Re NTM Gold Ltd
[2021] WASC 22
•28 JANUARY 2021
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE NTM GOLD LTD; EX PARTE NTM GOLD LTD [2021] WASC 22
CORAM: VAUGHAN J
HEARD: 27 JANUARY 2021
DELIVERED : 27 JANUARY 2021
PUBLISHED : 28 JANUARY 2021
FILE NO/S: COR 155 of 2020
BETWEEN: NTM GOLD LIMITED
Plaintiff
Catchwords:
Corporations law – Scheme of arrangement – Proposed share acquisition scheme to effect merger – Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth) – Orders made convening meeting – Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 411, s 412, s 1319
Corporations (Coronavirus Economic Response) Determination (No 3) 2020
Supreme Court (Corporations) (WA) Rules 2004 (WA)
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | A J Papamatheos |
Solicitors:
| Plaintiff | : | Steinepreis Paganin |
Cases referred to in decision:
Re MOD Resources Ltd; Ex parte MOD Resources Ltd [2019] WASC 326
Re Navitas Ltd; Ex parte Navitas Ltd [No 2] [2019] WASC 218
Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd [2019] WASC 189
Re Saracen Mineral Holdings Ltd; Ex parte Re Saracen Mineral Holdings Ltd [2020] WASC 483
Re Tawana Resources NL (No 3) [2018] FCA 1952
Re Tawana Resources NL [2018] FCA 1456
Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308
Re Zenith Energy Ltd; Ex parte Zenith Energy Ltd [2020] WASC 266
VAUGHAN J:
Overview
The plaintiff, NTM Gold Ltd (NTM), is an Australian public company listed on the official list as conducted by the ASX Ltd (ASX).
On 16 November 2020 NTM made an ASX announcement as to a proposed merger with another ASX listed company, Dacian Gold Ltd (Dacian). It was proposed to effect the merger through a scheme of arrangement by which Dacian would acquire all of the issued ordinary shares in NTM. The ASX announcement followed entry into a scheme implementation deed (SID) on 15 November 2020.
By an originating process dated 22 December 2020, NTM sought orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) in relation to the proposed scheme of arrangement. The application came before me for hearing on 27 January 2021.
After hearing from counsel for NTM, I made orders in accordance with s 411(1) of the Act to convene a meeting of NTM's members to consider and vote on the proposed scheme. Ancillary orders were made as to the convening and conduct of the meeting. Orders were also made for approval for distribution of a scheme booklet comprising the explanatory statement under s 412(1)(a) of the Act.
I said that I would prepare written reasons for the orders in due course. These are my reasons for the orders made on 27 January 2021.
Evidence and background facts
NTM relied on eight affidavits from six deponents. Annexure 'A' to these reasons summarises the deponents, their relationship with NTM and Dacian and the nature of the evidence in the affidavits. Based on that affidavit evidence I record the following matters.
NTM was incorporated in May 2006. Its registered office is in West Perth, Western Australia. NTM is a gold exploration company with operations in the Eastern Goldfields region of Western Australia. Its key project, and current focus, is the 100% owned Redcliffe Gold Project located 40 km ‑ 60 km north‑east of Leonora, Western Australia.
NTM has a number of securities on issue:
1.685,609,211 fully paid ordinary shares.
2.60,000,000 unlisted options, each exercisable into an NTM share on payment of 10 cents, expiring on 31 March 2022.
3.2,500,000 performance rights each convertible into an NTM share on the satisfaction of certain performance conditions (these were granted under an incentive performance rights plan adopted by NTM's shareholders on 24 April 2018).
Dacian is a gold mining company focused on exploration and the development of gold projects and the production of gold in Western Australia. It has operations located in the North-Eastern Goldfields of Western Australia. Dacian is primarily focused on its 100% owned Mt Morgans Gold Operation located in Laverton, Western Australia. Dacian was incorporated in 2011 and listed on the ASX in 2012.
NTM and Dacian entered into the SID on 15 November 2020. The SID provides for the terms and conditions by which Dacian agrees to acquire the ordinary shares in NTM by means of a scheme of arrangement. The proposed consideration to be provided to NTM shareholders in accordance with the scheme is one fully paid ordinary share in Dacian for 2.7 NTM shares. Based on the volume weighted average share price for Dacian shares for the period of 30 trading days ending 13 November 2020, the scheme consideration represents an implied value of 14.1 cents per NTM share as at the date of execution of the SID. Based on the closing price for Dacian shares on 15 January 2021 – 48.5 cents – the scheme consideration represents an implied value of 17.96 cents per NTM share.
If effected the scheme will see the current shareholders of NTM holding approximately 31.6% of the issued ordinary shares in Dacian.
In announcing the SID, the directors of NTM identified the following suggested 'key benefits' for NTM shareholders:
Immediate value realisation event at an attractive premium:
· Exchange ratio of 1 Dacian share per 2.7 NTM shares represents an Implied Offer Price of $0.141 per share based on Dacian's 30-day VWAP and a 26.1% premium to the 30-day VWAP of both companies.
· An immediate and significant increase in the potential value of NTM's resources, particularly the near surface high grade mineralisation, via the ability to access to Dacian's processing facilities.
Significant shareholding in an established gold producer with ongoing exposure to the Redcliffe Gold Project:
· NTM Shareholders will hold a significant pro forma shareholding of 31.6% in the Merged Group.
· The Scheme provides an immediate transition from an explorer to gold producer whilst retaining meaningful exposure to ongoing exploration success at the Redcliffe Gold Project.
· Enables the Merged Group to accelerate and de-risk the development strategy of the Redcliffe Gold Project by utilising Dacian's established infrastructure and operational expertise.
Exposure to potential improved market rating and enhanced liquidity of the Merged Group:
· As a shareholder in the Merged Group, NTM Shareholders can expect to benefit from deeper trading liquidity and broader research coverage, enhanced scale and market positioning and potential future inclusion in relevant gold and ASX indices.[1]
[1] Ireland 1 annexure 'MAI-2'.
