Re PNX Metals Ltd
[2024] WASC 281
•7 AUGUST 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE PNX METALS LTD; EX PARTE PNX METALS LTD [2024] WASC 281
CORAM: HILL J
HEARD: 17 JULY 2024
DELIVERED : 17 JULY 2024
PUBLISHED : 7 AUGUST 2024
FILE NO/S: COR 97 of 2024
BETWEEN: PNX METALS LIMITED
Plaintiff
KIN MINING NL
Interested Party
Catchwords:
Corporations law - Scheme of arrangement - Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth) - Independent expert of opinion that each proposed scheme is fair and reasonable and in best interests of shareholders - 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 | : | C E McKay |
| Interested Party | : | A J Papamatheos |
Solicitors:
| Plaintiff | : | Piper Alderman |
| Interested Party | : | Hamilton Locke |
Case(s) referred to in decision(s):
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 Kangaroo Resources Ltd [2018] WASC 327
Re Nzuri Copper Ltd [2019] WASC 189
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 Sylvestate Ltd [2011] FCA 211
Re Tatts Group Ltd (No 2) [2017] VSC 770
Re Viscopy Ltd [2017] NSWSC 1516
Re Wesfarmers Ltd [2018] WASC 308
Re Wesfarmers Ltd [No 2] [2018] WASC 357
HILL J:
On 15 April 2024, PNX announced that it had entered into a Scheme Implementation Deed (SID) with KIN Mining NL (KIN) on 12 April 2024.[1] Under the proposed scheme of arrangement, it is proposed that KIN will acquire all the issued ordinary shares in PNX and become a wholly owned subsidiary of KIN (Scheme).
[1] Affidavit of Joshua Matti Steele filed 19 June 2024, 'JMS-04'.
By an originating process dated 19 June 2024, PNX sought orders pursuant to s 411 and s 1319 of the Corporations Act 2001 (Cth) (Act) for the convening of a meeting of its members to consider the proposed Scheme. The application came before me for the first court hearing on 17 July 2024. On that date, I made orders pursuant to s 411(1) of the Act to convene a meeting of PNX's members to consider and vote on the proposed Scheme. Orders were also made approving the distribution of a Scheme booklet to PNX's shareholders under s 412(1)(a) of the Act, as well as ancillary orders as to the convening and conduct of the Scheme meeting under s 1319 of the Act.
In making these orders, I stated that I would subsequently publish written reasons for my orders. These are my reasons for decision.
Evidence for the first court hearing
PNX relied on eight affidavits for the purposes of the first court hearing on 17 July 2024, being;
(a)four affidavits of Joshua Matti Steele, a partner of Piper Alderman, the solicitors for PNX, filed 19 June 2024, 9 July 2024, 12 July 2024 and 16 July 2024;
(b)an affidavit of Graham Leslie Ascough, a director of PNX, filed 15 July 2024;
(c)an affidavit of James Philip John Fox, a director of PNX, filed 15 July 2024;
(d)an affidavit of Nicholas Anderson, a director of KIN, filed 15 July 2024; and
(e)an affidavit of Deanna Jayne Carpenter, a partner of Hamilton Locke, the solicitors for KIN, filed 16 July 2024.
Nature of proposed scheme
PNX is a publicly listed mineral exploration company based in South Australia focussed on gold, silver, zinc, lead, copper and uranium opportunities in the Northern Territory.[2] As at 9 July 2024, PNX had an issued capital of 5,910,214,755 fully paid ordinary shares (Shares) and 85,800,000 performance rights (Performance Rights).[3]
[2] Affidavit of Graham Leslie Ascough filed 9 July 2024 [15].
[3] Affidavit of Graham Leslie Ascough filed 9 July 2024 [33], 'GLA-08', 'GLA-10'.
KIN is a gold development and exploration company based in Western Australia.[4]
[4] Affidavit of Joshua Matti Steele filed 19 June 2024, 'JMS-04'.
