Andean Resources Limited, in the matter of Andean Resources Limited [2010] FCA 1190

Pursuant to subsection 411(1) of the Corporations Act 2001 (Cth) (Corporations Act): (a) Andean Resources Limited ACN 064 494 319 (Andean) convene a meeting (Scheme Meeting) of the holders of ordinary shares in Andean (Andean 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 Andean and Andean Shareholders (Scheme), being the scheme substantially in the form of the draft contained in Annexure G of the scheme booklet containing the explanatory statement in relation to the Scheme, being Exhibit "1" in these proceedings (Scheme Booklet). (b) The Scheme Meeting be held at 10am (Sydney time) on 3 December 2010, at Harbour Terrace, Museum of Contemporary Art, 140 George Street, The Rocks, Sydney, Australia. (c) The Chairperson of the Scheme Meeting be Louis Gignac and in his absence Wayne Hubert. (d) The Chairperson appointed to the Scheme Meeting has the power to adjourn the Scheme Meeting in his absolute discretion. (e) An Andean Shareholder on the Canadian register of members (Canadian Shareholder) may appoint more than 2 proxies. If a Canadian Shareholder appoints more than 2 proxies, the appointment must specify the number of the Canadian Shareholder's votes each proxy may exercise otherwise the appointment will be disregarded. (f) All voting at the Scheme Meeting be by poll as declared by the Chairperson. (g) At the Scheme Meeting, a person will be entitled to one vote for each Andean share that the person is registered as holding at 7pm (Sydney time) on 1 December 2010. (h) The explanatory statement in the Scheme Booklet for the Scheme be approved for distribution to Andean Shareholders. (i) There be dispatched to each Andean Shareholder on the Australian register of members: (i) a document substantially in the form of the Scheme Booklet; (ii) a proxy form and an election form for the Scheme Meeting; and (iii) a reply paid (for use in Australia only) envelope addressed to Computershare Investor Services Pty Limited, in the case of each Andean Shareholder who has a registered address in Australia, by prepaid post and, in the case of each Andean Shareholder who has a registered address outside Australia, by prepaid airmail or air courier, and in each case addressed to the relevant address set out in the Andean register of members. (j) There be dispatched to each Canadian Shareholder: (i) a document substantially in the form of the Scheme Booklet; (ii) a proxy form and an election form for the Scheme Meeting; (iii) a voting instruction form for the Scheme Meeting; and (iv) a reply paid (for use in Canada only) envelope addressed to Computershare Investor Services Inc, in the case of each Andean Shareholder who has a registered address in Canada by prepaid post and, in the case of each Andean Shareholder who has a registered address outside Canada, by prepaid airmail or air courier, and in each case addressed to the relevant address set out in the Andean register of members. (k) There be dispatched to each Non-Objecting Shareholder (as defined in the Scheme Booklet) the documents referred to in sub-paragraphs (i), (iii) and (iv) of paragraph (j) of these orders, in the case of each Non-Objecting Shareholder who has nominated an address in Canada by prepaid post and, in the case of each Non-Objecting Shareholder who has nominated an address outside Canada, by prepaid airmail or air courier, and in each case addressed to the relevant address as disclosed to Andean by the Non-Objecting Shareholder or the Non-Objecting Shareholder's agent for that purpose. (l) The time by which the Andean Shareholders must return their proxy forms for the Scheme Meeting be10.30am (Sydney time) on 1 December 2010. (m) Andean place an advertisement in The Australian newspaper, substantially in the form of "Annexure A" to these Orders, on or before 3 December 2010 and Andean shall otherwise be exempted from compliance with the requirement to publish such notice following the Scheme Meeting and prior to the second court hearing for approval of the Scheme pursuant to Rule 3.4(3)(a) of the Federal Court (Corporations) Rules 2000 (Cth). (n) The draft ASX/TSX announcement in the terms proposed and in the circumstances stated in paragraph 94 of the affidavit of Wayne Michael Hubert affirmed 26 October 2010 be approved.

