Re Swick Mining Services Ltd
[2022] WASC 79
•8 MARCH 2022
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE SWICK MINING SERVICES LTD; EX PARTE SWICK MINING SERVICES LTD [2022] WASC 79
CORAM: HILL J
HEARD: 16 DECEMBER 2021 & 7 FEBRUARY 2022
DELIVERED : 16 DECEMBER 2021 & 7 FEBRUARY 2022
PUBLISHED : 8 MARCH 2022
FILE NO/S: COR 210 of 2021
MATTER: IN THE MATTER OF SWICK MINING SERVICES LTD
EX PARTE
SWICK MINING SERVICES LTD
Plaintiff
DDH1 LTD AND DDH1 FINCO PTY LTD
Interested Parties
Catchwords:
Corporations law – Scheme of arrangement – Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth) – Whether requirements to order scheme meeting are satisfied – Orders made convening scheme meeting
Corporations - Scheme of arrangement - Application for orders approving the scheme under s 411(b) of the Corporations Act 2001 (Cth) - Orders made approving scheme
Legislation:
Corporations Act 2001 (Cth), s 411(1), s 411(4)(b), s 411(6), s 411(11), s 411(17), s 412(1)(a), s 1319
Supreme Court (Corporations) (WA) Rules 2004 (WA), r 3.2
Result:
Orders made convening scheme meeting
Orders made approving scheme with minor amendments
Category: B
Representation:
Counsel:
| Plaintiff | : | A J Papamatheos & T J Langdon |
| Interested Parties | : | C D Belyea |
Solicitors:
| Plaintiff | : | HWL Ebsworth Lawyers (Perth) |
| Interested Parties | : | Clayton Utz |
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 Auzex Resources Ltd [No 2] [2012] QSC 101
Re Avoca Resources Ltd [2011] FCA 208
Re CannPal Animal Therapeutics Ltd [No 2] [2021] WASC 83
Re Cassini Resources Ltd [2020] WASC 317
Re Cortona Resources Ltd [No 2] [2013] FCA 302
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381
Re Decimal Software Ltd [No 2] [2018] FCA 2040
Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34
Re Excelsior Gold [2018] FCA 2064
Re Foundation Healthcare Ltd [No 2] [2002] FCA 973; (2002) 43 ACSR 680
Re Galaxy Resources [2021] WASC 277
Re Galaxy Resources Ltd [No 2] [2021] WASC 314
Re Great Artesian Oil and Gas Ltd [No 2] [2008] FCA 1169
Re International Goldfields Ltd [2004] WASC 112
Re Investa Properties Ltd [2007] FCA 1104
Re Kangaroo Resources Ltd [2018] WASC 327
Re Macquarie Private Capital A Ltd [2008] NSWSC 323
Re NTM Gold Ltd [2021] WASC 22
Re Nusantara Resources Ltd [2021] WASC 334
Re Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
Re Pacific Energy Ltd [2019] WASC 443
Re Pensana Metals Ltd [2020] WASC 17
Re Piedmont Lithium Ltd [No 3] [2021] WASC 173
Re Rebel Sport Ltd [No 2] [2007] FCA 458
Re Saracen Mineral Holdings Ltd [No 2] [2021] WASC 32
Re Scarborough Equities Ltd [No 2] [2009] FCA 484
Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583
Re SRG Ltd [2018] FCA 1092
Re Straits Resources Ltd [No 2] [2011] FCA 47
Re Texon Petroleum Ltd [No 2] [2013] FCA 147
Re TriAusMin Ltd [No 2] [2014] FCA 833
Re Valmec Ltd [2021] WASC 420
Re Wesfarmers Ltd [2018] WASC 308
Re Wesfarmers Ltd [No 2] [2018] WASC 357
Re Zenith Energy Ltd [No 3] [2020] WASC 289
HILL J:
The plaintiff, Swick Mining Services Limited (Swick), is an Australian public company listed on the official list of the Australian Securities Exchange (ASX).
On 22 October 2021, the plaintiff announced to the ASX it had entered into a Scheme Implementation Agreement (SIA) with DDH1 Limited (DDH1) and DDH1 FinCo Proprietary Limited (FinCo) (Scheme).[1] Under the Scheme, it is proposed that each shareholder will receive 0.2970 fully paid ordinary shares in DDH1 for every fully paid ordinary share held in Swick[2] and Swick will become a wholly owned subsidiary of DDH1.[3]
[1] Affidavit of Christopher Paul Hood filed 26 November 2021 [8], 'CPH-2'.
[2] Scheme booklet [5.2].
[3] Scheme booklet [5.1(b)].
By originating process filed 26 November 2021, Swick 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 16 December 2021.
On 16 December 2021, I made orders pursuant to s 411(1) of the Act to convene a meeting of Swick's members to consider and vote on the proposed Scheme. Orders were also made approving the distribution of a Scheme booklet to Swick'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.
The Scheme meeting was held on 17 January 2022. At the meeting, the resolution was passed by the requisite statutory majorities.
On 7 February 2022, I made orders approving the Scheme.
In making the orders on 16 December 2021 and 7 February 2022, I stated that I would subsequently publish written reasons for my orders. These are my reasons for decision.
Factual Background
Swick Mining Services
Swick is a mineral drilling contractor headquartered in Western Australia. It provides underground mineral drilling and mineral analysis services, as well as underground mobile drilling equipment to Australian mining companies across a range of commodities.[4]
[4] Scheme booklet [6.1].
As at 11 December 2021, Swick had an issued capital of 281,740,622 fully paid ordinary shares (Shares) and 1,922,672 unquoted performance rights (Performance Rights).[5] Swick also had unquoted warrants on issue to various employees (Warrants).[6]
DDH1 and the Bidder Nominee
[5] Affidavit of Kent Jason Swick filed 11 December 2021 [27].
[6] Scheme booklet [5.9].
DDH1 is also an ASX listed mineral drilling company headquartered in Western Australia. It provides deep hole directional drilling, reverse circulation and air core drilling services to the Australian mineral exploration and mining industry.[7]
[7] Scheme booklet [7.2].
FinCo (the Bidder Nominee) is an unlisted Australian proprietary company and a wholly owned subsidiary of DDH1.[8]
Demerger
[8] Scheme booklet [7.1].
On 12 November 2021, Swick and Orexplore Technologies Ltd (Orexplore) entered into a Demerger Implementation Deed (DID) which provides for the implementation of a proposed demerger of Swick's mineral technology business, Orexplore, from its drilling business (Demerger).[9]
[9] Affidavit of Kent Jason Swick filed 11 December 2021 [10] – [16], 'KJS-1'; Affidavit of Christopher Paul Hood filed 26 November 2021 [14] – [28].
