Re Piedmont Lithium Ltd
[2021] WASC 76
•22 MARCH 2021
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: PIEDMONT LITHIUM LTD [2021] WASC 76
CORAM: HILL J
HEARD: 2 MARCH 2021
DELIVERED : 2 MARCH 2021
PUBLISHED : 22 MARCH 2021
FILE NO/S: COR 17 of 2021
MATTER: IN THE MATTER OF PIEDMONT LITHIUM LTD
EX PARTE
PIEDMONT LITHIUM 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 United States of America - 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
Securities Act 1933 (USA)
Supreme Court (Corporations) (WA) Rules 2004 (WA), r 3.2
Result:
Orders made convening scheme meeting
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr A J Papamatheos |
Solicitors:
| Plaintiff | : | Thomson Geer - Perth |
Case(s) referred to in decision(s):
CannPal Animal Therapeutics Ltd [2021] WASC 37
Re Amcom Telecommunications Ltd [2015] FCA 341
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
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; Ex parte Doray Minerals [2019] WASC 57
Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34
Re Kangaroo Resources Ltd; Ex Parte Kangaroo Resources Ltd [No 2] [2018] WASC 388
Re Macquarie Private Capital A Ltd [2008] NSWSC 323
Re NTM Gold Ltd; Ex parte NTM Gold Ltd [2021] WASC 22
Re Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
Re SRG Ltd [2018] FCA 1092
Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308
HILL J:
The plaintiff, Piedmont Lithium Limited (Piedmont), is an Australian public company listed on the official list of the Australian Securities Exchange (ASX).
On 9 December 2020, Piedmont announced it had entered into a scheme implementation deed (SID) with Piedmont Lithium Incorporated (Piedmont US) (Scheme).[1] Under the Scheme, it is proposed that Piedmont will become a wholly owned subsidiary of Piedmont US and will be subsequently delisted from the ASX.[2] Each shareholder will receive one Piedmont US CHESS Depositary Interest (CDI) for every fully paid ordinary share in Piedmont.[3]
[1] First affidavit of Gregory David Swan filed 11 February 2021, 'GDS-2'.
[2] Scheme booklet, [1.1].
[3] Scheme, cls 2.5(b), 5.4, 6.3(c).
By originating process dated 11 February 2021, Piedmont 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 2 March 2021.
On 2 March 2021, I made orders pursuant to s 411(1) of the Act to convene a meeting of Piedmont's members to consider and vote on the proposed Scheme. Orders were also made approving the distribution of a Scheme booklet to Piedmont'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.
In making those orders, I stated that I would subsequently publish written reasons for my orders. These are my reasons for decision.
Factual Background
Piedmont
Piedmont is an emerging lithium chemicals company. It is focused on the development of its 100% owned Piedmont Lithium Project in North Carolina, United States, and aims to become a strategic domestic supplier of battery‑grade lithium hydroxide and other products to the growing electric vehicle and battery storage markets in the United States.[4]
[4] Scheme booklet, [7.1].
As at 5 February 2021, the plaintiff had an issued capital of 1,395,090,295 fully paid ordinary shares (Shares).[5] At this time, there were also 42,950,000 options (Options) and 6,000,000 performance rights (Performance Rights) with varying expiry dates and vesting conditions.[6]
Piedmont US
[5] First affidavit of Gregory David Swan filed 11 February 2021, [32] 'GDS-8'.
[6] First affidavit of Gregory David Swan filed 11 February 2021, [34] 'GDS-9'.
Piedmont US was incorporated in the United States on 3 December 2020 for the sole purpose of re‑domiciling Piedmont and each of its related bodies corporate (Piedmont Group) in the United States. As a result, Piedmont US has not conducted and will not conduct any business other than performing the acts required under the proposed Scheme.[7]
[7] Scheme booklet, [8.1].
If the Scheme is implemented, the business of Piedmont US will be the current business of Piedmont, which will become a wholly owned subsidiary of Piedmont US.[8]
Proposed Scheme
[8] Scheme booklet, [8.1].
