Re Texon Petroleum Ltd

Case [2013] FCA 29

FEDERAL COURT OF AUSTRALIA

Texon Petroleum Limited, in the matter of Texon Petroleum Limited

[2013] FCA 29

Citation: Texon Petroleum Limited, in the matter of Texon Petroleum Limited [2013] FCA 29
Parties: TEXON PETROLEUM LIMITED
(ABN 24 119 737 772)
File number(s): NSD 2228 of 2012
NSD 2230 of 2012
Judge: FARRELL J
Date of judgment: 31 January 2013
Catchwords: CORPORATIONS – schemes of arrangement – content of explanatory statement – need for balanced disclosure  – break fees – consequences of "no” vote
Legislation:

Corporations Act 2001 (Cth) ss 411, 412, 256C, Pt 5.1,
Pt 2G.2

Federal Court (Corporations) Rules 2000, rr 3.3 and 3.4

Cases cited: Re Advance Bank Australia Limited (1997) 22 ACSR 513
Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485
Re Central Pacific Minerals NL [2002] FCA 239
Re CSR Ltd (2010) 183 FCR 358
Re Foundation Healthcare Ltd (2002) 42 ACSR 252
FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69
Re Hills Motorway Ltd (2002) 43 ACSR 101
Re Hunter Resources Limited (1992) 34 FCR 418
In re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213
Re Permanent Trustee Co Ltd (2002) 43 ACSR 601
Sovereign Life Assurance Company v Dodd [1892] 2 QB 573
Re Rural Press Ltd (2007) 61 ACSR 373
Straits Resources Limited, in the matter of Straits Resources Limited [2010] FCA 1466
Date of hearing: 22 January 2013
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 40
Counsel for the Plaintiff: Mr M Oakes SC
Solicitor for the Plaintiff: Minter Ellison Lawyers
Counsel for Sundance Energy Australia Limited: Mr J Redwood
Solicitor for Sundance Energy Australia Limited: Johnson Winter & Slattery

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 2228 of 2012

IN THE MATTER OF TEXON PETROLEUM LIMITED (ABN 24 119 737 772)

TEXON PETROLEUM LIMITED (ABN 24 119 737 772)
Plaintiff

JUDGE:

FARRELL J

DATE OF ORDER:

22 JANUARY 2013

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.Pursuant to subsection 411(1) of the Corporations Act 2001 (Act) the Plaintiff, Texon Petroleum Ltd ABN 24 119 737 772 (TPL), convene a meeting of its shareholders (Demerger Scheme Meeting) for the purpose of considering, and if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed between TPL and its shareholders (Demerger Scheme) being the scheme substantially in the form of that contained in Appendix 3 of the explanatory statement in relation to the Demerger Scheme (Demerger Scheme Booklet), which is Exhibit 1.

2.The Demerger Scheme Meeting be held at the offices of Minter Ellison Lawyers, Level 22, Waterfront Place, 1 Eagle Street, Brisbane in the State of Queensland on 25 February 2013 at 11.30 am.

3.The Chairperson of the Demerger Scheme Meeting be John Dennis Armstrong and, in his absence, Bernard Charles Ernest Rowley.

4.The Chairperson appointed to the Demerger…

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Re Texon Petroleum Ltd [2013] FCA 29
Case
[2013] FCA 29
Decision Date

CaseChat Overview and Summary

Texon Petroleum Ltd, an Australian public company engaged in oil and gas exploration and production, sought approval for a proposed scheme of arrangement involving the demerger of its Eagle Ford Shale assets and the acquisition of the remaining assets by Sundance Energy Australia Ltd, another Australian public company. The Court was tasked with determining whether the explanatory statement provided to Texon shareholders was sufficiently balanced to enable them to make an informed decision on the proposed schemes. The court also had to decide if the break fees outlined in the schemes were reasonable and whether the consequences of a "no" vote by shareholders were adequately disclosed.

The Court found that the explanatory statement provided to Texon shareholders was balanced and contained sufficient information for shareholders to make an informed decision. The Court held that the break fees were reasonable, considering the circumstances, and that the consequences of a "no" vote by shareholders were adequately disclosed. The Court approved the scheme of arrangement, allowing Texon to proceed with the demerger and acquisition as proposed.

