Re Zenith Energy Ltd [No 3]
[2020] WASC 289
•6 AUGUST 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: RE ZENITH ENERGY LTD; EX PARTE ZENITH ENERGY LTD [No 3] [2020] WASC 289
CORAM: HILL J
HEARD: 6 AUGUST 2020
DELIVERED : 6 AUGUST 2020
FILE NO/S: COR 51 of 2020
EX PARTE
ZENITH ENERGY LTD
Plaintiff
Catchwords:
Corporations law - Scheme of arrangement - Application for orders approving scheme under s 411(b) of the Corporations Act 2001 (Cth) - Orders made approving scheme
Legislation:
Corporations Act (Cth), s 411, s 1319
Result:
Orders made approving the Scheme
Category: B
Representation:
Counsel:
| Plaintiff | : | SK Dharmananda SC & J Sippe |
Solicitors:
| Plaintiff | : | Allens |
Case(s) referred to in decision(s):
Re Auzex Resources Ltd [No 2] [2012] QSC 101
Re Avoca Resources Ltd [2011] FCA 208
Re Cortona Resources Ltd [No 2] [2013] FCA 302
Re Decimal Software Limited [No 2] [2018] FCA 2040
Re Foundation Healthcare Ltd [No 2] [2002] FCA 973; (2002) 43 ACSR 680
Re Great Artesian Oil and Gas Ltd [No 2] [2008] FCA 1169
Re International Goldfields Ltd [2004] WASC 112
Re Pensana Metals Ltd; Ex parte Pensana Metals Limited [2020] WASC 17
Re Rebel Sport Ltd [No 2] [2007] FCA 458
Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583
Re Straits Resources Ltd [No 2] [2011] FCA 47
Re TriAusMin Limited [No 2] [2014] FCA 833
Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [2018] WASC 357
Re Zenith Energy Ltd; Ex parte Zenith Energy Ltd [2020] WASC 266
Re Zenith Energy Ltd; Ex parte Zenith Energy Ltd [No 2] [2020] WASC 275
HILL J:
The plaintiff, Zenith Energy Ltd (Zenith Energy), applies for orders approving a proposed scheme of arrangement (Scheme). The background to the matter is set out in the judgment that I gave following the first court hearing.[1] At the first court hearing, I made orders for two separate Scheme meetings to be convened. I made further orders on 22 July 2020 approving a supplementary Scheme booklet to be dispatched to shareholders following the amendment to the proposed Scheme to increase the cash consideration payable under to shareholders.[2]
[1] Re Zenith Energy Ltd; Ex parte Zenith Energy Ltd [2020] WASC 266.
[2] Re Zenith Energy Ltd; Ex parte Zenith Energy Ltd [No 2] [2020] WASC 275.
The Scheme meetings were convened and held on 31 July 2020. At these meetings, the shareholders approved the proposed amendments to the Scheme and approved the amended Scheme by the requisite statutory majorities.
General Scheme Meeting
The general Scheme meeting was attended virtually by 14 persons which constituted a quorum for the meeting.[3] The resolution to agree to the Scheme (General Scheme Resolution) was presented to shareholders following the resolution to amend the General Scheme Resolution (Amending Resolution).[4]
[3] Affidavit of Peter Patrick Torre filed 4 August 2020 [14].
[4] Affidavit of Peter Patrick Torre filed 4 August 2020 [17].
431 shareholders were present at the general Scheme meeting in person and by proxy, comprising 81.8% of the eligible shareholders by votes and approximately 38.41% of the eligible shareholders by number.[5]
[5] Affidavit of Peter Patrick Torre filed 4 August 2020 [23].
No votes were cast against the Amending Resolution at the general Scheme Meeting.[6] The total number of votes cast on the Amending Resolution was 58,636,558 representing 66.33% of the total number of voting shares in Zenith Energy.
[6] Affidavit of Peter Patrick Torre filed 4 August 2020 [25(a) - (b)].
In respect of the general Scheme Resolution, 81.07% of were cast in favour of the resolution, being 95.57% of shareholders attending and voting at the meeting.[7] The total number of votes cast was 72,340,703 representing 81.84% of the total number of voting shares.[8]
[7] Affidavit of Peter Patrick Torre filed 4 August 2020, 'PPT-12', p 27.
[8] Affidavit of Peter Patrick Torre filed 4 August 2020 [22].
Rollover Shareholders Scheme Meeting
The Rollover Shareholders Scheme meeting was attended virtually by three persons which constituted a quorum for the meeting.[9]
[9] Affidavit of Peter Patrick Torre filed 4 August 2020 [30].
Mr Torre, the chairperson of the meeting, presented the resolution to agree to the Scheme (Rollover Shareholders Scheme Resolution) following the amendment of this resolution (Rollover Amending Resolution).[10]
[10] Affidavit of Peter Patrick Torre filed 4 August 2020 [32] - [33].
