Re PetroNor E&P Ltd

[2021] WASC 426

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   RE PETRONOR E&P LTD; EX PARTE PETRONOR E&P LTD [2021] WASC 426

CORAM:   HILL J

HEARD:   22 OCTOBER 2021

DELIVERED          :   22 OCTOBER 2021

PUBLISHED           :   30 NOVEMBER 2021

FILE NO/S:   COR 180 of 2021

MATTER:   IN THE MATTER OF PETRONOR E&P LTD

EX PARTE

PETRONOR E&P LTD

Plaintiff

Catchwords:

Corporations law - Scheme of arrangement - Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth) - Members’ scheme of arrangement to effect re-domicile of group to Norway - Whether requirements to order scheme meeting are satisfied - Orders made convening meeting

Legislation:

Corporations Act 2001 (Cth), s 411(1), s 412(1)(a), 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 : A J Papamatheos & C E McKay

Solicitors:

Plaintiff : Steinepreis Paganin

Cases referred to in decision:

Re Amcom Telecommunications Ltd [2015] FCA 341

Re APN News and Media Ltd [2007] FCA 770; (2007) 62 ACSR 400

Re Avita Medical Limited (No 2) [2020] FCA 674

Re Boart Longyear Ltd [2019] FCA 62; (2019) 370 ALR 30

Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358

Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381

Re Doray Minerals Ltd [2019] WASC 57

Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34

Re Excelsior Gold Ltd [2018] FCA 2064

Re Galaxy Resources Ltd [2021] WASC 277

Re GetSwift Limited (No 2) [2020] FCA 1733

Re Hills Motorway Ltd [2002] NSWSC 897; (2002) 43 ACSR 101

Re Investa Properties Ltd [2007] FCA 1104; (2007) 25 ACLC 1186

Re Macquarie Private Capital A Ltd [2008] NSWSC 323

Re Nzuri Copper Ltd [2019] WASC 189

Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20

Re Pensana Metals Ltd [2019] WASC 479

Re Piedmont Lithium Ltd [2021] WASC 76

Re pSivida Limited [2008] FCA 627

Re Scarborough Equities Ltd [No 2] [2009] FCA 484

Re SRG Ltd [2018] FCA 1092

Re Tewana Resources NL (No 4) [2019] FCA 75

Re Wesfarmers Ltd (No 2) [2018] WASC 357

Re Wesfarmers Ltd [2018] WASC 308

HILL J:

1. The plaintiff, PetroNor E&P Limited (PetroNor), is an Australian public company listed on the Oslo Euronext Expand (OEE), a regulated financial market controlled by the Oslo Stock Exchange. 

2. On 7 October 2021, PetroNor announced it had entered into a scheme implementation agreement (SIA) with PetroNor E&P ASA (PetroNor ASA) (Scheme) to redomicile PetroNor and its subsidiaries (PetroNor Group) from Australia to Norway.[1]  Under the Scheme, it is proposed that each shareholder will receive one PetroNor ASA share for each PetroNor share held (Scheme Consideration) and PetroNor will become a wholly owned subsidiary of PetroNor ASA.[2]

   [1] First affidavit of Benjamin John Purser filed 7 October 2021 [6] - [7], 'BJP-1' - 'BJP-2'.

   [2] SIA cl 4.2; Scheme cl 5.1.

3. By originating process dated 7 October 2021, PetroNor sought orders under s 411 of the Corporations Act 2001 (Cth) (Act) in relation to the proposed Scheme. The application came before me for the first court hearing on 22 October 2021.

4. On 22 October 2021, I made orders pursuant to s 411(1) of the Act to convene a meeting of PetroNor's members to consider and vote on the proposed Scheme. Orders were also made approving the distribution of a Scheme booklet to PetroNor's shareholders under s 412(1)(a) of the Act. I also made ancillary orders as to the convening and conduct of the Scheme meeting under s 1319 of the Act.

5. In making those orders, I stated that I would subsequently publish written reasons for my orders.  These are my reasons for decision.

Factual Background

PetroNor E&P Limited

1. PetroNor is an independent oil and gas exploration and production company.  PetroNor holds substantial interests (indirectly through its controlled subsidiaries) in oil and gas projects located in sub-Saharan Africa, including Congo-Brazzaville, Senegal and The Gambia.[3] 

   [3] Second affidavit of Roger Christian Steinepreis filed 19 October 2021 [11].

