68]; Re Zenith Energy Ltd [66] - [88]; Re Exore Resources Ltd; Ex Parte Exore Resources Ltd [2020] WASC 285 [62] - [69]; Re Western Areas Ltd; Ex Parte Western Areas Ltd [62] - [70]; Firefly Resources Ltd [92] - [96]; Re Swick Mining Services Ltd; Ex Parte Swick Mining Services Ltd [2022] WASC 79 [69] - [76].
In Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd, Vaughan J considered the appropriateness of director recommendations, drawing from the observations made by Farrell J in Gazal Corporation Limited, in the matter of Gazal Corporation Limited [2019] FCA 701. His Honour observed:
[84][In Gazal Corporation Limited, in the matter of Gazal Corporation Limited] Farrell J assessed the appropriateness of a recommendation by directors with an interest in the outcome of a scheme. One of the executive directors was to receive a $1.7 million bonus if the scheme became effective. Her Honour stated:
[D]irectors who are interested in the outcome of the scheme because they stand to receive a bonus or benefit (other than as a shareholder) only if the scheme proceeds should exercise caution in making recommendations and, in my view, generally should not do so.
[85]Farrell J had earlier observed that it would have been better practice for the executive director to adopt the 'common practice' of declining to make a recommendation and to explain that the reason for this was that he stood to receive a substantial benefit (depending on the outcome of the scheme) that other shareholders would not receive. As to the practical necessity for such a recommendation - the circumstance that the scheme implementation agreement required it - Farrell J observed that the question of whether it is appropriate for all directors to make a voting recommendation should be considered at the time that the agreement was negotiated and conditions crafted appropriately. I respectfully agree.
[86]In [Gazal Corporation Limited, in the matter of Gazal Corporation Limited] Farrell J approved the scheme, despite the interested director's recommendation, but offered the caution that scheme proponents cannot count on that always being the outcome when an interested director elects to make a recommendation. (Footnotes omitted.)
In Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd, Vaughan J concluded that it was appropriate to make orders convening the scheme meeting and approving the scheme booklet for distribution, despite the fact that two executive directors of the company would obtain a collateral benefit should the company's shareholders vote to approve the scheme of arrangement. His Honour did so for reasons expressed as follows:[140]
•The additional and different interest held by the executive directors was not out of the ordinary and within the scope of what might be considered commercially not unreasonable, ie one year's salary.
•The additional and different interest held by the executive directors arose under pre-existing contracts executed well before the [scheme implementation deed].
•The additional and different interest held by the executive directors was linked to the possibility that their employment might be terminated immediately after the scheme becomes effective: the executive directors are not entitled to notice of termination or payment in lieu of notice if terminated within six months after the change in control. Accordingly, there is a not unreasonable commercial rationale for the bonus payment.
Most importantly, however, the scheme booklet made fulsome and prominent disclosure of [the executive directors'] additional and different interests. That disclosure was amplified after I, through chambers, brought the decision of Farrell J in [Gazal Corporation Limited, in the matter of Gazal Corporation Limited] to the attention of Nzuri's legal representatives.
[140] Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd [87] - [88].
In Re Mod Resources Ltd; Ex Parte Mod Resources Ltd [2019] WASC 326 [86], Vaughan J observed that, in his view, the issue is fact sensitive.
In Re Dreamscape Networks Ltd at [79], Hill J indicated agreement with his Honour's view as expressed in Re Mod Resources Ltd; Ex Parte Mod Resources Ltd. Further, her Honour found that in considering whether it is appropriate for a director to make a recommendation to shareholders to vote in favour of the scheme proposal, it is relevant to consider:
(a)the nature and extent of the additional payment to be received by the director;
(b)whether the additional payment to be made to the director is out of the ordinary or is within the scope of what might be considered commercial and not unreasonable;
(c)whether the payment arises in respect of a pre-existing contract executed well before the [scheme implementation deed];
(d)whether there is a commercial rationale for the payment;
(e)whether the total consideration to be received is not excessive or unwarranted;
(f)whether the scheme booklet makes appropriate and prominent disclosure of the director's interests.
I agree with and adopted the views expressed by Vaughan J and Hill J.
