Re Verdant Minerals Ltd

Case [2019] FCA 556

FEDERAL COURT OF AUSTRALIA

Verdant Minerals Ltd, in the matter of Verdant Minerals Ltd [2019] FCA 556

File number: VID 333 of 2019
Judge: MOSHINSKY J
Date of judgment: 16 April 2019
Date of publication of reasons: 24 April 2019
Catchwords: CORPORATIONS – members’ scheme of arrangement – first court hearing – order sought under s 411(1) of the Corporations Act 2001 (Cth) – loan agreement – order made for convening of shareholders’ meeting
Legislation:

Corporations Act 2001 (Cth), ss 9, 411, 412, 602, 1319

Corporations Regulations 2001 (Cth), r 5.1.01

Federal Court (Corporations) Rules 2000 (Cth), rr 2.4, 3.2, 3.3
Cases cited:

Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485

Billabong International Ltd [2013] ATP 9

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

Moreton Resources Ltd [2013] ATP 14

Re Amcor Ltd [2019] FCA 346

Re APN News & Media Ltd (2007) 62 ACSR 400

Re Arthur Yates & Co Ltd (2001) 36 ACSR 758

Re AXA Asia Pacific Holdings Ltd [2011] VSC 4

Re Bank of Adelaide (1979) 22 SASR 481

Re Bigair Group Ltd [2016] FCA 1296

Re Biosceptre International Ltd [2013] FCA 1429

Re Coles Group Ltd (2007) 25 ACLC 1380

Re Coles Group Ltd (No 2) (2007) 65 ACSR 494

Re Consolidated Media Holdings Ltd [2012] FCA 1186

Re CSR Ltd (2010) 183 FCR 358

Re Cytopia Ltd [2009] VSC 560

Re Drillsearch Energy Ltd [2015] FCA 1508

Re Dyno Nobel Ltd [2008] VSC 154

Re Foundation Healthcare Ltd (2002) 42 ACSR 252

Re Healthscope Ltd [2010] VSC 367

Re Hostworks Group Ltd (2008) 26 ACLC 137

Re IXLA Ltd [2007] VSC 573

Re Little World Beverages Ltd [2012] FCA 1057

Re Lonsdale Financial Group Ltd [2007] VSC 394

Re Macquarie Private Capital A Ltd (2008) 26 ACLC 366

Re Mantra Group Ltd [2018] FCA 510

Re Mitchell Communication Group [2010] VSC 423

Re NRMA Ltd (No 1) (2000) 156 FLR 349

Re Opes Prime Stockbroking Ltd (No 2) (2009) 179 FCR 20

Re Sino Gold Mining Ltd (2009) 74 ACSR 647

Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525

Re Talent2 International Ltd [2012] FCA 771

Re Toll Holdings Ltd [2015] VSC 123

Re Watpac Ltd [2018] FCA 656

Re Westfield Holdings Ltd (2004) 49 ACSR 734

Re Wridgways Australia Ltd [2010] FCA 1187

Ross Human Directions Ltd [2010] ATP 8
Date of hearing: 16 April 2019
Registry: Victoria
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 86
Counsel for the Plaintiff: Ms E Boros
Solicitor for the Plaintiff: Ashurst Australia
Counsel for CD Capital Natural Resources Fund III LP: Mr B Holmes
Solicitor for CD Capital Natural Resources Fund III LP: Rupert Gray

ORDERS

VID 333 of 2019

IN THE MATTER OF VERDANT MINERALS LTD
BETWEEN:

VERDANT MINERALS LTD (ACN 122 131 622)

Plaintiff

JUDGE:

MOSHINSKY J

DATE OF ORDER:

16 APRIL 2019

THE COURT NOTES…

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AGLC
Re Verdant Minerals Ltd [2019] FCA 556
Case
[2019] FCA 556
Decision Date

