Re Nzuri Copper Ltd [No 4]
[2020] WASC 10
•15 JANUARY 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE NZURI COPPER LTD; EX PARTE NZURI COPPER LTD [No 4] [2020] WASC 10
CORAM: VAUGHAN J
HEARD: 14 ‑ 15 JANUARY 2020
DELIVERED : 15 JANUARY 2020
PUBLISHED : 15 JANUARY 2020
FILE NO/S: COR 109 of 2019
BETWEEN: NZURI COPPER LTD
Plaintiff
XUCHEN INTERNATIONAL LTD
Interested Party
Catchwords:
Corporations - Scheme of arrangement - s 411 Corporations Act 2001 - Power of the court to make orders convening a ratification meeting approving a scheme resolution - Satisfaction of condition precedent - Disclosure - Distribution of replacement scheme booklet - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 411, s 1319
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | A J Papamatheos |
| Interested Party | : | W Zappia |
Solicitors:
| Plaintiff | : | HWL Ebsworth |
| Interested Party | : | Gilbert + Tobin |
Case(s) referred to in decision(s):
Cleary v Australian Co-operative Foods Ltd (No 2) [1999] NSWSC 991; (1999) 32 ACSR 701
F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69
PR Finance Group Limited (No 2) [2013] FCA 633
PR Finance Group Limited (No 3) [2013] FCA 704
Re Boart Longyear Ltd [2019] FCA 62
Re M B Group plc [1989] BCLC 672
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
Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd [No 3] [2019] WASC 280
Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2008] WASC 308
The Royal Bank of Scotland BV v TT International Ltd [2012] SGA 9
VAUGHAN J:
Overview
On 30 May 2019 I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act) to convene a meeting of the holders of fully paid ordinary shares in Nzuri Copper Ltd (Nzuri). The meeting was convened to consider a proposed scheme of arrangement whereby Xuchen International Ltd (Xuchen) would acquire 100 per cent of the share capital of Nzuri by way of a scheme of arrangement. I also made orders approving distribution of a scheme booklet.
The scheme meeting was convened to be held on 8 July 2019. The chairperson caused the scheme meeting to be adjourned to 19 August 2019. At the scheme meeting on 19 August 2019 Nzuri's members approved the scheme of arrangement by 99.97 per cent of votes cast and 94.29 per cent of members present in person or by proxy.
On 14 January 2020 application was made for orders to convene a meeting of the members of Nzuri to ratify the resolution approving the scheme. I made orders to that effect the following day in the circumstances described below. I also made orders approving, for distribution to shareholders, a replacement scheme booklet. These are my reasons for those orders.
Background and additional evidence
Incorporation of earlier reasons
The proceedings have been before me on 10 occasions before 14 January 2020:
1.On 30 May 2019 I made orders convening the 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.
4.On 1 August 2019 I made orders providing, among other things, for further supplementary disclosure.[3] I also made orders that were consequential on the initial adjournment of the scheme meeting.
5.On 5 September 2019, in circumstances where conditions precedent to the scheme had not been satisfied, I made orders standing over the proceedings to 11 October 2019.
6.On 11 October 2019, where the conditions precedent remained unsatisfied, I made orders standing over the proceedings to 29 October 2019.
7.On 29 October 2019, in circumstances where the conditions precedent continued to be unfulfilled, I made orders standing over the proceedings to 18 November 2019.
8.I understood that Nzuri intended to seek approval under s 411(4)(b) of the Act on 18 November 2019. To that end, by 18 November 2019, Nzuri had filed a suite of further affidavits[4] (dealing, among other things, with the convening and outcome of the scheme meeting), and an outline of submissions dated 14 November 2019. However, a key condition precedent remained outstanding. The bidder, Xuchen, also sought to alter the means by which it proposed to fund the scheme consideration. In those circumstances Nzuri sought and I granted an adjournment to 25 November 2019.
9.In the circumstances deposed to in Ms Carpenter's two affidavits of 25 November 2019, Nzuri remained unready to proceed on 25 November 2019. Accordingly, on 25 November 2019 Nzuri sought, and I granted, an adjournment to 13 December 2019.
10.Following 25 November 2019 Nzuri and Xuchen sought to negotiate terms to bring about an extension of the 'End Date' to the scheme. Ms Carpenter's affidavits of 11 and 12 December 2019 deposed to the outcome of those negotiations: the scheme's End Date was extended to 31 March 2020 (it was originally 26 November 2019). There were also amendments and restatements to a loan agreement between Nzuri and Xuchen.
[1] See Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd [2019] WASC 189 (Nzuri Copper Ltd).
[2] See Re Nzuri Copper Ltd; Ex parte Nzuri Copper Ltd [No 2] [2019] WASC 214 (Nzuri Copper Ltd [No 2]).
[3] See Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd[No 3] [2019] WASC 280 (Nzuri Copper Ltd [No 3]).
[4] See in particular: affidavit of Hannah Hudson affirmed 23 July 2019; affidavits of Deanna Carpenter affirmed 10 October 2019, 25 October 2019, 14 November 2019 and 15 November 2019; affidavit of Robyn Ferguson sworn 30 October 2019; affidavit of Nainesh Bhatt affirmed 14 November 2019.
