Re Vimy Resources Ltd
[2022] WASC 233
•25 JULY 2022
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE VIMY RESOURCES LTD; EX PARTE VIMY RESOURCES LTD [2022] WASC 233
CORAM: STRK J
HEARD: 15 JUNE 2022
DELIVERED : 15 JUNE 2022
PUBLISHED : 25 JULY 2022
FILE NO/S: COR 93 of 2022
MATTER: IN THE MATTER OF VIMY RESOURCES LTD
EX PARTE
VIMY RESOURCES LTD
Plaintiff
DEEP YELLOW LTD
Interested Party
Catchwords:
Corporations law - Scheme of arrangement - Proposed share acquisition - Application for orders convening a scheme meeting under Corporations Act 2001 (Cth) s 411(1) - Whether requirements to order scheme meeting are satisfied - Orders made convening scheme meeting - Distribution of scheme booklet containing the explanatory statement required by the Corporations Act 2001 (Cth) s 412(1)(a) approved - Ancillary orders
Legislation:
Corporations Act 2001 (Cth)
Corporations Regulations 2001 (Cth)
Supreme Court (Corporations) (WA) Rules 2004 (WA)
Result:
Application granted
Orders made convening scheme meeting
Category: B
Representation:
Counsel:
| Plaintiff | : | A J Papamatheos & V N Ghosh |
| Interested Party | : | P Tydde |
Solicitors:
| Plaintiff | : | Minter Ellison |
| Interested Party | : | Gilbert + Tobin |
Case(s) referred to in decision(s):
Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485
First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 320 FLR 78
Kupang Resources Ltd v International Litigation Partners Pte Ltd [2015] WASCA 89
MDA National Ltd v Medical Defence Australia Ltd [2014] FCA 954
Re Advance Bank Australia Ltd [No 2] (1997) 136 FLR 281
Re Amcom Telecommunications Ltd [2015] FCA 341
Re Anatolia Energy Ltd [2015] FCA 1134
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re APN Property Group Ltd [2021] VSC 389
Re Asaleo Care Ltd [2021] FCA 406
Re Cannpal Animal Therapeutics Ltd [2021] WASC 37
Re Cassini Resources Ltd [2020] WASC 317
Re Creso Pharma [2019] WASC 472
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re Doray Minerals Ltd [2019] WASC 57
Re Dreamscape Networks Ltd [2019] WASC 412
Re Excelsior Gold Ltd [2018] FCA 2064
Re Exore Resources Ltd [2020] WASC 285
Re Firefly Resources Ltd [2021] WASC 376
Re Galaxy Resources Ltd [2021] WASC 277
Re Gazal Corporation Ltd [2019] FCA 701
Re Japara Healthcare Ltd [2021] FCA 1150; (2021) 156 ACSR 695
Re Kangaroo Resources Ltd [2018] WASC 327
Re Macquarie Private Capital A Ltd [2008] NSWSC 323; (2008) 26 ACLC 366
Re Mod Resources Ltd [2019] WASC 326
Re Navitas Ltd [2019] WASC 180
Re NRMA Insurance Ltd (No 1) [2000] NSWSC 82; (2000) 156 FLR 349
Re NTM Gold Ltd [2021] WASC 22
Re Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
Re Ozgrowth Ltd [2022] WASC 107
Re Pacific Energy Ltd [2019] WASC 443
Re Piedmont Lithium Ltd [2021] WASC 76
Re Seven Network Ltd [2010] FCA 220
Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583
Re SRG Ltd [2018] FCA 1092
Re Swick Mining Services Ltd [2022] WASC 79
Re Tower Australia Group Ltd [2011] FCA 224
Re Webcentral Group Ltd [2020] NSWSC 1279
Re Wesfarmers Ltd [2018] WASC 308
Re Western Areas Ltd [2022] WASC 193
Re Zenith Energy Ltd [2020] WASC 266
TABLE OF CONTENTS
Overview
Evidence for the first court hearing
The Scheme
Ineligible Foreign Shareholders
Small Shareholders
Vimy Options
Vimy Performance Rights
Position adopted by Vimy's directors
The independent expert's report
Conditions precedent
Documents before the court
Legal principles in respect of the Scheme
Disposition
Principal matters - s 411(1) members' scheme
Consideration by ASIC
The explanatory statement
Procedural matters
Other matters addressed by counsel
Finding
Electronic dispatch of the scheme booklet and proxy form
Scheme meeting
Conclusion and orders of the first court hearing
Sch A: Definition of 'Material Adverse Effect' in the scheme implementation deed
Sch B: Orders made
STRK J:
Overview
The plaintiff, Vimy Resources Limited, is Australian public company which is listed on the official list of the Australian Securities Exchange (ASX) trading under the security code 'VMY'.
Vimy and Deep Yellow Limited agreed to implement a scheme of arrangement under pt 5.1 of the Corporations Act 2001 (Cth) between Vimy and Vimy shareholders (Scheme), on and subject to the terms of a scheme implementation deed entered into on 30 March 2022. On 31 March 2022, Vimy announced to the ASX that it had entered into a scheme implementation deed with Deep Yellow.[1]
[1] First affidavit of SG Michael par 25, SGM-19.
Vimy is a Perth-based resource development company which focuses on uranium exploration.[2] Vimy's flagship project is the Mulga Rock Project which it wholly owns. The Mulga Rock Project is one of Australia's largest known undeveloped uranium resources and is located in the Great Victoria Desert of Western Australia. Vimy also owns and operates a large uranium exploration package in the Alligator uranium district, located in the Northern Territory.[3]
[2] First affidavit of SG Michael pars 9 - 10.
[3] First affidavit of SG Michael par 10.
Deep Yellow is an Australian public company listed on the official list as conducted by the ASX,[4] and is an Australia-based, uranium-focused company which trades under the security code 'DYL'.[5]
[4] First affidavit of SG Michael par 17.
[5] Draft scheme booklet s 6.2.
The directors of Vimy are Mr Steven George Michael (managing director and chief executive officer); the Hon Cheryl Edwardes AM (independent non‑executive chair); Mr Wayne Bramwell (non‑executive director); and Dr Anthony Chamberlain (executive director and chief operating officer).[6]
[6] First affidavit of SG Michael pars 1 and 11.
As at 30 May 2022, Vimy had 5,810 shareholders, and had issued capital of 1,157,343,321 fully paid ordinary shares; 1,200,000 employee loan plan shares; 9,192,333 options (Vimy Options); and 3,500,000 performance rights (Vimy Performance Rights).[7]
[7] First affidavit of SG Michael par 29.
Under the Scheme, it is proposed that each Vimy shareholder will receive 0.294 fully paid ordinary shares in Deep Yellow for every fully paid ordinary share held in Vimy, subject to certain sale arrangements for Vimy shareholders who do not have a registered address in Australia or are located in certain other jurisdictions (Ineligible Foreign Shareholders) and shareholders who would be entitled to receive less than a marketable parcel of Deep Yellow shares (Small Shareholders).[8] There are also mechanisms to deal with Vimy Options and Vimy Performance Rights.
[8] First affidavit of SG Michael par 32; draft scheme booklet s 2.2.
By an originating process filed on 31 May 2022, Vimy sought orders under s 411 of the Corporations Act in relation to the proposed Scheme. The first court hearing took place on 15 June 2022. Counsel for Deep Yellow appeared in support of the application. The Australian Securities and Investments Commission (ASIC) did not seek to be heard.[9]
[9] Fourth affidavit of SB McRobert par 9, SBM-30.
After hearing from counsel for Vimy, I found it appropriate to make orders in accordance with s 411(1) of the Corporations Act to convene a meeting of Vimy's shareholders on 20 July 2022 to consider and vote on the proposed Scheme (scheme meeting). Orders were also made approving for distribution of a scheme booklet comprising the explanatory statement required by s 412(1)(a) of the Corporations Act. Ancillary orders were made as to the convening and conduct of the meeting.
At the conclusion of the hearing, I said that I would publish written reasons for the orders made. These are my reasons for decision.
Evidence for the first court hearing
Seven affidavits were filed by Vimy prior to the first court hearing and one was filed by Deep Yellow, all of which were read in support of the application.[10] They were as follows.
[10] ts 2 (15 June 2022).
First, the affidavit of Steven George Michael sworn on 31 May 2022, which attached documents marked SGM-1 to SGM-44. Mr Michael is the managing director and chief executive officer of Vimy. Among other things, in his first affidavit Mr Michael briefly described the Scheme. Mr Michael further deposed to the background to the Scheme; to Vimy's capital structure; to the proposed treatment of ordinary shares and other securities (including Ineligible Foreign Shareholders, Small Shareholders, Vimy Options and Vimy Performance Rights); and to the preparation of the draft scheme booklet and its lodgement with ASIC. He also gave an overview of the provisions of the scheme implementation deed; deposed to engagement with an independent expert; deposed to the basis upon which he considered it appropriate to make a recommendation concerning the Scheme in the scheme booklet; deposed to his belief that as at the date of his affidavit, the board of Vimy unanimously supported the Scheme and recommended that all Vimy shareholders vote in favour of it in the absence of a superior proposal; deposed to the interests of the directors in the outcome of the Scheme; explained how the board of Vimy proposed to convene the scheme meeting; deposed to the process undertaken in relation to the drafting and verification of the scheme booklet; and described the steps proposed to be taken by Vimy if the court directed Vimy to convene the scheme meeting.
The attachments to Mr Michael's affidavit included a copy of Vimy's constitution; various market announcements made by Vimy in the period between 29 October 2021 and 23 March 2022 obtained from the ASX; Vimy's 2021 Annual Report; the scheme implementation deed; the proposed scheme; the proposed deed poll; a side letter between Vimy and Deep Yellow dated 31 March 2022; a copy of the a joint investor presentation released by Vimy and Deep Yellow on 31 March 2022; documents concerning current shareholding of Vimy; a copy of the 2019 Vimy Employee Option Plan; documents setting out the Vimy Performance Rights; copies of various communications by which ASIC was provided with versions of the scheme booklet; the minutes from a Vimy board meeting dated 30 March 2022, together with communications from directors regarding the same; the verification memorandum received from MinterEllison; the circular resolution of the Vimy board dated 31 May 2022; verification certificates executed by senior management of Vimy; the certificates signed by the Vimy board regarding their interests in Vimy and Deep Yellow; the verification certificate executed by the Vimy directors; and the verification certificate executed by MinterEllison.
The second affidavit was the affidavit of Mr Michael sworn on 8 June 2022, which corrected an error in his first affidavit regarding the lodgement of the draft proxy form with ASIC.