The Court made orders convening a meeting of Texon shareholders to consider the scheme of arrangement, approving the explanatory statement for distribution to shareholders, and exempting Texon from certain regulatory requirements. The Court also set a date for the hearing of an application for orders approving the scheme of arrangement.

Orders

Orders of the court

1. Pursuant to subsection 411(1) of the Corporations Act 2001 (Act) the Plaintiff, Texon Petroleum Ltd ABN 24 119 737 772 (TPL), convene a meeting of its shareholders (Demerger Scheme Meeting) for the purpose of considering, and if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed between TPL and its shareholders (Demerger Scheme) being the scheme substantially in the form of that contained in Appendix 3 of the explanatory statement in relation to the Demerger Scheme (Demerger Scheme Booklet), which is Exhibit 1.

2. The Demerger Scheme Meeting be held at the offices of Minter Ellison Lawyers, Level 22, Waterfront Place, 1 Eagle Street, Brisbane in the State of Queensland on 25 February 2013 at 11.30 am.

3. The Chairperson of the Demerger Scheme Meeting be John Dennis Armstrong and, in his absence, Bernard Charles Ernest Rowley.

4. The Chairperson appointed to the Demerger Scheme Meeting has the power to adjourn the Demerger Scheme Meeting in his absolute discretion.

5. Except for procedural motions, all voting at the Demerger Scheme Meeting be by poll as declared by the Chairperson.

6. Pursuant to subsection 411(1) of the Act, the Demerger Scheme Booklet be approved for distribution to the TPL shareholders.

7. The Demerger Scheme Booklet is to be dispatched to the TPL shareholders be in the form, or to the effect, of that which is Exhibit 1, and may be sent by pre-paid post, and in the case of a member whose registered address is outside the country, by pre-paid airmail post, or dispatched by air courier for overseas pre-paid post.

8. Regulations 5.6.12 and 5.6.14 to 5.6.36A of the Corporations Regulations 2001 will not apply to the Demerger Scheme Meeting.

9. Notice of the hearing of an application pursuant to subsection 411(4)(b) of the Act for orders approving the scheme of arrangement be published in substantially the form of "Annexure A" to this order, such advertisement to be published in The Australian Newspaper on or before 21 February 2013, and TPL be otherwise exempted from compliance with rule 3.4 of the Federal Court (Corporations) Rules 2000.

10. The Originating Application filed on 21 December 2012 be adjourned to 10.15am on 27 February 2013 before Farrell J.

11. Liberty to apply on 2 days' notice.

12. These Orders be entered forthwith.

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

Background

Background to the litigation

Given the ex parte nature of these applications, it is the duty of counsel to bring to the Court’s attention all matters that could be considered relevant to the exercise of its discretion. See: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [7].BACKGROUNDTexon, the plaintiff Texon is a public company registered in Australia under the Act and its shares are listed for quotation on the Australian Stock Exchange (ASX). Texon describes its business as oil and gas exploration and production and its operations are located in south Texas in the United States of America. For present purposes, the assets of Texon and its subsidiaries (Texon group) can be divided into those related to the Eagle Ford Shale interests (EFS Assets) and its other assets (non-EFS Assets). Some, but not all of the non-EFS Assets are held by Talon Petroleum Limited (Talon) and its subsidiaries (Talon group). Sundance, the bidder Sundance Energy Australia Limited (Sundance) is a public company registered in Australia under the Act and its shares are listed for quotation on the ASX. It is an Adelaide based independent energy exploration company with headquarters in Denver, Colorado in the United States of America.Meetings of members of Texon Texon proposes that shareholders will consider four resolutions at three meetings which will be held consecutively. These are resolutions to: (1)to approve the Demerger Scheme at the court-ordered meeting; (2)to approve the Acquisition Scheme at the court-ordered meeting and;(3)to approve an equal capital reduction pursuant to 256C of the Act (Capital Reduction) and the Wandoo Interest Acquisition Agreement (Wandoo Approval Resolution) at an extraordinary general meeting (Extraordinary General Meeting).Demerger Scheme The effect of the Demerger Scheme, if approved, will be that:(a)all of Texon’s non-EFS Assets will be transferred to Talon and Talon group will then hold all of the non-EFS Assets.(b)Texon group will hold all of the EFS Assets. (c)Immediately before the Capital Reduction takes effect, Talon will capitalise debt it owes to Texon by the issue of sufficient Talon shares to meet the requirements of the Demerger Scheme.(d)Texon will transfer to each of its members two Talon shares for every five Texon shares which they hold (other than ineligible foreign shareholders for whom there will be a share sale facility). The issue of those Talon shares is in satisfaction of the Capital Reduction. (e)Texon shareholders will hold Texon shares and Talon shares, and Talon shares will be listed for quotation on the ASX. (f)The Demerger Scheme is conditional on (among other things) the Capital Reduction being approved by Texon shareholders. It is not conditional on the Acquisition Scheme being approved.Acquisition Scheme The effect of the Acquisition Scheme is that Texon (then holding all EFS Assets) will become a wholly owned subsidiary of Sundance. Texon shareholders will transfer all of their Texon shares to Sundance and Sundance will issue Texon shareholders (other than ineligible foreign shareholders for whom there will be a share sale facility) with Sundance shares in the ratio of one Sundance share for every two Texon shares transferred. The Acquisition Scheme is conditional (among other things) on the Demerger Scheme being approved and implemented.Capital Reduction

