Re Pelsart Resources Nl
[2024] WASC 228
•24 JUNE 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE PELSART RESOURCES NL; EX PARTE PELSART RESOURCES NL [2024] WASC 228
CORAM: HILL J
HEARD: 21 JUNE 2024
DELIVERED : 21 JUNE 2024
PUBLISHED : 24 JUNE 2024
FILE NO/S: COR 91 of 2024
MATTER: IN THE MATTER OF PELSART RESOURCES NL
EX PARTE
PELSART RESOURCES NL
Plaintiff
Catchwords:
Corporations law - Scheme of arrangement - Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth) - Whether requirements to order scheme meeting are satisfied - Orders made convening scheme meeting
Legislation:
Corporations Act 2001 (Cth), s 411, s 1319
Corporations Regulations 2001 (Cth) sch 8
Supreme Court (Corporations) (WA) Rules 2004 (WA) r 3.2
Result:
Orders made convening scheme meeting
Category: B
Representation:
Counsel:
| Plaintiff | : | B S Giles |
Solicitors:
| Plaintiff | : | Blackwall Legal |
Cases referred to in decision:
Re Amcom Telecommunications Ltd [2015] FCA 341
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re Azure Minerals Ltd [2024] WASC 58
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re Kangaroo Resources Ltd [2018] WASC 327
Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
Re Pacific Energy Limited [2019] WASC 443
Re SRG Ltd [2018] FCA 1092
Re Wesfarmers Ltd [2018] WASC 308
HILL J:
The plaintiff, Pelsart Resources NL (Pelsart), is an unlisted Australian public company.[1] On 15 March 2024, Pelsart entered into a scheme implementation deed (SID) with Sanfield Holdings Ltd (Sanfield), a wholly owned subsidiary of Primecorp Enterprises Ltd (Primecorp).[2] At present, Sanfield owns 92.91% of the issued shares in Pelsart. Under the terms of the SID, it is proposed that Sanfield will acquire all of the shares in Pelsart that it does not already own, and that Pelsart will become a wholly owned subsidiary of Sanfield (Scheme).
[1] Affidavit of Richard Teng Beng Tan filed 7 June 2024 [17].
[2] Affidavit of Richard Teng Beng Tan filed 7 June 2024, 'RT20'.
By an originating process dated 7 June 2024, Pelsart sought orders pursuant to s 411 and s 1319 of the Corporations Act 2001 (Cth) (Act) convening meetings of its shareholders (other than Sanfield) to consider the proposed Scheme (Scheme Meeting). The first court hearing was listed before me on 21 June 2024. On that date, I made orders pursuant to s 411(1) and s 1319 of the Act to convene the meetings and approve the distribution of a Scheme booklet to Pelsart's shareholders, as well as ancillary orders with respect to the convening and conduct of the Scheme Meeting.
In making these orders, I indicated that I would subsequently publish written reasons for my decision. These are those reasons.
Evidence for the first court hearing
Pelsart relied on eight affidavits for the purposes of the first court hearing on 21 June 2024, being:
(a)two affidavits of Richard Teng Beng Tan, a director of Pelsart, filed 7 June 2024 and 20 June 2024;
(b)an affidavit of Fraser Lewis Doling Dudfield, a legal practitioner employed by Blackwall Legal (Blackwall), the solicitors for Pelsart, filed 18 June 2024;
(c)three affidavits of William Edward Moncrieff, a legal practitioner employed by Blackwall, one filed 19 June 2024 and two filed 20 June 2024. The first affidavit annexed an affidavit of Sean Gustav Standish Hughes, a director of Sanfield, affirmed 19 June 2024;[3] and
(d)an affidavit of Belinda Sarah Giles, a legal practitioner employed by Blackwall, filed 20 June 2024.
[3] At the hearing, counsel undertook to the court that the original affidavit of Mr Hughes, which was affirmed in Bali, Indonesia, would be filed once it had been received by the plaintiffs.
Nature of proposed Scheme
Pelsart is a gold and mineral exploration company with activities in Kalimantan, Indonesia. As at 21 June 2024, Pelsart had 1,833,552,401 fully paid ordinary shares on issue (Shares).
Sanfield is a company incorporated and registered in Hong Kong and is a wholly owned subsidiary of Primecorp, a company registered in the British Virgin Islands. Sanfield's only business is to hold its shareholding in Pelsart and to provide financial assistance to Pelsart and its related bodies corporate as and when required.[4]
[4] Affidavit of Richard Teng Beng Tan filed 7 June 2024, 'RT6' p 310; Affidavit of William Edward Moncrieff filed 19 June 2024, 'WEM3' p 92.
