Re Nzuri Copper Ltd; [No 3] - [2019] WASC 280

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   RE NZURI COPPER LTD; EX PARTE NZURI COPPER LTD [No 3] [2019] WASC 280
CORAM:   VAUGHAN J
HEARD:   1 AUGUST 2019
DELIVERED          :   1 AUGUST 2019
PUBLISHED           :   8 AUGUST 2019
FILE NO/S:   COR 109 of 2019

EX PARTE
NZURI COPPER LTD
Plaintiff

Catchwords:

Corporations law - Scheme of arrangement - Application for orders pursuant to s 1319 of the Corporations Act 2001 (Cth) - Supplementary disclosure - Whether appropriate to make orders for dispatch of additional material to shareholders - Whether proxies to remain valid

Legislation:

Corporations Act 2001 (Cth), s 1319

Result:

Application granted

Representation:

Counsel:

Plaintiff

A J Papamatheos

Solicitors:

Plaintiff

Bellanhouse

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

Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd [2019] WASC 189
Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd [No 2] [2019] WASC 214

VAUGHAN J:

(These reasons were delivered orally at the conclusion of the hearing. They have been edited to correct matters of grammar and infelicity of expression. Authorities and other references have also been footnoted rather than appearing in the body of the reasons.)

The plaintiff, Nzuri Copper Ltd (Nzuri), has proposed a scheme of arrangement.
The matter has been before me on three occasions before today. Relevantly:
(1)On 30 May 2019 I made orders convening a scheme meeting.[1]
(2)On 12 June 2019 I made orders providing, among other things, for supplementary disclosure.[2]
(3)On 5 July 2019, in circumstances where it was proposed that the scheme meeting would be adjourned, I made some consequential orders in anticipation of the adjournment.
[1] Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd [2019] WASC 189 (Nzuri Copper Ltd).
[2] Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd [No 2] [2019] WASC 214 (Nzuri Copper Ltd [No 2]).
The scheme meeting proceeded on 8 July 2019. However, as anticipated, the chairperson at the meeting caused the scheme meeting to be adjourned. The scheme meeting has been adjourned to 19 August 2019.
The scheme meeting was adjourned in circumstances where the bidder, Xuchen International Ltd (Xuchen), had experienced delays in obtaining certain approvals from government agencies in the People's Republic of China. Those approvals are a condition precedent to the coming into effect of the scheme.
In anticipation of the adjourned scheme meeting Nzuri makes application today for orders providing for:
·   further supplementary disclosure;
·   the treatment of proxies for the purpose of the adjourned scheme meeting; and
·   minor other orders consequential on the adjournment (none of which are contentious).
The application is supported by five affidavits:
(1)affidavits of Hannah Hudson affirmed 23 and 31 July 2019 (there are two 31 July affidavits);
(2)an affidavit of Jieying Zhong affirmed 23 July 2019; and
(3)an affidavit of Deanna Carpenter affirmed this morning.
I addressed the relevant principles on the issue of supplementary disclosure in the 12 June 2019 decision.[3] The same reasons dealt with the question of directions on the return of proxies.[4]
[3] See Nzuri Copper Ltd [No 2] [20] - [21].
[4] See Nzuri Copper Ltd [No 2] [32] - [34].
The proposed supplementary disclosure deals with four main things. First, the delays in obtaining the approvals out of the People's Republic of China. Second, amendments to two loan facilities. Those amendments are required as: (1) further funds have been borrowed; and (2) it has been necessary to extend the term of the facilities because the process of pursuing the scheme has become protracted. Third, amendments to employment contracts affecting the timing of potential bonuses payable to two executive directors. This sees the payments being made on implementation of the scheme rather than on shareholder approval (a matter of benefit to the members). Fourth, steps arising in certain litigation in the Magistrates Court (which litigation was, among other things, the subject of the earlier supplementary disclosure).
It is relevant to note that, despite the delay, the independent expert's view of the scheme proposal is unchanged. At pages 28 to 29 of Ms Hudson's affidavit affirmed 23 July 2019 the following is stated in a letter from the independent expert:
On 19 July 2019, we were provided with the following documents:
•Draft supplementary scheme booklet;
•Executed amendment to the Xuchen loan facility agreement;
•Executed amendment to the Tembo Capital loan facility agreement; and
•Draft affidavit of Hannah Hudson.
We considered the above documents in the context of our Independent Expert's Report on the scheme of arrangement with Xuchen ('Scheme') provided to Nzuri on 10 May 2019 ('IER'). Specifically, we assessed whether the changes detailed in the above referenced documents resulted in a material change to the information in our IER.