By 13 December 2019 it had become apparent Nzuri was not in a position to seek immediate approval of the scheme. In particular, given that the scheme meeting resolution had been obtained on 19 August 2019 - and it was then proposed that the scheme would not be effectuated until mid-February 2020 at the earliest - Nzuri (having consulted with the Australian and Securities Investments Commission)[5] proposed to convene a further meeting of shareholders to ratify the previous shareholder approval. Accordingly, on 13 December 2019 Nzuri sought a further adjournment.
[5] Referred to below as the 'ASIC'.
I was satisfied that there was an arguable basis on which the court might be persuaded to convene a ratification meeting. On that basis, on 13 December 2019, I granted orders adjourning the proceedings until 14 January 2020.
It was, in my view, plain that if Nzuri wished to proceed with the scheme it was desirable that Nzuri refresh its shareholder approval. There were four reasons for that view. First, and most importantly, the delays in satisfying the conditions precedent to the scheme would mean that the mid-August 2019 resolution would be some six months old at the time of any approval hearing; its staleness at that time would call into question whether, as a matter of discretion, the court should approve the scheme. Second, the amendment to the End Date represented a substantial departure from the terms of the scheme that had been approved by the members. Third, Xuchen had sought to adjust how it intended to fund the scheme consideration. Fourth, there had been an alteration in the loan arrangements between Nzuri and Xuchen - including the advancing of additional loan funds.
Beyond these observations, which explain the somewhat tortured path the proposed scheme has taken to date, I do not intend to repeat what has been published in earlier reasons dealing with the prior hearings.
Instead these reasons should be read with and as if they incorporated the earlier reasons. In particular, I rely on what was stated in Nzuri Copper Ltd as to:
1.The relevant entities, Nzuri and Xuchen ([1] ‑ [2] and [8] ‑ [12]).
2.The announcement of the acquisition proposal ([2] and [13]).
3.The nature of the proposed scheme of arrangement ([3], [13] ‑ [16], [18] ‑ [22], [36] ‑ [37], [46] ‑ [63] and [90] ‑ [91]).
4.The description of the original scheme booklet ([26] ‑ [28]) and the disclosure provided in the original scheme booklet ([38] ‑ [41]).
5.The opinion expressed in the independent expert report (IER) ([23] ‑ [25]).
6.The position of Nzuri's directors ([17], [43], [72] ‑ [81] and [87] ‑ [88]).
In substance, but for the matters referred to below, the nature and terms of the proposed scheme remain the same: Xuchen will purchase all of the issued shares in Nzuri for a cash consideration of 37 cents a share. The directors of Nzuri have also recently resolved to recommend that the shareholders vote in favour of the ratification resolution in the absence of a superior proposal.[6]
Additional evidence
[6] Affidavit of Hannah Hudson affirmed 10 January 2020 par 57.
Nzuri relied on 12 affidavits from nine deponents for the purpose of the first hearing.[7] That material was also formally relied on for the 14 January 2020 hearing. Nzuri also relied on the affidavits read in the hearings prior to 14 January 2020. It is not necessary to recite that material.
[7] Nzuri Copper Ltd [7], annexure 'A'.
In addition, Nzuri specifically relied on the following affidavits:
1.Affidavit of Hannah Hudson affirmed 10 January 2020. Among other things this provided a draft of the replacement scheme booklet. Ms Hudson provided appropriate verification as to the Nzuri information in the replacement scheme booklet. Ms Hudson also deposed to a number of matters that would commonly be associated with the substantive affidavit seeking initial orders under s 411(1) of the Act to convene a members' meeting to consider a proposed scheme of arrangement.
2.Affidavits of Deanna Carpenter affirmed 10 and 13 January 2020 - largely going to conferral with the ASIC.
3.Affidavits of Ean Alexander affirmed 10 January 2020 and Ryan White sworn 10 January 2020 - dealing with formalities so far as they are proposed as the chairperson and alternate chairperson of the ratification meeting.
4.Affidavit of Kevin Ko affirmed 10 January 2020. Mr Ko is a partner of the solicitors engaged by Xuchen. Mr Ko addressed the verification of information provided by Xuchen for inclusion in the replacement scheme booklet. (Provision of a verification affidavit by the solicitor of a transaction party is not best practice. The evidence should be provided directly by the responsible officer of the party. But in the present case there was a proper explanation for provision of the affidavit evidence by the solicitor rather than an officer of Xuchen.)
In the course of the hearing further affidavits were filed by both Nzuri and Xuchen.[8]
[8] Affidavit of K Ko affirmed 14 January 2020; affidavit of H C Hudson affirmed 15 January 2020; affidavit of E A Phillips affirmed 15 January 2020.
In addition I was provided with a document which marked-up the changes between the original scheme booklet and the replacement scheme booklet. Nzuri, by its solicitor, has stated that the marked-up replacement scheme booklet will be made available to Nzuri shareholders by being uploaded on to Nzuri's website.[9]
[9] Affidavit of D J Carpenter affirmed 13 January 2020 par 6.
Counsel for Nzuri provided written submissions dated 13 January 2020.
Disposition
Power of the Court to make orders convening a ratification meeting
It is not possible to re-convene the scheme meeting. It was commenced, adjourned, and then concluded.[10] There are, however, a number of cases which have averted to the possibility of a further meeting of members after the conclusion of a scheme meeting.
