Re Nzuri Copper Ltd; [No 5]
[2020] WASC 69
•5 MARCH 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE NZURI COPPER LTD; EX PARTE NZURI COPPER LTD [No 5] [2020] WASC 69
CORAM: VAUGHAN J
HEARD: 28 FEBRUARY 2020
DELIVERED : 28 FEBRUARY 2020
PUBLISHED : 5 MARCH 2020
FILE NO/S: COR 109 of 2019
BETWEEN: NZURI COPPER LTD
Plaintiff
XUCHEN INTERNATIONAL LTD
Interested Party
Catchwords:
Corporations law - Scheme of arrangement – Application for orders pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) – Whether statutory and procedural requirements observed – Whether court ought to exercise its discretion to approve the scheme – Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 411(1), s 411(4)(b), s 411(6)
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):
Re Nzuri Copper Ltd [No 4] [2020] WASC 10
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 [No 2] [2018] WASC 357
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.)
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.
The parties' progress in obtaining satisfaction of the conditions precedent to the scheme became protracted. Hearings to approve the scheme were adjourned on six occasions. By mid-January 2020 it remained the case that the conditions precedent were unfulfilled. In the circumstances that are the subject of my reasons in Re Nzuri Copper Ltd [No 4][1] I made orders, as requested by Nzuri, to convene a further meeting of members to ratify the resolution passed at the scheme meeting on 19 August 2019.
[1] Re Nzuri Copper Ltd [No 4] [2020] WASC 10 (Nzuri Copper Ltd [No 4]).
This morning's application has been made pursuant to s 411(4)(b) of the Act for orders approving the scheme. I will make orders approving the proposed scheme of arrangement. These are my reasons for those orders.
Background and additional evidence
Incorporation of earlier reasons
In Nzuri Copper Ltd [No 4] I recounted the tortured history of the scheme proposal (at [4] ‑ [10]). The scheme has already required four written decisions[2] and multiple other hearings. I do not intend to repeat that history. Rather, I incorporate what was said in the earlier reasons.
[2] Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd [2019] WASC 189 (Nzuri Copper Ltd); Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd[No 2] [2019] WASC 214 (Nzuri Copper Ltd [No 2]); Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd [No 3] [2019] WASC 280 (Nzuri Copper Ltd [No 3]); Nzuri Copper Ltd [No 4].
In particular, as to Nzuri Copper Ltd, I rely on what was stated as to:
1.The relevant entities, Nzuri and Xuchen (at [1] ‑ [2] and [8] ‑ [12]).
2.The announcement of the acquisition proposal ([2] ‑ [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]).
Also, as to Nzuri Copper Ltd [No 4], I rely on what was stated as to:
1.The extension of the end date of the scheme ([26] ‑ [30]).
2.The major outstanding condition precedent to be fulfilled, namely, receipt by Xuchen of a regulatory approval from the State Administration of Foreign Exchange of China (SAFE) ([27] and [31] ‑ [45]).
3.The loan agreement between Xuchen and Nzuri ([46] ‑ [48]).
4.The replacement scheme booklet ([49] ‑ [50]).
5.The attitude of the Australian Securities and Investments Commission (ASIC), Nzuri's directors and the independent expert ([5], [10], [12.2], [49], [50] and [52.2]).
There is, however, one important matter to be noted as having occurred after my reasons in Nzuri Copper Ltd [No 4].
At the time of my reasons in Nzuri Copper Ltd [No 4] there was a lack of insight as to the steps being taken by Xuchen to obtain the SAFE approval and the likelihood that the approval would be forthcoming before the second court hearing. On 15 January 2020 I made orders that invited Xuchen to file affidavits to assist in determining whether supplementary disclosure would be required. The orders contemplated a further hearing on 24 January 2020.
Xuchen responded to that information by filing two affidavits. They were:
1.Affidavit of Xie Peng affirmed 21 January 2020.
2.Affidavit of Shiyi Ye affirmed 21 January 2020.
Those affidavits disclosed that Xuchen obtained the outstanding SAFE approval on 18 January 2020. The satisfaction of the condition precedent was announced on the ASX markets announcement platform at about that time. Based on that, I was satisfied that no supplementary disclosure was required. The hearing listed for 24 January 2020 was vacated on the papers.
Additional evidence
The affidavit material relied on at the earlier hearings was formally relied on for the purpose of today's hearing to approve the scheme. It is not necessary to recite that material. The numerous affidavits have been referred to in my earlier reasons.