The Scheme and the Demerger are separate but related transactions. The Scheme is conditional on the Swick shareholders approving the Demerger, unless that condition is waived by DDH1.[10] The Demerger is not conditional on the Scheme being approved by Swick shareholders.
[10] SIA cl 3.1.
The Demerger, if approved at a general meeting of Swick shareholders on 22 December 2021, will be implemented prior to the implementation of the Scheme. In this event, Orexplore will be demerged from Swick's ownership immediately prior to implementation of the Scheme.
Proposed Scheme
The purpose of the proposed Scheme between Swick and DDH1 is to combine the services and expertise of two complementary Western Australian based companies to create a global scale mineral drilling business.[11]
[11] Scheme booklet, Chairman's letter, p 1.
If the Scheme is implemented, DDH1, through its wholly owned subsidiary FinCo (collectively the DDH parties), will acquire all of the Swick Shares on issue as at the Scheme implementation date. Swick's shareholders will receive 0.2970 new DDH1 shares for each Swick Share as consideration for the acquisition of their Shares under the Scheme (Scheme Consideration).[12] Ineligible Overseas Shareholders will receive the net proceeds from the sale of their Scheme Consideration, which will be sold through a Sale Agent.[13]
[12] Scheme booklet [5.2].
[13] Scheme booklet [5.2].
The Performance Rights and the Warrants are being dealt with outside of the Scheme. The SIA proposes that the Warrants will be cancelled, and all Performance Rights will vest, lapse or otherwise be cancelled or terminated prior to the Scheme Record Date.[14]
[14] SIA cl 8.
The directors of Swick have unanimously recommended that, in the absence of a superior proposal, Swick's shareholders vote in favour of the proposed Scheme.[15]
[15] Scheme booklet, Chairman's letter, p 1.
Swick has retained an independent expert to provide an opinion and recommendation on the proposed Scheme. The independent expert, Grant Thornton Corporate Finance Pty Ltd (Grant Thornton), has concluded that, in the absence of a superior proposal, the proposed Scheme is fair and reasonable and in the interests of shareholders.[16]
[16] Scheme booklet, Annexure A.
Evidence for the first court hearing
Swick and the DDH parties relied on 11 affidavits that were filed prior to the first hearing. These were:
(a)an affidavit of Christopher Paul Hood filed 26 November 2021. Mr Hood is a partner of HWL Ebsworth Lawyers, the solicitors for Swick. His affidavit gave an overview of the Scheme and the proposed Demerger and confirmed the Scheme booklet had been lodged with the Australian Securities and Investments Commission (ASIC) on 26 November 2021. Mr Hood's affidavit annexed, among other things, copies of the SIA, the proposed Scheme, the draft Scheme booklet, a number of ASX announcements in relation to the Scheme and proposed demerger (including the notice of meeting), and a company search of Swick obtained from ASIC;
(b)an affidavit of Stuart John Carmichael filed 11 December 2021. Mr Carmichael is a non-executive director of Swick and the proposed alternate chairperson of the Scheme meeting. By his affidavit, Mr Carmichael consented to act as chairperson in the event that Mr Simpson was unable to act and provided the necessary disclosures required by r 3.2 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules);
(c)an affidavit of Kent Jason Swick filed 11 December 2021. Mr Swick is the managing director of Swick. His affidavit contained an overview of the Demerger proposal, the SIA (including its negotiation), the proposed Scheme and confirmed a number of formal matters. Mr Swick deposed to the verification process undertaken by Swick in relation to the information about Swick in the Scheme booklet and addressed the interests he held in Swick and why, in his view, it was appropriate for him to make a recommendation on the Scheme. Annexed to his affidavit, among other things, were copies of the DID, Swick's constitution, and information about Swick's shareholders;
(d)a second affidavit of Mr Hood filed 13 December 2021. His second affidavit confirmed service of the court documents on ASIC and annexed correspondence between HWL Ebsworth and ASIC regarding the draft Scheme booklet;
(e)an affidavit of Andrew Vincent Simpson filed 13 December 2021. Mr Simpson is a non-executive director of Swick and the nominated chairperson of the Scheme meeting. By his affidavit, he consented to act as chairperson of the Scheme meeting and provided the necessary disclosures pursuant to r 3.2 of the Corporations Rules. Mr Simpson also confirmed he would report the results of the Scheme meeting to the court at the second court hearing;
(f)a third affidavit of Mr Hood filed 14 December 2021. Mr Hood annexed the cancellation deed in relation to Mr Swick's Performance Rights, further correspondence between HWL Ebsworth and ASIC, the revised Scheme booklet, and the executed Deed Poll Swick had received from the DDH parties;
(g)an affidavit of Sybrandt Jacobus Van Dyk filed 14 December 2021. Mr Van Dyk is the managing director and chief executive officer of DDH1 and a director of FinCo. Mr Van Dyk gave a brief overview of the DDH parties, and attested to the verification process undertaken by the DDH parties in relation to the Scheme booklet. His affidavit annexed the circular resolution giving him authority to act on behalf of DDH1 for the purpose of the Scheme, the deed poll executed by the DDH parties, and the relevant verification certificates;
(h)an affidavit of Marie Puti Morris filed 15 December 2021. Ms Morris is a lawyer employed by HWL Ebsworth. Her affidavit confirmed service of the court documents on ASIC, outlined the correspondence between ASIC and HWL Ebsworth in relation to the Scheme following ASIC's receipt of the submissions filed in these proceedings and annexed this correspondence;
(i)a second affidavit of Mr Van Dyk filed 15 December 2021. Mr Van Dyk's second affidavit attached copies of the executed amended Deed Poll, as well as an executed letter of variation of the SIA and the Scheme;
(j)a second affidavit of Mr Swick filed 16 December 2021. Mr Swick's second affidavit deposed to the amendments that had been made to the SIA and the Scheme booklet following receipt of correspondence from ASIC and annexed, amongst other things, copies of these updated documents; and
(k)a second affidavit of Ms Morris filed 16 December 2021. Ms Morris' second affidavit annexed further correspondence between HWL Ebsworth and ASIC following the amendments to the Scheme booklet 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
The proposed Scheme contemplates that DDH1, through FinCo, will acquire all of the Shares in Swick and that Swick shareholders will receive 0.2970 DDH1 shares for every Swick Share held.[17] That is, the effect of the proposed Scheme is to make Swick a wholly owned subsidiary of DDH1. Swick will be subsequently delisted from the ASX.[18]
[17] Scheme booklet [5.2].
[18] Scheme booklet [5.1].