2. As at 19 October 2021, the plaintiff had an issued capital of 1,326,991,006 fully paid ordinary shares (Shares) and 1,389,470 unlisted options (Options).[4]  Since 30 May 2014, depository receipts in PetroNor have been admitted to trading on the OEE.[5]  A depository receipt represents the beneficial interest in a Share which is registered with the Norwegian Central Securities Depository (VPS) on account of the holder (Depository Receipt).[6]

PetroNor ASA

[4] Second affidavit of Roger Christian Steinepreis filed 19 October 2021 [24], 'RCS-4' - 'RCS-5'.

[5] Second affidavit of Roger Christian Steinepreis filed 19 October 2021 [12].

[6] Second affidavit of Roger Christian Steinepreis filed 19 October 2021 [43].

1. PetroNor ASA is a wholly-owned subsidiary of PetroNor.  It was incorporated in Norway on 1 October 2021 for the purpose of re-domiciling the PetroNor Group to Norway under the proposed Scheme. PetroNor ASA is a shelf company with no assets or liabilities and presently has no operations.[7]

   [7] Scheme booklet [10.1].

2. If the Scheme is implemented, the business of PetroNor ASA will consist entirely of the business of PetroNor, which will become a wholly owned subsidiary of PetroNor ASA.[8]

Proposed Scheme

[8] Scheme booklet [10.1].

1. The purpose of the proposed Scheme is to re-domicile the PetroNor Group from Australia to Norway.[9]  The primary reasons for the proposed redomiciliation are to better reflect the location of the PetroNor Group assets and shareholder base, improve the PetroNor Group's ability to raise capital and to reduce its administration resources and costs. 

   [9] Second affidavit of Roger Christian Steinepreis filed 19 October 2021 [13].

2. On 7 October 2021, PetroNor and PetroNor ASA entered into a scheme implementation agreement (SIA) for the proposed acquisition which was announced to the ASX the same day.[10]

   [10] First affidavit of Benjamin John Purser filed 7 October 2021 [6] - [7], 'BJP-1' - 'BJP-2'.

3. The Options will be dealt with outside of the Scheme.  The SIA proposes that PetroNor and PetroNor ASA will use all reasonable endeavours to enter into binding agreements with each PetroNor Optionholder to cancel their PetroNor Options on the implementation date of the Scheme.[11]

   [11] SIA cl 4.4.

4. The independent directors of PetroNor have unanimously recommended that, in the absence of a superior proposal, PetroNor's shareholders vote in favour of the proposed Scheme.[12]

   [12] Scheme booklet [3].

5. PetroNor has retained an independent expert to provide an opinion and recommendation on the proposed Scheme.  The independent expert, Stantons Corporate Finance Pty Ltd, has concluded that, in the absence of a superior proposal, the advantages of the proposed Scheme outweigh the disadvantages and the Scheme is in the best interests of shareholders.[13]

   [13] Scheme booklet, Annexure A.

Evidence for the first court hearing

1. PetroNor and PetroNor ASA relied on eight affidavits that were filed prior to the first hearing.  These were:

   (a)an affidavit of Benjamin John Purser filed 7 October 2021.  Mr Purser is a senior associate at Steinepreis Paganin, the Australian solicitors for the plaintiff.  Mr Purser's first affidavit outlined the nature of the proposed Scheme, gave a brief overview of the plaintiff and attached copies of, among other things, an up to date company search, the SIA, the Scheme, the draft Scheme booklet, and the proposed Deed Poll;

   (b)an affidavit of Roger Christian Steinepreis filed 12 October 2021. Mr Steinepreis is a non-executive director of the plaintiff and a partner and the executive chairman of Steinepreis Paganin. By his affidavit, Mr Steinepreis consented to act as chairperson of the Scheme meeting and provided the necessary disclosures required by r 3.2 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules);

   (c)a second affidavit of Mr Purser filed 12 October 2021. By his second affidavit, Mr Purser consented to act as alternate chairperson of the Scheme meeting as required by r 3.2 of the Corporations Rules;

   (d)a second affidavit of Mr Steinepreis filed 19 October 2021 in which he gave an overview of the proposed Scheme and confirmed a number of formal matters.  By his second affidavit, Mr Steinepreis outlined the proposed authorisation of the PetroNor ASA Shares for listing on the Oslo Børs or Euronext Expand (as applicable) and the treatment of the non VPS holders in respect of the Scheme.  It attached copies of the correspondence between Steinepreis Paganin and Schjødt law firm, an experienced corporate law firm in Oslo, in relation to the plaintiff's application for admission to these stock exchanges.  Mr Steinepreis also deposed to the verification process undertaken by PetroNor in relation to the information about PetroNor in the Scheme Booklet.  His second affidavit attached, among other things, PetroNor's constitution, the executed Deed Poll, Option cancellation deeds, and the final Independent Expert Report (IER);