NTM has received a number of 'statement of intention' letters confirming that, in the absence of a superior proposal, the shareholder intends to vote its NTM shares in favour of the scheme. Such letters have been received from:
1.A number of entities associated with Dr Michael Ruane (one of NTM's non-executive directors). These entities comprise Empire Resources Ltd, Tyson Resources Pty Ltd and Kesli Chemicals Pty Ltd. As at 27 January 2021 these entities held a 13.89% interest in NTM.
2.An entity associated with Eduard Eshuys (another of NTM's non-executive directors). That entity is DGO Gold Ltd of which Mr Eshuys is the executive chairperson. As at 27 January 2021 DGO Gold Ltd held a 19.71% interest in NTM.
In addition, Edward van Heemst, the non-executive chairperson of NTM, holds 34,000,000 NTM shares (a 4.96% interest). Mr van Heemst, like all other NTM directors, intends to vote the NTM shares he controls in favour of the scheme in the absence of a superior proposal.
In the absence of a superior proposal, taking into account other interests held by other directors, shareholders representing a combined voting interest of 39.36% intend to vote their respective NTM shares in favour of the scheme. That intention is disclosed in the draft scheme booklet (scheme booklet; pages 2 ‑ 3, [5.4]).
NTM's directors unanimously recommend that its shareholders vote in favour of the scheme in the absence of a superior proposal. Since the announcement of the SID no alternate proposal has emerged. The directors' recommendation is, however, subject to an independent expert's report opining that the scheme is in the best interests of the shareholders. As will be seen, that has occurred.
Nature of the proposed scheme
By the proposed scheme, Dacian will acquire all the NTM shares on issue as at the date that the scheme is implemented (scheme terms, cl 2.5(b), cl 4.2). The consideration for the acquisition of the shares is one Dacian share for every 2.7 NTM shares held by an NTM shareholder (scheme terms, cl 2.5(a), cl 4.4, cl 5.1 - 5.2). Where there is a fractional entitlement, the shares to be issued will be rounded up or down to the nearest whole number of Dacian shares (scheme terms, cl 5.2(a)(i)). The unlisted options and performance rights stand outside the proposed scheme and are to be dealt with by private arrangement (SID, cl 3.1(c) - (d)).
NTM and Dacian have already entered into arrangements with the NTM option holder (there is a single option holder, DGO Gold Ltd) and the holder of the performance rights (NTM's managing director, Andrew Muir). Relevantly:
1.NTM, Dacian and DGO Gold Ltd have entered into an option cancellation deed[2] – the options will be cancelled on implementation of the proposed scheme and in substitution the option holder will receive broadly equivalent options issued by Dacian (equivalency being gauged in relative economic effect). The number of Dacian options to be issued was determined at a ratio consistent with the scheme consideration (one Dacian option for every 2.7 NTM options).
2.NTM, by its board, has determined that the performance rights will vest as NTM shares on a one-for-one basis if there is court approval of the proposed scheme. Those NTM shares will then become subject to the scheme and will be exchanged for Dacian shares on the same 2.7:1 basis as applies to all other NTM shares. Mr Muir's affidavit explains the reasoning by which the NTM board resolved to confer this benefit on him in as much as it constitutes an acceleration of the vesting and conversion of his performance rights.[3]
[2] Muir 1 annexure 'AJM-10'.
[3] Muir 1 pars 104 - 105.
There is one exception to the proposed share scheme consideration of one new Dacian share for 2.7 NTM shares. Ineligible Foreign Shareholders (every shareholder whose address is outside Australia or New Zealand) will have their NTM shares dealt with in accordance with a sale facility under the scheme and the net sale proceeds remitted to them (scheme terms, cl 5.7). A brokerage commission will apply. There are 18 Ineligible Foreign Shareholders holding 7,171,497 NTM shares. The shares held by Ineligible Foreign Shareholders comprise approximately 1.048% of the NTM shares on issue.[4]
[4] Muir 1 par 30.
The new Dacian shares as issued to the former NTM shareholders will rank equally with existing Dacian shares, be fully paid and will be listed for trading on the ASX (scheme terms, cl 5.3 - 5.4).
If the scheme is implemented, NTM will become a wholly owned subsidiary of Dacian and will be delisted from the ASX. However, the scheme will not become effective unless and until a number of conditions precedent are satisfied (scheme terms, cl 3.1 - 3.2). This includes the satisfaction or waiver of numerous conditions precedent in cl 3.1 of the SID. Those conditions include that Dacian receive all necessary consents, waivers and approvals under a facility agreement. That has already occurred.[5] Otherwise, the nature of the various conditions precedent remaining to be satisfied are fully disclosed in the draft scheme booklet (scheme booklet; [10.5], [12.2]). I consider those remaining conditions precedent to be relatively standard for a transaction of the type under consideration.
[5] Scheme Booklet [12.2] item 4.
Mr Muir, for NTM, has deposed that he is not aware of any reason why any of the conditions precedent may not be satisfied or waived.[6]
[6] Muir 1 par 27.
Dacian is not a party to the proposed scheme. However, the terms of the proposed scheme contemplate that it will provide a deed poll whereby it agrees to perform the actions attributed to it under the scheme (scheme terms, cl 2.4). Provision of the deed poll is a condition under the SID (SID, cl 7.2(e)). The deed poll has been executed and was in evidence before me.[7]
[7] Ferguson 1 annexure 'JIF-18'.
The SID contemplates that NTM will obtain an independent expert report (IER). The IER has been prepared by BDO Corporate Finance (WA) Pty Ltd and verified by Sherif Andrawes and Adam Myers, directors of BDO Corporate Finance (WA) Pty Ltd. Mr Andrawes has over 30 years' experience in the accounting profession; Mr Myers has over 20 years' experience. In part, the IER relies on an Independent Technical Specialist Report prepared by SRK Consulting (Australasia) Pty Ltd in relation to NTM's and Dacian's mineral assets.