Shareholders of Swick who reside outside of Australia and its external territories and New Zealand, or any other jurisdiction that the DDH parties determine is lawful and not impracticable to issue shares, are considered to be Ineligible Overseas Shareholders and will not receive the Scheme Consideration. The Swick Shares that would have been issued to these shareholders will be issued to a Sale Agent and sold as soon as is reasonably practicable and in any event not more than 15 business days on which the shares are capable of being traded following the implementation date of the Scheme.[19] The net proceeds will be paid by DDH1 to these shareholders on a pro rata basis.
[19] Scheme booklet [5.8].
As at 1 December 2021, there were five Ineligible Overseas Shareholders holding a total of 205,417 shares, collectively comprising approximately 0.07% of Swick shares on issue.[20]
[20] Submissions for first court hearing [38].
The Performance Rights are being dealt with outside the Scheme by either accelerating the vesting of Performance Rights (in the case of an employee of Swick and Swick's chief financial officer) or entry into a cancellation deed (in the case of Mr Swick). On 10 December 2021, Mr Swick entered into a cancellation deed with Swick, which is subject to the Scheme becoming effective.[21]
[21] Scheme booklet [5.10], [13.10].
The Warrants are also being dealt with outside the Scheme. On 30 September 2021, deeds of termination were entered into with each of the Warrant Holders and all of the Warrants have been cancelled.[22]
[22] Scheme booklet [5.9].
If the Scheme is implemented, Swick will become a wholly owned subsidiary of DDH1 and will be delisted from the ASX. 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 are disclosed in the Scheme booklet.[23]
[23] Scheme booklet, Frequently Asked Questions, [11.2], [12.1].
The SIA between Swick and DDH1 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 Shares will be transferred to FinCo, FinCo will be entered in the register as the holder of these Shares,[24] and FinCo will provide the Scheme Consideration to shareholders in return for their shares in Swick.[25]
[24] Scheme cl 4.2.
[25] Scheme cl 4.3.
The obligations of FinCo (as well as DDH1) under the Scheme are supported by a Deed Poll which has been executed by both DDH1 and FinCo (Deed Poll).[26]
[26] Second affidavit of Kent Jason Swick filed 16 December 2021 'KJS-21'.
The directors of Swick unanimously recommend that shareholders vote in favour of the Scheme.[27]
[27] Scheme booklet, Chairman's letter, p 1.
An independent expert report (IER) has been prepared by Grant Thornton. The IER expresses the opinion that, in the absence of a superior proposal, the Scheme is fair and reasonable and is in the best interests of shareholders.[28] The IER determined that the range of the value of a Share is between $0.326 (low) and $0.427 (high) and the value of the proposed Scheme Consideration is between $0.322 (low) and $0.375 (high). That is, the value of the Scheme Consideration is within the valuation of Swick, although at the low end. If the value of Orexplore is taken into account (on an in specie distribution of shares if the Demerger is approved), the mid-point of the value that Swick shareholders will receive is $0.436. The basis for the valuation and the methodology used are set out in the IER. The consideration of advantages, disadvantages and other factors that are likely to impact shareholders are set out comprehensively in the IER.
[28] Scheme booklet, Annexure A.
I was provided with the draft Scheme booklet which was submitted to ASIC on 26 November 2021 and the various amendments that have been made to the document since then.[29]
[29] Third affidavit of Christopher Paul Hood filed 14 December 2021 'CHP-32'; Second Affidavit of Kent Jason Swick filed 16 December 2021 'KJS-22'.
The scheme booklet contains the following sections:
(a)a letter from the Chairman of Swick outlining the rationale for the Scheme;
(b)an overview of the Scheme booklet;
(c)a listing of all important dates and times for the Scheme;
(d)an outline of considerations relevant to the vote of shareholders, including reasons to vote in favour of or against the Scheme;
(e)a 'frequently asked questions' table, which addresses all essential matters;
(f)a summary of the Scheme;
(g)information on Swick and the DDH parties and an overview of the combined group;
(h)a section on risk factors;
(i)a section on the taxation implications for Swick shareholders;
(j)an overview of the implementation of the Scheme and the key terms of the SIA;
(k)a section on additional information, which includes details of the relevant interests of Swick's directors and the benefits they will obtain if the Scheme is approved; and
(l)a glossary of defined terms.
The Scheme booklet includes several important annexures which will form part of the Scheme booklet. These include the IER, the Scheme of Arrangement, the Deed Poll, the Notice of Scheme meeting, the SIA, the Letter of Variation, and the Investigating Accountant's Report.
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.[30]
[30] 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:[31]
(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[32] and provides proper disclosure;[33]
(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;[34]
(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.
[31] Re SRG Ltd [2018] FCA 1092 [11]; Re Wesfarmers Ltd [2018] WASC 308 [60].
[32] Corporations Act 2001 (Cth) s 412(1)(a)(ii); Corporations Regulations 2001 (Cth) reg 5.1.01, Sch 8 cl 8301 ‑ 8310.
[33] Corporations Act 2001 (Cth) s 412(1)(a)(i).
[34] Corporations Act 2001 (Cth) s 411(2)(b).
Any issue about classes of members is usually determined at the first hearing.[35] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[36]
[35] Re CSR Ltd [73].
[36] 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.[37] 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.[38]
[37] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[38] Re SRG Ltd [12]; Re Wesfarmers Ltd [72] – [76].
Disposition
The formal matters that Swick had to prove are satisfied.
Swick is a company and, accordingly, is a pt 5.1 body. The proposed Scheme constitutes an 'arrangement'. This type of share acquisition scheme has been approved by courts as an arrangement on numerous occasions.
Swick has filed an affidavit as 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] Affidavit of Stuart John Carmichael filed 11 December 2021; Affidavit of Andrew Vincent Simpson filed 13 December 2021.
By letter dated 16 December 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] Second affidavit of Marie Puti Morris filed 16 December 2021 'MPM-7'.
[41] Second affidavit of Marie Puti Morris filed 16 December 2021 'MPM-7'.
On the materials before me, there was nothing to suggest that the Scheme was not properly proposed. The constitution of Swick does not prevent the Scheme.[42]
[42] Affidavit of Kent Jason Swick filed 11 December 2021 'KJS-2'.
No class issue arose in relation to the Scheme. The treatment of the Ineligible Overseas Shareholders is commonplace and is not class creating.[43] All Swick shareholders have the same rights in the Scheme, that is, the right to receive the Scheme Consideration,[44] are being treated equally and, as a result, constitute a single class.
[43] See Re Wesfarmers Ltd [96].
[44] Affidavit of Christopher Paul Hood filed 26 November 2021 'CPH-4'.
There are a number of conditions precedent to the Scheme.[45] Both Swick and the DDH parties have deposed that they are not aware of any basis to believe that any condition precedent will not be satisfied or waived prior to the second court hearing.[46]
Disclosure and Scheme Booklet
[45] SIA cl 3.1.