   (e)an affidavit of Geir Evenshaug filed 20 October 2021.  Mr Evenshaug is a solicitor and partner at Schjødt in Oslo.  Mr Evenshaug was instructed by Steinepreis Paganin to provide an expert opinion on Norwegian law in respect of the lawful execution of contracts and deeds in that country.  Mr Evenshaug's affidavit attached the letter of instruction from Steinepreis Paganin and his expert opinion;

   (f)a third affidavit of Mr Purser filed 20 October 2021.  Mr Purser's third affidavit annexed correspondence between Steinepreis Paganin and ASIC relating to the lodgement of the Scheme booklet and court documents and attached a copy of the marked-up amended Scheme booklet;

   (g)an affidavit of Angeline Hicks filed 21 October 2021.  Ms Hicks is the company secretary of PetroNor.  Her affidavit gave an overview of the proposed treatment of those shareholders registered as depository receipt holders in the VPS and attached, among other things, a copy of the Registrar Agreement;

   (h)an affidavit of Nicholas Christian Barclay filed 21 October 2021, an associate at Steinepreis Paganin.  Mr Barclay's affidavit confirmed the lodgement of additional court documents with ASIC and attached the relevant correspondence with ASIC as well as ASIC's letter of intention confirming that ASIC did not intend to appear or to oppose the Scheme at the first court hearing.

Nature of the proposed Scheme

1. The proposed Scheme contemplates that PetroNor ASA will acquire all of the fully paid ordinary shares of PetroNor and that shareholders will receive one PetroNor ASA Share for each PetroNor Share held. 

2. As at 22 September 2021, Citicorp Nominees Pty Limited (Citicorp) was the registered legal holder of 1,324,236,202 PetroNor Shares, comprising approximately 99.79% of the PetroNor Shares on issue at that date.[14]  These shares are legally owned by Citicorp in a custodian capacity for the holders of depository receipts (VPS Shareholders). 

   [14] Second affidavit of Roger Christian Steinepreis filed 19 October 2021 [42], 'RCS-5'.

3. Non VPS Shareholders, namely those shareholders whose PetroNor Shares are not legally owned by Citicorp, on the Record Date will not be eligible to receive PetroNor ASA Shares as Scheme Consideration.  Instead, the number of PetroNor ASA Shares to which a non VPS Shareholder would otherwise be entitled to under the Scheme will be issued to a Sale Agent.[15]  The Sale Agent will, as soon as is reasonably practicable, pool these shares and sell them on market.[16]  Following the sale of these shares by the Sale Agent, each non VPS Shareholder will receive a cash amount equivalent to the average price per share obtained by the Sale Agent, less any applicable brokerage and other selling costs, taxes and charges.[17]  These arrangements are prominently disclosed in the Scheme booklet at [8.3].

   [15] Scheme cl 5.2.

   [16] Scheme booklet [8.3].

   [17] SIA cl 4.3; Scheme cl 5.2.

4. The 1,389,470 Options on issue will be dealt with outside of the Scheme by entry into option exchange deeds with each of the relevant Optionholders, to cancel their existing Options in exchange for the issue of an equivalent number of options in PetroNor ASA.[18]

   [18] Scheme booklet [7.2].

5. If the Scheme is implemented, PetroNor will become a wholly owned subsidiary of PetroNor ASA.  The Scheme will not be effective unless and until a number of conditions precedent are satisfied or waived.[19]  The conditions precedent which are required to be satisfied are disclosed in the Scheme booklet.[20]

   [19] SIA cl 3.

   [20] Scheme booklet [15.2].

6. If the Scheme is approved by shareholders and by the court at the second court hearing, on the implementation date, all the existing Shares will be transferred to PetroNor ASA and PetroNor ASA will be entered in the register as the holder of all Shares.[21]  PetroNor ASA will provide the Scheme Consideration to shareholders in return for their shares in PetroNor.[22]

   [21] Scheme cl 8.4.

   [22] Scheme cl 5.1; SIA cl 4.2. 

