Re Unity Mining Limited (No 3)
[2016] VSC 831
•26 May 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2016 00005
IN THE MATTER OF UNITY MINING LIMITED
(ACN 005 564 073)
| UNITY MINING LIMITED | Plaintiff |
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JUDGE: | ROBSON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 26 May 2016 |
DATE OF JUDGMENT: | 26 May 2016 |
CASE MAY BE CITED AS: | Re Unity Mining Limited (No 3) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 831 |
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CORPORATIONS – Scheme of arrangement – Approval of scheme – Prior refusal to approve – Possible prohibited agreement under s 606(1) of the Act – Exemption from s 411 compliance – Scheme approved – Section 411 Corporations Act 2001 (Cth).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M I Borsky | Baker & McKenzie |
| For the Defendant | Mr G J Ahern | K&L Gates |
HIS HONOUR:
Introduction
I have before me an application to approve a scheme of arrangement, pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (the Act), that has been agreed to by the shareholders of Unity Mining Limited (Unity), whereby Diversified Minerals Pty Ltd (Diversified) will acquire all the shares issued in Unity.
I am satisfied that the scheme should be approved for the reasons which have been given in the outline of submissions by the plaintiff dated 25 May 2016, which I will partially set out below. The plaintiff is also seeking an exemption under s 411(12) of the Act from compliance with s 411(11). I am content to grant this also for the reasons below.
I have previously delivered two judgments in relation to this scheme, which disclose the history of the scheme and changes made to it at an earlier stage.[1]
[1]See Re Unity Mining (No 1) [2016] VSC 829 and Re Unity Mining (No 2) [2016] VSC 830.
Role of the Court
The jurisdiction of the Court pursuant to applications under s 411(4)(b) of the Act can be said to be supervisory, in the sense that the Court, in exercising its discretion, is concerned primarily to be satisfied that there has been an absence of oppression and that the arrangement is capable of being accepted. The Court must be satisfied that all the required conditions have been complied with, that the proposition was made in good faith and that the proposal was at least so far fair and reasonable, as that an intelligent and honest shareholder, acting alone in respect of their own interest as a shareholder, might approve it.[2] The Court will generally take the view that the shareholders are the best judges of whether an arrangement is to their commercial advantage and will be reluctant to make decisions contrary to the views of shareholders expressed at meetings.[3]
[2]See the judgment of Fry LJ in Re Alabama, New Orleans, Texas Pacific Junction Railway Company [1891] 1 Ch 213, [69].
[3]Re National Australia Bank Ltd [2016] VSC 62 at [37]–[39] per Sifris J; Re Toll Holdings Ltd (No 2) [2015] VSC 236 (Re Toll) at [9] per Robson J, citing Re Coles Group Ltd (No 2) (2007) 65 ACSR 494 (Re Coles) at [8]–[9] per Robson J and Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 (and see similarly: Re Central Pacific Minerals NL [2002] FCA 239 at [12]–[14] per Emmett J); Re Healthscope Ltd (No 2) [2010] VSC 440 (Re Healthscope) at [5], citing Re Coles).
Inquiry by Associate Judge
On 23 May 2016, Associate Justice Efthim conducted an inquiry pursuant to r 16.6 of the Supreme Court (Corporations) Rules2013 (Vic) (the Rules) and declared that:
(a) save for the irregularities identified in sub-paragraphs (i) and (ii) below, the Scheme Meeting was duly convened and held:
(i) direct credit forms were sent by post on 11 March 2016 to Scheme Shareholders who had previously notified Unity of their direct credit account details (rather than on or before 29 February 2016, as required by paragraphs 3(b) and 6 of the February Orders, and as occurred in relation to all other Scheme Shareholders);
(ii) the supplementary documents that were required by paragraph 4 of the May orders to be sent to scheme shareholders on or before 9 May 2016 were sent on 10 May 2016;
I note that, in my opinion, neither of these irregularities are so material as to have caused any injustice or otherwise militate the exercise of the discretion of the scheme.
(b) the following resolutions were duly passed at the scheme meeting by a majority in number of the scheme shareholders present and voting (either in person or by proxy) and by (more than) 75 per cent of the votes cast:
(i) “That the Scheme of Arrangement (the terms of which are set out in Annexure 4 to the Explanatory Booklet dated 19 February 2016) is modified by deleting the definition of Scheme Consideration and replacing it with: Scheme Consideration means 2.3 cents in respect of each Scheme Share” (preliminary resolution);
(ii) “That pursuant to and in accordance with section 411 of the Corporations Act, the Scheme of Arrangement (the terms of which are set out in the Explanatory Booklet dated 19 February 2016, as modified by the Preliminary Resolution) is agreed to (with or without any modification)” (approval resolution); and
(c) Unity, in compliance with rule 3.4 of the Rules, on 18 May 2016, published a notice of the hearing of its application for an order approving the scheme.