[46] Affidavit of Kent Jason Swick filed 11 December 2021 [34]; Affidavit of Sybrandt Jacobus Van Dyk filed 14 December 2021 [12].
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 Swick's solicitors relating to ASIC's review of the draft Scheme booklet[47] as well as an email exchange between ASIC and the independent expert in relation to the IER.[48]
[47] Second affidavit of Christopher Paul Hood filed 13 December 2021 'CPH-29'.
[48] Exhibit 1; Exhibit 2.
On 15 December 2021, the day prior to the first court hearing, ASIC requested amendments to both the draft Scheme and the draft Scheme Booklet in relation to 'Cash Out Shareholders'. At that stage, the Scheme provided that 'Cash Out Shareholders', being those shareholders who based on their holding of Shares would be entitled to receive less than a Marketable Parcel of DDH shares (a parcel of shares worth less than $500), would have their Scheme Consideration issued to the Sale Agent. Their Scheme Consideration was required to be sold as soon as is reasonably practicable and, in any event, not more than 15 business days on which the Shares are capable of being traded following the implementation date of the Scheme.[49] The net proceeds would then be paid by DDH1 to these shareholders on a pro rata basis.
[49] Scheme booklet [5.8].
As at 23 August 2021, Swick had 531 shareholders holding less than a marketable parcel, together comprising approximately 29% of the register. This was disclosed in the submissions filed by Swick in relation to the first court hearing.[50]
[50] Submissions for first court hearing [45].
ASIC queried how this aspect of the proposed transaction was consistent with the equality principle in s 602(c) of the Act.[51] Following an exchange between the solicitors for Swick and ASIC, Swick and the DDH parties agreed to vary the Scheme to delete references to Cash Out Shareholders and Marketable Parcel. On 15 December 2021, a letter of variation was executed by Swick and the DDH parties to amend the SIA and the Scheme. On the same date, an updated Scheme booklet was provided to the directors of Swick and the directors confirmed it was correct and approved it being provided to ASIC.
[51] Affidavit of Marie Puti Morris filed 15 December 2021 'MPM-2'.
Given this amendment, it is not necessary for me to express any view on what was originally proposed by Swick. It is sufficient to note that courts have previously approved Schemes where shareholders with a holding of less than a marketable parcel have been given an election to opt-in to receive scheme consideration in shares but are otherwise deemed to have elected to have their shares sold.[52] This position is considered to be consistent with the commercial justification of not burdening listed companies with the costs associated with small shareholdings. However, it does not appear that any court has, to date, considered a similar proposal to that originally proposed by Swick, whether it is consistent with s 602(c) of the Act and its interplay with the provisions of listed companies' constitutions that allows for the sale of unmarketable parcels of shares by the company.
[52] See for example, Re Excelsior Gold [2018] FCA 2064 [40] – [43]; Re Doray Minerals Ltd [2019] WASC 57 [19] – [20]; Re Cassini Resources Ltd [2020] WASC 317 [11] – [12], [19].
ASIC also raised the position of the approximately 57 shareholders of Swick who hold one share who will not be entitled to receive the Scheme Consideration because of the rounding down provisions. ASIC requested that the Scheme booklet be updated to reflect this risk for those shareholders. Counsel for Swick drew my attention to the proposed amendment to [5.11] of the Scheme booklet which addresses fractional entitlements. I was also referred to the decision of Farrell J in Re Texon Petroleum Ltd [No 2] where a similar issue was raised at the second court hearing.[53] In that case, in considering whether minority shareholders would be oppressed, her Honour accepted the submission of counsel who appeared for the plaintiff that the issue 'should be treated as de minimis'.[54] I accept that the position of these shareholders is not class creating and that they have an opportunity consult with other shareholders on the proposed Scheme and vote for or against it.
[53] Re Texon Petroleum Ltd [No 2] [2013] FCA 147.
[54] Re Texon Petroleum Ltd [No 2] [13].
ASIC's other comments in relation to the Scheme booklet were addressed by Swick and the appropriate changes incorporated in an updated Scheme booklet and provided to ASIC.[55]
[55] Third affidavit of Christopher Paul Hood filed 14 December 2021 'CPH-32'.
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 Swick.
There is evidence before me as to the due diligence and verification process that was undertaken by Swick,[56] as well as the DDH parties.[57] On the basis of this evidence, I accept that:
(a)Swick undertook a process of due diligence and verification to verify the accuracy of statements attributable to Swick in the Scheme booklet;
(b)the DDH parties undertook a similar process to verify the statements attributable to them; and
(c)appropriate steps have been taken to satisfy Swick, DDH1 and FinCo that the Scheme booklet does not omit any material information.
[56] Affidavit of Kent Jason Swick filed 11 December 2021 [72] – [89].
[57] Affidavit of Sybrandt Jacobus Van Dyk filed 14 December 2021 [16] – [19].
The directors of Swick have resolved to approve the Scheme booklet.[58]
[58] Affidavit of Kent Jason Swick filed 11 December 2021 'KJS-14'.
Based on the checklist provided by counsel for Swick,[59] 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).
[59] Submissions for first court hearing, Annexure A.
In written and oral submissions, Swick'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 DDH1 and FinCo 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)DDH1 must allot and issue (or procure the allotment and issue of) 0.2970 DDH1 shares to each eligible shareholder for each Swick Share they hold on the Scheme implementation date;[60]
(b)DDH1 is required to issue the Scheme Consideration on the Scheme implementation date;[61]
(c) transfer of the Scheme shares is subject to provision of the Scheme Consideration;[62]
(d)beneficial title in Swick Shares does not pass unless the Scheme Consideration has been issued in accordance with the Scheme;[63] and
(e)Swick and each Scheme participant will have individual rights against DDH1 in the event that DDH1 fails to provide the Scheme Consideration.[64]
[60] Scheme cl 4.3.
[61] Scheme cl 4.2.
[62] Scheme cl 4.2(a).
[63] Scheme cl 7.5(a).
[64] Deed Poll cl 1.3, cl 3.1; Property Law Act 1969 (WA) s 11.
The arrangements under the terms of the proposed Scheme are supported by the Deed Poll. By the Deed Poll, DDH1 and FinCo covenants in favour of each Swick 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.[65] In my view, the shareholders are sufficiently identified within the Deed Poll to enable them to enforce the Deed Poll as against DDH1 and FinCo.
Exclusivity provisions and break fee
[65] Deed Poll cl 1.3.
The SIA contains the customary lock up devices in the form of 'no shop', 'no talk', 'no due diligence', 'notification obligations', and 'matching right' provisions.[66] The 'no talk' and 'no due diligence' provisions are subject to a fiduciary carve out.[67] In certain circumstances, a break fee of $994,000 is payable by Swick to DDH1[68] and by DDH1 to Swick.[69]
[66] SIA cl 9.2 – 9.5, 9.7.