[10] Re Boart Longyear Ltd [2019] FCA 62 [177].
In Re M B Group plc Harman J identified that there might be a further 'consultative' meeting where new facts arose after a scheme meeting (although not requiring that one be held).[11] In this respect Re M B Group plc was referred to with apparent approval by Austin J in Cleary v Australian Co-operative Foods Ltd (No 2).[12] The Court of Appeal in Singapore has ordered a further meeting for a 'revote' when allowing an appeal setting aside court approval of a scheme.[13] More recently, in Re Boart Longyear Ltd Farrell J referred to there being a capacity to order a meeting of shareholders to 'consider again' whether the shareholders wished to approve a scheme with the benefit of supplementary information.[14]
[11] Re M B Group plc [1989] BCLC 672, 681 - 682.
[12] Cleary v Australian Co-operative Foods Ltd (No 2) [1999] NSWSC 991; (1999) 32 ACSR 701 [46].
[13] The Royal Bank of Scotland BV v TT International Ltd [2012] SGA 9 [178]. The Court of Appeal approved the scheme after the further meeting: at [179].
[14] Re Boart Longyear Ltd [178].
The convening of a further members' meeting to ratify an earlier resolution approving a proposed scheme of arrangement is, in my view, within the court's supervisory jurisdiction in exercising its discretion under s 411.[15] Before the court is an extant application by which Nzuri seeks approval of the proposed scheme. Nzuri seeks to adjourn that application with a view to it being heard in mid to late February 2020. As a condition of the adjournment, and so as to be better placed to exercise the discretion arising under s 411 when the matter comes back before the court, the court may, if it is otherwise an appropriate case, convene a further meeting of the members to consider whether to ratify the earlier resolution approving the scheme. The outcome of the ratification meeting is likely to be of assistance when the court eventually exercises its discretion under s 411(4)(b) of the Act.
[15] See generally Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd[2008] WASC 308 [66] - [69].
There is also authority to the effect that s 1319 of the Act empowers the court to order that a ratification meeting be held. In PR Finance Group Limited (No 2) Jacobson J was not satisfied that the shareholders had been fully informed when they approved a scheme by the statutory majorities at the scheme meeting. His Honour was not prepared to make orders under s 411(4)(b) without the benefit of a further test of the shareholders' will on a fully informed basis.[16] Shortly thereafter, in PR Finance Group Limited (No 3), Farrell J made orders convening a 'ratification scheme meeting' relying on s 1319.[17]
[16] PR Finance Group Limited (No 2) [2013] FCA 633 [58] - [60].
[17] PR Finance Group Limited (No 3) [2013] FCA 704.
Farrell J held that:[18]
1.The orders convening the ratification meeting would be ancillary and consequential to the initial orders under s 411(1) convening the scheme meeting.
2.This was because the ratification meeting was necessary to the efficacy of the scheme approval resolution and to carry its purpose through to the making of orders under s 411(4)(b).
3.The power was not exhausted notwithstanding that the scheme approval resolution had been passed at the earlier meeting.
[18] PR Finance Group Limited (No 3) [18].
However, PR Finance Group Limited (No 3) concerned a situation in which the efficacy of the earlier resolution was suspect. The shareholders had not been adequately informed of the scheme proponent's financial position due to a failure to lodge and make available to shareholders the most current audited financial statements (even though this was envisaged in the scheme booklet). There is, by contrast, no doubt as to the validity of the shareholders' resolution obtained by Nzuri on 19 August 2019. In the circumstances I prefer to rely on the court's general supervisory jurisdiction under s 411 as grounding my conclusion that the court has power to order that a ratification meeting be held.
I was satisfied that, based on the matters that follow, the court should exercise the power to provide for the ratification meeting. An alternative might have been for Nzuri to seek dismissal of the present proceedings and to then recommence the scheme process. That would have allowed the court to make fresh orders under s 411(1). But taking that course would only have increased costs - and caused further delays - without any corresponding advantage to the shareholders of Nzuri.
Exercise of the power of the Court to make orders convening ratification meeting
I have already, at [7] above, explained why it is desirable that Nzuri seek ratification of the scheme resolution. The outcome of the ratification meeting will better inform the exercise of the court's discretion at any approval hearing. That is all the more so given that, in the many months since 19 August 2019, there have been changes in Nzuri's register of shareholders.
A report compiled as to net movements in Nzuri's shares[19] shows that:
•5.88 per cent of the shares on issue have been traded;
•114 Nzuri shareholders have sold all their shares;
•25 new shareholders have joined the Nzuri share register and remain on the register (there are other post-19 August 2019 'new' shareholders who have since sold their shares);
•some Nzuri shareholders have increased their shareholdings while others have decreased their shareholdings.
[19] Affidavit of D J Carpenter affirmed 13 January 2020 par 9 and attachment 'DJC-2'.
In determining whether to convene the ratification meeting, and in that connection whether to approve the replacement scheme booklet for distribution, it is appropriate to adopt much the same approach as is employed in considering whether to make orders under s 411(1) at the traditional first court hearing.[20] However, it must be acknowledged that in the present case the proposed scheme was unchanged other than in relation to its time for implementation. So too, other than in limited respects, was the general framework of the transaction. Accordingly, there is no need to revisit that which has already been addressed in making orders to convene a scheme meeting.[21] It is only necessary to deal with the circumstances that have prolonged the scheme process and the matters that represent a change in circumstances.