CaseChat Overview and Summary

Verdant Minerals Ltd, an Australian public company, sought to convene a meeting of its shareholders to consider a proposed scheme of arrangement for the acquisition of its shares by CD Capital. CD Capital did not oppose the application, but the court still had to determine whether it was appropriate to exercise its discretion to order the convening of a meeting under s 411(1) of the Corporations Act 2001 (Cth). The court had to consider whether the scheme was fit for consideration by the shareholders and whether the scheme booklet complied with the statutory requirements and did not contain any misleading or deceptive statements. The court had to balance the need for proper disclosure and consideration of the scheme against the potential prejudice to the company if the meeting was not convened.

The court was satisfied that the scheme was fit for consideration by the shareholders. The scheme booklet contained a recommendation from an independent expert that the scheme was fair and reasonable to, and in the best interests of, the shareholders. The scheme booklet had been carefully prepared and verified and had been examined by the Australian Securities and Investments Commission. The scheme was subject to certain conditions precedent, which were likely to be satisfied or waived. The court was not satisfied that there was any element of unfairness in the terms of the scheme that would be likely to preclude its approval if it came before the court for approval.

The court exercised its discretion to order the convening of a meeting of the shareholders. The court made orders for the manner in which the meeting was to be convened and conducted, the time and place at which the meeting was to be held, the arrangements for voting and the persons authorised to act as chairperson and alternate chairperson at the meeting. The court also made an order dispensing with the requirement to publish notice of the hearing of an application for approval of the scheme.

The court ordered that a meeting of the shareholders be convened on 29 May 2019 at 9.15 am at Ashurst Australia, Level 26, 181 William Street, Melbourne. The meeting was to consider and, if thought fit, approve the scheme of arrangement proposed between Verdant and its shareholders, the terms of which were set out in the scheme booklet. The meeting was to be convened by sending notices to the shareholders by email or by post, depending on their preference. The meeting was to be chaired by Mr Whiteside or, failing him, Mr Conroy. Voting on the resolution to approve the scheme was to be conducted by way of a poll.

Orders

Orders of the court

1. Pursuant to subsection 411(1) of the Corporations Act 2001 (Cth) (Act), the plaintiff convene and hold a meeting (Scheme Meeting) of holders of ordinary shares in the plaintiff other than Washington H. Soul Pattinson and Company Ltd (Scheme Shareholders):

(a) to consider and, if thought fit, to approve (with or without modification) the scheme of arrangement proposed to be made between the plaintiff and Scheme Shareholders (Scheme), the terms of which are set out in Annexure C to the Explanatory Booklet, a copy of which has been tendered and marked Exhibit 2, save that the following amendment is to be made: on page 3 of the booklet, the following words are to be deleted:

“has approved the Scheme Booklet required to accompany the notice of the Scheme Meeting”

and in their place the following words are to be substituted:

“has directed that this Scheme Booklet accompany the notice of Scheme Meeting”,

(Scheme Booklet);

(b) to be held on 29 May 2019 commencing from 9.15 am (Melbourne time) at Ashurst Australia, Level 26, 181 William Street, Melbourne, Victoria.

2. The Scheme Meeting be convened by sending on or before 26 April 2019:

(a) to each Scheme Shareholder who has nominated an electronic address for the purposes of receiving notices of meeting from the plaintiff (via the on-line “Investor Centre” maintained by Computershare Investor Services Pty Ltd) (Email Shareholders) (or in the case of joint holders, to the holder whose name appears first in the plaintiff’s register), an email in the form of tab 14 in Annexure “CNT-4” to the Second Tziolis Affidavit, and which contains links to:

(i) a document substantially in the form of the Scheme Booklet (which contains among other things the Notice of Scheme Meeting at Annexure B);

(ii) a Proxy Form in respect of the Scheme Meeting, substantially in the form of tab 15 in Annexure “CNT-4” to the Second Tziolis Affidavit (Proxy Form);

(b) to each Scheme Shareholder other than an Email Shareholder (or, in the case of joint holders, to the holder whose name appears first in the plaintiff’s register) the following hard copy documents:

(i) a document substantially in the form of the Scheme Booklet (which contains among other things the Notice of Scheme Meeting at Annexure B);

(ii) a Proxy Form;

(iii) in the case of Scheme Shareholders whose registered address is within Australia, a reply-paid envelope for the return of the Proxy Form; and

(iv) in the case of Scheme Shareholders with registered addresses outside Australia, a return envelope for the return of the Proxy Form.

