Vale Australia Pty Ltd v Vale Exploration Pty Ltd
[2023] WASC 272
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: VALE AUSTRALIA PTY LTD -v- VALE EXPLORATION PTY LTD [2023] WASC 272
CORAM: LUNDBERG J
HEARD: 21 DECEMBER 2022 & 27 JANUARY 2023
DELIVERED : 25 JULY 2023
FILE NO/S: COR 218 of 2022
BETWEEN: VALE AUSTRALIA PTY LTD
First Plaintiff
RIO DOCE AUSTRALIA PTY LTD
Second Plaintiff
QLD COAL HOLDINGS PTY LTD
Third Plaintiff
BELCOAL PTY LTD
Fourth Plaintiff
BELVEDERE AUSTRALIA (BP) PTY LTD
Fifth Plaintiff
VALE AUSTRALIA (IP) PTY LTD
Sixth Plaintiff
VALE AUSTRALIA HOLDINGS PTY LTD
Seventh Plaintiff
BOWEN CENTRAL COAL PTY LTD
Eighth Plaintiff
ISAAC PLAINS COAL SALES PTY LTD
Ninth Plaintiff
GLENNIES CREEK COAL MANAGEMENT PTY LTD
Tenth Plaintiff
CAMBERWELL COAL PTY LIMITED
Eleventh Plaintiff
VALE AUSTRALIA (GC) PTY LTD
Twelfth Plaintiff
MAITLAND MAIN COLLIERIES PTY LTD
Thirteenth Plaintiff
INTEGRA COAL SALES PTY LTD
Fourteenth Plaintiff
INTEGRA COAL OPERATIONS PTY LTD
Fifteenth Plaintiff
AND
VALE EXPLORATION PTY LTD
Defendant
Catchwords:
Corporations law - Multiple schemes of arrangement - Proposed internal corporate reconstruction and amalgamation of solvent companies - Application for orders to convene scheme meetings and to approve schemes under Corporations Act 2001 (Cth), s 411 and s 412 - Orders sought to transfer undertaking, property and liabilities under Corporations Act 2001 (Cth), s 413 - Orders made to convene scheme meetings - Orders made for distribution of scheme booklet - Orders made approving schemes following scheme meetings
Legislation:
Corporations Act 2001 (Cth), s 411(1), s 412(1)(a) and s 413(1)
Corporations Regulations 2001 (Cth), sch 8
Personal Property Securities Act 2009 (Cth), s 34
Supreme Court (Corporations) (WA) Rules 2004 (WA), r 3.2
Result:
Application granted
Orders made convening scheme meeting, approving distribution of scheme booklet and approving the schemes
Category: B
Representation:
Counsel:
| First Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Second Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Third Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Fourth Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Fifth Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Sixth Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Seventh Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Eighth Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Ninth Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Tenth Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Eleventh Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Twelfth Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Thirteenth Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Fourteenth Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Fifteenth Plaintiff | : | AJ Papamatheos & DA Jenaway |
| Defendant | : | No appearance |
Solicitors:
| First Plaintiff | : | Allen & Overy |
| Second Plaintiff | : | Allen & Overy |
| Third Plaintiff | : | Allen & Overy |
| Fourth Plaintiff | : | Allen & Overy |
| Fifth Plaintiff | : | Allen & Overy |
| Sixth Plaintiff | : | Allen & Overy |
| Seventh Plaintiff | : | Allen & Overy |
| Eighth Plaintiff | : | Allen & Overy |
| Ninth Plaintiff | : | Allen & Overy |
| Tenth Plaintiff | : | Allen & Overy |
| Eleventh Plaintiff | : | Allen & Overy |
| Twelfth Plaintiff | : | Allen & Overy |
| Thirteenth Plaintiff | : | Allen & Overy |
| Fourteenth Plaintiff | : | Allen & Overy |
| Fifteenth Plaintiff | : | Allen & Overy |
| Defendant | : | In person |
Case(s) referred to in decision(s):
Amcor Limited, in the matter of Amcor Limited (No 2) [2019] FCA 842
Barrick (Australia Pacific Exploration) Pty Limited v Barrick (PD) Australia Pty Limited (No 2) [2017] FCA 1076; (2017) 122 ACSR 553
Barrick Mining Company (Australia) Pty Ltd v Barrick Administration Company Pty Ltd, in the matter of Barrick Mining Company (Australia) Pty Ltd [2018] FCA 1958
Bombardier Transportation Australia Pty Ltd v Alstom Transport Australia Pty Limited (No 2) [2022] FCA 880
Chevron (TAPL) Pty Ltd v Chevron Australia Pty Ltd, in the matter of Chevron (TAPL) Pty Ltd (No 2) [2022] FCA 381
FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69
Re Anatolia Energy Limited [2015] FCA 1134
Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358
Re NRMA Insurance Ltd (No 1) [2000] NSWSC 82; (2000) 156 FLR 349
Re Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583
Re SRG Limited [2018] FCA 1092
Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308
Table of Contents
A. Introduction and summary
B. Explanation of the Schemes
C. First court hearing
Preliminary
Purpose of the first hearing
Materials before the court
Overview of the Proposed Schemes
Court's satisfaction
D. Second court hearing
Preliminary
Purpose of the second court hearing
Materials before the court
Good faith and proper purpose
Full and fair disclosure
Satisfaction of s 411(17) and ASIC's view
Orders under s 413
Interests of secured parties
Position of creditors following the Schemes
Proper execution of instruments involving foreign companies
E. Orders
ATTACHMENT A Orders made at the First Court Hearing
ATTACHMENT B Orders made at the Second Court Hearing
LUNDBERG J:
A. Introduction and summary
The group of companies headed by Vale S.A. is one of the world's largest iron ore and nickel producers (the Vale Group).
