Re Western Areas Ltd
[2022] WASC 193
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE WESTERN AREAS LTD; EX PARTE WESTERN AREAS LTD [2022] WASC 193
CORAM: HILL J
HEARD: 27 APRIL 2022
DELIVERED : 27 APRIL 2022
PUBLISHED : 2 JUNE 2022
FILE NO/S: COR 33 of 2022
MATTER: IN THE MATTER OF WESTERN AREAS LTD
EX PARTE
WESTERN AREAS LTD
Plaintiff
IGO NICKEL HOLDINGS PTY LTD
Third Party
Catchwords:
Corporations law - Scheme of arrangement - Application for orders convening scheme meeting under s 411(1) of the Corporations Act 2001 (Cth) - Whether requirements to order scheme meeting are satisfied - Orders made convening scheme meeting
Legislation:
Corporations Act 2001 (Cth), s 411(1), s 412(1)(a), s 1319
Corporations Regulations 2001 (Cth), sch 8
Supreme Court (Corporations) (WA) Rules 2004 (WA), r 3.2
Result:
Orders made convening scheme meeting
Category: B
Representation:
Counsel:
| Plaintiff | : | S K Dharmananda & C E McKay |
| Third Party | : | J R C Sippe |
Solicitors:
| Plaintiff | : | Ashurst Australia |
| Third Party | : | Herbert Smith Freehills |
Case(s) referred to in decision(s):
Re Amcom Telecommunications Ltd [2015] FCA 341
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re APN Property Group Ltd and APN RE Ltd [2021] VSC 389
Re Asaleo Care Limited [2021] FCA 406
Re Beadell Resources Ltd [2018] WASC 410; (2018) 133 ACSR 600
Re Bell Group Finance Pty Ltd (in liq) [2020] WASC 287
Re CannPal Animal Therapeutics Ltd [2021] WASC 37
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re David Jones Ltd (No 2) [2014] FCA 720; (2014) 101 ACSR 381
Re David Jones Ltd (No 3) [2014] FCA 753
Re Doray Minerals Ltd [2019] WASC 57
Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34
Re Galaxy Resources Ltd [2021] WASC 314
Re Kangaroo Resources Ltd [2018] WASC 327
Re Macquarie Private Capital A Ltd [2008] NSWSC 323
Re Mod Resources Ltd [2019] WASC 326
Re NTM Gold Ltd [2021] WASC 22
Re Nusantara Resources Ltd [2021] WASC 334
Re Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
Re Ozgrowth Pty Ltd [2022] WASC 167
Re Pacific Energy Limited [2019] WASC 443
Re PetroNor E&P Ltd [2021] WASC 426
Re Piedmont Lithium Ltd [2021] WASC 76
Re Saracen Mineral Holdings Ltd [2020] WASC 483
Re SRG Ltd [2018] FCA 1092
Re Swick Mining Services Ltd [2022] WASC 79
Re URB Investments Ltd [2019] FCA 1977
Re Webster Ltd [2019] NSWSC 1907
Re Wesfarmers Ltd [2018] WASC 308
Re Wesfarmers Ltd [No 2] [2018] WASC 357
HILL J:
The plaintiff, Western Areas Limited (Western Areas), is an Australian public company listed on the Australian Securities Exchange (ASX). On 16 December 2021, Western Areas entered into a Scheme Implementation Deed (SID) with IGO Nickel Holdings Pty Ltd (IGO Nickel), a wholly owned subsidiary of IGO Limited (IGO), which was announced to the ASX on the same date.[1] At that time, it was proposed that each shareholder of Western Areas would receive $3.36 cash for every fully paid ordinary share held in Western Areas (Share) (Scheme Consideration),[2] and Western Areas would become a wholly owned subsidiary of IGO Nickel (Scheme).[3]
[1] Affidavit of Ian Alexander Macliver filed 8 March 2022 [6] - [7], 'IAM-1'.
[2] Scheme booklet [3.2].
[3] Scheme booklet [3.1].
By originating process filed 24 February 2022, Western Areas sought orders under s 411 of the Corporations Act 2001 (Cth) (Act) in relation to the proposed Scheme. The originating process was initially listed for the first court hearing on 14 March 2022. Shortly prior to the hearing, Western Areas requested the first court hearing be adjourned and orders were made on that date adjourning the first court hearing sine die.
On 10 April 2022, Western Areas and IGO entered into a letter deed amending the SID to increase the Scheme Consideration from $3.36 to $3.87 (Increased Scheme Consideration), extend the End Date under the SID from 16 June 2022 to 31 July 2022, and update the Scheme timetable (Letter Deed).[4] All other material terms of the SID and the Scheme remained the same. IGO announced that the Increased Scheme Consideration was its 'last and final' offer, in the absence of a superior proposal.[5]
[4] Second affidavit of Ian Alexander Macliver filed 21 April 2022 [10], 'IAM-21'.
[5] Third affidavit of Kathryn Jane Barker filed 22 April 2022, 'KJB-22'.
At the request of Western Areas, the first court hearing was relisted and came before me on 27 April 2022. On that date, I made orders pursuant to s 411(1) of the Act to convene a meeting of Western Areas' members to consider and vote on the proposed Scheme. Orders were also made approving the distribution of a Scheme booklet to Western Areas' shareholders under s 412(1)(a) of the Act as well as ancillary orders as to the convening and conduct of the Scheme meeting under s 1319 of the Act.
In making the orders on 27 April 2022, I stated that I would subsequently publish written reasons for my orders. These are those reasons.
Factual Background
Western Areas
Western Areas is an Australian-based, nickel‑focused, base metals company.[6]
[6] Affidavit of Ian Alexander Macliver filed 8 March 2022 [11]; Scheme booklet [5].
