Skyland Petroleum Limited, in the matter of Skyland Petroleum
[2016] FCA 927
•8 August 2016
FEDERAL COURT OF AUSTRALIA
Skyland Petroleum Limited, in the matter of Skyland Petroleum [2016] FCA 927
File number(s): NSD 730 of 2016 Judge(s): JAGOT J Date of judgment: 8 August 2016 Catchwords: CORPORATIONS – where scheme documents despatched to certain shareholders late due to technical issues – procedural irregularity under s 1322(2) of the Corporations Act2001 (Cth)
CORPORATIONS – where binding share purchase agreement entered into after scheme meeting – likelihood of change to outcome of meeting
CORPORATIONS – exemption under s 3(a)(10) of the US Securities Act of 1933
Legislation: 1 Corporations Act2001 (Cth) ss 411(17)(b), 1322(1), 1322(2) s 411(17)(b)
2 Securities Act of 1933 (US), Pub L No 73-22, 48 Stat 74, s 3(a)(10)
Cases cited: 3 Re James Hardie Industries Limited [2001] NSWSC 888; (2001) 39 ACSR 552
Re Telford Inns Proprietary Limited (1985) 10 ACLR 312
Date of hearing: 8 August 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 22 Counsel for the Plaintiff: Dr R C A Higgins Solicitor for the Plaintiff: MinterEllison ORDERS
NSD 730 of 2016 IN THE MATTER OF SKYLAND PETROLEUM LIMITED ABN 54 072 350 817
SKYLAND PETROLEUM LIMITED ABN 54 072 350 817
Plaintiff
JUDGE:
JAGOT J
DATE OF ORDER:
8 AUGUST 2016
THE COURT ORDERS THAT:
1.Pursuant to subsection 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the plaintiff and its members, in the form contained in Exhibit LW2 to the affidavit of Lily Wang affirmed on 2 August 2016 in the proceedings, be approved.
2.Pursuant to subsection 411(12) of the Act, the plaintiff be exempted from compliance with subsection 411(11) of the Act in relation to Order 1.
3.The plaintiff be granted liberty to apply.
4.These orders to be entered forthwith.
THE COURT NOTES:
5.Skyland Petroleum Group Limited (Company Number OG-309802) (an exempted company registered in the Cayman Islands) will rely on the Court’s approval of the scheme for the purposes of qualifying for exemption from the registration requirements of the Securities Act of 1933 (US), provided for by s 3(a)(10) of that Act, in connection with the implementation of, and the provision of consideration, under the scheme.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
JAGOT J:
This is the second court hearing following a meeting of the shareholders of Skyland Petroleum Limited (Skyland) in relation to a proposed scheme of arrangement as described in the scheme booklet which is exhibit LW2 to the affidavit of Lily Wang affirmed 2 August 2016. On the basis of the material before me it is apparent that an overwhelming majority of shareholders of Skyland voted in favour of approval of the scheme at the meeting of shareholders on 25 July 2016. In respect of the conduct of the meeting it is also apparent that all procedural requirements, including those set out in earlier orders of the Court, have been satisfied other than in one respect.
Order 8 of the orders I made on 14 June 2016 required the scheme documents to be despatched to shareholders on or before 17 June 2016. Despatch occurred but due to a technical issue with a group email system that was being used to communicate with shareholders, 11 shareholders who had elected to receive notices electronically and had had their email address recorded for this purpose were sent their documents electronically as required, even though it was believed that this had been done. As a consequence of this, when it became apparent that the 11 shareholders had been omitted from the persons who had been sent the documents, steps were taken on 27 June 2016 to again communicate electronically and effectively with the 11 shareholders who had been accidentally omitted. It follows that the documents, I can infer, were received by those 11 shareholders on 27 June 2016 when they were effectively electronically despatched, that is, 10 days after the date required by the orders.