Considerations relevant to approval
The scheme was agreed to by majorities well in excess of the statutory requirements: more than 91 per cent of the votes cast and more than 80 per cent in number of the Scheme Shareholders voting.[4] Votes were cast in respect of more than 53 per cent of the shares on issue.[5]
[4]Second affidavit of Clive Bruce Jones sworn 20 May 2016 (second Jones affidavit), [27], [35].
[5]As at 15 February 2016, there were 1,143,084,568 shares on issue: affidavit of Clive Bruce Jones sworn 15 February 2016 (first Jones affidavit), [18(a)]. On the Preliminary Resolution, 608,043,308 votes were cast: second Jones affidavit, [27]. On the Approval Resolution, 608,175,441 votes were cast: second Jones affidavit, [35].
The consideration to be paid to scheme shareholders (including the capital return) is 3.3 cents per share, which represents a premium of 65 per cent over the price at which Unity shares closed on the last trading day prior to the first announcement of the proposed transaction (4 December 2015): see Supplementary Explanatory Booklet at page 3.[6]
[6]Affidavit of David Johan Quitto sworn 19 May 2016 (Quitto affidavit), exhibit DJQ-2.
The opinion of the independent expert is that the scheme (and capital return) is fair and reasonable and in the best interests of shareholders: see Supplementary Explanatory Booklet at pages 1, 3 and 6.[7]
[7]Quitto affidavit, exhibit DJQ-2.
The scheme has the unanimous recommendation of the board of directors of Unity: see Supplementary Explanatory Booklet at pages 1, 3 and 6.[8]
[8]Quitto affidavit, exhibit DJQ-2.
Each of the conditions precedent to the scheme — save for an order of the Court approving the scheme under s 411(4)(b) of the Act being made and coming into effect under s 411(10) of the Act — has been satisfied.[9]
[9]See fifth affidavit of Richard Anthony Lustig sworn 25 May 2016 (fifth Lustig affidavit), [4]–[5].
Unity has not received notice that any person intends to appear at the second hearing to oppose the approval of the scheme.[10]
[10]Fifth Lustig affidavit, [9]–[10].
Exemption from compliance with s 411(11)
Subsection 411(11) of the Act requires a copy of any order of the Court approving a scheme to be annexed to every copy of a body’s constitution issued after that order has been made. Subsection 411(12) of the Act empowers the Court, by order, to exempt a body from compliance with this requirement.
This requirement has utility primarily in relation to creditors’ schemes, where the provisions of a scheme are more likely to be relevant to third parties dealing with the company. Exemption from compliance is appropriate here, as Unity’s constitution will be unaffected by the scheme and Unity will become a wholly owned subsidiary.[11]
[11]Exemption granted in similar circumstances in Re Toll Holdings Ltd [2015] VSC 123, [18]–[19].
ASIC concerns with Brahman agreement
There is one further matter I should address in detail, which is that although ASIC has indicated, in a letter dated 25 May 2016, that it has no objection to the scheme under s 411(17)(b) of the Act, ASIC also referred to matters previously raised by it and stated:
As you are aware, in the course of our previous discussions and correspondence regarding the Scheme, ASIC raised a concern that the circumstances leading to the making of the public statement by Brahman Pure Alpha Pty Limited(Brahman) dated 12 April 2016, and Diversified Minerals’ corresponding agreement to increase the Scheme consideration, evinced an overall agreement, arrangement, or understanding regarding the voting of Brahman’s holding in Unity.
ASIC’s concern was that this agreement may have been sufficient to result in Diversified acquiring a relevant interest in Brahman’s holding under the broad concept of power or control over voting set out in s 608(1) and (2) of the Act which, given the aggregate holdings of Diversified, would be prohibited under s 606(1) of the Act (as the combined voting power would exceed 20 per cent).
ASIC continued:
Further details regarding the basis for our concerns are set out in our letter of 27 April 2016 which we provided to you in connection with Unity’s application, inter alia, for orders to approve the dispatch of a supplementary explanatory statement for the Scheme.
At the time ASIC first raised this matter with Unity and Diversified, it was acknowledged that in the event ASIC’s concerns were not alleviated, ASIC’s most likely course, in so far as the Scheme was concerned, would be to invite the Court to consider disregarding any votes cast by Brahman in determining whether to approve the Scheme at the second court hearing. In the event that the scheme resolution was passed by a sufficient margin that it could be demonstrated that the Scheme would have met the statutory approval thresholds irrespective of any votes cast by or on behalf of Brahman, ASIC took the view that, in the present circumstances, it would be unlikely to have any objection to the Scheme. Given this possibility, ASIC agreed that the scheme should be put to a vote, provided that Unity disclosed the matters of concern in the supplementary scheme booklet and agreed to tag any votes cast by Brahman in order to enable any remaining concerns to be considered at the time the Court was asked to consider whether to approve the scheme.