Seven shareholders voted in the Rollover Shareholders Scheme meeting, comprising 100% of the Rollover Shareholders.[11] The total number of votes cast for both the Rollover Amending Resolution and the Rollover Shareholders Scheme Resolution was 61,072,556 representing 100% of the total number of the voting shares of the Rollover Shareholders in Zenith Energy.[12]
[11] Affidavit of Peter Patrick Torre filed 4 August 2020 [38].
[12] Affidavit of Peter Patrick Torre filed 4 August 2020 [37].
Approval of Scheme
This matter came back before me for the second court hearing on 6 August 2020.
In addition to the affidavits that were relied upon at the first and interlocutory hearings, Zenith Energy relied on the following additional affidavits:
(a)an affidavit of David Charles Bell filed 4 August 2020, a data programmer with Mailing Solutions Pty Ltd, a printing and distribution service engaged by the plaintiff to print and dispatch the Scheme booklet, as well as the email broadcast to shareholders who had nominated an electronic address for service;
(b)an affidavit of Lachlan Kenneth Smith filed 4 August 2020, the manager of Mailing Solutions Pty Ltd, in relation to the printing and dispatch of the Scheme booklet to new shareholders;
(c)a second affidavit of Peter Patrick Torre filed 4 August 2020, the chairperson of the Scheme meetings, confirming that neither Zenith Energy nor its solicitors had received any notice of objection from any shareholder, providing a report on the Scheme meetings, the minutes of both meetings and the announcement made to the Australian Securities Exchange (ASX) following the Scheme meetings;
(d)a sixth affidavit of Andrew James Pascoe filed 4 August 2020, a partner at Allens, the plaintiff's solicitors, in relation to the registration of the Scheme booklet, the supplementary Scheme booklet, the publication of notices of hearing and annexing correspondence with ASIC regarding the second court hearing;
(e)an affidavit of Christian Omar Hernandez filed 4 August 2020, the State Manager of Link Market Services Limited, who maintain the plaintiff's share register. Mr Hernandez gave details of the information sent to shareholders either electronically or via post, instructions given for the printing of the Scheme booklet and the supplementary Scheme booklet, the identification of new shareholders on 2, 8 and 15 July 2020 and the dispatch of the Scheme booklet and the supplementary Scheme booklet to these shareholders, the lodgement of hard copy and electronic proxies by shareholders, the return of the election forms by the Rollover Shareholders and the voting results of both Scheme meetings;
(f)a third affidavit of Mr Torre filed 5 August 2020 correcting some typographical errors in his second affidavit; and
(g)a seventh affidavit of Mr Pascoe filed 6 August 2020 annexing emails between Allens and ASIC regarding the Scheme meetings, correspondence received from ASIC confirming that ASIC had no objection to the proposed Scheme under s 411(17)(b) of the Act, the certificates issued by Zenith Energy and Elemental confirming that all conditions precedent (apart from the orders sought at the second court hearing) had been satisfied and a letter from Grant Thornton confirming that nothing had come to their attention that would lead them to change their Independent Expert opinion on the Scheme.
These additional affidavits address the matters that Zenith Energy was required to establish at the second court hearing.
Legal Principles in respect of the Scheme Approval
The approval of the proposed Scheme pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Act), or the second court hearing, is the third stage of approval for a scheme of arrangement. The second stage is the approval of the Scheme by the requisite statutory majorities, which occurred at the Scheme meetings.
At the second court hearing, the court has two tasks:[13]
(a)to ensure that all statutory and procedural requirements have been satisfied. This includes confirming that:[14]
i.the meeting was convened and held in accordance with the court's earlier orders,
ii.the resolutions were passed with the requisite statutory majorities; and
iii.the plaintiff otherwise complied with the court's earlier orders;
(b)to determine, in the exercise of the court's discretion, whether to approve the proposed arrangement.
[13] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [2018] WASC 357 [12].
[14] Re International Goldfields Ltd [2004] WASC 112 [7].
The court has a discretion to approve a scheme under s 411(4)(b) and is not bound to approve a scheme just because the court previously made orders for the convening of a meeting or because the statutory majorities have been achieved.[15] That said, the court will usually approach the task on the basis that shareholders are better judges of what is in their commercial interests than the court.[16]
[15] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583 [31].
[16] Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd [No 3] [32] - [33].
The factors that inform the court's discretion whether or not to approve the scheme are:[17]
(a)whether the members have voted in good faith and not for an improper purpose;
(b)whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it;
(c)whether the plaintiff has brought to the attention of the court all matters that could be considered relevant to the exercise of the court's discretion;
(d)whether there has been full and frank disclosure of all information material to the members' decision;
(e)whether minority shareholders would be oppressed by the scheme;
(f)whether the court is satisfied that the scheme has not been proposed to avoid ch 6 of the Act;
(g)whether ASIC has an objection to the scheme; and
(h)whether the scheme offends public policy.