As at 20 April 2022, Western Areas had an issued capital of 321,643,155 Western Areas fully paid ordinary shares (Shares) and 4,591,630 unquoted performance rights (Performance Rights).[7] Western Areas also had 91,979 shares issued under a share plan adopted by its directors on 21 December 2016 which are subject to escrow arrangements until 31 January 2023 and 18 February 2024 (Minimum Holding Period) (Share Plan Shares).[8]
IGO and IGO Nickel
[7] Second affidavit of Ian Alexander Macliver filed 21 April 2022 [17(c)], [21], 'IAM-24', 'IAM-25'.
[8] Second affidavit of Ian Alexander Macliver filed 21 April 2022, 'IAM-24'.
IGO is a mining and mineral exploration company with a focus on nickel, lithium, copper, and cobalt. IGO is also a public company whose shares are quoted on the ASX.[9]
[9] Affidavit of Ian Alexander Macliver filed 8 March 2022 [22]; Scheme booklet [6].
IGO Nickel (the Bidder Nominee) is a wholly owned subsidiary of IGO. At present, it has no assets or liabilities and has never carried on business.[10]
Proposed Scheme
[10] Scheme booklet [6.4].
If the Scheme is implemented, IGO, through IGO Nickel (collectively the IGO Group), will acquire all Shares on issue as at the Scheme Record Date. Western Areas' shareholders will receive $3.87 cash for every Share as consideration for the acquisition of their Shares under the Scheme.[11] Excluded Shareholders, being any member of the IGO Group or any shareholder who holds Shares for the benefit of a member of the IGO Group, will not receive the Scheme Consideration.[12]
[11] Scheme booklet [3.2].
[12] Scheme cl 6.2; SID cl 3.1(a), cl 5.2(b)(1), cl 5.2(g), cl 5.3(n), cl 5.6(a), cl 9.1(b), cl 11.5(b), cl 12.2(a), cl 13.1(b).
The directors of Western Areas have unanimously recommended that, in the absence of a superior proposal, Western Areas' shareholders vote in favour of the proposed Scheme.[13]
[13] Scheme booklet cover page.
Western Areas has retained an independent expert to provide an opinion and recommendation on the proposed Scheme. The independent expert, KPMG, has concluded that, in the absence of a superior proposal, the proposed Scheme is not fair but is reasonable and in the best interests of shareholders.
Evidence for the first court hearing
Western Areas and the IGO Group relied on 14 affidavits that were filed prior to the first court hearing. These were:
(a)an affidavit of Jacob Ronald Carmody filed 24 February 2022. Mr Carmody is a senior associate employed by Ashurst Australia, the solicitors for Western Areas. Mr Carmody's affidavit gave a brief overview of Western Areas, the announcement of the proposed Scheme, and confirmed the Scheme booklet had been lodged with the Australian Securities and Investments Commission (ASIC) on 23 February 2022. His affidavit annexed, among other things, copies of the SID, the proposed Scheme, the draft Scheme booklet lodged with ASIC, a company search of Western Areas obtained from ASIC, and Western Areas' constitution;
(b)an affidavit of Ian Alexander Macliver filed 8 March 2022. Mr Macliver is the independent non-executive chairman of Western Areas. His affidavit gave an overview of the proposed Scheme and described a number of aspects of the Scheme, the drafting and verification process of the Scheme booklet, and the recommendations of directors in relation to the Scheme. By his affidavit, Mr Macliver consented to act as chairperson of the Scheme meeting and provided the necessary disclosures required by r 3.2 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules). He also deposed that Timothy Netscher, another independent non-executive director of Western Areas, consented to act as alternate chairperson of the Scheme meeting and provided the necessary disclosures on his behalf required by r 3.2 of the Corporations Rules. Attached to his affidavit were, among other things, the SID, and various ASX announcements by Western Areas;
(c)an affidavit of Joseph Charles Belladonna filed 8 March 2022. Mr Belladonna is the company secretary and chief financial officer of Western Areas. Mr Belladonna deposed to the verification process undertaken by Western Areas in relation to the Scheme booklet, the approval of the draft Scheme booklet for lodgment with ASIC, and the proposed notice of the Scheme meeting to be given to shareholders. Annexed to his affidavit, among other things, were copies of the verification certificates and the draft notice of meeting;
(d)an affidavit of Kathryn Jane Barker filed 9 March 2022. Ms Barker is general counsel and head of risk and compliance of IGO. Ms Barker's affidavit gave a brief overview of IGO, the verification process undertaken by the IGO Group in relation to the information about the IGO Group in the Scheme booklet, as well as the interests in Western Areas held by members of the IGO Group. She deposed to the sources of funding of the Scheme Consideration, namely a debt facility as well as existing cash reserves. Annexed to her affidavit, among other things, were copies of the relevant verification certificates and the executed Deed Poll;
(e)a confidential affidavit of Ms Barker filed 9 March 2022 which addressed the agreement entered into between IGO and Wyloo Metals Pty Ltd (Wyloo Metals), announced to the ASX on 17 February 2022;
(f)a second affidavit of Mr Carmody filed 10 March 2022. Mr Carmody's second affidavit confirmed ASIC had been served with the court documents, outlined the position of Perpetual Investment Management Limited (Perpetual), and confirmed the engagement of a third party to contact shareholders ahead of the Scheme meeting. His affidavit annexed the proposed scripts for shareholder engagement as well as the correspondence between Ashurst and ASIC;
(g)a third affidavit of Mr Carmody filed 20 April 2022 which annexed further correspondence between Ashurst and ASIC including the updated Scheme booklet and independent expert report (IER);
(h)a second affidavit of Mr Macliver filed 21 April 2022. Mr Macliver outlined the events that caused the amendment to the terms of the Scheme. Annexed to his affidavit were copies of various ASX announcements, the Letter Deed amending the terms of the Scheme, as well as the updated Scheme;
(i)a third affidavit of Ms Barker filed 22 April 2022, in relation to verification of the amended draft scheme booklet by the IGO Group;
(j)a fourth affidavit of Mr Carmody filed 22 April 2022. Mr Carmody annexed further correspondence between Ashurst and ASIC as well as revised shareholder scripts;
(k)a second affidavit of Mr Belladonna filed 26 April 2022, which confirmed the verification process of the amended draft Scheme booklet and that the lodgement of the revised Scheme booklet had been approved by the board of Western Areas;
(l)a fifth affidavit of Mr Carmody filed 26 April 2022, which annexed further correspondence between Ashurst and the ASX and ASIC;
(m)a third affidavit of Mr Belladonna filed 26 April 2022, which addressed the information supplied by Western Areas to IGO during the negotiations of the amendments to the Scheme; and
(n)a sixth affidavit of Mr Carmody filed 27 April 2022, which annexed further correspondence between Ashurst and ASIC following the amendments to the Scheme booklet as well as ASIC's letter of intention confirming that ASIC did not intend to appear or to oppose the Scheme at the first court hearing.
