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

GLEESON J: 1 On 21 June 2017, I made orders pursuant to ss 411(1) and 1319 of the Corporations Act 2001 (Cth) ("Act") after a first hearing in relation to scheme of arrangement proposed to be made between Signature Gold Limited ("Signature Gold") and its shareholders. 2 In summary, the effect of the proposed scheme is that StratMin Global Resources plc (a company formed in England and Wales) ("StratMin") will acquire all of the issued shares in Signature Gold and Signature Gold's shareholders will become shareholders in StratMin. 3 These are my reasons for making the orders. 4 The facts set out below are substantially based upon the written submissions filed in support of the application.

BACKGROUND 5 Signature Gold is an unlisted public company, registered under the Act on 31 March 2010. Its issued share capital comprises 88,185,409 fully paid ordinary shares issued for a total consideration of $5,122,049.05. There are currently 205 registered shareholders. 6 Signature Gold was formed with the primary aim of exploration for precious metals (particularly gold) and the development of economic deposits in Australia. Currently the company is conducting gold exploration and development projects at nine project sites ("Signature Gold projects"). 7 StratMin was incorporated in England and Wales on 7 July 2004, and in about December 2004 it was admitted to the Alternative Investment Market ("AIM") operated by the London Stock Exchange ("LSE"). 8 AIM is a market aimed at small and mid-capital growth companies, and is usually used as an exchange for companies seeking access to capital to realise their growth and innovation potential. Companies whose securities are admitted to trading on AIM are subject to and must comply with the AIM Rules for Companies published by the LSE ("AIM Rules"). 9 In about September 2016, StratMin became, for the purposes of AIM Rule 15, a cash shell company, following the completion of a fundamental divestment. Under the AIM Rules, StratMin was required to make an acquisition which would constitute a "reverse takeover" under AIM Rule 14 within six months of becoming a Rule 15 cash shell company, or its shares would be suspended from trading on AIM. As no such transaction took place, trading in StratMin's shares on AIM was suspended. 10 Signature Gold entered into discussions with StratMin from approximately December 2016, regarding potential takeover options. Following discussions and negotiations, on 2 February 2017 Signature Gold announced a proposal from StratMin for StratMin to acquire all of the issued shares in Signature Gold by way of scheme of arrangement under the Act. A scheme implementation agreement was entered into on 16 March 2017.