7. PetroNor ASA is obliged to provide the Scheme Consideration on the implementation date.[23]  The obligations of PetroNor ASA under the Scheme are supported by a Deed Poll dated 13 October 2021 which has been executed by PetroNor ASA (Deed Poll).[24]

   [23] Scheme cl 5.1; SIA cl 4.2.

   [24] Second affidavit of Roger Christian Steinepreis filed 19 October 2021, 'RCS-6'.

8. The independent directors of PetroNor unanimously recommend that shareholders vote in favour of the Scheme.[25]

   [25] Scheme booklet [3].

9. The IER expresses the opinion that, in the absence of a superior proposal, the Scheme is in the best interests of the shareholders.[26]  In reaching its conclusion, the IER determined the Scheme would not result in a material change in value to shareholders.  The consideration of advantages, disadvantages and other factors that are likely to impact shareholders are set out comprehensively in the IER. 

   [26] Scheme booklet, Annexure A.

10. I was provided with the draft Scheme booklet which was lodged with ASIC on 5 October 2021[27] and the various amendments that have been made to the document since then.[28]

    [27] First affidavit of Benjamin John Purser filed 7 October 2021 [9], 'BJP-5'; Second Affidavit of Roger Christian Steinepreis filed 19 October 2021 [87], 'RCS-24'. 

    [28] Third affidavit of Benjamin John Purser filed 20 October 2021, 'BJP-9'.

11. The Scheme booklet contains the following sections:

    (a)an overview of the Scheme booklet containing information about the proposed Scheme;

    (b)a listing of all important dates and times for the Scheme;

    (c)a letter from the chief executive officer of PetroNor to PetroNor shareholders which contains the reasons for the re-domiciling of PetroNor to Norway;

    (d)a section with details of the Scheme meeting and instructions for shareholders on how to vote at the Scheme meeting;

    (e)a 'frequently asked questions' table, which addresses all the essential matters;

    (f)key considerations for shareholders in relation to the Scheme;

    (g)an overview of the Scheme;

    (h)an outline of the Scheme Consideration;

    (i)information about PetroNor, PetroNor ASA and the PetroNor Group;

    (j)a section on risk factors;

    (k)a section on taxation implications for PetroNor shareholders;

    (l)a section comparing Australian and Norwegian laws and a summary of the rights attaching to the PetroNor ASA Shares;

    (m)an overview of the SIA; and

    (n)a section on additional information, which includes details of the relevant interests of PetroNor's directors and the benefits they will obtain if the Scheme is approved. 

12. The Scheme booklet includes several important annexures which will form part of the Scheme booklet.  These include the IER, the SIA (which attaches the Scheme and the Deed Poll), the notice of Scheme meeting, and a table comparing Australian and Norwegian legal regimes and a summary of the rights attaching to the new PetroNor ASA shares. 

Legal principles in respect of the scheme

1. 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.

2. 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 scheme 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.[29]

   [29] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7].

3. 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:[30]

   (a)there is a pt 5.1 body;

   (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[31] and provides proper disclosure;[32]

   (d)the scheme is bona fide and properly proposed;

   (e)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;[33]

   (f)the procedural requirements of the Act and the Corporations Rules have been met;

   (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.

   [30] Re SRG Ltd [2018] FCA 1092 [11]; Re Wesfarmers Ltd [2018] WASC 308 [60].

   [31] Corporations Act 2001 (Cth) s 412(1)(a)(ii); Corporations Regulations 2001 (Cth), reg 5.1.01 and Sch 8 cl 8301 ‑ 8310.

   [32] Corporations Act2001 (Cth) s 412(1)(a)(i).

   [33] Corporations Act 2001 (Cth) s 411(2)(b).

4. Any issue about classes of members is usually determined at the first hearing.[34]  This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[35]

   [34] Re CSR Ltd [73].

   [35] Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 [20].

5. The standard of review that is undertaken by the court at the first court hearing is whether the proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members.[36]  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.[37]

   [36] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].

   [37] Re SRG Ltd [12]; Re Wesfarmers Ltd [72] - [76].

Disposition

1. The formal matters that PetroNor has to prove are satisfied. 

2. PetroNor is a company and, accordingly, is a pt 5.1 body.  The proposed Scheme constitutes an 'arrangement'.  This type of 'top-hat' and re-domicile scheme has been approved by courts as an arrangement on numerous occasions.[38]

   [38] See for example Re Pensana Metals Ltd [2019] WASC 479; Re Avita Medical Limited (No 2) [2020] FCA 674; Re GetSwift Limited (No 2) [2020] FCA 1733; Re Piedmont Lithium Ltd [2021] WASC 76.

