Re MOD Resources Ltd; [No 2] - [2019] WASC 360

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   RE MOD RESOURCES LTD; EX PARTE MOD RESOURCES LTD [No 2] [2019] WASC 360
CORAM:   VAUGHAN J
HEARD:   8 OCTOBER 2019
DELIVERED          :   8 OCTOBER 2019
PUBLISHED           :   8 OCTOBER 2019
FILE NO/S:   COR 156 of 2019

EX PARTE
MOD RESOURCES LTD
Plaintiff
SANDFIRE RESOURCES NL
Interested Party

Catchwords:

Corporations law - Scheme of arrangement - Proposed share acquisition - Application for orders approving schemes under s 411(b) of the Corporations Act 2001 (Cth)

Legislation:

Corporations Act 2001 (Cth), s 411, s 1322

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiff	:	S K Dharmananda SC
Interested Party	:	P Tydde

Solicitors:

Plaintiff	:	DLA Piper Australia - Perth
Interested Party	:	Gilbert + Tobin

Case(s) referred to in decision(s):

Re Beadell Resources Ltd; Ex parte Beadell Resources Ltd [No 2] [2019] WASC 53
Re MOD Resources Ltd; Ex parte MOD Resources Ltd [2019] WASC 326
Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [2018] WASC 357

VAUGHAN J:

Summary

On 20 August 2019 I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) to convene a meeting of the holders of ordinary shares in MOD Resources Ltd (MOD). The meeting was convened to consider a proposed scheme of arrangement whereby Sandfire Resources NL (Sandfire) was to acquire all of the issued and to be issued share capital of MOD. I also made orders approving distribution of a scheme booklet.
The scheme meeting was held on 1 October 2019. MOD's members approved the scheme of arrangement by 98.33 per cent of votes cast and 93.19 per cent of members present in person or by proxy.
This morning application was made pursuant to s 411(4)(b) of the Act for orders approving the scheme. I made orders approving the proposed scheme of arrangement. These are my reasons for those orders.

Background and additional evidence

Incorporation of earlier reasons

I gave reasons for my 20 August 2019 orders in Re MOD Resources Ltd; Ex parte MOD Resources Ltd.[1]
[1] Re MOD Resources Ltd; Ex parte MOD Resources Ltd [2019] WASC 326.
I do not intend to repeat what was said in those reasons. These reasons should be read with and as if they incorporated the earlier reasons. In particular, I rely on what was stated in the earlier reasons as to:
1.The relevant entities, MOD and Sandfire ([1] to [2] and [6] to [15]).
2.The announcement of the acquisition proposal ([2]).
3.The nature of the proposed scheme of arrangement ([9] to [11], [16] to [25], [40], [57] to [63] and [94]).
4.The description of the scheme booklet ([30] to [32]).
5.The opinion expressed in the independent expert report ([26] to [29]).
6.The position of MOD's directors ([12] to [15], [54] and [84] to [93]).

Additional evidence

MOD relied on nine affidavits filed for the purpose of the first hearing.[2] That material was also formally relied on for this second hearing. In addition, MOD relied on the following affidavits:
1.Affidavit of Scott Gibson sworn 4 October 2019. Mr Gibson was the chairperson of the scheme meeting. Among other things, Mr Gibson confirmed the outcome of the meeting.
2.Affidavits of Hedley Roost sworn 3, 7 and 8 October 2019. Mr Roost is MOD's solicitor and deposed to a number of formal matters.
3.An affidavit of Rodney Somes sworn 4 October 2019 as to the conduct and outcome of the scheme meeting (Mr Somes being an employee of Computershare, the share registry provider to MOD, who supervised receipt of proxies and coordinated and recorded the voting of the members).
5.Affidavits sworn by employees of various external service providers to MOD who deposed as to the printing and dispatch of the scheme booklet (including the electronic dispatch of the scheme booklet to those members who had nominated for electronic dispatch).[3]
[2] Re MOD Resources Ltd; Ex parte MOD Resources Ltd [5].
[3] See affidavit of Suzanne Zollo sworn 13 September 2019; affidavit Rodney Somes sworn 27 September 2019; affidavit of Sarel Weber sworn 4 October 2019.
Senior counsel for MOD provided comprehensive written submissions dated 4 October 2019. Those submissions were briefly amplified before me at the hearing this morning. Counsel for Sandfire also appeared to support the application.