3. The documents referred to in Order 2(b) be sent:

(a) in the case of Scheme Shareholders whose registered address is within Australia, by prepaid ordinary post addressed to the relevant address recorded in the plaintiff’s register; and

(b) in the case of Scheme Shareholders whose registered address is outside Australia, by airmail or international courier service addressed to the relevant address recorded in the plaintiff’s register.

4. If, after dispatch, it comes to the attention of the plaintiff that any email dispatched in accordance with Order 2(a) has returned an undeliverable or undelivered receipt for an Email Shareholder’s nominated email address then, in respect of that shareholder, the plaintiff is to dispatch, within a reasonable time thereafter, a document substantially in the form of the Scheme Booklet and a Proxy Form in accordance with Order 2(b).

5. Subject to these Orders, the Scheme Meeting be convened, held and conducted in accordance with the provisions of:

(a) Part 2G.2 of the Act (save for any applicable replaceable rule) that apply to a meeting of the plaintiffs’ members; and

(b) the plaintiff’s constitution that apply in relation to meetings of members and that are not inconsistent with Part 2G.2 of the Act.

6. Voting on the resolution to approve the Scheme is to be conducted by way of a poll.

7. A proxy appointment by a Scheme Shareholder in respect of the Scheme Meeting will be valid and effective if it is completed and delivered in accordance with its terms by 9.15 am (Sydney time) on 27 May 2019.

8. James Whiteside, or failing him, Jason Conroy, be Chair of the Scheme Meeting.

9. The Chair of the Scheme Meeting shall have the power to adjourn the meeting to such time, date and place as he considers appropriate.

10. Compliance with rule 2.15 of the Rules is dispensed with, except insofar as it operates to apply rule 75-15(2) of the Insolvency Practice Rules (Corporations) 2016 (Cth) to the Scheme Meeting.

11. Notice of the hearing of an application pursuant to subsection 411(4) of the Act for an order approving the Scheme of Arrangement be published once in “The Australian” newspaper by an advertisement substantially in the form of tab 20 in Annexure “CNT-4” to the Second Tziolis Affidavit, such advertisement to be published on or before five days prior to the Scheme Meeting, and the plaintiff be otherwise exempted from compliance with rule 3.4 of the Federal Court (Corporations) Rules 2000 (Cth) (Rules).

12. The further hearing of the Originating Process is adjourned to the Honourable Justice Moshinsky on 31 May 2019 at 9.30 am (Melbourne time) or as soon thereafter as the business of the Court allows.