In all of the circumstances of this case, having given careful consideration to the directors' interests, I was satisfied that it was not inappropriate for the directors to make recommendations in respect of the Schemes for the following reasons advanced by counsel.
First, the existence and ownership of the Latin Resources performance rights arose as part of remuneration packages for the directors. Further, the performance rights and the loan funded shares were issued to Latin Resources directors well in advance of entry into the scheme implementation agreement in circumstances where the issue of the performance rights had been approved by the shareholders of Latin Resources as required by the ASX Listing Rules.[141]
[141] Outline of submissions par 83; first affidavit of D Vilensky sworn on 6 November 2024, DXV-4 (page 718).
Secondly, I accepted that the directors' additional interests were of a value that was not excessive, extravagant or out of the ordinary in context of a larger transaction such as this.[142]
[142] See by way of example In the matter of Coca-Cola Amatil Limited [2021] NSWSC 270 [14]; In the matter of Link Administration Holdings Limited [2022] NSWSC 650 [21]; Blackmores Limited, in the matter of Blackmores Limited [2023] FCA 624 [26]; Re NTM Gold Ltd; Ex parte NTM Gold Ltd [64] ‑ [69]; Re Galaxy Resources Ltd; Ex parte Galaxy Resources Ltd [2021] WASC 277 [59] - [70].
Thirdly, the recommendation of the directors of Latin Resources was contingent upon the independent expert continuing to conclude that the Schemes were in the best interests of the securityholders of Latin Resources,[143] and I accepted that this mechanism served as an important cross‑check.
[143] Outline of submissions par 86.
Finally, the directors' interests had been prominently disclosed in the scheme booklet.[144]
[144] First affidavit of D Vilensky sworn on 6 November 2024, DXV-1 (pages 177 - 179); second affidavit of JY Wang affirmed on 28 November 2024, JYW-7 (pages 76 - 78) (final scheme booklet dated 6 November 2024 s 10.1).
While there may be circumstances where a recommendation by a director will be inappropriate despite fulsome and prominent disclosure in a scheme booklet, in the circumstances of this case and for the reasons outlined above, I was satisfied that this was not such an occasion.
Voting intention statement
As to the voting intention statement of Mr Manzano, counsel relied on the submissions made in the written outline filed in advance of the hearing.[145]
[145] ts 13 (28 November 2024); outline of submissions par 87.
It was submitted, and I accepted, that Mr Manzano's voting intention statement met the requirements of being disclosed in the scheme booklet as to the identity of the holder, their holding and the qualifications of their statement.[146] It was further submitted and I accepted that there was no evidence before the court that Mr Manzano had received any inducement or benefit in order to obtain this support.[147] Indeed, Mr Vilensky positively deposed to not being aware of any benefit or inducement, separate to the Share Scheme Consideration, that had been given or offered to Mr Manzano for or in relation to his voting intention statement.[148]
Collateral benefit
[146] Outline of submissions par 87, referring to the Takeovers Panel Guidance Note 23: Shareholder Intention Statements, and citing Tawana Resources NL, in the matter of Tawana Resources NL [49] ‑ [57]; Re NTM Gold Ltd; Ex parte NTM Gold Ltd [70] - [75]; Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 1101 [55] - [59]; OreCorp Limited, in the matter of OreCorp Limited [2023] FCA 1359 [26]; Technology Metals Australia Limited v Australian Vanadium Limited [53] - [74].
[147] Outline of submissions par 87.
[148] First affidavit of D Vilensky sworn on 6 November 2024 par 24.
It was submitted on behalf of Latin Resources that there was nothing in the evidence that may be viewed as a benefit given to any securityholder of Latin Resources so as to induce them to vote in favour of the proposed Schemes.[149] As was noted by Hill J in Re Galaxy Resources Ltd; Ex parte Galaxy Resources Ltd at [57]:[150]
The court must examine whether a benefit exists for one shareholder in particular, so as to bring into question the overall fairness of the Scheme. 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. If no net benefit is present, then, prima facie, the equality principle under s 602(c) of the Act is satisfied.
[149] Outline of submissions par 88.
[150] See also Talon Energy Ltd, in the matter of Talon Energy Ltd [17(10)]; Technology Metals Australia Limited v Australian Vanadium Limited [75] - [76].