Nature of the proposed scheme
The proposed Scheme contemplates that IGO Nickel will acquire all of the Shares in Western Areas and that Western Areas' shareholders will receive $3.87 cash for every Share held.[14] The effect of the proposed Scheme is to make Western Areas a wholly owned subsidiary of IGO and for Western Areas to be subsequently delisted from the ASX.[15]
[14] Scheme booklet [3.2].
[15] Scheme booklet [3.1].
Excluded Shareholders are ineligible to receive the Increased Scheme Consideration. As at 22 April 2022, there were no Excluded Shareholders and IGO does not expect there to be any Excluded Shareholders at the time the Scheme becomes effective.[16]
[16] Third affidavit of Kathryn Jane Barker filed 22 April 2022 [25].
Western Areas is required to procure that all Performance Rights will vest and be immediately exercised in accordance with their terms such that there are no outstanding Western Areas Performance Rights on issue as at the Scheme Record Date.[17]
[17] Scheme booklet [3.9].
Under the terms of the Share Plan, the owners of the Share Plan Shares are not permitted to dispose of any Share Plan Share or a beneficial interest in any Share Plan Share until the expiration of the Minimum Holding Period.[18] Western Areas has determined that, subject to the Scheme becoming effective, immediately prior to the transfer of Shares on the Implementation Date, these disposal restrictions will cease. The Share Plan Shares will then be transferred as part of the Scheme.
[18] Scheme booklet [3.9].
The Scheme will not be implemented unless and until a number of conditions precedent are satisfied or waived. The conditions precedent which are required to be satisfied or waived are disclosed in the Scheme booklet.[19]
[19] Scheme Booklet [3.5].
The SID between Western Areas and IGO Nickel sets out the agreed procedures for the implementation of the proposed Scheme.
The obligations of IGO Nickel under the Scheme are supported by a Deed Poll which has been executed by both IGO Nickel and IGO (Deed Poll).[20]
[20] Scheme booklet, Annexure C.
The directors of Western Areas unanimously recommend that shareholders vote in favour of the Scheme.
An independent expert report (IER) has been prepared by KPMG Corporate Finance. The IER expresses the opinion that, in the absence of a superior proposal, the Scheme is not fair but reasonable and is, on balance, in the best interests of shareholders.[21] In reaching their conclusion, the independent expert determined the Increased Scheme Consideration was below the valuation range of a Share on a control basis, being $4.04 (low) and $5.23 (high). The basis for the valuation and the methodology used are set out in the IER. The consideration of advantages, disadvantages and other factors that are likely to impact shareholders are set out comprehensively in the IER.
[21] Scheme booklet, Annexure E.
I was provided with the draft Scheme booklet which was submitted to ASIC on 23 February 2022 and the various amendments that have been made to the document since then.[22]
[22] Affidavit of Jacob Ronald Carmody filed 24 February 2022 [15] - [17], 'JRC-6' - 'JRC-9'; Third affidavit of Jacob Ronald Carmody filed 20 April 2022, 'JRC-42'.
The Scheme booklet contains the following sections:
(a)a letter from the chairman of Western Areas;
(b)a section on important dates and the expected timetable for the Scheme;
(c)a section on considerations relevant to the vote of shareholders, including reasons to vote in favour of or against the Scheme;
(d)a 'frequently asked questions' table, which addresses all essential matters;
(e)a summary of the Scheme;
(f)an overview of each of Western Areas, IGO and IGO Nickel, as well as an overview of the combined IGO Group;
(g)a section on risk factors;
(h)a section on the taxation implications for Western Areas shareholders;
(i)a section on additional information, which includes details of the relevant interests of Western Areas' directors and the benefits they will obtain if the Scheme is approved; and
(j)a glossary of defined terms.
The Scheme booklet includes several important annexures which will form part of the Scheme booklet. These include a summary of the SID, the Scheme, the Deed Poll, the notice of Scheme meeting, and the IER.
Legal principles in respect of the scheme
Pursuant to s 411 of the Act, a scheme of arrangement can be used to re‑organise a company in a manner which will be binding on its members, provided that:
(a)the arrangement is agreed by the requisite majorities as prescribed by s 411(4)(a) of the Act, namely 75% of shareholders by value and 50% by number; and
(b)the court approves the arrangement pursuant to s 411(4)(b) of the Act.