The third affidavit was made by Wayne Christopher Bramwell affirmed on 8 June 2022. Mr Bramwell has been a non-executive director of Vimy since 18 October 2021. Mr Bramwell deposed to having been nominated as the alternate chairperson for the proposed scheme meeting, and to having no previous relationship or dealing with Vimy, Deep Yellow or any other person interested in the proposed arrangement, except as disclosed in his affidavit.[11]
[11] Affidavit of WC Bramwell par 9.
The fourth affidavit was made by Shaun Barry McRobert affirmed on 9 June 2022, which attached documents marked SBM-1 to SBM-8. Mr McRobert is a partner of MinterEllison and acts for Vimy. Mr McRobert deposed to having been nominated as chairperson for the proposed scheme meeting, and to having no previous relationship or dealing with Vimy, Deep Yellow or any other person interested in the proposed arrangement, except as disclosed in his affidavit.[12] Mr McRobert further deposed to correspondence he had received from ASIC, including ASIC's initial comments on the draft scheme booklet.
[12] First affidavit of SB McRobert par 6.
The fifth affidavit was made by Mr McRobert affirmed on 13 June 2022. Relevantly, Mr McRobert deposed to amendments which had been made to the draft scheme booklet after it was submitted to ASIC. Mr McRobert annexed to his affidavit correspondence to which he had been copied into between Gilbert + Tobin and ASIC, as well as correspondence between MinterEllison and ASIC; copies of correspondence between MinterEllison and the ASX; a marked-up version of the scheme booklet; and a copy of the Securities Act 1933 (US).
The sixth affidavit was made by Mr McRobert affirmed on 14 June 2022. Mr McRobert deposed to further correspondence with ASIC and annexed the same to his affidavit. Mr McRobert also deposed to his belief that if the orders sought were made, the company secretary of Vimy would dispatch documents and correspondence to Vimy's shareholders and arrange for the final scheme booklet to be released to the ASX.
The seventh affidavit relied upon at the hearing was the fourth affidavit of Mr McRobert, in which he deposed to the further engagement and correspondence with ASIC, as well as correspondence with the independent expert. A copy of the correspondence was annexed to Mr Mc Robert's affidavit.
At the hearing of the application Vimy also relied upon a written outline of submissions filed on 13 June 2022 and a minute of proposed orders filed on 14 June 2022.
On 7 June 2022, Deep Yellow filed a notice of appearance as an interested party in this proceeding. Deep Yellow also filed an affidavit of Gillian Swaby affirmed on 10 June 2022. Among other things, Ms Swaby deposed to the deed poll having been executed by Deep Yellow on 7 June 2022. Ms Swaby further deposed to the verification process undertaken by Deep Yellow for the purpose of being satisfied that information pertaining to Deep Yellow within the scheme booklet was correct and not misleading.[13] Ms Swaby annexed to her affidavit copies of ASIC organisational searches for Deep Yellow; a copy of the executed deed poll; a document titled 'Verification Pack', which was written by Gilbert + Tobin and contained instructions for the verification process; various verification spreadsheets; the final verification spreadsheets; copies of the verification certificates signed on behalf of Deep Yellow and Gilbert + Tobin; and the table of statements provided by Gilbert + Tobin to the board of Deep Yellow.
[13] Affidavit of G Swaby pars 12 - 28.
The Scheme
On 30 March 2022, Vimy and Deep Yellow entered into the scheme implementation deed, which was announced to the ASX the next day.[14]
[14] First affidavit of SG Michael par 25, SGM-19.
As noted above, if the Scheme is implemented, Deep Yellow will acquire all of the Vimy shares on issue as at the Scheme Record Date. Vimy's shareholders will receive 0.294 fully paid ordinary Deep Yellow shares for each Vimy share as consideration for the acquisition of their Vimy shares under the Scheme (Scheme Consideration).[15] In simple terms, if the scheme is implemented, the shares held in Vimy by Vimy shareholders will be transferred to Deep Yellow and Vimy will become a wholly owned subsidiary of Deep Yellow.
Ineligible Foreign Shareholders
[15] First affidavit of SG Michael par 32; draft scheme booklet s 2.2.
Ineligible Foreign Shareholders will not be issued with Deep Yellow shares. Instead, the Deep Yellow shares that would otherwise have been issued to them will be issued to the Sale Agent (as that term is defined in the scheme booklet in s 11), on their behalf and sold on the ASX. The proceeds of sale (less brokerage, other costs, taxes and charges) will then be paid to the Ineligible Foreign Shareholders following implementation of the Scheme.[16]
[16] Draft scheme booklet ss 2.16(a), 2.16(c); scheme of arrangement cll 5.2, 5.5(b).
As at 30 May 2022, there was only one Ineligible Foreign Shareholder, holding 20,000 shares (representing less than 0.01% of the total Vimy shares on issue).[17]
Small Shareholders
[17] First affidavit of SG Michael pars 29(f), 35, SGM-26.
Shareholders (other than Ineligible Foreign Shareholders) who hold less than a marketable parcel of Vimy shares on the Scheme Record Date are designated as Small Shareholders for the purpose of the Scheme. Small Shareholders may elect to opt-in to receive the Scheme Consideration. Small Shareholders who do not make a valid election will not be issued the Scheme Consideration. Instead, the Deep Yellow shares which would have been issued to these shareholders will be issued to the Sale Agent. After the Sale Agent sells the shares, the shareholder will receive an amount equivalent to the average price per Deep Yellow share obtained (less brokerage, other costs, taxes and charges).[18]
[18] Draft scheme booklet s 2.16(b), 2.16(c); scheme of arrangement cl 5.3.
As at 30 May 2022, there were 831 shareholders holding less than a marketable parcel of shares. The total number of shares held by these Small Shareholders was 804,897 shares (representing 0.0695% of the total Vimy shares on issue).[19]
Vimy Options
[19] First affidavit of SG Michael, SGM-27; submissions par 48.
As at 31 May 2022, there were 9,192,333 Vimy Options on issue, held by 8 option-holders (7 of whom are also shareholders), all issued under Vimy's Employee Option Plan 2019.[20] The Vimy Options have an exercise price of $0.082 per option and, but for the Scheme, would expire on 31 July 2022 if not exercised before that date.[21] The board of Vimy notified all option-holders that, pursuant to the occurrence of a trigger in accordance with the terms on which they were issued, unexercised Vimy Options will lapse on 29 July 2022.[22]
[20] First affidavit of SG Michael pars 47 - 48, SGM-28.
[21] First affidavit of SG Michael par 48(d).
[22] Draft scheme booklet s 2.18(a).
Two option-holders who are also Vimy directors, being the Hon Cheryl Edwardes AM and Dr Chamberlain, have indicated that they intend to exercise their Vimy Options.[23]
Vimy Performance Rights
[23] Draft scheme booklet ss 2.6(a), 2.6(d).
Performance rights will also be dealt with outside the Scheme. Vimy proposes to convert the 3,500,000 Vimy Performance Rights on issue (of which there are two holders) to Vimy shares prior to the Implementation Date (as that term is defined in the scheme booklet in s 11).[24] Subject to the court approving the Scheme at the second court hearing, each Vimy Performance Right will automatically vest and be converted to a new Vimy share on a 'one for one' basis.
Position adopted by Vimy's directors
[24] First affidavit of SG Michael pars 51 - 52; draft scheme booklet s 2.18(b).
The directors of Vimy have unanimously recommended that, in the absence of a superior proposal, Vimy's shareholders vote in favour of the proposed Scheme.[25]
The independent expert's report
[25] First affidavit of SG Michael par 70; draft scheme booklet ss 1.2(j), 1.3.
Vimy has engaged an independent expert to provide an opinion and recommendation on the proposed Scheme. The independent expert, Deloitte, has concluded that, in the absence of a superior proposal, the Scheme is fair and reasonable and therefore is in the best interests of Vimy shareholders.[26]
Conditions precedent
[26] First affidavit of SG Michael pars 67 - 68; draft scheme booklet ss 1.2(k), 2.7.
The Scheme will not be effected unless and until a number of conditions precedent are satisfied or waived.[27] The conditions precedent which are required to be satisfied are disclosed in a summarised form in the scheme booklet.[28]
[27] First affidavit of SG Michael pars 106 - 107; see also the scheme implementation deed cl 3.1 and scheme of arrangement cl 3.
[28] Draft scheme booklet s 2.5.
If the Scheme is approved by Vimy shareholders and by the court at the second court hearing, on the Implementation Date all existing Vimy shares will be transferred to Deep Yellow; Deep Yellow will be entered in the register as the holder of all Vimy shares; and Deep Yellow will provide the Scheme Consideration to Vimy shareholders in return for their shares in Vimy.
The obligations of Deep Yellow under the Scheme are supported by the deed poll which was executed by Deep Yellow on 2 June 2022.[29]
Documents before the court
[29] Affidavit of G Swaby pars 9 - 10, GS-2; deed poll, cl 4.
The documents before the court at the first court hearing included the draft scheme booklet which was lodged with ASIC on 31 May 2022.[30]
[30] First affidavit of SG Michael pars 56 - 57, SGM-31, SGM-32.
The scheme booklet is over 500 pages and contains the following introductory documents:
(a)a one page document which provides an overview of the scheme booklet;
(b)a one page document outlining what Vimy shareholders should do next;
(c)a document titled 'Vimy Directors' Recommendation' which discloses the relevant interests held by the directors of Vimy in the outcome of the Scheme;
(d)a one page document titled 'important dates and times';
(e)'important notices', which informs shareholders of the purpose of the scheme booklet, as well as places limits on the information provided in it;
(f)a letter from the Hon Cheryl Edwardes AM, Chairman of Vimy, summarising the position of the Vimy board; and
(g)a letter from Chris Salisbury, Chairman of Deep Yellow.
The scheme booklet also addressed:
(a)considerations relevant to the vote of shareholders;
(b)an overview of the Scheme;
(c)'frequently asked questions';
(d)profiles of Vimy, Deep Yellow, and a profile of the merged group;
(e)risk factors (which included specific risks associated with the Scheme, specific risks relating to an investment in the merged group, general risks relating to an investment in the merged group and risks to Vimy shareholders if the Scheme is not implemented);
(f)Australian taxation implications;
(g)additional information (which included, among other things, the relevant interests of Vimy's directors and benefits they will receive if the Scheme is approved); and
(h)a glossary of terms used within the scheme booklet.