Messrs Andrawes and Myers opine that, in the absence of a superior proposal, the proposed scheme is fair and reasonable to NTM shareholders. Therefore, in the absence of a superior proposal, Messrs Andrawes and Myers conclude that the scheme is in the best interests of the NTM shareholders. In coming to that conclusion, the independent experts determine the valuation range for 2.7 NTM shares on a controlling interest basis as being between 13.2 cents (low) to 25.1 cents (high) but adopt a preferred value of 19.2 cents. By contrast, the independent experts assess the value of the scheme consideration for those same 2.7 NTM shares on a minority basis to be between 22.4 cents per Dacian share (low) to 39.3 cents per Dacian share (high) with a preferred value of 30.5 cents per Dacian share. Accordingly, the scheme consideration is above the assessed valuation range of the NTM shares.
The IER summarises this information as follows:
The basis of the valuations, and the methodology employed, is set out comprehensively in the IER.
The independent experts state that, in the absence of any other relevant information and a superior proposal, the scheme is fair for shareholders.
In terms of reasonableness, the independent experts consider the advantages and disadvantages of the scheme. The advantages are said to be that: the scheme is fair to shareholders; the scheme provides shareholders with exposure to a producing mine; the merged entity may be able to use NTM's resources to increase production and extend the life of mine of the Mt Morgans Gold Operation; the merger will create an enlarged group and a re-rating as a mid-tier gold producer; the merger will create a group with a stronger balance sheet; there will be exposure to a more diversified suite of assets; and the NTM shareholders are not foregoing the opportunity to receive a control premium in the future. The independent experts identify two disadvantages: there will be a dilution of the NTM shareholders' interests and exposure to the Redcliffe Project; and the NTM shareholders will be exposed to the risk associated with holding shares in a company with debt.
Weighing these matters, and other considerations including the position of NTM shareholders if the scheme does not proceed, Messrs Andrawes and Myers opine that it is more advantageous for NTM shareholders if the scheme is approved. Accordingly, in the absence of other relevant information and a superior proposal, the independent experts consider that the scheme is reasonable for shareholders.
I was provided with the draft scheme booklet as submitted to the Australian Securities and Investments Commission (ASIC) on 22 December 2020[8] and the various amendments that have been made to the document since then.[9] At the hearing NTM relied on a final version of the draft scheme booklet dated 25 January 2021.[10]
[8] Ireland 1 annexure 'MAI-5'.
[9] Ferguson 1 annexure 'JIF-15'.
[10] Ferguson 1 annexure 'JIF-14'.
The scheme booklet itself comprises sections as follows (in the following order):
i.Important information regarding the directors' recommendations.
ii.Reasons to vote in favour of or against the scheme.
iii.An overview to the scheme booklet.
iv.Important dates and times.
v.Covering letter from the chairperson of NTM.
vi.Covering letter from the chairperson of Dacian.
vii.Meeting details and how to vote.
1.Key reasons to vote in favour of the scheme.
2.Reasons why shareholders may choose to vote against the scheme.
3.Implications if the scheme is not implemented.
4.Frequently asked questions.
5.Overview of the scheme.
6.Profile of NTM.
7.Profile of Dacian.
8.Profile of the combined group.
9.Intentions of Dacian and the combined group.
10.Potential risk factors.
11.Australian tax implications.
12.Implementing the scheme.
13.Key terms of the SID.
14.Additional information.
15.Glossary of defined terms.
The scheme booklet will be accompanied by substantial attachments which form part of the scheme booklet. These will include the final IER, the terms of the scheme of arrangement, a copy of the executed deed poll and the notice of meeting to the NTM shareholders. The scheme booklet will enclose a proxy form for voting purposes. The SID will not be included as an attachment to the scheme booklet but, as mentioned at [32.13] above, the key terms of the SID are outlined in the scheme booklet.
Legal framework
I described the applicable legal framework for an application of the nature brought by NTM in Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd.[11] I do not intend to repeat what I stated in Re Wesfarmers Ltd. I adopt and will apply what I stated in Re Wesfarmers Ltd.
[11] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 (Re Wesfarmers Ltd) [46] ‑ [78].
There are usually said to be six matters to be proved at this first stage of the process under s 411 of the Act. Those matters are that:
1.The plaintiff is a pt 5.1 body.
2.The proposed scheme is a compromise or arrangement within the meaning of s 411 of the Act. Here, relevantly, the question is whether the proposed scheme is an 'arrangement'.
3.The proposed scheme booklet will provide proper disclosure.
4.The scheme is bona fide and properly proposed.
5.The ASIC has had at least 14 days' notice of the proposed hearing date and has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and to make submissions.
6.The various procedural requirements of the Act and the Supreme Court (Corporations) (WA) Rules 2004 (WA) have been met.
It is also necessary that the court be satisfied that the scheme is of such a nature and cast in such terms that, if it receives a statutory majority at the scheme meeting, the court would be likely to approve the scheme at a hearing of an application which is unopposed. This does not require me to descend into the commercial merits or demerits of NTM's proposed scheme. It is enough if the scheme is such that it would be open to the members of NTM to adopt. I need only consider whether the proposed scheme is one that sensible business people might consider to be of benefit to the members.
Disposition: standard matters
Formal matters
The formal matters that NTM had to prove are satisfied.
NTM is a company; it is therefore a pt 5.1 body. The proposed scheme constitutes an 'arrangement'. This type of merger acquisition scheme has been approved by courts as an arrangement on numerous occasions.
By letter dated 27 January 2021[12] the ASIC confirmed satisfaction of the service requirement and that it had been provided with the reasonable opportunity required under s 411(2) of the Act. The ASIC also gave notice that it did not propose to appear to make submissions or intervene to oppose the scheme at the first hearing.
[12] Ferguson 2 annexure 'JIF-4'.
The various procedural requirements for making the orders were all attended to in the evidence; for example, there were the necessary consents and disclosures by the proposed chairperson of the scheme meeting and his alternate.
Properly proposed
On the materials there was nothing to suggest that the proposed scheme was unlawful or not properly proposed. There are no obvious flaws in the scheme such that it would be inappropriate for the scheme to be submitted to NTM's shareholders for their consideration.
