AGL Energy Services (Queensland) Pty Limited v AGL Energy Services Pty Limited

MARKOVIC J: 1 On 19 April 2018 I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act) for the convening of a meeting of the holders of ordinary shares in Signature Gold Ltd (Signature) (Scheme Shareholders) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed to be made between Signature and the Scheme Shareholders (Scheme). These are my reasons for making those orders.

Background 2 Signature is an Australian public company limited by shares. Its issued share capital comprises 93,621,673 fully paid ordinary shares issued for a total consideration of $6,073,395.25. It currently has 205 registered shareholders and no options over any unissued shares. Signature has not been admitted to the official list of any stock exchange and its shares are not quoted for trading in any stock market. 3 Signature's primary aim is exploration for precious metals, particularly gold, and subsequent development of economic deposits in Australia. It is currently conducting gold exploration at nine project sites. 4 StratMin Global Resources PLC (StratMin) was incorporated in England and Wales on 7 July 2004 and on 29 January 2013 was listed on the Alternative Investment Market (AIM) operated by the London Stock Exchange. Its shares were cancelled from trading on AIM on 3 August 2017. 5 Under the proposed Scheme, Signature shareholders, other than Ineligible Scheme Participants (defined at [10] below), will exchange their shares in Signature for shares in StratMin. StratMin will acquire all of the issued shares in Signature (Scheme Shares) and Signature will become its wholly owned subsidiary. 6 The Court has considered two previous scheme proposals for Signature shareholders to exchange their shares in Signature for shares in StratMin and made orders pursuant to s 411 of the Act to convene a meeting of Signature shareholders in relation to each of those proposals: see Signature Gold Ltd, in the matter of Signature Gold Ltd [2017] FCA 766 and Signature Gold Ltd, in the matter of Signature Gold Ltd [2017] FCA 1481 (Signature (No 2)). Each of those applications was discontinued with leave of the Court before the second hearing. 7 In the letter from the chairman of Signature included at pp 2-3 of the Scheme Booklet for the proposed Scheme, the history of the two previous scheme proposals and why they did not proceed is explained as follows: The Scheme is the third proposal in the past 12 months by StratMin to acquire all of the Signature Shares by scheme of arrangement. The first proposal did not progress to a second court hearing because subscription monies that StratMin had conditionally secured from a new investor were delayed due to exchange control issues, with the delay causing StratMin to be unable to lodge an admission document with AIM within a prescribed period, causing AIM to cancel admission to trading of StratMin's Shares. The second proposal did not progress to a second court hearing because AIM required that StratMin raise a minimum of GBP5,000,000 in equity and that the majority of this be raised from a well-known UK institutional investor, which was not feasible at the time. For further details please refer to section 4.2.2 of this Scheme Booklet.

Current proposed Scheme 8 On 4 April 2018 Signature announced its proposal for the Scheme and a scheme implementation agreement was entered into between Signature and StratMin (SIA). Under the proposed Scheme each Signature share will be acquired by StratMin in exchange for 4.7855 StratMin shares at a price of 2 pence per StratMin share (subject to rounding) for a total acquisition consideration of $15.11m (£9m). 9 If the Scheme is approved and implemented StratMin will issue 450 million StratMin shares (Consideration Shares) to acquire 100% interest in Signature pursuant to the Scheme. 10 If the proposed Scheme becomes effective then on the Implementation Date (as defined in the Scheme): (1) the Scheme Shares must be transferred to StratMin; and (2) in consideration of the transfer of the Scheme Shares StratMin must issue, or procure the issue, of the Consideration Shares (as defined in (3) below) pro-rata to each Signature shareholder, other than Ineligible Scheme Participants, as at the Record Date (as defined in the Scheme); and (3) the Consideration Shares are 450 million StratMin shares, with a total value of £9m, issued at a price of 2 pence per share, allocated to Scheme participants on a pro-rata basis. For the purpose of the Scheme, Ineligible Scheme Participants will be those Signature shareholders who are registered as the holder of any fully paid ordinary shares in the capital of Signature at 7.00 pm on the Record Date and whose address in the register is in any place other than Australia, New Zealand and the United Kingdom. 11 StratMin will also offer for subscription up to 50 million StratMin shares at a subscription price equal to the price of the Consideration Shares, raising up to £1m and will require additional funds for its exploration and development programs and potential acquisitions. 12 StratMin will apply for its enlarged share capital, including the shares to be issued to scheme participants as a result of the Scheme, to be admitted to trading on the NEX Exchange Growth Market in the United Kingdom in accordance with the NEX rules. That will allow shareholders in StratMin, including Scheme Shareholders, to trade on the NEX market. 13 Kieren Charles Mildwaters, a solicitor and partner of Mildwaters Consulting LLP who is advising StratMin, is experienced in advising natural resources companies on all aspects of fundraising and access to capital markets, including compliance with NEX Exchange rules and the process required for a company to have its shares admitted to trading to the NEX Exchange. Mr Mildwaters describes the NEX Exchange and the steps required to be admitted to trade on the NEX Exchange Growth Market, which is one of the two primary traded markets operated by NEX Exchange.