[67] SIA cl 9.6.
[68] SIA cl 10.2.
[69] SIA 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:[70]
(a)the period of the exclusivity, which should be no more than a reasonable period and capable of precise ascertainment;
(b)whether the provisions are subject to an overriding obligation that the directors not breach their fiduciary duties or are otherwise unlawful; and
(c)whether there is adequate prominence given to these provisions in the Scheme booklet.
[70] Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [29] – [35]; Re Kangaroo Resources Ltd [2018] WASC 327 [57] – [61]; Re Pacific Energy Ltd [2019] WASC 443 [58].
In this case, the exclusivity period in the SIA is defined and, at most, is a period of six months. The no‑talk and no due diligence provisions contain appropriate fiduciary carve‑outs.[71] The exclusivity arrangements are prominently disclosed in the Scheme booklet.[72]
[71] SIA cl 9.6.
[72] Scheme booklet [12.4] – [12.7].
The affidavits of Mr Swick and Mr Van Dyk set out the commercial justification for the exclusivity provisions and the Break Fee.[73] I accept their evidence that the exclusivity provisions are reasonable and appropriate for a transaction of this nature. The inclusion of these provisions in the SIA followed arm's‑length commercial negotiations in which all parties were separately advised and represented by external legal advisers.[74]
[73] Affidavit of Kent Jason Swick filed 11 December 2021 [95] – [111]; Affidavit of Sybrandt Jacobus Van Dyk filed 14 December 2021 [25].
[74] Affidavit of Sybrandt Jacobus Van Dyk filed 14 December 2021 [26].
The amount of the break fee is $994,000. This amount is approximately 1% of the equity value of Swick as at the date of entering into the SIA, being approximately $99.454 million based on a total number of 281,740,622 Swick Share at a price of $0.353 per share.[75] As such, it falls 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. The break fee is not payable if shareholders do not vote in favour of the Scheme.[76] Accordingly, I consider that the amount of the break fee in this case is unlikely to influence shareholders in their decision to vote on the Scheme.
No collateral benefit which should prevent approval of the Scheme
[75] Affidavit of Kent Jason Swick filed 11 December 2021 [110(d)].
[76] SIA cl 10.2.
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.[77] 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.[78] If no net benefit is present, then, prima facie, the equality principle under s 602(c) of the Act is satisfied.
[77] Re David Jones Ltd [No 2] [2014] FCA 720; (2014) 101 ACSR 381 [16] – [21] (Farrell J).
[78] Takeovers Panel, Guidance Note 21: Collateral Benefits [15].
On the evidence before me, no issue of collateral benefit arises in this Scheme application.
Director benefits and director recommendations
Counsel drew my attention to the fact that three of the five Swick directors, Mr Simpson, Mr McCubbing, and Mr Swick, directly or indirectly hold Swick shares, amounting to 34,638,050 of the 281,740,622 Swick shares on issue, or 12.29%.[79] Mr Swick also holds 988,369 Swick performance rights, which will be cancelled if the Scheme is approved.[80] Each of these matters are disclosed in the Scheme booklet.[81]
[79] Submissions for first court hearing [109].
[80] Affidavit of Kent Jason Swick filed 11 December 2021 [42]; Third affidavit of Christopher Paul Hood filed 14 December 2021 'CPH-31'.
[81] Scheme booklet [6.10].
In addition, in the event the Scheme is approved, Mr Swick will continue as managing director of Swick, as a wholly owned subsidiary of FinCo. In this role, he will be paid a salary that he anticipates will be about the same as his current salary, as DDH1 has indicated they wish Mr Swick to continue on his current employment agreement. It is not proposed that he will join the board of DDH1.[82]
[82] Affidavit of Kent Jason Swick filed 11 December 2021 [119].
For the following reasons, it was and is my view that it was not inappropriate for each of the directors to make a recommendation in respect of the Scheme.
First, in relation to the Shares that are owned by the directors, each of the directors will receive the same Scheme Consideration as all other shareholders.
Second, in relation to Mr Swick's Performance Rights, Mr Swick has entered into an agreement for these to be cancelled in the event the Scheme is approved. No consideration will be paid to him for the cancellation of these rights.
Third, in relation to the continued employment of Mr Swick and the remuneration that will be paid to him, the evidence before the court is that his employment conditions will be maintained if the Scheme is approved. I accept that continuing to employ Mr Swick, the founder of Swick, on his current employment conditions is reasonable in the circumstances, does not constitute a net benefit and, in any event, is disclosed in the Scheme booklet.[83]
[83] Scheme booklet [8.3(c)].
Fourth, prior to making the recommendation, each of the directors specifically considered their ability to make a recommendation. In light of the importance of the Scheme, they considered it was appropriate for each of them to make a recommendation on the Scheme.[84]
[84] Affidavit of Kent Jason Swick filed 11 December 2021 [114] – [117].
Finally, and importantly, each of these matters is disclosed in the Scheme booklet.
No liability when acting in good faith
Counsel for Swick drew to my attention the inclusion of cl 7.11 in the Scheme which provides Swick, DDH1 and FinCo with an exclusion from 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 does 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. I note that this is consistent with the conclusion of Vaughan J in Re Wesfarmers Ltd [No 2] in relation to a similar clause.[85]
Electronic dispatch of the Scheme booklet and proxy form
[85] Re Wesfarmers Ltd [No 2] [2018] WASC 357 [49].
Swick sought orders pursuant to s 1319 of the Act for electronic dispatch of the Scheme booklet and applicable proxy form by email to those Swick shareholders who have nominated an electronic address for the purpose of receiving Shareholder communications from Swick (Email Shareholders). These orders are now common.[86] Details were provided as to the terms of the proposed electronic notification, namely that email notices would be sent to Swick shareholders containing links to the Scheme booklet and proxy form.[87]
[86] See, for example, Re SRG Ltd [48]; Re Doray Minerals Ltd [72].
[87] Submissions for first court hearing [157].
In respect of the remaining Swick Shareholders (who were not Email Shareholders and those Email Shareholders in respect of whom electronic delivery has been notified as being ineffective), Swick proposed the dispatch of hard copy documents by post (Postal Shareholders) by the provision of a letter including the links to the Scheme booklet and the other information.[88]
[88] Submissions for first court hearing [157].
At the hearing, I required an amendment be made to the letter to enable a hard copy booklet to be requested by a shareholder. This is consistent to the approach that was adopted in Re NTM Gold[89] and Re Galaxy Resources.[90]
Deemed warranty provision
[89] Re NTM Gold Ltd [2021] WASC 22 [81].
