92 Energy Limited, in the matter of 92 Energy Limited [2024] FCA 114

BANKS-SMITH J: 1 On 20 February 2024 I heard an application under s 411 of the Corporations Act 2001 (Cth) for orders convening a scheme meeting and approving the despatch of the relevant scheme booklet, and for related directions. I made orders on that date for the reasons that follow.

Introduction 2 92 Energy Limited is an Australian public company limited by shares. It is admitted to the official list of the financial market operated by ASX Limited and its ordinary shares are quoted for trading on the ASX. 92 Energy is a uranium exploration company targeting high-grade unconformity-associated uranium in the Athabasca Basin in Saskatchewan, Canada. 3 On 8 December 2023 the board of directors of 92 Energy announced to the ASX that it had entered into a Scheme Implementation Deed (which was subsequently amended and restated on 25 January 2024) (SID) with Atha Energy Corp for the acquisition of 100% of the issued share capital of 92 Energy by Atha, by way of a scheme of arrangement between 92 Energy and its shareholders (Scheme). Under the proposed Scheme, 92 Energy shareholders will receive 0.5834 new Atha common shares for every scheme share held at the record date (Scheme Consideration). The effect of the Scheme will be to make 92 Energy a wholly owned subsidiary of Atha. 92 Energy will be delisted from the ASX as part of the implementation of the Scheme. 4 Atha is a uranium minerals exploration company listed on the Canadian Securities Exchange (CSE), and headquartered in Vancouver, Canada. 5 In addition to the Scheme, Atha has entered into an agreement with Latitude Uranium Inc., under which Atha proposes to acquire all of the issued and outstanding common shares of Latitude that it does not already own by way of a court-approved plan of arrangement under the Business Corporations Act (Ontario) (Latitude Arrangement), as applicable in Canada. 6 The Scheme and the Latitude Arrangement together comprise the Merger Transactions. According to the Chair of 92 Energy, on implementation of the Merger Transactions, 92 Energy, Atha and Latitude will combine to form a merged group 'with significant historical resources and one of the largest exploration portfolios across some of Canada's top uranium jurisdictions'.

Scheme implementation 7 If certain conditions precedent are satisfied or waived, the Scheme will be implemented in the following manner: (a) on the implementation date (currently expected to be 11 April 2024), Atha must issue to each scheme participant (other than Ineligible Foreign Holders and Electing Selling Scheme Participants - as each term is defined in the SID) the Scheme Consideration and procure that the Atha register is updated accordingly; (b) in consideration for the transfer of the Scheme Consideration to the scheme participants, all of the 92 Energy shares held by scheme participants will be transferred to Atha on the implementation date; and (c) Ineligible Foreign Holders and Electing Selling Scheme Participants will not receive the Scheme Consideration for the Scheme shares they would otherwise be entitled to receive under the proposed Scheme, and will instead be dealt with through standard sale processes.

Evidence relied upon 8 92 Energy relied on the following affidavits: (a) affidavit of David Church, partner at Thomson Geer Lawyers (solicitors for 92 Energy), attaching copies of a company search of 92 Energy, a copy of its ASX announcement dated 8 December 2023; (b) affidavit of Siobhan Lancaster, managing director and chief executive officer of 92 Energy and relevantly providing information about the business and capital structure of 92 Energy, the verification process undertaken in relation to the factual information within the scheme booklet, notification to ASIC, the amount of the potential break fee, the exclusivity provision in the SID, and the mitigation of performance risk associated with the Scheme, and providing a copy of the updated SID; (c) affidavit of Scott Gibson, partner at Thomson Geer Lawyers, relevantly deposing to his nomination and willingness to act as Chair for the meeting of 92 Energy shareholders to be convened for the purpose of considering the scheme of arrangement; (d) affidavit of Troy Boisjoli, chief executive officer of Atha, giving evidence of verification of the factual information about Atha in the scheme booklet; (e) affidavit of John Jentz, chief executive officer and director of Latitude, providing verification of the factual information about Latitude in the scheme booklet; (f) affidavit of James Roberts, lawyer at Hamilton Locke (solicitors for Atha), providing supplementary verification of amended statements about Atha and Latitude in an updated scheme booklet; (g) second affidavit of Scott Gibson providing supplementary verification of amended statements about 92 Energy in the updated scheme booklet, and attaching the latest version of the scheme booklet; and (h) third affidavit of Scott Gibson addressing a proposed amendment to the letter from the Chair to be incorporated in the scheme booklet and adducing evidence as to ASIC's position in relation to those amendments. 9 92 Energy also tendered certain correspondence with ASIC, including a letter dated 19 February 2024 confirming satisfaction of the requirements of s 411(2)(a) and s 411 (2)(b) of the Corporations Act. 10 For reasons set out more fully below, I was satisfied by reference to the above evidence and the submissions that 92 Energy had taken into account the disclosure requirements and guidelines included in Part 5.1 and Part 6 of the Corporations Act, the prescribed requirements of the Corporations Regulations 2001 (Cth), ASIC's Regulatory Guide 60 and this Court's Schemes of Arrangement Practice Note (GPN-SOA).

