World Titanium Resources Ltd, in the matter of World Titanium Resources Ltd

[2011] FCA 1480

FEDERAL COURT OF AUSTRALIA

World Titanium Resources Ltd, in the matter of World Titanium Resources Ltd [2011] FCA 1480

Citation:

World Titanium Resources Ltd, in the matter of World Titanium Resources Ltd [2011] FCA 1480

Parties:

IN THE MATTER OF WORLD TITANIUM RESOURCES LTD (ACN 061 662 011)

File number:

WAD 397 of 2011

Judge:

GILMOUR J

Date of judgment:

15 December 2011

Legislation:

Corporations Act 2001 (Cth) ss 411, 412, 249H, 249J

Cases cited:

Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485
Lonsdale Finance Group Ltd [2007] VSC 525
Mincom Ltd v EAM Software Finance Pty Ltd (No 3) (2007) 64 ACSR 387
Re ACM Gold Ltd (1992) 7 ACSR 231
Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213
Re Coles Group Ltd (No 2) (2007) 65 ACSR 494
Re Dorman Long and Co Ltd [1934] 1 Ch 635

Re International Goldfields Ltd [2004] WASC 112

Re NRMA Ltd [No. 1] (2000) 156 FLR 349
Re Stockbridge Ltd (1993) 9 ACSR 637
Scottish Insurance Corporation Limited v Wilsons and
Clyde Coal Company Limited [1949] AC 462

Date of hearing:

15 December 2011

Place:

Perth

Division:

GENERAL DIVISION

Category:

No catchwords

Number of paragraphs:

39

Counsel for the Plaintiff:

Mr J G Young

Solicitor for the Plaintiff:

Steinepreis Paganin

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 397 of 2011

IN THE MATTER OF WORLD TITANIUM RESOURCES LTD (ACN 061 662 011)

IN THE MATTER OF WORLD TITANIUM RESOURCES LTD (ACN 061 662 011)
Plaintiff

JUDGE:	GILMOUR J
DATE OF ORDER:	15 DECEMBER 2011
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1.Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (the Act), the scheme of arrangement between the plaintiff and its members (Scheme), being Appendix 2 to the scheme booklet containing an explanatory statement required by s 412(1)(a) of the Act approved by order of the Court made on 7 November 2011 for the purposes of registration under s 412(6) of the Act and subsequently approved by resolution of the members of the plaintiff on 5 December 2011 at a meeting of its members, be approved.

2.Pursuant to s 411(12) of the Act that the plaintiff be exempted from complying with s 411(11) of the Act in relation to the Scheme.

3.The plaintiff is to lodge an office copy of these orders with the Australian Securities and Investments Commission as soon as practicable.   

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 397 of 2011

IN THE MATTER OF WORLD TITANIUM RESOURCES LTD (ACN 061 662 011)

IN THE MATTER OF WORLD TITANIUM RESOURCES LTD (ACN 061 662 011)
Plaintiff

JUDGE:	GILMOUR J
DATE:	15 DECEMBER 2011
PLACE:	PERTH

REASONS FOR JUDGMENT

1. The plaintiff seeks orders pursuant to s 411 of the Corporations Act 2001 (Cth) (the Act) that the proposed scheme of arrangement between it and its members (Scheme) be approved.

2. The application is supported by the following affidavits:

   •     an affidavit sworn by Peter James Woods on 5 December 2011;

   •     an affidavit sworn by Rhys Waldon on 12 December 2011 and a further two sworn by him on 14 December 2011;

   •     an affidavit sworn by Natasha Lee Forde on 12 December 2011.

3. The principles which generally govern the Court’s supervisory role in the two court related stages involving schemes of arrangement under s 411 of the Act are well established.

4. Fundamentally the jurisdiction is supervisory; the court must be satisfied that there has been an absence of oppression and that the compromise or arrangement is one which is capable of being accepted: see Re Dorman Long and Co Ltd [1934] 1 Ch 635; Scottish Insurance Corporation Limited v Wilsons and Clyde Coal Company Limited [1949] AC 462 at 486 (see also Murray J in Re Stockbridge Ltd (1993) 9 ACSR 637 at 646-8).

5. In Re NRMA Ltd [No. 1] (2000) 156 FLR 349 at 361 Santow J speaking of the second (approval) stage referred to a passage from the works of authors I A Renard and J G Santamaria: Takeovers and Reconstructions in Australia, where the authors state the court’s role is to determine:

   (a)whether all the conditions required by s 411 have been complied with;

   (b)whether the majority of members or creditors, though acting regularly, have acted in good faith and not in pursuit of some illegitimate purpose; and

   (c)whether the proposal was “at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such member, might approve of it (per Fry LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 247). [footnote abbreviated])”.

   I deal with each of these in turn below.

   CONDITIONS OF SECTION 411

6. The majority of the requirements of s 411 were dealt with on the application for an order allowing the plaintiff to convene the meeting of its members.