The Signature directors recommend the Scheme 14 The directors of Signature, other than Robert Boynton, who is an excluded director, consider that the Scheme is in the best interests of Signature shareholders and unanimously recommend to shareholders that they vote in favour of the Scheme in the absence of a superior proposal. 15 Mr Boynton is a director and shareholder of Signature and StratMin. Accordingly, he has not: (1) participated in, or voted on, any decision of the Signature directors which the board identified had any relationship to the proposed Scheme; (2) attended any meeting of the board of Signature which related to matters regarding the proposed Scheme; (3) been provided with any Signature board meeting minutes in relation to the proposed Scheme; and (4) participated on behalf of Signature in any discussion with respect to the proposed Scheme or any negotiations regarding rival third party company proposals.

legal framework 16 Section 411(1) of the Act relevantly provides that where an arrangement is proposed between a Pt 5.1 body and its members the Court may, on the application in a summary way of the body, order a meeting of the members of the body to be convened in such manner and to be held in such place as the Court directs. The Court may also approve the explanatory statement required by s 412(1)(a) of the Act to accompany the notice of meeting. 17 Section 412(1)(a) provides that where a meeting is convened under s 411, the body must, with every notice convening the meeting, send a statement explaining the effect of the arrangement and state any material interests of the directors and the effect of the proposed arrangement on those interests insofar as that effect is different from the effect on the like interests of other persons. The statement must also set out any prescribed information and any other information that is material to the making of a decision by a member whether or not to agree to the arrangement. 18 Section 411(2) provides that the Court must not make an order pursuant to s 411(1) unless 14 days' notice of the hearing of the application has been given to the Australian Securities and Investments Commission (ASIC) and the Court is satisfied that ASIC has had a reasonable opportunity to examine the terms of the proposed arrangement and a draft explanatory statement relating to it and to make submissions to the Court in relation to the proposed arrangement and the draft explanatory statement. 19 The relevant legal principles relating to the Court's consideration of an application for orders under s 411 of the Act are set out at [20]-[24] of Signature (No 2). I do not propose to repeat those principles here.

matters to be proved at the first court hearing 20 There are three stages to an application for approval of a members' scheme of arrangement under s 411 of the Act. The first stage is the application to the Court to approve the convening of a scheme meeting and the explanatory statement that is to be sent to members about the scheme: see EcoBiotics Limited, in the matter of EcoBiotics Limited [2017] FCA 643 (EcoBiotics) at [19] (Gleeson J). 21 In EcoBiotics at [20] Gleeson J identified six matters to be proved at the first stage. Having regard to those matters in relation to the proposed Scheme, I am satisfied that: (1) Signature's evidence establishes that it is a company registered under the Act and thus is a Pt 5.1 body; (2) the proposed Scheme is an arrangement within the meaning of s 411 of the Act as it is an arrangement between Signature and all of its shareholders, not merely a class of them: see AGL Energy Services (Queensland) Pty Limited v AGL Energy Services Pty Limited [2010] FCA 452 at [13]. It is a "takeover scheme of arrangement", the only unusual feature of which is that the bidder, StratMin, is a United Kingdom company and the Consideration Shares will become tradeable on the NEX Exchange Growth Market; (3) the explanatory statement will provide proper disclosure to members. Bruce Fulton, a director of Signature, deposes to the due diligence and verification process undertaken in relation to the statements contained in the Scheme Booklet relating to, or provided by Signature (Signature Information). He deposes that he is not aware of any Signature Information which is likely to be false, misleading or deceptive; any material omission from the Signature Information; or anything that causes him to believe that the issue of the Signature Information may involve misleading or deceptive conduct. Mr Boyton deposes to the verification of statements in the information provided by StratMin in the Scheme Booklet (StratMin Information). He similarly concludes that he is not aware of any StratMin Information which is likely to be false, misleading or deceptive; any material omission from the StratMin Information; or anything that causes him to believe that the issue of the StratMin Information may involve misleading or deceptive conduct; (4) the Scheme is bona fide and properly proposed; (5) ASIC has had reasonable opportunity to examine the proposed Scheme and the explanatory statement and to make submissions and has had sufficient notice of the proposed first Court hearing date. In its letter dated 18 April 2018 addressed to Signature, ASIC noted that it had been given requisite notice of the application; that it had examined the terms of the Scheme and the draft explanatory statement; and that it did not propose to appear to make submissions, or intervene to oppose the Scheme at the first hearing under s 411(1) of the Act; and (6) all other procedural requirements have been met. The persons nominated to act as chairperson and alternate chairperson at the meeting have given evidence that satisfies the requirements of r 3.2 of the Federal Court (Corporations) Rules 2000 (Cth).