Disposition

Applicable legal principles

I identified the applicable legal principles on an application for approval of a proposed scheme of arrangement under s 411(4)(b) of the Act in Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2].[4]
[4] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd[No 2] [2018] WASC 357 [11] - [19].
In short, there are two main tasks. First, the court must be satisfied that all statutory and procedural requirements under s 411(4)(b) have been observed. Second, the court must determine in the exercise of its discretion whether to approve the scheme.
On the latter question, acknowledging that the members are better judges of what is in their commercial interests than the court, consideration is usually given to:
1.Whether shareholders voted in good faith and not for an improper purpose.
2.Whether the proposal is fair and reasonable.
3.Whether the scheme proponent has brought all relevant matters to the court's attention.
4.Whether there has been full and fair disclosure to members of all material information.
5.Whether minority shareholders would be oppressed.
6.Whether the court is satisfied that the scheme has not been proposed to avoid ch 6 of the Corporations Act 2001 (Cth).
7.Whether the Australian Securities and Investments Commission (ASIC) has no objections to the scheme.
8.Whether the scheme offends public policy.

Formal matters

MOD's further affidavit evidence establishes that:
1.A copy of the court's orders made 20 August 2019 was lodged with the ASIC on 21 August 2019.[5]
2.      A copy of the scheme booklet as approved for distribution was lodged with the ASIC and registered on 21 August 2019.[6]
3.      The scheme booklet was dispatched to MOD's members on 27 and 29 August 2019 in accordance with par 8 of the orders of the court made 20 August 2019 save in one respect as identified below.[7] Only one electronic notification failed.[8] That member was sent a hard copy of the scheme booklet on 6 September 2019.[9]
4.      The scheme meeting was held on 1 October 2019 in accordance with pars 2 to 6 and 9 of the orders of the court made 20 August 2019.[10]
[5] Affidavit of Hedley Roost sworn 3 October 2019, par 4.
[6] Affidavit of Hedley Roost sworn 3 October 2019, pars 4 - 5.
[7] Affidavit of Suzanne Zollo sworn 13 September 2019, par 18; affidavit Rodney Somes sworn 27 September 2019, par 16.
[8] Affidavit Rodney Somes sworn 27 September 2019, par 19.
[9] Affidavit Rodney Somes sworn 27 September 2019, par 21.
[10] Affidavit of Scott Gibson sworn 4 October 2019, pars 5 - 14 and attachment 'SDG-1'.
In one respect there was non-compliance with the orders of 20 August 2019 in relation to dispatch of the scheme booklet. The orders required that a colour copy of the scheme booklet be dispatched. That is what happened with the version of the scheme booklet that was provided electronically. However, an error occurred with the hard copy scheme booklets. By oversight the printer was instructed to print a black and white version rather than a colour copy.[11] It was the black and white version that was mailed out on 29 August 2019.[12] MOD took advice from its solicitors and counsel and decided that a colour version was required to be compliant with the court orders.[13] Accordingly, instructions were provided to reprint the scheme booklet in colour.[14] On 5 September 2019 the colour version was sent to those shareholders who had not nominated an electronic address.[15]
[11] See affidavit of Sarel Weber sworn 4 October 2019, pars 5 - 6, 10.
[12] Affidavit of Suzanne Zollo sworn 13 September 2019, pars 8, 17 - 20.
[13] Affidavit of Sarel Weber sworn 4 October 2019, pars 10.4, 11.1.
[14] Affidavit of Sarel Weber sworn 4 October 2019, par 12.
[15] Affidavit of Suzanne Zollo sworn 13 September 2019, pars 19 - 24.
Accordingly, those shareholders without an electronic address were sent the scheme booklet twice: once in black and white and once in colour.
I was satisfied that, in effecting dispatch of the scheme booklet, there was substantial compliance with the orders of the court made 20 August 2019. MOD's legal advisers were technically correct in concluding that the scheme booklet should have been printed in colour. The version provided to the court, as approved for distribution, was in colour. That said, had I been approached at the time,[16] I may well have been persuaded to vary the order to permit the scheme booklet to take its black and white form.
[16] See Re Beadell Resources Ltd; Ex parte Beadell Resources Ltd [No 2] [2019] WASC 53 [22] - [24].
A document in the form approved for distribution, but in black and white rather than colour, was dispatched in accordance with the orders of 20 August 2019. Another fully compliant version was dispatched within a week. The deficiency was no more than a procedural irregularity. Accordingly, it did not invalidate the proceedings unless it caused or may cause substantial injustice.[17] There was nothing to suggest that might be the case. The procedural irregularity was no reason to withhold approval under s 411(4)(b).
[17] Corporations Act 2001 (Cth), s 1322(2).
While the non-compliance did not invalidate the proceedings as represented by the scheme meeting, I was nevertheless asked to make a validation order under s 1322(4)(a) of the Act. MOD sought the order to remove any doubt as to the efficacy of the scheme meeting and the validity of the resolution for approval.