7. The remaining requirements of which the Court must be satisfied before it can make an order approving the Scheme under s 411(4)(b) are that:

   (a)the meeting convened by the plaintiff was convened and held in accordance with the orders made by this Court at the “convening” hearing on 7 November 2011 (Orders);

   (b)the resolution required to be passed was passed at the meeting by the majorities required by s 411(4)(a);

   (c)the plaintiff otherwise complied with the Orders; and

   (d)Australian Securities and Investments Commissions (ASIC) has had a reasonable opportunity to examine the explanatory statement and to make submissions to the Court in relation thereto: s 412(7).

   Convening of meeting of members

8. The plaintiff is an unlisted public company. Section 249H of the Act requires at least 21 days notice to be given of a meeting of a listed company’s members.

9. Section 249J(1) of the Act requires each member to be given written notice of a meeting.

10. Section 249J(3)(d) of the Act allows notice of a meeting to be given by any means that the company’s constitution (if any) permits.

11. The plaintiff’s constitution (Constitution) includes the following provisions:

    (a)Clause 25.1(b) which allows service of notices on shareholders by post to the address shown in the register of shareholders;

    (b)Clause 25.2(b) which provides notice of a general meeting properly addressed and posted is taken to have been effected on the date after the date it is posted;

    (c)Clause 11.5 by which the non-receipt of a notice to a member does not invalidate any resolution passed at a meeting; and

    (d)Clause 12.1 by which a quorum for a meeting is 2 or more members present at the meeting and entitled to vote.

12. When one reckons time under the Act, the date upon which the meeting was held is counted, but the date upon which notice of the meeting was given, or is deemed to have been given, is excluded: s 105.

13. Section 412(1) requires an explanatory statement to be sent with every notice convening a meeting under s 411.

14. The notice convening the meeting, together with the explanatory statement and proxy form (Scheme Booklet) were posted on 10 November 2011. 

15. The notice of meeting and explanatory statement were in the same terms as those approved by the Orders.

16. Because cl 25.2(b) of the Constitution deems service by post to be effected on the date after the date of its posting, that is on 11 November 2011, having regard to the effect of s 105, 25 days passed from that date until the meeting took place on 5 December 2011.

17. I am satisfied on the evidence that a meeting of the members of the plaintiff was held on 5 December 2011 and that:

    (a)Peter James Woods acted as chairperson of that meeting as required by the Orders;

    (b)sufficient  members attended to obtain a quorum; and

    (c)the meeting was otherwise conducted in accordance with the Orders.

    Passing of resolutions: Members Meeting

18. The sole resolution to be put to the members was passed at the meeting of the members by the majorities required by s 411(4)(a).

    Compliance with balance of Orders

19. Order 6 of the Orders required advertising of the specified notice of the Shareholders Meeting on or before 12 November 2011.  There has been compliance with this Order.

20. There has also been compliance with Order 8 of the Orders which required advertising of the specified notice of this hearing before this Court at least five days before the date allocated for the hearing.  

21. An office copy of the Orders was served upon the ASIC on 10 November 2011.

    Notice to ASIC of application for approval

22. ASIC has advised that it did not wish to attend the “convening application”. 

23. In all the circumstances of the case, ASIC has had a reasonable time to examine the terms of the proposed scheme and make submissions to the Court. Accordingly, the requirements of s 411(2) are satisfied: Re NRMA Ltd at 357.

24. ASIC has provided written notice that it does not intend to appear at the hearing and that it has no objection to the Scheme. 

    GOOD FAITH AND PROPER PURPOSE

25. There is no evidence to suggest that the Scheme has been proposed other than in good faith and for a proper purpose.

26. There is nothing in the Constitution which is contrary to any term of the Scheme.

27. Irrespective of the view of ASIC toward the scheme, the purpose for which the scheme has been proposed is relevant to the exercise of the Court’s overriding discretion to approve, or not to approve, the scheme:  Re Stockbridge Ltd at 648. For example, the Court cannot approve a scheme containing a provision which is inconsistent with an express or implied provision of the Act: Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 502.

28. Whilst the “takeover” could have been implemented under Ch 6, the fact that it was proposed under Ch 5, does not imply that it was proposed for the purpose of avoiding the operation of Ch 6. There is no legislative preference for implementing a “takeover” under Ch 6 as opposed to Ch 5. The two chapters are complementary: Section 411(17); Re ACM Gold Ltd (1992) 7 ACSR 231 at 243-4; Re Stockbridge Ltd at 652-3.

29. In Mincom Ltd v EAM Software Finance Pty Ltd (No 3) (2007) 64 ACSR 387 at [50]-[51] Fryberg J appeared to accept the submission that as a matter of practice the question of whether the specified purpose exists is normally dealt with at the approval hearing, as s 411(17) is tied to the question of the Court’s approval of the arrangement. This accords with ASIC's practice, which is to withhold deciding whether to issue a s 411(17)(b) statement (that it has no objection to the scheme) until the second approval hearing.