The following documents are annexed to the scheme booklet:
(a)the independent expert's report;
(b)the investigating accountant's report;
(c)the scheme of arrangement;
(d)notices to shareholders of the scheme meeting;
(e)the scheme implementation deed; and
(f)the deed poll.
Legal principles in respect of the Scheme
Recently, Hill J in Re Western Areas Ltd [2022] WASC 193succinctly summarised the legal principles to be applied at a first court hearing, which I reproduce below and I applied in determining Vimy's application:
[26]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.
[27]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.[31]
[31] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7].
[28]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:[32]
[32] Re SRG Ltd [2018] FCA 1092 [11]; Re Wesfarmers Ltd [2018] WASC 308 [60].
(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[33] and provides proper disclosure;[34]
(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;[35]
(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.
[29]Any issue about classes of members is usually determined at the first hearing.[36] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[37]
[30]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.[38] 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.[39]
[33] Corporations Act s 412(1)(a)(ii); Corporations Regulations 2001 (Cth) reg 5.1.01, Sch 8 cl 8301 ‑ 8310.
[34] Corporations Act s 412(1)(a)(i).
[35] Corporations Act s 411(2)(b).
[36] Re CSR Ltd [73].
[37] Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 [20].
[38] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[39] Re SRG Ltd [12]; Re Wesfarmers Ltd [72] - [76].
Disposition
The formal matters that Vimy were required to prove were satisfied for the reasons stated in the written submissions filed on behalf of Vimy.
Principal matters - s 411(1) members' scheme
Part 5.1 body
The term 'Part 5.1 body' is defined in s 9 of the Corporations Act to mean, relevantly a company. The term 'company' is defined in s 9 to mean, relevantly, a company registered under the Corporations Act. I accepted that Vimy is a public company registered under the Corporations Act.[40]
An arrangement within the meaning of s 411
[40] First affidavit of SG Michael par 9.
The Scheme participants are members of Vimy. The term 'member' is defined in s 9 of the Corporations Act to mean, in relation to a company, a person who is a member under s 231. I accepted that the proposed Scheme will be between Vimy and its shareholders, as shown on its register of members.[41]
[41] First affidavit of SG Michael par 26, SGM-20.
The proposed Scheme is an 'arrangement' of a type that has been accepted by courts on numerous occasions. Further, for the reasons set out below, I was satisfied that the scheme meeting will be convened between members of the same class.
Members of the same class
An arrangement to which s 411(1) of the Corporations Act applies is one between a company and its members or creditors or any class of them. The orders sought on behalf of Vimy assumed that the Vimy shareholders form only one class for purposes of voting on the proposed Scheme.
Section 411 does not define the term 'class'. In determining whether a new or separate class is required, the following threefold test is to be applied.[42]
(a) What are the rights which existing members have against the company and to what extent are they different?
(b) To what extent are those rights affected by the scheme?
(c) Does the different treatment of rights make it impossible for the members in question to consider the scheme as one class?
[42] First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 320 FLR 78 [77] - [81]; Re Zenith Energy Ltd [2020] WASC 266 [36]. See also submissions par 31.
As all Vimy shareholders have the right to receive the Scheme Consideration for their shares,[43] it was submitted, and I accepted, that all shareholders have the same rights in the Scheme.[44] I was satisfied that the existence of mechanisms to deal with Ineligible Foreign Shareholders, Vimy Performance Rights, Vimy Options and Small Shareholders were not class-creating.[45]
Ineligible Foreign Shareholders
[43] Scheme of arrangement cl 5.
[44] Submissions par 32.
[45] Submissions pars 33 - 49.
As to Ineligible Foreign Shareholders, the court's attention was drawn to the fact that as at 30 May 2022, there was only one shareholder, who held less than 0.01% of the total issued capital, falling within this category.[46] While the proposed treatment of Ineligible Foreign Shareholders was appropriately drawn to the court's attention, I accepted that mechanism proposed was commonplace and was not class creating.[47] There is a sensible commercial justification for these sale mechanisms in not requiring scheme companies to ascertain and comply (if possible) with numerous sets of foreign securities laws.[48]
Vimy Performance Rights
[46] First affidavit of SG Michael pars 29(f), 35, SGM-26; submissions par 43.
[47] Submissions par 42; Re Excelsior Gold Ltd [2018] FCA 2064 [37] - [43]; Re Doray Minerals Ltd [2019] WASC 57 [45]; Re Wesfarmers Ltd [96]; Re Piedmont Lithium Ltd [2021] WASC 76 [41]; and Re Ozgrowth Ltd [2022] WASC 107 [43].
[48] Re Wesfarmers Ltd [96], [97].
Vimy Performance Rights are not being dealt with by a separate scheme of arrangement as between Vimy and the holders of that class of securities. Rather, the Vimy Performance Rights will convert to Vimy shares and they will be dealt with by the Scheme.[49]
[49] Submissions par 33.
I accepted the submission made on behalf of Vimy that holders of Vimy Performance Rights are not in a separate class by reason of holding two different securities (being ordinary shares and Vimy Performance Rights) for which they will receive separate and different value.[50]
Vimy Options
[50] Re Excelsior Gold Ltd [36]; and Re Firefly Resources Ltd [2021] WASC 376 [68].
Turning to Vimy Options, as noted at [28] above, they are not being dealt with by a separate scheme of arrangement as between Vimy and the option‑holders.
An option-holder can presently exercise their options and obtain Vimy shares, then either sell them or hold them and have them dealt with by the Scheme. Counsel submitted that there is separate value for these separate securities dealt with outside of the Scheme, such that the proposed mechanism is not class-creating.[51] I accepted this submission and was satisfied that a separate class of option-holders did not arise, having regard to the rights of the relevant Vimy shareholders as shareholders. I accepted that while some Vimy shareholders also hold Vimy Options, this does not alter the Scheme Consideration that they will receive for their Vimy shares.
Small Shareholders
[51] Submissions par 34, citing Re SRG Ltd [18], [29] - [33]; Re Firefly Resources Ltd [62] - [66].
As noted at [266] - [27] above, the Small Shareholders collectively hold 0.0695% of the issued capital in Vimy. Counsel submitted that provisions to address small shareholders are now common,[52] and that such shareholders have the ability to become shareholders of the merged group and should get broadly equivalent consideration (even if it is less by reason of sales costs or other imposts).[53] Counsel further submitted that the proposed treatment and rights of Small Shareholders in this case was not so different so as to make it impossible for them to consult with other shareholders.[54] I accepted this submission, and do not consider that the treatment of Small Shareholders is class-creating.
Consideration by ASIC
[52] In support of this proposition, counsel cited Re Excelsior Gold Ltd [40] - [43]; Re Doray Minerals Ltd [19] - [20], [45], [60]; Re Creso Pharma [2019] WASC 472 [16], [19]; and Re Cassini Resources Ltd [2020] WASC 317 [11] - [12], [19].
[53] ts 26 (15 June 2022).
[54] Submissions par 49; ts 26 - 27 (15 June 2022).
Section 411(2) of the Corporations Act requires that before making an order, the court be satisfied of two matters. First, that ASIC has been given 14 days' notice of the hearing, or such lesser period of notice as the court or ASIC permits: s 411(2)(a). Secondly, that ASIC has had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement, and to make submissions to the court: s 411(2)(b).
ASIC considers that its role is to assist the court by, among other things, reviewing the content of the scheme's documents; reviewing the nature and function of the scheme; representing the interests of investors and creditors; and bringing all relevant matters to the court's attention before it orders a scheme meeting or confirms a scheme.[55]
[55] ASIC Regulatory Guide 60, par 60.4.
The draft scheme booklet was lodged with ASIC on 31 May 2022.[56] Notice of the intended hearing date was given to ASIC on 31 May 2022,[57] and on 2 June 2022 ASIC was notified of the confirmed hearing date.[58] Copies of the sealed originating process issued by the court in this proceeding were also provided to ASIC on 2 June 2022.[59]
[56] First affidavit of SG Michael pars 56 - 57, SGM-31 and SGM-32.
[57] First affidavit of SB McRobert par 11, SBM-3.
[58] First affidavit of SB McRobert par 12, SBM-4.
[59] First affidavit of SB McRobert par 12, SBM-4.
I was satisfied that ASIC had been give 14 days' notice of the first court hearing and a reasonable opportunity to examine the terms of the Scheme, the draft explanatory statement and the draft scheme booklet. ASIC confirmed the same in a letter sent on 15 June 2022 to the directors of Vimy.[60] I also noted that ASIC had asked questions, provided comments and requested amendments to the proposed scheme booklet.[61] The affidavit evidence made clear that there had been an active dialogue with ASIC and changes had been made to the scheme booklet as a result.
[60] Fourth affidavit SB McRobert par 9, SMB-30.
[61] First affidavit of SB McRobert, par 17, SBM-7; second affidavit of SB McRobert pars 5 - 9 and 11 - 13, SBM-14; third affidavit of SB McRobert pars 5 - 12, SBM-16 to SBM-23; fourth affidavit of SB McRobert pars 6 - 9, SBM-26 to SBM-30.
The role of ASIC has been referred to by the High Court, which observed that its predecessor, the Australian Securities Commission, had an obligation to assist the court by presenting argument if it deems that course necessary or desirable.[62] In an application such as this, the court relies on ASIC, as it is not for the court to fulfil the role of contradictor.[63]
[62] Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485, 506; Re Advance Bank Australia Ltd [No 2] (1997) 136 FLR 281, 287, cited by Jacobson J in Re Seven Network Ltd [2010] FCA 220 [15].
[63] Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583 [43].
On 15 June 2022, MinterEllison received a letter from ASIC regarding the scheme booklet and the proposed Scheme. By the letter, ASIC confirmed that it did not propose to appear to make submissions or intervene to oppose the Scheme at the first hearing. A copy of ASIC's letter was annexed as 'SBM-30' to the fourth affidavit of Mr McRobert affirmed on 9 June 2022. In determining to grant the application, I had regard to the same.
The explanatory statement
I had regard to whether the proposed scheme booklet contained the prescribed information and provided proper disclosure.
The court was informed that the draft scheme booklet prepared by Vimy in relation to the Scheme had been drafted to satisfy the disclosure requirements prescribed in:
(a) ASIC Regulatory Guides 60, 111 and 112;
(b) the takeover provisions of the Corporations Act;
(c) the prospectus provisions of the CorporationsAct;
(d)s 441(3), s 412 of the Corporations Act; and.
(e)part 3 of sch 8 of the Corporations Regulations2001 (Cth).[64]
[64] Submissions pars 62 - 69.