I accept that it is relevant that the scheme meeting did not occur until 25 July 2016. Accordingly, the 11 shareholders in question had 27 clear days’ notice of the proposed scheme meeting. I am satisfied that there cannot be any substantial injustice to those 11 shareholders and that what has occurred is properly characterised as a procedural irregularity which is cured by virtue of s 1322(2) of the Corporations Act2001 (Cth) (the Act) which provides that a proceeding under the Act is not invalidated because of any “procedural irregularity” (a term referred to in s 1322(1)) unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any other order and the Court thereby declares the proceedings to be invalid.
In circumstances where I am unable to perceive any, let alone substantial, injustice to the 11 shareholders, the procedural irregularity is of no significance in this matter other than for the purpose that it has been disclosed to me as appropriate.
Otherwise, as I have said, all procedural requirements have been met including notice requirements and receipt of a letter in standard form from ASIC under s 411(17)(b) of the Act that it has no objection to the scheme being approved. In addition to this, there is evidence in relation to satisfaction of the relevant conditions precedent and capacity for all financial obligations to be satisfied.
There are two matters which require further comment.
The first relates to the fact that on 2 August 2016 Skyland entered into a binding share purchase agreement with a private Russian company for the purchase of an oil and gas producing asset located in Eastern Siberia. That purchase was identified in an announcement to the Australian Stock Exchange (ASX) by Skyland on 2 August 2016. It will be apparent that this occurrence postdates the holding of the scheme meeting on 25 July 2016.
In Re James Hardie Industries Limited [2001] NSWSC 888; (2001) 39 ACSR 552, Santow J dealt with the issue of the proper course which should be taken in relation to the occurrence of events subsequent to a scheme meeting approving a scheme of arrangement. His Honour at [9] referred to the formulation which had been adopted in earlier cases in these terms:
after the meeting of creditors nothing should have occurred that had it been known to the creditors at the time of the meeting might have induced them to vote differently…
(citing Re Telford Inns Proprietary Limited (1985) 10 ACLR 312 at 315).
At [10] his Honour made the following observation:
Applying that test as I would refine it to the present circumstances and, I should emphasise, on the material presently before me, I would conclude that reasonable shareholders would not alter their decision as to how to act on the Scheme if the changes had been disclosed, at least to such degree as to be likely to alter the result of the meeting.
At [11] his Honour said that he preferred to express the test in this way because it avoids the suggestion that the court can necessarily be dogmatic about what he described as:
what every hypothetical reasonable shareholder might do individually, as distinct from the safer generalisation about what the collective outcome is likely to be.
In the present matter there are six circumstances which lead me to the view that I can be satisfied that, had they known of the share purchase agreement before the scheme meeting on 25 July 2016, reasonable shareholders would not have altered their position at least to such degree as to be likely to alter the result of the meeting.
First, as disclosed in both the prospectus and the scheme booklet, Skyland is in the business of acquiring and operating assets in the oil and gas markets in particular including in areas such as Eastern Siberia. This was expressly disclosed as a key feature of Skyland’s business model in section 1.2 of the prospectus as well as section 6.7 which refers to Skyland’s strategy of identifying and acquiring oil and gas assets including in East Siberia. The same disclosures were made in the scheme booklet, in particular in section 4.4. The overview of Skyland’s operations describe it as an upstream oil and gas exploration and production company with the business objective of creating shareholder value through the acquisition of a portfolio of productive oil and gas assets with specific reference to assets in Eurasia amongst other areas. Also in section 4.5 Skyland’s strategy is described as “[continuing] to expand its portfolio of assets in the oil and gas sector”, with a specific reference being made to an announcement on the ASX on 27 April 2016 relating to the fact that Skyland was exploring an opportunity to acquire a majority interest in four prospective oil and gas blocks located within the Republic of Sakha of East Siberia described as the Sakha Project.