On the evidence before me there were no apparent collateral benefits to securityholders to induce them to vote in favour of the proposed Schemes.
Common scheme clauses
Counsel also appropriately drew to the court's attention that the proposed Schemes contain a number of common clauses which, when suitably framed or disclosed, courts have been content to approve.[151]
Exclusivity provision
[151] Outline of submissions pars 59 - 67, 89.
I considered the appropriateness of the exclusivity provision set out at cl 10 of the scheme implementation agreement which included 'no shop', 'no talk', 'notification' and 'matching right' obligations.
In considering whether an exclusivity provision may impact on the completion of the transaction and the duties of directors, the court will have regard to the period of exclusivity, which should be no more than a reasonable period and capable of precise ascertainment; whether the provisions are subject to an overriding obligation that the directors not breach their fiduciary duties or are otherwise unlawful; and whether there is adequate prominence given to these provisions in the scheme booklet.[152]
[152] Re APN News & Media Ltd [29] - [35]; Kangaroo Resources Ltd; Ex parte Kangaroo Resources Ltd [2018] WASC 327 [57] - [61]; Re Pacific Energy Ltd [2019] WASC 443 [58].
I accepted the submission made on behalf of Latin Resources that the exclusivity provisions in the scheme implementation agreement were common and acceptable,[153] and gave particular regard to the fact that the exclusivity provisions were subject to fiduciary and statutory carve‑outs in cl 10.5 of the scheme implementation agreement; that the exclusivity period was a reasonable period capable of precise ascertainment; and that the exclusivity provisions had been sufficiently disclosed to Latin Resources securityholders in Annexure B to the scheme booklet.[154]
[153] Outline of submissions par 61 citing Re APN News & Media Ltd [23], [29] - [35], [49] - [55]; Talon Energy Ltd, in the matter of Talon Energy Ltd [17(8)]; Allkem Ltd, in the matter of Allkem Limited [80] ‑ [81].
[154] Outline of submissions par 61; first affidavit of D Vilensky sworn on 6 November 2024, DXV-1 (pages 343 - 344).
Having regard to the terms of the scheme implementation agreement, and weighing in the balance the submissions made by counsel, I was satisfied that the exclusivity provisions were within bounds and were not a reason to refuse to convene the Scheme Meetings.
Break fee provision
I also considered the break fee provision at cl 11 of the scheme implementation agreement.[155] In this case, Latin Resources may become liable to pay Pilbara Minerals a break fee of $6,000,000 in certain circumstances.
[155] First affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (pages 814 - 817).
As was noted by counsel, the Takeovers Panel 'Guidance Note 7: Lock-up devices' provides a 1% guideline as to break fee not generally being unacceptable and identifies that calculation is determined on 'aggregate of the value of all classes of equity securities issued by the target having regard to the value of the bid consideration when announced'. Further, counsel noted that the Supreme Court of Western Australia's Consolidated Practice Direction requires evidence of any break fee as a percentage of 'the implied equity value of the scheme proponent'.[156]
[156] Outline of submissions par 64; Supreme Court of Western Australia, Consolidated Practice Directions, PD 9.5.2 par 3(i).
As there is both a Share Scheme and an Option Scheme, there was evidence before the court of the calculations of the $6,000,000 break fee as a percentage of the total consideration of the Schemes, and on the basis that the Latin Resources options were exercised and converted to Latin Resources shares (and not part of the Option Scheme).[157] As recorded at par 65 of the outline of submissions:
(a) The Break Fee is 1.02% on the fully diluted equity value of Latin (as at the date of the [scheme implementation agreement]) when measured by reference to the aggregate of the Share Scheme Consideration (as applied to Latin Shares and Latin Performance Rights) and the Option Scheme Consideration (as applied to Latin Options), and assuming that no Latin Options are exercised.
(b) The Break Fee is 0.99% on the implied equity value of Latin (as at the date of the [scheme implementation agreement]) when measured by reference to the aggregate Share Scheme Consideration (as applied to Latin Shares and Latin Performance Rights) and assuming the Latin Options were exercised and converted to Latin Shares.