The purpose of the proposed Scheme between Piedmont and Piedmont US is to re‑domicile the Piedmont Group in the United States. Several reasons are given for the proposed re‑domicile of the Piedmont Group, including better alignment of the Piedmont Group's corporate structure with its business operations in the United States, to increase the attractiveness of the Piedmont Group to a broader investor pool in the United States, to improve the Piedmont Group's capital raising ability and diversification of its debt and equity markets, and to make the Piedmont Group more attractive to potential merger partners, sellers or acquirers.[9]
[9] First affidavit of Gregory David Swan filed 11 February 2021 [66]; Scheme booklet, [2].
If the proposed Scheme is implemented, Piedmont's shareholders will receive one Piedmont US share in the form of a CDI for each Piedmont share held as consideration for the acquisition of their shares under the Scheme (Scheme Consideration).[10] A CDI is an instrument which enables securities of foreign companies to be traded on the ASX.
[10] Scheme, cls 5.4, 6.3(c).
On 9 December 2020, Piedmont and Piedmont US entered into a scheme implementation deed (SID) for the proposed acquisition[11] which was announced to the ASX that same day.[12]
[11] First affidavit of Gregory David Swan filed 11 February 2021 [7].
[12] First affidavit of Gregory David Swan filed 11 February 2021 [8], 'GDS-2'.
Both the Options and Performance Rights will be dealt with outside of the Scheme. The SID proposes that Piedmont and Piedmont US will use all reasonable endeavours to enter into binding agreements with each Option holder and each Performance Right holder to cancel the respective convertible securities in return for the grant of equivalent securities in Piedmont US.[13]
[13] SID, cl 5.
The independent directors of Piedmont unanimously recommend that Piedmont's shareholders vote in favour of the proposed Scheme.[14]
[14] Scheme booklet, [1.4].
Piedmont has retained an independent expert to provide an opinion and recommendation on the proposed Scheme. The independent expert, BDO Corporate Finance (WA) Pty Ltd, has concluded that, in the absence of a superior proposal, the Scheme is in the best interests of shareholders.[15]
[15] First affidavit of Gregory David Swan filed 11 February 2021, 'GDS-1', p 133 ‑ 177.
Evidence for the first court hearing
Piedmont and Piedmont US relied on eight affidavits that were filed prior to the first hearing. These were:
(a)an affidavit of Gregory David Swan filed 11 February 2021. Mr Swan is the company secretary of the plaintiff. His affidavit confirmed a number of formal matters, outlined the nature of the proposed Scheme and attested to the verification of the draft Scheme booklet. His affidavit annexed, among other things, the draft Scheme booklet, the ASX announcement of the proposed Scheme, information about Piedmont obtained from the Australian Securities and Investments Commission (ASIC), Piedmont's constitution, extracts of the various security registers of Piedmont and pro forma letters to shareholders and proxy forms.
(b)an affidavit of Scott Douglas Gibson filed 12 February 2021. Mr Gibson is a partner of Thomson Geer Lawyers, the solicitors for the plaintiff, and is the proposed chairperson of the Scheme meeting. By his affidavit, Mr Gibson 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). Mr Gibson gave evidence that Michael Choon Ming Ng, a partner of Thomson Geer, who is nominated as the alternate chairperson for the Scheme meeting, consented to this nomination and provided the necessary disclosures required by r 3.2 of the Corporations Rules on behalf of Mr Ng.
(c)an affidavit of Christopher John George Seotis filed 15 February 2021. Mr Seotis is a senior associate employed by Thomson Geer Lawyers. Mr Seotis' affidavit confirmed that the draft Scheme booklet was lodged with ASIC and that ASIC had been given notice of the first court hearing. The affidavit annexed correspondence with ASIC, an updated report from the plaintiff's share registry, and a register of performance rights and options as at 5 February 2021.
(d)an affidavit of Bruce Czachor filed 15 February 2021. Mr Czachor is the company secretary of Piedmont US and is the vice president and general counsel of Piedmont. Mr Czachor gave an overview of Piedmont US and the verification process undertaken by Piedmont in relation to the information about Piedmont. Annexed to his affidavit was the executed Deed Poll as well as copies of Piedmont US' certificate of incorporation and bylaws.