The largest shareholder of both companies is Delphi Unternhemensberatung Aktiengesellschaft (Delphi), a company incorporated in Germany, who holds 45.23% of the Shares in PNX and 41.37% of the issued capital of KIN.[5]
[5] Affidavit of Graham Leslie Ascough filed 15 July 2024 [61].
PNX and KIN also have two common directors: Hansjoerg Plaggemars (who is also a director of Delphi) and Robert Rowan Andrew Johnston. In these circumstances, both PNX and KIN established independent board committees in February and March 2024 to consider the proposed acquisition by KIN of PNX.[6]
[6] Affidavit of Graham Leslie Ascough filed 15 July 2024 [104] - [108]; Affidavit of Nicolas Anderson filed 15 July 2024 [12].
Under the Scheme, it is proposed that PNX shareholders receive one fully paid ordinary share in KIN for every 13 Shares (subject to rounding up or down) as consideration for the acquisition of their Shares (Scheme Consideration).[7]
[7] Scheme, cl 1.1.
PNX shareholders whose address is in a place which KIN reasonably determines is one which it is unlawful, unduly onerous or impracticable to issues shares under the Scheme are ineligible to receive KIN shares under the Scheme (Ineligible Foreign Shareholders).[8] The Ineligible Foreign Shareholders will have the securities they would otherwise be entitled to under the Scheme issued to a sale agent and sold on‑market on the ASX. These shareholders will receive an amount equivalent to the average price per KIN security obtained, less any applicable brokerage and other selling costs, taxes and charges.[9]
[8] Scheme, cl 1.1.
[9] Scheme, cl 5.8(a) ‑ cl 5.8(b).
The Performance Rights will be dealt with outside of the Scheme. Under the terms of the SID, PNX is required to take all necessary steps to cause all Performance Rights to be cancelled on the Implementation Date of the Scheme. On 12 April 2024, the independent board committee of PNX approved PNX's entry into a Performance Rights Cancellation Deed with each Performance Rights Holder, who will receive a monetary payment in exchange for the cancellation of their Performance Rights.[10]
[10] Affidavit of Graham Leslie Ascough filed 15 July 2024, 'GLA-16'.
The independent directors of PNX have unanimously recommended that shareholders vote in favour of the Scheme, in the absence of a superior proposal.
PNX retained an independent expert, Grant Thornton Corporate Finance Pty Ltd (Grant Thornton), to provide an opinion on the proposed Scheme. Grant Thornton concluded that, in the absence of a superior proposal, the proposed Scheme is fair and reasonable and in the best interests of shareholders of PNX.[11] In reaching this conclusion, Grant Thornton considered the value of a Share (on a control basis) compared to the value of the Scheme Consideration on a minority basis. The independent expert report (IER) expresses the opinion that the value of a Share on a control basis is between $0.401 (low) and $0.62 (high), compared to the value of the Scheme Consideration on a minority basis of between $0.50 (low) and $0.538 (high). As the Scheme Consideration on a minority basis is within the range of a Share on a control basis, Grant Thornton concluded the Scheme is fair. Based on a number of qualitative factors which are set out in the IER, Grant Thornton also concluded the Scheme is reasonable.
[11] Affidavit of Joshua Matti Steele filed 9 July 2024, 'JMS-08'.
The basis for the valuation and the methodology used by Grant Thornton in forming their conclusions are set out in the IER. Grant Thornton's consideration of advantages, disadvantages and other factors that are likely to impact shareholders of PNX are also set out comprehensively in the IER.
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 KIN under the Scheme are supported by a deed poll which has been executed by KIN (Deed Poll).[12]
[12] Affidavit of Nicholas Anderson filed 15 July 2024, 'NA-3'.
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.[13]
[13] 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:[14]
[14] Re SRG Ltd [2018] FCA 1092 [11]; Re Wesfarmers Ltd [2018] WASC 308 [60].