On 6 December 2022, fifteen companies from within the Vale Group (all registered within Australia) filed proceedings to initiate the process for seeking this court's approval to multiple schemes of arrangement proposed by those companies (the Proposed Schemes or Schemes). The originating process sought orders pursuant to s 411 and s 413 of the Corporations Act 2001 (Cth) (Act),[1] and for further orders and directions. The defendant to the proceedings is Vale Exploration Pty Ltd (Vale Exploration), another company from within the Vale Group, which is involved with the Proposed Schemes.
[1] All references to legislative provisions in these reasons are to the Corporations Act 2001 (Cth), unless otherwise stated.
The Proposed Schemes are relatively complex, and the material presented to the court in support of the applications was necessarily voluminous, consistent with the practice which has developed over the years in relation to the preparation of such applications. The affidavit material filed in support of the applications stretched to over 6,000 pages.
There are two preliminary observations I wish to make regarding the proceedings.
First, the Schemes promulgated by the plaintiffs were structurally framed in a manner similar to several solvent restructures which have been approved as schemes pursuant to s 411 in recent years, including with respect to the Chevron group, the Bombardier group and the Barrick group.[2] The broad point to make in this regard is that the decisions approving those previous schemes amply demonstrate the suitability of the s 411 scheme process for the structuring of internal solvent arrangements of the nature proposed by the plaintiffs in this case and, importantly, those earlier reasons provided this court with a convenient judicial framework to assess the present Schemes.
[2] Chevron (TAPL) Pty Ltd v Chevron Australia Pty Ltd, in the matter of Chevron (TAPL) Pty Ltd (No 2) [2022] FCA 381 (Banks-Smith J); Bombardier Transportation Australia Pty Ltd v Alstom Transport Australia Pty Limited (No 2) [2022] FCA 880 (Jackson J); Barrick Mining Company (Australia) Pty Ltd v Barrick Administration Company Pty Ltd, in the matter of Barrick Mining Company (Australia) Pty Ltd [2018] FCA 1958; and Barrick (Australia Pacific Exploration) Pty Limited v Barrick (PD) Australia Pty Limited (No 2) [2017] FCA 1076; (2017) 122 ACSR 553 (Barker J).
Second, the Proposed Schemes were supported by an independent expert report, prepared by Mr Paul Hennessy, a partner with the firm PwC and an authorised representative of PwC Securities Ltd. The expert report was adduced on affidavit at the first hearing.[3] An expert report of this nature is not a statutory requirement for the purposes of restructure schemes such as the present matters.[4] Nonetheless, the provision of the report, and its detailed analysis of the financial impacts of the proposed restructure, provided the court with additional comfort in assessing the fairness and reasonableness of the Proposed Schemes.
[3] Affidavit of Paul John Hennessy sworn 5 December 2022 and Attachments PH1 - PH4.
[4] See the requirement for an expert report in Corporations Regulations 2001 (Cth), Schedule 8, cl 8303.
I now publish my reasons for being satisfied that the plaintiffs' orders should be made at the first and second hearings (as amended at those hearings). As the Schemes were not opposed and were not such as to provoke any substantive concern from the Australian Securities and Investments Commission (ASIC), as the Schemes and orders were structured and framed in a manner consistent with accepted principle and authority, and as the Schemes effect an internal restructure of non‑listed companies in a solvent group, I have prepared these reasons in a summary form.
B. Explanation of the Schemes
In essence, the Proposed Schemes are intended to effect an internal, solvent reconstruction of the Vale Group in Australia. The Proposed Schemes are not intended to impact how the Vale Group conducts its business in practice in Australia. Instead, as has been explained in the detailed material filed by the plaintiffs, the Proposed Schemes are an effort to simplify the operating structure of the business. The express rationale and purpose of the Schemes is thus to consolidate and reorganise the existing corporate structure of the Vale Group within Australia.
The manner in which this is to be done is visually demonstrated by the diagrams set out below. These diagrams form part of the Scheme Booklet and are also included within the independent expert report relied upon by the plaintiffs as part of these proceedings. The first diagram shows the group structure before the Schemes, while the second diagram displays the structure as it will appear after their implementation.
The diagrams demonstrate that 10 individual companies within the Vale Group are to be deregistered (being the companies coloured black in the first diagram) and the complexity of the overall corporate structure is to be reduced, to create a 'more streamlined structure' said to 'be better aligned with the current and future business and strategic requirements of the Vale Group'.[5] The companies coloured grey are to remain post‑Scheme and the companies coloured green are not party to any of the Schemes.
[5] Plaintiffs' first submissions, [6].