There are three stages to an application under s 411 of the Act. First, the court approves the convening of a scheme meeting and the draft explanatory statement to be sent to the scheme members. Second, the members vote on the proposed scheme at the scheme meeting. Third, assuming the first two stages have occurred, the court approves the proposed scheme.[23]
[23] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7].
There are well‑established principles which apply to the first stage of proceedings. The court will order the convening of the scheme meeting and approve the dispatch of the scheme booklet if it is satisfied that:[24]
(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[25] and provides proper disclosure;[26]
(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;[27]
(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.
[24] Re SRG Ltd [2018] FCA 1092 [11]; Re Wesfarmers Ltd [2018] WASC 308 [60].
[25] Corporations Act 2001 (Cth) s 412(1)(a)(ii); Corporations Regulations 2001 (Cth) reg 5.1.01, Sch 8 cl 8301 ‑ 8310.
[26] Corporations Act 2001 (Cth) s 412(1)(a)(i).
[27] Corporations Act 2001 (Cth) s 411(2)(b).
Any issue about classes of members is usually determined at the first hearing.[28] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[29]
[28] Re CSR Ltd [73].
[29] Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 [20].
The standard of review that is undertaken by the court at the first hearing is whether the proposed scheme is not inappropriate and is one that sensible businesspeople might consider is of benefit to its members.[30] 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.[31]
[30] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[31] Re SRG Ltd [12]; Re Wesfarmers Ltd [72] - [76].
Disposition
The formal matters that Western Areas has to prove are satisfied.
Western Areas is a company and, accordingly, is a pt 5.1 body. The proposed Scheme constitutes an 'arrangement' of a type that has been approved by courts as an arrangement on numerous occasions.
Western Areas has filed an affidavit, as required by r 3.2 of the Corporations Rules, regarding the persons who have been nominated to be the chairperson and alternate chairperson for the Scheme meeting.[32]
[32] Affidavit of Ian Alexander Macliver filed 8 March 2022 [120] - [124]; Second affidavit of Ian Alexander Macliver filed 21 April 2022 [45].
By letter dated 27 April 2022, ASIC confirmed that it had been given 14 days' notice of the hearing and a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement or Scheme booklet. ASIC also gave notice that it did not propose to appear at the first court hearing to make submissions or intervene to oppose the Scheme.[33]
[33] Sixth affidavit of Jacob Ronald Carmody filed 27 April 2022, 'JRC-62'.
On the materials before me, there is nothing to suggest the Scheme is not properly proposed. The constitution of Western Areas[34] does not prevent the Scheme.
[34] Affidavit of Jacob Ronald Carmody filed 24 February 2022, 'JRC-3'.
As set out below at [44] - [52], no class issue arises in relation to the Scheme. All Western Areas shareholders have the same rights in the Scheme, that is, the right to receive the Increased Scheme Consideration.[35] All Western Areas shareholders are being treated equally and, as a result, constitute a single class. The method in which the Performance Rights and the Share Plan Shares are being dealt with under the Scheme is not class creating, nor does it create any collateral benefit.
[35] Submissions [40].
There are a number of conditions precedent to the Scheme.[36] The conditions precedent include the granting of any approvals necessary or required by law to implement the Scheme. On 25 February 2022, IGO sought a confidential pre-assessment of the Scheme from the Australian Competition and Consumer Commission (ACCC). On 3 March 2022, the ACCC indicated that it intends to conduct targeted market enquiries which they anticipate will take one to two weeks.[37] Both Western Areas and the IGO Group have deposed they are not aware of any basis to believe that any condition precedent will not be satisfied or waived prior to implementation of the Scheme.[38]
Disclosure and Scheme booklet
[36] SID cl 3; Scheme cl 3; Scheme booklet [3.5].
[37] Affidavit of Kathryn Jane Barker filed 9 March 2022 [53].
[38] Second affidavit of Ian Alexander Macliver filed 21 April 2022 [41] - [43]; Third affidavit of Kathryn Jane Barker filed 22 April 2022 [30] - [31].
I have read the initial draft of the Scheme booklet (as provided to ASIC). I have also been provided with the correspondence between ASIC and Western Areas' solicitors relating to ASIC's review of the revised draft Scheme booklet.[39]
[39] Fourth affidavit of Jacob Ronald Carmody filed 22 April 2022 [7] - [13].
I was and am satisfied that there will be proper disclosure as to the effect of the proposed Scheme and the material considerations for shareholders of Western Areas.
There is evidence before me as to the due diligence and verification process that was undertaken by both Western Areas and IGO Nickel.[40] On the basis of this evidence, I accept that:
(a)Western Areas undertook a process of due diligence and verification to verify the accuracy of statements attributable to Western Areas in the Scheme booklet;
(b)the IGO Group undertook a similar process to verify the statements attributable to them; and
(c)appropriate steps have been taken to satisfy Western Areas and the IGO Group that the Scheme booklet does not omit any material information.
[40] Affidavit of Joseph Charles Belladonna filed 8 March 2022 [16] - [27]; Second affidavit of Joseph Charles Belladonna filed 26 April 2022 [9] - [21]; Affidavit of Kathryn Jane Barker filed 9 March 2022 [25] - [26]; Third affidavit of Kathryn Jane Barker filed 22 April 2022 [6] - [23].
The directors of Western Areas have resolved to approve the lodgment of the Scheme booklet.[41]
[41] Second affidavit of Ian Alexander Macliver filed 21 April 2022 [28], 'IAM-26'.
Based on the checklist provided by counsel for Western Areas,[42] I was satisfied the Scheme booklet contained the prescribed information in accordance with s 412(1)(a)(ii) of the Act and sch 8 of the Corporations Regulations 2001 (Cth).