[90] Re Galaxy Resources [2021] WASC 277 [76].
Counsel for Swick drew my attention to the 'clear title' and 'deemed warranty' provisions in the proposed Scheme.[91]
[91] Scheme cl 7.4(e), cl 7.5(b).
The Scheme provides that, to the extent permitted by law, the Shares will transfer free from all security interests.[92] 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 address the concern that has previously been expressed as to whether third parties may otherwise gain the impression that their rights have been extinguished.[93]
[92] Scheme cl 7.5(b).
[93] Re Investa Properties Ltd [2007] FCA 1104 [25] – [30]; Re Scarborough Equities Ltd [No 2] [2009] FCA 484 [9] – [10].
In relation to the warranty provision, this provision is disclosed in the Scheme booklet.[94] Deemed warranty clauses are not unusual and are acceptable provided there is adequate disclosure that it is a condition.[95]
[94] Scheme booklet [5.13].
[95] Re APN News and Media Ltd [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].
I was and am satisfied that adequate disclosure has been given of these clauses.
Scheme Meeting
The Scheme meeting was scheduled to be held on 17 January 2022 in person. During the first court hearing, counsel for Swick drew my attention to the fact that the orders did not provide for an electronic meeting in the event the meeting was unable to be held in person. Swick proposed that the board of directors have the ability to add an electronic component of the meeting in the event there was a concern the proposed physical meeting could not take place.
The orders made on 16 December 2021 reflect this discussion and set out the procedure Swick was required to follow if the physical Scheme meeting could not be held on the proposed date.
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 Swick's members.
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.
For these reasons, at the conclusion of the hearing on 16 December 2021, I made orders in terms of Annexure A in respect of the Scheme.
Scheme meeting
The Scheme meeting was convened and held in person on 17 January 2022. At the meeting, the resolution was passed by the requisite statutory majorities.
109 shareholders were present at the Scheme meeting in person and by proxy comprising approximately 6% of shareholders by number. 97.25% of shareholders who voted at the meeting were in favour of the resolution.[96] 99.97% of the votes cast on the resolution at the Scheme meeting were cast in favour of the Scheme.[97] 169,708,101 of the 281,740,622 Swick shares on issue were voted on the Scheme resolution, representing approximately 60.23% of the total number of voting shares.[98]
[96] Second affidavit of Andrew Vincent Simpson filed 1 February 2022 [13].
[97] Second affidavit of Andrew Vincent Simpson filed 1 February 2022 [13].
[98] Submissions for second court hearing [28].
Approval of Scheme
This matter came back before me for the second court hearing on 7 February 2022.
In addition to the affidavits that were relied upon at the first court hearing, Swick and the DDH parties filed ten additional affidavits prior to the second court hearing. The following affidavits were relied upon by Swick:
(a)an affidavit of Thomas James Langdon filed 24 December 2022. Mr Langdon is a lawyer employed by HWL Ebsworth. Mr Langdon's affidavit annexed correspondence between HWL Ebsworth and ASIC in relation to the amendments made to the Scheme booklet and various ASX announcements made by Swick including in relation to the demerger with Orexplore;
(b)an affidavit of James Eric Roberts filed 24 December 2022. Mr Roberts is also a lawyer employed by HWL Ebsworth. Mr Roberts confirmed the Scheme booklet had been lodged with ASIC and annexed a copy of the final Scheme booklet and the lodgement receipt from ASIC;
(c)an affidavit of Kristy Laura Lamplough filed 1 February 2022. Ms Lamplough is a customer success manager employed by Automic Group. Ms Lamplough deposed, among other things, that she was responsible for the hard copy distribution of the letter and proxy forms to Swick shareholders who had nominated a physical address to receive notice of the Scheme meeting as well as the collation of proxies and printing of various reports for the Scheme meeting. Her affidavit annexed, among other things, copies of these reports;
(d)an affidavit of Christopher Francis Hill filed 1 February 2022. Mr Hill is a senior associate, capital markets, employed by Automic Group. Mr Hill deposed that he was responsible for sending the email notification to those shareholders who had nominated an electronic address to receive notice of the Scheme meeting and gave evidence of the process that was followed;
(e)an affidavit of Alex John Anastasakis filed 1 February 2022. Mr Anastasakis is a director of STA Print Pty Ltd (formerly known as Security Transfer Australia Pty Ltd). STA Print was engaged by Swick to provide printing, collation and dispatch services in relation to the Scheme meeting. Mr Anastasakis deposed to the printing and dispatch of notices of the Scheme meeting and proxy forms to shareholders of Swick;
(f)a second affidavit of Mr Simpson filed 1 February 2022 providing a report on the Scheme meeting and the results of the poll;
(g)an affidavit of David Arthur Naoum filed 1 February 2022. Mr Naoum is a lawyer employed by HWL Ebsworth. Mr Naoum deposed to the satisfaction of various conditions precedent in relation to the Scheme including the demerger of Orexplore. Mr Naoum also confirmed service of the court documents on ASIC and attached a copy of the advertisement of the second court hearing in The Australian newspaper;
(h)a third affidavit of Mr Van Dyk filed 2 February 2022 confirming the satisfaction of conditions precedent and the appointment of a Sale Agent to sell the Shares of the Overseas Ineligible Shareholders;
(i)a second affidavit of Mr Naoum filed 4 February 2022. Mr Naoum's second affidavit confirmed service of further court documents on ASIC and that Swick had not received notice of any objection to the Scheme. His affidavit annexed a letter from ASIC confirming it had no objection to the proposed Scheme under s 411(7)(b) of the Act; and
(j)a third affidavit of Mr Naoum filed 7 February 2022. Mr Naoum annexed the certificates executed by Swick and DDH1 and FinCo confirming each of the conditions precedent had been satisfied or wavied in respect of the Scheme (save for the orders to be made at the second court hearing).
These additional affidavits address the matters Swick was required to establish at the second court hearing.
Legal Principles in respect of the Scheme Approval
The approval of the proposed Scheme pursuant to s 411(4)(b) of the Act, or the second court hearing, is the third stage of approval for a scheme of arrangement. The second stage is the approval of the Scheme by the requisite statutory majorities, which occurred at the Scheme meeting.
At the second court hearing, the court has two tasks:[99]
(a)to ensure that all statutory and procedural requirements have been satisfied. This includes confirming that:[100]
(i)the meeting was convened and held in accordance with the court's earlier orders;
(ii)the resolutions were passed with the requisite statutory majorities; and
(iii)the plaintiff otherwise complied with the court's earlier orders;
(b)to determine, in the exercise of the court's discretion, whether to approve the proposed arrangement.