(e)a second affidavit of Christopher John George Seotis filed 26 February 2021. Mr Seotis' affidavit annexed the correspondence between Thomson Geer and ASIC, copies of the marked-up amended Scheme booklet and the amended Scheme booklet, and the updated pro-forma letter to shareholders. Mr Seotis confirmed the verification process that had been undertaken on the amended Scheme booklet.
(f)an affidavit of Andrew Reilly filed 26 February 2021. Mr Reilly is a solicitor employed by Rimôn Law in Sydney. Mr Reilly was instructed by Thomson Geer Lawyers to provide an expert opinion on the lawful method of execution of contracts and deeds in the State of Delaware. Mr Reilly's affidavit attached his correspondence with Thomson Geer Lawyers, including his expert opinion, as well extracts from the general corporation law of Delaware.
(g)a third affidavit of Christopher John George Seotis filed 2 March 2021. Mr Seotis annexed further correspondence between Thomson Geer and ASIC regarding amendments to the Scheme booklet as a consequence of the reinstatement of the condition precedent concerning the approval of the Foreign Investment Review Board (FIRB) under the SID. His affidavit attached the amended pages of the Scheme booklet and ASIC's letter of intention confirming that ASIC did not intend to appear or to oppose the Scheme at the first court hearing.
(h)a second affidavit of Gregory David Swan filed 2 March 2021. Mr Swan explained that Piedmont and Piedmont US had agreed to revoke the waiver of the condition precedent in the SID concerning FIRB approval. His affidavit annexed, among other things, the letter of revocation and the amended pages of the Scheme booklet.
Nature of the proposed Scheme
The proposed Scheme contemplates that Piedmont US will acquire all of the fully paid ordinary shares of Piedmont and that shareholders will receive one Piedmont US CDI for each Piedmont share held. That is, the effect of the Scheme is to make Piedmont a wholly owned subsidiary of Piedmont US.
Shareholders of Piedmont who reside outside of Australia, New Zealand, the United States, Canada, Hong Kong, Singapore, the United Kingdom, Taiwan, Germany and such other jurisdictions agreed between Piedmont and Piedmont US are considered to be Ineligible Foreign Shareholders and will not receive the Scheme Consideration. The Piedmont US CDIs that would otherwise have been issued to these shareholders will be issued to a sale agent and sold as soon as is reasonably practicable through a sale facility (Sale Facility), or in any event, 30 business days following the Scheme implementation date.[16] The net proceeds will be paid by Piedmont US to the Ineligible Foreign Shareholders on a pro rata basis.[17] As at 5 February 2021, there were 10 Ineligible Foreign Shareholders holding 157,433 shares, which comprises approximately 0.01% of the total number of shares on issue.[18]
[16] Scheme, cl 6.11(c)(i)(A); Scheme booklet, [5.3], [5.5].
[17] Scheme, cl 6.11(c)(i)(B); Scheme booklet, [5.5].
[18] First affidavit of Gregory David Swan filed 11 February 2021 [19], 'GDS-3'.
Shareholders (other than Ineligible Foreign Shareholders) who hold less than a marketable parcel of Piedmont shares on the record date are designated as Small Parcel Holders for the purpose of the Scheme. Small Parcel Holders may elect to opt in to receive the Scheme Consideration.[19] Small Parcel Holders who do not make a valid election will not be issued the Scheme Consideration. The Piedmont US CDIs which would have been issued to these shareholders will be issued to the sale agent and sold as soon as reasonably practicable and in any event within 30 business days through the Sale Facility.[20] The net proceeds will be paid by Piedmont US to the Small Parcel Holders on a pro rata basis.
[19] Scheme booklet, [5.4].
[20] Scheme booklet, [5.4].
As at 5 February 2021, there were 493 shareholders holding less than a marketable parcel of shares and the total number of shares held by those shareholders was 232,659 shares, which constituted approximately 0.017% of the total shares on issue on that date.[21]
[21] First affidavit of Gregory David Swan filed 11 February 2021 [25], 'GDS-4'.
