Re Signature Gold Ltd

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FEDERAL COURT OF AUSTRALIA

Signature Gold Ltd, in the matter of Signature Gold Ltd [2017] FCA 766

File number: NSD 888 of 2017
Judge: GLEESON J
Date of judgment: 21 June 2017
Date of publication of reasons: 7 July 2017
Catchwords: CORPORATIONS – scheme of arrangement – first court hearing – application under s 411 and s 1319 of the Corporations Act 2001 (Cth) for orders convening a meeting of members to consider proposed schemes of arrangement and for approval of the proposed schemes of arrangement – proposed acquisition by listed company in exchange for shares in acquiring company – expert report states that scheme is not fair but reasonable and in best interests of members – application granted
Legislation:

Corporations Act 2001 (Cth)

Corporations Regulations 2001 (Cth)

Federal Court (Corporations) Rules 2000
Cases cited:

AGL Energy Services (Queensland) Pty Ltd v AGL Energy Services Pty Ltd [2010] FCA 452

Amcom Telecommunications Limited, re Amcom Telecommunications Limited [2015] FCA 341

Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485

Brambles Industries Ltd, re Brambles Industries Ltd and the Corporations Act 2001 (Cth) [2006] FCA 1273; (2006) 59 ACSR 501

Central Pacific Minerals NL [2002] FCA 239

FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69

NRMA Limited (Application of); NRMA Insurance Limited (Application of) [2000] NSWSC 82; (2000) 156 FLR 349

Orion Telecommunications Ltd, re Orion Telecommunications Ltd [2007] FCA 1389

Permanent Trustee Company [2002] NSWSC 1177; (2002) 43 ACSR 601

Re Archaean Gold NL (1997) 23 ACSR 143

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

Re DUET Finance Ltd [2017] NSWSC 415

Rural Press Ltd, re Rural Press Ltd [2007] FCA 314; (2007) 61 ACSR 373

Damian T and Rich A, Schemes, Takeovers and Himalayan Peaks (3rd ed, Ross Parsons Centre of Commercial, Corporate and Taxation Law, 2013)

Santamaria JG and Renard IR, Takeovers and Reconstructions in Australia (LexisNexis, subscription service)
Date of hearing: 21 June 2017
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 72
Counsel for the Plaintiff: Dr RP Austin
Solicitor for the Plaintiff: Maddocks Lawyers

ORDERS

NSD 888 of 2017

IN THE MATTER OF SIGNATURE HOLD LTD ACN 142 902 985

SIGNATURE GOLD LTD ACN 142 902 985

Plaintiff

JUDGE:

GLEESON J

DATE OF ORDER:

21 JUNE 2017

THE COURT ORDERS THAT:

1.Pursuant to section 411(1) and section 1319 of the Corporations Act 2001 (Cth) (“Act”):

(a)the plaintiff (“Signature”) convene a meeting (“Scheme Meeting”) of the holders of ordinary shares in Signature (“Scheme Shareholders”), for the purpose of considering and if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement (“Scheme”) between Signature and the Scheme Shareholders, the terms of which scheme of arrangement are set out in Attachment 5 of the document which has been tendered and marked Exhibit 1 (“Scheme…

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Details
Case
[2017] FCA 766
Decision Date

CaseChat Overview and Summary

Signature Gold Ltd applied to the Federal Court of Australia for orders convening a meeting of its members to consider a proposed scheme of arrangement with StratMin, an English company listed on the London Stock Exchange's Alternative Investment Market. The application was brought pursuant to section 411 and section 1319 of the Corporations Act 2001 (Cth). The court was required to determine whether the application met the criteria set out in the Corporations Act for the convening of a members' meeting and the approval of a scheme of arrangement. This involved assessing whether the scheme booklet provided proper disclosure to the shareholders, whether the scheme was bona fide and properly proposed, and whether an independent expert's report had been prepared and considered. The court also had to decide whether the scheme was fair but reasonable and in the best interests of the shareholders, in accordance with the expert's opinion.