[99] Re Wesfarmers Ltd [No 2] [12].
[100] Re International Goldfields Ltd [2004] WASC 112 [7].
The court has a discretion to approve a scheme under s 411(4)(b) of the Act and is not bound to approve a scheme just because the court previously made orders for the convening of a meeting or because the statutory majorities have been achieved.[101] That said, the court will usually approach the task on the basis that shareholders are better judges of what is in their commercial interests than the court.[102]
[101] Re Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583 [31].
[102] Re Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd [No 3] [32] – [33].
The factors that inform the court's discretion whether or not to approve a scheme are:[103]
(a)whether the members have voted in good faith and not for an improper purpose;
(b)whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it;
(c)whether the plaintiff has brought to the attention of the court all matters that could be considered relevant to the exercise of the court's discretion;
(d)whether there has been full and frank disclosure of all information material to the members' decision;
(e)whether minority shareholders would be oppressed by the scheme;
(f)whether the court is satisfied that the scheme has not been proposed to avoid ch 6 of the Act;
(g)whether ASIC has an objection to the scheme; and
(h)whether the scheme offends public policy.
[103] Re Seven Network Ltd [No 3] [35] – [40], [50], [52].
Disposition
Compliance with statutory and procedural requirements
I was and am satisfied, on the basis of the additional affidavits filed, that:
(a)a copy of the court's orders made on 16 December 2021 (Orders) was lodged with ASIC that day;[104]
(b)a copy of the Scheme booklet that was approved for distribution by the court at the first court hearing was lodged with ASIC on 17 December 2021;[105]
(c)the Scheme booklet was dispatched to shareholders in accordance with the orders;[106]
(d)the Scheme meeting was convened and held on 17 January 2022 in accordance with the orders;[107]
(e)the Scheme was approved by the requisite statutory majorities;[108]
(f)notice of the second court hearing was given by way of advertisement in The Australian newspaper on 31 January 2022;[109] and
(g)ASIC informed Swick on 4 February 2022, pursuant to s 411(17)(b) of the Act, that it has no objection to the proposed Scheme.[110]
[104] Affidavit of Thomas James Langdon filed 24 December 2021 [6], 'TJL-1'.
[105] Affidavit of James Eric Roberts filed 24 December 2021 [6], 'JER-1', 'JER-2'.
[106] Affidavit of Christopher Francis Hill filed 1 February 2022 [11] – [26]; Affidavit of Kristy Laura Lamplough filed 1 February 2022 [22] – [28].
[107] Second affidavit of Andrew Vincent Simpson filed 1 February 2022 [5].
[108] Second affidavit of Andrew Vincent Simpson filed 1 February 2022 [13].
[109] Affidavit of David Arthur Naoum filed 1 February 2022 [14], 'DAN-6'.
[110] Second affidavit of David Arthur Naoum filed 4 February 2022 [14], 'DAN-12'.
In written and oral submissions, counsel for Swick drew my attention to two matters in relation to the Scheme meeting and its compliance with statutory and procedural requirements.
First, shareholders could only attend the Scheme meeting in person and there was no virtual or online component available. There was no concern expressed by any shareholder regarding the lack of online component at the Scheme meeting or prior to, or at, the second court hearing.[111]
[111] Second affidavit of Andrew Vincent Simpson filed 1 February 2022 [35] – [36].
The second matter was the voter turnout at the Scheme meeting. Of the 281,740,622 total Swick shares on issue, 169,708,101 shares were voted at the Scheme meeting, comprising approximately 60.23% of the Swick shares on issue.[112] However, only 109 out of 1,855 eligible Swick shareholders voted at the Scheme meeting, representing approximately only 6.0% of eligible shareholders by number.[113]
[112] Submissions for second court hearing [28].
[113] Submissions for second court hearing [28].
As was stated by Farrell J in Re TriAusMin Limited [No 2]:[114]
It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme; apathy should not be presumed to be antagonism.
Nonetheless it does call for consideration to ensure that the vote [was] not unrepresentative, since the court retains the discretion to withhold its approval in that case. It is relevant to consider whether members have been deterred from attending or voting at the meeting. (footnotes omitted)
[114] Re TriAusMin Ltd [No 2] [2014] FCA 833 [10] – [11].
Relatively low shareholder turnout does not prevent the court from making orders approving a scheme of arrangement.[115]
[115] See for example Re Foundation Healthcare Ltd [No 2] [2002] FCA 973; (2002) 43 ACSR 680 [22] (44.23% of shareholders voting); Re Rebel Sport Ltd [No 2] [2007] FCA 458 [6] (24.99% of shareholders holding 83.59% of shares) Re Avoca Resources Ltd [2011] FCA 208 [25] (11.49% of shareholders holding 72.38% of shares); Re Great Artesian Oil and Gas Ltd [No 2] [2008] FCA 1169 [3] (24.6% of shareholders voting); Re Straits Resources Ltd [No 2] [2011] FCA 47 [12] (10.8% of shareholders holding 74% of shares); Re Cortona Resources Ltd [No 2] [2013] FCA 302 [12] (17.5% of shareholders holding 45.2% of shares); Re Auzex Resources Ltd [No 2] [2012] QSC 101 [18] (9.75% of shareholders representing 42.3% of votes); Re TriAusMin Ltd [No 2] [9] (10.94% of shareholders holding 52.9% of shares); Re Decimal Software Ltd [No 2] [2018] FCA 2040 [15] - [16] (5.21% of shareholders holding 52.85% of shares); Re Pensana Metals Ltd [2020] WASC 17 [12] (6.41% of shareholders holding 37.08% of shares); Re Zenith Energy Ltd [No 3] [2020] WASC 289 [18] (39% of shareholders holding 89.25% of shares); Re Saracen Mineral Holdings Ltd [No 2] [2021] WASC 32 [47] (9.50% of shareholders holding 75.46% of shares); Re CannPal Animal Therapeutics Ltd [No 2] [2021] WASC 83 [32] (6.63% of shareholders holding 55.46% of shares); Re Piedmont Lithium Ltd [No 3] [2021] WASC 173 (8.44% of shareholders holding 26.74% of shares); Re Galaxy Resources Ltd [No 2] [2021] WASC 314 (7.31% of shareholders holding 53.87% of shares); Re Nusantara Resources Ltd [2021] WASC 334 (29.79% of shareholders holding 59.16% of shares); Re Valmec Ltd [2021] WASC 420 (17.62% of shareholders holding 74.22% of shares).