Further, the court was informed that the explanatory statement would be registered with ASIC before it was dispatched in accordance with s 412(6) of the Corporations Act.[65]
[65] Third affidavit of SB McRobert par 13(b).
I read the draft scheme booklet attached to the first affidavit of Mr Michael sworn on 31 May 2022 and the marked-up version of the booklet attached to Mr McRobert's second affidavit affirmed on 13 June 2022. I was provided with a copy of correspondence as between ASIC and Vimy's solicitors relating to ASIC's review of the draft scheme booklet.[66] A review of the correspondence reveals that matters raised by ASIC were addressed by amendments to the draft scheme booklet.
[66] First affidavit of SB McRobert par 17, SBM-7; second affidavit of SB McRobert pars 5 - 9 and 11 - 13, SBM-14; third affidavit of SB McRobert pars 5 - 12, SBM-16 to SBM-23; fourth affidavit of SB McRobert pars 6 - 9, SBM-26 to SBM-30.
I was satisfied that there would be proper disclosure as to the effect of the proposed Scheme and the material considerations for shareholders of Vimy.
There was evidence before me as to the due diligence and verification process that was undertaken by both Vimy and Deep Yellow. On the basis of this evidence, I accepted that:
(a) Vimy undertook a process of due diligence and verification to verify the accuracy of statements attributable to Vimy in the scheme booklet;[67]
(b)the Vimy board of directors resolved to adopt each statement attributable to the directors, in the context in which those statements appear, in the verification draft of the scheme booklet and have confirmed by resolution their satisfaction with the verification process;[68]
(c) Deep Yellow undertook a similar process to verify the statements and information attributable to them;[69] and
(d)appropriate steps have been taken to satisfy Vimy and Deep Yellow that the scheme booklet does not omit any material information and is not misleading or deceptive.[70]
[67] First affidavit of SG Michael pars 86 - 103.
[68] First affidavit of SG Michael par 99, SGM-40.
[69] Affidavit of G Swaby pars 12 - 28, GS-3 to GS-9.
[70] First affidavit of SG Michael par 103; affidavit of G Swaby par 28.
The directors of Vimy had resolved to approve the scheme booklet.[71]
[71] First affidavit of SG Michael par 99, SGM-40.
Based on the information provided to the court on behalf of Vimy, I was satisfied that the scheme booklet contained the prescribed information in accordance with s 412(1)(a)(ii) of the Corporations Act and sch 8 of the Corporations Regulations. The checklist annexed to the submissions filed on 13 June 2022 assisted in verification of the same.
Procedural matters
I was satisfied that the procedural requirements of the Supreme Court (Corporations) (WA) Rules 2004 had been met.
The requirements include compliance with r 3.2, which requires Vimy to file an affidavit stating the names of the persons nominated to be the chairperson and alternate chairperson of the scheme meeting; and that each person nominated is willing to act as chairperson, has had no previous relationship or dealing with Vimy or any other person interested in the scheme except as disclosed in the affidavit, and has no interest or obligation that may give rise to a conflict of interest or duty if the person were to act as chairperson of the scheme meeting, except as disclosed in the affidavit. The affidavit of Mr Bramwell and Mr McRobert's first affidavit satisfy this requirement.
Other matters addressed by counsel
Proper purpose (bona fides) and within powers (intra vires)
Counsel for Vimy submitted that the court should be satisfied that the Scheme is properly proposed (bona fides and intra vires), and noted that where there is no suggestion of an improper purpose on the material before the court, bona fides is a matter for consideration on any application to approve the Scheme.[72] Counsel further submitted that there was nothing in the material before the court that suggested that the Scheme had not been properly proposed.[73]
[72] Submissions pars 77 - 78, citing Re NRMA Insurance Ltd (No 1) [2000] NSWSC 82; (2000) 156 FLR 349 [22] - [24].
[73] Submissions, par 79.
In determining the application, I had regard to the constitution of Vimy,[74] and I accepted the submission made on behalf of Vimy that there was nothing in the materials before the court to suggest that the Scheme was not bona fides or had not been properly proposed.
The independent expert's view is supportive
[74] First affidavit of SG Michael, SGM-1.
While courts endeavour to carefully scrutinise the material provided, they are heavily reliant on counsel to expressly address those features of the scheme that require attention.[75] On this occasion, counsel through written and oral submissions drew my attention to sixteen specific matters, which I weighed in the balance.
[75] Re Seven Network Ltd [No 3] [42].
The first concerned the view expressed by the independent expert. As outlined at [322], the independent expert has undertaken an analysis and concludes that the Scheme is fair and reasonable to Vimy shareholders and, therefore, in their best interests.[76]
Directors' recommendations
[76] Submissions par 76; first affidavit of SG Michael pars 67 - 68; draft scheme booklet ss 1.2(k), 2.7.
The second concerned the recommendations made by Vimy's directors.
The directors of Vimy unanimously recommend that shareholders vote in favour of the Scheme, and intend to maintain that recommendation in the absence of a superior proposal and subject to the independent expert continuing to hold the opinion that the Scheme is in the best interests of Vimy shareholders.[77]
[77] First affidavit of SG Michael pars 69, 79, 80.
Counsel referred to various authorities concerning the appropriateness of director recommendations, and particularly to the decision of Moshinsky J in Re Japara Healthcare Ltd [2021] FCA 1150; (2021) 156 ACSR 695, where his Honour observed:[78]
[78] See also submissions par 126, fn 110; ts 19 - 21 (15 June 2022).
[71] Differing views have been expressed on the question whether a director who is entitled to receive an additional benefit should make a voting recommendation:
(a)in some cases, the court has taken the view that, as a general rule, a director who will receive a substantial benefit should decline to make a recommendation to shareholders as to how they should vote, but that the making of such a recommendation may not preclude the court making orders convening a meeting if the benefits are adequately disclosed in the scheme booklet — see, eg, Re Gazal Corporation Ltd [2019] FCA 701 at [27] - [34], Re Ruralco Holdings Ltd (2019) 136 ACSR 628 at [26] - [28]; Re Navitas Ltd; Ex parte Navitas Ltd (No 2) [2019] WASC 218 at [31] - [32]; and
(b)in other cases, the court has taken a different approach, holding that it will ordinarily be appropriate for a director who is to receive a financial benefit to make a recommendation, but to fully and prominently disclose the benefit in the Scheme Booklet - see, eg, Re SMS Management & Technology Ltd [2017] VSC 257 at [24] - [26]; Re Kidman Resources Ltd (2019) 139 ACSR 122 at [104] - [115]; Re QMS Media Ltd [2019] FCA 2172 at [85] - [88]; Re DWS Ltd (2020) 148 ACSR 616 at [42] - [49]; Re RXP Services Ltd [2021] FCA 38 at [41] - [48]; Re BINGO Industries Ltd [2021] NSWSC 798 at [14] - [16]; Re Villa World Ltd (2019) 139 ACSR 550 at [27] - [40]; Re ERM Power Ltd [2019] NSWSC 1502 at [16] - [18]; Re Isentia Group Ltd [2021] NSWSC 910 at [19] .
It has been observed that the divergence in the authorities on this question 'may be more apparent than real': see Re Wellcom Group Ltd [2019] FCA 1655 at [51], [59].
[72]In my view, for the reasons set out in the cases referred to in paragraph (b) above, ordinarily the preferable approach is for a director who is to receive a financial benefit to make a recommendation, but to disclose the benefit in the Scheme Booklet.
The appropriateness of a recommendation by directors with an interest in the outcome of a proposed scheme has been considered on a number of occasions by this court.[79]
[79] See for example Re Nzuri Copper Ltd [2019] WASC 189 [72] - [89]; Re NTM Gold Ltd [2021] WASC 22 [64] - [69]; Re Dreamscape Networks Ltd [2019] WASC 412 [78] - [83]; Re Creso Pharma [57] - [68]; Re Zenith Energy Ltd [66] - [88]; Re Exore Resources Ltd [2020] WASC 285 [62] - [69]; Re Western Areas Ltd [62] - [70]; Re Firefly Resources Ltd [92] - [96]; and Re Swick Mining Services Ltd [2022] WASC 79 [69] - [76].
In Re Nzuri Copper Ltd, Vaughan J considered the appropriateness of director recommendations, drawing from the observations made by Farrell J in Re Gazal Corporation Ltd [2019] FCA 701. His Honour observed:
[84][In in Re Gazal Corporation Ltd] Farrell J assessed the appropriateness of a recommendation by directors with an interest in the outcome of a scheme. One of the executive directors was to receive a $1.7 million bonus if the scheme became effective. Her Honour stated:
[D]irectors who are interested in the outcome of the scheme because they stand to receive a bonus or benefit (other than as a shareholder) only if the scheme proceeds should exercise caution in making recommendations and, in my view, generally should not do so.
[85]Farrell J had earlier observed that it would have been better practice for the executive director to adopt the 'common practice' of declining to make a recommendation and to explain that the reason for this was that he stood to receive a substantial benefit (depending on the outcome of the scheme) that other shareholders would not receive. As to the practical necessity for such a recommendation - the circumstance that the scheme implementation agreement required it - Farrell J observed that the question of whether it is appropriate for all directors to make a voting recommendation should be considered at the time that the agreement was negotiated and conditions crafted appropriately. I respectfully agree.
[86]In Re Gazal Corporation Ltd Farrell J approved the scheme, despite the interested director's recommendation, but offered the caution that scheme proponents cannot count on that always being the outcome when an interested director elects to make a recommendation. (Footnotes omitted.)
In Re Nzuri Copper Ltd; Ex Parte Nzuri Copper Ltd, Vaughan J concluded that it was appropriate to make orders convening the scheme meeting and approve the scheme booklet for distributution, despite the fact that two executive directors of the company would obtain a collateral benefit should the company's shareholders vote to approve the scheme of arrangement. His Honour did so for reasons expressed as follows:[80]
•The additional and different interest held by the executive directors was not out of the ordinary and within the scope of what might be considered commercially not unreasonable, ie one year's salary.
•The additional and different interest held by the executive directors arose under pre-existing contracts executed well before the [scheme implementation deed].
•The additional and different interest held by the executive directors was linked to the possibility that their employment might be terminated immediately after the scheme becomes effective: the executive directors are not entitled to notice of termination or payment in lieu of notice if terminated within six months after the change in control. Accordingly, there is a not unreasonable commercial rationale for the bonus payment.
[88]Most importantly, however, the scheme booklet made fulsome and prominent disclosure of [the executive directors'] additional and different interests. That disclosure was amplified after I, through chambers, brought the decision of Farrell J in Re Gazal Corporation Ltd to the attention of Nzuri's legal representatives.