As to the fact that there was proposed to be a single class of members, counsel for NTM drew my attention to the differential treatment proposed for Ineligible Foreign Holders. Differential treatment of this sort is commonplace in schemes of arrangement. It is not class creating as there is sufficient community of interest between the shareholders for them to consider whether the proposed scheme is in their collective interest.[13]
[13] Re Wesfarmers Ltd [91] ‑ [98].
Counsel for NTM also drew my attention to the circumstances that:
1.DGO Gold Ltd, as well as holding shares in NTM, held the NTM options and had entered into an option cancellation deed.
2.Mr Muir, as well as holding shares in NTM, held the performance rights.
Counsel submitted that these matters were not class creating. On a provisional basis, I agree. No shareholder is treated differently under the scheme on account of holding other securities. The rights of DGO Gold Ltd and Mr Muir, qua shareholder, are no different to those of the other shareholders. Neither DGO Gold Ltd nor Mr Muir will receive additional or different consideration as an NTM shareholder. In any event, as will be seen, NTM has agreed to tag the votes of DGO Gold Ltd and Mr Muir. If any shareholder wishes to contend that there is a class issue that may be agitated at the second hearing.
There were various other matters concerning the proposed scheme to which my attention was specifically drawn in written and oral submissions. Mention of those matters is best deferred and will be dealt with in the next main section of these reasons.
Disclosure and scheme booklet
I have read through the initial draft of the scheme booklet (as provided to the ASIC) and considered the various amendments made to that draft as were reflected in the final scheme booklet relied on at the hearing before me. I was also provided with the communications between the ASIC and NTM's legal representatives consequential upon the ASIC's review of the contents of the draft scheme booklet.[14] This resulted in a number of appropriate changes to the scheme booklet. Additionally, following my review of the draft scheme booklet, I raised – through my associate – a relatively small number of disclosure issues. This also saw appropriate changes to the draft scheme booklet. While the contents of the scheme booklet remain a matter for NTM, I was and am satisfied that NTM has sought to supplement, and provide full disclosure, of matters within the scheme booklet that were of concern to the ASIC and myself following review of the initial draft of the scheme booklet.
[14] See Ferguson 1 annexures 'JIF-3', 'JIF-4', 'JIF-7', 'JIF-8', 'JIF-10'.
In all the circumstances I was and am satisfied, to the necessary prima facie level given the interlocutory nature of the application before me, that there will be proper disclosure as to the effect of the proposed scheme and the material considerations to which shareholders ought to have regard.
The scheme booklet gives disclosure as to the reasons that a shareholder may wish to vote against approval of the proposed scheme (scheme booklet; pages 3, 7 ‑ 8, [2.1] - [2.6]). These include:
1.Disagreement with the directors' recommendation and the independent experts' conclusion.
2.The dilution of each shareholder's interest in NTM's assets.
3.The circumstance that the risk profile of the combined group will be different to that of NTM.
4.The shareholder may consider that there is a potential for a superior proposal to emerge for NTM in the foreseeable future.
5.The uncertain value of the scheme consideration.
6.The tax consequences of the scheme may not suit a shareholder's current financial position.
There is also a comprehensive section on the risk factors, both general and specific, associated with the proposed scheme and holding Dacian shares (including risks to NTM shareholders if the scheme does not proceed) (scheme booklet; [8.8], [10.1] - [10.5]).
I am satisfied that the draft scheme booklet is a detailed and comprehensive explanatory statement. It sets out the mechanics and terms of the scheme in an understandable way and describes in considerable detail the advantages and disadvantages of the scheme. The draft scheme booklet expressly considers whether the scheme is fair and reasonable from the perspective of the shareholders. It also provides, by way of the IER, an independent expert opinion that sets out detailed reasons for the conclusions reached and the methodologies used.
As to the due diligence and verification processes undertaken by NTM and Dacian, I had regard to, and accept, the evidence given by Mr Muir (managing director of NTM)[15] and Mr Junk (managing director of Dacian).[16] In summary, there has been verification of the various statements in the draft scheme booklet. Steps have also been taken to satisfy NTM and Dacian that the scheme booklet does not omit any material information.
[15] Muir 1 pars 57 - 73.
[16] Junk 1 pars 4 - 19.
Otherwise, as to disclosure, in being satisfied that the scheme booklet contained the prescribed information in accordance with s 412(1)(a) of the Act and sch 8 of the Corporations Regulations 2001 (Cth), I was assisted by a checklist provided by NTM's counsel as an attachment to NTM's written submissions.
Disposition: specific matters
In written and oral submissions, counsel for NTM drew a number of matters to my attention. These included the issue of performance risk, exclusivity provisions in the SID, certain benefits to officers of NTM, the statements of voting intention and issues as to particular terms within the scheme.
Performance risk
I was and am satisfied that the nature and terms of the proposed scheme are such that the members are adequately protected against the risk that NTM will not perform its obligations under the scheme. In that respect, I have had regard to the terms of the scheme and the terms of the deed poll. I also note that the SID is drafted so as to provide that the reconstitution of the NTM board is subject to and conditional upon the scheme consideration having been provided in full to the NTM shareholders in accordance with the scheme (SID, cl 7.5(b)).
The scheme terms are drafted appropriately to ensure that the transfer of the members' shares is subject to the provision of the scheme consideration (scheme terms, cl 2.5(b), cl 4.2, cl 4.4). Dacian will not become beneficially entitled to the NTM shares until provision of the scheme consideration to the NTM shareholders (scheme terms, cl 4.5).
By the deed poll, Dacian covenants in favour of the NTM shareholders that Dacian will perform all actions attributed to it under the scheme (deed poll, cl 5.1) and issue the scheme consideration to each scheme shareholder on the implementation date (deed poll, cl 5.2(b)). There is also an acknowledgement that the deed poll may be relied on and enforced by any scheme shareholder (deed poll, cl 2(a)) and that NTM and each of its directors may act as agent and attorney to enforce the deed poll on behalf of the shareholders (deed poll, cl 2(b)).
The deed poll will be enforceable by the NTM members as they are sufficiently identified within the deed poll.