The materials filed by the plaintiffs explain that the plaintiffs and the defendant were all originally incorporated to develop or manage coal projects in Australia, or the sale of coal therefrom. Following a series of divestments of coal projects by the Vale Group in Australia between 2015 and 2018, the group holds no operational mines in Australia, with its primary activities consisting of the receipt of royalty payments.
The consequence of all of this is that a number of the plaintiff companies have no apparent ongoing utility or reason to be maintained as separate entities, and yet these largely dormant entities have been incurring various annual administration, legal, accounting and compliance expenses.[6]
[6] Plaintiffs' first submissions, [4] ‑ [5].
C. First court hearing
Preliminary
The plaintiffs sought orders from this Court to firstly, convene 15 separate scheme meetings (Scheme Meetings) to consider the Proposed Schemes and, secondly, once those meetings were held and if the schemes were approved at the meetings, to approve the Proposed Schemes. As the Proposed Schemes involved the transfer of assets, liabilities, and legal proceedings between companies in the Vale Group, the plaintiffs also foreshadowed seeking additional orders pursuant to s 413 at the second hearing.
On 21 December 2022, at the first court hearing of this matter, I received detailed written submissions from the plaintiffs and heard from Mr Papamatheos as counsel for the plaintiffs. The orders sought by the plaintiffs were not opposed and I received confirmation from ASIC that it did not intend to appear at the hearing.
At the conclusion of that hearing, being satisfied of the required matters, I made orders to convene the Scheme Meetings proposed by the plaintiffs, to approve the manner in which the Scheme Meetings would be held, to approve a booklet for distribution, and to approve the notice of hearing to be published by the plaintiffs. The orders made at the first hearing are set out in Attachment A to these reasons. I adjourned the matter through until 27 January 2023 for the second hearing. At the conclusion of the first hearing, I indicated I would publish my reasons for making those orders in conjunction with my reasons for the second hearing.
Purpose of the first hearing
In the context of a members' scheme of arrangement, s 411 envisages three steps, namely the calling of a meeting of members, a vote by members, followed by a further application to the court for approval of the arrangement (with any application for orders pursuant to s 413): Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 [7] (Keane CJ & Jacobson J). The first court hearing concerns the first of these steps.
At the first of the steps, the relevant standard of review is as follows:
… the standard of review is whether the proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members. If the proposed arrangement is one that seems 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, then leave should be given to convene the meeting.[7]
[7] Re SRG Limited [2018] FCA 1092 [12] (Banks‑Smith J). See also Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308 [72] ‑ [76] (Vaughan J).
It is well settled that the court should order the convening of a scheme meeting and approve the dispatch of an explanatory statement if satisfied of the following matters:[8]
[8] Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [60] (Vaughan J).
(a)The scheme is an arrangement in respect of which the court may order a meeting of the members: s 411(1). This requires the court to be satisfied the scheme is an arrangement; that the company is a Part 5.1 Body; that the scheme participants are members of the scheme company; and the scheme meeting will be convened between members of the same class.
(b)ASIC has had a reasonable opportunity to examine the terms of the scheme and explanatory statement, and to make submissions to the court: s 411(2)(b).
(c)The explanatory statement (being the Scheme Booklet) provides adequate disclosure (s 412(1)(a)(i)), and contains the relevant prescribed information (s 412(1)(a)(ii)). The information is prescribed in the Regulations (reg 5.1.01 and Sch 8 (cl 8301 ‑ cl 8310)).
(d)The procedural requirements of the Rules have been met.
(e)The proposed scheme is bona fide and properly proposed.
(f)That there is no apparent reason why the scheme should not, in due course, receive the court's approval if the necessary majority of members' votes is achieved.
Materials before the court
The plaintiffs relied upon a number of affidavits for the purposes of the first court hearing. The affidavits, which collectively run to over 5,000 pages, were as follows:
(a)the affidavit of Carinna Chia Ping Chong sworn on 6 December 2022 (First Chong Affidavit);
(b)the second affidavit of Carinna Chia Ping Chong sworn on 16 December 2022 (Second Chong Affidavit);
(c)the affidavit of Paul John Hennessy sworn on 5 December 2022 (Hennessy Affidavit);
(d)the affidavit of Daniel Hasler sworn on 6 December 2022 (Hasler Affidavit);
(e)the affidavit of Timothy Vernon Jackson sworn on 12 December 2022 (Jackson Affidavit);
(f)the affidavit of Geoffrey John Simpson sworn on 13 December 2022 (First Simpson Affidavit);
(g)the second affidavit of Geoffrey John Simpson sworn on 16 December 2022 (Second Simpson Affidavit);
(h)the affidavit of Alexandre S. D'Ambrosio sworn on 9 December 2022 (D'Ambrosio Affidavit);
(i)the affidavit of Matthew Robert James Johnson sworn on 6 December 2022 (Johnson Affidavit);
(j)the affidavit of Goran Nedeljko Galic sworn on 9 December 2022 (Galic Affidavit); and
(k)the third affidavit of Geoffrey John Simpson sworn on 20 December 2022 (Third Simpson Affidavit).