In addition, for the purposes of today's hearing, Nzuri specifically relied on the following affidavits:
1.Affidavit of Ean Alexander affirmed 24 February 2020 - Mr Alexander is a non-executive director of Nzuri. He chaired the ratification meeting. Mr Alexander's affidavit largely dealt with the outcome of the ratification meeting.
2.Affidavits of Deanna Carpenter affirmed 24 and 27 February 2020 - Ms Carpenter is Nzuri's solicitor and has primary conduct of the proceedings on behalf of Nzuri. Her affidavits largely addressed formal matters. However, in today's affidavit Ms Carpenter also deposed as to the receipt of a 'no objection' letter from the ASIC and satisfaction of the conditions precedent.
3.Affidavit of Nainesh Bhatt affirmed 24 February 2020 - Mr Bhatt is an employee of Advanced Share Registry Limited, a share registry management services provider. Mr Bhatt deposed to the printing and dispatch of the replacement scheme booklet (including the electronic dispatch of the replacement scheme booklet). Mr Bhatt also deposed to the receipt of proxies.
Counsel for Nzuri provided written submissions dated 25 February 2020. I have also had regard to counsel's written submissions dated 14 November 2019 as filed when it was anticipated that approval of the scheme would be sought on 18 November 2019.
Disposition
Applicable legal principles
I identified the applicable legal principles on an application for approval of a proposed scheme of arrangement under s 411(4)(b) of the Act in Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2].[3]
[3] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd[No 2] [2018] WASC 357 [11] - [19].
In short, there are two main tasks. First, the court must be satisfied that all statutory and procedural requirements under s 411(4)(b) have been observed. Second, the court must determine in the exercise of its discretion whether to approve the scheme.
On the latter question, acknowledging that the members are better judges of what is in their commercial interests than the court, consideration is usually given to:
1.Whether shareholders voted in good faith and not for an improper purpose.
2.Whether the proposal is fair and reasonable.
3.Whether the scheme proponent has brought all relevant matters to the court's attention.
4.Whether there has been full and fair disclosure to members of all material information.
5.Whether minority shareholders would be oppressed.
6.Whether the court is satisfied that the scheme has not been proposed to avoid ch 6 of the Act.
7.Whether the ASIC has no objections to the scheme.
8.Whether the scheme offends public policy.
Formal matters
Nzuri's affidavit evidence as filed before 18 November 2019 establishes that:
1.A copy of the court's orders made 30 May 2019 was lodged with the ASIC on 30 May 2019.
2.A copy of the scheme booklet as approved for distribution was lodged with the ASIC and registered on 31 May 2019.
3.The scheme booklet was dispatched to Nzuri's members on 6 June 2019 in accordance with the orders of the court made 30 May 2019.
4.The first supplementary disclosure was dispatched to Nzuri's members on 13 and 14 June 2019 in accordance with pars 3 and 4 of the orders of the court made 12 June 2019.
5.The second supplementary disclosure was dispatched to Nzuri's members on 2 August 2019 in accordance with pars 2 and 3 of the orders of the court made 1 August 2019.
6.The scheme meeting was held on 19 August 2019 (after being adjourned on 8 July 2019) in accordance with pars 3 and 8 ‑ 12 of the orders of the court made 30 May 2019 (as modified by the orders of the court made 1 August 2019).
At the scheme meeting on 19 August 2019 the proposed scheme of arrangement was approved by resolution with the required statutory majorities.
As to votes, 99.97 per cent of the votes cast were in favour of the resolution (232,643,867 in favour and 70,502 against). As to head count, 94.29 per cent of the members in attendance by person or proxy voted in favour of the resolution (231 in favour and 14 against). Some 78.64 per cent of the shares on issue were voted (a relatively high proportion).
As already mentioned, the second hearing to approve the scheme was adjourned several times. Nzuri largely complied with the orders of the court requiring the hearing to be advertised and then re-advertised. Advertisements were placed in The Australian Newspaper on 10 September 2019 in compliance with par 2 of the orders of the court made 5 September 2019 and 16 October 2019 in compliance with par 1 of the orders of the court made 11 October 2019.
There were two minor instances of non-compliance.
First, Nzuri did not place an advertisement in The Australian newspaper to advertise the hearing on 5 September 2019 as required by par 6 of the orders of the court made 1 August 2019. The advertisement was not placed in circumstances where Nzuri anticipated requesting that the hearing be adjourned. In circumstances where the subsequent hearings were advertised substantially in accordance with the orders of the court I am satisfied that no substantial injustice was caused by this omission.