REASONS FOR JUDGMENT 1 This is an application filed on 15 October 2010 under s 411(1) of the Corporations Act 2001 (Cth) in relation to a proposed scheme of arrangement between Andean Resources Limited and its shareholders concerning the transfer of their shares to Goldcorp Inc (Goldcorp). 2 The application is accompanied by the affidavits of: (1) Wayne Michael Hubert affirmed 26 October 2010. Mr Hubert is the Managing Director and the Chief Executive Officer of Andean Resources. (2) Lewis Gignac affirmed in October 2010 on a day not specified. Mr Gignac is the Chairman of Andean Resources. (3) Jason Mark Thorne sworn 26 October 2010. Mr Thorne is a partner of Deloitte Touche Tohmatsu who prepared an investigating accountant's report on the proposal embodied in the scheme. (4) Reginald Stephen Cooper sworn 26 October 2010. Mr Cooper is a director of Grant Samuel & Associates Pty Limited. Grant Samuel was engaged by Andean Resources to prepare an independent expert's report on the proposal embodied in the scheme. (5) Andrew Mark Chuk affirmed 26 October 2010. Mr Chuk is a principal consultant of AMC Consultants Pty Ltd. AMC was engaged by Grant Samuel as technical consultants to prepare a technical specialist's report in relation to the proposal. (6) James Rozsa affirmed 28 October 2010. Mr Rosza is a partner of the solicitors acting for Andean Resources, Corrs Chambers Westgarth. Mr Rosza's affidavit annexes a letter dated 11 October 2010 from Andean's solicitors to the Australian Securities and Investments Commission (ASIC) enclosing the draft of the scheme booklet proposed to be distributed. This letter attaches a check list which confirms that the content of the explanatory statement contains the information required by the Corporations Act and Corporations Regulations 2001 (Cth). Mr Rosza's affidavit also annexes a copy of a letter delivered to ASIC of 15 October 2010 enclosing a copy of the originating process commencing these proceedings, as well as notice that the first court hearing was listed at 9.00am on 29 October 2010. Mr Rosza's affidavit also annexes a letter from ASIC dated 28 October 2010. That letter states: ASIC's current intention in relation to the Scheme ASIC has had 14 days notice of the hearing of this application to the Court to convene a meeting of Andean Resources Limited's members, in accordance with paragraph 411(2)(a) of the [Corporations] Act. ASIC has also had a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement relating to the Scheme, and has examined the terms and the draft explanatory statement in accordance with our policy in ASIC Regulatory Guide 60 Schemes of Arrangement [RG 60]… ASIC does not currently propose to appear to make submissions, or to intervene to oppose the Scheme at the first hearing under subsection 411(1) of the Act. (7) David L. Deisley sworn 25 October 2010. Mr Deisley is the Executive Vice-President of Corporate Affairs and General Counsel of Goldcorp. Mr Deisley's affidavit sets out the process of verification that was undertaken in relation to statements relating to Goldcorp in the proposed scheme booklet. 3 I have been assisted by the oral submissions by Mr Bathurst QC, as well as written submissions filed by the plaintiff on 28 October 2010 (marked for identification as MFI-1). 4 As the written submissions set out, there are procedural requirements in relation to the making of an order under s 411(1) as prescribed in s 411(2) of the Corporations Act. The affidavit of Mr Rosza contains material which satisfies the requirements in s 411(2) relating to notification of ASIC and the provision to ASIC of a reasonable opportunity to examine the proposed arrangement and draft explanatory statement. 5 In summary, I am satisfied that on the material placed before me today, "the proposal fits within the statutory concept of arrangement". Adopting the further statement of Barrett J in Re Hills Motorway Ltd (2002) 43 ACSR 101; [2002] NSWSC 897 at [5], there will be available to members all the main facts relevant to the exercise of their judgment. ASIC has had a reasonable opportunity to examine the proposal. The scheme is so conceived and presented in terms of its structure, purpose, and effect that there is no apparent reason (so far as can be foreseen at this time) why it should not in due course receive approval from the Court if the necessary majority of members' vote is achieved at the proposed meeting to be convened. 