For this reason, ASIC did not seek to be heard at previous hearings in relation to the Scheme, but for completeness, foreshadowed in its correspondence that it may seek to raise the issues at the second court hearing.
On the basis of the affidavit material provided, ASIC understands that the scheme was approved by Unity members on 20 May 2016 with 91.43 per cent of the total votes cast being in favour of the Scheme. ASIC understands that if the votes cast by or on behalf of Brahman were excluded from this figure, then the scheme would nonetheless have passed a statutory threshold with a vote of 86.64 per cent in favour.
Accordingly, ASIC confirms that it does not object to the Scheme, notwithstanding the concerns previously raised.
Under the heading of “ASIC’s attendance at the second court hearing”, the letter then goes on to say:
Given ASIC’s position of no objection to the Scheme, ASIC does not propose to seek leave to appear as amicus curiae at the hearing scheduled for 10 am on 26 May 2016.
However, having regard to the fact of ASIC’s previously raised concerns, and the court’s comments at the recent hearing in connection with the scheme held on 27 April 2016 and 6 May 2016, the author will be in attendance at the hearing and will be available to assist the Court, should that be necessary.
As it was, Mr Demarte appeared for ASIC at the hearing. I was greatly assisted by his submissions. In ASIC’s letter of 27 April 2016, ASIC said that it did not propose to appear to make submissions or intervene to oppose the making of orders in connection with the proposed dispatches and supplementary statement at the hearing scheduled for 27 April 2016. ASIC went on to say, however:
For completeness we reiterate here our previous express concerns regarding the circumstances leading to the making of the public statement by Brahman dated 12 April 2016 regarding its voting intentions in relation to the scheme and subsequent revision to the scheme terms. A summary of our concerns are detailed below.
Under the heading ‘Potential understanding of arrangement relating to making of Brahman intention statement’, ASIC said:
On 13 April 2016, Unity released an announcement via the Australian Securities Exchange (ASX) Markets Announcement Platform, which attached a letter from Brahman (Brahman Letter) addressed to Unity advising that, amongst other things, Brahman agreed to vote its shareholding in favour of the Scheme provided that:
·Diversified committed to entering into a binding agreement with Unity to increase the consideration offered under the scheme; and
·such commitment was publicly advised by Unity to the ASX by no later than 10 am on 13 April 2016.
We further understand that:
·following a period of discussions with Brahman, Diversified indicated to Unity that it would not agree to increase the consideration offered under the scheme unless Brahman made a public statement of its voting intentions.
·the stipulation that the statement must be made publicly was related to the application to such statements of the well-known principles in ASIC Regulatory Guide 25 Takeovers: False and misleading statements (Truth in Takeovers Policy). In accordance with the Truth in Takeovers Policy, where a substantial holder publicly announces that they will or will not do something in the course of a takeover, they should do so in the expectation that they will be held to their announced course of conduct: see RG 25.5 - RG 25.6:
·Unity’s advisors prepared a draft of the Brahman letter which was modified by Brahman’s advisors prior to being signed and returned; and
·the Brahman letter was forwarded by Unity to Diversified together with a letter seeking Diversified’s agreement to increase the consideration offered under the Scheme, in reliance on the Brahman letter.
As previously advised, on the basis of the information available, ASIC is concerned that the circumstances surrounding the sending of the Brahman letter, and the corresponding agreement to increase the consideration offered under the Scheme, evince an overall agreement, arrangement or understanding between the parties regarding the voting of Brahman’s stake in Unity. In particular it appears to ASIC that the matters outlined above indicate that a consensus was reached as to Brahman’s future course of action (that is, voting in favour of the scheme), in return for Diversified agreeing to increase the scheme consideration.
An understanding of this kind is sufficient to result in Diversified acquiring a ‘relevant interest’ in Brahman’s holding in Unity having regard to the broad concept of power or control over voting set out in s608(1) and (2) of the Act. Sub-section 608(2) in particular indicates that power or control over voting for this purpose includes power or control that may be exercised by means of a relevant agreement (as defined in s9 of the Act) irrespective of whether the relevant agreement is legally enforceable: see relevantly Corebell Pty Ltd v New Zealand Insurance Co Limited (1988) 13 ACLR 349.
ASIC’s concern in this regard arises because according to the substantial holding notice lodged with the ASX on 13 April 2016 Brahman had relevant interests in around 19.469% of the voting shares in Unity at the time it sent the Brahman letter. Given Diversified and its associates’ holding of around 13.7% of the issued voting shares in Unity, the entry into any agreement, arrangement or understanding giving rise to a relevant interest would have been prohibited under the Act at all relevant times: see s64 and s606(1) of the Act.
