Re Zenith Energy Ltd
[2020] WASC 266
•16 JULY 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: RE ZENITH ENERGY LTD; EX PARTE ZENITH ENERGY LTD [2020] WASC 266
CORAM: HILL J
HEARD: 25 JUNE 2020
DELIVERED : 16 JULY 2020
FILE NO/S: COR 51 of 2020
EX PARTE
ZENITH ENERGY LTD
Plaintiff
ELEMENTAL INFRASTRUCTURE BIDCO PTY LTD
Interested Party
Catchwords:
Corporations law - Scheme of arrangement - Application for orders convening scheme meetings under s 411(1) of the Corporations Act 2001 (Cth) - Whether requirements to order scheme meetings are satisfied - Virtual scheme meetings - Whether executive directors should make a voting recommendation to members - Orders made convening meeting
Legislation:
Corporations Act 2001 (Cth), s 411, s 1319
Corporations (Coronavirus Economic Response) Determination (No 1) 2020 (Cth), cl 5
Supreme Court (Corporations) (WA) Rules 2004 (WA)
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | SK Dharmananda SC & J Sippe |
| Interested Party | : | S C Davies SC |
Solicitors:
| Plaintiff | : | Allens |
| Interested Party | : | Minter Ellison |
Case(s) referred to in decision(s):
First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 320 FLR 78
Pacific Energy Limited [2019] WASC 443
Re Amcom Telecommunications Ltd [2015] FCA 341
Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re David Jones Ltd [No 2] [2014] FCA 753
Re Doray Minerals Ltd [2019] WASC 57
Re Dreamscape Networks Ltd [2019] WASC 412
Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34
Re Dulux Group [2019] FCA 961; (2019) 136 ACSR 546
Re Gazal Corporation Ltd [2019] FCA 701
Re Healthscope Ltd [2019] FCA 542; (2019) 139 ACSR 608
Re Hills Motorway Ltd [2002] NSWSC 897; (2002) 43 ACSR 101
Re Investa Properties Ltd [2007] FCA 1104
Re Kangaroo Resources Ltd [2018] WASC 327
Re Macquarie Private Capital A Ltd [2008] NSWSC 323
Re MOD Resources Ltd [2019] WASC 326
Re Navitas Limited [2019] WASC 180
Re Navitas Ltd [No 2] [2019] WASC 218
Re NRMA Ltd [2000] NSWSC 82; (2000) 156 FLR 349
Re Nzuri Copper Ltd [2019] WASC 189
Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20
Re QMS Media Limited [2019] FCA 2172
Re Scarborough Equities Ltd [No 2] [2009] FCA 484
Re SMS Management and Technology Limited [2017] VSC 257
Re SRG Limited [2018] FCA 1092
Re Villa World Ltd [2019] NSWSC 1207
Re Wellcom Group Ltd [2019] FCA 1655
Re Wesfarmers Ltd [2018] WASC 308
HILL J:
The plaintiff, Zenith Energy Limited (Zenith Energy), is an Australian public company listed on the official list of the ASX Ltd (ASX).
On 6 March 2020, Zenith Energy announced that it had entered into a scheme implementation deed (Original SID) with Elemental Infrastructure BidCo Pty Ltd (Elemental). Under the Original SID, it was proposed that Elemental would acquire 100% of the fully paid ordinary shares in Zenith Energy by way of a scheme of arrangement and that shareholders would receive cash consideration of $1.01 (less any fully-franked dividend that may be declared) for each Zenith Energy share.[1]
[1] First affidavit of Andrew James Pascoe filed 21 April 2020 [10(a)].
By an originating process dated 21 April 2020, Zenith Energy sought orders pursuant to s 411 of the Corporations Act 2001 (Cth) (Act) in relation to the proposed scheme of arrangement (Scheme).
On 1 June 2020, Zenith Energy announced it had entered into a deed of amendment and restatement of the scheme implementation deed (SID) with Elemental.[2] There was no material change to the Original SID other than to record that the Apex Opportunities Trust (Apex Trust) and entities established by OPSEU Pension Plan Trust (OP Trust) will take an equity position in Elemental's group holding structure in the implementation of the proposed Scheme.[3]
[2] Affidavit of Peter Patrick Torre filed 19 June 2020 [10].
[3] Affidavit of Peter Patrick Torre filed 19 June 2020 [12]; Submissions [6].
The application came before me for the first court hearing on 25 June 2020. At the conclusion of the hearing, I made orders pursuant to s 411(1) of the Act to convene two meetings of Zenith Energy's members to consider and vote on the proposed Scheme. I also made ancillary orders as to the convening and conduct of the meetings which are to be held as virtual meetings, pursuant to s 1319 of the Act. I said that I would publish written reasons for my orders subsequently. These are the reasons for the orders I made on 25 June 2020.
Factual Background
Zenith Energy
Zenith Energy designs, constructs and manages thermal and renewable energy power stations, primarily for clients in the resources and energy sectors located in remote areas of Australia and South East Asia.[4] Zenith Energy was founded in 2006 and listed on the ASX in May 2017.
[4] Scheme booklet, p 61.
As at 11 June 2020, Zenith Energy had 149,469,586 fully paid ordinary shares on issue.[5] It also has 322,575 performance rights on issue which entitle the holder, subject to the fulfilment of certain conditions, to be issued one fully paid ordinary share.[6]
Elemental
[5] Affidavit of Peter Patrick Torre filed 19 June 2020 [5], 'PPT-1'.
[6] Affidavit of Peter Patrick Torre filed 19 June 2020 [36], [47].
Elemental is a special purpose company incorporated on 5 March 2020 for the purpose of acquiring all of the shares of Zenith Energy under the Scheme.[7] Elemental is a wholly‑owned subsidiary of Elemental Infrastructure MidCo Pty Ltd (Elemental MidCo), which in turn is a wholly-owned subsidiary of Elemental Infrastructure HoldCo Pty Ltd (Elemental HoldCo). Elemental MidCo and Elemental HoldCo are also special purpose companies which were incorporated on 5 March 2020. Elemental HoldCo was set up by funds managed or advised by Pacific Energy Partners (PEP), an Australian private equity firm. As at the date of the Scheme booklet, PEP Investor Administration Secure Assets A Pty Limited as trustee for the Pacific Equity Partners Secure Assets Fund A (Australasia) holds all of the shares in Elemental HoldCo.[8]
[7] First affidavit of Andrew James Pascoe filed 21 April 2020, 'AJP-1', Scheme booklet, p 74.
[8] Scheme booklet, p 75.
As at 1 June 2020, by reason of a Co‑operation and Process Deed between the PEP entities, Apex, Infrastructure Specialist Asset Management Ltd as trustee of the Diversified Infrastructure Trust, OP Trust I and OP Trust II, a number of entities associated with PEP and Elemental had an interest in 26,309,402 shares in Zenith Energy. These shares are registered in the name of Apex and represent 17.6% of all Zenith Energy shares on issue.[9]
Proposed Scheme
[9] Affidavit of Andrew Charlier filed 19 June 2020 [9] - [10].