Independent expert report 22 The directors of Signature engaged HLB Mann Judd Corporate (NSW) Pty Ltd (HLB Mann Judd) to prepare a report expressing an opinion as to whether the Scheme is fair and reasonable and in the best interests of Signature shareholders. HLB Mann Judd prepared reports in relation to two previous Scheme proposals. 23 In their report dated 4 April 2018 HLB Mann Judd expressed the opinion that the Scheme is not fair but is reasonable and in the best interests of Signature shareholders in the absence of a superior proposal. In HLB Mann Judd's opinion the Scheme is not fair because the assessed value of the Scheme consideration, being shares in the post Scheme merged entity on a minority basis, is less than their assessed value range for a Signature share on a 100% controlling interest basis. 24 On the other hand, HLB Mann Judd is of the opinion that the Scheme is reasonable having regard to its advantages and disadvantages and other matters, including the position of shareholders should the Scheme not proceed. HLB Mann Judd is of the opinion that the position of shareholders is more advantageous should the Scheme be approved than if the Scheme is not approved. In particular, HLB Mann Judd had regard to the following benefits of the proposed Scheme for Signature shareholders: (1) the proposed Scheme provides Signature shareholders with the opportunity to gain increased liquidity in their investment. Currently there is no active market for Signature shareholders to trade their securities but, following the implementation of the Scheme, Signature shareholders will hold shares in an entity listed on the NEX Exchange Growth Market; (2) the proposed Scheme will provide access to funding to further develop and expand existing Signature exploration assets in Australia, along with the opportunity to fund participation in a project in the Czech Republic; and (3) the merged entity following the proposed Scheme will be larger in size and scale and will be listed on a public market, providing an increased opportunity for Signature shareholders to participate in future increases in the value of traded securities. 25 In Signature (No 2) at [43]-[44] I set out the requirements of an independent expert to give an opinion, with reasons, on whether the proposed scheme is in the "best interests of the members of the company" and referred to the relevant matters in ASIC Regulatory Guide 111. It is not necessary for me to repeat those comments here although I note that they have equal application to the proposed Scheme. As submitted by Signature, on its face, HLB Mann Judd's opinion conforms to ASIC's guidance. Its report unambiguously asserts that the Scheme is in the best interests of Signature shareholders. 26 Signature submitted that HLB Mann Judd had met the standard set out by Renard IA and Santa Maria JG in Takeovers and Reconstructions in Australia (LexisNexis, subscription service) at [2012] that: The onus is on the expert to properly establish and explain its framework for evaluating the scheme under s 411. Such a framework should incorporate and possibly extend the fair and reasonable concepts. 27 Signature further submitted that the apparently qualified nature of the report did not provide any ground for the Court to decide at the first hearing that it would not approve the Scheme even if the requisite majority of shareholders vote in favour of the Scheme and there is no opposition at the second Court hearing. Signature submitted, and I accept, that on the contrary, the matters raised in the expert's report are appropriate matters to place before the shareholders so that they can make an informed decision on the proposal.

particular aspects of the scheme 28 Signature drew the Court's attention to the particular aspects of the Scheme set out below.

Ineligible Scheme participants 29 Pursuant to cl 5.3 of the Scheme, the StratMin shares to which Ineligible Scheme Participants, being shareholders whose registered addresses are outside Australia, New Zealand or the United Kingdom, would be entitled will be sold through a nominee of StratMin. The Ineligible Scheme Participants will then receive the net proceeds of sale. 30 The same provision was included in the second proposed scheme. It is designed to avoid issuing shares to residents of a country whose securities regulation laws either prevent the offer of shares without a local disclosure document or prevent a resident's acceptance of an offshore offer. I accept that in those circumstances the sale procedure is fair: see Signature Gold (No 2) at [47]-[48].

Performance risk 31 The Scheme consideration is the issue of shares in StratMin. Clause 5.2 of the Scheme provides that StratMin must procure that the total number of the Consideration Shares are allocated and issued to Scheme participants on a pro-rata basis on or before the Implementation Date. Clause 4.2 of the Scheme provides that the Scheme Shares will only be transferred if StratMin discharges its obligations under cl 5.2.2(a) and cl 5.2.2(b) which concern the issue of the Consideration Shares. 32 As Signature submitted the only performance risk is the possibility that the StratMin shares, though issued to the Scheme participants, may not be admitted to trading on the NEX Exchange Growth Market. 33 That risk is addressed by the provisions of the SIA which includes as a condition of the Scheme that the NEX Exchange corporate advisor has confirmed to StratMin, by no later than 8.00 am on the date of the second Court hearing, that the NEX Exchange application documents have been lodged with the NEX Exchange and that the NEX Exchange has advertised StratMin's announcement to be admitted to the NEX Exchange, with the intended effect of the NEX Exchange application documents being that from the Implementation Date (or a later date if the NEX Exchange rules require) StratMin's share capital, including the Consideration Shares, will be admitted to trading on the NEX Exchange Growth Market in accordance with the NEX Exchange rules and all other requirements of the NEX Exchange. 34 Mr Mildwaters has deposed that if the relevant admission document, the documents set out in Appendix 2 of the NEX Exchange rules and the declaration from the NEX Exchange corporate advisor are all submitted to the NEX Exchange, he knows of no reason why StratMin would not be permitted to have its enlarged share capital, including the Consideration Shares, admitted to trading on the NEX Exchange Growth Market, nor any reason why StratMin's enlarged share capital would not be able to be traded on the NEX Exchange Growth Market from the date of its admission.

conclusion 35 For the reasons set out above I made the orders sought by Signature. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.