[42] Submissions, Annexure B.
In written and oral submissions, counsel for the plaintiff drew my attention to some specific matters. I address each of these below.
Voting intention statement of Perpetual
On 16 December 2021, Perpetual wrote to IGO confirming that, subject to certain conditions, Perpetual intended to vote all of its Shares in favour of the Scheme (Voting Intention Statement).[43] At that time, Perpetual owned approximately 14.73% of the Shares on issue. The Voting Intention Statement was expressly subject to the possibility that a superior proposal may emerge and did not prevent a sale of Shares before the Scheme meeting.
[43] Affidavit of Kathryn Jane Barker filed 9 March 2022 [39] - [41], 'KJB-11'.
Since this time, Perpetual has reduced its interest in Western Areas to approximately 2% of the Shares on issue. On 23 February 2022, Perpetual lodged a notice with the ASX confirming it had ceased to be a substantial shareholder of Western Areas.[44]
[44] Second affidavit of Jacob Ronald Carmody filed 10 March 2022 [5], 'JRC-15'.
I accept that, in and of itself, a public statement of voting intention is not class creating.[45] I also accept Ms Barker's evidence that no collateral benefit or inducement was offered to Perpetual to provide the Voting Intention Statement. Given the significant reduction in Perpetual's shareholding since the making of the Voting Intention Statement, I did not require tagging of Perpetual's votes at the Scheme meeting.
Arrangements with Wyloo
[45] Re NTM Gold Ltd [2021] WASC 22 [73].
On 17 February 2022, IGO announced to the ASX that Wyloo Consolidated Investments Pty Ltd (Wyloo Consolidated) had undertaken to IGO to vote its Shares (representing approximately 9.5% of the Shares on issue) in favour of the Scheme (Wyloo Voting Agreement).[46] The Wyloo Voting Agreement is subject to there being no superior proposal and the IER continuing to conclude the Scheme is in the best interests of shareholders.[47] After the terms of the Scheme were amended, Wyloo Consolidated confirmed its commitment to the Wyloo Voting Agreement.[48]
[46] Affidavit of Ian Alexander Macliver filed 8 March 2022 [117] - [119], 'IAM-18'; Affidavit of Kathryn Jane Barker filed 9 March 2022, 'KJB-10'.
[47] Wyloo Voting Agreement cl 2.1.
[48] Third affidavit of Kathryn Jane Barker filed 22 April 2022 [29], 'KJB-22'.
In the same announcement on 17 February 2022, IGO announced it had entered into an agreement with Wyloo Metals, a related entity of Wyloo Consolidated, to jointly evaluate opportunities for nickel downstream processing in Australia (Wyloo Evaluation Agreement).[49] The Wyloo Evaluation Agreement is subject to a number of conditions precedent, including that the Scheme becomes effective and Wyloo Consolidated voted its shares in favour of the Scheme.[50] Under the Wyloo Evaluation Agreement, IGO and Wyloo Metals will undertake a feasibility study into a nickel downstream processing facility in Australia. The study is anticipated to take two years and will be funded 70:30 by IGO and Wyloo Metals respectively. Subject to the study and the parties making a final investment decision, IGO and Wyloo will form a 70:30 joint venture to construct and operate a facility and may source feedstock from the IGO Group. The parties have agreed to deal exclusively with each other in relation to the potential facility and not to undertake any similar or competing Australian project until 30 June 2028.
[49] Affidavit of Ian Alexander Macliver filed 8 March 2022 [117] - [119], 'IAM-18'.
[50] Wyloo Evaluation Agreement cl 2(a).
Senior counsel for Western Areas accepted that Wyloo Consolidated, as a related entity of Wyloo Metals, may receive an indirect benefit from the Wyloo Evaluation Agreement. In order for Wyloo Metals to realise any benefit from this agreement, Wyloo Consolidated is required voting its Shares in favour of the Scheme.[51]
[51] Submissions [63].
These agreements raised two issues in respect of the proposed Scheme. First, whether either or both agreements was class creating. Second, whether a collateral benefit accrued to Wyloo Consolidated from either agreement.
In my view, for the following reasons, neither the Wyloo Voting Agreement nor the Wyloo Evaluation Agreement, separately or collectively, are class creating. First, the evidence before me, which I accept, is that the negotiations for these agreements were arms‑length, did not involve Western Areas,[52] and were entered into after the announcement of the proposed Scheme. Second, Wyloo Consolidated's rights under the Scheme are the same as each other Scheme participant; namely the right to receive the Increased Scheme Consideration. Any benefit that might ultimately be received by Wyloo Consolidated as a result of the Wyloo Evaluation Agreement does not alter this position. Third, as set out above in relation to the Perpetual Voting Intention Statement, the provision of a voting intention statement will not ordinarily cause that member to form a separate class. Fourth, I accept that any benefit to Wyloo Consolidated that arises from the Wyloo Evaluation Agreement cannot be easily valued at this stage, given the contingent nature of the Wyloo Evaluation Agreement. This can be contrasted with the value of Wyloo Consolidated's Shares which are valued at more than $120 million. Fifth, ASIC was provided with copies of both the Wyloo Voting Agreement and the Wyloo Evaluation Agreement and raised a number of queries in relation to these agreements.[53] Western Areas agreed to tag the votes of Wyloo Consolidated at the Scheme meeting.[54] ASIC has not raised any further concerns in relation to these agreements, did not seek to be heard on this issue, and issued its standard 'indication of intention' letter ahead of the court hearing.[55] I accept that the tagging of votes has been used on numerous occasions to allow the court to consider the effect of the votes at the second court hearing.[56] In the circumstances of this case, I am satisfied that such an approach is appropriate. Sixth, the existence and effect of these agreements has been announced to the ASX and are disclosed in the Scheme booklet. I am satisfied that each of these agreements, and their effect, are properly disclosed in the Scheme booklet.[57]
[52] Affidavit of Ian Alexander Macliver filed 8 March 2022 [117] - [119]; Second Affidavit of Jacob Ronald Carmody filed 10 March 2022, 'JRC-29'.