PROPOSED SCHEME 11 If approved and implemented, Signature Gold shareholders will receive consideration in the form of "Tranche 1" shares and "Tranche 2" shares. 12 The proposed scheme will constitute a reverse takeover pursuant to Rule 14 of the AIM Rules, as it will, among other things, exceed 100% in the gross asset test as defined in the AIM Rules. StratMin will apply for its enlarged share capital (including the shares that will be issued during "Tranche 1" of the scheme) to be readmitted to trading on AIM in accordance with the AIM Rules. That will allow the shareholders of StratMin, including (in respect of the "Tranche 1" shares) scheme shareholders, to trade on AIM. 13 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; (2) in consideration of the transfer of scheme shares, StratMin must issue, or procure the issue, of StratMin shares ("Tranche 1" shares) pro rata to each Signature Gold shareholder as at the record date; and (3) the "Tranche 1" shares are 275 million StratMin shares (with a total value of GBP5,500,000) at a price of 2 pence per share, allocated and issued to scheme participants on a pro-rata basis. 14 Scheme participants may at a later date become entitled to "Tranche 2" shares, on certain conditions. The scheme provides that: (1) StratMin must announce on AIM the completion of a "JORC 2012 report" in relation to a Signature Gold project within one business day of the report being completed, and the announcement must include a warning to scheme participants that, to be eligible to receive the "Tranche 2" shares, they must hold no fewer shares in StratMin at 7.00 pm on the "Tranche 2" record date than the number of "Tranche 1" shares that they were issued. A "JORC 2012 report" is a report prepared in compliance with the 2012 version of the Australian Code for Reporting of Exploration Results, Mineral Resource and Ore Reserves prepared by the Joint Ore Reserves Committee; (2) the "Tranche 2" record date is the fifth day that StratMin shares have been quoted and are tradeable on AIM after the announcement of a "JORC 2012 report"; (3) if the conditions summarised below are satisfied, within 10 business days of StratMin's announcement of a "JORC 2012 report" in respect of a Signature Gold project, StratMin must procure that 133,333,333 StratMin shares at a price of 3 pence per share (with a total value of GBP4,000,000) (each a "Tranche 2" share) are allocated issued to certain scheme participants ("eligible "Tranche 2" scheme participants") on a pro rata basis; (4) each eligible "Tranche 2" scheme participant will receive a number of "Tranche 2" shares calculated in accordance with a formula set out in the scheme; (5) the issue of "Tranche 2" shares is subject to the completion of a "JORC 2012 report" in respect of a Signature Gold project within 24 months of the effective date of the scheme, as defined; (6) to be an eligible "Tranche 2" scheme participant, a scheme participant must hold at 7.00 pm on the "Tranche 2" record date a number of shares in StratMin equal to or greater than the number of "Tranche 1" shares allocated and issued to that scheme participant, and if the scheme participant holds fewer StratMin shares, the scheme participant's right to "Tranche 2" shares is forfeited, and the forfeited shares are included in the pool of "Tranche 2" shares to be allocated to eligible "Tranche 2" scheme participants; (7) StratMin must, after the date of the announcement of completion of a "JORC 2012 report" and before the "Tranche 2" record date, use all reasonable endeavours to identify scheme participants who hold fewer StratMin shares than the number of "Tranche 1" shares that they were issued, and must notify each such scheme participant that they will not be eligible to receive "Tranche 2" shares unless they acquire a sufficient number to meet the qualification requirement; (8) as restrictions in jurisdictions outside Australia, New Zealand and the United Kingdom may make it impractical or unlawful for consideration shares to be offered or issued under the scheme to ineligible scheme participants, StratMin must appoint a nominee to sell the consideration shares to which the scheme participant would otherwise have been entitled, and pay the scheme participant the net proceeds after certain deductions; and (9) if some or all of the "Tranche 2" shares cannot be issued within 60 days of the "Tranche 2" record date because of the AIM Rules, or because shareholder approval cannot be obtained, or because of any restriction imposed by law, StratMin will pay each eligible scheme participant 3 pence instead of and in full satisfaction of its obligation, to issue each "Tranche 2" share.

Debt-equity conversion 15 By cl 3.1.2 of the scheme implementation agreement, it is a condition precedent to the implementation of the scheme that the "Target Debt and Liability Amount" does not exceed AUD500,000. In order to meet that condition, the directors of Signature Gold are intending to seek shareholder approval to convert $813,422 of existing loans and liabilities into 4,648,127 Signature Gold shares at a proposed conversion price of $0.175 per share. This debt to equity conversion is subject to separate Signature Gold shareholder approval. It is drawn to shareholders' attention in the letter from the Chairman in the scheme booklet.

EVIDENCE 16 The plaintiff read the following affidavits and tendered the following exhibits in support of the applications: (1) two affidavits of Andrew McNee, partner of Maddocks, the solicitors for Signature Gold, affirmed 29 May 2017 and 20 June 2017, and the accompanying exhibit marked "AM-6"; (2) affidavit of Bruce Fulton, director of Signature Gold, affirmed 19 June 2017 and the accompanying exhibit "BF-1"; (3) affidavit of Robert Boynton, shareholder and director of Signature Gold, and shareholder, director and CEO of StratMin, affirmed 19 June 2017; (4) affidavit of Kieren Mildwaters, solicitor and partner at Mildwaters Consulting LLP, a firm advising StratMin in relation to matters arising under English law in relation to the proposed scheme, sworn 19 June 2017, and the accompanying exhibit "KCM-1"; (5) affidavit of John Hewson, shareholder and director of Signature Gold, affirmed 20 June 2017; (6) affidavit of Simon James, accountant, director and authorised representative of HLB Mann Judd Corporate, and joint author of the independent expert report dated 9 June 2017 ("independent expert report"), sworn 20 June 2017 and the accompanying exhibit "SJ-2"; (7) affidavit of Nicholas Guest, accountant and authorised representative of HLB Mann Judd Corporate, and joint author of the independent expert report, sworn 20 June 2017; (8) two letters from the Australian Securities and Investments Commission ("ASIC") to the directors of Signature Gold, each dated 20 June 2017; and (9) a copy of the draft explanatory statement titled "Signature Gold Ltd Scheme Booklet in relation to a proposal from StratMin Global Resources PLC (AIM:STGR) to acquire all of the issued securities in Signature Gold Ltd by way of scheme of arrangement" ("scheme booklet").