I made such an order in Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2].[18] I was likewise prepared to make the validation order in the present case. The matter was procedural (in as much as it related to time) and the non-compliance inadvertent, ie MOD had acted honestly. Appropriate steps were taken to rectify the oversight as soon as practicable. No substantial injustice had been or was likely to be caused to any person. As to the exercise of discretion, the order was appropriate to remove any doubt as to the effectiveness of the scheme meeting and thus provide commercial certainty to those interested in the effectuation of the scheme of arrangement.
[18] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [30] - [35].
Before addressing the outcome of the scheme meeting there are two additional matters that should be noted.
In Re MOD Resources Ltd; Ex parte MOD Resources Ltd I referred to the fact that MOD intended to make an announcement by 25 September 2019 providing details of the number of shareholders opting for the cash consideration.[19] That duly occurred on 25 September 2019.[20] MOD announced that 159 shareholders holding a total of 101,176,973 ordinary shares had made a cash election. The total cash consideration for these shares would be approximately $45.5 million. That exceeded the cash consideration cap of $41.6 million. Accordingly, it was expected that the shareholders making a cash election would have their cash consideration scaled back on a pro-rata basis. MOD suggested that, based on current shareholdings, the cash election shareholders would receive $0.4111607 per MOD share and 0.005731 Sandfire shares for each MOD share.
[19] Re MOD Resources Ltd; Ex parte MOD Resources Ltd [40].
[20] Affidavit of Hedley Roost sworn 3 October 2019, attachment 'HJR-13'.
MOD's 25 September 2019 announcement was made based on the cash elections received to 19 September 2019. Based on the further affidavit evidence - and as explained by senior counsel for MOD this morning - it appears that the cash elections included elections on behalf of three custodians who held shares for certain swap counter parties under a hedge arrangement where the ultimate exposure was held by Athos Capital Ltd (Athos). Post-19 September 2019 Athos has become the registered holder of the hedge shares. However, as Athos has become the holder of the hedge shares after the last date for making a cash election it will not be able to make a cash election. The cash payable to shareholders cannot be calculated until the record date when the final share numbers of those who elected a cash consideration will be known. It has been suggested, however, that if the hedge shares are removed from the cash election pools the shareholders who made a cash election will receive the full $0.45 per MOD share and there will be no scale-back..
The scheme was also subject to a condition precedent involving shareholder approval of a transaction with Metal Tiger Plc in the form of proposed resolutions at an extraordinary general meeting (EGM) as described in Re MOD Resources Ltd; Ex parte MOD Resources Ltd.[21] The EGM was addressed in Mr Roost's affidavit sworn 7 October 2019. The results of the EGM were also attached to Mr Gibson's affidavit.[22] The transaction was approved by a vote of 98.22 per cent (132,013,123 in favour and 2,394,570 against).
[21] Re MOD Resources Ltd; Ex parte MOD Resources Ltd [77] - [78]. See generally at [72] - [83].
[22] Affidavit of Scott Gibson sworn 4 October 2019, attachment 'SDG-2'.
At the scheme meeting the proposed scheme of arrangement was approved by resolution with the required statutory majorities.
As to votes, 98.33 per cent of the votes cast were in favour of the resolution (204,284,103 in favour and 3,465,811 against). As to head count, 93.19 per cent of members in attendance by person or proxy voted in favour of the resolution (219 in favour and 16 against). Some 61.08 per cent of the shares on issue were voted (a relatively high proportion).[23]
[23] Affidavit of Scott Gibson sworn 4 October 2019, pars 11 - 13 and attachment 'SDG-3'.
It will be recalled from Re MOD Resources Ltd; Ex parte MOD Resources Ltd that some of the votes to be cast were to be tagged. The members whose votes were to be tagged comprised:
•the directors (21,594,402 shares);
•shareholders holding options (1,673,975 shares); and
•Metal Tiger Plc (67,686,791 shares).
The tagged shareholders held approximately 26.89 per cent of the total voting shares in MOD. If the tagged votes were removed from the voting totals it remained the case that the vote to approve the scheme passed by an overwhelming majority. Excluding the tagged votes the resolution passed by 97.03 per cent as to votes (113,328,935 in favour and 3,465,811 against) and 92.56 per cent as to head count (199 in favour and 16 against).[24]
[24] Affidavit of Scott Gibson sworn 4 October 2019, attachment 'SDG-3'.
Notice of the second court hearing was given by way of advertisements in The Australian and The West Australian newspapers of 2 October 2019.[25] That occurred in compliance with par 11 of the court's orders made 20 August 2019. No party appeared to oppose the approval of the proposed scheme of company arrangement.
[25] Affidavit of Hedley Roost sworn 3 October 2019, attachments 'HJR-14' and 'HJR-15'.
Finally, to complete satisfaction of the various formal matters, by letter dated 7 October 2019 the ASIC informed MOD pursuant to s 411(17) of the Act that it had no objection to the proposed scheme of arrangement.[26]
[26] Affidavit of Hedley Roost sworn 8 October 2019, attachment 'HJR-19'
Accordingly, all statutory and procedural preconditions to the court's approval were satisfied.