[80] Re Nzuri Copper Ltd [87] - [88].
In Re Mod Resources Ltd [2019] WASC 326 [86], Vaughan J observed that, in his view, the issue is fact sensitive.
In Re Dreamscape Networks Ltd at [79], Hill J indicated that she agreed with his Honour's view as expressed in Re Mod Resources Ltd. Further, her Honour found that in considering whether it is appropriate for a director to make a recommendation to shareholders to vote in favour of the scheme proposal, it is relevant to consider:
(a) the nature and extent of the additional payment to be received by the director;
(b) whether the additional payment to be made to the director is out of the ordinary or is within the scope of what might be considered commercial and not unreasonable;
(c) whether the payment arises in respect of a pre-existing contract executed well before the [scheme implementation deed];
(d) whether there is a commercial rationale for the payment;
(e) whether the total consideration to be received is not excessive or unwarranted;
(f) whether the scheme booklet makes appropriate and prominent disclosure of the director's interests.
I agree with and adopt the views expressed by Vaughan J and Hill J.
There were four categories of benefits which bear on the appropriateness of the Vimy directors' recommendations in favour of the Scheme. While there may be circumstances where a recommendation by a director will be inappropriate despite fulsome and prominent disclosure in a scheme booklet, for the reasons that follow, I was satisfied that this was not such an occasion.
Performance rights
Dr Chamberlain is an executive director and the chief operating officer of Vimy. Mr Michael is the managing director and chief executive officer of Vimy. Each will benefit from the accelerated vesting of their Vimy Performance Rights and subsequent conversion to Vimy shares which will be acquired by Deep Yellow under the Scheme in consideration for the issue of new Deep Yellow shares. It is estimated that Dr Chamberlain will receive a benefit of $427,500 and Mr Michael will receive a benefit of $570,000, before tax.[81]
[81] First affidavit of SG Michael par 76.
Counsel on behalf of Vimy filed extensive written submissions as to why such benefit was not so excessive or unwarranted to make inappropriate their recommendation to shareholders to vote in favour of the scheme proposal, particularly drawing the court's attention to the following.[82]
[82] Submissions pars 128 - 137.
(a)The shareholders of Vimy approved the issue of these performance incentives at a meeting on 23 March 2022 with knowledge that Vimy was pursuing transactions which included corporate transactions for change of control, which was prior to the scheme implementation deed being executed on 30 March 2022.[83]
(b)The vesting conditions of the Vimy Performance Rights will automatically accelerate by operation of cl 12 of the Performance Rights terms and conditions upon a change of control transaction (such as this proposed Scheme), and automatically convert to Vimy shares, in a timeframe that is earlier than the specific milestones set out in cl 1 of the terms and conditions. However, counsel submitted that the early benefit that will flow to the holders of the holders of the Vimy Performance Rights is consistent with the interests of Vimy shareholders, insofar as a positive change of control transaction has been secured.[84]
(c)To the extent that an earlier benefit is received, the Vimy shares will be dealt with under the proposed Scheme and therefore the directors' interests are consistent with the interests of Vimy shareholders in obtaining Deep Yellow shares as Scheme Consideration.
(d)The recommendation is contingent on the independent expert not finding that the Scheme is not in the best interests of Vimy shareholders, and the independent expert has so concluded.
(e)Mr Michael was only an interim chief executive officer, having been appointed as managing director and chief executive officer on 24 January 2022, commencing 1 March 2022, with his proposed remuneration and incentivisation package disclosed in the ASX announcement of that date.[85]
(f)Mr Michael and Dr Chamberlain currently occupy a central role in the ongoing management and administration of Vimy and they will continue in roles with Deep Yellow following implementation of the Scheme.
(g)The amount of benefit from the Vimy Performance Rights, with estimated values of $427,500 for Dr Chamberlain and $570,000 for Mr Michael, is not so excessive or unwarranted as to cause concern.
(h)Each of Mr Michael and Dr Chamberlain individually considered their position to give a recommendation, and the other directors who would not receive this benefit considered Mr Michael and Dr Chamberlain's respective positions, and for their reasons as stated properly considered a recommendation should be made.[86]
(i)There is substantial, repetitive and prominent disclosure of this benefit throughout the scheme booklet, as was requested by ASIC.[87]
(j)Further, cl 7.2(c) of the scheme implementation deed allows for withdrawal of a director's voting recommendation if ASIC or the court requires it, which is an additional protective feature.
[83] Submissions par 128, noting that ASX announcements were made on 18 November 2021, 19 November 2021 and 2 March 2022; first affidavit of SG Michael, SGM-13, SGM-14, SGM-17.
[84] Submissions par 129; first affidavit of SG Michael, SGM-29, SGM-30.
[85] Submissions par 132; first affidavit of SG Michael, SGM-7.
[86] Submissions par 135, first affidavit of SG Michael par 79, SGM-34, SGM-36.
[87] Submissions par 136; second affidavit of SB McRobert par 11, SBM-14.
I weighed in the balance all of the submissions made by counsel, summarised above.
Having regard to the nature and extent of benefit to be received by Dr Chamberlain and Mr Michael by their holding of Vimy Performance Rights; the timing of approval of the same; the estimated quantum of the benefit; and the disclosure within the scheme booklet, I was satisifed that the benefit did not make it inappropriate for either Dr Chamberlain and Mr Michael to make a recommendation in respect of the Scheme.
Salary sacrifice share plan payments
The Hon Cheryl Edwardes AM is to receive a payment of $45,737 and Dr Chamberlain is to receive a payment of $24,984 under Vimy salary sacrifice share plan.[88] Counsel for Vimy submitted that these payments are not such as to cause concern when regard was had to the following:[89]
(a)The shareholders of Vimy had approved the Vimy salary sacrifice share plan on 13 August 2019. The terms were set out again in the Notice of Meeting of 21 February 2022,[90] and in the 2021 Annual Report which was released on 30 September 2021.[91] That is, the Vimy shareholders knew that directors and employees could benefit under the salary sacrifice share plan by sacrificing their salary for shares.
(b)The amounts concerned are small and commercially insignificant. Further, under the salary sacrifice share plan the directors were entitled to swap remuneration for shares with the plan discount of 15%, irrespective of any proposed transaction.[92]
(c)The issue of shares under the salary sacrifice share plan would involve some complexity, as the terms of the plan required calculation as 30 June 2022 with the need for subsequent shareholder approval,[93] and it was anticipated that the Scheme would be implemented before that date. In these circumstances, a commercially rational and appropriate decision was made to instead provide a cash sum, as was agreed by Deep Yellow and documented at cl 2.2 of the side letter between Vimy and Deep Yellow dated 31 March 2022.[94]
(d)The Hon Cheryl Edwardes AM and Dr Chamberlain (and the remainder of the Vimy board) properly considered their respective positions; that substantial disclosure had been made in the draft scheme booklet; and that cl 7.2(c) of the scheme implementation deed allowed for withdrawal of a recommendation.[95]
[88] Submissions par 138.
[89] Submissions pars 138 - 142.
[90] Submissions par 139; first affidavit of SG Michael, SGM-9.
[91] Submissions par 139; first affidavit of SG Michael, SGM-12.
[92] Submissions par 140; draft scheme booklet s 5.13(a).
[93] Submissions par 141; cl 6 of the salary sacrifice share plan, a copy of which is annexed to the first affidavit of SG Michael, SGM-28.
[94] Submissions par 141; first affidavit of SG Michael, SGM-22.
[95] Submissions par 142.
On balance, accepting the submissions made, I did not consider the relatively modest payment payments to the Hon Cheryl Edwardes AM and Dr Chamberlain made it inappropriate for either of them to make a recommendation in respect of the Scheme.
Appointments to Deep Yellow
It is proposed that Deep Yellow will engage Mr Michael as a director, Mr Bramwell as a director and Dr Chamberlain in an executive role upon the successful implementation of the Scheme. Again, counsel for Vimy submitted that such appointments were not problematic, noting as follows:[96]
(a)The appointment of directors of Vimy to Deep Yellow is commercially rational and to be expected for continuity of corporate knowledge for key business operation.
(b)There has been no agreement or promise as to what each will be paid,[97] and as such there is no operative inducement or incentive because a figure has not been provided and the scheme booklet confirms that market practice and ordinary remuneration policies will be applied to negotiating such remuneration.[98]
(c)Mr Michael, Mr Bramwell and Dr Chamberlain (and the remainder of the board) properly considered their positions; substantial disclosure in the scheme booklet has been made; and cl 7.2(c) of the scheme implementation deed allows withdrawal of a recommendation.
[96] Submissions pars 143 - 146.
[97] Submissions par 145; first affidavit of SG Michael par 77; affidavit of WC Bramwell par 9(c)(ii).
[98] Submissions par 145; draft scheme booklet s 2.6.
Weighing the above in the balance, I did not consider that the proposed engagements make it inappropriate for any of Mr Michael, Mr Bramwell or Dr Chamberlain to make a recommendation in respect of the Scheme.
Other benefits
For completeness, counsel on behalf of Vimy noted that some earlier share and option issues to current and former directors were ratified on at a general meeting on 23 March 2022.[99] Counsel noted that these ratifications were to address errors in not obtaining prior ASX Listing Rules approvals. Counsel further noted that these shares and options were issued well-prior to the execution of the scheme implementation deed and do not form part of, or create benefits from, the proposed Scheme. I accepted the same.
[99] Submissions, par 147; first affidavit of SG Michael, pars 74 - 75, SGM-9, SGM-33.
Weighing all of the matters raised by counsel as summarised above, separately and cumulatively, I concluded that it was not inappropriate for the directors with an interest in the outcome of the Scheme to recommend the Scheme to shareholders.
Conditions precedent
The third matter that counsel drew to my attention was that implementation of the Scheme was to be subject to the satisfaction of conditions precedent.
Counsel noted that the conditions precedent were intended to be clearly disclosed in the draft scheme booklet, and it was anticipated that at the second court hearing, Vimy and Deep Yellow will each provide a certificate under cl 5.1(u) and cl 5.2(s), respectively, of the scheme implementation deed to demonstrate satisfaction or waiver of each condition precedent, as applicable.[100]
[100] Submissions par 82; see also scheme of arrangement cll 3(a)(i), 3(b).