While ASIC acknowledges that is not necessarily uncommon for shareholders to make statements of their intention in relation to voting on a proposed compromise or arrangement, and that in the present case the apparent understanding in question both involved an increase in the consideration offered under the Scheme and was the subject to the emergence of a superior proposal, ASIC is nonetheless concerned that the overall circumstances suggested an understanding as to Brahman’s future conduct was formed that goes beyond what is permitted in having regard to the respective holdings of the parties in Unity.
ASIC does not object to the common practice of canvassing the views of major shareholders to seek an indication of their position in relation to a proposed transaction. However, where the interaction between a proposed acquirer and target shareholder involved more than mere canvassing (irrespective of whether those interactions are direct or intermediate in some way) ASIC considers it important that the parties observe the limits imposed under section 606 with respect to the number of shares in which a proposed acquirer may acquire a relevant interest prior to, and during, a controlled transaction - consistent with both the legal requirements of the Act and the legitimate expectations of the market (including any potential rival offerors).
ASIC acknowledges that Unity and Diversified do not consider that an agreement, arrangement or understanding giving rise to a relevant interest was formed in the present matter. Nevertheless, on the basis of information available to date ASIC remains concerned with the circumstances surrounding the making of the Brahman intention statement for the reasons expressed above.
Accordingly ASIC reserves its right to seek that the Court disregard the votes cast by Brahman, or otherwise oppose the Scheme, at the second court hearing, in the event any vote by Brahman is ultimately determinative of the issues of the Scheme.
We understand that Unity has agreed to tag any votes cast by Brahman at the adjourned scheme meeting that are the subject of the intention statement in the Brahman Letter. We also note that the supplementary statement contains a reference to the concerns raised by ASIC outlined above.”
I was taken to the explanatory statement where the concerns of ASIC were purportedly set out in the letter to shareholders from the Chairman dated 6 May 2016. The Chairman shared that Unity’s largest shareholder, Brahman Pure Alpha Pte Ltd (Brahman), had stated on 13 April that it intended to vote its then held 18.7 per cent shareholding in favour of the resolutions to approve the further revised transaction, subject to there being no superior proposal, and that Brahman had also withdrawn its members’ requisition, which had sought various board changes.
The following paragraph appears in s 3.2 of the Chairman’s letter:
ASIC has advised that it has concerns regarding the link between the making of the Brahman statement of intention described in section 1.3 and the proposal of the Further Revised Transaction. Accordingly, ASIC has advised that it is reserving its position regarding whether any votes cast by Brahman, that are the subject of Brahman’s statement of intention, should be disregarded. Unity has agreed with ASIC to tag any such votes cast at the Adjourned Scheme Meeting so that these votes can be separately recorded. This will enable ASIC, and if necessary the Court, at the Second Court Hearing to consider whether the Adjourned Scheme Meeting resolutions, if approved by the requisite majorities, would have been approved even if these Brahman votes were to be disregarded.
In my view, that disclosure did not inform the shareholders of the concern that ASIC had. As noted, ASIC’s concern is that there may have been an arrangement between Diversified and Brahman such that Diversified would be treated under the Act as having a relevant interest in more than 20 per cent of the shares in Unity, which may have constituted a breach of s 606 of the Act; this section, in substance, prevents a person acquiring more than 20 per cent without making a takeover offer.
I informed Mr Demarte, who appeared on behalf of ASIC, that I considered that it might be better to err on the side of caution in these sort of statements and to have disclosed to the shareholders what was in fact the concern that ASIC had. Counsel for Unity were mindful of the obligation to fully inform the Court of all relevant circumstances when applying for an order convening a meeting for members to consider a scheme or for the approval of a scheme and has had prepared and filed by his instructing solicitors an affidavit of Nicholas Hunter Woolridge, which discloses fully and completely the course of events between Diversified and Brahman. Mr Woolridge asserts that the two parties had no relationship or had not even heard of each other prior to the scheme being proposed.
It is essential for parties who are seeking the Court to exercise its jurisdiction to permit the holding of a meeting and approving of a scheme, that full disclosure of all relevant matters be made. That has now ultimately been done. In my opinion, it should have been done earlier. I expressed during the hearing my disappointment in that not having been so in this case.
In any event, the fact that that was not done should not deny to the shareholders, the benefit of this scheme offer. Therefore I have put to one side, as ASIC suggested I should, my concerns about the lack of initial disclosure of this issue.
ASIC informed the Court that, in view of the affidavit of Mr Woolridge, its concerns may still remain and it is still at liberty to take what steps it wishes to take in view of its concerns about whether there was or was not a breach of s 606 in this case. ASIC has urged on me that whether or not there was a breach of s 606, I should not let that issue stand in the way of this scheme being approved. Accordingly, I propose to make the orders sought.
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