The extension of the End Date to the scheme
[20] See generally Nzuri Copper Ltd [29] - [31] (referring to Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 [46] - [78]).
[21] For example Nzuri Copper Ltd already deals with formal matters ([33]); that the proposed scheme is properly proposed ([36] - [37]); performance risk ([46] - [55]); the exclusivity provisions ([56] - [62]); the break fee ([63]); the directors' benefits ([72] - [88]); the deemed warranty and transfer free of encumbrance provisions ([90] - [91]).
At the 19 August 2019 scheme meeting Nzuri's shareholders approved the scheme on the basis of:
1.A timetable which would have seen approval of the scheme, and the scheme being implemented, by 26 November 2019 and 9 December 2019 respectively (at the latest). The relevant dates as now proposed are 31 March 2020 and 13 April 2020 respectively (although the intended dates are said to be 28 February 2020 and 11 March 2020).
2.Xuchen having said that it intended to fund the acquisition of the Nzuri shares from funds to be provided by its parent, Chengtun Mining Group Co Ltd.
One of the key conditions precedent was the receipt by Xuchen of various regulatory approvals in the Peoples Republic of China (PRC). Two of the three required approvals have been received. However, approval from the State Administration of Foreign Exchange of China (SAFE) remains outstanding. The delay in this approval prevented Nzuri seeking approval of the scheme before the initial end date of 26 November 2019. Ms Hudson has deposed to not being aware of any basis to believe that any condition precedent will not be satisfied or waived by the necessary time.[22] It is the case, however, that Nzuri has no certainty as to if and when SAFE approval will be received by Xuchen.[23] I discuss this further at [31] ‑ [45] below.
[22] Affidavit of H C Hudson affirmed 10 January 2020 par 62.
[23] Draft replacement scheme booklet section 1.3(g).
Xuchen has also informed Nzuri that, for commercial reasons, its preference has become to fund the scheme consideration by way of a third-party loan (at least in part). That too will require certain approvals in the PRC. However, those approvals are not conditions precedent to the scheme of arrangement as proposed. In any case Xuchen's parent, Chengtun Mining Group Co Ltd, has undertaken to Xuchen to provide the scheme consideration if Xuchen does not have the necessary financial capacity.
On 7 December 2019 Nzuri and Xuchen agreed to an amendment to the Scheme Implementation Deed (SID) and the proposed scheme of arrangement such that the 'End Date' became 31 March 2020.[24] The extension allows Xuchen time to obtain the SAFE approval and to secure the third-party funding that it seeks.
[24] Affidavit of D J Carpenter affirmed 11 December 2019 attachment 'DJC-1'.
A consequence of the amended End Date is that the exclusivity period under the SID is extended from 26 November 2019 to 31 March 2020. In practical terms this is an extension from nine months to slightly over 13 months. I have substantial reservations as to whether, had this been the period as originally agreed, I would have considered it to be acceptable. In Nzuri Copper Ltd I suggested that the nine months was at the upper end of what is commonly considered acceptable.[25] But I am not looking at the 13 months in isolation. The duration of the extension to the exclusivity period is not unreasonable in circumstances where - as evidenced by the scheme resolution - the proposed scheme apparently enjoys substantial support from shareholders. That is all the more so when the evidence demonstrates the delays that have been experienced in obtaining the necessary regulatory approvals in the PRC.
The outstanding SAFE approval
[25] Nzuri Copper Ltd [59].
A matter of material concern to me was the current status and anticipated progress of the SAFE approval. At the time of the first hearing on 30 May 2019 it was anticipated that this condition precedent, along with all others, would be satisfied by 15 July 2019. The scheme proposal has now been delayed for an additional six months due to the non-satisfaction of this condition precedent. It was, I consider, incumbent on Xuchen to inform the court of the current status and anticipated time for fulfilment of the condition precedent. In that respect, on 7 January 2020 the solicitors for Nzuri sought that the solicitors for Xuchen provide an update on the SAFE approval.[26] However, as at the time of the hearing on 14 January 2020 (10.00 am) nothing substantive had been received.
[26] Affidavit of D J Carpenter affirmed 13 January 2020 attachment 'DJC-4'.
After hearing submissions from the parties, and in circumstances where neither party was able to inform me of the current status and anticipated steps to progress the SAFE approval to finalisation, I stood the matter over to 4.00 pm on 14 January 2020. This was to allow Xuchen to provide an affidavit that dealt with these matters conclusively.