[53] Second affidavit of Jacob Ronald Carmody filed 10 March 2022, 'JRC-28'.
[54] Second affidavit of Jacob Ronald Carmody filed 10 March 2022, 'JRC-29', 'JRC-34'.
[55] Sixth affidavit of Jacob Ronald Carmody filed 27 April 2022, 'JRC-62'.
[56] See, for example, Re David Jones Ltd (No 3) [2014] FCA 753 [12] - [14]; Re Bell Group Finance Pty Ltd (in liq) [2020] WASC 287 [61]; Re NTM Gold Ltd [74] - [75]; Re Mod Resources Ltd [2019] WASC 326 [79]; Re Ozgrowth Pty Ltd [2022] WASC 167.
[57] Scheme booklet [1.4(a)(i)], [6.9], [6.10], [9.5].
In respect of the second issue, the question as to whether a benefit provided to a shareholder is a collateral benefit is a matter considered at the second court hearing in relation to the exercise of the court's discretion to approve the Scheme under s 411(4)(b) of the Act.[58] At the second court hearing, Western Areas will need to satisfy the court that the shareholders of Western Areas had sufficient information on the Wyloo Evaluation Agreement on which to make an informed vote. In contrast, the question at the first court hearing is whether the information being dispatched to Shareholders is misleading in any way. As noted above, the existence and effect of both agreements are disclosed in the Scheme booklet and, in my view, cannot be said to be misleading.
Performance risk
[58] Re David Jones Ltd (No 2) [2014] FCA 720; (2014) 101 ACSR 381; Re David Jones Ltd [No 3] [12] - [13]; Re URB Investments Ltd [2019] FCA 1977 [37].
I was and am satisfied that the nature and terms of the proposed Scheme are such that the shareholders are adequately protected against the risk that they will not receive the Increased Scheme Consideration and have no capacity to sue IGO and IGO Nickel to recover their shares or damages.
In that respect I have had regard to the terms of the Scheme and the Deed Poll. Pursuant to these documents:
(a)IGO Nickel must deposit into a trust account operated by Western Areas as trustee for the Shareholders an amount equal to the aggregate of the Increased Scheme Consideration by no later than the business day prior to the Implementation Date;[59]
(b)IGO undertakes to procure IGO Nickel to take these actions and guarantees the performance of all of IGO Nickel's obligations under the Scheme;[60]
(c)transfer of the Shares is subject to provision of the Increased Scheme Consideration;[61]
(d)beneficial title in Shares does not pass unless the Increased Scheme Consideration has been paid in accordance with the Scheme;[62] and
(e)Western Areas and each Scheme participant will have individual rights against IGO and IGO Nickel in the event that IGO or IGO Nickel fails to provide the Increased Scheme Consideration.[63]
[59] Deed Poll cl 3.1(a).
[60] Deed Poll cl 3.2.
[61] Scheme cl 4.2(a).
[62] Scheme cl 8.3(b).
[63] Deed Poll cl 1.3(a).
The arrangements under the terms of the proposed Scheme are supported by the Deed Poll. By the Deed Poll, IGO Nickel covenants in favour of each Western Areas shareholder that it will perform all actions attributed to it under the Scheme. IGO has guaranteed the performance of IGO Nickel. There is also an acknowledgement that the Deed Poll may be relied on and enforced by any Scheme shareholder in accordance with its terms. In my view, the shareholders are sufficiently identified within the Deed Poll to enable them to enforce the Deed Poll as against IGO and IGO Nickel.
Exclusivity provisions and Reimbursement Fee
The SID contains the customary lock up devices in the form of 'no shop', 'no talk', 'notification' and 'matching right' provisions.[64] The 'no talk' provisions are subject to a fiduciary carve out.[65]
[64] SID cl 11.
[65] SID cl 11.3.
In considering whether the exclusivity provisions impact on completion of the transaction and the duties of directors, the court has regard to: [66]
(a)the period of the exclusivity, which should be no more than a reasonable period and capable of precise ascertainment;
(b)whether the provisions are subject to an overriding obligation that the directors not breach their fiduciary duties or are otherwise unlawful; and
(c)whether there is adequate prominence given to these provisions in the Scheme booklet.
[66] Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [29] - [35]; Re Kangaroo Resources Ltd [2018] WASC 327 [57] - [61]; RePacific Energy Limited [2019] WASC 443 [58].
In this case, the exclusivity period is, at most, a period of approximately seven and half months. Given the amendment to the SID, which arose in part due to the impact of global events on nickel prices, I consider this period is within an acceptable range for an exclusivity period.
The affidavit of Ian Macliver sets out the commercial justification for the exclusivity provisions and the Reimbursement Fee.[67] I accept his evidence that the exclusivity provisions are reasonable and appropriate for a transaction of this nature. The inclusion of these provisions in the SID followed arm's‑length commercial negotiations in which all parties were separately advised and represented by external legal advisers.[68]
[67] Affidavit of Ian Alexander Macliver filed 8 March 2022 [61] - [66].
[68] Affidavit of Ian Alexander Macliver filed 8 March 2022 [61].