The plaintiffs filed a comprehensive outline of submissions dated 16 December 2022 and a minute of proposed orders dated 20 December 2023. The submissions included a detailed checklist which identified the specific parts of the affidavit material which demonstrated compliance with the technical requirements of the Act, the Supreme Court (Corporations) (WA) Rules 2004 (WA) (the Rules), and Schedule 8 pt 2 and pt 3 of the Corporations Regulations 2001 (Cth) (the Regulations).
Overview of the Proposed Schemes
Within the affidavit material and the submissions, the plaintiff highlighted the following key transaction documents:
(a)the Framework Agreement between the plaintiffs, the defendant, and the Transferee Companies dated 18 November 2022 (Framework Agreement);[9]
(b)the Proposed Schemes between the plaintiffs and the Transferee Companies, which are set out as an annexure to the Framework Agreement;[10] and
(c)the draft Scheme Booklet prepared for the Schemes (Scheme Booklet), submitted to ASIC on 25 November 2022 and then resubmitted on 1 December 2022.[11]
[9] First Chong Affidavit, Attachment CC‑2.
[10] First Chong Affidavit, Attachment CC‑2, Annexure 1.
[11] First Chong Affidavit, Attachment CC‑3.
By cl 2.1 and cl 2.3 of the Framework Agreement, the plaintiffs and the defendant agreed that the plaintiffs will propose and implement the Schemes between the plaintiffs and their members. Under the Framework Agreement, the plaintiffs have agreed to prepare one explanatory statement for all of the Proposed Schemes (cl 6.1), which is to be accurate and verified (cl 6.2 to cl 6.4). The plaintiffs and the Transferee Companies must use reasonable endeavours to obtain satisfaction of numerous conditions precedent to the approval and implementation of the Proposed Schemes (Framework Agreement, cl 3.1 and cl 3.2).
If the Proposed Schemes between the plaintiffs and their members are approved and orders are made by the court under s 413 of the Act, then, upon their implementation:
(a)by cl 4 and cl 5.1 of the Schemes, the members of the plaintiffs agree to transfers of Assets, Liabilities, and Legal Proceedings (as those terms are defined in the Schemes) from the plaintiffs as Scheme Companies to the Transferee Companies, and a deregistration of the Designated Companies (being the fourth to sixth plaintiffs and eighth to fourteenth plaintiffs) without winding up will be effected, pursuant to orders to be made under s 413; and
(b)by cl 5.1 of the Schemes, the members of the plaintiffs approve the Schemes, consent to the Schemes notwithstanding the diminution in value of their shareholdings and any rights that they may have in connection with the Schemes at law and waive any rights they may otherwise have as against the plaintiffs in connection with the Schemes.
Court's satisfaction
As to whether the schemes are arrangements within s 411(1), and the others matters set out in [18(a)] above, I was satisfied at the first hearing that each of the schemes was an 'arrangement' as that term has been interpreted, that each of the plaintiffs were Part 5.1 bodies, that the scheme participants were members as defined in s 9, and that the scheme meetings would be convened between members of the same class.[12] These were uncontroversial matters, in my view.
[12] Plaintiffs' first submissions, [19] ‑ [29].
The jurisdiction of the court to make an order convening meetings under s 411(1) is conditional upon the matters set out in s 411(2), including the giving of certain notice to ASIC and ensuring ASIC has had a reasonable opportunity to consider the Schemes. I was satisfied ASIC had been given the requisite notice and opportunity. Indeed ASIC confirmed it did not have any comments on the Scheme Booklet as at 15 December 2022.[13]
[13] Plaintiffs' first submissions, [30] - [37].
As to whether the Scheme Booklet provided adequate disclosure to the members, I was assisted in my analysis in this regard by the plaintiffs' submissions and detailed checklist.[14] The Scheme Booklet is required to essentially set out 'all the main facts as will enable shareholders to exercise their judgement on the proposed scheme': Re NRMA Insurance Ltd (No 1) [2000] NSWSC 82; (2000) 156 FLR 349 [16] (Santow J). At the first hearing stage, the court should be satisfied, prima facie, that there has been proper disclosure with nothing misleading or deceptive in any material sense: Re NRMA Insurance Ltd (No 1) [3] (Santow J).
[14] Plaintiffs' first submissions, [38] - [60] and Annexure - Checklist.
I was satisfied the Scheme Booklet met the disclosure requirements of s 411(3) and s 412, ASIC Regulatory Guide 60, and Schedule 8 to the Regulations. I was also satisfied the Scheme Booklet has been the subject of verification processes involving the plaintiffs' director and both external and internal legal representatives.[15]
[15] Plaintiffs' first submissions, [58].
To give a broad sense of the detail included in the Scheme Booklet, I note the booklet included a number of schedules and annexures, as follows:
(a)Schedule 1, a table of the plaintiffs, the plaintiffs' members and the relevant Transferee Company under the Schemes;
(b)Schedule 2, the details of the plaintiffs and the Transferee Companies;
(c)Schedule 3, a summary of the transferring assets, liabilities and legal proceedings under the Schemes;
(d)Schedule 4, which included the diagrams I have attached to these reasons; and
(e)various Annexures, being Annexure 1, the proposed Schemes; Annexure 2, the Framework Agreement; Annexure 3, the Independent Expert's Report; Annexure 4, the Notice of Scheme Meetings; Annexure 5, the Proxy Form; Annexure 6, the Loan Extension and Modification Deed; and Annexure 7, Facility Agreement.