Both the Options and Performance Rights are being dealt with outside of the Scheme by entry into cancellation deeds with each of the relevant security holders.[22]
[22] First affidavit of Gregory David Swan filed 11 February 2021 [34] ‑ [41]; SID, cl 5.
If the Scheme is implemented, Piedmont will become a wholly owned subsidiary of Piedmont US and will be delisted from the ASX. The Scheme will not be effected unless and until a number of conditions precedent are satisfied or waived. The conditions precedent which are required to be satisfied are disclosed in the Scheme booklet.[23]
[23] Scheme booklet, [11.2].
The SID between Piedmont and Piedmont US sets out the procedures for the implementation of the proposed Scheme.
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 Piedmont US and Piedmont US will be entered in the Register as the holder of all Piedmont shares.[24] Piedmont US will provide the Scheme Consideration to shareholders in return for their shares in Piedmont.[25]
[24] Scheme, cl 5.2.
[25] Scheme, cl 6.1.
Piedmont US is obliged to provide the Scheme Consideration on the record date.[26] The obligations of Piedmont US under the Scheme are supported by a Deed Poll dated 22 January 2021 which has been executed by Piedmont US (Deed Poll).[27]
[26] Scheme, cl 5.2.
[27] Affidavit of Bruce Czachor filed 11 February 2021, 'BC-3'.
The independent directors of Piedmont unanimously recommend that shareholders vote in favour of the Scheme.[28]
[28] Scheme booklet, [1.4].
An independent expert report (IER) has been prepared by BDO Corporate Finance (WA) Pty Ltd. The IER expresses the opinion that, in the absence of a superior proposal, the Scheme is in the best interests of the shareholders.[29] In reaching its conclusion, the IER determined that 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.
[29] Scheme booklet, Annexure A, p 133 ‑ 177.
I was provided with the draft scheme booklet which was submitted to ASIC on 11 February 2021[30] and the various amendments that have been made to the document since then.[31]
[30] First affidavit of Gregory David Swan filed 11 February 2021 [60], 'GDS-10'.
[31] Second affidavit of Christopher John George Seotis filed 26 February 2021, 'CJS-8', 'CJS-9', 'CJS-10'; Third affidavit of Christopher John George Seotis filed 2 March 2021, 'CJS-12', 'CJS-13'; Second Affidavit of Gregory David Swan filed 2 March 2021, 'GDS-15'.
The scheme booklet contains the following sections:
(a)a letter from the President and Chief Executive Officer of Piedmont which contains the reasons for the re-domiciling of Piedmont to the United States;
(b)important notices giving an overview of the Scheme and advising shareholders to obtain independent financial and taxation advice;
(c)a listing of all important dates and times for the Scheme;
(d)an overview of the Scheme and actions for shareholders to take;
(e)a section on reasons to vote in favour of or against the Scheme;
(f)a 'frequently asked questions' table, which addresses all the essential matters;
(g)information on the Scheme meeting and voting;
(h)key considerations for shareholders in relation to the Scheme;
(i)the directors' recommendation;
(j)information on Piedmont and Piedmont US;
(k)a section on risk factors;
(l)a section on the taxation implications for Piedmont shareholders;
(m)information about the Scheme; and
(n)a section on additional information, which included details of the relevant interests of Piedmont's directors and the benefits they will obtain if the Scheme is approved.
The Scheme booklet includes a number of important annexures which will form part of the Scheme booklet. These include the IER, the SID, the proposed Scheme, the Deed Poll, the Notice of Scheme meeting, a summary of CDIs, a comparison of Australian and United States legal regimes and a comparison of Australian and United States Financial Reporting Obligations.
Legal principles in respect of the scheme
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 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.[32]
[32] 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:[33]
(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[34] and provides proper disclosure;[35]
(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;[36]
(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.
[33] Re SRG Ltd [2018] FCA 1092 [11]; Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 [60].
[34] Corporations Act, s 412(1)(a)(ii); Corporations Regulations 2001 (Cth), reg 5.1.01 and Sch 8 cl 8301 ‑ 8310.
[35] Corporations Act, s 412(1)(a)(i).
[36] Corporations Act, s 411(2)(b).
Any issue about classes of members is usually determined at the first hearing.[37] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[38]
[37] Re CSR Ltd [73].