13. There be liberty to apply.

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

Background

Background to the litigation

At the hearing on 16 April 2019, Ms E Boros of counsel appeared for Verdant and made submissions in support of the application. Detailed written submissions were also provided in advance of the hearing. Mr B Holmes of counsel appeared, with leave, on behalf of CD Capital. He did not make submissions.Background Verdant is a public company limited by shares and is listed on the Australian Securities Exchange (ASX) under the ASX ticker symbol “VRM”. It is focussed on the discovery, development and operation of fertiliser and industrial mineral projects located in close proximity to existing transport infrastructure, predominantly in the Northern Territory of Australia. Verdant has 1,103,761,492 ordinary shares on issue. As at 11 April 2019, Scheme Shareholders held 761,820,425 Verdant shares. The commercial purpose of the Scheme is for CD Capital to acquire all of the Scheme Shares, and for CD Capital and WHSP to jointly advance the project to develop a significant phosphate fertiliser province in the western Georgina Basin of the Northern Territory (Ammaroo Phosphate Project). Taking into account Verdant’s cash requirements, and the significant capital required to advance the Ammaroo Phosphate Project, Verdant considered a number of funding alternatives and strategies over the 12 months prior to agreeing to propose the Scheme. Verdant entered into a scheme implementation agreement with CD Capital (SIA) on 11 March 2019 pursuant to which it agreed to, among other things, propose the Scheme. As noted above, the Scheme provides for the acquisition by CD Capital of approximately 67.6% of the shares in Verdant, with WHSP continuing to hold the remaining (approximately 33.4%) shares in Verdant. Verdant formed a committee of independent directors, comprised of Mr Whiteside, Mr Conroy and Mr Tziolis (Independent Board Committee) to consider the proposed Scheme. The Independent Board Committee was established due to the association of Robert Cooper (the other director of Verdant) with WHSP. Mr Cooper was not involved in Independent Board Committee meetings relating to the proposed Scheme prior to entry into the SIA. The draft scheme booklet for the purposes of s 412(1) of the Corporations Act and reg 5.1.01 of the Corporations Regulations 2001 (Cth) (the Regulations) has been revised to address comments from the Australian Securities and Investments Commission (ASIC). The latest version of the booklet is Exhibit 2 (referred to in these reasons as the Scheme Booklet). The following additional documents relating to the Scheme were executed on 11 March 2019: a loan agreement between CD Capital and Verdant (Loan Agreement), a shareholders’ agreement between CD Capital, WHSP and Verdant (Shareholders’ Agreement) and a Deed of Irrevocable Undertaking by WHSP in favour of CD Capital (Deed of Irrevocable Undertaking). WHSP provided a letter to Verdant dated 11 March 2019 stating that it intends to consent to the Scheme on the terms and conditions of the SIA and agrees not to make any objection to the Scheme to ASIC or the Court, in the absence of a superior proposal and provided the Deed of Irrevocable Undertaking is not terminated in accordance with its terms. The WHSP letter also states that WHSP will immediately notify Verdant if it changes, or is likely to change, its intentions in respect of the Scheme. No notification of a change to WHSP’s intentions has been received.

Evidence

Evidence Before The Court

On 16 April 2019, I made orders substantially in the terms sought by Verdant, including an order that a meeting of shareholders other than WHSP be convened for the purposes of considering and, if thought fit, agreeing to the Scheme. These are my reasons for making those orders.The application, evidence and hearing The proceeding was commenced by originating process. By that document, Verdant applied for orders including:(a)orders pursuant to s 411(1) of the Corporations Act that Verdant convene and hold a meeting of Scheme Shareholders, such meeting to be held on 29 May 2019 commencing from 9.15 am (or such other time as ordered by the Court) held at Level 26, 181 William Street, Melbourne, Victoria, for the purposes of considering and, if thought fit, agreeing (with or without modification) to the Scheme; and(b)such directions as to the manner in which the Scheme Meeting is to be convened and conducted, the time and place at which the meeting is to be held, the arrangements for voting (in person or by proxy) and the persons authorised to act as chairperson and alternate chairperson at the Scheme Meeting as the Court deems proper. In support of its application for these orders, Verdant relied on the following affidavits:(a)an affidavit of Christopher Neale Tziolis (a director of Verdant) affirmed on 1 April 2019 (First Tziolis Affidavit);(b)an affidavit of Mr Tziolis affirmed on 12 April 2019 (Second Tziolis Affidavit);(c)an affidavit of James Dean Whiteside (a director of Verdant) affirmed on 11 April 2019 (Whiteside Affidavit);(d)an affidavit of Jason Anthony Conroy (a director of Verdant) affirmed on 10 April 2019 (Conroy Affidavit);(e)an affidavit of Carmela Daniele (the Founder and Chief Investment Officer of CD Capital) sworn 11 April 2019 (Daniele Affidavit);(f)an affidavit of Kylie Marie Lane (a partner of Ashurst, the solicitors for Verdant) affirmed on 12 April 2019 (First Lane Affidavit);(g)an affidavit of Ms Lane affirmed on 15 April 2019 (Second Lane Affidavit); and(h)an affidavit of Richard Stewart of PricewaterhouseCoopers Securities Limited (PwC Securities) affirmed on 15 April 2019. Annexed to this affidavit was the independent expert’s report prepared by PwC Securities. In addition, admitted into evidence were an updated copy of the Scheme (Exhibit 1) and an updated copy of the scheme booklet for the Scheme (Scheme Booklet) (Exhibit 2). At the hearing on 16 April 2019, Ms E Boros of counsel appeared for Verdant and made submissions in support of the application. Detailed written submissions were also provided in advance of the hearing. Mr B Holmes of counsel appeared, with leave, on behalf of CD Capital. He did not make submissions.Background Verdant is a public company limited by shares and is listed on the Australian Securities Exchange (ASX) under the ASX ticker symbol “VRM”. It is focussed on the discovery, development and operation of fertiliser and industrial mineral projects located in close proximity to existing transport infrastructure, predominantly in the Northern Territory of Australia.