Exercise of discretion: usual matters

I was satisfied at the first hearing that the proposed scheme of arrangement was one that was fit for consideration by MOD's members. A sensible businessperson might consider that the scheme will be of benefit to the members.[27] In so holding, I relied in part on the opinion expressed by the independent expert report[28] and the views of the directors.[29] I was satisfied that those opinions were reasonably open.
[27] Re MOD Resources Ltd; Ex parte MOD Resources Ltd [96].
[28] Re MOD Resources Ltd; Ex parte MOD Resources Ltd [27], [29].
[29] Re MOD Resources Ltd; Ex parte MOD Resources Ltd [12].
My conclusions reached at the interlocutory first stage hearing have not altered. I remain satisfied that the proposed scheme is fair and reasonable such that an intelligent and honest shareholder properly informed might approve it. My view is bolstered by the overwhelming support that has been expressed for the scheme and the absence of any opposition to it. I also note that the additional affidavit evidence contains correspondence from the independent expert and the independent technical specialist confirming, as of yesterday, that no new information had come to their attention that would cause them to change their opinion.[30]
[30] Affidavit of Hedley Roost sworn 8 October 2019, attachments 'HJR-20' and 'HJR-21'.
There was nothing to suggest an absence of good faith or an improper purpose on the part of the members in approving the proposed scheme. Nothing in the scheme was oppressive. Nor was the scheme offensive to public policy. This was an acquisition scheme which followed a familiar path employed in numerous schemes of arrangement that have been approved by various courts over the years.
As to disclosure, at the first hearing, based on the evidence then before the court and for the reasons that I gave, I was satisfied that the draft scheme booklet would provide proper disclosure to MOD's members.[31] The additional affidavit evidence established that - apart from the initial non-colour printing of the hard copy scheme booklet - the scheme booklet as distributed was substantially in the form approved for distribution by the 20 August 2019 orders.[32]
[31] Re MOD Resources Ltd; Ex parte MOD Resources Ltd [55].
[32] Affidavit of Suzanne Zollo sworn 13 September 2019, attachment 'SZ-1'.
Nothing had arisen to suggest that there has not been full and fair disclosure. For the reasons I gave in approving the draft scheme booklet for distribution, I was satisfied that the scheme booklet as distributed met the requirements under s 411(3) and s 412(1) of the Act.
More generally, there was nothing to suggest that MOD had not brought to my attention all matters that could be considered relevant to the exercise of the discretion to approve the scheme.