The purpose of the proposed Scheme between Zenith Energy and Elemental is to effect a corporate merger of these entities. If the Scheme is implemented, the plaintiff's shareholders will receive $1.01 cash for each share held, less any special dividend that is declared and paid prior to the Implementation Date (Scheme Consideration), as consideration for the acquisition of their shares under the Scheme.[10]
[10] Scheme booklet, p 10.
The special dividend is a fully-franked dividend of up to $0.13 per Zenith Energy share that may be declared and paid on or before the Implementation Date of the Scheme (Special Dividend). If the Special Dividend is declared and paid, the Scheme Consideration will be reduced by the amount of the Special Dividend.[11] In addition, eligible Zenith Energy shareholders may receive an additional benefit of up to $0.05 per share in the form of franking credits attached to the Special Dividend.[12]
[11] Scheme booklet, p 45 - 46.
[12] Scheme booklet, p 10.
In respect of the performance rights, under the terms of the long‑term incentive plan, these rights will vest if the Scheme is approved at the second court hearing and be acquired under the Scheme.[13]
[13] Affidavit of Peter Patrick Torre filed 19 June 2020 'PPT-4', r 7.2(b).
Certain shareholders of Zenith Energy may elect to receive between 66% and 100% of their Scheme Consideration as shares in Elemental HoldCo on a one for one basis (Scrip Consideration) (Rollover Shareholders).[14] The Rollover Shareholders are:
(a)two entities controlled by Mr Walker, the Executive Chairman of Zenith Energy (Walker Entities);
(b)Mr Moffat, the Managing Director of Zenith Energy, an entity controlled by Mr Moffat, and a separate shareholding in the name of Mr Moffat and Susan Moffat (the Moffat Entities);
(c)Mr Cooper, the Chief Operating Officer of Zenith Energy; and
(d)the Apex Trust.
[14] Affidavit of Peter Patrick Torre filed 19 June 2020 [51]; SID, cl 4.4; Scheme booklet [6.3(b)].
Both the independent non‑executive directors and the executive directors of Zenith Energy recommend that shareholders vote in favour of the Scheme.[15] I will return to these recommendations later in my reasons for decision.
[15] Scheme booklet, p 15.
Zenith Energy retained an independent expert to give an opinion on the proposed Scheme. The independent expert, Grant Thornton Corporate Finance Pty Ltd (Grant Thornton), concluded that, in the absence of a superior proposal, the Scheme is fair and reasonable and in the best interests of Zenith Energy's shareholders.[16]
[16] Scheme booklet, p 23.
Evidence for the first court hearing
Zenith Energy and Elemental relied on seven affidavits that were filed prior to the first hearing. These were:
(a)an affidavit of Andrew James Pascoe affirmed 21 April 2020. Mr Pascoe is a partner of Allens, the solicitors for the plaintiff. Mr Pascoe confirmed a number of formal matters and outlined the nature of the proposed Scheme. The affidavit annexed the draft Scheme booklet, the ASX announcement of the proposed Scheme, a further ASX announcement related to the Scheme Consideration, information about the plaintiff obtained from the Australian Securities and Investments Commission (ASIC), Zenith Energy's constitution and 2019 annual report and the letter sent to ASIC enclosing the draft Scheme booklet.
(b)an affidavit of David Noel Riekie sworn 19 June 2020. Mr Riekie is a non‑executive director of the plaintiff and the proposed alternate chairperson of the Scheme meetings. Mr Riekie's affidavit set out the process and timing of the board's consideration of the forgiveness of loans between the plaintiff and Hamish Moffat and Graham Cooper. By his affidavit, Mr Riekie consented to act as chairperson at the Scheme meetings in the absence of Mr Torre and provided the necessary disclosures required by r 3.2 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules). The affidavit annexed the draft Notice of Meeting, as well as various documents and correspondence detailing the loans made to Mr Moffat and Mr Cooper between 2016 and 2017.
(c)an affidavit of Peter Patrick Torre sworn 19 June 2020. Mr Torre is a non‑executive director of the plaintiff and the proposed chairperson of the Scheme meetings. Mr Torre gave updated details on the plaintiff's capital structure, details of the SID and the Scheme, the payment of the Special Dividend and the Rollover Shareholders. His evidence addresses the retention bonuses to be paid to the executive directors, Mr Moffat and Mr Walker, and the 'special exertion fee' payable to the non‑executive directors (himself and Mr Riekie), and attests to the due diligence and verification process of the Scheme booklet undertaken by Zenith Energy. He also addresses the conduct of the Scheme meetings, which are proposed to be run as virtual meetings due to the COVID‑19 pandemic. By his affidavit, Mr Torre consented to act as chairperson of the meetings and provided the necessary disclosures required by r 3.2 of the Corporations Rules.
(d)a second affidavit of Mr Pascoe affirmed 19 June 2020. Mr Pascoe confirmed that the Scheme meetings would be conducted virtually and that the draft Scheme booklet had been provided to ASIC. Mr Pascoe annexed the email correspondence between Allens and ASIC on the amendments to the Scheme booklet.
(e)an affidavit of Andrew Charlier sworn 19 June 2020. Mr Charlier is a director of Elemental, Elemental MidCo and Elemental HoldCo and the managing director of PEP. Mr Charlier's affidavit set out how these parties' interest in the plaintiff's shares arose and annexed the Co‑operation and Process Deed. He attests to the verification process undertaken by Elemental in respect of the Scheme booklet, the negotiation and inclusion of certain clauses within the SID and provides further clarification on the Rollover Shareholders. The affidavit annexed the notices of initial substantial shareholder forms of the PEP Entities, signed verification certificates and the Deed Poll executed in favour of the plaintiff.
(f)a third affidavit of Mr Pascoe affirmed 23 June 2020. This affidavit annexed further correspondence between Allens and ASIC in respect of the Scheme booklet as well as the draft proxy forms for the Scheme meetings, the proposed communications to be sent to shareholders and the election form for Rollover Shareholders.
(g)a fourth affidavit of Mr Pascoe affirmed 24 June 2020 which set out the amendments that had been made to the Scheme Booklet following exchanges with ASIC and Elemental. He annexed a letter from ASIC confirming that ASIC did not propose to appear or intervene to oppose the Scheme. The affidavit also annexed the correspondence between Allens and ASIC, and Allens and Elemental's solicitors together with sections of the Scheme booklet to which minor amendments had been made.
Nature of Proposed Scheme
The proposed Scheme contemplates that Elemental will acquire all of the fully paid ordinary shares of Zenith Energy and that shareholders will receive up to $1.01 in cash for each Zenith Energy share held. This comprises cash for each share held as part of the Scheme consideration, as well as the Special Dividend.[17]
[17] Scheme booklet, p 17.