A further affidavit of Mr Ko was received shortly before 4.00 pm on 14 January 2020. This explained that the relevant officer of Xuchen, Jieying Zhong, was in China and unable to arrange to appear before a person able to administer an oath in the time available. However, Mr Ko attached an email dated 14 January 2020 from Ms Zhong which provided the following 'confirmations':
1. On 10 January 2020, I spoke to Xie Peng at Chengtun Mining, who has responsibility for dealing with CITIC in relation to Xuchen's SAFE approval application;
2.Xie Peng advised me that he had spoken to the representatives from International Business Department of ClTIC Bank Shenzhen Branch who was responsible for obtaining SAFE approval on Xuchen's behalf, and that that representative had advised that due to the fact that the implementation date of the Scheme was likely to be pushed beyond what was agreed by Xuchen and Nzuri in the Letter Deed (if a meeting of Nzuri's shareholders to ratify the earlier approval of the Scheme needed to be held), then updates would need to be made to documents that CITIC required to obtain SAFE approval on Xuchen's behalf;
3.The CITIC representatives requested that Xuchen provide the updated documents as soon as reasonably practicable, once the revised implementation date was known following the court hearing on 14 January 2020, after which Xuchen's SAFE approval application would continue to be progressed in the ordinary course, as it had been to date;
4.The CITIC representatives did not make any suggestion that SAFE approval would not be forthcoming;
5.Xuchen has commenced updating the documents, and intends to provide them to CITIC as soon as reasonably practicable after the court hearing, at which time any change to the implementation date of the Scheme (from what was agreed in the Letter Deed) would be known;[27]
[27] Affidavit of K Ko affirmed 14 January 2020 attachment 'KK-1'.
In a 15 November 2019 affidavit Ms Zhong had previously explained that, under Chinese law, an application for SAFE approval had to be made through a domestic Chinese bank. Xuchen had engaged China CITIC Bank (CITIC) to obtain SAFE approval on its behalf. At that time Ms Zhong stated that, in various telephone calls, CITIC representatives had advised her that the application was progressing in the ordinary course. Xuchen had been told that CITIC was continuing to go through its internal processes. There had been no indication from CITIC that SAFE was not minded to give the required approval.[28]
[28] Affidavit of J Zhong affirmed 15 November 2019 pars 4 - 7.
Apart from the tenor of the email - hedged as it is with suggestions of steps being taken within time periods of uncertain duration rather than by definite times - there are a number of aspects of Ms Zhong's email that are troubling.
First, the email only reports what Ms Zhong has been informed. Ms Zhong is not the person who is responsible for dealing with CITIC in relation to the SAFE approval application. Ms Zhong does not have direct knowledge. Second, it is suggested that amended documents are required. The reason given for this is that the implementation date of the scheme was likely to be postponed if a ratification meeting was required. As I apprehend matters, since the 7 December 2019 amendments to the SID (the 'Letter Deed' as referred to in Ms Zhong's email), the proposed implementation date has only been postponed by a little under four weeks (from 14 February 2020 to 11 March 2020). But the SAFE approval has been outstanding since mid-July 2019. In those circumstances, and given that Xuchen should have been working to implementation in mid-February 2020 in any event, I would have thought that the SAFE approval would be being progressed expeditiously rather than awaiting orders of the court. I would have expected that the amended documents would have been lodged well before now. Third, the email puts the delay in terms of awaiting determination of whether a ratification meeting is required and the outcome of the present hearing. However, in an affidavit sworn 11 December 2019 Ms Carpenter, on behalf of Nzuri, informed the court that Nzuri proposed to seek the ratification meeting.[29] There was also email correspondence of 10 December 2019 between Ms Carpenter and Xuchen's solicitors which provided an indicative timetable proposing that the ratification meeting proceed on 17 February 2020 with a second court hearing on 24 February 2020 - resulting in a 6 March 2020 implementation date.[30] Accordingly, Xuchen has been aware - for at least five weeks - of the intention to proceed with a ratification meeting and the likely timetable as is now sought to be implemented.
[29] Affidavit of D J Carpenter affirmed 11 December 2019 par 14.
[30] Affidavit of D J Carpenter affirmed 11 December 2019 attachment 'DJC-7'.
Finally, I draw little comfort from the placatory suggestion that the SAFE approval will 'continue to be progressed in the ordinary course, as it had been to date'. To date the SAFE approval has not been forthcoming notwithstanding the passage of more than six months. If, as suggested, what has occurred amounts to progress 'in the ordinary course', there are real concerns as to whether the approval will be forthcoming by 27 February 2020 (the proposed date of the second hearing).
In light of the email I sought further submissions from counsel for Nzuri. Nzuri submitted, and I agree for the reasons as stated above, that Ms Zhong's email raised more questions than it answered. Nevertheless, Nzuri continued to press for the orders for the ratification meeting. Counsel for Nzuri submitted that, in F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd[31] terms, it could not be said that the scheme itself was of such a nature and cast in such terms that, if the scheme resolution was ratified, the court would be unlikely to approve the proposed scheme at an unopposed hearing. Accordingly, it would be inappropriate to stop the current process in its tracks.
[31] F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69.
Counsel for Nzuri further submitted that - on the evidence - it could not be concluded that the SAFE approval condition precedent will not be satisfied. Court approval will be dependent on satisfaction of the condition precedent in any case. Accordingly, the ratification meeting should proceed. The SAFE approval either would, or would not, be forthcoming; and the court could deal with the matter at the second court hearing based on actual facts rather than concerns.
I accept those submissions. I accept, in particular, that while I harbour real concerns as to the likelihood of the SAFE approval being satisfied in the time frame proposed, matters have not reached a stage where I can conclude, on the balance of probabilities, that the condition precedent will not be satisfied. While there is no certainty as to if and when SAFE approval will be obtained, matters have not yet reached a stage where I can make a conclusive determination that approval will not be forthcoming.