In certain circumstances, a Reimbursement Fee of $10,960,000 is payable by Western Areas to IGO Nickel[69] and by IGO Nickel to Western Areas.[70] This amount is approximately 0.87% of the equity value of Western Areas based on the Scheme Consideration at the date of entering into the SID. As such, it is within generally accepted commercial parameters for break fees. The Reimbursement Fee is intended to compensate the parties for the costs (both costs incurred and opportunity costs) if the Scheme does not proceed and is not payable if shareholders do not vote in favour of the Scheme.[71] Accordingly, I consider the amount of the Reimbursement Fee in this case is unlikely to influence shareholders in their decision to vote on the Scheme.
[69] SID cl 12.2.
[70] SID cl 12.3.
[71] SID cl 12, 13.
Importantly, the exclusivity arrangements and Reimbursement Fee provisions are prominently disclosed in the Scheme booklet.[72]
Director benefits and director recommendations
[72] Scheme booklet [1.4(d)] - [1.4(e)], [2], [3.13(c)], Annexure A.
Senior counsel drew my attention to the fact that each of the six directors of Western Areas directly or indirectly hold Shares, amounting to 780,609 or 0.24% of the Shares on issue.[73] Daniel Lougher, the managing director and chief executive officer of Western Areas, also holds 1,148,710 or approximately 24% of the Performance Rights.[74] These Performance Rights will immediately vest and be automatically exercised if the court makes an order approving the Scheme.
[73] Affidavit of Ian Alexander Macliver filed 8 March 2022 [86] - [87]; Second affidavit of Ian Alexander Macliver filed 21 April 2022 [35].
[74] Affidavit of Ian Alexander Macliver filed 8 March 2022 [86] - [87].
Mr Lougher and Mr Belladonna, the chief financial officer and company secretary of Western Areas, are contractually entitled to receive a 'change of control bonus' in the event of a takeover (or merger) of Western Areas.[75]
[75] Affidavit of Ian Alexander Macliver filed 8 March 2022 [88].
Finally, the directors of Western Areas have approved one-off 'special exertion fees' for each non‑executive director to recognise their increased workload and the significant time required by the proposed Scheme. These fees are one‑off, not conditional on the Scheme being implemented, and will be paid prior to the implementation of the Scheme in the following amount: $42,931 for each non‑executive director, and $66,048 to Mr Macliver as independent non‑executive chairperson.[76]
[76] Affidavit of Ian Alexander Macliver filed 8 March 2022 [103] - [108], 'IAM-7'.
For the following reasons, it was and is my view that it was not inappropriate for each of the directors to make a recommendation in respect of the Scheme.
First, in relation to the Shares that are owned by the directors, each of the directors will receive the same Increased Scheme Consideration as all other shareholders.
Second, change of control payments are not uncommon and do not prevent the court from making orders for the convening of the Scheme meeting. The bonus to which each of Mr Lougher and Mr Belladonna are entitled:
(a)is within the scope of what might be considered commercially not unreasonable, in that it equates to approximately one to two years' base salary;[77]
(b)arises in respect of a pre-existing contractual entitlement agreed to well before entry into the SID;
(c)was the subject of consideration by Western Areas' Remuneration Committee and board of directors (excluding Mr Lougher).[78]
[77] Re Nzuri Copper Ltd [2019] WASC 189 [87]; Re Webster Ltd [2019] NSWSC 1907 [33].
[78] Affidavit of Ian Alexander Macliver filed 8 March 2022 [95] - [100]; Second affidavit of Ian Alexander Macliver filed 21 April 2022 [38].
Third, the 'special exertion fees' are not conditional on the proposed Scheme proceeding nor the shareholders voting in favour of the Scheme and, as such, they do not act as an inducement for the non‑executive directors to support the Scheme.
Fourth, none of the proposed payments are of such a magnitude that lead to an inference that they are excessive, unwarranted, or provide an inappropriate incentive for the directors to recommend to shareholders to vote in favour of the Scheme.
Finally, and importantly, each of these matters is disclosed in the Scheme booklet.[79]
Independent expert's conclusion
[79] Scheme booklet, Letter from Chairman of Western Areas, [1.2(a)], [2], [9.4].
The independent expert, KPMG, has concluded that, in the absence of a superior proposal, the proposed Scheme is not fair but is reasonable and, on balance, is in the best interests of shareholders.
In Re Beadell Resources Ltd, Justice Vaughan summarised the approach that should be taken by the court in these circumstances.[80] In essence, provided that shareholders are adequately informed of the independent expert's conclusion and the basis for it, it is ultimately a decision for shareholders, and not the court, whether the scheme is in their best interests.
[80] Re Beadell Resources Ltd [2018] WASC 410; (2018) 133 ACSR 600 [60] - [64].
In this case, the IER concluded the proposed Increased Scheme Consideration is not fair as KPMG assesses the value of a Share on a controlling interest basis to be between $4.04 and $5.23 per Share, compared to the Increased Scheme Consideration of $3.87 cash per Share.
The IER concludes, however, that the proposed Scheme is reasonable because there are sufficient reasons for members to vote for the Scheme. These reasons include the opportunity for Shareholders to realise their investment; the premium for control based on trading prices of Shares immediately prior to the initial announcement of the Scheme; the premium to recent trading prices of the Shares; the fact that IGO has declared the Increased Scheme Consideration to be its 'last and final' offer in the absence of a superior proposal; and the absence of any alternate proposal.
I have carefully considered the explanations contained in the IER to determine the basis for the assessment that the Scheme was reasonable but not fair. I was and am satisfied that the matters referred to in the IER as summarised above provide justification for the conclusion that the Scheme is reasonable. Further, in my view, there is appropriate disclosure of the basis for the opinion of the independent expert. Sufficient information is provided to shareholders to give them an opportunity to understand and assess for themselves the basis of the independent expert's opinion. As such, shareholders of Western Areas will be in a position to make an informed decision whether or not to approve the Scheme.