[38] 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 business people might consider is of benefit to its members.[39] 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.[40]
[39] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[40] Re SRG Ltd [12]; Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [72] - [76].
Disposition
The formal matters that Piedmont had to prove are satisfied.
Piedmont 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.
Piedmont filed the affidavit 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.[41]
[41] Affidavit of Scott Douglas Gibson filed 12 February 2021 [4] ‑ [13].
By letter dated 1 March 2021, ASIC confirmed that it had been given 14 days' notice of the hearing and had a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement or Scheme booklet.[42] ASIC also gave notice that it did not propose to appear at the first hearing to make submissions or intervene to oppose the Scheme.[43]
[42] Third Affidavit of Christopher John George Seotis filed 2 March 2021, 'CJS-14'.
[43] Third Affidavit of Christopher John George Seotis filed 2 March 2021, 'CJS-14'.
On the materials before me, there was nothing to suggest that the Scheme was not properly proposed. The constitution of Piedmont does not prevent the Scheme.[44]
[44] First affidavit of Gregory David Swan filed 11 February 2021, 'GDS-7'.
No class issue arose in relation to the Scheme. The treatment of the Ineligible Foreign Shareholders is commonplace and is not class creating.[45] All Piedmont Shareholders are being treated equally, and as a result, constitute a single class.
[45] See Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [96].
There are a number of conditions precedent to the Scheme.[46] Both Mr Swan and Mr Czachor deposed that they are not aware of any basis to believe that any condition precedent will not be satisfied or waived by the necessary time.[47]
Disclosure and Scheme booklet
[46] Scheme, cl 3.
[47] First affidavit of Gregory David Swan filed 11 February 2021 [80]; Affidavit of Bruce Czachor filed 15 February 2021 [18].
I have read through the initial draft of the Scheme booklet (as provided to ASIC). I have also been provided with the correspondence between ASIC and Piedmont's solicitors relating to ASIC's review of the draft Scheme booklet.[48] Clarification was sought by ASIC as to whether Piedmont intended to report in accordance with the JORC Code for its Australian shareholders, which was addressed by amendments made to the Scheme booklet. The revocation of the waiver of the FIRB condition precedent was also addressed by amendments to the Scheme booklet.
[48] Second Affidavit of Christopher John George Seotis filed 26 February 2021, 'CJS-8', 'CJS-9'; Third Affidavit of Christopher John George Seotis filed 2 March 2021, 'CJS-12', 'CJS-13', Second Affidavit of Gregory David Swan filed 2 March 2021, 'GDS-15'.
I was and am satisfied that there will be proper disclosure as to the effect of the proposed Scheme and the material considerations for shareholders of Piedmont.
There is evidence before me as to the due diligence and verification process that was undertaken by both Piedmont and Piedmont US.[49] On the basis of this evidence, I accept that:
(a)Piedmont undertook a process of due diligence and verification to verify the accuracy of statements attributable to Piedmont in the Scheme booklet;
(b)Piedmont US undertook a similar process to verify the statements attributable to it;
(c)appropriate steps have been taken to satisfy Piedmont and Piedmont US that the Scheme booklet does not omit any material information.
[49] First affidavit of Gregory David Swan filed 11 February 2021 [40] ‑ [61]; Affidavit of Bruce Czachor filed 15 February 2021 [23] ‑ [29].
The directors of Piedmont have resolved to approve the Scheme Booklet in its final form.[50]
[50] Second Affidavit of Gregory David Swan filed 2 March 2021 [7], 'GDS-16'.
Based on the checklist provided by counsel for Piedmont,[51] 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).
[51] Submissions, p 28.
In written and oral submissions, Piedmont's counsel drew my attention to some specific matters. I address each of these below.
Performance Risk
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 that they will not receive the Scheme consideration and have no capacity to sue Piedmont US to recover their shares or damages.