[157] First affidavit of D Vilensky sworn on 6 November 2024 par 141, as corrected in the second affidavit of D Vilensky sworn on 26 November 2024 par 28; and first affidavit of D Vilensky sworn on 6 November 2024 par 140, as corrected in the second affidavit of D Vilensky sworn on 26 November 2024 par 27.
Latin Resources maintained that the break fee was not excessive, was appropriate as it was unlikely to coerce shareholders voting, was common form for change of control transactions by scheme and was consistent with principle,[158] particularly in circumstances where:
(a) cl 11 of the scheme implementation agreement, including the amount of the break fee, had been agreed between Latin Resources and Pilbara Minerals following arm's length commercial negotiations, where both parties had been separately advised and represented by external advisers;[159]
(b) the break fee was not payable merely because the resolutions submitted to the Scheme Meetings as to the Schemes were not approved by the majorities required under s 411(4)(a)(ii) of the Corporations Act;[160] and
(c)the break fee was less than the 1% guidance if the equity value of Latin Resources was determined on the basis set out above at [165(b)].[161]
[158] Outline of submissions par 66, citing Tawana Resources NL, in the matter of Tawana Resources NL [37] - [38]; Healthscope Limited, in the matter of Healthscope Limited [2019] FCA 542; (2019) 139 ACSR 608 [146] - [153]; Re Galaxy Resources Ltd; Ex parte Galaxy Resources Ltd [56]; Vita Group Ltd, in the matter of Vita Group Ltd [2023] FCA 400; (2023) 165 ACSR 576 [24] - [26]; Talon Energy Ltd, in the matter of Talon Energy Ltd [17(9)]; Allkem Ltd, in the matter of Allkem Limited [78] - [79].
[159] Outline of submissions par 66(a); first affidavit of D Vilensky sworn on 6 November 2024 par 137.
[160] Outline of submissions par 66(b).
[161] Outline of submissions par 66(c).
Counsel also noted that the scheme implementation agreement at cl 12 provides for the payment to Latin Resources of a reverse break fee of the same amount in certain circumstances. It was submitted on behalf of Latin Resources that the reciprocity provision assisted in confirming the reasonableness of the break fee.[162]
[162] Outline of submissions par 67; first affidavit of D Vilensky sworn on 6 November 2024, DXV-6 (pages 817 ‑ 819).
Having regard to the terms of the scheme implementation agreement and matters raised on behalf of Latin Resources, I was satisfied that the break fee provision was within appropriate bounds and was not a reason to refuse the application.
Other provisions
Finally, counsel properly raised and addressed the clauses described below, which I considered to be common, adequately disclosed and suitably framed in the circumstances.
First, the deemed warranties provisions by which the securityholders of Latin Resources warrant that their shares and options (as applicable) are fully paid and free from encumbrances.[163] I was satisfied that the deemed warranties were permissible as they had been properly disclosed in the scheme booklet.[164]
[163] Outline of submissions par 89(a); first affidavit of D Vilensky 6 November 2024, DXV-6 (pages 868, 907) (share scheme of arrangement cl 5.6; option scheme of arrangement cl 5.6).
[164] Outline of submissions par 89(a), citing Tawana Resources NL, in the matter of Tawana Resources NL [28] - [29]; Re NTM Gold Ltd; Ex parte NTM Gold Ltd [76]; Re Galaxy Resources Ltd; Ex parte Galaxy Resources Ltd [79]; In the matter of Link Administration Holdings Limited [38]; first affidavit of D Vilensky 6 November 2024, DXV-1 (pages 58 - 59).
Secondly, the clear title provisions which record that the securityholders of Latin Resources agree to provide clear title to their shares and options on transfer, as applicable.[165] I accepted that the provision was suitably framed as it was expressed to be 'to the extent permitted by law'.[166]
[165] Outline of submissions par 89(b); first affidavit of D Vilensky 6 November 2024, DXV-6 (pages 867, 906) (share scheme of arrangement cl 5.4; option scheme of arrangement cl 5.4).
[166] Outline of submissions par 89(b).