(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[15] and provides proper disclosure;[16]
(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;[17]
(f)the procedural requirements of the Act and the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules) 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.
[15] Corporations Act 2001 (Cth) s 412(1)(a)(ii); Corporations Regulations 2001 (Cth) reg 5.1.01, sch 8 cl 8301 ‑ cl 8310.
[16] Corporations Act 2001 (Cth) s 412(1)(a)(i).
[17] Corporations Act 2001 (Cth) s 411(2)(b).
Any issue about classes of members is usually determined at the first hearing.[18] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[19]
[18] Re CSR Ltd [73].
[19] 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.[20] 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.[21]
[20] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[21] Re SRG Ltd [12]; Re Wesfarmers Ltd [72] - [76].
Should orders be made to convene a Scheme meeting?
PNX has proved each of the formal matters it is required to.
I am satisfied that PNX is a company and, accordingly, is a pt 5.1 body pursuant to the Act, and that the proposed Scheme is an 'arrangement'.
PNX 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.[22]
[22] Affidavit of Graham Leslie Ascough filed 15 July 2024 [55]; Affidavit of James Philip John Fox filed 15 July 2024 [20].
ASIC has confirmed it was given 14 days' notice of the hearing and a reasonable opportunity to examine the terms of the Schemes and the draft Scheme booklet. ASIC gave notice that it did not propose to appear at the first court hearing to make submissions or intervene to oppose the Schemes.[23]
[23] Affidavit of Joshua Matti Steele filed 16 July 2024 'JMS-15'.
On the materials before me, there was nothing to suggest the Scheme was not properly proposed. The constitution of PNX[24] does not prevent the Scheme.
[24] Affidavit of Graham Leslie Ascough filed 15 July 2024, 'GLA-02'.
There are a number of conditions precedent to the Scheme.[25] Both PNX and KIN have deposed they are not aware of any basis to believe that any condition precedent will not be satisfied or waived (as applicable) prior to implementation of the Scheme.[26] The conditions precedent include a requirement that KIN receive written notice under the Foreign Acquisitions and Takeovers Act 1975 (Cth) that the Australian Government has no objections to the Scheme. On 5 June 2024, a delegate of the Treasurer of the Australian Government issued a no objection notification to KIN.[27]
Disclosure and Scheme booklet
[25] SID, cl 3.1.
[26] Affidavit of Graham Leslie Ascough filed 15 July 2024 [39(b)]; Affidavit of Nicholas Anderson filed 15 July 2024 [29].
[27] Affidavit of Joshua Matti Steele filed 9 July 2024, 'JMS-11', 'JMS-12'.
I have been provided with the Scheme booklet that was provided to ASIC on 27 June 2024, together with the IER and an independent technical expert report dated 3 June 2024,[28] as well as the amendments made to the Scheme booklet following conferral with ASIC.[29]
[28] Affidavit of Joshua Matti Steele filed 9 July 2024, 'JMS08', 'JMS-09'.
[29] Affidavit of Joshua Matti Steele filed 12 July 2024 'JMS-13', 'JMS-14'.
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 PNX.
There is evidence before me as to the due diligence and verification process that was undertaken by both PNX and KIN. On the basis of this evidence, I accept that:
(a)PNX undertook a process of due diligence and verification to verify the accuracy of statements attributable to PNX in the Scheme booklet;[30]
(b)KIN undertook a similar process to verify the statements attributable to them;[31] and
(c)appropriate steps have been taken to satisfy PNX and KIN that the Scheme booklet does not omit any material information.
[30] Affidavit of Graham Leslie Ascough filed 15 July 2024 [79] ‑ [91].
[31] Affidavit of Nicholas Anderson filed 15 July 2024 [12] ‑ [25].
Based on the checklist provided by counsel for PNX,[32] 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).
[32] Plaintiff's outline of submissions, 'First Court Hearing Checklist'.