30. In relation to s 411(17), ASIC has provided the statement contemplated by that sub-section. Accordingly the issue of whether the Scheme is proposed for the proscribed purpose ceases to be jurisdictional (requiring the Court to withhold approval of the scheme), but it may remain a factor that the Court may take into account in the exercise of its residual discretion Mincom (No 3) at [40].

31. In relation to the issue of the Court exercising its discretion when such a statement has been provided, in Re Coles Group Ltd (No 2) (2007) 65 ACSR 494 Robson J observed (at [21] – [22]) that:

    (a)an acquisition pursuant to a scheme of arrangement is an exception to the prohibition contained in s 606 (which is the primary prohibition contained in Ch 6);

    (b)many transactions which could be carried out under Ch 6 are carried out by a scheme of arrangement;

    (c)the legislation provides a choice, and it is neutral as to the choice which is to be made; 

    (d)a corporation is free to choose a scheme of arrangement over Ch 6 if it chooses.

32. In Coles Group (No 2), Robson J also discussed the significance of ASIC’s policy statements and stated:

    (a)(at [46]) ASIC’s policy statements PS 60 and PS 142 [now Regulatory Guide 60] “help reconcile the various parts of s 411(17) and provide the section with a rational and reasonable function which is also of relevance in considering the work, if any, the section does when the court is exercising its discretion whether or not to approve the scheme”;

    (b)(at [47]) a s 411(17)(b) statement establishes that ASIC has no objection to the scheme “as in ASIC’s view members are not being adversely affected by the takeover being implemented by a scheme of arrangement rather than a takeover scheme”;

    (c)(at [66]) that there was a divergence of views as to whether the “proscribed intent” remains of relevance or even particular significance in relation to the Court’s exercise of discretion under s 411(4).

33. Robson J then discussed (at [66] – [67]) the divergence of views that appeared to exist in relation to whether the Court was in fact left with the abovementioned residual discretion.  His Honour then stated:

    (a)(at [68]) the existence of the proscribed purpose is a relevant factor when a s 411(17)(b) statement is provided;

    (b)(at [73]) the objectives of Ch 6 are relevant to the issue of the court’s discretion;

    (c)(at [75]-[77]) ASIC’s statement normally carries with it the implication that ASIC is satisfied that:

    (i)members have received all material information that they need for their decision;

    (ii)members have received reasonable and equal opportunity to share in the benefits under the scheme;

    (iii)members are not being adversely affected by the takeover proceeding by a scheme of arrangement;

    (d)if the court accepted the abovementioned implication, then the s 411(17)(b) statement “may well effectively counter any adverse inference that might have been drawn from the existence of the proscribed purpose”;

    (e)(at [78]) the existence of a proscribed purpose is not necessarily an adverse factor against approval.  See also Robson J in Lonsdale Finance Group Ltd [2007] VSC 525 at [21] – the existence of the proscribed purpose “may be relevant but will normally be of no particular significance in the light of ASIC’s no objection statement”.

34. In Re International Goldfields Ltd [2004] WASC 112, Barker J held at [32] that it is sufficient for a scheme of arrangement under Ch 5 to be used where there is positive evidence that the scheme was proposed as a means of guaranteeing the bidder full ownership of the applicant without the delay, cost, expense or uncertainty associated with a takeover under Ch 6 and there is a legitimate commercial interest in the entire ownership of the applicant being resolved in favour of the bidder, or not, at the one time.

35. In this case there is positive evidence that the Scheme was proposed as a means of guaranteeing Bondi Mining Ltd 100% ownership of the plaintiff without the delay, cost, expense and uncertainty associated with a takeover under Ch 6.  There is a legitimate commercial interest in the entire ownership of the plaintiff to be resolved at one time: Re StockbridgeLtd at 653.

36. In any event, the level of disclosure given by the plaintiff in the explanatory statement meets what is required under the provisions of Ch 6.  Accordingly, whilst the form of Ch 6 will be avoided by the implementation of the scheme, the substance, and the mischief to which Ch 6 is directed, will not. 

    CONDITIONS PRECEDENT

37. The conditions precedent in the Implementation Deed which is contained within the Scheme Booklet, save for that requiring approval of the Court to the Scheme, have been satisfied or waived.

    FAIRNESS AND REASONABLENESS

38. The shareholders at the meeting held on 5 December 2011 voted unanimously in favour of the Scheme.  There is no reason for considering that the scheme is not at least so far as fair and reasonable as that an intelligent and honest man, who is a member of the class, might approve the scheme: Re Alabama, New Orleans, Texas and Pacific Junction Railway Company at 247.

39. I am satisfied that the requirement of s 411 have been met and that the Scheme ought be approved in terms of the Minute filed by the plaintiff dated 14 December 2011.

I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.

Associate:

Dated:        19 December 2011