Scheme is recommended by directors of Signature Gold (excluding Mr Boynton) 17 The directors of Signature Gold, excluding Mr Boynton, unanimously recommend that the shareholders of Signature Gold vote in favour of the scheme, in the absence of a superior proposal. 18 As a shareholder and director of both Signature Gold and StratMin, Mr Boynton has not: (1) participated in, or voted on, any decision of the directors of Signature Gold which the board identified had any relationship to the proposed scheme of arrangement with StratMin; (2) attended any meeting of the Board which related to matters regarding the proposed scheme of arrangement with StratMin; (3) been provided with any minutes relating to meetings referred to in para (2) above; and (4) participated on behalf of Signature Gold in any discussions with respect to the proposed scheme of arrangement or any negotiations regarding any rival third party company proposals.

Scheme enforceable against the bidder 19 StratMin executed a deed poll on 14 June 2017 ("deed poll") in favour of the scheme participants, by which it undertook in favour of each scheme participant that it will observe and perform all obligations contemplated of it under the scheme, including all obligations relating to the provision of the scheme consideration in accordance with the terms of the scheme. 20 By the deed poll, StratMin acknowledged and agreed that the deed poll may be relied on and enforced by any scheme participant even though the scheme participants are not parties to it. Under the scheme, the scheme participants appointed Signature Gold, its directors, officers and secretaries as their agents and attorneys to enforce the deed poll against StratMin. 21 The deed poll is conditional on the scheme becoming effective, and is annexed to the scheme booklet.

Independent expert report 22 The directors of Signature Gold engaged HLB Mann Judd Corporate ("independent expert") to prepare a report expressing an opinion as to whether the scheme is fair and reasonable and in the best interests of Signature Gold shareholders. 23 In the report, the independent expert expresses the opinion that the scheme is not fair but is reasonable and in the best interests of Signature Gold shareholders, in the absence of a superior proposal. 24 In the independent expert's opinion, the scheme is not fair, because the assessed value of the scheme consideration, being a share in the post-scheme merged entity on a minority basis, is less than the independent expert's assessed value range for a Signature Gold share on a 100% controlling interest basis. 25 On the other hand, the scheme is considered reasonable having regard to the advantages and disadvantages of the scheme and other matters including the position of shareholders should the scheme not proceed. In the independent expert's opinion, the position of shareholders should the scheme be approved is more advantageous than if the scheme is not approved. 26 In particular, the independent expert had regard to the following benefits of the scheme for Signature Gold shareholders: the proposed scheme provides Signature Gold shareholders with the opportunity to gain increased liquidity in their investment, as currently there is no active market to trade their securities, but following implementation of the scheme, Signature Gold shareholders will hold shares in an entity listed on the AIM market; the proposed scheme will provide access to funding for the further development and expansion of existing Signature Gold exploration assets in Australia and the Czech Republic; and the merged entity will be larger in size and scale, and will be listed on a public market, and this provides an increased opportunity for Signature Gold shareholders to participate in future increases in the value of traded securities.