As to the requisite procedural requirements, I was satisfied that Rule 3.2 of the Rules had been met (concerning the nomination of the chairperson and alternate chairperson of the Scheme Meetings and associated matters).
The requirement that the Proposed Schemes are for a proper purpose and within power was plainly satisfied in the present case. The Proposed Schemes were for a common and intelligible commercial purpose, being to simplify the corporate structure of the Vale Group. Further, there was no novel or unusual treatment of assets or liabilities for a reconstruction or amalgamation transaction. The Proposed Schemes were within the power of the plaintiffs to propose. It is also well accepted that a members' scheme can be proposed under s 411 by which an internal restructure of a corporate group is effected by the transfer of the whole or part of the property and liabilities from one wholly owned subsidiary to another by orders made under s 413 of the Act. Further, there is no provision in the plaintiffs' constitutions which limits or prevents proposing or implementing the Proposed Schemes.[16]
[16] Plaintiffs' first submissions, [63] - [69].
Importantly, where there is no suggestion of any improper purpose on the material, the question of bona fides is a matter for consideration on any application to approve the Schemes at the second court hearing: Re NRMA Insurance Ltd (No 1) [22] ‑ [24] (Santow J).
Turning finally to the discretion of the court to order that the meetings be convened, the following propositions should be noted:
(a)It is well accepted that the court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the members' meeting, the court would be likely to approve it on the hearing of the petition which is unopposed: FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69, 72 (Street CJ).
(b)Further, the role of the court at the first stage of the process of a company propounding and implementing a scheme of arrangement is not to scrutinise the commercial merits (or demerits) of whether the scheme should be approved: Barrick (Australia Pacific Exploration) [53] (Barker J); and Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd (No 2) [72] ‑ [75] (Vaughan J).
(c)That approval decision must await the expression of the will of the members at the meeting and any argument that may be advanced on behalf of dissenting members or other interested parties at the time of the application for approval: Re Anatolia Energy Limited [2015] FCA 1134 [28] (McKerracher J) and Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd (No 2) [73] (Vaughan J).
As to matters going to the court's discretion, the plaintiffs made submissions as to whether the conditions precedent to the Schemes would be satisfied, the position of creditors, the position of employees, the material contracts for the plaintiffs, the interests of secured parties, the pending litigation, compliance with s 411(17), and the shortened notice period for the Scheme Meetings. The written submissions filed by the plaintiffs explained how each of these matters had been dealt with, in an orthodox fashion and consistent with recognised authority.
Being satisfied these Schemes were of such a nature and cast in such terms that, if they achieved the statutory majority at the members' meetings, the court would be likely to approve them at an unopposed second hearing, I made orders to convene the Scheme Meetings and for dispatch of the Scheme Booklet.
D. Second court hearing
Preliminary
On 27 January 2023, at the second hearing of this matter, I again received written submissions from the plaintiffs and heard from Mr Papamatheos as counsel for the plaintiffs. As with the first hearing, the orders sought by the plaintiffs were not opposed and I received confirmation from ASIC that it did not intend to appear at the hearing and it did not oppose the orders approving the Schemes or making the additional orders pursuant to s 413.
At the conclusion of that hearing, being satisfied of the required matters, I made orders to approve the Schemes pursuant to s 411(4)(b), and orders to exempt the plaintiffs from compliance with s 411(11). In addition, I made orders pursuant to s 413(1) to authorise various steps to occur, including the transfer of certain assets and liabilities of the Scheme Companies, dealing with any legal proceedings pending against the Scheme Companies, and to deregister the fourth to sixth plaintiffs and the eighth to fourteenth plaintiffs without winding up those companies.
Finally, I made orders pursuant to s 413(1)(g) that facilitated execution of documents to complete or perfect the transfer of the assets and liabilities, that facilitated the name and title of the companies in contracts, titles, licences and applications of the grant or renewal of such titles or licences, and that facilitated the use, the disclosure, and the handling of information by the companies. The orders made at the second hearing are set out in Attachment B to these reasons.
Purpose of the second court hearing
An arrangement is binding upon members of a company if it is approved by order of the court: s 411(4)(b). The court has a discretion to approve a scheme under, and its power is derived from, s 411(4)(b). Of course, the court is not bound to approve a scheme merely because the court has previously made orders for the convening of a meeting or because the statutory majorities have been achieved: Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd (No 2) [13] (Vaughan J).
I will address the discretionary matters below, as well as the matters specific to the orders sought pursuant to s 413. First, I should mention the procedural matters in respect of which the court was required to be satisfied. The procedural matters were that: the meetings were convened and held in accordance with the earlier orders, the resolutions approving the Schemes were passed with the requisite statutory majorities (under s 411(4)(a) of the Act), and the plaintiffs otherwise complied with the court's earlier orders. I was satisfied of each of these matters.[17] As might be expected in the circumstance of an internal restructure such as this, all members of each of the plaintiffs voted in favour of the Schemes, well satisfying the statutory majorities.