As to the risk that attached to the conditions precedent, I had regard to the evidence of Mr Michael who on behalf of Vimy deposed that as at the date of his first affidavit, he was not aware of any reason why any of the conditions precedent may not be satisfied or waived.[101] Further, Ms Swaby on behalf of Deep Yellow deposed that as at the date of her affidavit, she was not aware of any fact, matter or circumstance that had resulted in, or was likely to result in, the failure of any of the conditions precedent.[102]
Material Adverse Effect
[101] First affidavit of SG Michael, par 107.
[102] Affidavit of G Swaby, par 31.
Counsel for Vimy appropriately drew my attention to an issue raised by ASIC in the course of ASIC's review of the Scheme materials. ASIC raised as a particular concern the definition of 'Material Adverse Effect' in the scheme implementation deed, which is reproduced at sch A to these reasons.
The issue as agitated by ASIC was described at par 84 of the submissions, which I reproduced below:
For completeness, ASIC raised an issue about the proper construction of the term 'Material Adverse Effect' in Schedule 1 to the [scheme implementation deed] (as made, relevantly applicable by the condition precedent in clause 3.1(g)-(h) that there be no Material Adverse Effect for each of Vimy and Deep Yellow). The concern was, in summary, that the clause was circular or provided a subjective threshold, and ASIC even suggested that Vimy and Deep Yellow amend this definition in the [scheme implementation deed]. As a matter of proper construction of the contract clause, no such circularity or subjectivity arises. Such clauses are a common feature of M&A and finance transactions, with which courts are familiar. Relevantly, that there is the possibility that an event may arise which has Vimy and Deep Yellow considering, or (even) disputing, whether a Material Adverse Effect has arisen under the [scheme implementation deed], is not a reason not to convene the Scheme Meeting. (Footnotes omitted.)
In the communications annexed to the first affidavit of Mr McRobert, ASIC expressed concern with the definition of 'Material Adverse Effect'.[103] By an email communication sent on 8 June 2022, an officer of ASIC expressed the concern as follows:
The opening paragraph of the definition is circular or tautological by defining 'Material Adverse Effect' as an occurrence which 'has a material adverse effect.' That lack of definitional content is problematic because subjective and unclear thresholds determine when an occurrence 'has a material adverse effect' on certain matters enumerated at (a)-(e).
In particular, there is an absence of objective tests triggering a material adverse effect (a) on the Deep Yellow or Vimy Budget; (c) on the ability of the companies to carry on their respective businesses; or (e) otherwise on the assets, liabilities, financial condition or business of the party. Those matters are unlike the matters in (b) on net assets; and (d) with respect to changes in law which appropriately provide objective and ascertainable thresholds that attribute meaning to the definition.
Would you please address why the present drafting is appropriate or amend the definition to introduce clearer objective tests.
[103] First affidavit of SB McRobert, SBM-8.
Vimy did not accept that the concern raised by ASIC warranted an amendment to the scheme implementation deed. Instead, it sought to address ASIC's concerns by revision of s 8.3(e) of the draft scheme booklet so as to more fully disclose to shareholders the risk that the scheme implementation deed may be terminated by Vimy or Deep Yellow by reason of a 'Material Adverse Effect'.[104]
[104] Fourth affidavit of SB McRobert, SBM-28; ts 8 - 13 (15 June 2022).
Among other things, the draft scheme booklet was amended so as to include the following explanation as to the reference to the Deep Yellow Budget and the Vimy Budget in sub-clause (a):
'Deep Yellow Budget' means a budget prepared for Deep Yellow before the date of the Scheme Implementation Deed for the period 30 June 2022 (which budget forms part of the Deep Yellow Disclosure Material) and any variation of the budgeted line item of up to 10%.
'Yimy Budget' means a budget prepared for Vimy before the date of this deed for the period ending 30 June 2022 (which budget forms part of the Vimy Disclosure Materials) and any variation of budgeted line item of up to 10%.
As to sub-clauses (c) and (e), the following explanation was inserted into the draft scheme booklet:
Both of these sub-clauses in the Material Adverse Effect definition do not provide for a quantitative threshold to enliven these sub-clauses. As a consequence, Vimy Shareholders and Deep Yellow Shareholders should note that each of Vimy and Deep Yellow may interpret different meanings to those sub-clauses given the absence of a clear quantitative threshold and that each party may be exposed to a greater risk of litigation and a higher risk of uncertainty than would otherwise be the case if a quantitative test had been provided. Vimy Shareholders should also consider the risks relating to the Scheme as set out in Section 8.3 and the general and specific risks relating to the Scheme as set out in Sections 8.4 and 8.5 of this Scheme Booklet, which may be greater than they would have been had all sub-clauses of the Material Adverse Effect definition contained a quantitative test.
There are myriad different circumstances that may, depending on their effect, trigger or engage this definition of a Material Adverse Effect. One of the risks of having a qualitative or principle-based Material Adverse Effect clause (as distinct from a strictly quantitative or monetary threshold clause) is that the clause may be engaged in a wider range of circumstances. Equally, having a quantitative test means that the individual elements of that test are also subject to argument or interpretation quantification and temporal issues.
The absence of the occurrence of a Material Adverse Effect is a condition precedent for both Vimy and Deep Yellow (refer to clause 3.1(g) and 3.1(h) of the Scheme Implementation Deed). While a Material Adverse Effect may result in a wide range of contractual and commercial outcomes, it is possible that the parties could end up in dispute over the existence of the Material Adverse Effect or its consequence under the Scheme Implementation Deed. This could result in the Scheme not proceeding, the Scheme otherwise being terminated, or a transaction being proposed on different terms in accordance with clause 3 4 of the Scheme Implementation Deed.
Counsel on behalf of Vimy submitted that as a matter of proper construction of the definition of 'Material Adverse Effect' in the scheme implementation deed, no circularity or subjectivity arises; and that such clauses are a common feature of mergers & acquisitions and finance transactions,[105] with clauses with which courts are familiar.[106]
[105]Submissions par 84, referring to the discussion in Damian T and Rich A, Schemes, Takeovers and Himalayan Peaks – The use of Schemes of Arrangement (4th ed, 2021), 521 - 584, especially 522 - 525.
[106] Submissions par 84, citing in particular Kupang Resources Ltd v International Litigation Partners Pte Ltd [2015] WASCA 89 [135].
In the end, the draft scheme booklet was amended so as to draw the attention of shareholders to completion and litigation risk of the Scheme, and ASIC did not seek to be heard at the first court hearing in relation to this or any other issue.
On balance, I was satisfied that the scheme booklet made appropriate and prominent disclosure of the risk raised by ASIC, and that the conditions precedent did not ground a basis to refuse to convene the scheme meeting.
Meetings to enter into the scheme implementation deed
The fourth was that a time the board of Vimy approved the proposed scheme implementation deed, various directors held personal interests.
In this regard, counsel noted that:
(a)the board of Vimy approved the proposed scheme implementation deed on 30 March 2022;[107] and
(b)at the time of that meeting, the directors had various interests which did not constitute material personal interests under the Corporations Act that required any or all of them to disqualify themselves from attendance or voting on entry into the scheme implementation deed.
[107] Submissions par 118; first affidavit of SG Michael par 78, SGM-34.
While the Vimy Performance Rights had been approved by the shareholders of Vimy on 23 March 2022, counsel noted that they had not yet been issued to Mr Michael or Dr Chamberlain.[108] Further, counsel noted that all of the interests were 'in relation to the director's remuneration as a director of the company' for the purpose of s 191(2)(a)(ii) and s 195(2) of the Corporation Act.[109] As such, it was observed that they fall within the exception to the notice requirement in s 191(1) of the Corporation Act and the need to absent themselves from the board meeting and not vote under s 195(1), given s 195(1A)(b) (read with s 195(2)(a)(ii)).
[108] Submissions par 120; first affidavit of SG Michael pars 74 - 75.
[109] Submissions par 121, citing Re Webcentral Group Ltd [2020] NSWSC 1279 [18]; Re Firefly Resources Ltd [97]; and Re Cannpal Animal Therapeutics Ltd [2021] WASC 37 [51].
While it was appropriate for counsel to bring this matter to my attention, I was satisfied that the circumstances in which the scheme implementation deed was approved by the board of Vimy were not such that I should refuse to convene the scheme meeting.
Recent capital raising
The fifth concerned a recent capital raising.
It was disclosed to the court that in early March 2022, Vimy undertook a significant capital raising of $17 million to progress the Mulga Rock Project and Alligator River Drilling Program.[110] This was announced to the market on 9 March 2022 and it resulted in the issue of 100 million shares at an issue price of $0.17 per share (being a discount to the market price at the time), representing approximately 9.5% of the shares then on issue.[111]
[110] Submissions par 109; first affidavit of SG Michael par 15(h), SGM-10.
[111] Submissions par 110.
Counsel noted that shareholders of Vimy knew that Vimy was pursuing potential corporate transactions for change of control prior to the scheme implementation deed being executed on 30 March 2022.[112]
[112] Submissions par 111, referring to the announcements made to the ASX on 18 November 2021, 19 November 2021 and 2 March 2022, see the first affidavit of SG Michael, SGM-13, SGM-14, SGM-17.
Counsel also drew the court's attention to cl 3.1(o) of the scheme implementation deed, which contains a condition precedent that Vimy has a net cash position of $17 million at the date of the scheme meeting.
Counsel further submitted that to the extent that any Vimy shareholders desire to remain shareholders of Vimy, each may consider the commercial proposition put and they may vote for or against the Scheme at the meeting.[113]
[113] Submissions, par 113.
I was satisfied that in light of the ASX announcements that made plain that Vimy was pursuing potential corporate transactions for change of control prior to the capital raising in March 2022, the fact of that capital raising was not a reason to not convene the scheme meeting. However, I requested that at the scheme meeting, Vimy tag the votes of the shareholders who had subscribed under the capital raising.[114]
Uranium business
[114] ts 22 - 24 (15 June 2022).
The sixth matter brought to the attention of the court was Vimy's business focus of uranium.
As noted above, Vimy is a mining and resources company in the process of developing the Mulga Rock Project to mine uranium in Western Australia. The court's attention was drawn to the fact that there is a ban on uranium mining in Western Australia, other than for approved projects, of which the Mulga Rock Project is one.[115]
[115] Submissions par 157; first affidavit of SG Michael par 15, SGM-4, SGM-6; draft scheme booklet s 5.3(a).
I accepted that on an application under s 411, the court may weigh in the balance public policy considerations. However, I proceeded on the basis that the court's public policy discretion does not concern public policy matters at large, and the fact that Vimy and Deep Yellow operate in the industry of uranium mine development and mining is not a matter of concern to the court on this application.[116]
Exemption under the Securities Act 1933 (US)
[116] Submissions par 161; ts 24 - 25 (15 June 2022); Re CSR Ltd [35], [84] - [86]; Re CannPal Animal Therapeutics Ltd [48].