If the Scheme is implemented, Zenith Energy will become a wholly owned subsidiary of Elemental and will be delisted from the ASX.[18] The Scheme will not be effective unless and until a number of conditions precedent are satisfied or waived. The conditions precedent which are required to be satisfied are disclosed in the scheme booklet.[19]
[18] Scheme booklet, p 45.
[19] Scheme booklet, [4.9(a)], p 53 - 54; Scheme, cl 2.1.
If the Scheme is approved by shareholders and by the court at the second court hearing, Zenith Energy will transfer all of its shares to Elemental and enter Elemental as the holder of all Zenith Energy shares in the Register.[20] Elemental will provide the cash consideration for the Scheme to shareholders in return for their shares in Zenith Energy.[21]
[20] Scheme, cl 4.1.
[21] Scheme, cl 5.1.
Elemental is obliged to provide the Scheme consideration prior to the transfer of the shares.[22] The obligations of Elemental under the Scheme are supported by a Deed Poll dated 5 June 2020 which has been executed by Elemental.[23]
[22] Scheme, cl 6.1.
[23] Affidavit of Andrew Charlier sworn 19 June 2020 [5], 'AC-3'.
The independent board committee of Zenith Energy unanimously recommend that shareholders vote in favour of the Scheme.[24] In addition, the executive directors recommend that shareholders vote in favour of the Scheme.[25]
[24] Scheme booklet, [2.2(a)].
[25] Scheme booklet, p 12.
An independent expert report (IER) has been prepared by Grant Thornton. The IER expresses the opinion that, in the absence of a superior proposal, the Scheme is fair and reasonable and in the best interests of the shareholders.[26] In reaching this conclusion, the IER determined that the range for the value of a share in Zenith Energy was between $0.89 (low) and $1.02 (high).[27] The Scheme Consideration of $1.01 is within this valuation range. The basis of the valuation and the methodology used are set out comprehensively in the IER.
[26] Scheme booklet, Annexure A.
[27] Scheme booklet, [2.2(b)].
I was provided with the draft Scheme booklet which was submitted to ASIC on 9 April 2020[28] and the various amendments that have been made to the document since then.[29]
[28] Affidavit of Andrew James Pascoe filed 21 April 2020 [21]; Second affidavit of Andrew James Pascoe filed 19 June 2020 [22]; Third affidavit of Andrew James Pascoe filed 23 June 2020 [9], 'AJP-30'.
[29] Second affidavit of Andrew James Pascoe filed 19 June 2020 [22], 'AJP-21'; Third affidavit of Andrew James Pascoe filed 23 June 2020 [9], 'AJP-30'; Fourth affidavit of Andrew James Pascoe filed 24 June 2020, 'AJP38'.
The Scheme booklet contains the following sections:
(a)important notices giving an overview of the Scheme and advising shareholders to obtain independent financial and taxation advice;
(b)a listing of all important dates and times for the Scheme;
(c)a letter from Mr Torre which contains a clear statement of the recommendation of both the independent board committee and, separately, the executive directors;
(d)key considerations for shareholders, such as the Scheme Consideration, the Special Dividend, the reasons to vote for and against the Scheme and the warranties to be given by shareholders;
(e)a 'frequently asked questions' table, which addresses all the essential matters including the Rollover Shareholders and entitlements resulting from the Scheme's implementation;
(f)an overview of the Scheme and the SID;
(g)information about Zenith Energy, Elemental and PEP;
(h)a section on the key risks;
(i)a section on the taxation implications for Zenith Energy shareholders;
(j)a section on additional information, which included details of the relevant interests of Zenith Energy's directors and the benefits they will obtain if the Scheme is approved.
The Scheme booklet included a number of important annexures which will form part of the Scheme booklet. These include the IER, the proposed Scheme, the Deed Poll and the relevant notices of meetings.
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.[30]
[30] 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 is satisfied that:[31]
(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[32] and provides proper disclosure;[33]
(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;[34]
(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.
[31] Re SRG Limited [2018] FCA 1092 [11]; Re Wesfarmers Ltd [2018] WASC 308 [60].
[32] Corporations Act, s 412(1)(a)(ii); Corporations Regulations 2001 (Cth), reg 5.1.01 and sch 8 cl 8301 ‑ 8310.
[33] Corporations Act, s 412(1)(a)(i).
[34] Corporations Act, s 411(2)(b).
Any issue about classes of members is usually determined at the first hearing.[35] This is so that costs and court time are not wasted which would otherwise occur if this issue was left to the second hearing.[36]
[35] Re CSR Ltd [73].
[36] 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 business people might consider is of benefit to its members.[37] 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.[38]
[37] Re Amcom Telecommunications Ltd [2015] FCA 341 [10].
[38] Re SRG Limited [12]; Re Wesfarmers Ltd [72] - [76].
Disposition
The formal matters that the plaintiff had to prove are satisfied.
Zenith Energy is a company and, accordingly, is a pt 5.1 body. The proposed Scheme constitutes an 'arrangement'. This type of share acquisition scheme has been approved by courts as an arrangement on numerous occasions.
Zenith Energy filed the affidavits 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.[39]
[39] Affidavit of Peter Patrick Torre filed 19 June 2020 [107] - [111]; Affidavit of David Noel Riekie filed 19 June 2020 [22] - [24].
By letter dated 24 June 2020, ASIC confirmed that it had been given 14 days' notice of the hearing and had a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement or scheme booklet.[40] ASIC also gave notice that it did not propose to appear at the first hearing to make submissions or intervene to oppose the Scheme.[41]
[40] Fourth affidavit of Andrew James Pascoe filed 24 June 2020, 'AJP-42'
[41] Fourth affidavit of Andrew James Pascoe filed 24 June 2020, 'AJP-42'.
On the materials before me, there was nothing to suggest that the proposed Scheme was not properly proposed. The constitution of Zenith Energy does not prevent the Scheme.[42]
Class issue
[42] First affidavit of Andrew James Pascoe filed 21 April 2020, 'AJP-6'.
The Act does not define the term 'class'. To determine whether separate classes of members are required, the test involves three questions.[43] First, what are the rights which existing members have against the company and to what extent are they different. Second, to what extent are these rights affected differently by the scheme. Third, does the different treatment of rights make it impossible for the members in question to consider the scheme as one class.
[43] First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 320 FLR 78 [80].
The test is not one of identical treatment but of 'community of interest'.[44] It is necessary for the court to determine whether the rights of different groups, viewed in the context of the proposed scheme, are so dissimilar as to make it impossible for them to consult together with a view to their common interests.[45] Ordinarily, divergent commercial interests external to share membership will not be a factor which differentiates classes, although this is a question of degree.[46]
[44] Re Hills Motorway Ltd [2002] NSWSC 897; (2002) 43 ACSR 101 [12].
[45] Re Wesfarmers Ltd [95]; Re Healthscope Ltd [2019] FCA 542; (2019) 139 ACSR 608 [106] - [107].