In that respect I have had regard to the terms of the Scheme and the Deed Poll. Pursuant to these documents:
(a)Piedmont US must allot and issue (or procure the allotment and issue of) one Piedmont US CDI to each eligible shareholder for each Piedmont share they hold on the record date;[52]
(b)Piedmont US is required to issue the Scheme consideration on the implementation date;[53]
(c) transfer of the Scheme shares is subject to provision of the Scheme Consideration;
(d)beneficial title in Piedmont shares does not pass unless the Scheme Consideration has been issued in accordance with the Scheme;[54] and
(e)Piedmont and each Scheme participant will have individual rights against Piedmont US in the event that Piedmont US fails to provide the Scheme Consideration.[55]
[52] Scheme, cl 6.3.
[53] Scheme, cl 6.3.
[54] Scheme, cl 8.7.
[55] Deed Poll, cl 2.1.
The Scheme provides that the appointment of Piedmont US as sole proxy will occur only following the provision of the Scheme consideration.[56] This addresses any concern that the incoming board of Piedmont US may potentially interfere with the implementation of the Scheme.[57]
[56] Scheme, cl 8.7.
[57] Re Kangaroo Resources Ltd; Ex Parte Kangaroo Resources Ltd [No 2] [2018] WASC 388 [28] - [31].
The arrangements under the terms of the proposed Scheme are supported by the Deed Poll. By the Deed Poll, Piedmont US covenants in favour of each Piedmont 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 as against Piedmont US.
[58] Deed Poll, cl 2.1.
Counsel for Piedmont raised the enforceability of the Deed Poll in both their written and oral submissions, given that it was executed by Mr Phillips as an authorised signatory.[59] The evidence before me is that:
(a)on 3 December 2020, Piedmont US was incorporated in the State of Delaware, United States, as a corporation under the Delaware General Corporation Law;[60]
(b)on 8 December 2020, the directors of Piedmont US gave their unanimous written consent for an officer of Piedmont US to execute all documents in relation to the Scheme;[61]
(c)the expert evidence of Mr Reilly from Rimôn Law, which I accept, is that this is a lawful method of execution of contracts or other instruments for a company incorporated in the State of Delaware.[62]
[59] Affidavit of Bruce Czachor filed 12 February 2021, 'BC-3'.
[60] Affidavit of Bruce Czachor filed 12 February 2021 [5], 'BC-1'.
[61] Second affidavit of Gregory David Swan filed 2 March 2021, 'GDS-18'.
[62] Affidavit of Andrew Reilly filed 26 February 2021, 'AR-2'.
On the basis of the evidence before me, I am satisfied that the Deed Poll has been validly executed and is binding on Piedmont US.
No collateral benefit which should prevent approval of the Scheme
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.[63] 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.[64] If no net benefit is present, then, prima facie, the equality principle under s 602(c) of the Act is satisfied.
[63] Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381 [16] ‑ [21] (Farrell J).
[64] Takeovers Panel, Guidance Note 21: Collateral Benefits [15].
Piedmont drew my attention to one matter which may constitute a collateral benefit, that is, the consideration which will be received by Piedmont's executive director, Mr Keith Phillips, for the Options and Performance Rights he holds.
I accept there is no collateral benefit that accrues to shareholders who also hold Options or Performance Rights. Any additional consideration received by these shareholders is consideration for the cancellation of the Options or Performance Rights they hold and not for their Shares. The evidence is that there is no material benefit, as holders of Options or Performance Rights will be granted equivalent rights in Piedmont US. The consideration provided to Option and Performance Right holders is disclosed in the Scheme booklet.[65]
[65] Scheme booklet, [11.5].
On the evidence before me, no issue of collateral benefit arises in this Scheme application.
Director benefits and director recommendations
The terms of the SID required that each Piedmont director state that they recommend that shareholders vote in favour of the Scheme resolution, provided that the IER continued to confirm the Scheme is in the best interests of shareholders.[66]
[66] SID, cl 6.2.
Counsel drew my attention to the fact that Mr Phillips, one of Piedmont's directors, holds Options and Performance Rights. These securities will be dealt with outside the terms of the Scheme by way of deeds of cancellation. Under the deeds, Mr Phillips will receive equivalent rights to acquire Piedmont US CDIs as opposed to shares in Piedmont.[67]
[67] SID, cl 5.