3. PetroNor filed the affidavits required by r 3.2 of the Corporations Rules regarding the persons who have been nominated to be the chairperson and alternate chairperson for the Scheme meeting.[39]

   [39] Frist affidavit of Roger Christian Steinepreis filed 12 October 2021 [6] - [10]; Second affidavit of Benjamin John Purser filed 12 October 2021 [5] - [12]. 

1. By letter dated 21 October 2021, ASIC confirmed that it had been given 14 days' notice of the hearing and a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement or Scheme booklet.[40]  ASIC also gave notice that it did not propose to appear at the first hearing to make submissions or intervene to oppose the Scheme.[41]

   [40] Affidavit of Nicholas Christian Barclay filed 21 October 2021, 'NCB-3'. 

   [41] Affidavit of Nicholas Christian Barclay filed 21 October 2021, 'NCB-3'. 

2. On the materials before me, there was nothing to suggest the Scheme was not properly proposed.  The constitution of PetroNor does not prevent the Scheme.[42]

   [42] Second affidavit of Roger Christian Steinepreis filed 19 October 2021, 'RCS-2'.

3. No class issue arose in relation to the Scheme.  Counsel for PetroNor submitted that the treatment of the non VPS Shareholders is not 'class creating' and is a procedure that has previously been approved by the court in respect of shareholders with less than a marketable parcel of shares and foreign shareholders.[43]  Under the proposed Scheme, non VPS Shareholders will not be eligible to receive PetroNor ASA shares.  Instead, the PetroNor ASA shares they would otherwise be entitled to will be issued to a sale agent and they will receive a cash amount equivalent to the pro rata average net price obtained by the sale agent.  These are the same rights that foreign shareholders receive in many schemes.  Counsel for the plaintiff submitted there is no distinction in principle as to why different considerations would apply to these shareholders.  Counsel also drew to my attention the fact that these shareholders represent a small percentage of shares overall.[44] 

   [43] Submissions for first court hearing [40]; Re Hills Motorway Ltd [2002] NSWSC 897; (2002) 43 ACSR 101 [9] - [13]; Re Excelsior Gold Ltd [2018] FCA 2064 [37] - [43].

   [44] Submissions for first court hearing [41].

4. I accept that there is no reason in principle as to why the court should take a different approach to the non VPS Shareholders from the approach taken in respect of shareholders with less than a marketable parcel of shares and foreign shareholders.  All PetroNor shareholders have the same rights in relation to the Scheme, namely, the right to receive the Scheme Consideration.[45]  In the ordinary course, the non VPS Shareholders will receive broadly the equivalent considerations under the Scheme (even if it is slightly less due to brokerage, sale costs etc).  However, this difference is not so significant that it would make it impossible for them to consult with the other shareholders.  I accept that all PetroNor shareholders are being treated equally and, as a result, constitute a single class.

   [45] Scheme cl 5.1; SIA cl 4.2.

5. Counsel for PetroNor also drew my attention to cl 5.2(h) of the Scheme in relation to the non VPS Shareholders.  This clause provides that:

   If, for any reason, the mechanism in clause 5.2 fails, becomes impossible to implement or the time prescribed for sale passes, Petronor, [PetroNor ASA], the Sale Agent or any interested person may apply to the Supreme Court of Western Australia for advice, directions or orders to as fully or effectively complete the contemplated transactions, or some broadly comparable transaction, without the need for any alteration to this Scheme or any further scheme.

6. Counsel for the plaintiff informed the court that this clause was included in an attempt to address the situation that arose in Re Tawana Resources NL (No 4).[46]  That is, PetroNor are attempting to address the circumstances where the Sale Agent cannot complete the sale within the timeframe envisaged after the Scheme has been approved.  In those circumstances, as was noted by Banks-Smith J, the court has very limited power to remedy the situation and has previously used the 'slip rule'.  I have some doubt as to whether this clause is able to achieve what counsel has said is its aim, including on the basis that once the court has made orders, it is functus officio.  However, I do not consider it is or was necessary to reach a final conclusion on this matter at this stage and did not require the Scheme to be amended to remove this clause as a condition for ordering the convening of the Scheme meeting.  If a situation arises where it is necessary to consider the operative effect of this clause, I will address the matter at that stage, with the benefit of considered submissions from the plaintiff. 