The deal which was the subject of the share purchase agreement referred in the announcement to the ASX on 2 August 2016 is not that which is specifically referred to in section 4.5 of the scheme booklet. However, it relates to the same area, that is, Eastern Siberia, and the same character of asset. The ASX announcement refers to the earlier opportunity and the previously announced agreement to potentially acquire a majority interest in the four prospective oil and gas blocks, that is, the Sakha Project, but states that Skyland had decided not to proceed with that project but had instead decided to proceed with the transaction relating to oil and gas assets in the Eastern Siberian area, according to the announcement – also within the Sakha region.
Second, and as a result of the above, Skyland expressly disclosed to shareholders its business model which included transactions of the very kind into which Skyland has entered and as disclosed to the ASX in the announcement of 2 August 2016.
Third, as is apparent from the announcement and the disclosures in the prospectus and the scheme booklet, the acquisition itself is of precisely the kind or class that Skyland disclosed was its key business strategy.
Fourth, the ASX announcement also discloses the view that the proposed transaction, if completed, will “add significantly to the value of the business”. In addition, the ASX announcement discloses that there are conditions precedent to completion of the transaction, (that is, “satisfactory legal, commercial, technical and financial due diligence investigations” as well as final Skyland board approval) which lend weight to the proposition that the transaction is in Skyland’s interests. Further, according to the ASX announcement there is a confined time period within which the due diligence must be completed and Skyland’s board must determine whether or not to complete the transaction (that is, before the end of 2016).
Fifth, I accept the submission put by Dr Higgins on behalf of Skyland that the same events could have occurred before the scheme process was started or after it was concluded and shareholders would have been bound by a decision of Skyland’s board to commit to the proposed acquisition without the need for shareholder approval. In other words, the risk to shareholders is an inherent part of being a Skyland shareholder; the transaction is one in the ordinary course of what was disclosed to shareholders to be Skyland’s business model.
Sixth, today’s hearing was notified and the announcement to the ASX was made on 2 August 2016. Despite this, no one has contacted the legal representatives for Skyland before this morning’s hearing to indicate any interest in appearing today and, indeed, no one has appeared at the hearing today.
These six factors lead me to the view that I can be satisfied that reasonable shareholders would not have altered their position to such a degree as to be likely to alter the result of the meeting which occurred on 25 July 2016.
The only other matter I should note in this regard is that there are ongoing communications between Skyland and the ASX about the terms of the announcement made on 2 August 2016 pursuant to Skyland’s continuous disclosure obligations. This is because the ASX has altered its requirements for continuous disclosure so as to require additional matters to be disclosed. I am informed that there are discussions occurring today between Skyland and the ASX in which Skyland will either obtain an exemption from those new requirements or, if it fails to do so, will make a further announcement. An undertaking has been provided to notify the Court of the position in this regard by the close of business today. I do not consider that the fact that Skyland may need to make another ASX announcement affects the conclusion I have reached that the change in circumstance would have been likely to lead to a different result at the meeting on 25 July 2016.
The final matter to which I should refer is that, as I was informed at the first court hearing, it is intended to rely upon the approval by this Court for the purposes of qualifying for an exemption from the registration requirements of the US Securities Act of 1933 as provided for in s 3(a)(10) of that Act. The orders include a note to this effect. I also record in this regard that section 5.1 of the scheme booklet contemplates that shareholders of Skyland will receive the consideration from the Skyland Petroleum Group Limited (TopCo). I have been advised before this court hearing that TopCo will rely on the s 3(a)(10) exemption on the basis of the approval and advice of the Court. In addition, a hearing has been held to consider the fairness and reasonableness of the proposed scheme of arrangement. Notice of the second court hearing was included in the scheme booklet which was sent to Skyland shareholders before the proposal was considered at the meetings. The proposed scheme was advertised and there has been no appearance by any shareholder of Skyland at the hearing before me today.
In these circumstances, I am content to make the orders as proposed with the amendment so that the reference to the scheme booklet is that in exhibit LW2 in the affidavit of Lily Wang affirmed 2 August 2016. Otherwise, I make orders 1, 2, 3 and 4 and I note the matter set out in 5 of the short minutes of order.
I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot. Associate:
Dated: 12 August 2016
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