The response from Xuchen did, however, raise an issue as to the disclosures to be made to Nzuri's members. I considered that the replacement scheme booklet needed to more prominently, and fulsomely, disclose the current status and anticipated progress of the application for SAFE approval. Counsel for Nzuri agreed. The application was adjourned overnight so that Nzuri could draft appropriate amendments to the chairperson's letter. As amended the chairperson's letter includes this additional statement:
Cautionary statement
It is a condition precedent to the Scheme that BidCo [Xuchen] receives the PRC Regulatory Approvals. As disclosed above, Nzuri understands from BidCo that the final PRC Regulatory Approval, the SAFE Approval, remains outstanding as at the date of this Replacement Scheme Booklet.
Nzuri Shareholders are cautioned that there can be no certainty that the SAFE Approval will be obtained within the timeframe presently contemplated (that is before 8.00am on 27 February 2020, the Second Court Date), or at all.
The Original Scheme Booklet contemplated that the SAFE Approval would have been received by no later than 8.00am on 15 July 2019 (being the original Second Court Date).
As announced on 1 July 2019:
·Nzuri had been advised by BidCo that there were likely to be delays in obtaining the PRC Regulatory Approvals, and that it was at that time anticipated that this condition would be satisfied on or around 31 August 2019; also
·there had been delays in the completion of the Permit Transfers which was also a condition to the Scheme (this condition has now been satisfied, as announced on 7 October 2019).
As a result of the above, the Second Court Hearing was adjourned to 5 September 2019.
As announced on 5 September 2019, the Second court Hearing was further adjourned to 11 October 2019 as a result of continuing delays in obtaining the PRC Regulatory Approvals and the Permit Transfers.
On 7 October 2019, Nzuri announced that the Permit Transfers had been received.
Since that time, there have been seven adjournments to the Second Court Hearing, on 11 October 2019, 29 October 2019, 18 November 2019, 25 November 2019, 13 December 2019, 14 January 2020 and 15 January 2020 as a result of the ongoing delays and uncertainty as to the status of the PRC Regulatory Approvals.
Nzuri Shareholders are cautioned to have regard to the continued delays as outlined above, and that the progress of the application for the SAFE Approval is largely outside of the control of Nzuri.
Nzuri will provide any material updates received as to the status of the SAFE Approval, in accordance with its continuous disclosure obligations and any further orders made by the Court.
There is, however, a continuing concern - at least on my part - as to the limited insight members are being afforded on the steps being taken by Xuchen to obtain the SAFE approval and the likelihood that the approval will be forthcoming before the proposed second court hearing on 27 February 2020. This shortcoming is not attributable to Nzuri. Nzuri, quite properly, has sought to make it clear that there is no certainty as to if and when SAFE approval will be received by Xuchen. The difficulty is entirely attributable to the opacity of the information that has been forthcoming from Xuchen.
In those circumstances I considered it appropriate to provide for further orders as follows:
16.By 4 pm on Wednesday, 22 January 2020 Xuchen International Ltd (Xuchen) file and serve any affidavit, to be sworn by an officer or employee with personal knowledge as far as practicable and otherwise after making due inquiry, detailing:
(a)the steps Xuchen has taken, and must take, on and following 15 January 2020 in obtaining the relevant approval from the State Administration of Foreign Exchange of China (SAFE approval) in connection with satisfying the outstanding condition precedent referred to in cl 3.1(g) of the scheme implementation deed dated 26 February 2019 between Xuchen and the plaintiff;
(b)whether Xuchen believes that the SAFE approval will be obtained on or before 8 am on 27 February 2020 (setting out the grounds for that belief);
(c)the anticipated date on which the SAFE approval will be obtained (setting out the grounds why it is believed that the SAFE approval will be obtained by that date);
(d)any reason known to Xuchen for believing that the SAFE approval will not be obtained on or before 8 am on 27 February 2020.
17.The proceedings are listed for hearing on Friday, 24 January 2020 at 9 am for the purpose of determining whether, based on Xuchen's response to order 16, the plaintiff must make any supplementary disclosure to its shareholders in relation to the ratification meeting.
Counsel for Xuchen accepted that, in all the circumstances, the orders were appropriate and should be made. So too Nzuri consented to the orders.
Accordingly, by next week the court should be better informed as to the current status and likely fate of the SAFE approval application. Based on that information consideration may be given to whether supplementary disclosure ought to be made to Nzuri members before the ratification meeting. In the meantime Nzuri can proceed with arrangements for the ratification meeting.
Loan agreement between Xuchen and Nzuri
In Nzuri Copper Ltd I referred to the loan agreement in place between Nzuri and Xuchen.[32] With the delays in implementation of the proposed scheme the loan arrangements have altered. As at 30 May 2019 there was a $5 million secured facility drawn to $4.5 million. The position now is that:
1.The facility is in an amount of $10.5 million (an increase of $5.5 million).
2.The amount drawn-down is in the region of $8.475 million. It is anticipated that there will be further draw-downs over February and March 2020 - although the final draw-down of $675,000 is conditional on the scheme not having been implemented on or before 14 February 2020.
3.The repayment date has been extended to 26 February 2021 (previously 26 November 2019). However, there are circumstances in which there might be earlier repayment. One of these is receipt of a demand in the event that a condition of the scheme (other than shareholder approval) is not satisfied. Then repayment must be effected within 120 days.