   [46] Re Tewana Resources NL (No 4) [2019] FCA 75.

7. There are a number of conditions precedent to the Scheme.[47]  Mr Steinepreis has deposed he is not aware of any basis to believe any condition precedent will not be satisfied or waived prior to implementation of the Scheme.[48]

   [47] Scheme cl 3.

   [48] Second affidavit of Roger Christian Steinepreis filed 19 October 2021 [31].

8. I have read the initial draft of the Scheme booklet (as provided to ASIC).  I have also been provided with the correspondence between ASIC and PetroNor's solicitors relating to ASIC's review of the draft Scheme booklet.[49]  ASIC did not identify any issues or request any amendments in relation to the Scheme booklet. 

   [49] Third affidavit of Benjamin John Purser filed 20 October 2021, 'BJP-5'.

9. Having reviewed the Scheme booklet, I was and am satisfied there will be proper disclosure as to the effect of the proposed Scheme and the material considerations for shareholders of PetroNor.

10. There is evidence before me as to the due diligence and verification process that was undertaken by PetroNor and PetroNor ASA.[50]  On the basis of this evidence, I accept that:

    (a)PetroNor undertook a process of due diligence and verification to verify the accuracy of statements attributable to PetroNor in the Scheme booklet;

    (b)PetroNor ASA undertook a similar process to verify the statements attributable to them; and

    (c)appropriate steps have been taken to satisfy PetroNor and PetroNor ASA that the Scheme booklet does not omit any material information.

    [50] Second affidavit of Roger Christian Steinepreis filed 19 October 2021 [70] - [78]. 

11. The directors of PetroNor have resolved to approve the Scheme booklet in its final form.[51]

    [51] Second affidavit of Roger Christian Steinepreis filed 19 October 2021 [81], 'RCS-23'.

12. Based on the checklist provided by counsel for PetroNor,[52] I was satisfied that 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).

    [52] Submissions for first court hearing, First Court Hearing Checklist.

13. In written and oral submissions, PetroNor's counsel drew my attention to some specific matters.  I address each of these below. 

Performance Risk

1. I was and am satisfied that the nature and terms of the proposed Scheme are such that the shareholders are adequately protected against the risk they will not receive the Scheme Consideration and have no capacity to sue PetroNor ASA to recover their shares or damages.

2. In that respect, I have had regard to the terms of the Scheme and the Deed Poll.  Pursuant to these documents:

   (a)PetroNor ASA must issue to each Scheme shareholder (other than the non VPS Shareholders) one PetroNor ASA Share for every PetroNor Share held on the record date;[53]

   (b)PetroNor ASA is required to issue the Scheme Consideration on the record date;[54]

   (c)PetroNor ASA must issue to the Sale Agent the PetroNor ASA Shares to which each non VPS Shareholder would otherwise have been entitled as Scheme Consideration;[55]

   (d)transfer of the Scheme shares is subject to the provision of the Scheme Consideration in accordance with cl 5.1 of the Scheme;[56]

   (e)beneficial title in PetroNor Shares does not pass unless the Scheme Consideration has been issued in accordance with the Scheme and pending registration by PetroNor of PetroNor ASA in the PetroNor share register as the holder of the Scheme shares.[57]

   [53] Scheme cl 5.1; SIA cl 4.2.

   [54] SIA cl 4.2.

   [55] Scheme cl 5.2; SIA cl 4.3.

   [56] SIA cl 4.2.

   [57] Scheme cl 8.4.

3. The arrangements under the terms of the proposed Scheme are supported by the Deed Poll.  By the Deed Poll, PetroNor ASA covenants in favour of each PetroNor 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 Scheme shareholder in accordance with its terms.[58]  In my view, the shareholders are sufficiently identified within the Deed Poll to enable them to enforce the Deed Poll against PetroNor ASA.

   [58] Deed Poll cl 3.

4. Counsel for PetroNor raised the enforceability of the Deed Poll in both written and oral submissions.[59]  The evidence before me is that:

   (a)on 1 October 2021, PetroNor ASA was incorporated as a corporation under Norwegian law;

   (b)clause 6 of PetroNor ASA's Articles of Association specifically empowers two directors of the company to sign for PetroNor ASA;[60]

   (c)the expert evidence of Mr Evenshaug, a Norwegian lawyer, which I accept, is that this is a lawful method of execution of contracts or other instruments for a company incorporated in Norway.[61]

   [59] Submissions for first court hearing [92] - [95]; ts 28 - 29.