Jurisdictional requirements 27 An application under s 411 of the Act for approval of a members' scheme of arrangement involves three stages. First, the application to the Court to approve the convening of a scheme meeting and the explanatory statement to be sent to members concerning the scheme. Secondly, the holding of the scheme meeting at which members (or a relevant class of members) vote on the proposed scheme. Thirdly, the application to the Court to approve the proposed scheme: cf. Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [7] per Keane CJ and Jacobson J; Amcom Telecommunications Limited, re Amcom Telecommunications Limited [2015] FCA 341 at [8] per McKerracher J; Central Pacific Minerals NL [2002] FCA 239 at [6] per Emmett J. 28 The following matters are required to be proved at the first stage (Orion Telecommunications Ltd, re Orion Telecommunications Ltd [2007] FCA 1389 at [5]): (1) the plaintiff is a "Part 5.1 body"; (2) the proposed scheme is an "arrangement" within the meaning of s 411 of the Act; (3) the explanatory statement will provide proper disclosure to members; (4) the scheme is bona fide and properly proposed; (5) ASIC has had reasonable opportunity to examine the proposed scheme and the explanatory statement, to make submissions and has had 14 days' notice of the proposed hearing date of the first court hearing; and (6) any other procedural requirements have been met, such as r 3.2 of the Federal Court (Corporations) Rules 2000 (Cth) as to the nomination of a chairperson for the scheme meeting. 29 The approach of the Court at the first court hearing is 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 ... meeting the court would be likely to approve it on the hearing of a petition which is unopposed": per Street CJ (with whom Hutley and Samuels JJA agreed) in FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 ("FT Eastment") at 72. The High Court approved this observation in Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504. The FT Eastment approach has been consistently followed. 30 In Re DUET Finance Ltd [2017] NSWSC 415 at [14], Black J noted: The Court does not substitute its commercial judgment for that of the members to whom the scheme is directed, but considers whether the scheme is one that sensible businesspeople might conclude is of benefit to members: Re Prime Infrastructure Holdings Ltd [2010] NSWSC 1104; (2010) 80 ACSR 193 at [13]; Re AXA Asia Pacific Holdings Ltd [2011] VSC 4 at [13]; Re Aspen Group Ltd [2015] NSWSC 1718 at [11]. 31 The second court hearing is where the court makes its "final determination", and is the most important hearing if the matter becomes contested, but in practice the first court hearing is where the court intervenes if it has any concerns: cf. Re Archaean Gold NL (1997) 23 ACSR 143 at 146-147. 32 As set out in the dictum of Barrett J in Permanent Trustee Company [2002] NSWSC 1177; (2002) 43 ACSR 601 at [7], at both court hearings there is a duty of disclosure which falls on the plaintiff and its counsel: The fact that the application is ex parte is not without some significance. The absence of any defendant or contradictor sharpens the duty of the applicant. While a case such as the present is distinguishable from one where an interlocutory injunction is sought in the absence of the defendant (in that there is here no defendant as such) I think it is fair to say that an applicant in this kind of situation, like an applicant ex parte for an injunction, carries the responsibility of bringing to the court's attention all matters that could be considered relevant to the exercise of its discretion.

Part 5.1 body 33 The term "Part 5.1 body" is defined in s 9 of the Act to mean, relevantly, a company.

"Arrangement" 34 An arrangement to which s 411(1) relevantly applies is one between a company and its members or any class of them. 35 The term "arrangement" is of wide import. In NRMA Limited (Application of); NRMA Insurance Limited (Application of) [2000] NSWSC 82; (2000) 156 FLR 349, Santow J said (at [20]): Generally speaking, unless the arrangement is ultra vires the company or seeks to deal with a matter for which a special procedure is laid down by the Corporations Law or to evade a restriction imposed by the Corporations Law, almost any arrangement otherwise legal which touches or concerns the rights and obligations of the company or its members or creditors, and which is properly proposed, may come under s411; compare Re International Harvester Co of Australia Pty Ltd [1953] VicLawRp 90; [1953] VLR 669 at 672 per Lowe ACJ. 36 In AGL Energy Services (Queensland) Pty Ltd v AGL Energy Services Pty Ltd [2010] FCA 452 at [15], Emmett J said, relevantly: The element of compromise or arrangement that is necessary to satisfy s 411 need not be of any great magnitude or significance, so long as what is proposed can fairly be characterised as a compromise or arrangement between a company, on the one hand, and its members, on the other. In Damian T and Rich A, Schemes, Takeovers and Himalayan Peaks (3rd ed, Ross Parsons Centre of Commercial, Corporate and Taxation Law, 2013), the authors state at [3.1.4]: Although the Courts have stated that they do not consider it necessary or desirable to attempt to articulate a more precise or narrow definition of the term "arrangement", they have indicated that an "arrangement" implies some element of "give and take", "bargain", "benefit" or accommodation". … … in the case of members' schemes which are used to effect change of control transactions, the "give and take", "benefit", "bargain" or "accommodation" need not simply be between a target company and its members and can, instead, be between a bidder and the members of the target company, with the only function of the target company being to facilitate the obtaining of the requisite approvals, to register the transfer of shares in the target to a bidder (in the case of a "transfer scheme" …) or to facilitate the capital reduction and issuance of new shares in the target to the bidder (in the case of a "cancellation scheme" …), and to terminate the existing members' status as members of the target (in the case of both a transfer scheme and a cancellation scheme). … In the authors' view, the above discussion as to whether there is present an element of "give and take", "benefit", "bargain" or "accommodation" is something that ought to be relevant only to the merits of the particular scheme or the exercise of the Court's fairness discretion, rather than having any relevance to the jurisdiction of the Court. (footnotes omitted)