[32] Nzuri Copper Ltd [64] - [71].
Ms Hudson deposed that, in her opinion, there is adequate time for Nzuri to obtain alternate or replacement finance in the event that the Xuchen loan must be repaid.[33] Ms Hudson also deposed that the loan agreement was negotiated at arm's length with the benefit of independent legal advice and drafting.[34] On its face the loan agreement contains ordinary commercial terms. There is nothing unduly onerous or oppressive.
[33] Affidavit of H C Hudson affirmed 10 January 2020 par 67(b).
[34] Affidavit of H C Hudson affirmed 10 January 2020 par 66.
The Tembo loan facility will no longer be available to Nzuri should it have to repay the Xuchen loan.[35] Tembo Capital Mining Fund LP declined to grant an extension beyond 26 February 2020.[36] However, the repayment date has been extended significantly. At the least there will be a four month period to bring about repayment. Nominally the repayment period is in the order of 12 months. The concern with such loan arrangements between bidder and target is that the loan (and the obligation to repay) might act as a de facto lock-up device that may have a coercive effect impairing a free consideration of the scheme. Given the time for repayment - and Ms Hudson's confidence that there will be time for Nzuri to obtain alternate or replacement finance - I was satisfied, necessarily at a provisional level, that this was not the case. If in fact one or more shareholders considers that there is an issue of unfairness or coercion that can be addressed at any approval hearing in due course.
Replacement scheme booklet
[35] Cf Nzuri Copper Ltd [66].
[36] Affidavit of H C Hudson affirmed 10 January 2020 par 73.
Nzuri has prepared a draft replacement scheme booklet (attachment 'HCH-1'). Among other things the draft replacement scheme booklet:
•explains the necessity for the ratification meeting - including the delayed SAFE approval and the proposed change in Xuchen's funding. Following the matters referred to above the replacement scheme booklet gives more prominent and fulsome disclosure as to the issues concerning the SAFE approval;
•details the consequential updates to the indicative timetable for the scheme;
•provides an update on various financial and other matters including material changes to Nzuri's financial position since 30 June 2019 (section 4.8), the financing information provided by Xuchen (section 5.4) and Nzuri's loan facilities (sections 4.9, 4.10 and 6.2(c));
•sets out the Nzuri directors' recommendation (section 1.2) while explaining that shareholders may no longer be in favour of the scheme given the delays and the proposal to obtain alternate funding for the scheme consideration (section 1.3(g)); and
•attaches an updated version of the IER as prepared by the independent expert that provided the initial IER.
The usual sort of affidavit evidence has been filed confirming the verification process that has been undertaken in producing the draft replacement scheme booklet. An initial draft of the document was made available to the ASIC on 23 December 2019.[37] On 13 January 2020 the ASIC informed Nzuri's solicitors that, apart from some minor queries which had apparently been dealt with orally, the ASIC had no further comments on the draft replacement scheme booklet.[38] I too have reviewed the draft replacement scheme booklet. I am satisfied that, to the prima facie basis that applies given the interlocutory nature of the application, there will be proper disclosure as to the material considerations to which shareholders ought to have regard in assessing the ratification resolution. In that respect the replacement scheme booklet takes as its base, but then updates, the original scheme booklet (as was approved for distribution in Nzuri Copper Ltd).[39]
Proposed scheme fit for consideration at ratification meeting
[37] Affidavit of D J Carpenter affirmed 10 January 2020 par 5(b).
[38] Affidavit of D J Carpenter affirmed 13 January 2020 attachment 'DJC-1'.
[39] Nzuri Copper Ltd [38] - [44], [95].
I was previously satisfied that the proposed scheme of arrangement was fit for consideration by Nzuri's members. Sensible business people might consider the scheme will be of benefit to the members.[40] For the same reasons I am satisfied that the scheme resolution is one that Nzuri's members might consider it open to ratify at the proposed ratification meeting. Moreover, viewing the scheme as a whole, if the proposed ratification resolution is passed the scheme is of such a nature, and cast in such terms, that the court would be likely to approve the scheme at a hearing of an unopposed application. This assumes, consistent with my earlier observations, that the SAFE approval has been obtained by Xuchen before the second court hearing, and all other conditions precedents remain satisfied.
[40] Nzuri Copper Ltd [93].
In concluding that the proposed scheme is fit for consideration at the ratification meeting I also rely on the following:
1.The scheme meeting resulted in overwhelming support for the resolution to approve the scheme (the resolution was passed by 99.97 per cent of votes cast and 94.29 per cent of members present in person or by proxy).
2.In the updated IER the independent expert concludes that, in the absence of a superior proposal, the scheme remains fair and reasonable and is therefore in the best interests of Nzuri's shareholders. The expert assesses the underlying value of Nzuri (on a controlling interest basis) as being between 19 to 26.7 cents per share (a reduction from the 21.6 to 30.9 cents as stated in the original IER). Thus shareholders might well consider that acceptance of the 37 cents available under the scheme is in their best interests. That is all the more so with the apparent diminution in the value of the Nzuri shares.
3.Since 16 January 2019 Nzuri's shares have at all times traded at a price less than 37 cents. Indeed, over the last month the closing share price has never exceeded 30 cents.[41]
4.Nzuri's directors unanimously recommend that the shareholders vote in favour of the ratification resolution.