Exclusivity provisions and break fee
The SID contains various standard exclusivity terms (SID, cl 14). These include 'no-shop', 'no-talk' and 'no due diligence' restrictions (SID, cl 14.1 - 14.3), a 'notification' obligation (SID, cl 14.4) and a 'matching' right (SID, cl 14.5). Provision is also made for a 'break fee' of $500,000 (SID, cl 15).
The 'no-talk' and 'no due diligence' provisions are subject to a standard directors' duty carve-out said to constitute a 'fiduciary exception' (SID, cl 14.7).
In considering the propriety of exclusivity arrangements, the authorities suggest that:
1.The exclusivity period should be certain and of reasonable duration.
2.The exclusivity arrangements should be subject to a directors' duty carve-out, ie the directors should be able to consider an alternative proposal if it may result in a potentially superior transaction that will better serve the members' interests.
3.The arrangements should be adequately disclosed in the explanatory statement.
4.Appropriate affidavit evidence should be adduced to justify the exclusivity arrangements.
The exclusivity period under the SID extends to 31 March 2021 (a period of about four and a half months from execution of the SID). I am satisfied that this is reasonable. There is an appropriate directors' duty exception. The scheme booklet specifically discloses that failure to approve the scheme will not trigger an obligation to pay the break fee (scheme booklet; FAQs, [5.14]). There is otherwise adequate disclosure of the exclusivity arrangements and the break fee as a whole (scheme booklet; [13.2] - [13.5]).
Mr Muir provides commercial justification for the exclusivity provisions.[17] Otherwise Mr Muir's evidence, which I accept, is that the exclusivity provisions followed arm's length commercial negotiations in which both parties were separately advised and represented by external legal advisers.[18] The amount of the break fee represents about 0.57% of the implied value of the scheme consideration. It is thus within generally accepted commercial parameters.[19]
[17] Muir 1 pars 92 - 95.
[18] Muir 1 par 92.
[19] Muir 1 par 94(d).
In approving the convening of the scheme meeting I was satisfied – necessarily on a provisional basis given the nature of the first court hearing – that the presence of the exclusivity provisions and the break fee were unlikely to be coercive.
Director benefits
Counsel for NTM highlighted certain benefits that would enure to officers of NTM, including Mr Muir as managing director, in the event that the scheme was implemented. Counsel submitted that these benefits were not such as would make it inappropriate for the individual directors concerned to join in the directors' recommendation that the members approve the scheme.
The benefits as so identified comprised:
1.In relation to Mr Muir:
(a)the acceleration of the vesting and conversion of 2,500,000 NTM performance rights into NTM shares that will be scheme shares and for which Mr Muir will receive the scheme consideration; and
(b)a termination payment of approximately $125,000 (six months' salary) on effectuation of the scheme insofar as one practical consequence of the scheme will be that Mr Muir's executive position as managing director of NTM will be terminated (such payment being required in accordance with Mr Muir's executive services agreement).
2.In relation to Mr Eshuys, it is proposed that he will become a non-executive director of Dacian. Mr Eshuys will derive a non‑executive director’s fee of $80,000 per annum. This is an increase on the $43,813 per annum that Mr Eshuys currently receives as a non-executive director of NTM.
I was satisfied, in the circumstances of the present case, that none of these matters impacted on the propriety and appropriateness of Messrs Muir's and Eshuys' participating in the directors' recommendation to shareholders.
It is not necessary to survey the recent authorities as to the appropriateness of an individual director joining in a unanimous board resolution to support a scheme in circumstances where, by reason of a bonus or similar benefit, the director has an additional and different interest to the members in the approval of the scheme. I have already expressed my general views on that issue.[20] I adhere to those views and in particular to the view that the issue is always fact sensitive.
[20] Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd [2019] WASC 189 [83] ‑ [89]; Re Navitas Ltd; Ex parte Navitas Ltd [No 2] [2019] WASC 218 [31] ‑ [38]; Re MOD Resources Ltd; Ex parte MOD Resources Ltd [2019] WASC 326 [84] - [93].
In terms of the relevant facts in the present case, one important matter is that cl 7.6 of the SID provides an exception to a general obligation that NTM procure a directors' unanimous resolution in support of approval of the proposed scheme. A director may, if various conditions are satisfied, determine not to provide or continue to provide a recommendation. There was affidavit evidence before me which demonstrated that Mr Muir and Mr Eshuys had expressly turned their minds to the propriety of participating in the recommendation.[21]
[21] Muir 1 pars 101 - 103, 111 - 113.
Also relevant is the following:
1.As to Mr Muir:
(a)the performance rights pre-dated the proposed transaction and were not provided to incentivise any recommendation. Moreover, at most there is an acceleration of a benefit in respect of which, once provided, Mr Muir will be treated in the same way as all other shareholders;
(b)the termination payment is a pre-existing right which is not out of the ordinary and has a proper commercial rationale.
2.As to Mr Eshuys, the increase in directors' fees is relatively modest and commercially justifiable given the increased size and complexity of the entity post-completion of the proposed scheme.
3.The benefits are given prominent disclosure throughout the scheme booklet – in particular, at numerous points where reference is made to the directors' unanimous resolution to support the proposed scheme in the absence of a superior proposal. Shareholders will be able to come to an informed view as to whether the weight to be given to the directors' unanimous recommendation is affected by the benefits.
Statements of voting intention
Counsel for NTM pointed out that, when regard was had to the statement of voting intention letters and the directors' expressed intentions, more than 20% of the shareholders by value had already expressed an intention to vote in favour of the proposed scheme (in the absence of a superior proposal). Indeed, at present, shareholders representing a combined voting interest of 39.36% intend to vote their respective NTM shares in favour of the scheme.
It was submitted that:
1.So far as the statement of voting intention letters were announced to the ASX, the terms of the disclosure complied with the Takeover Panel's Guidance Note 23: Shareholder intention statements.
2.The statement of voting intention letters were not class creating.
3.So far as it might be contended that the 39.36% figure was oppressive or coercive, it was relevant that the statement of voting intention letters were subject to the possibility that a superior proposal might emerge.