[17] Re Seven Network Ltd [No 3] [35] - [40], [50], [52].
Disposition
Compliance with statutory and procedural requirements
I am and was satisfied, on the basis of the additional affidavits that were filed by Zenith Energy that:
(a)a copy of the court's orders made on 25 June 2020 were lodged with ASIC that day;[18]
(b)a copy of the scheme booklet that was approved for distribution by the court was lodged with ASIC and registered on 25 June 2020;[19]
(c)a copy of the court's orders made on 22 July 2020 approving the supplementary Scheme booklet were lodged with ASIC that day;[20]
(d)the Scheme booklet was dispatched to security holders in accordance with my orders of 25 June 2020;[21]
(e)the Scheme meetings were convened and held on 31 July 2020 in accordance with my orders of 25 June 2020;[22]
(f)the Scheme was approved by the requisite statutory majorities;[23]
(g)notice of the second court hearing was given by way of advertisement in The West Australian and The Australian newspapers on 30 July 2020;[24] and
(h)ASIC informed Zenith Energy on 5 August 2020, pursuant to s 411(17)(b) of the Act, that it has no objection to the proposed Scheme.[25]
[18] Sixth affidavit of Andrew James Pascoe filed 4 August 2020 [5], 'AJP-57'.
[19] Sixth affidavit of Andrew James Pascoe filed 4 August 2020 [7], 'AJP-58'.
[20] Sixth affidavit of Andrew James Pascoe filed 4 August 2020 [11], 'AJP-61'.
[21] Affidavit of Christian Omar Hernandez filed 4 August 2020 [22] - [52].
[22] Affidavit of Christian Omar Hernandez filed 4 August 2020 [75] - [96]; second affidavit of Peter Patrick Torre filed 4 August 2020 [5] - [6].
[23] Affidavit of Christian Omar Hernandez filed 4 August 2020 [84] - [86] and [94] - [96]; second affidavit of Peter Patrick Torre filed 4 August 2020 [25] - [26] and [40] - [41].
[24] Sixth affidavit of Andrew James Pascoe filed 4 August 2020 [15] - [16], 'APJ-65' and 'APJ-66'.
[25] Seventh affidavit of Andrew James Pascoe filed 6 August 2020, 'AJP78'.
Mr Dharmananda, senior counsel for the plaintiff, drew my attention to the fact that 133,413,259 of the 149,469,586 Zenith Energy shares on issue voted at the Scheme meetings (or approximately 89.25% of voters), although they represented only 39% of shareholders by number.
As was stated by Farrell J in Re TriAusMin Limited [No 2]:[26]
It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme; apathy should not be presumed to be antagonism.
Nonetheless it does call for consideration to ensure that the vote [was] not unrepresentative, since the court retains the discretion to withhold its approval in that case. It is relevant to consider whether members have been deterred from attending or voting at the meeting.
[26] ReTriAusMin Limited [No 2] [2014] FCA 833 [10] - [11].
I respectfully agree with her Honour's view.
In any event, relatively low shareholder turnout does not prevent the court from making orders approving a scheme of arrangement.[27]
[27] See for example Re Foundation Healthcare Ltd [No 2] [2002] FCA 973; (2002) 43 ACSR 680 [22] (44.23% of shareholders voting); Re Rebel Sport Ltd [No 2] [2007] FCA 458 [6] (24.99% of shareholders holding 83.59% of shares) Re Avoca Resources Ltd [2011] FCA 208 [25] (11.49% of shareholders holding 72.38% of shares); Re Great Artesian Oil and Gas Ltd [No 2] [2008] FCA 1169 [3] (24.6% of shareholders voting); Re Straits Resources Ltd [No 2] [2011] FCA 47 [12] (10.8% of shareholders holding 74% of shares); Re Cortona Resources Ltd [No 2] [2013] FCA 302 [12] (17.5% of shareholders holding 45.2% of shares); Re Auzex Resources Ltd [No 2] [2012] QSC 101 [18] (9.75% of shareholders representing 42.3% of votes); Re TriAusMin Limited [No 2] [9] (10.94% of shareholders holding 52.9% of shares); Re Decimal Software Limited [No 2] [2018] FCA 2040 [15] - [16] (5.21% of shareholders holding 52.85% of shares); Re Pensana Metals Ltd; Ex parte Pensana Metals Limited [2020] WASC 17 [12] (6.41% of shareholders holding 37.08% of shares).