Decision

Reasons for decision

The Second Tziolis Affidavit and the Daniela Affidavit set out the verification procedure implemented to ensure that the Scheme Booklet does not contain any misleading or deceptive statements and satisfies the applicable disclosure requirements.Conclusion regarding exercise of the discretion On the basis of the above matters, I am satisfied that this is an appropriate case for the exercise of the discretion to make orders convening a meeting of the Scheme Shareholders particularly having regard to the following:(a)the terms of the proposed Scheme are in a conventional form for a scheme of arrangement;(b)there is no reason why the Scheme, if considered and adopted by the members, is not “of such a nature” as would be likely to be approved by the Court at the second hearing;(c)the Scheme Shareholders will be presented with a careful analysis by the independent expert of the transaction and its advantages and disadvantages and have the recommendation of the members of the Independent Board Committee; and(d)the Scheme Booklet meets the statutory requirements, has been carefully prepared and verified, and has been examined by ASIC.Scheme Meeting I accept that there is only one class of shareholder, being all Verdant shareholders other than WHSP. The Scheme Meeting is proposed to be held at 9.15 am on 29 May 2019 at Ashurst Australia, Level 26, 181 William Street Melbourne. It is proposed that Mr Whiteside will chair the Scheme Meeting, unless he is unable to do so, in which case Mr Conroy will chair the meeting.Proposed orders The draft orders provided by Verdant, as adjusted in the course of discussion during the hearing, deal with the usual matters. The Court’s power to give directions is provided by:(a)section 411(1) in relation to orders regarding the manner of convening the meeting and the place or places where it is to be held; and(b)section 1319 in relation to other matters (but this power is expressed to be “subject to this Act”). Proposed order 1 provides for the convening of the meeting. The Scheme Booklet is identified by reference to Exhibit 2. Proposed orders 2-10 are directions for the convening and conduct of the meeting. Draft order 5, presented in square brackets, provides for approval of the explanatory statement in the form of the Scheme Booklet. Practice between Courts varies as to whether it is appropriate for the Court to make orders approving the explanatory statement when making convening orders. Consistently with the approach taken by Robson J in Re IXLA Ltd [2007] VSC 573 at [38], I do not propose to make an order formally approving the explanatory statement in the form of the Scheme Booklet (see also Re Amcor Ltd [2019] FCA 346 at [114]-[115] per Beach J). For these reasons, I made orders substantially in the terms sought by Verdant. I note for completeness, that on 18 April 2019, at the request of Verdant, I made an order varying the terms of paragraph 1 of the orders made on 16 April 2019. The reason for this amendment was that one of the annexures to the independent expert’s report had been inadvertently omitted from Exhibit 2. Accordingly, a further affidavit of Ms Lane (affirmed on 17 April 2019) was prepared. This affidavit annexed a complete copy of the Scheme Booklet, including the missing annexure. The order made on 18 April 2019 was in the following terms:Paragraph 1(a) of the orders made on 16 April 2019 be amended such that the following words are deleted:“a copy of which has been tendered and marked Exhibit 2, save that the following amendment is to be made: on page 3 of the booklet, the following words are to be deleted:“has approved the Scheme Booklet required to accompany the notice of the Scheme Meeting”and in their place the following words are to be substituted:“has directed that this Scheme Booklet accompany the notice of Scheme Meeting”,”and in their place the following words are substituted:“a copy of which is annexed as tab 1 of KML-3 to the Third Affidavit of Ms Kylie Marie Lane affirmed on 17 April 2019”.