Second, the orders of the court made 29 October 2019 required Nzuri to place an advertisement in The Australian newspaper before 11 November 2019. Due to what was an inadvertent oversight the advertisement was not placed until 13 November 2019. I am satisfied that, given the short period of delay, the circumstance that the hearing was announced on the ASX markets announcements platform and that no party has indicated its intention to appear following advertisements of the other hearings, no substantial injustice was caused by the short delay in advertising the hearing.
I am satisfied that both instances of non-compliance with the orders of the court - both of which were properly drawn to my attention by Nzuri - are not reason to withhold approval under s 411(4)(b).
I turn then to the ratification meeting. Nzuri's further affidavit evidence establishes that:
1.The replacement scheme booklet was dispatched to Nzuri's members on 21 January 2020 in accordance with pars 4 to 6 of the order of the court made 15 January 2020.
2.The ratification meeting was held on 20 February 2020 in accordance with pars 3 and 7 ‑ 13 of the orders of the court made 15 January 2020.
At the ratification meeting on 20 February 2020 the members passed a resolution ratifying the scheme resolution as passed at the scheme meeting on 19 August 2019. The majority, for the purpose of the ratification resolution, was, by order of the court, to be the same statutory majority as required for approval of a scheme under s 411. That statutory majority was comfortably attained.
As to votes, 99.99 per cent of the votes cast were in favour of the ratification resolution (237,370,160 in favour and 14,391 against). As to head count, 94.5 per cent of the members in attendance by person or proxy voted in favour of the ratification resolution (94 in favour and 5 against). Some 80.22 per cent of the shares on issue were voted.
Accordingly, between the scheme meeting and the ratification meeting there has been a slight firming of the shareholder support for the scheme. In any event, the support for the scheme is overwhelming.
Nzuri was obliged to give notice of this hearing by advertisement. That has occurred. Nobody has appeared today to oppose the approval of the scheme.
Exercise of discretion: usual matters
I was satisfied at the first hearing that the proposed scheme of arrangement was one that was fit for consideration by Nzuri's members. A sensible businessperson might consider that the scheme will be of benefit to the members.[4] In so holding, I relied in part on the opinion expressed by the IER[5] and the views of the directors.[6] I was satisfied that those opinions were reasonably open. I remained of that view in making orders for the convening of the ratification meeting.[7]
[4] Nzuri Copper Ltd [93].
[5] Nzuri Copper Ltd [24]. See also Nzuri Copper Ltd [No 2] [16]; Nzuri Copper Ltd [No 3] [9].
[6] Nzuri Copper Ltd [17].
[7] See Nzuri Copper Ltd [No 4] [51] ‑ [52].
My conclusions reached at those interlocutory hearings are unaltered. I remain satisfied that the proposed scheme is fair and reasonable such that an intelligent and honest shareholder properly informed might approve it. My view is bolstered by the support that has been expressed for the scheme and the absence of any opposition to it.
There is nothing to suggest an absence of good faith or an improper purpose on the part of the members in approving the proposed scheme. Nothing in the scheme is oppressive. Nor is the scheme offensive to public policy.
As to disclosure, at the first hearing, based on the evidence then before the court and for the reasons that I gave, I was satisfied that the draft scheme booklet would provide proper disclosure to Nzuri's members.[8] The additional affidavit evidence established that the scheme booklet as distributed was substantially in the form approved for distribution by the 30 May 2019 orders.
[8] Nzuri Copper Ltd [38] ‑ [44], [95].
I was also satisfied that the first and second supplementary disclosures would provide proper disclosure to Nzuri's members.[9] The additional affidavit evidence also established that the first and second supplementary disclosures were distributed in accordance with the 12 June 2019 and 1 August 2019 orders respectively.
[9] Nzuri Copper Ltd [No 2] [26]; Nzuri Copper Ltd [No 3] [11(3)].
Disclosure was also addressed in the context of the mid-January 2020 hearing in relation to the replacement scheme booklet. As to that further disclosure, based on the evidence then before the court and for the reasons that I gave, I was satisfied that the draft replacement scheme booklet would provide proper disclosure to Nzuri's members.[10] The additional affidavit evidence establishes that the replacement scheme booklet as distributed was substantially in the form approved for distribution by the 15 January 2020 orders.
[10] Nzuri Copper Ltd [No 4] [49] ‑ [50].
Nothing has arisen to suggest that there has not been full and fair disclosure.