The seventh matter concerned the issue of Deep Yellow shares to Viny shareholders who reside in the United States of America.
It was brought to the court's attention that Deep Yellow has not registered its shares under the Securities Act 1933 (US), or the securities laws of any state or other jurisdiction of the United States. The court was informed that in the implementation of the Scheme, Deep Yellow intends to rely on an exemption from the registration requirements of the Securities Act 1933 (US) provided by s 3(a)(10) of that law so as to facilitate the issue of Deep Yellow shares to Vimy shareholders who reside in the United States.[117]
[117] Submissions pars 172 - 176; first affidavit of SG Michael par 39; affidavit of G Swaby par 29; ts 25 (15 June 2022).
Counsel submitted that s 3(a)(10) exempts securities issued in exchange for other securities from the general requirement of registration where the terms and conditions of the issuance and exchange have been approved by a court of competent jurisdiction, after a hearing upon the fairness of the terms and conditions of the issuance at which all persons to whom the securities will be issued have the right to appear.[118]
[118] Submissions par 174; second affidavit of SB McRobert par 14, SBM-15.
For the purposes of the first court hearing, it is sufficient to record that I was informed of the intention to rely on the exemption provided by s 3(a)(10). Further consideration of this matter will otherwise be dealt with at the second court hearing, assuming that the members approve the proposed Scheme by the requisite statutory majorities.
Performance risk
The eighth matter addressed concerned performance risk.[119] That is, risk that after transferring their shares, shareholders in Vimy will be left with no Scheme Consideration and no capacity to sue Deep Yellow to get back their shares or recover damages.
[119] Submissions pars 85 - 93.
Having regard to the following, I was satisfied that the nature and terms of the proposed Scheme were such that the performance risk was minimal, and such performance risk was not a basis to refuse to convene the scheme meeting. [120]
[120] Having regard to Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [23]; Re Anatolia Energy Ltd [2015] FCA 1134 [34]; and Re Creso Pharma [75] - [77].
The mechanism for implementation of the Scheme is set out in cl 4 of the scheme of arrangement and the obligations of Deep Yellow to provide the Scheme Consideration are set out in cl 5. There is no obligation on Vimy to transfer any shares to Deep Yellow until Deep Yellow has issued the Scheme Consideration to Vimy shareholders.[121] That is, beneficial title does not pass to Deep Yellow until it provides the Scheme Consideration.
[121] Submissions par 88(e); scheme of arrangement cl 8.6(b).
The arrangements under the proposed Scheme are also supported by the deed poll which was executed by Deep Yellow prior to the first court hearing.[122] By the deed poll, Deep Yellow covenants to provide or procure the provision of the Scheme Consideration to each shareholder in accordance with the terms of the Scheme and to perform the actions attributed to it under the Scheme as if it were a party to the Scheme.[123] Deep Yellow also undertakes to each Scheme shareholder that the new Deep Yellow shares to be issued in accordance with the terms of the Scheme rank equally in all respects with all existing Deep Yellow shares on issue as at the implementation date.[124] The deed poll is governed by the law of Western Australian and Deep Yellow submits irrevocably to the non-exclusive jurisdiction of courts of Western Australia.[125]
[122] Affidavit of G Swaby pars 9 - 10, GS-2.
[123] Deed poll cl 4.2(a) and 4.1; submissions par 90.
[124] Deed poll cl 4.3.
[125] Deed poll cl 8.6.
In light of the above, I accepted counsel's submission that the performance risk in this transaction is minimal.[126] The risk is not such that I considered it appropriate to refuse to convene the scheme meeting.
Exclusivity provisions
[126] Submissions par 93.
The ninth matter raised by counsel concerned the exclusivity provisions in the scheme implementation deed.
Counsel noted that scheme implementation deed at cl 8 contains 'lock‑up devices' in the form of 'no shop', 'no talk', 'matching right' and 'no due diligence' provisions, which are reciprocal (in the sense that they also apply to Deep Yellow).[127]
[127] Submissions pars 94 - 96.
In considering whether an exclusivity provision may impact on the completion of the transaction and the duties of directors, the court will have regard to:[128]
(a) the period of 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.
[128] Re APN News & Media Ltd [29] - [35]; Re Kangaroo Resources Ltd [2018] WASC 327 [57] - [61]; Re Pacific Energy Ltd [2019] WASC 443 [58]; submissions par 97.
For reasons which included the following, counsel for Vimy submitted that the exclusivity provisions satisfy these criteria in this case.
First, the exclusivity period is capable of precise ascertainment from the clauses, which are publicly announced so that any rival bidder can understand how they may make any approach or competing bid.
Secondly, the exclusivity period runs for eight months, ending on 30 November 2022. While counsel accepted that eight months is at the higher end of usual periods, it was submitted that the period was still acceptable.[129]
[129] In support of this submission, counsel relied on the cases discussed in Re Nzuri Copper Ltd [63] ‑ [65].
Thirdly, the 'no talk' obligations do not apply to bona fide competing proposals that were not solicited by Vimy (or Deed Yellow). Clause 8.6 of the scheme implementation deed provides a 'fiduciary exception' to bona fide competing proposals that were not solicited by Vimy, upon receipt of:
(a)written advice from its investment bankers or financial advisers that the competing proposal is, or may reasonably be expected to become, a superior proposal; and
(b)written advice from its external legal advisers that the relevant action or inaction in relation to the competing proposal would, or would be reasonably likely to, constitute a breach of the fiduciary or statutory duties of the Vimy directors (or Deep Yellow directors, as applicable).
Fourthly, the exclusivity provision has been adequately disclosed in the scheme booklet.
Fifthly, the scheme implementation deed contains at cl 12.3 a termination right in favour of Vimy. I noted that the right may be exercised at any time before 8.00 am on the second court date by notice in writing to Deep Yellow if among other things the Vimy board withdraws, changes or modifies its recommendation, including recommending, endorsing or supporting any competing proposal for Vimy. Counsel for Vimy submitted and I agreed that this preserves the capacity of the directors of Vimy to secure a better transaction if there is an unsolicited approach from a third party.
Sixthly, it was noted that Deed Yellow by operation of cl 12.2 has equivalent rights to terminate if a competing proposal for Deep Yellow should emerge.
Finally, counsel noted that the confidentiality deed made between Vimy and Deep Yellow on 13 December 2021, which allowed Deep Yellow confidential access to Vimy's documents for due diligence purposes,[130] contained some restraints but submitted that these were not problematic because:
(a)the restraints contained in cl 13.3 of the confidentiality deed related, in effect, to a standstill such that neither Deep Yellow nor Vimy would take unilateral or potentially aggressive action to acquire a 'Relevant Interest' in each other;
(b)a relevant exception in cl 13.4(a) of the confidentiality deed was a 'Potential Transaction', defined in effect to be a friendly takeover or scheme to acquire at least majority control of Vimy. Similarly, an interest could be acquired by Deep Yellow where there is a 'Competing Proposal' for Vimy under the exception in clause 13.4(b); and
(c)importantly, none of these standstill arrangements created an exclusivity which prevented a competing bidder for Vimy or prevented Vimy from engaging with any third party or to solicit any proposal. It was submitted that the court need not be concerned that this was in the nature of a pre-scheme implementation deed exclusivity arrangement that could lock out other valuable proposals for Vimy.[131]
[130] First affidavit of S G Michael, par 22, SGM-16.
[131] Submissions par 102, citing Re Navitas Ltd [2019] WASC 180 [21]-[26], [37] ‑ [38].
Having regard to the terms of the scheme implementation deed, and weighing in the balance the submissions, I was satisfied that the exclusivity and confidentiality provisions were within bounds and not a reason to refuse to convene the scheme meeting.
Break fee
The tenth matter raised by counsel was the break fee provision contained in cl 9 of the scheme implementation deed.
It was brought to the court's attention that Vimy may become liable to pay Deep Yellow a break fee of $2,500,000 in certain circumstances.[132] Counsel noted that this represents approximately 0.76% of the total equity value of Vimy, and was an amount that was under the 1% threshold in the Takeovers Panel Guidance Note 7: Lock‑up Devices.[133]
[132] Submissions pars 103 - 108; first affidavit of SG Michael par 63(b).
[133] At the last closing price on the last trading day prior to execution of the scheme implementation deed, the total equity value of Vimy was $330,000,000 (based on a total of 1,155,627,658 shares on issue at $0.285).
Counsel for Vimy submitted that the potential liability of Vimy to pay the break fee did not ground a basis for refusing to allow the Vimy shareholders to vote on the merits of the Scheme for the following reasons:[134]
(a)the break fee is not payable if the Scheme is not approved by Vimy shareholders or to the extent that any court or regulatory authority so prohibits (clause 9(a));
(b)the break fee is not payable by Vimy if the Vimy board withdraws its support or recommendation of the Scheme as a result of the independent expert opining that the Scheme is not in the best interests of Vimy shareholders, other than where there is a competing proposal (clause 9.2(a)(iii));
(c)the break fee was negotiated, after legal and corporate advice, at arm's-length and represents a fair and reasonable pre-estimate of the minimum transaction costs Deep Yellow would likely incur should the Scheme not proceed; and
(d)the break fee is in a number of respects reciprocal and not one‑sided (in the sense that Deep Yellow can be liable to pay a break fee on bases set out in cl 9.3 of the scheme implementation deed).
[134] Submissions par 108.
I noted that prominence was given to the break fee in the draft scheme booklet. Having regard to the terms of the scheme implementation deed, I was satisfied that the break fee provision was within appropriate bounds and not a reason to refuse to convene the scheme meeting. I was satisfied that the break fee was not so great as to potentially influence votes during the scheme meeting or if there was some other unusual circumstance.[135]
No collateral benefits
[135] Submissions par 99, citing Re APN News & Media Ltd [49]-[55]; Australian Takeovers Panel Guidance Note GN7, [9]-[10]; Re SRG Ltd [38]-[42]; Re Galaxy Resources Ltd [2021] WASC 277, [56].
The eleventh matter raised and addressed by counsel was whether a benefit exists for one shareholder in particular so as to bring into question the overall fairness of the Scheme.
Having examined the terms of the proposed Scheme, and in particular having considered the position of the directors, I concluded that no benefit exists for one shareholder in particular so as to bring into question the overall fairness of the Scheme.