[17] Plaintiffs' second submissions, [16] - [30].
Returning to the discretionary consideration, the factors that inform the court's discretion were set out in Re Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583 [35] ‑ [40] (Jacobson J). See also Chevron (TAPL) Pty Ltd v Chevron Australia Pty Ltd, in the matter of Chevron (TAPL) Pty Ltd (No 2) [2022] FCA 381 [9] (Banks‑Smith J). The court considers whether:
(a)the plaintiffs' members have voted in good faith and not for an improper purpose;
(b)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)the plaintiffs have brought to the attention of the court all matters that could be considered relevant to the exercise of the court's discretion;
(d)all conditions to which the schemes are subject have been met or waived (other than any requirement for court approval and lodgement of the court's orders with ASIC);
(e)there has been full and fair disclosure of all information material to the members' decision to vote for or against the schemes;
(f)minority shareholders would be oppressed by the scheme;
(g)the scheme has not been proposed to avoid ch 6 of the Act;
(h)ASIC has no objection to the scheme; and
(i)the scheme offends public policy.
Materials before the court
The plaintiffs relied upon a number of affidavits for the purposes of the second court hearing, in addition to the affidavit material upon which the plaintiffs had relied at the first hearing. The affidavits, which collectively run to in excess of 1,000 pages, were as follows:
(a)the Fourth Affidavit of Geoffrey John Simpson sworn 20 January 2023 (Fourth Simpson Affidavit);
(b)the Third Affidavit of Carinna Chia Ping Chong sworn 20 January 2023 (Third Chong Affidavit);
(c)the Second Affidavit of Matthew Robert James Johnson sworn 23 January 2023 (Second Johnson Affidavit);
(d)the Affidavit of Helena Nguyen sworn 23 January 2023 (Nguyen Affidavit);
(e)the Affidavit of Noah Eisen affirmed 24 January 2023 (Eisen Affidavit);
(f)the Fifth Affidavit of Geoffrey John Simpson sworn 25 January 2023 (Fifth Simpson Affidavit); and
(g)the Sixth Affidavit of Geoffrey John Simpson sworn 27 January 2023 (Sixth Simpson Affidavit).
The plaintiffs filed a comprehensive outline of submissions dated 24 January 2023 and a minute of proposed orders dated 24 January 2023.
Good faith and proper purpose
I considered the Schemes were, viewed objectively, not motivated by any improper purpose. There are three matters which provide support for this conclusion.
The first of these is that the materials disclosed that the Schemes were for a common and intelligible commercial purpose, being to simplify the corporate structure of the Vale Group. The Schemes effect a solvent corporate restructure of the Vale Australian Group for the purpose of achieving corporate efficiency, and to implement a more streamlined group structure better aligned to business and strategic requirements of the Vale Group.
From my review, I could not discern any novel or unusual treatment of assets or liabilities for a reconstruction or amalgamation transaction.
The second matter is that, as explained below, the Schemes cannot be characterised as having been put forward for the purpose of defeating the interests of creditors. The Schemes do not materially prejudice creditors of the Scheme Companies or the Vale Group, and do not involve any novel treatment of rights.
The report of the independent expert, Mr Hennessy, was to the effect that neither the Scheme Companies' creditors (who will become creditors of the Transferee Companies following the Schemes), nor the creditors of the Transferee Companies (who will remain creditors of the Transferee Companies following the Schemes), will be materially prejudiced by the Schemes. The foregoing conclusion was supported by two additional matters which were highlighted by the plaintiffs.
(a)The first of these matters was that the plaintiffs and the defendant are parties to two Deeds of Cross‑Guarantee, to which creditors of the Scheme Companies presently have and may continue to have recourse following the Schemes. This effectively means that the same assets of the Vale Group are available to creditors before and after the implementation of the Schemes. There is no material change, and no prejudice to the creditors.
Indeed, as the independent expert identified in his report, creditors of the Scheme Companies can continue to have recourse to Vale Group assets through the Deeds of Cross‑Guarantee after implementation of the Schemes and there is no transfer of assets outside of the Vale Australian Group as part of the Schemes.
The existence of the Deeds of Cross‑Guarantee thus affirms the conclusion that creditors of the Scheme Companies will not be materially adversely affected by the implementation of the Schemes and the Schemes have been supported by members in good faith and not for an improper purpose.
(b)The second point highlighted by the plaintiffs was that, to provide additional recourse and comfort to creditors of the Transferee Companies following the Schemes, certain additional arrangements were entered into. In particular:
(i)Vale Investments entered into the Loan Extension and Modification Deed, extending the Final Maturity Date of an intercompany loan to Rio Doce Australia Pty Ltd (RDA) and requiring Vale Investments to refrain from taking certain actions to enforce its entitlements under this loan; and
(ii)Vale International S.A. (which is RDA's sole member) had provided RDA with a facility of US$10 million, providing additional recourse to satisfy claims against the Scheme Companies and Transferee Companies brought by creditors outside the Vale Group. By virtue of the operation of the Deeds of Cross‑Guarantee, these funds will effectively be available to all Transferee Companies to satisfy their creditors.