In my view, the conclusion of the IER that the Scheme is not fair but reasonable is not a reason to refuse to convene the Scheme meeting. The opinion of the independent expert that the Scheme is reasonable is open to them. On this basis, the Scheme is one that sensible business people may consider will be of benefit to shareholders. Accordingly, it was and is my view that the Scheme is fit for consideration by shareholders.
No liability when acting in good faith
Counsel for Western Areas drew to my attention the inclusion of cl 9.6 in the Scheme which provides Western Areas and the IGO Group with an exclusion from liability for acts or omissions done in good faith in performance of the Scheme or Deed Poll.
On its proper construction, it is my view that this clause will not exclude liability for acts or omissions in breach of the Scheme or the Deed Poll. Any such acts or omissions could not be in performance of the Scheme or Deed Poll. For this reason, I do not consider that this clause will deprive members of their intended benefits under the Scheme. I note that this is consistent with the conclusion of Vaughan J in Re Wesfarmers [No 2] in relation to a similar clause.[81]
Electronic despatch of the Scheme booklet and proxy form
[81] Re Wesfarmers Ltd [No 2] [2018] WASC 357 [49].
Western Areas sought orders pursuant to s 1319 of the Act for electronic despatch of the Scheme booklet and applicable proxy form by email to those Western Areas shareholders who have nominated an electronic address for the purpose of receiving shareholder communications from Western Areas (Email Shareholders). These orders are now common.[82] Details were provided as to the terms of the proposed electronic notification, namely that email notices would be sent to Western Areas shareholders containing links to the Scheme booklet and proxy form.[83]
[82] See, for example, Re SRG Limited [48]; Re Doray Minerals Ltd [2019] WASC 57 [72]; Re Saracen Mineral Holdings Ltd [2020] WASC 483 [81]. See too Re CannPal Animal Therapeutics Ltd [2021] WASC 37 [73] - [75]; Re Piedmont Lithium Ltd [2021] WASC 76 [69] (given the uncertainties of COVID‑19); Re Nusantara Resources Ltd [2021] WASC 334 [66] - [68]; Re PetroNor E&P Ltd [2021] WASC 426 [64] - [65]; Re Swick Mining Services Ltd [2022] WASC 79 [79].
[83] Affidavit of Joseph Charles Belladonna filed 8 March 2022 [42(a)].
I was and am satisfied that an order for electronic despatch of the Scheme booklet is appropriate.
In respect of the remaining Western Areas shareholders (who were not Email Shareholders and those Email Shareholders in respect of whom electronic delivery has been notified as being ineffective), Western Areas proposed the despatch of hardcopy documents by post (Non‑Email Shareholders).[84]
[84] Affidavit of Joseph Charles Belladonna filed 8 March 2022 [42(b)].
I was and am satisfied that the proposed orders in relation to the hardcopy despatch to Non-Email Shareholders is appropriate.
Deemed warranty provision
Senior counsel for Western Areas drew my attention to the 'deemed warranty' provision in the proposed Scheme.[85] Deemed warranty clauses are not unusual and are acceptable provided there is adequate disclosure that it is a condition.[86] In this case, the warranty provision is sufficiently disclosed in the Scheme booklet.[87]
Shareholder script
[85] Scheme cl 8.2.
[86] Re APN News and Media Ltd [57] - [63]; Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34 [23]; Re Nzuri Copper Ltd [90]; Re Macquarie Private Capital A Ltd [2008] NSWSC 323 [13] - [14]; Re Doray Minerals Ltd [71].
[87] Scheme booklet [1.4(f)].
Western Areas also sought orders pursuant to s 1319 of the Act to cause certain Western Areas shareholders to be contacted via telephone by Western Areas' proxy solicitation agency, Morrow Sodali Pty Ltd, and to cause a telephone information line to be operated by Georgeson Shareholder Communications Australia Pty Ltd. The scripts[88] were consistent with the information in the Scheme booklet and it was stressed that the scripts should not be departed from.
[88] Fourth affidavit of Jacob Ronald Carmody filed 22 April 2022, 'JRC-51', 'JRC-52'.
Where a company proposed to use a proxy solicitation agent, it is my view that this should be drawn to the attention of the court at the first court hearing and approval sought as to the proposed script.[89] I have reviewed the scripts proposed to be used in this matter and am satisfied that they are consistent with the disclosures in the Scheme Booklet and do not contain any new information or information that is misleading.
Scheme meeting
[89] Re Galaxy Resources Ltd [2021] WASC 314 [31] - [33].
Western Areas proposed that the Scheme meeting scheduled to take place at 10.00 am on Wednesday, 1 June 2022 be held electronically. I accept that this arrangement is appropriate and consistent with the conduct of recent scheme meetings.[90]
[90] See for example Re NTM Gold Ltd; Re Piedmont Lithium Ltd; Re APN Property Group Ltd and APN RE Ltd [2021] VSC 389 [35]; Re Asaleo Care Limited [2021] FCA 406 [77].
Conclusion and orders
At the first hearing before me, I was satisfied that the substantive and procedural requirements under s 411(1) and s 1319 of the Act had been satisfied and that the proposed Scheme was fit for consideration by Western Areas' members.
Taking into account all of these matters, I considered that there was no apparent reason why the Scheme should not, if the necessary special resolution of shareholders is passed, receive the court's approval.
For these reasons, at the conclusion of the hearing on 27 April 2022, I made orders in terms of 'Annexure A' to this judgment in respect of the Scheme.
ANNEXURE A
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
FD
Associate to the Honourable Justice Hill
2 JUNE 2022
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