   [60] Affidavit of Geir Evenshaug filed 19 October 2021, 'GE-05'.

   [61] Affidavit of Geir Evenshaug filed 19 October 2021, 'GE-02'.

5. On the basis of the evidence before me, I am satisfied that the Deed Poll has been validly executed and is binding on PetroNor ASA.

No collateral benefit which should prevent approval of the Scheme

1. The court must examine whether a benefit exists for one shareholder in particular, so as to bring into question the overall fairness of the Scheme.[62]  To determine whether there is a collateral benefit, the court considers the 'net benefits' test, to ensure that there is no overall disparity in favour of the party to the non-Scheme transaction.[63]  If no net benefit is present, then, prima facie, the equality principle under s 602(c) of the Act is satisfied.

   [62] Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381 [16] - [21] (Farrell J).

   [63] Takeovers Panel, Guidance Note 21: Collateral Benefits [15].

2. I accept that there is no collateral benefit that accrues to PetroNor shareholders who also hold Options.  Any additional consideration received by these shareholders is consideration for the cancellation of the Options they hold and not for their PetroNor Shares.  The evidence is that there is no material benefit as PetroNor Optionholders will be granted equivalent rights in PetroNor ASA.  The consideration provided to PetroNor ASA is disclosed in the Scheme booklet.[64]

   [64] Scheme booklet [7.2]. 

3. On the evidence before me, no issue of collateral benefit arises in this Scheme application.

Director benefits and recommendations

1. Counsel for PetroNor drew my attention to the fact that Mr Steinepreis receives director's fees as an Australian non-executive director of PetroNor and that as a partner and the executive chairman of Steinepreis Paganin, his firm will receive legal fees.[65]  These fees are disclosed as part of a global sum of $US360,000 of transaction expenses in [16.20(d)] of the Scheme booklet.  Counsel submitted, which I accept, that there is nothing out of the ordinary about being paid fees for legal services to complete this transaction or the amounts concerned.

   [65] First affidavit of Roger Christian Steinepreis filed 12 October 2021 [12] - [14]. 

2. The directors of PetroNor have unanimously recommended that shareholders vote in favour of the Scheme, in the absence of a superior proposal.  The Independent Expert has also concluded that the Scheme is in the best interests of shareholders.

3. In this case, I am satisfied that there are no issues regarding the directors' recommendation in respect of the Scheme.

No liability when acting in good faith

1. Counsel for PetroNor drew to my attention the inclusion of cl 8.8 in the Scheme which provides PetroNor, PetroNor ASA and their respective officers and agents with an exclusion from liability for acts or omissions done in good faith in performance of the Scheme.[66]

   [66] Scheme cl 8.8.

2. On its proper construction, it is my view that this clause will not exclude liability for acts or omissions in breach of the Scheme.  Any such acts or omissions could not be in performance of the Scheme.  For this reason, I do not consider that this clause will deprive members of their intended benefits under the Scheme.  I note that this is consistent with the conclusion of Vaughan J in Re Wesfarmers Ltd (No 2) in relation to a similar clause[67] which I adopted in Re Galaxy Resources Ltd.[68]

Potential headcount issue

[67] Re Wesfarmers Ltd (No 2) [2018] WASC 357 [49].

[68] Re Galaxy Resources Ltd [2021] WASC 277 [71] - [72].

1. Approximately 99.79% of PetroNor's Shares are legally owned by Citicorp.[69]  The Shares held by Citicorp represent the VPS Shareholders, many of whom are based in Norway.  These indirect holders of PetroNor Shares will be excluded from voting at the Scheme meeting as they are not registered shareholders and are not members for the purpose of the Scheme.

   [69] Second affidavit of Roger Christian Steinepreis filed 19 October 2021, 'RCS-5'.

2. Counsel drew my attention to the fact that PetroNor may, if necessary, seek orders under s 411(4)(a)(ii)(A) of the Act to dispense with the headcount test at the second court hearing. The discretion to dispense with the headcount test, if the court is satisfied that the vote at the Scheme meeting has been unfairly influenced in a material respect, has been considered previously.[70]  I accept this is a matter to be considered at the second court hearing.

Electronic dispatch of the Scheme booklet and proxy form

[70] Re pSivida Limited [2008] FCA 627 [12]; Re Boart Longyear Ltd [2019] FCA 62; (2019) 370 ALR 30 [147].