In written and oral submissions, counsel for the plaintiff drew my attention to some specific matters. I address each of these below.
Class issues
The fact that a shareholder holds shares in both the bidder and target is generally not considered by the court to be class creating where the shareholder has the same legal rights as all other target members under the proposed scheme.[33]
[33] Re Sylvestate Ltd [2011] FCA 211 [5].
While Delphi is a shareholder of both PNX and KIN, I accept that it has the same legal rights as all other shareholders to receive Scheme Consideration if the Scheme is implemented.[34] In my view, there is no suggestion that this interest would prevent Delphi considering and consulting with other shareholders in respect of the Scheme.
[34] Affidavit of Graham Leslie Ascough filed 15 July 2024 [61] ‑ [63]; Re Tatts Group Ltd (No 2) [2017] VSC 770 [60].
As was noted by Black J in Re Viscopy Ltd,[35] differences in economic incentives which may influence how a shareholder may vote is not class creating. It can properly be addressed by a tagging of votes so that the court can consider this at the second court hearing.
[35] Re Viscopy Ltd [2017] NSWSC 1516 [12].
In this case, PNX has confirmed it will tag the votes of Delphi at the Scheme meeting.[36] This will enable the court to consider at the second court hearing as to whether this impacts on the exercise of the court's discretion to approve the Scheme. I am satisfied that this is not class creating and that there are no class issues in respect of the proposed Scheme.
Performance risk
[36] Affidavit of Graham Leslie Ascough filed 15 July 2024 [63].
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 KIN 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 the Scheme:
(a)KIN is required to issue and allot the Scheme Consideration to each PNX shareholder (except any PNX shareholder who is a member of KIN or holds any Shares on behalf of, or for the benefit of, any member of KIN);[37]
(b)transfer of the Shares to KIN is subject to provision of the Scheme Consideration; and
(c)beneficial title in the Shares does not pass to KIN unless the Scheme Consideration has been issued in accordance with the Scheme.[38]
[37] Scheme, cl 4.4.
[38] Scheme, cl 5.1.
The arrangements under the terms of the proposed Scheme are supported by a Deed Poll. By the Deed Poll, KIN covenants in favour of each PNX 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.[39] In my view, the shareholders are sufficiently identified within the Deed Poll to enable them to enforce the Deed Poll as against KIN.
Exclusivity provisions and Break Fee
[39] Scheme, cl 4.6.
The SID contains the customary lock up devices in the form of 'no continuing discussions', 'no shop', 'no talk', 'no due diligence', 'notification obligations' and 'matching right' provisions.[40] The 'no talk', 'no due diligence' and 'notification obligations' provisions are subject to a fiduciary carve out.[41] In certain circumstances, a Break Fee of $325,000 is payable by PNX to KIN[42] and by KIN to PNX.[43]
[40] SID, cl 9.1 ‑ cl 9.6.
[41] SID, cl 9.8.
[42] SID, cl 10.2.
[43] SID, cl 10.3.
In considering whether the exclusivity provisions impact on completion of the transaction and the duties of directors, the court has regard to:[44]
(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 do not breach their fiduciary duties or are otherwise unlawful; and
(c)whether adequate prominence is given to these provisions in the Scheme booklet.
[44] 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 nine months.[45]
[45] SID, cl 1.1.
I accept 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.[46]
[46] SID, cl 9.10.
The amount of the Break Fee is approximately 0.96% of the implied equity value of PNX based on the Scheme Consideration at the date of entry into the SID and is within generally accepted commercial parameters for break fees. The Break Fee is intended to compensate the parties for the costs (both costs incurred and opportunity costs) if the Scheme does not proceed, and is not payable if shareholders do not vote in favour of the Scheme. In this case, I consider the amount of the Break Fee is unlikely to influence shareholders in their decision to vote on the Scheme.