Thirdly, the no liability in good faith provision, by which liability is excluded for things done or omitted to be done in performance of the Schemes or deed polls and in good faith.[167] I accepted that the inclusion of such a clause was not problematic as its ambit is limited so as to not extend to the failure to implement the Schemes at all, nor would it protect any act done other than in good faith.[168]
Despatch of the scheme booklet and proxy form
[167] First affidavit of D Vilensky 6 November 2024, DXV-6 (pages 878, 917) (share scheme of arrangement cl 10.4; option scheme of arrangement cl 10.4).
[168] Outline of submissions par 89(c) citing Re Galaxy Resources Ltd; Ex parte Galaxy Resources Ltd [71] ‑ [72]; Technology Metals Australia Limited v Australian Vanadium Limited [75] - [76].
Latin Resources proposed electronic despatch of the scheme booklet (including the Demerger annexure); the applicable proxy forms; and opt‑in notice by email to those securityholders who had nominated an electronic address for the purpose of receiving shareholder communications from Latin Resources. I accepted that such orders are now common.
Details were provided as to the terms of the proposed electronic notification, namely that email notices would be provided to securityholders who had agreed to receive electronic communications.[169] I was satisfied, having read the terms of the proposed email communication, that an order for electronic despatch of the scheme booklet was appropriate.
[169] Second affidavit of D Vilensky sworn on 26 November 2024 pars 7 - 8, DXV-24.
In respect of the securityholders who had not elected to receive communications by email, Latin Resources proposed to despatch a printed copy of the scheme booklet; copies of the applicable proxy forms; a copy of the opt-in notice; and a reply‑paid envelope (or in the case of an ineligible foreign holders, a return address envelope) for the return of that postal securityholder's proxy forms and opt-in notice (as applicable).[170] I considered this to be appropriate.
[170] First affidavit of D Vilensky sworn on 6 November 2024 par 129(b).
In respect of those securityholders who had not elected to receive communications by post or by email, Latin Resources proposed to provide the following documents by pre‑paid post addressed to the relevant addresses recorded in Latin Resources' register:[171]
(a)a notice and access letter containing a link to a website to access and download an electronic copy of the scheme booklet;
(b)copies of the proxy forms for the Scheme Meetings (as applicable);
(c)a copy of the opt-in notice (as applicable); and
(d)a reply-paid envelope (or in the case of an ineligible foreign holders, a return address envelope) for the return of that postal securityholder's proxy forms and opt-in notice (as applicable).
[171] First affidavit of D Vilensky sworn on 6 November 2024 par 129(c).
A bundle of the template notices and access letters for non‑electing securityholders were provided to the court. Having regard to these materials, I considered the proposed form of despatch to be appropriate.
Proposed shareholder communications outside of the scheme booklet
In accordance with the Supreme Court of Western Australia Consolidated Practice Directions,[172] Latin Resources informed the court of the nature of its intended communications with securityholders. The court was informed that Latin Resources had engaged Georgeson to:[173]
(a) operate the information telephone line for any Latin Resources securityholder who have questions about the Schemes (as applicable) or the Demerger; and
(b) operate an outbound telephone call campaign to retail Latin Resources securityholders to enquire whether the Latin Resources securityholder:
(i) had received the scheme booklet; and
(ii) had voted or intended to vote on the Schemes (as applicable) and if so, how that Latin Resources securityholder had voted or intended to vote.
[172] Supreme Court of Western Australia, Consolidated Practice Directions, PD 9.5.2 par 3(l). See also Vita Group Ltd, in the matter of Vita Group Ltd [2023] FCA 400; (2023) 165 ACSR 576, 585 - 586 [32]; Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 240 [99] - [102]; DDH1 Limited, in the matter of DDH1 Limited [2023] FCA 982 [22]; In the matter of InvoCare Ltd [25]; Talon Energy Ltd, in the matter of Talon Energy Ltd [29]; Allkem Ltd, the matter of Allkem Limited [90] - [92].