Deemed warranties
The twelfth matter drawn to my attention by counsel was cl 8.5 of the scheme of arrangement, which concerns 'Warranties by Scheme Shareholders'.[136]
[136] Submissions pars 149 - 150.
By that provision, the Vimy shareholders warrant to Vimy in its own right and for the benefit of Deep Yellow that all of their shares transferred under the Scheme (including any rights and entitlements attaching to those shares) are fully paid and unencumbered and free from restrictions at the date of transfer.
Having drawn this matter to the court's attention, counsel noted that the shareholders are informed of the warranty in the scheme booklet,[137] and such warranties have been considered acceptable by the courts.[138]
No encumbrances provision
[137] Submissions par 150; draft scheme booklet s 1.4(d) and s 2.10.
[138] Submissions par 150, citing Re Creso Pharma Ltd [94]. See also Re APN News & Media Ltd [57] - [63]; Re Macquarie Private Capital A Ltd [2008] NSWSC 323; (2008) 26 ACLC 366 [13] - [14]; Re Galaxy Resources Ltd [79]; and Firefly Resources Limited [110].
Counsel also noted that the scheme of arrangement also contains a customary 'clear title' and 'no encumbrance' provision, expressed to be to 'the extent permitted by law': cl 8.6.
So expressed, counsel submitted that the provision does not give rise to the concern, expressed by some courts, that third parties may gain the impression that their interests would be extinguished by operation of the provision.[139] I accepted the same, and did not consider that the inclusion of cl 8.6 provided a basis to refuse to convene the scheme meeting.
No liability in good faith provision
[139] Submissions par 151 - 152; Re Creso Pharma Ltd [95]. See also Re Tower Australia Group Ltd [2011] FCA 224 [13] - [15].
The fourteenth matter raised by counsel was that the scheme of arrangement contains a 'no liability when acting in good faith' provision at cl 9.4 in the following terms:
9.4No liability when acting in good faith
Without prejudice to the parties' rights under the Scheme Implementation Deed, neither Vimy nor Deep Yellow, nor any of their respective directors, officers, secretaries or employees, will be liable for anything done or omitted to be done in the performance of this Scheme or the Deed Poll in good faith.
Counsel submitted that as the exclusion of liability is only for things done or omitted to be done in performance of the Scheme and in good faith, these clauses are generally not considered problematic.[140] Moreover, counsel submitted that the provisions do not extend protection to a failure of the proponents of the Scheme to implement the Scheme at all, nor do they extend to protection of any act done other than in good faith.
[140] Submissions par 154 citing Re Wesfarmers Ltd [49(4)]; Re Galaxy Resources Ltd [71] - [72].
I concluded that inclusion of cl 9.4 did not ground a basis to refuse to convene the scheme meeting.
Voting intention statement from Paradice
The court's attention was drawn to the terms of the voting intention statement from Paradice Investment Management Pty Ltd.[141]
[141] Submissions pars 167- 171.
On 29 March 2022, Paradice, a shareholder of both Vimy and Deep Yellow, wrote to Vimy confirming that, subject to certain conditions, it intended to vote all of its shares in favour of the Scheme.[142] At that time of giving the statement, Paradice had approximately 7.52% of the shares in Vimy and 7.88% of the shares in Deep Yellow.
[142] First affidavit of SG Michael, par 24, SGM-18.
The court was also informed that the voting intention of Paradice was disclosed when the scheme implementation deed was announced on 31 March 2022.[143] At the request of ASIC, it will also be disclosed in the draft scheme booklet.[144]
[143] First affidavit of SB McRobert, SBM-19.
[144] Submissions par 168; third affidavit of SB McRobert, SBM-16.
Counsel noted that Paradice's voting intention was expressly subject to the absence of a superior proposal before the scheme meeting and the independent expert continuing to conclude that the Scheme is in the shareholders' best interests. Further, the voting intention statement did not prevent Paradice selling its shares before the scheme meeting. Counsel noted that there was also confirmation that this was not secured by inducement or promise.[145]
[145] Submissions par 170; first affidavit of SB Michael par 24.
As at 10 June 2022, Paradice had not revoked its intention to vote in favour of the Scheme and had not sold any of its shares in Vimy.[146]
[146] Second affidavit of SB McRobert par 6, SBM-10.
I accepted that, in and of itself, a public statement of voting intention is not class creating.[147] I proceeded on the basis of Mr Michael's evidence that no collateral benefit or inducement was offered to Paradice to provide the voting intention statement.[148] I found that, on balance, the statement of voting intention from Paradice did not provide any basis to decline the orders sought for the convening of a meeting to consider the proposed Scheme.
Section 411(17): Chapter 6 avoidance
[147] Re NTM Gold Ltd [73].
[148] First affidavit of SG Michael par 24.
Finally, counsel referred to s 411(17) of the Corporations Act.
I proceeded on the basis that it is now well-settled that the appropriate occasion on which the court is required to address the question posed by s 411(17) of the Corporations Act is on an application to approve a scheme at the second court hearing.[149] Consequently, I proceeded on the basis that it was not incumbent upon the court at the convening stage to canvass the question of avoidance of the operation of Chapter 6.
Finding
[149] Re Macquarie Private Capital A Ltd [25] - [37]; submissions par 177.
Prior to the first court hearing, ASIC provided a written statement that it did not intend to appear and make submissions at the first court hearing, a copy of which was before the court. I weighed the same in the balance.
Having given careful consideration to the materials filed, and having weighed in the balance the unanimous recommendation of Vimy's directors; the conclusion of the independent expert; the involvement and expressed position of ASIC; and the matters drawn to the court's attention by counsel for Vimy (addressed above), I was satisfied that there was no apparent reason why the Scheme should not, in due course, receive the court's approval if the necessary majority of member's votes were to be achieved.
Electronic dispatch of the scheme booklet and proxy form
Vimy sought orders pursuant to s 1319 of the Corporations Act for electronic dispatch of the scheme booklet; applicable proxy form; and opt-in notice by email to those Vimy shareholders who had nominated an electronic address for the purpose of receiving shareholder communications from Vimy. I accepted that such orders are now common.[150]
[150] See, for example, MDA National Ltd v Medical Defence Australia Ltd [2014] FCA 954 [105]; Re Amcom Telecommunications Ltd [45]; Re SRG Ltd [48]; Re Doray Minerals Ltd [72]; Re NTM Gold Ltd [77]; Re Galaxy Resources Ltd [73] - [76].
Details were provided as to the terms of the proposed electronic notification, namely that email notices would be provided to Vimy shareholders who had approved to receiving electronic communications.[151]
[151] Submissions par 179(a); first affidavit of SG Michael par 29(g).
I was satisfied, having read the terms of the proposed email communication to shareholders, that an order for electronic dispatch of the scheme booklet was appropriate.
In respect of Vimy shareholders who had not elected to receive shareholder communications by email, or for whom electronic delivery had been notified as ineffective, Vimy proposed the dispatch of a notice by post, including links to the scheme booklet.[152] I considered this to be appropriate.
Scheme meeting
[152] Submissions par 179(b); first affidavit of SG Michael par 29(h).
Vimy proposed that the scheme meeting scheduled to take place at 10am on 20 July 2022 be held electronically. I accepted that this arrangement was appropriate and consistent with the conduct of recent scheme meetings.[153]
[153] See Re APN Property Group Ltd [2021] VSC 389 [35]; Re Asaleo Care Ltd [2021] FCA 406 [77]; and Re Western Areas Ltd [86].
Conclusion and orders of the first court hearing
As noted above, having given careful consideration to the materials filed, and having weighed in the balance the unanimous recommendation of Vimy's directors; the conclusion of the independent expert; the involvement and expressed position of ASIC; and the matters drawn to the court's attention by counsel for Vimy, I was satisfied that there was no apparent reason why the Scheme should not, in due course, receive the court's approval if the necessary majority of member's votes were to be achieved. There was nothing to suggest that the Scheme had not been properly proposed.
Further, upon considering the comprehensive affidavit evidence filed in support of the application, and upon considering the submissions made by counsel on behalf of Vimy, I was satisfied that the substantive and procedural requirements of s 411(1) and s 1319 of the Corporations Act had been satisfied, that the Scheme was fit for consideration by Vimy's shareholders, and that leave ought to be given. I also approved for distribution to Vimy shareholders the scheme booklet containing the explanatory statement required by s 412(1)(a) of the Corporations Act. The orders made at the conclusion of the first court hearing are reproduced at Schedule B to these reasons.
Sch A: Definition of 'Material Adverse Effect' in the scheme implementation deed
Material Adverse Effect means an event, matter or circumstance that occurs, is announced or becomes known to either party after the date of this deed which either individually or when aggregated with any other events, matters or circumstances, has a material adverse effect:
(a)on the Deep Yellow Budget or the Vimy Budget (as the case may be);
(b)on the consolidated net assets of either the Deep Yellow Group or the Vimy Group, by resulting in a diminution of at least 20% (each being considered separately);
(c)on ability of the Deep Yellow Group or Vimy Group to carry out its business in substantially the same manner as carried out at the date of this deed;
(d)with respect to Deep Yellow only, any change or proposed change in the law, regulation or other form of decree or court order or finding in Namibia (including mining, taxation, customs, export, health and safety, environmental or any other law) which has, or will be likely to have, a material impact on the development operation, exploitation or value of any Mining Tenement or project carried on by Deep Yellow in Namibia or any other jurisdiction outside of Australia; or
(e)otherwise on the assets and liabilities (taken as a whole), financial condition or business of the party (taken as a whole),
but excluding matters:
(f)required to be done or procured by Deep Yellow or Vimy, or expressly permitted, under this deed or the Scheme or the transactions contemplated by either party which the other party has previously approved in writing;
(g)relating to the costs and expenses incurred by Deep Yellow or Vimy associated with the Scheme process, including all fees payable to external advisers of Deep Yellow or Vimy; or
(h) comprising or resulting from a change (including the implementation or introduction of a previously announced or made change) in any accounting standards;
(i) to the extent Fairly Disclosed in the Deep Yellow Disclosure Materials or Vimy Disclosure Materials (as applicable);
(j) to the extent Fairly Disclosed in a document lodged with ASX within 18 months of the date of this deed;
(k) to the extent Fairly Disclosed in a document lodged with ASIC that is publicly available by or on behalf of Vimy or Deep Yellow (as applicable) within 18 months prior to the date of this deed; or
(l) that is within the actual knowledge of the party not subject to a Material Adverse Effect prior to the date of this deed.
Sch B: Orders made
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AI
Associate to the Honourable Justice Strk
25 JULY 2022
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