6 My attention has been drawn to certain transactional issues in relation to the scheme which I now briefly note. 7 Under the proposed scheme, the holders of ordinary shares in Andean will transfer their shares to Goldcorp. They will have an election whether to receive a cash consideration of C$6.50 in respect of each of their Andean shares (subject to a scale back provision on a pro rata basis), share consideration in the form of 0.14 common shares in the capital of Goldcorp in respect of each of the Andean shares, or mixed consideration (being a combination of cash and shares). Under the proposed scheme, the default provision if an election for cash is not made is that there be an issue of shares as described. According to the information presently available, the scheme consideration provides a significant premium to the recent historical trading price of Andean shares. 8 On 3 September, Andean and Goldcorp entered into a merger implementation agreement in relation to the scheme. The scheme booklet contains a summary of this merger implementation agreement. 9 The directors of Andean have unanimously recommended that Andean shareholders vote in favour of the scheme, in the absence of a superior proposal. 10 The report from the independent expert (Grant Samuel), which is contained in the scheme booklet, concludes that the scheme is fair and reasonable and is in the best interest of Andean shareholders. 11 In terms of the issue of the convening of the members, as opposed to any particular class, it has been pointed out that there are 3,223,440 options held by a total of five holders. Those details are set out in section 6.9 of the scheme booklet. 12 The Sentient Group Limited has entered in to a call option agreement with Goldcorp in respect of Andean shares held by Sentient. Sentient has advised Andean that it intends to vote its Andean shares in favour of the scheme, in the absence of a superior proposal and subject to the independent expert concluding and continuing to conclude that the scheme is in the best interests of Andean shareholders. Details of this arrangement are also set out in section 11.7 of the scheme booklet. I am satisfied, at this stage, with the proposal whereby it is not proposed that Sentient constitute a separate class, relying on the two decisions which are identified in the written submissions at paragraph 45, namely Re Hostworks Group Ltd (2008) 26 ACLC 137; [2008] FCA 64 and Re Hills Motorway Ltd. 13 There are also detailed provisions in the proposed scheme relating to ineligible foreign shareholders. That is, a shareholder of Andean who is (or is acting on behalf of) a citizen or resident of a jurisdiction other than Australia, New Zealand, Canada, or the United States, unless Goldcorp determines that it is lawful and not unduly onerous or impracticable to issue that shareholder with new Goldcorp shares. Under the scheme, Goldcorp is not obliged to issue new shares to ineligible foreign shareholders. However, there is an arrangement proposed where Goldcorp must issue those shares to which the persons would otherwise be entitled to a sale agent appointed by Goldcorp. The sale agent will sell those shares and pay the average net proceeds of the sale to the ineligible foreign shareholder. There is disclosure in relation to these arrangements in section 5.2(k) of the scheme booklet. I am satisfied, at this stage, with the proposal that the ineligible foreign shareholders not be constituted as a separate class. 14 The scheme booklet contains details of the Canadian disclosure requirements. Because more than 10% of Andean shares are owned by Canadian residents, Andean is a "reporting issuer", and is subject to the requirements of Canadian security laws. The scheme booklet sets out disclosure required under Canadian security laws. It also deals with the position of Canadian beneficial owners and how they may exercise their voting rights (details of which are set out in section 4.6 of the scheme booklet). 15 Section 9 of the scheme booklet contains a summary of tax implications for Andean shareholders. 16 The submissions have brought to my attention a number of other issues as follows. 17 Performance risk in relation to the scheme is addressed in clause 4 of the scheme. The arrangement ensures that there is no possibility of title to the Andean shares held by scheme participants passing to Goldcorp with an outstanding obligation on Goldcorp to provide the scheme consideration to scheme participants, other than ineligible foreign shareholders. 18 Disadvantages and risks associated with the scheme are discussed in the scheme booklet at both section 5.5 and section 10. In accordance with ASIC's Regulatory Guide 60 - Schemes of Arrangement (December 2009), a summary of comparative advantages and disadvantages are stated in the Chairman's letter to members and in section 1 of the scheme booklet. 