Independent expert report 37 By reason of Mr Boynton's directorships of Signature Gold and StratMin, the explanatory statement must be accompanied by a copy of a report made by an expert who is not associated with StratMin, stating whether or not, in his or her opinion, the proposed scheme is in the best interest of the members of Signature Gold and setting out his or her reasons for that opinion: Corporations Regulations 2001 (Cth) reg 5.1.01 and Sch 8, cl 8303. 38 The independent expert is required to give an opinion, with reasons, on whether the proposed scheme is in the "best interests" of the shareholders of the company. In comparison, where an independent expert report is required in the context of a Chapter 6 takeover, the criterion prescribed by s 640 of the Act is whether the takeover offer is "fair and reasonable". ASIC has explored the meaning of "fair and reasonable" in Regulatory Guide 111, where it expresses the opinion that the phrase should be interpreted as two distinct criteria, contemplating the possibility that an offer may be not fair but reasonable. A circumstance producing that outcome would be where there is no serious likelihood of a better offer, coupled with the prospect of the share price falling below the offer price if the offer is rejected. 39 In Regulatory Guide 111, ASIC states that when an expert's report is required in a scheme of arrangement involving a change of control, ASIC will expect the expert to express an opinion on whether the scheme is fair and reasonable, as if the transaction were a Chapter 6 takeover. ASIC continues (at para 21): If an expert would conclude that the proposal was 'not fair but reasonable' if it was in the form of a takeover bid using the analysis described in RG 111.10-RG 111.17, it is still open to the expert to also conclude that the scheme is 'in the best interests of the members of the company'. The expert should clearly say that the consideration is not equal to or greater than the value of the securities the subject of the scheme, but there are sufficient reasons for security holders to vote in favour of the scheme in the absence of a higher offer.

Part 5.1 body 40 The evidence confirms that Signature Gold is a Part 5.1 body.

Proposed scheme is an "arrangement" 41 The scheme is expressed to be an arrangement between Signature Gold and each person registered as a holder of fully paid ordinary shares in Signature Gold as at the "record date".

Explanatory statement 42 Mr Fulton gave evidence of the process undertaken for the scheme for the preparation and verification of the scheme booklet on behalf of Signature Gold. Each statement in the scheme booklet was verified by a designated responsible person that was competent to verify the statement, pursuant to guidelines contained in a verification memorandum. Mr Fulton's affidavit annexed the verification memorandum and certificates signed by each responsible person. The certificates were each signed on 26 May 2017. 43 The certificates, taken together, showed that the various responsible people certified that each statement in the scheme booklet was true and accurate, and was not misleading or deceptive. The verification memorandum required the responsible person to ensure that there were no omissions from the scheme booklet and to consider whether the relevant statements contained all material information. 44 As part of this process, Mr Boynton provided a verification certificate on behalf of StratMin. 45 Certificates were also provided by each of the directors of Signature Gold in which they certified that, having made due enquiry, nothing came to the director's attention that caused them to believe, nor did they believe, that the scheme booklet contained any statement that was misleading and deceptive; involved any information or statements that were misleading or deceptive or likely to mislead or deceive; or contained any omission of material required by the Act to be included in the scheme booklet. These certificates were also each signed on 26 May 2017. 46 A draft of the scheme booklet was lodged with ASIC on 26 May 2017, and ASIC provided some comments in relation to the draft scheme booklet on 5 June 2017. The scheme booklet was then amended, and further verifications certificates were provided pursuant to the process described in [42] above by the responsible people for the statements in the scheme booklet that were amended (Mr Fulton as director of Signature Gold, Mr Boynton on behalf of StratMin, and Mr McNee) on 19 June 2017.