Importantly, the exclusivity arrangements and Break Fee provisions are prominently disclosed in the Scheme booklet.[47]
No collateral benefit which should prevent approval of the Scheme
[47] Scheme booklet [1.3(c)], [2], [3.10], [7.2(d)], [7.5(a)], [9.2], [9.3], [9.6], [9.7].
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.[48] 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.[49] If no net benefit is present, then, prima facie, the equality principle under s 602(c) of the Act is satisfied.
[48] Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381 [16] ‑ [21] (Farrell J).
[49] Takeovers Panel, Guidance Note 21: Collateral Benefits [15].
At the hearing, counsel for the plaintiff drew my attention to two silver streaming and royalty agreements (Silver Streaming Agreements) between PNX and SC ESA Siren dated 6 June 2016, which was restated by way of a deed of amendment and restatement dated March 2020, and PNX and Potezna Gromadka dated 7 June 2016, as restated by way of a deed of amendment and restatement dated 28 August 2020, and subsequently assigned to Mr Robert Leon.
On or about 15 April 2024, PNX issued termination and conversion notices to each of the counterparties to these agreements. The effect of these notices is that each received 237,295,018 Shares in place of their right to receive 168,000 troy ounces of silver produced from PNX's Fountain Head Project, for which each had prepaid and advanced $1.2 million to PNX.[50]
[50] Affidavit of Graham Leslie Ascough filed 15 July 2024 [66], 'GLA-13', 'GLA-14', cl 1.1, cl 4(1).
I am satisfied that the issue of Shares is consistent with cl 4 of the Silver Streaming Agreements, do not convey any additional benefit of either of the counterparties to these agreements, and, as such, is not a collateral benefit. In any event, the issue of these Shares, together with the terms of the Silver Streaming Agreements, have been adequately disclosed in the Scheme booklet.[51]
[51] Scheme booklet [4.3(a)], [6.5(b)].
On the evidence before me, I am satisfied that no issue of collateral benefit arises in this Scheme application.
Director benefits and recommendations
Given they are directors of both PNX and KIN, neither Mr Plaggemars nor Mr Johnston have made any recommendation to shareholders in respect of the Scheme. The reasons as to why each considers it is not appropriate to make any recommendation is disclosed in the Scheme booklet.[52]
[52] Scheme booklet [3.3], [10.1(c)], [10(a)].
Each of the other directors of PNX has recommended that shareholders vote in favour of the Scheme. At the hearing, counsel for the plaintiff drew my attention to the interests of two of these directors: Mr Ascough and Mr Fox. Four interests were identified.
First, both Mr Ascough (through his interest in a superannuation fund) and the de facto partner of Mr Fox are shareholders of PNX. If the Scheme is implemented, each will receive KIN shares in consideration for the transfer of their Shares.
Second, Mr Fox holds 30,800,000 Performance Rights and will receive cash consideration for the cancellation of his Performance Rights if the Scheme proceeds.
Third, if the Scheme proceeds, Mr Ascough will be appointed as a non‑executive director of KIN and be entitled to receive directors' fees in accordance with the existing remuneration structure at KIN.
Fourth, if the Scheme is implemented, Mr Fox will be required to resign as a director and his employment with PNX will cease. On the cessation of his employment, Mr Fox will be entitled to payment of his outstanding entitlements, an amount equivalent to three months' salary in lieu of notice and a redundancy payment.
For the following reasons, it was and is my view that it was not inappropriate for Mr Ascough and Mr Fox to make a recommendation in respect of the Scheme.
First, the consideration that each of Mr Ascough and Mr Fox (and his de facto partner) will receive in respect of their Shares and Performance Rights if the Scheme is implemented is consideration they will receive in connection with the securities each owns in PNX. That is, they will receive the same consideration as every other securityholder of PNX.