If the Scheme is implemented, Sanfield will acquire all of the Shares on issue which it does not already own as at the Scheme record date, which is expected to be 5:00 pm on 2 August 2024.[5] These shareholders will receive $0.035 cash for every Share as consideration for the acquisition of their Shares (Scheme Consideration).
[5] Affidavit of Richard Teng Beng Tan filed 7 June 2024, 'RT6' p 296; Affidavit of William Edward Moncrieff filed 19 June 2024, 'WEM3' p 71.
The independent directors of Pelsart have unanimously recommended that shareholders vote in favour of the Scheme, in the absence of a superior proposal.
Pelsart retained an independent expert, BDO Corporate Finance (WA) Pty Ltd (BDO), to provide an opinion on the proposed Scheme. BDO concluded that, in the absence of a superior proposal, the proposed Scheme is fair and reasonable and in the best interests of shareholders of Pelsart.[6]
[6] Affidavit of Richard Teng Beng Tan filed 7 June 2024, 'RT6' p 424 [2.3].
In reaching this conclusion, BDO considered the value of a Share prior to the implementation of the proposed Scheme (on a controlling interest basis), compared to the Scheme Consideration. The independent expert report (IER) expresses the opinion that the value of a Share prior to the proposed Scheme was between $0.017 (low) and $0.027 (high), with a preferred value of $0.022 as compared to the Scheme Consideration of $0.035.[7] The basis for the valuation and the methodology used by BDO in forming their conclusions are set out in the IER. BDO's consideration of advantages, disadvantages and other factors that are likely to impact shareholders of Pelsart are also set out comprehensively in the IER.[8]
[7] Affidavit of Richard Teng Beng Tan filed 7 June 2024, 'RT6' p 424 [2.4].
[8] Affidavit of Richard Teng Beng Tan filed 7 June 2024, 'RT6' p 441 - 442.
The Scheme will not be implemented unless and until a number of conditions precedent are satisfied or waived. The conditions precedent which are required to be satisfied or waived are disclosed in the Scheme booklet.
The SID sets out the procedures that have been agreed for the implementation of the proposed Scheme. The obligations of Sanfield under the Scheme are supported by a deed poll which has been executed by Sanfield (Deed Poll).[9]
[9] Affidavit of Richard Teng Beng Tan filed 7 June 2024, 'RT6' p 274.
Legal principles
Pursuant to s 411 of the Act, a scheme of arrangement can be used to re-organise a company in a manner which will be binding on its members, provided that:
(a)the arrangement is agreed by the requisite majorities as prescribed by s 411(4)(a) of the Act, namely 75% of shareholders by value and 50% by number; and
(b)the court approves the arrangement pursuant to s 411(4)(b) of the Act.
There are three stages to an application under s 411 of the Act. First, the court approves the convening of a scheme meeting and the draft explanatory statement to be sent to the members. Second, the members vote on the proposed scheme at the scheme meeting. Third, assuming the first two stages have occurred, the court approves the proposed scheme.[10]
[10] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7].
There are well‑established principles which apply to the first stage of proceedings. The court will order the convening of the scheme meeting and approve the dispatch of the scheme booklet if it is satisfied that:[11]
(a)there is a pt 5.1 body within the meaning of s 9 of the Act;
(b)there is a compromise or arrangement within the meaning of s 411 of the Act;
(c)the proposed scheme booklet contains the prescribed information[12] and provides proper disclosure;[13]
(d)the scheme is bona fide and properly proposed;
(e)the Australian Securities and Investments Commission (ASIC) has had at least 14 days' notice of the proposed hearing date and a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions;[14]
(f)the procedural requirements of the Act and the Supreme Court (Corporations) (WA) Rules 2004 have been met; and
(g)the scheme is of such a nature that, if it receives the necessary statutory majority at the scheme meeting, the court will be likely to approve it.
[11] Re SRG Ltd [2018] FCA 1092 [11]; Re Wesfarmers Ltd [2018] WASC 308 [60].
[12] Corporations Act 2001 (Cth) s 412(1)(a)(ii); Corporations Regulations 2001 (Cth) reg 5.1.01, Sch 8 cl 8301 ‑ 8310.
[13] Corporations Act 2001 (Cth) s 412(1)(a)(i).
[14] Corporations Act 2001 (Cth) s 411(2)(b).
Any issue about classes of members is usually determined at the first hearing.[15] This is to ensure that unnecessary costs and court time are not wasted, which would otherwise occur if this issue was left to the second hearing.[16]
[15] Re CSR Ltd [73].
[16] Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 [20].
The standard of review that is undertaken by the court at the first hearing is whether the proposed scheme is not inappropriate and is one that sensible businesspeople might consider is of benefit to its members.[17] If the proposed arrangement is one that appears fit for consideration by a meeting of members and is a commercial proposition likely to gain the court's approval if passed by the necessary majority, leave should be given to convene the meeting.[18]
[17] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[18] Re SRG Ltd [12]; Re Wesfarmers Ltd [72] - [76].