[173] Second affidavit of D Vilensky sworn 26 November 2024 par 13,
As was deposed by Mr Vilensky, Georgeson had been instructed to, in responding to queries from Latin Resources securityholders who call the shareholder information telephone line and in operating the telephone line, provide and include (as applicable) information that reflects and is consistent with information contained in the scheme booklet, to instruct the persons operating the telephone line not to depart from the information in the scheme booklet and any material way during those calls, and to offer no opinions on the proposed Schemes.[174] Further, he deposed that in administering the telephone line, it was intended that Georgeson would use a script based on information set out in the scheme booklet.[175] In addition to advising the court of the nature and fact of the proposed communications with securityholders of Latin Resources, a copy of the draft engagement scripts and the frequently asked questions to be referred to by Georgeson staff were annexed to Mr Vilensky's second affidavit.[176] They appeared to be based on information set out in the scheme booklet and did not give rise to concern.
[174] Second affidavit of D Vilensky sworn 26 November 2024 par 14.
[175] Second affidavit of D Vilensky sworn 26 November 2024 par 15.
[176] Second affidavit of D Vilensky sworn 26 November 2024, DXV-30 and DXV-31.
As to communications with securityholders of Latin Resources by the board, Mr Vilensky deposed that:[177]
(a) the Latin Board (with whom I have discussed these matters), does not intend to communicate with Latin Securityholders in terms that are materially different to what is set out in the draft Scheme Booklet;
(b) the Latin Board does not intend to make ASX announcements in terms that are materially different from what is set out in the draft Scheme Booklet (and if the proposed Schemes, or the Scheme meetings are referred to, to direct Latin Securityholders to read the full Scheme Booklet and any other Court approved disclosure);
(c) Latin has instructed its representatives not to, in the general course, provide information about the proposed Schemes other than what is set out in the Scheme Booklet and to direct Latin Securityholders to the full Scheme Booklet for them to consider and, if necessary, take their own legal, financial or other advice; and
(d) in accordance with Latin's continuous disclosure obligations, Latin will continue to provide disclosure to Latin Securityholders by way of ASX announcements as and when required in relation to the Scheme. Having considered the evidence of Mr Vilensky and the submissions made by counsel, I had no objection to the intended communications. If the communications remain within the bounds of the stated intention, they would not undermine the court approved disclosure in the explanatory statement.[178]
[177] Second affidavit of D Vilensky sworn 26 November 2024 par 17.
[178] Vita Group Ltd, in the matter of Vita Group Ltd, 585 - 586 [32]; Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 240 [100].
Finally, I had noted that Mr Vilensky had also deposed that following the first court hearing, if an order was made approving the despatch of the draft scheme booklet, Latin Resources intended to publish ASX announcements regarding the outcome of the first court hearing, the registration of the scheme booklet with ASIC, and confirmation of despatch of the scheme booklet.[179]
[179] Second affidavit of D Vilensky sworn 26 November 2024 par 18. See first affidavit of JY Wang affirmed on 27 November 2024, JYW-3, JYW-4 and JYW-5, for draft ASX announcements with respect to the outcome of the first court hearing, confirmation of the registration of the scheme booklet with ASIC, and confirmation of the despatch of the scheme booklet, respectively.
I had regard to the same and made order 16 of the orders made on 28 November 2024, that Latin Resources give notice of the second court hearing by publishing an announcement via the ASX substantially in the form of annexure 'JYW-6' to the first affidavit of Mr Wang affirmed on 27 November 2024.
Conclusion and orders for the first court hearing
As noted above, having given careful consideration to the materials filed, and having weighed in the balance the unanimous recommendation of Latin Resources directors; the conclusion of the independent expert; the involvement and expressed position of ASIC; and the matters drawn to the court's attention by counsel for Latin Resources, I was satisfied that there was no apparent reason why the court should not approve the convening of the Scheme Meetings.
Further, upon considering the comprehensive affidavit evidence filed in support of the application, and upon considering the submissions made by counsel, I was satisfied that the substantive and procedural requirements of s 411(1) and s 1319 of the Corporations Act had been satisfied, that the Schemes were fit for consideration by the securityholders of Latin Resources, and that leave ought to be given.
I also approved for distribution to the securityholders the scheme booklet containing the explanatory statement required by s 412(1)(a) of the Corporations Act. The orders made at the conclusion of the first court hearing are reproduced at sch A to these reasons.
Schedule A - Orders made on 28 November 2024
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KO
Associate to the Honourable Justice Strk
22 JANUARY 2025
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