I accept Counsel's submission that the consideration Mr Phillips will receive is in substitution for his existing rights and arises in respect of securities that were issued or granted well before the SID was entered into. Most importantly, this matter is disclosed in the Scheme booklet.[68] On this basis, I am satisfied there are no issues regarding Mr Phillips joining in the directors' recommendation in respect of the Scheme.
Reinstatement of a Condition Precedent under the SID
[68] Scheme booklet, [11.5].
Counsel for Piedmont also drew my attention to the reinstatement of the FIRB condition precedent under the SID.
The Scheme is subject to several conditions precedent which are set out in cl 3 of the SID.
On 4 February 2021, Piedmont and Piedmont US agreed to waive the condition precedent regarding FIRB approval in cl 3.1(a)(iii) of the SID. On 26 February 2021, they agreed to revoke the waiver.[69] Counsel for Piedmont explained that this was because of the increase in value of the shares in Piedmont. At the time the condition was waived, the parties believed that the value of the transaction was below the threshold which required FIRB approval. With the increase in value of Piedmont, it was not certain that this was or would remain the case.
[69] Second affidavit of Gregory David Swan filed 2 March 2021, 'GDS-14'; Third Affidavit of Christopher John George Seotis filed 2 March 2021 [5].
I have been provided with the amended Scheme booklet which amends [11.2] to reflect that the FIRB condition precedent is an outstanding condition precedent under the SID.[70] I am satisfied that the condition precedent is appropriately disclosed in the Scheme booklet.
Electronic Dispatch of the Scheme Booklet and Proxy Form
[70] Third Affidavit of Christopher John George Seotis filed 2 March 2021, 'CJS-13'.
Piedmont sought orders pursuant to s 1319 of the Act for electronic dispatch of the Scheme booklet and proxy form to those Piedmont shareholders who have nominated an electronic address for the purpose of receiving notices of meeting and proxy forms from Piedmont. 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 Piedmont shareholders containing links to the Scheme booklet and proxy form.[72]
[71] See, for example, Re SRG Ltd [2018] FCA 1092 [48]; Re Doray Minerals Ltd; Ex parte Doray Minerals [2019] WASC 57[72].
[72] Submissions [100].
I was and am satisfied, having read the terms of the proposed email communication to security holders, that an order for electronic dispatch of the Scheme booklet was appropriate.
In addition, Piedmont proposed that the letter sent to shareholders would include 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.
Counsel for Piedmont proposed that a similar approach to that adopted in Re NTM Gold[73] be adopted in this case. Subject to my comments in CannPal Animal Therapeutics Ltd[74] in relation to the distribution of hardcopy documents during the COVID-19 pandemic in Australia, I consider that this is appropriate.
US Securities Act
[73] Re NTM Gold Ltd; Ex parte NTM Gold Ltd [2021] WASC 22 [81].
[74] CannPal Animal Therapeutics Ltd [2021] WASC 37 [70] ‑ [74].
Counsel for Piedmont informed the court that, if the proposed Scheme is approved, Piedmont and Piedmont US intend to rely on s 3(a)(10) of the Securities Act 1933 (USA), which provides an exemption from certain registration requirements under that Act. A condition of the exemption is the Court consider the fairness of the scheme of arrangement, which occurs at the second court hearing.
For the purposes of the first court hearing, it is sufficient to record that I have been informed that Piedmont and Piedmont US intend to rely on the exemption provided by s 3(a)(10). Further consideration of this matter will otherwise be dealt with at the second hearing (assuming that the members approve the proposed Scheme by the requisite statutory majorities).
Other Matters
Counsel for Piedmont drew my attention to the 'deemed warranty' provision in the proposed Scheme.[75] The warranty provision is disclosed in the Scheme booklet.[76] Deemed warranty clauses are not unusual and are acceptable provided there is adequate disclosure that it is a condition.[77]
[75] Scheme, cl 6.8.
[76] Scheme booklet, [3]
[77] Re APN News & 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; Ex Parte Doray Minerals [71].
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 on First Hearing
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 Piedmont's members.
For these reasons, at the conclusion of the hearing on 2 March 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
22 MARCH 2021
10
15
4