I was and am satisfied that there was a sufficient turnout at each of the Scheme meetings. I do not consider that the low voter turnout by number of shareholders, in itself, suggested there had been an error in the dispatch of the Scheme booklet or supplementary Scheme Booklet, nor that this should prevent the court from making orders under s 411(4)(b). In this respect, I have had regard to the following matters:
(a)the shareholders who did vote at the Scheme meetings voted in favour of the Scheme;
(b)there was nothing which suggested irregularity in the dispatch of the Scheme booklets;
(c)there was no evidence of any issue which would have deterred shareholders from voting at or attending the Scheme meetings.
Senior counsel for the plaintiff drew to my attention the change Zenith Energy made to the virtual meeting arrangements for the Rollover Shareholders meeting. The evidence before me is that 100% of voters eligible to attend the Rollover Scheme meeting attended the meeting. For this reason, I am satisfied that this was not an issue that deterred any shareholder from attending the Rollover Scheme meeting.
Accordingly, I was and am satisfied that all statutory pre‑conditions have been met. I now turn to consider the discretionary considerations.
Good faith and proper purpose
There is no evidence that the shareholders voted for an improper purpose. I am satisfied on the evidence that has been filed by Zenith Energy that the members voted in good faith and for a proper purpose as:
(a)the purpose of the proposed Schemes is to effect the acquisition of all Zenith Energy shares by Elemental, which is a transaction ordinarily approved by courts. It does not involve any novel treatment of rights of shareholders. Rather, current shareholders will receive a cash consideration of $1.05 per share. For this reason, voting in favour of the proposed Scheme is unlikely to be motivated by some improper purpose;
(b)the independent expert opined that in the absence of an alternate proposal (and none has emerged), the Scheme is in the best interests of shareholders; and
(c)neither ASIC nor any shareholder appeared at the second court hearing to object to approval of the proposed Scheme.
Fairness and reasonableness
At the first hearing, based on the evidence before the court, I was satisfied that the proposed acquisition of Zenith Energy by Elemental was of such a nature that there was no apparent reason that it should not receive approval if the requisite voting majorities were achieved at the Scheme meetings.
Nothing has occurred since the date of the first hearing to change this view. The shareholders who voted at the meeting overwhelmingly supported the proposed Scheme. No shareholder appeared to oppose the orders sought at the second court hearing. I was and am satisfied that the proposed Scheme is fair and reasonable and is a Scheme that sensible business people might consider to be of benefit to shareholders.
All relevant matters brought to the court's attention
At the first court hearing, counsel for Zenith Energy drew my attention to a number of matters. These are summarised in Re Zenith Energy Ltd; Ex parte Zenith Energy Ltd at [36] ‑ [98].[28]
[28] Re Zenith Energy Ltd; Ex parte Zenith Energy Ltd.
There were two further matters that counsel drew my attention to at the second court hearing. First, evidence was put before the court to demonstrate that the conditions precedent to the Scheme (apart from the court's approval at the second court hearing) had been satisfied or waived.[29] Second, Zenith Energy sought an exemption from s 411(11) of the Act. In my view, there is no utility in requiring the court's orders approving the Scheme to be annexed to Zenith Energy's constitution as the orders do not affect any change to the constitution. I considered it was and is appropriate in the circumstances of this case to make the orders sought under s 411(12) of the Act.
Full and fair disclosure
[29] Seventh affidavit of Andrew James Pascoe filed 6 August 2020, 'AJP75', 'AJP76'.
At the first court hearing and the interlocutory hearing, based on the evidence before the court, I was satisfied that the draft Scheme booklet and supplementary Scheme booklet would provide full and fair disclosure to shareholders.
The additional affidavit evidence filed by Zenith Energy establishes that the Scheme booklet and supplementary Scheme booklet dispatched to shareholders was in the form approved for distribution by the court. Nothing has arisen to suggest that there has not been full and fair disclosure of all information that was material to the decision of shareholders prior to them voting on the Scheme.
Oppression of minorities
There was no evidence that any minority has been oppressed.
Satisfaction of s 411(17) and ASIC's view
ASIC has provided a written statement to the effect that it does not object to the Scheme pursuant to s 411(17)(b) of the Act.[30] As a result, the requirements of s 411(17) have been satisfied. In any event, having regard to the nature of the proposed restructure, it cannot be said that the Scheme was proposed to avoid the operation of ch 6 of the Act.
Public Policy
[30] Seventh affidavit of Andrew James Pascoe filed 6 August 2020, 'AJP78'.
There is no evidence before the Court that the proposed Scheme offends any aspect of public policy. Given the nature of the proposed Scheme, it is my view that it could not be sensibly suggested that the Scheme offends public policy.
Conclusion and Orders
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 I should approve the proposed Schemes.
For these reasons, at the conclusion of the hearing on 6 August 2020, 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.
MG
Research Orderly to the Honourable Justice Hill
6 AUGUST 2020
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