The court found that the scheme booklet provided proper disclosure to the shareholders, as it contained sufficient information about the proposed scheme and the independent expert's opinion. The court also found that the scheme was bona fide and properly proposed, as the directors of Signature Gold (excluding one who had a conflict of interest) had committed themselves to propounding the scheme. The court accepted the independent expert's report, which stated that the scheme was in the best interests of Signature Gold shareholders, and that the scheme was fair but reasonable. The court noted that the scheme contained provisions to protect the interests of scheme participants with respect to the "Tranche 2" shares, which were subject to certain eligibility requirements. The court granted the application and made orders convening a meeting of Signature Gold shareholders to consider and vote on the proposed scheme of arrangement.

The final orders of the court included convening a meeting of Signature Gold shareholders to consider and vote on the proposed scheme of arrangement, distributing the scheme booklet and proxy form to the shareholders, and publishing notice of the hearing of the application in "The Australian" newspaper. The proceeding was stood over to a second hearing on 24 July 2017 for the hearing of any application to approve the scheme. The court noted that the proceeding had been listed for a second hearing on that date.

Orders

Orders of the court

1. Pursuant to section 411(1) and section 1319 of the Corporations Act 2001 (Cth) (“Act”):

(a) the plaintiff (“Signature”) convene a meeting (“Scheme Meeting”) of the holders of ordinary shares in Signature (“Scheme Shareholders”), for the purpose of considering and if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement (“Scheme”) between Signature and the Scheme Shareholders, the terms of which scheme of arrangement are set out in Attachment 5 of the document which has been tendered and marked Exhibit 1 (“Scheme Booklet”);

(b) the Scheme Meeting be held on 19 July 2017 at the offices of HLB Mann Judd at Level 19, 207 Kent Street, Sydney, New South Wales commencing at 10:00 am;

(c) the chairperson of the Scheme Meeting be John Robert Hewson, or failing him, Bruce William Fulton;

(d) the chairperson appointed to the Scheme Meeting has the power to adjourn or postpone the Scheme Meeting in his absolute discretion for such time and to such date as he considers appropriate;

(e) at the Scheme Meeting, the resolution to approve the Scheme be decided by way of a poll;

(f) the explanatory statement substantially in the form, or to the effect, of the Scheme Booklet be approved for distribution to the Scheme Shareholders, together with a proxy form for the Scheme Meeting (substantially in the form of the pro forma copy which is set out in Tab 5 of Exhibit AM-6 to the affidavit of Andrew McNee made on 20 June 2017) (“Proxy Form”);

2. Pursuant to section 1319 of the Act, there be despatched to:

(a) each Scheme Shareholder who has nominated an electronic address for the purpose of receiving notices of meeting and proxy forms from Signature, at such address, an email substantially in the form of the document which is Annexure AM-7 to the affidavit of Andrew McNee made on 20 June 2017, including links to the Scheme Booklet and Proxy Form; and

(b) each other Scheme Shareholder:

(i) by hand at, or by ordinary pre-paid post or courier to the address of the Scheme Shareholder set out in the register of members of Signature; or

(ii) in the case of a Scheme Shareholder whose registered address is outside Australia, by airmail or facsimile to the address of that Scheme Shareholder as set out in the register of members of Signature,

a copy of the Scheme Booklet and Proxy Form and a reply envelope addressed to Signature.

3. If an email notification of a failure to deliver an email to a Scheme Shareholder’s nominated electronic address pursuant to order 2(a) of these orders is received, there be despatched by hand at, or by ordinary pre-paid post or courier to, the address of each such Scheme Shareholder as set out in the register of members of Signature, a copy of the Scheme Booklet, Proxy Form and a reply envelope addressed to Signature.

4. Pursuant to rule 2.15 of the Federal Court (Corporations) Rules 2000, the provisions of regulations 5.6.11 to 5.6.36A of the Corporations Regulations 2001 (Cth), other than regulation 5.6.13, shall not apply to the Scheme Meeting.