Further, given the time that has passed since the provision of our IER, we assessed whether any changes in the economic assumptions underpinning our discounted cash flow model and other operational and financial assumptions used in our sum-of-parts valuation had resulted in a material change to our valuation of a Nzuri share.
We also considered the qualitative impacts of changes to the funding, economic, financial and operational assumptions used in our IER.
As a result of our assessment, we have concluded that there has been no material change to our assumptions (both individually and collectively), analysis, or conclusion. We confirm that our opinion in relation to the Scheme remains that 'it is fair and reasonable and in the best interests of the non-associated shareholders of Nzuri'.
Based on the above, we do not consider a supplementary IER to be necessary.
I am satisfied that it is appropriate to make orders for supplementary disclosure.
Relevantly, in terms of the factors that have been identified in the authorities:
(1)First, there is continuing utility in the scheme meeting proceeding. The subject matter of the proposed supplementary disclosure does not undermine my earlier conclusion that the proposed scheme is fit for consideration by the members. The scheme continues to be recommended for approval by the directors; and the independent expert has not altered the conclusions expressed in the independent expert report.
(2)Second, no modifications are sought to the terms of proposed scheme. Nor is there any effect on the scheme consideration; it remains a cash price of 37 cents. The supplementary disclosure is required to properly inform the shareholders of events that have occurred since the scheme meeting was originally convened in anticipation of the adjourned scheme meeting on 19 August 2019.
(3)Third, I am satisfied, prima facie, that the terms of the draft supplementary disclosure document provide adequate disclosure.
(4)Fourth, the Australian Securities and Investments Commission (ASIC) has had an opportunity to consider the draft supplementary disclosure statement. The ASIC has no comments and has chosen not to appear before the court on today's application.
(5)Fifth, the orders sought under s 1319 of the Corporations Act 2001 (Cth) provide for the supplementary disclosure and the means by which supplementary disclosure is to be effected.
In forming the view that I should approve the proposed supplementary disclosure for distribution, thereby facilitating continued consideration of the scheme by Nzuri's members, I have had regard to the amendments to the terms of the two loan facilities. One of these facilities is potentially significant in assessing the continued propriety of the scheme proposal. That is the facility provided to Nzuri by Xuchen. I dealt with the considerations relevant to this facility in my original reasons for decision in convening the scheme meeting.[5]
[5] See Nzuri Copper Ltd [No 2] [64] ‑ [71].
The amended funding arrangements provide for:
(1)an increased facility (from $5 million to $7 million). This sees potential additional draw-downs in tranches over August to October 2019. The first of those drawdowns was made this morning; and
(2)a three-month extension to the repayment date.
The further funding is disclosed in the proposed supplementary disclosure. Prima facie, as before, it ought not act as a de facto lock up device with coercive effect. The observations I made in Nzuri Copper Ltd at par 70 remain apposite. In any event if, in fact, there is an issue of unfairness and coercion, that can be addressed at the second hearing.
The only other issue of significance is the treatment to be afforded to the proxies already received. Nzuri seeks an order in the same terms as that which was made on 12 June 2019. Essentially, that is an order that Nzuri will be entitled to treat proxy forms already received as being valid unless revoked.
Based on Ms Carpenter's affidavit of this morning Nzuri has received 195 valid proxies. These proxies represent 72.89% of the shares on issue. The proxies include the proxy of Nzuri's largest shareholder, who holds 48.53% of the shares on issue.
Nzuri proposes to inform shareholders of their right to submit fresh proxies. For example, within the chairperson's proposed letter in the draft supplementary disclosure, the following will appear:
Nzuri Shareholders that have already voted are entitled to change their vote by submitting a new proxy form. Any proxy forms that have been validly lodged prior to the date of this Second Supplementary Disclosure will be deemed valid for the Adjourned Scheme Meeting unless withdrawn or revoked, provided that the proxy form is given by a Nzuri Shareholder that continues to be a registered holder as at 4.00pm (WST) on the new eligibility date of 17 August 2019. If a new proxy form is submitted it will be taken to revoke any previously submitted proxy form.
Within the body of the supplementary disclosure document, the following is to appear in bold:
Nzuri Shareholders that have already voted are entitled to change their vote by submitting a new proxy form. Any proxy forms that have been validly lodged prior to the date of this Second Supplementary Disclosure will be deemed valid for the Scheme Meeting unless withdrawn or revoked, provided that the proxy form is given by a Nzuri Shareholder that continues to be a registered holder as at 4.00pm (WST) on the new eligibility date of 17 August 2019. If a new proxy form is submitted it will be taken to revoke any previously submitted proxy form.
I am prepared to make a direction under s 1319 of the Corporations Act2001 (Cth) to the effect that valid proxies previously submitted by shareholders will, unless revoked, remain valid. The position is indistinguishable from that which prevailed at the time of the 12 June 2019 orders. The reasons I gave in Nzuri Copper Ltd [No 2] at pars 36 to 37 apply equally to the present hearing.
Accordingly, for these reasons, I will make orders substantially in the terms of Nzuri's second amended minute of proposed orders dated 31 July 2019. The orders are as follows:
1.The supplementary disclosure contained in Annexure HCH‑1 (pages 4 ‑ 27) to the third affidavit of Hannah Claire Hudson in this matter, affirmed 31 July 2019 (which includes the notice of adjourned scheme meeting to be held at 3.00 pm (AWST) on 19 August 2019 at the Subiaco Hotel, Mezzanine Level, 465 Hay Street, Subiaco, Western Australia) is approved for distribution to members, subject to:
(a)the changes identified by counsel for the plaintiff in the course of oral submissions;
(b)the correction of any minor typographical or grammatical errors;
(c)final typesetting, formatting and page numbering; and
(d)any minor amendments required or approved by the ASIC.
2.On or before 3 August 2019 the plaintiff is to dispatch a document substantially in the form of the supplementary disclosure (approved for distribution at par 1 above) to members of the plaintiff as follows:
(a)to each member who has nominated an electronic address for the purposes of receiving notices of meeting from the plaintiff, by an email to such address; and
(b)to each other member, by pre‑paid or ordinary post, mail or courier to the address as set out in the register of the plaintiff's members.
3.If it comes to the attention of the plaintiff that any email dispatched in accordance with par 2(a) above has returned an undeliverable or undelivered receipt for a member's nominated email address then, in respect of that member, the plaintiff is to dispatch, within a reasonable time thereafter, a document substantially in the form of the supplementary disclosure in accordance with par 2(b).
4.Valid proxy forms for the scheme meeting that have been lodged by shareholders are deemed to still be valid provided that the shareholder continues to be a registered shareholder as at 4.00 pm (AWST) on 17 August 2019 unless:
(a)the proxy form is withdrawn;
(b)the proxy form is revoked; or
(c)a new proxy form is submitted by the same shareholder (which will be taken to revoke any previously submitted proxy form).
5.Orders 10 and 12 of the court's orders made on 30 May 2019 are varied to refer to the date of 16 August 2019 rather than 6 July 2019
6.If this matter is to be relisted, then after 19 and before 23 August 2019 the plaintiff is to publish a completed notice of hearing substantially in the form of Annexure 'A' to these orders once in The Australian newspaper, and the plaintiff is otherwise, to the extent necessary, relieved from compliance with rule 3.4 of the Supreme Court (Corporations) (WA) Rules 2004 (WA).
7.The proceedings be stood over to 8.30 am (AWST) on 5 September 2019 for the hearing of any application to approve the proposed scheme.
8.A copy of these orders is to be lodged with the Australian Securities and Investments Commission as soon as practicable after issue.

Annexure A
Nzuri Copper Limited (ACN 106 294 106)
Notice of hearing to approve arrangement
TO all the members of Nzuri Copper Limited (ACN 106 294 106) (Nzuri)
TAKE NOTICE that at 8.30 am (AWST) on 5 September 2019 the Supreme Court of Western Australia (situated at the David Malcolm Justice Centre, 28 Barrack Street, Perth, Western Australia) will hear an application by Nzuri seeking the approval of an arrangement between Nzuri and its members, as agreed to by resolution by the members of Nzuri at a meeting of such members held at The Subiaco Hotel, Mezzanine Level, 465 Hay Street, Subiaco, Western Australia at 3.00 pm (AWST) on 19 August 2019.
If you wish to oppose the approval of the arrangement, you must file and serve on Nzuri 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 Nzuri at its address for service at least one day before the date fixed for the hearing of the application.
The address for service on Nzuri is, c/o Bellanhouse, Level 19, Alluvion, 58 Mounts Bay Road, Perth, Western Australia 6000 (Reference: Deanna Carpenter).
Hannah Hudson
Company Secretary, Nzuri Copper Limited

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