Disclosure concerning "Tranche 2" consideration 47 As summarised above, scheme participants may become entitled to "Tranche 2" shares if a "JORC 2012 report" with respect to a Signature Gold project is completed within 24 months of the effective date for the scheme. The trigger for that entitlement is StratMin announcing the completion of the "JORC 2012 report" on AIM, which it must do within one business day of completion of the report. Scheme participants will be entitled to "Tranche 2" shares if they hold the requisite number of StratMin shares at 7.00 pm on the "Tranche 2" record date, which is the fifth trading day after the announcement of the "JORC 2012 report" on AIM. If they do not satisfy that shareholding qualification, their entitlement to "Tranche 2" consideration shares is forfeited. 48 On behalf of Signature Gold, Dr Austin submitted that it is open to the Court to infer that there are acceptable commercial reasons for the eligibility provisions regarding the "Tranche 2" shares. The effect of the eligibility requirement will be to encourage Signature Gold shareholders to continue to support StratMin while that company continues the process of exploration and development of Signature Gold's existing gold projects. Shareholders support will provide stability for StratMin during the exploration and development phase. In those circumstances, Dr Austin submitted that the provisions of the scheme for forfeiture of entitlements to "Tranche 2" shares are fair, and would not provide a basis for the Court to decline to order the convening of the scheme meeting upon the application of the FT Eastment standard. 49 The scheme contains several provisions designed to protect the interests of scheme participants with respect to "Tranche 2" shares: (1) the trigger for the entitlement, namely the completion of the "JORC 2012 report", must be announced on AIM, and then the entitlement of scheme participants to the additional shares is measured on the fifth trading day after that announcement; (2) the announcement of completion of the "JORC 2012 report" on AIM must include a warning to scheme participants reminding them of the eligibility requirement for "Tranche 2" shares; and (3) further, StratMin has an obligation under clause 5.4.4 of the scheme, which is an obligation in favour of scheme participants by virtue of the deed poll, to use all reasonable endeavours to identify scheme participants whose StratMin holdings have fallen below the qualification level, and to notify them that unless they acquire more StratMin shares to top up to the requisite level, they will not be eligible to receive "Tranche 2" shares. 50 Dr Austin submitted that the scheme booklet prominently and accurately draws attention to the potential forfeiture of "Tranche 2", as follows: (1) in the "Frequently Asked Questions" section of the scheme booklet, there is a question "What happens if I sell my Tranche 1 Consideration Shares prior to receiving any Tranche 2 Consideration Shares?", the answer to which explains that a scheme participant may forfeit his or her right to receive "Tranche 2" shares if the total number of StratMin shares held by him or her at 7.00 pm on the "Tranche 2" record date is not equal or greater than the number of "Tranche 1" shares issued to him or her; and (2) section 1.3 of the scheme booklet explains the scheme consideration including eligibility for the "Tranche 2" consideration. 51 Dr Austin submitted that the explanatory statement in the scheme booklet discloses the effect of the forfeiture provision in cl 5.4.1 of the scheme accurately and clearly. 52 The letter from the chairman of Signature Gold, which forms part of the scheme booklet, also addresses the position relating to the "Tranche 2" shares as follows: … there is no certainty that the Signature Shareholders will receive Tranche 2 Consideration Shares, with StratMin's obligation to issue Tranche 2 Consideration Shares arising only on the completion of a 2012 JORC Report within 24 months of the Effective Date. Completion of a 2012 JORC Report is not certain and may not occur. If a 2012 JORC Report is not completed within 24 months of the Effective Date, you will not be issued Tranche 2 Consideration Shares and the only consideration you will receive for your Signature Shares will be Tranche 1 Consideration Shares - for further information please see sections 1.3, 6.1.4 and 6.3.8 if this Scheme Booklet, and pages 2, 10, 47 (at section 5.5.7) and 49 (at section 5.5.9) of the Independent Geologist's Report at Annexure C of the Independent Expert's Report at Attachment 1 to this Scheme Booklet.

Conclusion 53 On the basis of this evidence, I am satisfied that there is prima facie evidence that the scheme booklet will provide proper disclosure to the shareholders of Signature Gold.

Scheme is bona fide and properly proposed 54 The directors of Signature Gold (excluding Mr Boynton) have committed themselves to propounding the scheme, providing prima facie evidence that the scheme is bona fide and has been properly proposed.

Notice to ASIC 55 There is evidence that ASIC has had a reasonable opportunity to examine the proposed scheme and the explanatory statement. 56 By letter dated 20 June 2017, ASIC informed Signature Gold that it had examined the terms of the relevant scheme and the draft explanatory statement in accordance with its policy in Regulatory Guide Schemes of Arrangement ("RG60"). ASIC stated that it did not propose to appear to make submissions, or intervene to oppose the schemes at the first hearing. ASIC did not appear at the first hearing.

Other procedural requirements have been met 57 Consents to act as chairman and alternate chairman at the scheme meeting have been obtained. I was satisfied that the various procedural requirements for making the orders sought were met.