5. Notice of the hearing of the application for orders approving the proposed Scheme be published once in “The Australian” newspaper, by advertisement substantially in the form of Annexure “A” to these orders, such advertisement to be published on or before 27 June 2017, and the plaintiff otherwise be exempted from compliance with rule 3.4 of the Federal Court (Corporations) Rules 2000.

6. The proceeding be stood over to 24 July 2017 at 10:15 am before Justice Gleeson for the hearing of any application to approve the Scheme.

7. There be liberty to apply.

8. These orders be entered forthwith.

THE COURT NOTES THAT:

A. The proceeding has been listed for a second hearing on 24 July 2017 at 10.15 am.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The facts set out below are substantially based upon the written submissions filed in support of the application.BACKGROUND Signature Gold is an unlisted public company, registered under the Act on 31 March 2010. Its issued share capital comprises 88,185,409 fully paid ordinary shares issued for a total consideration of $5,122,049.05. There are currently 205 registered shareholders. Signature Gold was formed with the primary aim of exploration for precious metals (particularly gold) and the development of economic deposits in Australia. Currently the company is conducting gold exploration and development projects at nine project sites (“Signature Gold projects”). StratMin was incorporated in England and Wales on 7 July 2004, and in about December 2004 it was admitted to the Alternative Investment Market (“AIM”) operated by the London Stock Exchange (“LSE”). AIM is a market aimed at small and mid-capital growth companies, and is usually used as an exchange for companies seeking access to capital to realise their growth and innovation potential. Companies whose securities are admitted to trading on AIM are subject to and must comply with the AIM Rules for Companies published by the LSE (“AIM Rules”). In about September 2016, StratMin became, for the purposes of AIM Rule 15, a cash shell company, following the completion of a fundamental divestment. Under the AIM Rules, StratMin was required to make an acquisition which would constitute a “reverse takeover” under AIM Rule 14 within six months of becoming a Rule 15 cash shell company, or its shares would be suspended from trading on AIM. As no such transaction took place, trading in StratMin’s shares on AIM was suspended. Signature Gold entered into discussions with StratMin from approximately December 2016, regarding potential takeover options. Following discussions and negotiations, on 2 February 2017 Signature Gold announced a proposal from StratMin for StratMin to acquire all of the issued shares in Signature Gold by way of scheme of arrangement under the Act. A scheme implementation agreement was entered into on 16 March 2017.PROPOSED SCHEME If approved and implemented, Signature Gold shareholders will receive consideration in the form of “Tranche 1” shares and “Tranche 2” shares. The proposed scheme will constitute a reverse takeover pursuant to Rule 14 of the AIM Rules, as it will, among other things, exceed 100% in the gross asset test as defined in the AIM Rules. StratMin will apply for its enlarged share capital (including the shares that will be issued during “Tranche 1” of the scheme) to be readmitted to trading on AIM in accordance with the AIM Rules. That will allow the shareholders of StratMin, including (in respect of the “Tranche 1” shares) scheme shareholders, to trade on AIM. If the proposed scheme becomes effective, then on the implementation date (as defined in the scheme):(1)the scheme shares must be transferred to StratMin;(2)in consideration of the transfer of scheme shares, StratMin must issue, or procure the issue, of StratMin shares (“Tranche 1” shares) pro rata to each Signature Gold shareholder as at the record date; and(3)the “Tranche 1” shares are 275 million StratMin shares (with a total value of GBP5,500,000) at a price of 2 pence per share, allocated and issued to scheme participants on a pro-rata basis.