[41] Affidavit of D J Carpenter affirmed 13 January 2020 attachment 'DJC-3'.
Conclusion and orders
Nzuri sought orders that echoed those originally made in convening the scheme meeting with various modifications as were required to reflect that the resolution to be sought was one ratifying the earlier scheme resolution. Order 12, however, was modelled on the orders made in PR Finance Group Limited (No 3); it was designed to provide for the statutory majorities that ordinarily prevail at a scheme meeting. I was satisfied that orders in those terms were appropriate in all the circumstances.
For these reasons I made orders as follows (these orders do not reproduce the orders previously referred to at [43] above):
1.The plaintiff convene a meeting of holders of fully paid shares in the capital of the plaintiff to be held at the offices of the plaintiff, Unit 13, 100 Railway Road, Daglish, Western Australia, on 20 February 2020 at 3.00pm (WST) (ratification meeting) for the purposes of considering and, if thought fit, approving a resolution ratifying the approval by members at the meeting held on 19 August 2019 of the proposed scheme of arrangement (scheme) being the document contained in Annexure DJC-3 (pages 99-110) to the affidavit of Deanna Jayne Carpenter affirmed on 10 May 2019 (ratification resolution).
2.The replacement scheme booklet contained in Annexure HCH-1 (pages 15-285) to the affidavit of Hannah Claire Hudson affirmed on 10 January 2020 (including all annexures and the notice of ratification meeting), which contains the explanatory statement for the ratification meeting, be and is approved for distribution to members, subject to:
(a)incorporation of the changes contained in Annexure HCH-1 (pages 4-5) to the affidavit of Hannah Claire Hudson affirmed on 15 January 2020 and the incorporation of the changes contained in Annexure EAP-6 of the affidavit of Elizabeth Ann Phillips affirmed on 15 January 2020;
(b)correction of any minor typographical or grammatical errors;
(c)final typesetting, formatting and page numbering;
(d)any minor amendments required or approved by the ASIC;
(e)correction or update of, or as a result of, any relevant date or market price reference.
3.Subject to these orders, the ratification meeting is to be:
(a)convened, held and conducted in accordance with the plaintiff's constitution and to the extent not inconsistent with the constitution, the provisions of Part 2G.2 of the Corporations Act that apply to members of a company and in particular the provisions that apply to meetings of members;
(b)convened, held and conducted as if rule 2.15 of the Supreme Court (Corporations) Rules 2004 (WA) does not apply, but that Rule 75-15(2) of the Insolvency Practice Rules (Corporations) 2016 (Cth) does apply; and
(c)convened using the notice of meeting substantially in the form of the notice contained in Annexure HCH-1 (pages 281-285) to the affidavit of Hannah Claire Hudson affirmed on 10 January 2020.
4.The plaintiff is to dispatch, on or before 21 January 2020, a document substantially in the form of the replacement scheme booklet (approved for distribution at order 2 above) and any applicable proxy form (or a link to a website for any electronic proxy lodgement) 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, an email to such address with a covering email text substantially in the form of Annexure HCH-4 (page 592) of the affidavit of Hannah Claire Hudson affirmed on 10 January 2020; 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 plaintiffs members.
5.Dispatch in accordance with order 4 on or before 21 January 2020 is taken to be sufficient notice of the ratification meeting.
6.If it after comes to the attention of the plaintiff that any email dispatched in accordance with order 4(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 scheme booklet and any applicable proxy form in accordance with order 4(b).
7.Mr Ean Alexander or, failing him, Mr Ryan White is to be authorised to act as chairperson of the ratification meeting and report the result of the ratification meeting to this Court.
8.The chairperson may adjourn the ratification meeting in his absolute discretion to such time, date and place as he considers appropriate.
9.Two members present in person or by proxy, corporate representative or attorney under power and entitled to vote will constitute a quorum for the ratification meeting.
10.At the ratification meeting, each shareholder present 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 18 February 2020.
11.Voting on the ratification resolution is to be conducted by way of poll.
12.The resolution in favour necessary for the chairperson to declare that the ratification resolution has been carried at the ratification meeting shall be:
(a)unless otherwise ordered, a majority in number of the members present and voting (either in person or by proxy); and
(b)passed by 75% of the votes cast on the ratification resolution.
13.The time by which proxy forms must be returned or lodged online in accordance with any instructions given on the proxy form is 3:00pm (WST) on 18 February 2020.
14.If this matter is to be relisted, then after 18 February 2020 and on or before 24 February 2020 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).
15.The proceedings are listed for hearing at 10.00am (WST) on 27 February 2020 for the hearing of any application to approve the proposed scheme.
…
18.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 10.00am (WST) on 25 February 2020, the Supreme Court of Western Australia (situated at the Stirling Gardens, 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 3.00pm (WST) on 19 August 2019 and ratified by a resolution by the members of Nzuri at a meeting of such members held at the offices of Nzuri at Unit 13, 100 Railway Road, Daglish, Western Australia at 3.00pm (WST) on 18 February 2020.
If you wish to oppose 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 HWL Ebsworth, Level 20, 240 St Georges Terrace, 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.
OE
Research Orderly to Judge15 JANUARY 2020
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