I was and am satisfied that there was sufficient turnout at the Scheme meeting. I do not consider that the low voter turnout by number of shareholders, in itself, suggested there had been an error in the dispatch of the Scheme booklet, nor that this should prevent the court from making orders under s 411(4)(b) of the Act. In this respect, I have had regard to the following matters:
(a)there is a substantial number of shareholders with unmarketable parcels of shares. In about August 2021, around 29% of the register was held as unmarketable parcels.[116] It is a reasonable inference that for many of these shareholders, the Scheme was of relatively minor commercial interest;
(b)the number of shareholders who voted at the Scheme meeting, being approximately 6.0% of all eligible shareholders,[117] exceeded the number of shareholders who voted at the two preceding general meetings of Swick;[118]
(c)the shareholders who voted at the Scheme meeting overwhelmingly voted in favour of the Scheme;
(d)there was no evidence which suggested any irregularity in the dispatch of the Scheme booklet; and
(e)there was no evidence of any issue which would have deterred shareholders from voting at or attending the Scheme meeting.
[116] Submissions for second court hearing [30].
[117] Submissions for second court hearing [28].
[118] Being approximately 3.96% at the 2020 annual general meeting and 4.079% at the 2021 annual general meeting; Second affidavit of Andrew Vincent Simpson filed 1 February 2022 [19] – [34], 'AVS‑5' ‑ 'AVS‑12'.
Accordingly, I was and am satisfied that all statutory pre‑conditions have been met. I now turn to consider the discretionary considerations.
Good faith and proper purpose
There is no evidence that the shareholders voted for an improper purpose. I am satisfied on the evidence that has been filed by Swick that the members voted in good faith and for a proper purpose as:
(a)the purpose of the proposed Scheme is to effect the acquisition by DDH1 of all Swick shares on issue, a transaction of a kind ordinarily approved by the court. It does not involve any novel treatment of rights;
(b)the independent expert opined that in the absence of an alternate proposal (and none has since emerged), the Scheme is in the best interests of shareholders; and
(c)neither ASIC nor any shareholder appeared at the second court hearing to object to approval of the proposed Scheme.
Fairness and reasonableness
At the first court hearing, based on the evidence before the court, I was satisfied that the proposed Scheme was of such a nature that there was no apparent reason that it should not receive approval if the requisite voting majorities were achieved at the Scheme meeting.
Nothing has occurred since the date of the first hearing to change this view. The shareholders who voted at the meeting overwhelmingly supported the proposed Scheme. No shareholder appeared to oppose the orders sought at the second court hearing. I was and am satisfied that the proposed Scheme is fair and reasonable and is a Scheme that sensible business people might consider to be of benefit to shareholders.
All relevant matters brought to the court's attention
At the first court hearing, counsel for Swick drew my attention to a number of matters. These are summarised above at [59] ‑ [87] of these reasons.
There were two further matters that counsel drew my attention to at the second court hearing.
First, the status of the demerger and the satisfaction of the other conditions precedent. The demerger of Swick's Orexplore business was a condition precedent to the Scheme. On 22 December 2021, the Orexplore demerger was approved by Swick shareholders.[119] The remaining conditions precedent (apart from court approval at the second court hearing) were satisfied or waived as evidenced by the certificates put before me.[120]
[119] Affidavit of David Arthur Naoum filed 1 February 2022 [9].
[120] Third affidavit of David Arthur Naoum filed 7 February 2022 'DAN-13', 'DAN-14'.
Second, as was drawn to the court's attention at the first court hearing, by reason of the fractional entitlement provision of the Scheme, 57 shareholders will receive no Scheme Consideration. Counsel for Swick submitted, which I accept, that this was not class creating, is not oppressive and should be treated as de minimis.
Full and fair disclosure
At the first court hearing, based on the evidence before the court, I was satisfied the draft Scheme booklet would provide full and fair disclosure to shareholders.
The additional affidavit evidence filed by Swick establishes that the Scheme booklet dispatched to shareholders was in the form approved for distribution by the court. Nothing has arisen to suggest there has not been full and fair disclosure of all information which was material to the decision of Swick shareholders prior to them voting on the Scheme.
At the second court hearing, I raised with counsel the absence of any evidence of dispatch of the Scheme booklet and proxy forms to shareholders who came on to the register after 20 December 2021 and before 15 January 2022. Counsel drew my attention to the evidence of an ASX announcement made by Swick during this period which referred to the Scheme and reminded shareholders to vote.[121] On the evidence before me, I accept that the Scheme was drawn to the attention of all shareholders and the absence of this evidence was not a reason to refuse to approve the Scheme.
Oppression of minorities
[121] Affidavit of David Arthur Naoum filed 1 February 2022 'DAN-3'.
There was no evidence that any minority has been oppressed. In relation to the 57 shareholders that will receive no Scheme Consideration, I am satisfied for the reasons set out above at [114], that this is issue should be treated as de minimis.
Satisfaction of s 411(17) of the Act and ASIC's view
ASIC has provided a written statement to the effect that it does not object to the Scheme pursuant to s 411(17)(b) of the Act.[122] As a result, the requirements of s 411(17) have been satisfied. In any event, having regard to the nature of the proposed transaction, it cannot be said the Scheme was proposed to avoid the operation of ch 6 of the Act.
Public policy
[122] Second affidavit of David Arthur Naoum filed 4 February 2022 [14], 'DAN-12'.
There is no evidence before the court that the proposed Scheme offends any aspect of public policy. Given the nature of the proposed Scheme, it is my view that it could not be sensibly suggested that the Scheme offends public policy.
Exemption from s 411(11) of the Act
Swick sought an exemption from s 411(11) of the Act. In my view, there is no utility in requiring the court's orders approving the Scheme to be annexed to Swick's constitution. As counsel for the plaintiff noted, this exemption has become ordinary practice for transactions of this kind.[123] I considered it was and is appropriate in the circumstances of this case to make the orders sought under s 411(12) of the Act.
Amendment to scheme
[123] Submissions for second court hearing [48]; See, for example, Re Nusantara Resources Ltd [103].
Pursuant to s 411(6) of the Act, the court has the discretion to grant approval to a scheme subject to such alterations or conditions as it thinks just. In this case, counsel for Swick sought the insertion of two dates in the definitions in cl 1.1 of the Scheme, namely the date of the 'Deed Poll' of 15 December 2021 and the date of the 'Implementation Agreement' of 21 October 2021.
I was and am satisfied that it is just to make the amendments sought.
Conclusion and orders
At the second court hearing before me, I was satisfied that the substantive and procedural requirements under s 411(4) of the Act had been satisfied and that I should approve the proposed Scheme, subject to the minor amendments set out at [122].
For these reasons, at the conclusion of the hearing on 7 February 2022, I made orders in terms of Annexure B in respect of the Scheme.
ANNEXURE A
APPENDIX A
ANNEXURE B
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
FD
Associate to the Honourable Justice Hill
8 MARCH 2022
11
40
2