Evidence

Evidence Before The Court

By cl 3.1.2 of the scheme implementation agreement, it is a condition precedent to the implementation of the scheme that the “Target Debt and Liability Amount” does not exceed AUD500,000. In order to meet that condition, the directors of Signature Gold are intending to seek shareholder approval to convert $813,422 of existing loans and liabilities into 4,648,127 Signature Gold shares at a proposed conversion price of $0.175 per share. This debt to equity conversion is subject to separate Signature Gold shareholder approval. It is drawn to shareholders’ attention in the letter from the Chairman in the scheme booklet.EVIDENCE The plaintiff read the following affidavits and tendered the following exhibits in support of the applications:(1)two affidavits of Andrew McNee, partner of Maddocks, the solicitors for Signature Gold, affirmed 29 May 2017 and 20 June 2017, and the accompanying exhibit marked “AM-6”; (2)affidavit of Bruce Fulton, director of Signature Gold, affirmed 19 June 2017 and the accompanying exhibit “BF-1”;(3)affidavit of Robert Boynton, shareholder and director of Signature Gold, and shareholder, director and CEO of StratMin, affirmed 19 June 2017;(4)affidavit of Kieren Mildwaters, solicitor and partner at Mildwaters Consulting LLP, a firm advising StratMin in relation to matters arising under English law in relation to the proposed scheme, sworn 19 June 2017, and the accompanying exhibit “KCM-1”;(5)affidavit of John Hewson, shareholder and director of Signature Gold, affirmed 20 June 2017;(6)affidavit of Simon James, accountant, director and authorised representative of HLB Mann Judd Corporate, and joint author of the independent expert report dated 9 June 2017 (“independent expert report”), sworn 20 June 2017 and the accompanying exhibit “SJ-2”;(7)affidavit of Nicholas Guest, accountant and authorised representative of HLB Mann Judd Corporate, and joint author of the independent expert report, sworn 20 June 2017;(8)two letters from the Australian Securities and Investments Commission (“ASIC”) to the directors of Signature Gold, each dated 20 June 2017; and(9)a copy of the draft explanatory statement titled “Signature Gold Ltd Scheme Booklet in relation to a proposal from StratMin Global Resources PLC (AIM:STGR) to acquire all of the issued securities in Signature Gold Ltd by way of scheme of arrangement” (“scheme booklet”).Scheme is recommended by directors of Signature Gold (excluding Mr Boynton) The directors of Signature Gold, excluding Mr Boynton, unanimously recommend that the shareholders of Signature Gold vote in favour of the scheme, in the absence of a superior proposal. As a shareholder and director of both Signature Gold and StratMin, Mr Boynton has not:(1)participated in, or voted on, any decision of the directors of Signature Gold which the board identified had any relationship to the proposed scheme of arrangement with StratMin;(2)attended any meeting of the Board which related to matters regarding the proposed scheme of arrangement with StratMin;(3)been provided with any minutes relating to meetings referred to in para (2) above; and(4)participated on behalf of Signature Gold in any discussions with respect to the proposed scheme of arrangement or any negotiations regarding any rival third party company proposals.Scheme enforceable against the bidder

Decision

Reasons for decision

The letter from the chairman of Signature Gold, which forms part of the scheme booklet, also addresses the position relating to the “Tranche 2” shares as follows:… there is no certainty that the Signature Shareholders will receive Tranche 2 Consideration Shares, with StratMin’s obligation to issue Tranche 2 Consideration Shares arising only on the completion of a 2012 JORC Report within 24 months of the Effective Date. Completion of a 2012 JORC Report is not certain and may not occur. If a 2012 JORC Report is not completed within 24 months of the Effective Date, you will not be issued Tranche 2 Consideration Shares and the only consideration you will receive for your Signature Shares will be Tranche 1 Consideration Shares – for further information please see sections 1.3, 6.1.4 and 6.3.8 if this Scheme Booklet, and pages 2, 10, 47 (at section 5.5.7) and 49 (at section 5.5.9) of the Independent Geologist’s Report at Annexure C of the Independent Expert’s Report at Attachment 1 to this Scheme Booklet.Conclusion On the basis of this evidence, I am satisfied that there is prima facie evidence that the scheme booklet will provide proper disclosure to the shareholders of Signature Gold.Scheme is bona fide and properly proposed The directors of Signature Gold (excluding Mr Boynton) have committed themselves to propounding the scheme, providing prima facie evidence that the scheme is bona fide and has been properly proposed.Notice to ASIC There is evidence that ASIC has had a reasonable opportunity to examine the proposed scheme and the explanatory statement. By letter dated 20 June 2017, ASIC informed Signature Gold that it had examined the terms of the relevant scheme and the draft explanatory statement in accordance with its policy in Regulatory Guide Schemes of Arrangement (“RG60”). ASIC stated that it did not propose to appear to make submissions, or intervene to oppose the schemes at the first hearing. ASIC did not appear at the first hearing.Other procedural requirements have been met Consents to act as chairman and alternate chairman at the scheme meeting have been obtained. I was satisfied that the various procedural requirements for making the orders sought were met.Independent expert report On its face, the opinion of the independent expert in the present case conforms to ASIC’s guidance. Importantly, the report unambiguously asserts that the scheme is in the best interests of Signature Gold shareholders, which is the sole criterion prescribed for a members’ scheme of arrangement by the Corporations Regulations and Schedule 8. The authors of Takeovers and Reconstructions in Australia (LexisNexis, subscription service), Santamaria JG and Renard IR, assert at [2012] that:The onus is on the expert to properly establish and explain its framework for evaluating a scheme under s 411. Such a framework should incorporate and possibly extend the fair and reasonable concepts. The plaintiff submitted that the experts have met that standard in the present case. They submitted that the apparently qualified nature of the report does not provide any ground for the Court to decide, at the first hearing, that it would not approve the scheme even if the requisite majority of shareholders vote in favour of the scheme and there is no opposition at the second court hearing. On the contrary, the matters raised in the independent expert report are appropriate matters to place before the shareholders so that they can make an informed decision on the proposal.Particular aspects of the scheme