More generally, there is nothing to suggest that Nzuri has not brought to my attention all matters that could be considered relevant to the exercise of the discretion to approve the scheme. Indeed, as and when necessary, Nzuri took steps to provide supplementary disclosure to its members. Nzuri also took the unusual step of seeking orders for the ratification meeting in circumstances where satisfaction of the conditions precedent remained unfulfilled and there was a concern that the resolution passed at the scheme meeting might be considered to be stale.
Exercise of discretion: specific matters
Four specific matters were drawn to my attention that ought to be recorded.
First, the delays in receiving the People's Republic of China regulatory approvals potentially gave rise to a concern that Xuchen will not be in the position to provide funds for the scheme. That concern ought largely to be ameliorated having regard to the now satisfaction of the conditions precedent. In any event, I considered performance risk in Nzuri Copper Ltd.[11] I remain satisfied that Nzuri's members are adequately protected against the risk that Xuchen will not perform its obligations under the scheme.
[11] Nzuri Copper Ltd [46] ‑ [55].
Second, Nzuri proposes orders pursuant to s 411(6) of the Act whereby approval is subject to various alterations to the terms of the scheme. Those alterations are sought with the approval of Xuchen. I have considered the alterations and will set them out in full subsequently in stating the formal orders of the court.
The alterations are of a minor kind which do not, in my view, affect the substance of the scheme. They are simply amendments to improve the smooth working of the scheme without affecting its substance. They also remove certain overreaches which unnecessarily benefited Xuchen. On that basis they are, in my view, within the alteration power under s 411(6) of the Act and I propose to approve the scheme subject to those alterations.
Third, certificates of satisfaction of conditions precedent on the part of both Nzuri and Xuchen were provided as part of the affidavit evidence. The certificates confirm satisfaction or waiver of all conditions precedent other than court approval. Accordingly, the evidence establishes that the only remaining substantive condition precedent is the court's approval under s 411(4)(b) of the Act.
Fourth, as to s 411(17), Nzuri relied on the ASIC's no objection letter. It was acknowledged that, while this usually brings an end to that issue, the letter does not bring an end to the court's discretion. Against the possibility that there might have been an adverse exercise of discretion, Nzuri contended that the court should not take an excessively rigid view. I accept that, in the present case, there is no proscribed purpose in terms of s 411(17).
Section 411(11) exemption
Nzuri sought an exemption from s 411(11) of the Act. No ongoing purpose will be served by requiring the orders approving the scheme to be annexed to Nzuri's constitution. The orders will be irrelevant once Nzuri becomes a wholly owned subsidiary of Xuchen. Accordingly, I will make orders under s 411(12) exempting Nzuri from this requirement.
Conclusion and orders
I am satisfied that I should approve the proposed scheme of arrangement and make orders substantially in the terms as sought by Nzuri. Accordingly, I will make orders in the following terms:
1.Pursuant to sections 411(4)(b) and 411(6) of the Corporations Act 2001 (Cth) (the Act), the scheme of arrangement between the plaintiff, Nzuri Copper Limited ACN 106 294 106, and the holders of fully paid ordinary shares in the plaintiff, in the form contained in Annexure DJC-3 (pages 99-110) to the affidavit of Deanna Jayne Carpenter affirmed 10 May 2019, is approved (the Scheme) with the following alterations:
(a)removal of the words 'and Xuchen' from clause 8.3; and
(b)alteration of clause 8.10 to read 'Neither Nzuri nor any director, officer, secretary or employee of Nzuri will be liable for anything done or omitted to be done in good faith in the performance of this Scheme or the Deed Poll.';
(c)alteration of the definition of 'Implementation Date' in Schedule 1, clause 1.1 to read 'means the fifth Business Day, or such other Business Day as Nzuri and Xuchen agree in writing and is approved by the Court following the Record date for the Scheme'; and
(d)alteration of the definition of 'Record Date' in Schedule 1, clause 1.1, to read 'means, in respect of the Scheme, 5.00pm on the third Business day (or such other Business Day as Nzuri and Xuchen agree in writing and is approved by the court) following the Effective Date.'
2.Pursuant to subsection 411(12) of the Act, the plaintiff is exempted from compliance with subsection 411(11) of the Act in relation to the Scheme.
3.The plaintiff lodge an office copy of these orders with the Australian Securities and Investments Commission on 28 February 2020.
4.The plaintiff has liberty to apply on 24 hours notice.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
OE
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