[46] Re NRMA Ltd [2000] NSWSC 82; (2000) 156 FLR 349 [79]; Re Wesfarmers Ltd [95].
In approaching the issue of classes, a practical, business-like approach should be adopted by the court.[47] As Finkelstein J noted in Re Opes Prime Stockbroking, there is a built‑in safeguard against majority oppression in that the court is not bound by the decision of the meeting.[48]
[47] Re Healthscope Ltd [118].
[48] Re Opes Prime Stockbroking Ltd [66].
In this case, Zenith Energy proposed, and I accepted, that given the terms of the proposed Scheme, there were two relevant classes of shareholders and that there should be two shareholders' meetings to consider the proposed Scheme.
The first class of shareholders is the Rollover Shareholders. The Rollover Shareholders comprise a different class as these are the only shareholders that have the right to elect to receive the Scrip Consideration. Further, the Rollover Shareholders have additional interests connected with the Scheme, namely:
(a)retention bonuses payable by Elemental to Mr Walker and Mr Moffat;
(b)forgiveness of loans made by Zenith Energy to Mr Moffat and Mr Cooper;
(c)performance rights held by Mr Cooper; and
(d)exclusivity and voting commitments related to the Zenith shares held by the Apex Trust.
All Zenith shareholders other than the Rollover Shareholders have the same rights under the Scheme and will receive the Scheme Consideration set out at [10] ‑ [11]. For this reason, I accept that the other class of shareholders is all other Zenith Energy shareholders.
I accept that the difference in the Scheme consideration being offered to the Rollover Shareholders and the other shareholders means that there is insufficient community of interest between all shareholders for them to consider in the one meeting whether the Scheme is in their collective interests. Allowing the shareholders to vote as a class, excluding the Rollover Shareholders, will permit them to come to a collective view independent of the views of the Rollover Shareholders.
I note that this approach follows other 'rollover' arrangements in previous schemes where the court has made orders convening the scheme meetings.[49]
[49] See, Re Navitas Limited [2019] WASC 180; Re QMS Media Limited [2019] FCA 2172.
Senior counsel for the plaintiff drew to my attention two other matters, namely the retention bonuses payable to Mr Walker and Mr Moffat and the proposed forgiveness of loans to Mr Moffat and Mr Cooper. I deal with the detail of each of these matters in respect of Mr Walker and Mr Moffat later in my reasons. In respect of the loan advanced by Zenith Energy to Mr Cooper, the amount which remains outstanding is $1,399,400. This represents approximately 21% of the total financial benefit to be received by him under the Scheme.[50]
[50] Scheme booklet, [1.2].
In my view, while none of these matters is immaterial, the proposed benefits and payments are modest in comparison to the amounts to be received by each of them (and their related entities) under the Scheme. I consider that none of these amounts are class creating. In any event, this is a matter that can be taken into account in determining whether or not to approve the Scheme at the second court hearing.[51]
Conditions precedent
[51] Re Dulux Group [2019] FCA 961; (2019) 136 ACSR 546 [47].
There are number of conditions precedent to the Scheme.[52] Both Mr Torre and Mr Charlier have deposed that they are not aware of any basis to believe that any condition precedent will not be satisfied by the necessary time.[53]
Scheme Booklet
[52] Scheme, cl 3.1.
[53] Affidavit of Andrew Charlier filed 19 June 2020 [39] - [40]; Affidavit of Peter Patrick Torre filed 19 June 2020 [33] - [34].
I have read the initial draft of the Scheme booklet (as provided to ASIC). I have also been provided with the communications between ASIC and Zenith Energy's solicitors in relation to ASIC's review of the draft Scheme booklet. As a result of this conferral, the recommendations of Mr Walker and Mr Moffat (both of whom are executive directors of the plaintiff) have been distinguished from those of the independent board committee. This was to ensure that it was clear to shareholders that these recommendations and accompanying reasons had been made separately.[54] I will return to this matter later in my reasons.
[54] Third Affidavit of Andrew James Pascoe filed 23 June 2020, 'AJP-28', 'AJP-29'.
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 Zenith Energy.
There is evidence before me as to the due diligence and verification process that was undertaken by both Zenith Energy and Elemental.[55] On the basis of this evidence, I accept that:
(a)Zenith Energy undertook a process of due diligence and verification to verify the accuracy of statements attributable to Zenith Energy in the Scheme booklet;
(b)Elemental undertook a similar process to verify the statements attributable to it;
(c)appropriate steps have been taken to satisfy Zenith Energy and Elemental that the Scheme booklet does not omit any material information.
[55] Affidavit of Andrew Charlier filed 19 June 2020 [21] - [27]; Affidavit of Peter Patrick Torre filed 19 June 2020 [81] - [97].
The directors of Zenith Energy have resolved to approve the Scheme booklet in its final form.[56]
[56] Affidavit of Peter Patrick Torre filed 19 June 2020 [99]; Fourth affidavit of Andrew James Pascoe filed 24 June 2020 [6] - [8].
Based on the checklist provided by counsel for Zenith Energy,[57] I was satisfied that 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.
[57] Submissions, Attachment B.
In written and oral submissions, counsel for Zenith Energy drew my attention to some specific matters. I address each of these below.
Performance Risk
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 Scheme Consideration and have no capacity to sue Elemental 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)Elemental is required to pay $1.01 in cash for each share held prior to the transfer of shares taking place;[58]
(b)Elemental is obliged to deposit in cleared funds the amount equal to the total Scheme Consideration into a trust account operated by Zenith Energy or its registry as trustee of the shareholders by the business day prior to the Scheme implementation date;[59]
(c)Elemental does not acquire beneficial title to the shares unless it has paid the Scheme Consideration;[60]
(d)Zenith Energy is required to pay the cash consideration to its shareholders on the Scheme implementation date.[61]
[58] Scheme, cl 5.1.
[59] Scheme, cl 6.1(a).
[60] Scheme, cl 4.
[61] Scheme, cl 6.1(b).
The resignation of the current directors and appointment of the Elemental nominees to the board of Zenith Energy is subject to and conditional upon the Scheme Consideration having been paid.[62] Accordingly, there was no concern that the incoming board of Elemental could interfere with the implementation of the Scheme or payment to shareholders.
[62] SID, cl 7.2(b) and cl 9.6.
The arrangements under the terms of the proposed Scheme are supported by the Deed Poll. By the Deed Poll, Elemental covenants in favour of each Zenith Energy shareholder that it will perform all actions attributed to it under the Scheme. There is also an acknowledgement that the Deed Poll may be relied on and enforced by any Scheme shareholder in accordance with its terms and that Zenith Energy and each of its directors may act as agent and attorney to enforce the Deed Poll on behalf of the Zenith Energy shareholders.[63] In my view, the shareholders are sufficiently identified within the Deed Poll to enable them to enforce the deed poll as against Elemental.[64]
Exclusivity provisions and break fee
[63] Affidavit of Andrew Charlier filed 19 June 2020, 'AC-3', cl 2.