I was concerned that there was nothing in the evidence before me to confirm that no collateral benefit or inducement had been offered to provide the statements of voting intention. Counsel for NTM took steps to assuage that concern by calling Mr Muir to give oral evidence. Mr Muir explained the circumstances in which the shareholders had been requested to provide, and then did provide, the statement of voting intention letters. Mr Muir confirmed that no benefit or inducement was offered to provide the statements of voting intention. I accept Mr Muir's evidence.
I accept that the statement of voting intention letters are not class creating.[22] Although satisfied, by Mr Muir's evidence, that no collateral benefit or inducement was offered to provide the statement of voting intention letters, I continue to retain some concern as to the extent of pre-support for the proposed scheme. I appreciate that, in theory, there is nothing inherently unfair or oppressive about shareholders knowing how another shareholder intends to vote in advance of the scheme meeting. But, in some circumstances, practical realities may dictate a contrary conclusion. It is not, however, something which ought to prevent the convening of the scheme meeting in the present case. In that regard I note that Banks-Smith J, in Re Tawana Resources NL, was confronted with a similar situation. In that case shareholders holding approximately 39.5% of the issued shares had given voting intention statements confirming their intention to vote in favour of the scheme. Her Honour, accepting that the voting issue may need to be addressed again at any hearing to approve the scheme, nevertheless made orders pursuant to s 411(1) of the Act in circumstances where the scheme proponent had agreed to tag the votes of the shareholders who had provided voting intention statements.[23]
[22] Re Tawana Resources NL [2018] FCA 1456 [53] ‑ [55]; Re Tawana Resources NL (No 3) [2018] FCA 1952 [24].
[23] Re Tawana Resources NL [51] - [52], [56].
At the hearing before me, NTM, by counsel, agreed to tag the votes of those shareholders who had provided the statement of voting intention letters together with the votes of the directors and their associated entities.
In those circumstances I was satisfied that, should it emerge that there was any issue as to whether any resolution was properly passed at the scheme meeting, the issue was one that could be resolved at the second court hearing. Accordingly, in my view, the statements of voting intention did not provide any basis to decline the orders sought for the convening of a meeting to consider the proposed scheme.
Other matters: deemed warranty provision
Counsel for NTM drew my attention to the 'deemed warranty' provision in the proposed scheme (scheme terms, cl 6.5). The presence of the deemed warranty provision is disclosed (scheme booklet; [12.7]). Such deemed warranty clauses are not unusual and are acceptable provided that, as here, their presence is adequately disclosed.[24]
[24] Re Tawana Resources NL [28] - [29].
Disposition: orders for electronic dispatch of meeting materials
Additionally, NTM sought orders for the electronic dispatch of the scheme booklet. I made such orders in Re Wesfarmers Ltd. For the reasons I gave there such orders are now commonplace.[25] Details were provided as to the terms of the proposed electronic notification.[26] Based on that material, some form of order for electronic dispatch of the scheme booklet was appropriate.
[25] Re Wesfarmers Ltd [145] - [152].
[26] Muir 1 annexure 'AJM-13'; Ferguson 1 annexure 'JIF-17'.
Unusually, or at least unusually having regard to the position that pertained prior to March 2020, the orders sought by NTM provided for electronic dispatch of the meeting materials, including the scheme booklet, even for those shareholders who had not opted to receive electronic notification of such materials. Counsel for NTM sought to justify those orders based on the Corporations (Coronavirus Economic Response) Determination (No 3) 2020 (Cth). Counsel for NTM pointed out that such orders had been made in other proposed schemes of arrangement involving scheme meetings convened during the COVID‑19 pandemic.[27] I accept that is the position. However, it is not obvious from the reasons in those cases that the court's attention was directed to the circumstance that there would be orders for electronic dispatch even for those shareholders who had not opted to receive electronic notifications.
[27] See: ReZenith Energy Ltd; Ex parte Zenith Energy Ltd [2020] WASC 266 (see order 4(b)); ReSaracen Mineral Holdings Ltd; Ex parte ReSaracen Mineral Holdings Ltd [2020] WASC 483 (see order 4(b)).
Regulation 5 of the Corporations (Coronavirus Economic Response) Determination (No 3) 2020 (Cth) relevantly provides:
5Provisions about meetings
(1)The operation of the provisions specified in subsection (2) is modified as follows, in relation to each class of persons in relation to whom the provisions apply, subject to the conditions set out in subsection (3):
…
(f)notice of a meeting may be given, and any other information to be provided with notice of a meeting, or at or in relation to a meeting, may be provided, using one or more technologies to communicate to those entitled to receive notice of the meeting:
(i)the contents of the notice and the other information; or
(ii)details of an online location where the items covered by subparagraph (i) can be viewed or from where they can be downloaded;
Example: A company has email addresses for some of its members. Under this paragraph the company could send those members an email setting out or attaching notice of a meeting, and other material relating to the meeting, or providing a link to where the notice and other material can be viewed or downloaded. To the other members the company could send a letter or postcard setting out a URL for viewing or downloading the notice and other material.
(2)The provisions specified are each provision of the Act … that:
(a)requires or permits a meeting to be held, or regulates giving notice of a meeting or the conduct of a meeting; or
...
(3)The modifications in subsection (1) are subject to the following conditions:
(a)the person required or permitted to give notice of a meeting that is held as mentioned in paragraph (1)(a) must include in the notice information about how those entitled to attend can participate in the meeting (including how they can participate in a vote taken at the meeting, and speak at the meeting, to the extent they are entitled to do so);
(b)if notice of the meeting had already been given before the commencement of this section, the person required or permitted to give notice of the meeting must, at least 7 days before the meeting is held, give a fresh notice of the meeting that includes the information referred to in paragraph (a) of this subsection, unless the first notice already included that information;
(c)if a person (the appointer) is entitled to attend the meeting, or to vote at the meeting, by proxy, the person conducting the meeting must treat a duly appointed proxy in the same way as the appointer would be entitled or required to be treated if he or she attended the meeting in person. (underlined emphasis added)
NTM proposed orders that adopted the mechanism suggested by the example to reg 5(f). NTM proposed electronic dispatch of the notice of meeting and accompanying materials (including the scheme booklet) to all shareholders who had nominated an electronic address (proposed order 4(a)). However, other shareholders – those who had not opted to receive electronic notifications – were to receive hard copy correspondence directing them to a website through which they could access an electronic copy of the scheme booklet and lodge a proxy form (proposed orders 4(b) - (c)). Essentially this would comprise a paper notification directing the shareholder to a website where the meeting materials could be accessed.