Ratio Decidendi

Legal Principle Established

The matters relevant to the exercise of the Court’s discretion are considered below.The Scheme is fit for consideration In my view, the Scheme is fit for consideration by the Scheme Shareholders at the Scheme Meeting. It is relevant in this respect that the Scheme Booklet contains:(a)a recommendation from all members of the Independent Board Committee that Scheme Shareholders vote in favour of the Scheme;(b)a statement that all directors intend to vote their Verdant shares in favour of the Scheme; and(c)an independent expert’s report expressing the opinion that the Scheme is fair and reasonable to, and in the best interests of, Scheme Shareholders, in the absence of a superior proposal. The Scheme is subject to the satisfaction of certain conditions precedent, which are set out in cl 3.1 of the Scheme and cl 3 of the SIA. Under cl 3.2 of the Scheme, Verdant and CD Capital will, at the second court hearing for approval of the Scheme, each provide to the Court a certificate confirming whether or not all of the conditions precedent in clauses 3.1(a) and 3.1(b) of the Scheme have been satisfied or waived. Mr Tziolis has given evidence that he is not aware of any reason at this stage to suggest that these conditions are incapable of satisfaction or waiver. On the basis of the material before the Court, there does not appear to be any element of unfairness in the terms of the Scheme that would be likely to preclude the approval of the scheme if it comes before the Court for approval. In this case, Verdant raised the following particular features of the Scheme for the attention of the Court:(a)performance risk;(b)exclusivity provisions;(c)the Loan Agreement with CD Capital;(d)option holders;(e)deemed warranties by Scheme Shareholders in relation to their Verdant shares; and(f)section 411(17). I will consider each of these matters in turn.Performance risk In considering whether to approve a scheme involving the participation of a person other than the plaintiff company and its members (here, CD Capital), the Court will wish to ensure that the other party is bound to perform the role assigned to it, and that its obligations are able to be enforced. This is because the obligations of CD Capital do not depend upon s 411 of the Corporations Act, which is confined to the obligations of the plaintiff company and its members: see, eg, Re Westfield Holdings Ltd (2004) 49 ACSR 734 at [13]-[15]. In this case, the following matters demonstrate that CD Capital is bound to perform the roles assigned to it, and that its obligations are able to be enforced:(a)under cl 6.2(a) of the Scheme, CD Capital is required to deposit the aggregate amount of the scheme consideration to a Verdant trust account no later than two business days before the Implementation Date (when the shares held by Scheme Shareholders will transfer to CD Capital); and(b)CD Capital has entered into a Deed Poll in favour of Scheme Shareholders. Under cl 3 of the Deed Poll, CD Capital undertakes to:(i)observe and perform all steps attributed to it under, and otherwise comply with, the Scheme as if named as a party to the Scheme and do all acts and things necessary to give effect to the Scheme; and(ii)pay the scheme consideration to each Scheme Shareholder in accordance with the terms of the Scheme.