1. PetroNor sought orders pursuant to s 1319 of the Act for electronic dispatch of the Scheme booklet and proxy form by email to those PetroNor shareholders who have nominated an electronic address for the purpose of receiving communications from PetroNor (Email Shareholders). These orders are now common.[71]  Details were provided as to the terms of the proposed electronic notification, namely that email notices would be sent to PetroNor shareholders containing links to the Scheme booklet and proxy form.[72]

   [71] See, for example, Re SRG Ltd [48]; Re Doray Minerals Ltd [2019] WASC 57[72].

   [72] Second affidavit of Roger Christian Steinepreis filed 19 October 2021 [54] - [55], 'RCS-16' - 'RCS-17'.

2. I was and am satisfied, having read the terms of the proposed email communication to shareholders, that an order for electronic dispatch of the Scheme booklet was appropriate. 

3. In respect of the remaining PetroNor shareholders (who were not Email Shareholders and those Email Shareholders in respect of whom electronic delivery has been notified as being ineffective), PetroNor proposed the dispatch of a letter by post containing instructions as to how to view or download a copy of the Scheme booklet and proxy form (Postal Shareholders).[73]

   [73] Second affidavit of Roger Christian Steinepreis filed 19 October 2021 [54] - [55], 'RCS-16' - 'RCS-17'.

4. At the hearing, I proposed an amendment to the letter to be sent to Postal Shareholders to include phone contact details as well as a notation that hardcopy materials could be provided on request, so as to provide for those shareholders who did not elect to receive electronic documents in respect of the Scheme booklet and proxy form.

5. These arrangements will only apply to 'shareholders' who are registered members of the plaintiff.  This means that VPS Shareholders holding PetroNor Shares as depository receipts through DNB (the Norwegian depository receipt registrar), and their custodian in Australia (Citicorp), are excluded.  A special proxy vote instruction form will be sent to VPS Shareholders to enable them to instruct Citicorp to vote on their behalf.[74]

   [74] First affidavit of Benjamin John Purser filed 7 October 2021, 'BJP-5' (p 301).

6. Under these arrangements, only Citicorp (as the registered shareholder) is entitled to receive the Scheme booklet.  However, it is proposed that DNB (as the Norwegian depository receipt registrar) will be provided with a copy of the Scheme booklet and the proxy vote instruction form in order to avoid delay in Citicorp not promptly providing the Scheme booklet and proxy vote instruction to DNB to be passed on to VPS shareholders.[75]  I was and am satisfied that this was appropriate.

   [75] Submissions for first court hearing [119].

Other matters

1. Counsel for PetroNor drew my attention to the 'deemed warranty' provision in the proposed Scheme.[76]  The warranty provision is disclosed in the Scheme booklet.[77]  Deemed warranty clauses are not unusual and are acceptable provided there is adequate disclosure that it is a condition.[78]

   [76] Scheme cl 8.3.

   [77] Scheme booklet [15.5].

   [78] Re APN News and Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [57] - [63]; Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34 [23]; Re Nzuri Copper Ltd [2019] WASC 189 [90]; Re Macquarie Private Capital A Ltd [2008] NSWSC 323 [13] - [14]; Re Doray Minerals Ltd [71].

2. In addition, the Scheme provides that, to the extent permitted by law, the PetroNor shares will transfer free from encumbrances and restrictions on transfer of any kind.[79]  The terms of this clause is in standard terms and includes the opening words 'to the extent permitted by law'.  The inclusion of these words addresses the concern that has previously been expressed as to whether third parties may otherwise gain the impression that their rights have been extinguished.[80] 

   [79] Scheme cl 4.2(c).

   [80] Re Investa Properties Ltd [2007] FCA 1104; (2007) 25 ACLC 1186 [25] - [30]; Re Scarborough Equities Ltd [No 2] [2009] FCA 484 [9] - [10].

3. Taking into account all of these matters, I considered that there was no apparent reason why the Scheme should not, if the necessary special resolution of shareholders is passed, receive the court's approval.

Conclusion and orders

1. At the first hearing before me, I was 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 PetroNor's members.

2. For these reasons, at the conclusion of the hearing on 22 October 2021, I made orders in terms of 'Annexure A' to this judgment in respect of the Scheme.

'Annexure A'

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

HW

Research Associate to the Honourable Justice Hill

30 NOVEMBER 2021