I was satisfied, based on reg 5(f), that it was permissible and appropriate to modify the usual approach, pre-COVID-19, that electronic dispatch be confined to those shareholders who had opted for electronic notification. However, in my view, it was unsatisfactory that those shareholders who had not opted to receive electronic notification had to access the materials electronically. Such shareholders ought to be provided with hard copy materials if they wish to have such documentation. I proposed that NTM amend the proposed arrangements so that: (1) the letter to be sent would inform shareholders that, should a shareholder wish to be provided with hard copy materials, NTM could be contacted on a specified telephone number; and (2) on being so contacted, NTM would send the requesting shareholder the scheme documentation – including a personalised proxy form – as a hard copy. NTM, by counsel, agreed to that suggestion. Appropriate amendments were made to the form of the letter and the orders for dispatch.
Conclusion
On the evidence presented, and after hearing from counsel for NTM, I was satisfied that it was appropriate to make orders convening a scheme meeting to consider whether to approve the proposed scheme. The scheme is one that is fit for consideration by NTM's members in the sense that sensible business people might consider the scheme will be of benefit to those members. That is particularly the case given the opinion expressed in the IER. I also rely on the unanimous resolution of NTM's directors and the reasons given for that recommendation.
Given the matters I have mentioned as to being satisfied that the scheme booklet prima facie provides proper disclosure to NTM's members, I also considered it appropriate to approve the scheme booklet for distribution.
Accordingly, for these reasons, I made orders in the following terms:
1.Pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Corporations Act), the plaintiff convene a meeting of its shareholders to be held at the Celtic Club, 48 Ord Street, West Perth, Western Australia on 3 March 2021 at 11:00am (AWST) (Scheme Meeting), for the purpose of considering and, if thought fit, agreeing to (with or without modifications) the proposed scheme of arrangement (Scheme) between the plaintiff and its shareholders, being the document at annexure 'MAI-4' to the affidavit of Matthew Adam Ireland sworn 22 December 2020 (Ireland Affidavit).
2.The explanatory statement in relation to the Scheme as required by s 412(1)(a) of the Corporations Act and as set out in annexure 'JIF-14' to the affidavit of James Ian Ferguson sworn 25 January 2021 (Scheme Booklet), is approved for distribution to shareholders, subject to:
(a)correction of any minor, typographical or grammatical errors and final typesetting, formatting and page numbering; correction of any minor, typographical or grammatical errors and final typesetting, formatting and page numbering;
(b)any minor amendments required or approved by the ASIC for registration under s 412(6) of the Corporations Act;
(c)the correction or update of, or as a result of, any relevant date or market price reference.
3.Subject to these orders and pursuant to s 1319 of the Corporations Act, the Scheme Meeting be:
(a)convened using the notice of meeting substantially in the form contained in annexure D to the Scheme Booklet for the Scheme Meeting; and
(b)convened, held and conducted:
(i)in accordance with the plaintiff's constitution and to the extent not inconsistent with the constitution, the provisions of pt 2G.2 of the Corporations Act that apply to members of a company and in particular the provisions that apply to meetings of members;
(ii)electronically and by physical meeting pursuant to the arrangements for attending, participating and voting described in the notice convening the Scheme Meeting, including in respect of the appointment and revocation of proxy and attorney appointments and in respect of the effect of a shareholder's attendance at the Scheme Meeting on a proxy or attorney appointment by that shareholder and in accordance with the provisions of pt 2 of the Corporations (Coronavirus Economic Response) Determination (No 3) 2020 (Cth) (Electronic Meeting Arrangements); and
(c)as if rule 2.15 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) does not apply.
4.Subject to registration of the Scheme Booklet with ASIC, pursuant to s 412(6) of the Corporations Act, the plaintiff is to dispatch, on or before 1 February 2021, a document substantially in the form of the document referred to in paragraph 2 above, and the applicable proxy form (or link) to the shareholders who appear on the register of members of the plaintiff by sending:
(a)to each shareholder who has nominated an electronic address for the purposes of receiving notice of meeting from the plaintiff, an email to such address, with such email to contain a link to a website which those shareholders can access the Scheme Booklet and lodge a proxy form for the Scheme Meeting.
(b)in the case of each other shareholder who has a registered address in Australia:
(i)a letter substantially in the form attached to the Ferguson Affidavit as annexure 'JIF-17', as amended at the hearing to provide for shareholders to request hard copy documents, containing the address of a website which enables these shareholders to access the Scheme Booklet and lodge a proxy form for the Scheme Meeting (NTM Letter);
(ii)a proxy information form for the Scheme Meeting substantially in the form as annexure 'AJM-13' to the affidavit of Andrew James Muir sworn 18 January 2021; and
(c)in the case of shareholders who have a registered address outside of Australia:
(i)a letter substantially in the form of the NTM Letter by pre-paid airmail or air courier to the shareholder's registered address, containing the address of a website which enables these shareholders to access the Scheme Booklet and lodge a proxy form for the Scheme Meeting; and
(ii)a proxy information form for the Scheme Meeting substantially in the form as annexure 'AJM-13' to the affidavit of Andrew James Muir sworn 18 January 2021.
5.Despatch of the Scheme Booklet in accordance with paragraph 4 be taken as sufficient notice of the Scheme Meeting.
6.If it comes to the plaintiff's attention that any email despatched in accordance with paragraph 4(a) returns an undeliverable or undelivered receipt for a shareholder's nominated email address, the plaintiff must despatch to those shareholders, within a reasonable time, a letter and proxy form in accordance with paragraphs 4(b) and 4(c).
7.Shareholders must lodge their proxy forms for the Scheme Meeting by no later than 4:00pm (AWST) on 1 March 2021.