[64] Property Law Act 1969 (WA), s 11(1).
The SID contains the customary lock‑up devices in the form of 'no shop', 'no talk', 'no due diligence', 'notification obligations' and 'matching right' provisions.[65] The 'no talk' and 'no due diligence' provisions are subject to a fiduciary carve‑out.[66] In certain circumstances, a break fee of $1.51 million (plus GST) is payable by Zenith Energy to Elemental.[67]
[65] SID, cl 9.
[66] SID, cl 9.5.
[67] SID, cl 10.
In considering whether the exclusivity provisions impact on completion of the transaction and the duties of directors, the court has regard to:[68]
(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.
[68] Pacific Energy Limited [2019] WASC 443 [58]; Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 [29] - [35]; Re Kangaroo Resources Ltd [2018] WASC 327 [57] - [61].
In this case, the exclusivity period in the SID is defined and, at most, is a period of 6 months. The no‑talk and no due diligence provisions contain appropriate fiduciary carve‑outs.[69] The exclusivity arrangements are prominently disclosed in the Scheme booklet at section 4.9.[70]
[69] SID, cl 9.5.
[70] Fourth affidavit of Andrew James Pascoe filed 24 June 2020 'AJP-39'.
The Scheme booklet specifically discloses that the failure by shareholders to approve the Scheme will not trigger an obligation on the part of Zenith Energy to pay the Break Fee to Elemental.[71] I was and am satisfied that there is adequate disclosure of the Break Fee in the Scheme booklet.
[71] Scheme booklet, p 56.
The affidavit of Mr Torre of 19 June 2020 sets out the commercial justification for the exclusivity provisions and the Break Fee.[72] 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 Zenith Energy was advised and represented by external advisors including independent legal advisers.[73]
[72] Affidavit of Peter Patrick Torre filed 19 June 2020 [24] - [29].
[73] Affidavit of Peter Patrick Torre filed 19 June 2020 [27].
The amount of the Break Fee represents approximately 1% of the equity value of Zenith Energy based on the Scheme Consideration.[74] As such, it is within the generally accepted commercial parameters for break fees.
No collateral benefit which should prevent the approval of the Scheme
[74] Affidavit of Peter Patrick Torre filed 19 June 2020 [26].
The court must consider whether a benefit exists for one shareholder in particular so as to bring into question the overall fairness of the Scheme.[75] To determine whether there is a collateral benefit, the court considers the 'net benefits' test, to ensure that there is no overall disparity in favour of the party to the non‑Scheme transaction.[76] If no net benefit is present, then, prima facie, the equality principle under s 602(c) of the Act is satisfied.
[75] Re David Jones Ltd [No 2] [2014] FCA 753 [12] ‑ [16] (Farrell J).
[76] Takeovers Panel, Guidance Note 21: Collateral Benefits [15].
Zenith Energy drew my attention to one matter which may constitute a collateral benefit, that is, the benefits that may be received by the Rollover Shareholders. These benefits are prominently disclosed in the Scheme booklet.[77]
[77] Scheme booklet, [1.2], [1.3], [4.2], [6.6] and [9.1] - [9.5].
I accept that there is no collateral benefit that accrues to the Rollover Shareholders. Any differing consideration or additional consideration to be received by these shareholders is either not an additional benefit as to the scrip consideration (for the reasons set out at [74] ‑ [77] below) or is consideration for other matters and not for their shares.
Director benefits and director recommendations
Clause 6.1 of the SID requires that Zenith Energy use its best endeavours to procure that the Scheme booklet includes a statement that the board of directors of Zenith Energy unanimously recommend that shareholders vote in favour of the Scheme at the Scheme meeting in the absence of a superior proposal and subject to the independent expert concluding and continuing to conclude that the Scheme is in the best interest of shareholders.
The obligation in cl 6.1 is expressly subject to the provisions of cl 6.3(c) of the SID. Clause 6.3(c) provides that, in the case of a recommendation by Mr Walker and Mr Moffat, either can withdraw their recommendation so as not to make any recommendation 'only to the extent that, after first obtaining advice from independent counsel of the Western Australian bar, [he] reasonably determines that he has an interest in the Scheme that renders it inappropriate for him or her to make or maintain any such recommendation (Scheme Interest)' and the court would be unlikely to grant an order for the convening of the Scheme meeting or approving the Scheme 'solely as a result of the Scheme Interest'.
All of the directors of Zenith Energy have recommended that shareholders vote in favour of the proposed Scheme, in the absence of a superior proposal and provided that the independent expert continues to conclude that the Scheme is in the best interests of the Zenith Energy shareholders.[78] However, following conferral with ASIC, the Scheme booklet now separately details the recommendation by the independent board committee and the recommendation of Mr Walker and Mr Moffat. The Scheme booklet specifically states that, in having regard to the recommendation of Mr Walker and Mr Moffat, shareholders should consider the additional benefits they are to receive if the Scheme is implemented.[79]
[78] Scheme booklet, [1.1].
[79] Scheme booklet, p 12.
Section 1 of the Scheme booklet describes the interests held by Mr Walker and Mr Moffat that may be considered different and additional to other shareholders.[80] These include the Scrip Consideration each can elect to receive as Rollover Shareholders, the retention bonuses to be paid by Elemental following the Scheme implementation and the forgiveness of loans made by Zenith Energy to Mr Moffat in 2016 and 2019 to fund the purchase of Zenith Energy shares (Additional Benefits).
[80] Scheme booklet, [1.2].
As I noted in Re Dreamscape Networks Ltd, in a number of recent decisions, courts have considered the appropriateness of a director, who is to receive an additional financial benefit if the scheme is approved, making a recommendation to shareholders about voting in favour of the scheme.[81] It is not necessary for me to repeat what I said there. Those reasons for decision reflect my views on this matter.
[81] Re Dreamscape Networks Ltd [2019] WASC 412 [78] - [80].
Ultimately, for the reasons set out below and because of the resolution agreed with ASIC, this is not the occasion to address the apparently divergent views as to whether it is appropriate for the directors who will receive an additional financial benefit if the Scheme is approved to join in the unanimous recommendation to shareholders.[82] If the recommendations had not been disclosed separately for the independent board committee and the executive directors of Zenith Energy, it would have been necessary for me to specifically address this. This is because, in this case, the executive directors declared a material personal interest in the resolution of directors considering the Scheme and did not vote on the resolution to approve entry into the SID.[83] This contrasts with the position considered by the courts previously where the directors have participated in the resolution of directors to proceed with the scheme.[84]
[82] See for example Re Wellcom Group Ltd [2019] FCA 1655.
[83] Scheme booklet, p 20.
[84] See for example Re Villa World Ltd [2019] NSWSC 1207 [38] - [40]; Re SMS Management and Technology Limited [2017] VSC 257 [26].