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

As to ineligible foreign shareholders, the Court received evidence that, as at 15 January 2013, there were eight such shareholders (0.23% of all Texon members) holding 0.12% of the issued shares. In order to meet the exigencies of foreign laws, it is proposed that instead of issuing share consideration to these shareholders under the Schemes (if they are approved) there will be a share sale facility under which the share consideration will be issued to a nominee for sale and the cash proceeds after expenses will be paid to the ineligible foreign shareholders. This is now a typical practice where there are a relatively few foreign shareholders (Re Rural Press Ltd (2007) 61 ACSR 373 at [20]) and these members should not be treated as a separate class: Straits Resources Limited, in the matter of Straits Resources Limited [2010] FCA 1466 at [28]; Re Hills Motorway Ltd (2002) 43 ACSR 101 at [10]-[13].Capital reduction and consent to receive share consideration As consideration for the reduction of capital, Texon members will receive Talon shares under the Demerger Scheme. The Demerger Scheme is therefore appropriately coupled with a capital reduction proposal. Each Scheme includes a provision under which Texon shareholders agree to accept shares as scheme consideration: see eg. Re Hunter Resources Limited (1992) 34 FCR 418; Re Advance Bank Australia Limited (1997) 22 ACSR 513 at 528-529; Re CSR Ltd (2010) 183 FCR 358.Schemes are bona fide and properly proposed There is no evidence, at this stage, to suggest that either Scheme is being proposed for an improper purpose. The evidence that the Schemes are bona fide and properly proposed includes:(a)A Scheme Implementation Agreement between Texon and Sundance dated 13 November 2012 under which Texon agrees to propose the Schemes and both Texon and Sundance agree to take the steps necessary on their respective parts to implement the Schemes; and (b)A Demerger Scheme Deed Poll executed by Talon on 15 January 2013 and a Deed Poll executed by Sundance on 16 January 2013 – each for the benefit of Texon shareholders and undertaking to perform the steps attributed to them under the relevant Scheme. These documents also address the “performance risk” inherent in the Schemes. In the Demerger Scheme, performance risks are low because it is essentially a rearrangement of the assets comprised in the Texon group. On the other hand, Sundance is a stranger to the Acquisition Scheme and the risk of its failure to perform is also addressed by the fact that the issue of the Sundance shares as consideration precedes the transfer of Texon shares to Sundance under clause 3.3 of the Acquisition Scheme.Is there proper disclosure to shareholders in relation to the proposed Schemes? The proposed explanatory statement for each of the Schemes is in the form of a booklet, the text of which appears to include material which is required by the Act. It also appears to contain material which it has become customary to provide in circumstances where the scheme consideration includes shares in another body corporate and where, as in the Acquisition Scheme, its implementation has the same effect as a takeover. Each booklet includes the terms of the Scheme, a notice of meeting and proxy form for the court-ordered Scheme meeting as well as explanatory material. The booklet for the Demerger Scheme also includes a notice and proxy form for the Extraordinary General Meeting.