Exercise of discretion: specific matters

Three specific matters were drawn to my attention that ought to be recorded.
First, senior counsel for MOD drew my attention to the directors' unanimous recommendation and the fact that two executive directors might obtain an employee retention payment. The recommendation and retention payment were fully disclosed in the scheme booklet. I considered this issue in making orders convening the scheme meeting.[33] I see no reason to now revisit what was stated on this subject in the context of the first hearing. The issue was dealt with appropriately by MOD and provided no reason not to approve the scheme.
[33] Re MOD Resources Ltd; Ex parte MOD Resources Ltd [84] - [93].
Second, the additional affidavit evidence adduced for the second hearing dealt with the status of the various conditions precedent to the scheme of arrangement. Specifically, the affidavit of Mr Roost sworn this morning attached as attachments 'HJR-22' and 'HJR-23' certificates of satisfaction of conditions precedent on the part of both MOD and Sandfire. The certificates confirm satisfaction or waiver of all conditions precedent other than court approval. Accordingly, the evidence established that the only remaining substantive condition precedent was the court's approval under s 411(4)(b) of the Act.
Third, as to s 411(17), MOD relied on the ASIC's no objection letter. It was acknowledged that, while this usually brings an end to that issue, the letter does not bring an end to the court's discretion. Against the possibility that there might have been an adverse exercise of discretion, MOD contended that the court should not take an excessively rigid view. I accept that, in the present case, there was a commercially rational reason to choose a scheme of arrangement over a takeover: implementation of a scheme provided certainty of outcome (100 per cent ownership) through a single process. I accepted that there was no proscribed purpose in terms of s 411(17).

Section 411(11) exemption

MOD sought an exemption from s 411(11) of the Act. No ongoing purpose would have been served by requiring the orders approving the scheme to be annexed to MOD's constitution. The orders will be irrelevant once MOD becomes a wholly owned subsidiary of Sandfire. Accordingly, I made orders under s 411(12) exempting MOD from this requirement.

Conclusion and orders

I was satisfied that I should approve the proposed scheme of arrangement and make orders substantially in the terms as sought by MOD. Accordingly, I made orders in the following terms:
1.Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the plaintiff and its members, in the form contained in annexure 3 of the scheme booklet, which is set out in pages 423 to 447 of exhibit CJS-3 to the affidavit of Christopher Seotis sworn 20 August 2019 in this proceeding, is approved.
2.Pursuant to s 411(12) of the Act, the plaintiff is exempt from compliance with s 411(11) of the Act, in relation to the scheme of arrangement referred to in order 1.
3.Pursuant to s 1322(4)(a) of the Act, the court declares that, with effect nunc pro tunc from the time they occurred, the following acts, matters and things, namely:
(a)the scheme meeting; and
(b)the resolution passed at the scheme meeting,
are not invalid by reason of any contravention of s 412(1) of the Act insofar as the plaintiff dispatched a black and white version of the scheme booklet to members on or before 29 August 2019.
4.These orders are to be entered forthwith.
5.An office copy of these orders is to be lodged with the Australian Securities and Investments Commission on 9 October 2019.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EP
Research Associate to Justice Vaughan
8 OCTOBER 2019