Disposition
Pelsart has proved each of the formal matters it is required to.
I am satisfied that Pelsart is a company and, accordingly, a pt 5.1 body pursuant to the Act, and that the proposed Scheme is a 'arrangement'.
Pelsart filed an affidavit, as required by r 3.2 of the Corporations Rules, confirming the persons who have been nominated to be the chairperson and alternate chairperson for the Scheme Meeting consent to their appointment.[19]
[19] Affidavit of Richard Teng Beng Tan filed 7 June 2024 [97]; Affidavit of William Edward Moncrieff filed 19 June 2024 [23].
By letter dated 20 June 2024, ASIC confirmed it had been given 14 days' notice of the hearing and a reasonable opportunity to examine the terms of the Scheme and the draft Scheme booklet.[20] ASIC gave notice that it did not propose to appear at the first court hearing to make submissions or intervene to oppose the Scheme.[21]
[20] Affidavit of William Edward Moncrieff filed 20 June 2024, 'WEM9' p 4 - 5.
[21] Affidavit of William Edward Moncrieff filed 20 June 2024, 'WEM9' p 6 - 7.
On the materials before me at the time of the first hearing, there was nothing to suggest the Scheme was not properly proposed.
There are a number of conditions precedent to the Scheme. Representatives of each of Pelsart and Sanfield have deposed they are not aware of any basis to believe that any condition precedent will not be satisfied or waived prior to implementation of the Scheme.
Disclosure and Scheme booklet
I have been provided with a copy of the Scheme booklet as well as an updated Scheme booklet, which was provided to ASIC on 19 June 2024.[22]
[22] Affidavit of William Edward Moncrieff filed 19 June 2024 [13] - [19], 'WEM2', 'WEM3', 'WEM4'.
At the hearing, counsel for the plaintiffs requested an amendment to the draft Scheme booklet to record that one of Pelsart's independent directors, Mr Tan, owns 4,266 Shares. Given that the proposed amendment reflected the actual position, it was and is appropriate for this amendment to the Scheme booklet to be made.[23]
[23] Plaintiff's submissions filed 20 June 2024 [10] - [12].
I was and am satisfied that by the Scheme booklet there will be proper disclosure as to the effect of the proposed Scheme and the material considerations for shareholders of Pelsart.
There is evidence before me as to the due diligence and verification process that was undertaken by both Pelsart and Sanfield. On the basis of this evidence, I accept that Pelsart has undertaken a process of due diligence and verification to verify the accuracy of statements attributable to it in the Scheme booklet, and that Sanfield has undertaken a similar process. I am also satisfied that appropriate steps have been taken by both companies to satisfy themselves that the Scheme booklet does not omit any material information.
Based on the checklist provided by Pelsart, I was satisfied the Scheme booklet contained the prescribed information in accordance with s 412(1)(a)(ii) of the Act and sch 8 of the Corporations Regulations 2001 (Cth).
Performance risk
I was and am satisfied that the nature and terms of the proposed Scheme are such that the shareholders of Pelsart are adequately protected against the risk that they will not receive the Scheme Consideration and will have no capacity to sue Sanfield to recover their securities or damages.
In that respect, I have had regard to the terms of the Scheme and the Deed Poll. Pursuant to the Scheme:
(a)Pelsart is required to issue and allot the Scheme Consideration to each shareholder of Pelsart (except for Sanfield and any of its related bodies corporate);
(b)transfer of the Shares to Sanfield is subject to provision of the Scheme Consideration; and
(c)beneficial title in the Shares does not pass unless the Scheme Consideration has been issued in accordance with the Scheme.
The arrangements under the terms of the proposed Scheme are supported by the Deed Poll. By this document, Sanfield undertakes in favour of each Pelsart shareholder that it will perform all actions attributed to it under the Scheme. There is also an acknowledgement that the Deed Poll may be relied on and enforced by any Pelsart shareholder in accordance with its terms. In my view, the Pelsart shareholders are sufficiently identified within the Deed Poll to enable them to enforce the Deed Poll against Sanfield.
Exclusivity provisions and break fee
The SID contains the customary lock up devices in the form of 'no shop', 'no talk', 'no due diligence restriction' and 'notification obligations' provisions. The 'no talk', the 'no due diligence restriction' and the 'notification obligations' provisions are subject to a fiduciary carve out.
In considering whether the exclusivity provisions impact on completion of the transaction and the duties of directors, the court has regard to:[24]
(a)the period of the exclusivity, which should be no more than a reasonable period and capable of precise ascertainment;
(b)whether the provisions are subject to an overriding obligation that the directors not breach their fiduciary duties or are otherwise unlawful; and
(c)whether there is adequate prominence given to these provisions in the Scheme booklet.