Section 411 of the Corporations Act 11 Section 411(1) of the Corporations Act relevantly provides that where an arrangement is proposed between a Part 5.1 body and its members, the Court may order a meeting of the members to be convened in such manner and to be held in such place as the Court directs. 12 Section 412(1)(a) of the Corporations Act relevantly provides that where a meeting is convened under s 411, the Part 5.1 body must, with every notice convening the meeting, send a statement explaining the effect of the arrangement. It is usual, as in this case, for a scheme booklet to include the explanatory statement. 13 Where the Court makes an order convening a meeting, the Court may also approve the explanatory statement required by s 412(1)(a) to accompany the notice of such a meeting. 14 This application concerned only the convening of the first meeting, the approval of the scheme booklet and ancillary matters. 15 Section 411 does not set out the criteria that must be satisfied before a meeting is ordered. However, the authorities establish that the Court should order the convening of a scheme meeting and approve the despatch of an explanatory statement if satisfied of the following matters: (a) the plaintiff is a Part 5.1 body (defined in the Corporations Act); (b) the scheme is an arrangement in respect of which the Court may order a meeting of the members or creditors; (c) the explanatory statement (generally included in the scheme booklet) provides adequate disclosure and contains the prescribed information; (d) the proposed scheme is bona fide and properly proposed; (e) 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; and (f) any other procedural requirements have been met. 16 As to the relevant principles, they are discussed in many authorities. This is a relatively straight-forward scheme and it is not necessary to descend into the principles in any detail. I recently collected some of the relevant authorities in Allkem Limited, in the matter of Allkem Limited [2023] FCA 1397 at [25]-[26], and many judges of this and other courts have similarly collected and discussed the relevant principles. See also, for example, Chesser Resources Limited, in the matter of Chesser Resources Limited [2023] FCA 1021 at [14]-[20]. 17 Relevantly, 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. 18 The jurisdiction of the Court to make an order to convene meetings under s 411(1) of the Corporations Act is conditional upon satisfaction of the two matters set out in s 411(2). The Court must be satisfied, first, that ASIC has been given (relevantly) 14 days' notice of the hearing; and second, that ASIC has had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement and to make submissions to the Court.

The scheme booklet 19 Section 412(1) of the Corporations Act requires every notice to members convening a scheme meeting to be accompanied by an explanatory statement, explaining the effect of the proposed arrangement, and prescribing disclosure of matters material to the making of a decision by a member which has not previously been disclosed. 20 In this case, the scheme booklet incorporates the explanatory statement. 21 Relevantly, the scheme booklet includes key information about the scheme meeting, voting, risk factors, reasons to vote in favour of or against the scheme, information about each of 92 Energy, Atha and Latitude, scheme taxation considerations and other information the directors consider material. 22 The scheme booklet includes a copy of a report of an independent expert, BDO Corporate Finance (WA) Pty Ltd, which in turn attaches a copy of an independent technical assessment and valuation report prepared by Valuation and Resource Management Pty Ltd. BDO concluded at Parts 13 and 14 of its report that, in the absence of a superior offer and considering the implications of the transaction as a whole, the Scheme is fair and reasonable for shareholders. At Part 14 of its report, BDO also set out the advantages and disadvantages of the Scheme in terms that I consider are clear and accessible to shareholders. 23 The scheme booklet also includes copies of the Scheme, deed poll executed by Atha, notice of the scheme meeting and a comparison of Australian and Canadian legal regimes. 24 The 92 Energy directors disclose in the scheme booklet that they unanimously recommend that members vote in favour of the Scheme in the absence of any superior offer, and subject to the independent expert continuing to conclude that the scheme is in the best interests of 92 Energy shareholders. The directors have indicated that they will vote in favour of the Scheme, but this has to be considered having regard to the fact that they will receive benefits if the transaction completes. I consider it is ordinarily appropriate for directors to make a recommendation, but there must be clear disclosure in the scheme booklet of their interests: see generally Asaleo Care Limited, in the matter of Asaleo Care Limited [2021] FCA 406 at [70]-[71]; Japara Healthcare Limited, in the matter of Japara healthcare Limited [2021] FCA 1150 at[71]-[72]; and In the matter of Ausnet Services Ltd [2022] NSWSC 21 at [28]-[30]. I consider that in this case the directors have appropriately disclosed their interests and benefits in connection with the Scheme. 25 The Practice Note reflects that the appropriate verification of matters in the explanatory statement is an important component of satisfying the Court that it should order that a scheme meeting be convened. Each of 92 Energy, Atha and Latitude (by the affidavits of Ms Lancaster, Mr Boisjoli and Mr Jentz respectively) provided affidavit evidence from suitably experienced persons as to due diligence and the verification processes. 26 More generally I have reviewed the affidavit evidence to ensure that the matters which must be disclosed have been adequately disclosed and I consider that is the case. I had the assistance of a compliance schedule provided by 92 Energy within its written submissions. 27 Accordingly, I was satisfied that it was appropriate to approve the scheme booklet for distribution. For completeness, I note that there were some minor amendments made to the draft scheme booklet that had been provided to ASIC. Those changes were brought to the attention of ASIC prior to the hearing, and it confirmed that it had no comments in relation to the changes (these changes explain the reference in order 1(a) of the orders to the third affidavit of Mr Gibson).