The directors of Zenith Energy sought and obtained advice about the protocols that should be adopted by the board in considering the proposed Scheme. The independent board committee specifically considered whether it was appropriate for Mr Walker and Mr Moffat to make a recommendation on the Scheme. The reasons for their view that it was appropriate for such a recommendation to be made are set out in detail in the Scheme booklet[85] and include the expectation of shareholders that the executive directors would express a view on the Scheme given their depth of knowledge of the business.
[85] Scheme booklet, p 20 - 21.
I now turn to consider each of the Additional Benefits it is proposed that the directors will receive under the Scheme. In doing so, I have considered each of these matters by reference to the factors I set out in Re Dreamscape Networks Ltd at [80].
Scrip Consideration
The independent expert has considered the market value of the Scrip Consideration and formed the view that it is no greater than the fair market value of Zenith Energy's shares prior to the Scheme. As a result, in their view, the value of the scrip should not be seen as an additional benefit or interest in the context of the recommendation.[86]
[86] Fourth affidavit of Andrew James Pascoe filed 24 June 2020, 'AJP-39', pp 280 - 281.
I also take account of the fact that the Scrip Consideration is a requirement of Elemental. In agreeing to offer $1.01 per share, Elemental required the Rollover Shareholders remain invested in the business and take some of the consideration for their shares as Scrip Consideration.[87]
[87] Affidavit of Peter Patrick Torre filed 19 June 2020 [53].
For these reasons, I consider that there is a commercial rationale for the Scrip Consideration, the total consideration to be received is no greater than the fair market value of the shares and the Scheme booklet makes appropriate and prominent disclosure of this matter. I also note that this is an approach which has occurred in other schemes which have been approved by the court.[88]
Retention bonuses
[88] See Re Navitas Limited; Re QMS Media Limited [2019] FCA 2172.
Retention bonuses are payable to both Mr Walker and Mr Moffat on the implementation of the Scheme. Mr Walker will receive $500,839 and Mr Moffat will receive $545,786.[89] The evidence before the court was that in the 2018/19 financial year, Mr Walker's fixed remuneration for the year was $498,052 and Mr Moffat's was $521,543.[90] That is, the retention bonuses payable to each of Mr Walker and Mr Moffat are the equivalent of approximately one year's fixed remuneration.
[89] Scheme booklet, [1.2].
[90] First affidavit of Andrew James Pascoe filed 21 April 2020, 'AJP-7', p 515.
As was noted by Vaughan J in Re Mod Resources Ltd, there are good commercial reasons why a retention bonus may be offered to key executives following a change of control.[91] There is nothing on the evidence before me to suggest that the bonuses to be paid are anything more than genuine retention arrangements. For these reasons, I consider there is a commercial rationale for the payments which are not excessive or unwarranted.
[91] Re MOD Resources Ltd [2019] WASC 326 [87].
Importantly, the amounts payable to Mr Walker and Mr Moffat are fully disclosed in the Scheme booklet.[92]
Loan forgiveness
[92] Scheme booklet, [1.2].
It is proposed that Zenith Energy will forgive loans provided by the company to Mr Moffat.
The history of this arrangement was in evidence before me. In summary, the loans were provided to Mr Moffat to fund his acquisition of shares in Zenith Energy prior to Zenith Energy's initial public offering in 2017. In 2019, prior to, and independently of, PEP's initial offer in respect of the Scheme, the directors of Zenith Energy decided there was a commercial rationale for the forgiveness of the loan and had commenced processes to obtain the approval of shareholders for its forgiveness.[93] However, a resolution for approval of the loan forgiveness had not been put to the shareholders prior to the proposed Scheme. As at the date of the Scheme booklet, the value of the forgiveness of the shareholder loans by Mr Moffat is approximately $1 million.[94]
[93] Affidavit of David Noel Riekie filed 19 June 2020 [6]; Scheme booklet, [9.5], p 105.
[94] Scheme booklet, [1.2], [6.5] and [9.5].
In Re Dulux Group Limited,[95] it was proposed that 30% of each loan made under an employee incentive plan be forgiven subject to the scheme becoming effective. In that case, O'Bryan J considered that the amount to be received per share by each of the relevant employees was the scheme consideration plus the face value of the 30% of the loan forgiven. His Honour held that the forgiveness was not immaterial but was modest in comparison to the scheme consideration.[96]
[95] Re Dulux Group Limited [43].
[96] In that case, the scheme consideration was $9.37, compared to the 30% face value of the loan forgiveness of $1.60 per share.
In this case, the amount of the loan forgiveness to be received by Mr Moffat is $1 million or approximately 16% of the total financial benefit he will receive. Senior counsel for the plaintiff contended that this was comparable to the facts in Re Dulux Group Limited, where the loans were 14.6% of the total consideration received.[97]
[97] Plaintiff’s submissions [125].
I consider that the loan forgiveness is not out of the ordinary and is within the scope of what might be considered commercial. Importantly, the forgiveness of the loan had been considered by the directors of Zenith Energy prior to the Scheme and had the Scheme not been proposed, would have been put to shareholders for their approval.
I also note that the letter from Mr Torre to shareholders and the 'Frequently Asked Questions' sections of the Scheme Booklet both highlight the Additional Benefits as well as the detailed process that was adopted by the directors in considering the proposed Scheme. This discloses that legal advice was taken as to the protocols that should be adopted for the consideration of the Scheme.
For these reasons, it was and is my view that the Additional Benefits to be received by Mr Walker and Mr Moffat as disclosed in detail in the Scheme booklet did not make it inappropriate for them to make a separate recommendation in respect of the Scheme.
Non-executive directors
Senior counsel for the plaintiff drew to my attention the payments of $100,000 that will be made to each of the non-executive directors of Zenith Energy for their work in connection with the consideration and implementation of the Scheme.
No concern arises in relation to these payments as they are not dependent on the shareholders voting in favour of the Scheme.[98] As a result, it cannot be said that these payments are an inducement to these directors to support the Scheme; rather they reflect the additional workload of each of these directors arising out of the Scheme.
Other matters
[98] See Re Navitas Ltd [No 2] [2019] WASC 218 [34]; Re Gazal Corporation Ltd [2019] FCA 701 [30].
Counsel for Zenith Energy drew my attention to the 'deemed warranty' provision in the proposed Scheme.[99] The warranty provision is disclosed in the Scheme booklet.[100] Deemed warranty clauses are not unusual and are acceptable provided there is adequate disclosure that it is a condition.[101]
[99] Scheme, cl 9.4.
[100] Scheme booklet, [2.4], [3] and [4.12(e)].
[101] 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 [2019] WASC 189 [90]; Re Macquarie Private Capital A Ltd [2008] NSWSC 323 [13] - [14]; Re Doray Minerals Ltd [2019] WASC 57 [71].
In addition, the Scheme provides that, to the extent permitted by law, the Zenith Energy shares will transfer free from encumbrances and restrictions on transfer of any kind.[102] The terms of this clause is in standard terms and includes the opening words 'to the extent permitted by law'. The inclusion of these words address the concern that has previously been expressed as to whether third parties may otherwise gain the impression that their rights have been extinguished.[103]
[102] Scheme, cl 9.13.