Ratio Decidendi

Legal Principle Established

A draft of the scheme booklet was lodged with ASIC on 26 May 2017, and ASIC provided some comments in relation to the draft scheme booklet on 5 June 2017. The scheme booklet was then amended, and further verifications certificates were provided pursuant to the process described in [42] above by the responsible people for the statements in the scheme booklet that were amended (Mr Fulton as director of Signature Gold, Mr Boynton on behalf of StratMin, and Mr McNee) on 19 June 2017. Disclosure concerning “Tranche 2” consideration As summarised above, scheme participants may become entitled to “Tranche 2” shares if a “JORC 2012 report” with respect to a Signature Gold project is completed within 24 months of the effective date for the scheme. The trigger for that entitlement is StratMin announcing the completion of the “JORC 2012 report” on AIM, which it must do within one business day of completion of the report. Scheme participants will be entitled to “Tranche 2” shares if they hold the requisite number of StratMin shares at 7.00 pm on the “Tranche 2” record date, which is the fifth trading day after the announcement of the “JORC 2012 report” on AIM. If they do not satisfy that shareholding qualification, their entitlement to “Tranche 2” consideration shares is forfeited. On behalf of Signature Gold, Dr Austin submitted that it is open to the Court to infer that there are acceptable commercial reasons for the eligibility provisions regarding the “Tranche 2” shares. The effect of the eligibility requirement will be to encourage Signature Gold shareholders to continue to support StratMin while that company continues the process of exploration and development of Signature Gold’s existing gold projects. Shareholders support will provide stability for StratMin during the exploration and development phase. In those circumstances, Dr Austin submitted that the provisions of the scheme for forfeiture of entitlements to “Tranche 2” shares are fair, and would not provide a basis for the Court to decline to order the convening of the scheme meeting upon the application of the FT Eastment standard. The scheme contains several provisions designed to protect the interests of scheme participants with respect to “Tranche 2” shares:(1)the trigger for the entitlement, namely the completion of the “JORC 2012 report”, must be announced on AIM, and then the entitlement of scheme participants to the additional shares is measured on the fifth trading day after that announcement;(2)the announcement of completion of the “JORC 2012 report” on AIM must include a warning to scheme participants reminding them of the eligibility requirement for “Tranche 2” shares; and(3)further, StratMin has an obligation under clause 5.4.4 of the scheme, which is an obligation in favour of scheme participants by virtue of the deed poll, to use all reasonable endeavours to identify scheme participants whose StratMin holdings have fallen below the qualification level, and to notify them that unless they acquire more StratMin shares to top up to the requisite level, they will not be eligible to receive “Tranche 2” shares.