[24] Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [29] - [35]; Re Kangaroo Resources Ltd [2018] WASC 327 [57] - [61]; RePacific Energy Limited [2019] WASC 443 [58].
In this case, the exclusivity period is, at most, a period of approximately six months.[25]
[25] Affidavit of William Edward Moncrieff filed 19 June 2024, 'WEM-3' p 66.
The affidavit of Mr Tan sets out the commercial justification for the exclusivity provisions.[26] I accept his evidence that the inclusion of these provisions in the SID followed arm's-length commercial negotiations in which all parties were separately advised and represented by external legal advisers.[27]
[26] Affidavit of Richard Teng Beng Tan filed 7 June 2024 [133] - [142].
[27] Affidavit of Richard Teng Beng Tan filed 7 June 2024 [140].
Importantly, the exclusivity arrangements are prominently disclosed in the Scheme booklet.[28]
Director benefits and recommendations
[28] Affidavit of Richard Teng Beng Tan filed 7 June 2024, 'RT-6' p 284.
Two of the directors of Pelsart (Mr Hughes and Dr Tan) are also directors of Sanfield. Given this, they have declined to make any recommendation in respect of the Scheme. The independent directors of Pelsart have unanimously recommended that, in the absence of a superior proposal, shareholders of Pelsart vote in favour of the Scheme.
At the hearing, counsel for the plaintiffs drew my attention to the fact that one of the independent directors, Mr Tan, holds 4,266 Shares in Pelsart. This is less than 0.01% of the Shares on issue, and Mr Tan will receive less than $150 as consideration for these Shares if the Scheme proceeds.
Other than the Scheme Consideration payable to Mr Tan for these Shares, the Scheme booklet discloses that under the proposed Scheme, no payment or other benefit will be made or given to any other director of Pelsart as compensation for loss of, or as consideration for their retirement from Pelsart or its related bodies corporate.[29]
[29] Affidavit of Richard Teng Beng Tan filed 7 June 2024, 'RT-6' p 320-1.
In my view, the manner in which Pelsart has approached which of its directors can and should make a recommendation to its shareholders (other than Sanfield) was and is entirely appropriate.
Shareholder voting intention statements
The Scheme booklet discloses that Pelsart has received a statement from Mr Tan that he intends to vote in favour of the proposed Scheme.
I was satisfied this statement is appropriately disclosed in the Scheme booklet, consistent with both the Takeovers Panel Guidance Note 23: Shareholder Intention Statements, and previous authorities.[30]
Shareholder communications
[30] See Re Azure Minerals Ltd [2024] WASC 58 [66].
Pelsart drew my attention to the steps it proposes to take in terms of shareholder communications. This will include both outbound and inbound telephone communications, as well as a reminder to vote.
I was provided with a draft script of these communications. The communications are consistent with the disclosure in the Scheme booklet, in respect of which approval is sought.
Deemed warranties
Pelsart also drew my attention to the deemed warranty provisions in the proposed Scheme.
The proposed Scheme provides that each shareholder of Pelsart is deemed to have warranted their Shares are unencumbered. Further, pursuant to the proposed Scheme, each shareholder of Pelsart is taken to have full power and capacity to sell and transfer their Shares.
The existence of this provision is drawn to the attention of shareholders in the Scheme booklet. Deemed warranty clauses are not unusual and are acceptable provided there is adequate disclosure that it is a condition.
I was and am satisfied that adequate disclosure has been given of these clauses.
Electronic despatch of the Scheme booklet
As is now common, Pelsart sought orders pursuant to s 1319 of the Act for electronic despatch of the Scheme booklet and applicable proxy form by email to Pelsart shareholders that have nominated to receive communications electronically (Email Shareholders). In respect of its shareholders who have nominated to receive communications in hardcopy, Pelsart proposed the despatch of hardcopy documents by post.
In relation to its shareholders who have not made any election and for those Email Shareholders in respect of whom electronic delivery has been notified as being ineffective, Pelsart proposed that these shareholders be sent a letter with details of the website from which the Scheme booklet can be accessed, together with a copy of the applicable proxy form.
I was and am satisfied that the proposed orders for despatch of these materials are appropriate.
Conclusion
For these reasons, I was and am satisfied that the substantive and procedural requirements under s 411(1) and s 1319 of the Act had been satisfied and that the proposed Scheme was fit for consideration by Pelsart's members.
At the conclusion of the first court hearing, I made orders in terms of 'Annexure A'.
Annexure A
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KC
Associate to the Honourable Justice Hill
24 JUNE 2024
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