[103] Re Investa Properties Ltd [2007] FCA 1104 [25] ‑ [30]; Re Scarborough Equities Ltd [No 2] [2009] FCA 484 [9] - [10].
Additionally, the plaintiff sought orders pursuant to s 1319 of the Act for electronic dispatch of the scheme booklet. I note that these orders are now common.[104] Details were provided as to the terms of the proposed electronic notification.[105] I was satisfied, having read the terms of the proposed email communication to security holders, that an order for electronic dispatch of the scheme booklet was appropriate.
[104] See, for example, Re SRG Ltd [48]; Re Doray Minerals [72].
[105] Third affidavit of Andrew James Pascoe filed 23 June 2020, 'AJP-34'; Affidavit of Peter Patrick Torre filed 19 June 2020 [115] - [116].
In response to the current COVID‑19 pandemic, Commonwealth, State and Territory governments have passed legislation, made regulations and issued directives which prevent interstate and overseas shareholders of Zenith Energy from physically attending meetings held in Western Australia, where Zenith Energy is based.[106] As a result of the restrictions, Zenith Energy sought directions pursuant to s 1319 of the Act that the Scheme meetings be conducted as a virtual meeting.[107]
[106] Second affidavit of Andrew James Pascoe filed 19 June 2020 [8] - [13].
[107] Third affidavit of Andrew James Pascoe filed 23 June 2020 'AJP-31', p 382 - 397.
Senior counsel for the plaintiff drew my attention to cl 5 of the Corporations (Coronavirus Economic Response) Determination (No 1) 2020 (Cth) which facilitates the use of one or more technologies to give all persons entitled to attend a meeting a reasonable opportunity to participate without being physically present.
Zenith Energy proposes that the Scheme meetings be held on an online platform that records each shareholder's attendance, permits them to view the meeting live, ask questions and, subject to the qualification below, vote at the meeting. Senior counsel drew my attention to a limitation with the online platform. The platform will not allow a shareholder attending the virtual meeting to cast a vote at the meeting if they have lodged a proxy. This is inconsistent with the position under the constitution of Zenith Energy[108] but is the only way the platform can operate.
[108] Constitution, cl 13.28.
I am and was satisfied that Zenith Energy's shareholders will have a proper and reasonable opportunity to attend, participate in and vote at the Scheme meetings. Further, the court retains its supervisory jurisdiction to consider at the second court hearing whether to approve the Scheme.
I am satisfied that the online platform proposed by the plaintiff meets the requirements of pt 2G.2 of the Act.
Zenith Energy also sought a direction permitting the directors to release ASX announcements regarding any corrections, clarifications or changes to the online platform which are required to ensure its shareholders have a reasonable opportunity to participate in the meeting. I did not and do not consider there is any difficulty with this approach.
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.
Conclusion on First Hearing
At the hearing before me, I was satisfied that the substantive and procedural requirements under s 411(1) of the Act had been satisfied and that the proposed Scheme was fit for consideration by Zenith Energy's members.
For these reasons, at the conclusion of the hearing on 25 June 2020, I made orders in terms of Annexure 'A' to this judgment in respect of the Scheme.
ANNEXURE A
IN THE SUPREME COURT OF WESTERN AUSTRALIA
EX PARTE:
ZENITH ENERGY LIMITED (ACN 615 682
203)
COR/51/2020
First Plaintiff
ORDER OF JUSTICE HILL MADE 25 June 2020
IT IS ORDERED that:1.Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (Corporations Act), the Plaintiff convene two separate meetings of the shareholders of the Plaintiff for the purpose of considering and, if thought fit, agreeing to (with or without modification) a proposed scheme of arrangement (Scheme) between the Plaintiff and its members (Shareholders), being the Scheme substantially in the form set out at pages 353 to 366 of Attachment AJP-39 to the affidavit of Andrew James Pascoe filed 24 June 2020 (Fourth Pascoe Affidavit) as follows:
(a) one scheme meeting for a class of Shareholders (Rollover Shareholders) comprising Zanea Pty Limited (ACN 009 396 623), Enertech Pty Ltd (ACN 009 080 899), Mr Hamish Moffat, Mr Hamish Robert Moffat and Mrs Susan Cassandra Moffat, ACN 635 089 717 Pty Ltd, Mr Graham Cooper and the registered holder, as at 5:00pm (AWST) on 29 July 2020, of the 26,309,402 ordinary shares in the Plaintiff held for the benefit of the Apex Opportunities Trust (the trustee of which was, as at 29 May 2020, Apex Opportunities Fund Pty Limited ACN 634 981 409) to be held as a virtual meeting immediately following the General Scheme Meeting (the subject of order 1b below) but not before 10.30am (AWST) on Friday, 31 July 2020 (Rollover Shareholders Scheme Meeting); and
(b) a separate scheme meeting for a class of Shareholders (General Shareholders) comprising all Shareholders other than Rollover Shareholders, to be held as a virtual meeting at 10.00am (AWST) on Friday, 31 July 2020 (General Scheme Meeting)
(together the Rollover Shareholders Scheme Meeting and the General Scheme Meeting are referred to in these orders as the Scheme Meetings).
2.Pursuant to section 411(1) of the Corporations Act, the Scheme Booklet in the form attached as Attachment AJP-39 to the Fourth Pascoe Affidavit (Scheme Booklet), which contains an explanatory statement required by section 412(1)(a) of the Corporations Act, be approved for dispatch to Shareholders, subject to:
(a) the correction of any minor typographical errors or grammatical errors and final typesetting and formatting;
(b) any minor amendments required or approved by the Australian Securities and Investments Commission (ASIC) for registration under section 412(6) of the Corporations Act;
(c) the correction or update of any relevant date references or last trading prices; and
(d) adopting any amendments approved by the Court at the First Court Hearing.
3.Subject to these orders and pursuant to section 1319 of the Corporations Act, the Scheme Meetings be:
(a) convened using the notice of meeting substantially in the form contained in Annexure D to the Scheme Booklet for the General Scheme Meeting and substantially in the form contained in Annexure E to the Scheme Booklet for the Rollover Shareholders Scheme Meeting, which notices will not specify a physical location for the meeting;
(b) convened, held and conducted in accordance with the provisions of Part 2G.2 of the Corporations Act that apply to members of a company, and the provisions of the Plaintiff's constitution that are not inconsistent with Part 2G.2 of the Corporations Act and that apply to meetings of members;
(c)
held and conducted electronically, without any physical meeting of two or more Shareholders being held, pursuant to the arrangements for attending, participating and voting described in the notice convening the relevant meeting, including in respect of the appointment and revocation of proxy and attorney appointments and in respect of the effect of a Shareholder's attendance at a Scheme Meeting on a proxy or attorney appointment by that Shareholder (Electronic Meeting Arrangements); and
(d) convened, held and conducted as if rule 2.15 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Rules) does not apply.