The third matter which supported the conclusion that the Schemes were not motivated for an improper purpose was that the plaintiffs and defendant had not received any notification that ASIC, nor any creditor or any other person, proposed to appear to object to approval at the second hearing.
Fair and reasonable
I considered these Schemes were fair and reasonable, in the sense that an intelligent and honest shareholder, properly informed and acting alone, might approve the Schemes: Re Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583 [36] (Jacobson J); Bombardier Transportation Australia Pty Ltd v Alstom Transport Australia Pty Limited (No 2) [22] (Jackson J).
The plaintiffs highlighted the following matters in support of the submissions that the Schemes were fair and reasonable, which I accepted were valid factors to take into account in that regard:
(a)The Proposed Schemes were fair and reasonable because sensible businesspeople would consider them of benefit to the plaintiffs' members. In particular, the Schemes promote corporate efficiency of the plaintiffs by rationalising the number of companies in the Vale Group.
(b)The plaintiffs' members have unanimously voted in support of the Schemes. Proof of the relevant statutory majorities in favour of the Schemes is prima facie evidence of the fairness and reasonableness of the Schemes: Amcor Limited, in the matter of Amcor Limited (No 2) [2019] FCA 842 [11] (Beach J). I recognise that courts should be slow to conclude that a scheme is unreasonable or unfair, provided that the members have been properly informed of matters relevant to the making of their decision to approve (i.e. to vote for) the Schemes. To hold otherwise would involve the court substituting its commercial judgment for that of the members: Chevron (TAPL) Pty Ltd v Chevron Australia Pty Ltd, in the matter of Chevron (TAPL) Pty Ltd (No 2) [7] ‑ [8] (Banks‑Smith J); and Bombardier Transportation Australia Pty Ltd v Alstom Transport Australia Pty Limited (No 2) [8] and [23] (Jackson J).
(c)As set out in the Scheme Booklet, the plaintiffs' directors unanimously recommended that the plaintiffs' members vote in favour of the Schemes on the basis that they are fair, reasonable and in the best interests of the Scheme Companies' members.
(d)Finally, no impediment to the Schemes had emerged since the execution of the Framework Agreement.
Full and fair disclosure
I was satisfied that the plaintiffs' members received full and fair disclosure before voting on the proposed Schemes at the Scheme Meetings. The Scheme Booklet was professionally drafted and had undergone a verification process by both internal and external legal representatives. The Scheme Booklet had also been reviewed by ASIC.
Satisfaction of s 411(17) and ASIC's view
The court's approval of the Schemes is dependent upon fulfilment of one of two alternative conditions set out in s 411(17) of the Act; that is, the court must not approve a compromise or arrangement under this section unless:[18]
(a)it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of ch 6 of the Act; or
(b)there is produced to the court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement.
[18] Bombardier Transportation Australia Pty Ltd v Alstom Transport Australia Pty Limited (No 2) [2022] FCA 880 [34] (Jackson J).
The plaintiffs produced the usual 'no objection' letter from ASIC which satisfied the second alternative referred to above. As the plaintiffs' submitted, the production of the ASIC 'no objection' letter usually brings an end to the issue, but the letter does not, of course, bring to an end the court's discretion regarding the approval of the Schemes: s 411(17); Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd (No 2) [18] (Vaughan J). If the court were to find that the Schemes had been proposed for the purpose of avoiding the operation of provisions within ch 6 of the Act, that might be considered in the exercise of the discretion to approve the Schemes.
In any event, it cannot be said that the present Schemes enabled the plaintiffs to avoid ch 6 of the Act in any way, nor that they are for that purpose. As the plaintiffs are not listed companies or unlisted companies with more than 50 members, ch 6 does not apply to the plaintiffs. In addition, I accept that the effect of the Schemes could not have been achieved by a takeover bid under ch 6.
Orders under s 413
Orders under s 413(1) may be made if the requirements set out in that section are met, namely that:
(a)there is a compromise or arrangement;
(b)the compromise or arrangement must be proposed 'for the purposes of or in connection with a scheme for reconstruction of any Part 5.1 body or bodies or the amalgamation of any two or more Part 5.1 bodies'; and
(c)under the scheme 'the whole or any part of the undertaking or of the property of a body concerned in the scheme is to be transferred to a company'.
I was satisfied each of those requirements were met by the Proposed Schemes. As to the orders sought by the plaintiffs, the plaintiffs proposed orders for the transfer of property and liabilities from the plaintiffs to the Transferee Companies, and the transfer of all legal proceedings from the plaintiffs to the Transferee Companies.
I was satisfied the orders sought were within the bounds of s 413(1)(a), s 413(1)(c) and s 413(1)(g), such that they were necessary to properly implement the Schemes, and to bring about a seamless and effective transfer: Chevron (TAPL) Pty Ltd v Chevron Australia Pty Ltd (No 2) [52] (Banks‑Smith J); and Bombardier Transportation Australia Pty Ltd v Alstom Transport Australia Pty Limited (No 2) [54] (Jackson J).[19]
[19] See also the analysis of Barker J in Barrick (Australia Pacific Exploration) [55] – [67], which demonstrates the breadth of the terms 'reconstruction' and 'amalgamation' as they appear in s 413 of the Act.