Independent expert report 58 On its face, the opinion of the independent expert in the present case conforms to ASIC's guidance. Importantly, the report unambiguously asserts that the scheme is in the best interests of Signature Gold shareholders, which is the sole criterion prescribed for a members' scheme of arrangement by the Corporations Regulations and Schedule 8. 59 The authors of Takeovers and Reconstructions in Australia (LexisNexis, subscription service), Santamaria JG and Renard IR, assert at [2012] that: The onus is on the expert to properly establish and explain its framework for evaluating a scheme under s 411. Such a framework should incorporate and possibly extend the fair and reasonable concepts. 60 The plaintiff submitted that the experts have met that standard in the present case. They submitted that the apparently qualified nature of the report does 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. On the contrary, the matters raised in the independent expert 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 61 The plaintiff drew attention to the following matters:

Ineligible Foreign Shareholders 62 Clause 5.5 of the scheme has the effect, noted above, that the StratMin shares to which Signature Gold shareholders whose registered addresses are outside Australia, New Zealand and the United Kingdom would otherwise be entitled will be sold through a nominee and will receive the net proceeds of sale in cash. 63 This provision 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 the resident's acceptance of an offshore offer. The sale procedure was submitted to be fair in the circumstances.

Performance risk 64 Courts are properly concerned to ensure that the members of a scheme company, whose shares are automatically divested under the scheme, will receive the consideration to which the scheme entitles them. Performance risk is partly addressed by the acquirer entering into a deed poll for the benefit of the shareholders of the scheme company, promising to perform its obligations under the scheme. But in some cases additional protections have been created. 65 As mentioned above, under the deed poll, StratMin has covenanted in favour of the scheme participants to provide the scheme consideration in accordance with the terms of the scheme. 66 Where the scheme consideration is the issue of shares in the acquiring company, and the transfer of the scheme participants' shares in the target company is conditional on the provision of the relevant scheme consideration by the acquirer (whether or not the relevant share issue is accompanied by a cash component), courts have found that there is no risk of a failure of performance by the acquirer: see, for example, Brambles Industries Ltd, re Brambles Industries Ltd and the Corporations Act 2001 (Cth) [2006] FCA 1273; (2006) 59 ACSR 501; Rural Press Ltd, re Rural Press Ltd [2007] FCA 314; (2007) 61 ACSR 373. 67 In the present case, the scheme (cl 5.2.1) provides that StratMin must procure that the total number of the "Tranche 1" shares are allocated and issued to scheme participants on a pro rata basis on or before the implementation date. According to cl 4.2.1 of the scheme, the transfer of the scheme shares to StratMin is expressed to be "subject to [StratMin] discharging its obligations under clauses 5.2.2(a) and 5.2.2(b)" (which relate to the issue of the "Tranche 1" shares). Accordingly, there is no risk of a failure of performance by StratMin. 68 There is a risk relating to performance arising out of the possibility that the StratMin shares, though issued to the scheme participants, may not be admitted to trading on the AIM market. 69 That risk is addressed by the provisions of the scheme implementation agreement. One of the conditions to which the scheme is subject is that the "Nominated Adviser" under the AIM Rules has confirmed to StratMin by no later than 8.00 am on the second court date that the AIM admission forms have been lodged and AIM has advertised StratMin's announcement to be readmitted, with the intended effect being that from the implementation date StratMin will be readmitted to AIM and StratMin's enlarged share capital will be admitted to trading. StratMin must obtain written confirmation from the "Nominated Adviser" satisfying this condition before 8.00 am on the second court date, which will be available to the Court. 70 Mr Mildwaters gave evidence that he has extensive experience in advising natural resources companies on all aspects of compliance with the AIM Rules. Mr Mildwaters says that if the admission document, the AIM admission forms and a declaration by a "Nominated Adviser" are submitted to the exchange, he knows of no reason why StratMin would not be permitted to have its enlarged share capital, including the shares issued in "Tranche 1" of the scheme readmitted to trading on AIM.

CONCLUSION 71 I was satisfied that there was no order sought which goes beyond current accepted practice. 72 Finally, I was satisfied that the proposed scheme is of such a nature and is cast in such terms that, if approved at the scheme meeting, the Court would be likely to approve the scheme on the hearing of an unopposed application. I certify that the preceding seventy-two (72) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.