4.Subject to registration of the Scheme Booklet with ASIC pursuant to section 412(6) of the Corporations Act, the Plaintiff dispatch on or before 1 July 2020 the Scheme Booklet, substantially in the form of the document referred to in order 1 above, and the applicable proxy form and election form to the Shareholders who appear on the register of members of the Plaintiff as at 5:00pm (AWST) on 24 June 2020 by sending:
(a) in the case of each Shareholder who has nominated an email address for the purpose of receiving shareholder communications, an email substantially in the form attached to the Third Pascoe Affidavit as attachment AJP-34 to the nominated email address, with such email to contain a link to a website which enables those Shareholders to access the Scheme Booklet and to lodge a proxy form for the applicable Scheme Meeting (and, for Rollover Shareholders, to make an election under the terms of the Scheme);
(b) in the case of each other Shareholder who has a registered address in Australia:
(i)a letter substantially in the form attached to the Third Pascoe Affidavit as attachment AJP-35 by ordinary pre-paid post addressed to the Shareholder's registered address, with such letter to contain the address of a website which enables those Shareholders to access the Scheme Booklet and to lodge a proxy form for the applicable Scheme Meeting (and, for Rollover Shareholders, to make an election under the terms of the Scheme); and
(ii)a proxy form for the applicable Scheme Meeting substantially in the form attached to the Third Pascoe Affidavit as attachment AJP-32 (in the case of General Shareholders) and attachment AJP-33 (in the case of Rollover Shareholders);
(c) in the case of each other Shareholder who has a registered address outside Australia:
(i)a letter substantially in the form attached to the Third Pascoe Affidavit as attachment AJP-35 by pre-paid airmail or air courier to the Shareholder's registered address, with such letter to contain the address of a website which enables those Shareholders to access the Scheme Booklet and to lodge a proxy form for the applicable Scheme Meeting (and, for Rollover Shareholders, to make an election under the terms of the Scheme); and
(ii)a proxy form for the applicable Scheme Meeting substantially in the form attached to
the Third Pascoe Affidavit as attachment AJP-32 (in the case of General Shareholders) and attachment AJP-33 (in the case of Rollover Shareholders),
and dispatch of the Scheme Booklet in accordance with this order 5 shall be taken to be sufficient notice of the Scheme Meetings.
5.If it comes to the attention of the Plaintiff that any email dispatched in accordance with order 5(a) above has returned an undeliverable or undelivered receipt for a Shareholder's nominated email address, then the Plaintiff shall dispatch to that Shareholder within a reasonable time thereafter a letter and proxy form in accordance with order 5(b) or 5(c) above (as applicable).
6.Shareholders must lodge their proxy forms for the Scheme Meetings by 10:00am (AWST) on 29 July 2020.
7.Mr Peter Patrick Torre or, failing him, Mr David Noel Riekie, shall act as chairperson of the Scheme Meetings (Chairperson) and report the results of the Scheme Meetings to this Court.
8.The Chairperson shall have the power to adjourn each Scheme Meeting to such time, date and place as he considers appropriate.
9.
The board of the directors of the Plaintiff shall have the power to approve for lodgement on the Plaintiff's ASX announcements platform announcements regarding corrections, clarifications or changes to the Electronic Meeting Arrangements where, in the board's discretion, such corrections, clarifications or changes are necessary to ensure that General Shareholders as a whole will have a reasonable opportunity to participate in the General Scheme Meeting and that Rollover Shareholders as a whole will have a reasonable opportunity to participate in the Rollover Shareholders Scheme Meeting, and such announcements will be taken to be sufficient notice of any corrections, clarifications or changes to the Electronic Meeting Arrangements provided they are made on or before 24 July 2020 and are explained by the Chairperson at the commencement of each Scheme Meeting.
10.Two Shareholders present (pursuant to the Electronic Meeting Arrangements) in person or by proxy, corporate representative or attorney under power and entitled to vote shall constitute a quorum for each Scheme Meeting.
11.Voting on the resolutions to approve the Scheme be conducted by way of poll pursuant to the Electronic Meeting Arrangements.
12.At the Scheme Meeting, each Shareholder present (pursuant to the Electronic Meeting Arrangements) and entitled to vote will be entitled to one vote for each fully paid ordinary share in the capital of the Plaintiff that the Shareholder is registered as holding at 5:00pm (AWST) on 29 July 2020.
13.The matter be relisted for 9:30am (AWST) on 6 August 2020 following the Scheme Meeting for an application under subsections 411(4) and 411(6) of the Corporations Act for approval of the Scheme.
14.If the matter is relisted, the Plaintiff give notice of the hearing of the application pursuant to subsection 411(4)(b) of the Corporations Act for orders approving the Scheme by placing an advertisement in the "The Australian" and "The West Australian" newspapers, substantially in the form annexed to these orders and marked 'A' (which form departs from the wording in Form 6 of the Rules (including by not stating the outcome of the Scheme Meeting)), such advertisement to be published at least five days before any date allocated for the hearing, and the Plaintiff shall otherwise be exempted from compliance with rule 3.4 of the Rules.
15.There be liberty to the Plaintiff to apply upon giving 24 hours' notice to ASIC.
16.These orders be entered forthwith.
17.An office copy of the orders made at the First Court Hearing be lodged with ASIC as soon as
practicable after the orders are made.
BY THE COURT THE HONOURABLE JUSTICE J HILL
ANNEXURE 'A'
Notice of hearing to approve arrangement
TO the members of Zenith Energy Limited ACN 615 682 203 (Zenith)
TAKE NOTICE that at 9:30am (AWST) on Thursday, 6 August 2020 at the Supreme Court of Western Australia, 28 Barrack Street, Perth, Western Australia, the Supreme Court of Western Australia will hear an application by Zenith seeking the approval of an arrangement between Zenith and its members, if agreed to by resolution to be considered by the members of Zenith at two meetings of the members to be held on Friday, 31 July 2020 as virtual meetings pursuant to the electronic arrangements described in the notices convening such meetings, with the first meeting commencing at 10:00am (AWST) and the second meeting commencing immediately following the conclusion of the first meeting (but not before 10:30am (AWST)).
If you wish to oppose the approval of the arrangement, you must file and serve on Zenith a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on Zenith at its address for service at least one day before the date fixed for the hearing of the application.
The address for service on Zenith is: c/o Allens, Level 37, QV.1 Building, 250 St Georges Terrace, Perth WA 6000 (Attention: Andrew Pascoe)
Note that the hearing of Zenith's application on 6 August 2020 may be conducted by teleconference or videoconference. For information on how to attend the hearing, please visit or call the Supreme Court General Division Registry on (08) 9421 5333.
Peter Tazewell
Chief Financial Officer and Company Secretary Zenith Energy Limited
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MG
Research Orderly to the Honourable Justice Hill
16 JULY 2020
14
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