The plaintiffs also sought the deregistration of the fourth to the sixth plaintiffs and the eighth to the fourteenth plaintiffs. The Act confers direct powers on the court to deregister a company without a winding up, pursuant to s 413(1)(d).
Pursuant to s 413(1)(g), the plaintiffs also sought orders to address such incidental, consequential and supplemental matters as were necessary to ensure that the reconstruction or amalgamation was fully and effectively carried out: Bombardier Transportation Australia Pty Ltd v Alstom Transport Australia Pty Limited (No 2) [44] (Jackson J). Each of the proposed orders (regarding, respectively, authorisations for the Transferee Companies' directors to take necessary actions to complete transaction steps and for the treatment of information in the Transferee Companies' possession after implementation) facilitate proper implementation of the Schemes.
I observe that orders of the kind proposed in orders 5(a) to (c) were made in Chevron (TAPL) Pty Ltd v Chevron Australia Pty Ltd (No 2) (Banks‑Smith J) and in Bombardier Transportation Australia Pty Ltd v Alstom Transport Australia Pty Limited (No 2) (Jackson J).
Interests of secured parties
The Personal Properties Securities Act 2009 (Cth) (PPSA) contemplates a transfer of collateral and provides protection to secured parties if they register a new financing statement. The plaintiffs took the step of informing all secured parties who had security over the plaintiffs' assets or collateral, and who had registered rights under the PPSA, of the proposed transfer of collateral from the plaintiffs to the Transferee Companies, and the fact that the secured parties might consider it appropriate to register a new financing statement on the Personal Property Securities Register (PPSR) showing that the Transferee Companies are or will become the grantor of their security interests. A detailed aide memoire was provided to the court by counsel, addressing the evidence which supported the notification process to each of the secured parties.[20]
[20] ts 64 (second hearing).
The plaintiffs dealt with these security issues in the present Schemes consistently with the approach to notification to secured parties outlined in recent authorities, most particularly by Banks‑Smith J in Chevron (TAPL) Pty Ltd v Chevron Australia Pty Ltd, in the matter of Chevron (TAPL) Pty Ltd [65]. See also Bombardier Transportation Australia Pty Ltd v Alstom Transport Australia Pty Limited (No 2) [59] ‑ [60] (Jackson J).
In effect this process allowed the secured parties to register a financing statement either before the Schemes are implemented or after their implementation but within the times set out in s 34 of the PPSA, and so to maintain their existing priority as to the plaintiffs' collateral even after it is transferred to the Transferee Companies, and even if the Transferee Companies have granted a security interest over the plaintiffs' collateral before or after the transfer of the collateral from the plaintiffs to the Transferee Companies.[21]
[21] Plaintiffs' second submissions, [99] - [105].
Accordingly, I was satisfied the position of the various secured parties had been properly dealt with by the plaintiff as part of the scheme process.
Position of creditors following the Schemes
As already explained, and having regard to the independent expert's report, I was satisfied the Schemes did not materially prejudice creditors of the Scheme Companies or the Vale Group. I note the independent expert has opined that neither the Scheme Companies' creditors (who will become creditors of the Transferee Companies following the Schemes), nor the creditors of the Transferee Companies (who will remain creditors of the Transferee Companies following the Schemes), will be materially prejudiced by the Schemes.
The primary support for these conclusions can be found in the existence of the Deeds of Cross‑Guarantee and the additional internal financing arrangements to which I have earlier referred at [47] above.[22]
Proper execution of instruments involving foreign companies
[22] Plaintiffs' second submissions, [106] - [144].
Two of the Swiss‑incorporated subsidiaries of Vale S.A. entered into agreements connected with the Schemes, which gave rise to a question as to the proper execution of those instruments. Counsel for the plaintiff prudently identified this issue at the first hearing, but developed the issue in greater detail at the second hearing. The agreements in question are:
(a)Vale Investments entered into the Framework Agreement regarding the Schemes, and the Loan Extension and Modification Deed, extending the Final Maturity Date of an intercompany loan to RDA; and
(b)Vale Investments S.A. entered into a Term Loan Facility Agreement with RDA.
These agreements were reviewed by a Swiss law expert, namely Dr Daniel Hasler, a partner and Attorney‑at‑Law of Homburger AG, a Swiss law firm. Dr Hasler prepared a legal report addressing the recognised means of execution of contracts under Swiss law for companies incorporated in Switzerland, along with any specific requirements for valid execution. Having regard to the views expressed by Dr Hasler, I was satisfied these documents had been properly executed and are enforceable. It is unnecessary in the present circumstances to further descend into the detail of Dr Hasler's opinion, other than to refer to the plaintiffs' second submissions at [145] - [150] and the expert report itself which is Attachment DH1 to the affidavit sworn by Dr Hasler.
E. Orders
The orders made at the first court hearing on 21 December 2022 are set out in Attachment A to these reasons. The orders made at the second court hearing on 27 January 2023 are set out in Attachment B to these reasons.
ATTACHMENT A
Orders made at the First Court Hearing
ATTACHMENT B
Orders made at the Second Court Hearing
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
SAO
Associate to the Honourable Justice Lundberg
25 JULY 2023
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