19 Some time was taken before me today dealing with the exclusivity provisions. Those provisions, importantly, are subject to a fiduciary carve-out that does not restrict Andean or Andean directors from: (a) considering or negotiating any unsolicited Acquisition Proposal that may constitute a Superior Proposal [as defined in the Merger Implementation Agreement of 3 September 2010 (MIA), a copy of which is exhibited to the affidavit of Mr Hubert]; (b) approving or recommending a Superior Proposal to Andean shareholders; or (c) entering into an agreement in respect of a Superior Proposal, subject to compliance with the terms of the MIA, as long as the Acquisition Proposal did not result from a breach of the exclusivity provisions of the MIA and the Andean directors determine in good faith … that failure to take such action would be reasonably likely to constitute a breach of the fiduciary or statutory duties of the directors under applicable law… 20 In addition, the exclusivity provisions apply for a relevant period of approximately six months, unless extended by mutual agreement. The exclusivity provisions are framed to be subject to the overriding obligation not to breach the directors' fiduciary duties or be otherwise unlawful. In addition, prominence is given to the exclusivity provisions in both section 11.4 and section 5 of the scheme booklet. Accordingly, these arrangements meet the criteria identified by Santow J in Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 (at [9]). 21 I should also note that there was tendered before me today (exhibit 2) an amendment to clause 10.9 to the merger implementation agreement dated 3 September 2010. Clause 10.9 operates in circumstances where a competing offer is made, which Andean determines is superior to the Goldcorp offer. Goldcorp is then given the opportunity to match this offer. The effect of clause 10.9 is that Andean must continue to take all reasonable steps necessary to hold the scheme meeting and cause the merger to be voted on while the matching process proceeds. The substance of the amendment is to subject clause 10.9 to the overriding obligation not to breach the directors' fiduciary duties or be otherwise unlawful. 22 The scheme provides for a break fee of 1% of the aggregate of the total consideration offered by Goldcorp to implement the scheme. The break free is disclosed in the scheme booklet in sections 11.5 and 6. There is no agreement that the break fee is payable simply because shareholders reject the scheme, without the need for any competing transaction or change of director recommendation, or the scheme is not approved by the Court. It seems, therefore, that the break fee is not so large as to act as any form of coercion, and it does not stand in the way of the convening of the meeting. 23 The scheme also contains deemed warranty provisions in relation to the shares of Andean shareholders being free from encumbrances and restrictions on transfer. The warranty is dealt with in section 11.20 of the scheme booklet. As has been submitted, and I accept, the purpose of the deemed warranty is to ensure that shareholders whose shares are subject to encumbrances do not receive the same consideration as those whose shares are capable of transfer without encumbrance. 24 There is no issue arising in relation to the purpose of the scheme being to avoid the operation of any provisions of Chapter 6 of the Corporations Act. 25 There is no information which would suggest any consequence of the scheme other than for shareholders of Andean, that is, it does not deplete the ability of Andean to meet obligations to creditors. 26 It has also been pointed out that Andean expects to announce quarterly results for 30 September 2010 and financial statements for the quarter ended 30 September 2010 by the end of October and mid November, respectively. There is disclosure about the release of these financial results in section 6.10 and 11.21 of the scheme booklet. The form of the proposed announcement to the Australian and Toronto Stock Exchanges is set out in Mr Hubert's affidavit. Approval is sought as part of this hearing to make the proposed disclosure, prior to the proposed scheme meeting, in the event Grant Samuel (the independent expert) forms the requisite opinion (that is, in the light of those further results the scheme is fair and reasonable). If Grant Samuel does not provide that confirmation Andean will bring the matter back to the Court, prior to the proposed scheme meeting. 27 In these circumstances I am satisfied that I should make orders in accordance with the draft orders which have been included in the bundle of documents provided in support of the application. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (5 paragraphs)

Legislation Cited (3)

Cases Cited (3)