Consideration - particular matters relevant to the Scheme

Break fee 28 The SID provides for a break fee payable by 92 Energy to Atha and a reverse break fee payable by Atha to 92 Energy. The circumstances in which the break fees are payable are disclosed in the scheme booklet and do not depart from standard practice: Asaleo at [52]. The 92 Energy break fee represents approximately 1% of the implied equity value of 92 Energy (based on the Scheme Consideration as determined on or around the date of the SID). The calculations are disclosed in Ms Lancaster's affidavit and accord with the 1% guideline in the Australian Takeovers Panel Guidance Note 7: Lock-up devices.

Exclusivity 29 The SID contains a range of lock-up devices, such as 'no-shop' and 'no talk' terms, but all are in my view acceptable having regard to the principles discussed in Asaleo at [55]. They are disclosed in the scheme booklet. I am satisfied that the exclusivity provisions are not unduly restrictive on the 92 Energy board and do not undermine the fairness of the Scheme.

Conditions precedent 30 The Scheme becoming effective is conditional on certain conditions precedent in the SID relating to the Latitude Arrangement being satisfied (or waived by 92 Energy at its sole discretion). The implementation of the Latitude Arrangement is not conditional on the Scheme becoming effective. The Latitude Arrangement is summarised in section 7.2 of the scheme booklet. I was informed that 92 Energy is not currently aware of any evidence that any condition precedent to the Scheme will not be satisfied.

Options and performance rights 31 92 Energy Options has on issue 6,525,000 unlisted options. An option confers on the holder the right to subscribe for one new 92 Energy Share by payment of the relevant exercise price before the relevant expiry. Subject to the Scheme becoming effective, the options will be cancelled for consideration (paid in Atha shares equal to the intrinsic value of the option) with effect on and from the Implementation Date (as defined in the SID). I was informed that 92 Energy has entered into option cancellation deeds with the holders of the options pursuant to which they will be cancelled for consideration, as a waiver of ASX Listing Rule 6.23.2 has been obtained. 32 92 Energy also has on issue 2,775,000 performance rights, of which 800,000 have already vested due to their vesting conditions being met. All other 92 Energy performance rights are unvested. Upon vesting, holders of each vested performance right will receive a new 92 Energy share for nil consideration. The terms of the performance rights provide that where there is a defined change of control event unvested rights will automatically vest. A change of control event includes where a resolution in favour of a proposed scheme of arrangement is passed and the Court approves the scheme. Under the Scheme, upon announcement that the Scheme has been approved by the Court at the anticipated second hearing, the holders of rights may exercise their rights immediately upon vesting. They will then be issued 92 Energy shares and on implementation of the Scheme will receive consideration for those shares, determined in a manner consistent with the method employed for determining consideration for all scheme participants. 33 I do not consider that the manner in which the options and performance rights are to be treated is so different to the manner in which 92 Energy shareholders are otherwise treated so as to be class-creating. Again the details are disclosed in the scheme booklet. I also note that BDO considered the options and performance rights at Part 4.4 of its report.

Performance risk 34 The performance or credit risk to shareholders that they may be left without shares and without consideration is managed by detailed terms in the Scheme, together with the deed poll executed by Atha. Relevantly, there is no transfer of shares to Atha until it has provided consideration in full. By the deed poll, each of the 92 Energy shareholders participating in the Scheme has the benefit of a covenant that Atha will perform its obligations under the Scheme.

Other orders and dispensations 35 Procedural dispensations that were requested were conventional and there was no reason to withhold dispensation or refuse other standard ancillary relief.

Conclusion 36 For the above reasons I was satisfied as to the matters listed at [15] above in these reasons. In my view the Scheme, if considered and adopted by the 92 Energy members, is of such a nature that in the absence of opposition it would be approved at the second court hearing. Accordingly, I made orders convening the meeting as asked. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.