Second, none of the proposed payments are payable because of the implementation of the Scheme. In relation to the payments to be made to Mr Fox if his employment is terminated, these benefits are being paid to him in connection with the cessation of his employment and not in connection with the implementation of the Scheme. In relation to Mr Ascough, any fees that will be payable to him following any implementation of the Scheme will be paid for the position it is proposed he holds as a non-executive director. Neither of these payments are of such magnitude that could lead to an inference being drawn that they are excessive, unwarranted or provide an inappropriate incentive for these directors to recommend that shareholders vote in favour of the Scheme.
Finally, and importantly, these matters are prominently disclosed in the Scheme booklet, including on the front page of the Scheme booklet.[53] Given this disclosure, I am satisfied that shareholders of PNX can assess the weight to be given to the recommendations by Mr Ascough and Mr Fox.
Loan Facility Agreement
[53] Scheme booklet, fn 1, fn 3, [2], [3.2], [6], [10.1], [10.4].
On 12 April 2024, PNX and KIN entered into a Loan Agreement.[54] Under this agreement, KIN agreed to advance a loan facility of up to $1.5 million to PNX to fund its short‑term working capital needs through the Scheme process. Repayment of the facility is required by the earlier of 19 January 2024; 45 days after PNX receives a demand from KIN if a change of control occurs; or 120 days after the SID terminates. The loan is unsecured and interest of 10% per annum is payable in arrears on the repayment date.
[54] Affidavit of Joshua Matti Steele filed 9 July 2024, 'JMS-10'.
Where a bidder has entered into an agreement with the target to provide a loan, the court must consider whether it operates as a lock‑up device or is a break fee that might prevent security holders freely considering the proposed scheme or schemes.[55]
[55] Re Nzuri Copper Ltd [2019] WASC 189 [67] ‑ [68].
In this case, I was and am satisfied that this agreement (particularly in terms of the quantum of the loan and the obligations for repayment) are not a lock‑up device that would have a coercive effect on the shareholders of PNX and would prevent them from considering the merits of the proposed Scheme. The terms of the Loan Agreement are disclosed in the Scheme booklet. This is, in my view, a matter for shareholders to consider at the Scheme meeting.
No liability when acting in good faith
Counsel for PNX drew my attention to the inclusion of cl 9.1 in the Scheme. This provides that PNX and KIN have no liability for acts or omissions done in good faith in performance of the Scheme or Deed Poll.
On its proper construction, it is my view that this clause will not exclude liability for acts or omissions in breach of the Scheme or the Deed Poll. Any such acts or omissions could not be in performance of the Scheme or Deed Poll.
For this reason, I do not consider that this clause will deprive members of their intended benefits under the Scheme.[56]
Deemed warranties
[56] Re Wesfarmers Ltd [No 2] [2018] WASC 357 [49].
PNX also drew my attention to the deemed warranty provisions in the proposed Scheme.
The proposed Scheme provides that each shareholder of PNX is deemed to have warranted their Shares are unencumbered. Further, pursuant to the proposed Scheme, each shareholder of PNX is taken to have full power and capacity to sell and transfer their Shares.[57]
[57] Scheme, cl 6.5(a).
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
PNX sought orders pursuant to s 1319 of the Act for electronic despatch of the Scheme booklet and applicable proxy form by email to shareholders that have nominated to receive communications electronically (Email Shareholders). In respect of its shareholders who have nominated to received communications in hardcopy, PNX 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, PNX 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.
Proposed Scheme meeting
The plaintiff also drew to my attention that the Scheme meeting is proposed to be held in person (as opposed to a virtual meeting or hybrid format) in South Australia. Given that this is consistent with the way annual general meetings of PNX have been held over the last 10 years,[58] I was satisfied that this was appropriate.
[58] Affidavit of Graham Leslie Ascough filed 15 July 2024 [50].
Conclusion and orders
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 PNX's members.
For these reasons, at the conclusion of the hearing on 17 July 2024, 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.
JN
Associate to the Honourable Justice Hill
7 AUGUST 2024
15
3