8.Derek Noel La Ferla or, failing him, Hedley James Roost, be appointed to act as chairperson of the Scheme Meeting (Chairperson) and report the result of the Scheme Meeting to this court.
9.The Chairperson be granted the power to adjourn each Scheme Meeting to such time, date and place as he considers appropriate.
10.At the Scheme Meeting, two shareholders present in person or by proxy, corporate representative or attorney under power and entitled to vote will constitute a quorum for the Scheme Meeting.
11.At the Scheme Meeting, voting on the resolution to approve the Scheme at the Scheme Meeting is to be conducted by way of poll in accordance with the Electronic Meeting Arrangements.
12.At the Scheme Meeting, each shareholder present (including pursuant to the Electronic Meeting Arrangements) and entitled to vote, will be entitled to one vote for each fully paid ordinary share in the capital of the plaintiff that the shareholder is registered as holding at 4:00pm (WST) on 1 March 2021.
13.The matter to be relisted for 10:00 am (WST) on 5 March 2021 following the Scheme Meeting for an application pursuant to subsections 411(4) and 411(6) of the Corporations Act for approval of the Scheme.
14.The plaintiff is to give notice of the hearing of the application pursuant to 411(4)(b) of the Corporations Act for orders approving the Scheme by placing an advertisement in 'The Australian' and 'The West Australian' newspapers, substantially in the form annexed to these orders and marked Annexure 'A'. This advertisement must be published by no later than 27 February 2021, and the plaintiff be otherwise, to the extent necessary, relieved from compliance with rule 3.4 of the Supreme Court (Corporations) (WA) Rules 2004 (WA).
15.The plaintiff has liberty to apply.
16.A copy of these orders be lodged with the Australian Securities and Investments Commission as soon as practicable after these orders are made.
Annexure A
Notice of hearing to approve scheme of arrangement under section 411 of the Corporations Act 2001 (Cth)
TO all the members of NTM Gold Ltd (ACN 119 494 772) (NTM Gold).
TAKE NOTICE that at 10:00 am, the 5th of March 2021, the Supreme Court of Western Australia at Stirling Gardens, Barrack Street, Perth, Western Australia will hear an application by NTM Gold seeking the approval of scheme of arrangement between NTM Gold and its shareholders as proposed by a resolution to be considered, and, if thought fit, passed at the meeting of the shareholders of NTM Gold to be held at 11:00am, the 3rd of March 2021.
If you wish to oppose the approval of the scheme of arrangement, you must file and serve on NTM Gold a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on NTM Gold at its address for service at least 1 day before the date fixed for the hearing of the application. The address for service of NTM Gold is c/o Steinepreis Paganin, Level 4, 16 Milligan Street, Perth, WA 6000.
This notice is inserted by NTM Gold Limited.
Annexure A
| Deponent | Date | Deponent's role | Summary of affidavit |
| Matthew Ireland (Ireland 1) | Sworn 22/12/20 | Senior associate at Steinepreis Paganin, solicitors for NTM, with conduct of the proposed transaction. | · Formal matters (registration; registered office; ASX listing; annual report; company search). · Overview of the proposed scheme (ASX announcement; SID; proposed Scheme; draft Scheme Booklet including draft IER and Independent Specialist Report on Mineral Assets; draft Deed Poll). |
| James Ferguson (Ferguson 1) | Sworn 25/01/21 | Associate at Steinepreis Paganin, solicitors for NTM. | · Service of court documents on the ASIC. · Communications with the ASIC about the scheme and the draft Scheme Booklet. · Amended and finalised draft Scheme Booklet (including marked-up amendments). · Draft letter to NTM shareholders. · Executed Deed Poll. |
| (Ferguson 2) | Sworn 27/01/21 | · Director confirmation of amendments to Scheme Booklet. · ASIC intent letter. | |
| Derek Le Ferla | Sworn 21/01/21 | Independent solicitor. | · Nomination to act as chairperson of the scheme meeting. · Lack of relevant conflict of interest or duty if to act as chairperson of the scheme meeting. |
| Hedley Roost | Sworn 18/01/21 | Independent solicitor. | · Nomination to act as alternate chairperson of the scheme meeting. · Lack of relevant conflict of interest or duty if to act as chairperson of the scheme meeting. |
| Andrew Muir (Muir 1) | Sworn 18/01/21 | Managing director of NTM. | · Incorporation and constitution of NTM. · NTM directors. · NTM capital structure (including options and performance rights on issue). · Scheme overview including SID, Scheme terms, draft Scheme Booklet and notice of Scheme Meeting. · Statement of Intention letters. · Conditions precedent to scheme. · Scheme consideration. · Identification of shareholders and quantification of Ineligible Foreign Shareholders; entry into option cancellation deed with DGO Gold Ltd and ASX waiver; proposal that performance rights vest and justification for that proposal. · Electronic dispatch of Scheme Booklet and notice of Scheme Meeting. · Details for proposed Scheme Meeting. · Drafting and verification of the draft Scheme Booklet. · Lodgment of draft Scheme Booklet with the ASIC for review. · Negotiation of exclusivity and matching right provisions (including reimbursement fee) within the SID – deposing to belief that reasonable and appropriate. · Board consideration of entry into the SID, ASX announcement and terms of draft Scheme Booklet including whether individual director's personal interests should disqualify relevant directors from consideration/voting or recommendation to shareholders. · Mr Muir's executive services agreement with NTM. · Absence of any basis to believe superior proposal will be forthcoming. · Steps to be taken if court orders NTM to convene Scheme Meeting. |
| (Muir 2) | Sworn 25/01/21 | · Correction of errors in Muir 1. · Conversion of 1,000,000 performance rights. | |
| Leigh Junk (Junk 1) | Sworn 21/01/21 | Managing director of Dacian | · Drafting and verification of the draft Scheme Booklet so far as information therein pertains to Dacian. · Execution of Deed Poll. |
I certify that the preceding paragraphs comprise the reasons for decision of the Supreme Court of Western Australia.
AT
Research Associate to the Honourable Justice Vaughan
28 JANUARY 2021
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