AuStar Gold Limited, in the matter of AuStar Gold Limited (No 2) [2021] FCA 972

DAVIES J: 1 On 22 June 2021 I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act) for the plaintiff (AuStar) to convene and hold meetings of its ordinary shareholders and listed optionholders to consider and, if thought fit, to approve proposed schemes for the merger of AuStar with White Rock Minerals Limited (White Rock). On 23 July 2021, due to the COVID-19 restrictions then in place, I made further orders for the meetings to proceed as virtual meetings by way of live webcast, without any physical assembly, and orders with respect to the distribution of material to scheme shareholders and scheme optionholders. The meetings were held on 30 July 2021 and both proposed schemes were approved by the requisite statutory majorities of the members and listed optionholders of AuStar eligible to vote (in person or by proxy). The second hearing of the approval applications took place on 11 August 2021 and on that day I made orders pursuant to ss 411(4)(b) and 411(6) of the Act approving the two schemes of arrangement. These are my reasons. 2 It is well established that the role of the Court in approving a scheme of arrangement is supervisory. The Court has a discretion whether to approve a scheme pursuant to s 411(4)(b) of the Act and is not bound to approve the scheme where a majority of members have approved the scheme at a meeting convened for that purpose. The matters bearing upon whether to approve the scheme are set out in Re Opus Group Limited (No 2) [2018] FCA 1413 at [7]: (a) the orders of the Court convening the scheme meeting were complied with; (b) the resolution to approve the scheme was passed by the requisite majority, and whether other statutory requirements have been satisfied; (c) all conditions to which the scheme is subject to (other than Court approval and lodgement of the Court's orders with the Australian Securities and Investments Commission (ASIC)) have been met or waived; (d) the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it; (e) there was full and fair disclosure to shareholders of all information material to the decision whether to vote for or against the scheme; (f) the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion; and (g) the Court is satisfied under s 411(17) that the scheme has not been proposed to avoid Chapter 6 of the Act, or that the plaintiff has a statement from ASIC that it has no objection to the scheme. See also: Re APN Outdoor Group Limited (No 2) [2018] FCA 1633; Re Coca-Cola Amatil Limited [2021] NSWSC 489. 3 The approval applications were supported by several affidavits and I was satisfied on the basis of that affidavit evidence that the meetings were convened and conducted in accordance with the Court orders, that the approval resolutions were passed by the requisite statutory majorities voting on the resolutions both in number and by percentage of votes and that the conditions precedent to which the schemes are subject have been met or waived. No person attended the approval hearing to object to the Court approving the schemes and ASIC provided a letter stating it has no objection either to the Share Scheme or the Option Scheme, in satisfaction of s 411(17)(b) of the Act. Dr Austin for AuStar brought four particular matters to the Court's attention for consideration. 4 The first matter concerns the low voter turnout. Six percent of the total eligible shareholders voted on the Share Scheme resolution, either in person or by proxy and 3.46% of the total listed optionholders voted on the Option Scheme resolution. The fact of low voter turnout would not prevent the Court from approving the schemes, however it does call for the Court's consideration because the low turnout may be an indication that some procedural irregularity occurred or that members may have been deterred from attending or voting at the meeting: Re TriAusMin Limited (No 2) [2014] FCA 833, [10]-[12] (Farrell J). The Court should not assume however, in the absence of complaint, that shareholders who did not vote either did not have the notice of the meeting or were silent in protest of the scheme: Re Matine Limited (1998) 28 ACSR 268, 295 (Santow J). There was no complaint in this case, and nothing to suggest any procedural irregularity or that shareholders and optionholders may have been deterred from voting at the scheme meetings. I also had regard to the following matters: (a) although the turnout was low for both meetings, those security holders who did vote on the resolutions held a significant proportion of AuStar's securities able to be voted to approve the Share Scheme and the Option Scheme. As at the voting entitlement time of 7:00 pm on 28 July 2021, there were 2,297 Scheme Shareholders holding 65,623,668 AuStar shares who were eligible to vote at the Share Scheme Meeting. The number of shareholders who voted on the Share Scheme resolution, either in person or by proxy, was 138 (6% of the total eligible holders), holding 27,130,313 shares (41.34% of AuStar's total issued share capital). Of those shareholders, 136 (98.55% of shareholders present and voting in person or by proxy) voted in favour of the resolution; and two shareholders (1.44% of those present and voting in person or by proxy) voted against the resolution. One shareholder abstained from voting. The number of shares voted in favour of the resolution was 27,127,888 (99.99% of the total number of shares voted). The number of shares voted against the resolution was 2,425 (0.01% of the total number of shares voted). With respect to the Option Scheme, as at the voting entitlement time of 7:00 pm on 28 July 2021, there were 2,227 Scheme Optionholders holding 7,600,581 listed options eligible to vote on the Option Scheme resolution. The number of Scheme Optionholders who voted on the resolution, either in person or by proxy, was 77 (3.46% of the total holders), holding 1,887,962 listed options (24.84% of the total listed options). Of those listed optionholders, 77 (100% of listed optionholders present and voting in person or by proxy) voted in favour of the resolution; and no listed optionholders (0% of those present and voting in person or by proxy) voted against the resolution. One listed optionholder abstained from voting. The number of listed options voted in favour of the resolution was 1,887,962 (100% of the total number of listed options voted). The number of shares voted against the resolution was 0 (0% of the total number of shares voted). (b) voter turnout numbers at the scheme meetings was higher than the average turnout for both AuStar's 2020 Annual General Meeting and 2020 Extraordinary General Meeting; (c) as recently as 22 July 2021, approximately three quarters of the Scheme Shareholders held parcels of shares worth $2,000 or less, for whom the Share Scheme may be of minor commercial interest; (d) AuStar operated a shareholder information line for AuStar security holders to call if they had any questions in relation to the proposed schemes; (e) as at 4 August 2021, no notice of appearance had been served on the solicitors for AuStar by anyone proposing to oppose the application for approval of the proposed schemes; and (f) those security holders who did vote voted overwhelmingly in favour of the schemes. 5 The second matter concerns "voting cards" that Gareth Lewis, a non-executive director of AuStar and chair of the scheme meetings and Matthew Gill, the chief executive officer of White Rock gave to Jonathan Cooper, a customer success director for Automatic Group Pty Ltd (Automatic) who had oversight of the provision of services by Automatic at the scheme meetings, including the use of Zoom and Automatic's online webinar platform (Automatic Online Platform) used to register votes cast by attendees at meetings using an online web portal. These voting cards were given to Mr Cooper on the day of the meeting and authorised Mr Cooper to execute the technical electronic steps for the casting of the votes of Mr Lewis for his security interests and as a proxyholder for the securities for which Mr Lewis was appointed chair and the vote of Mr Gill. In the case of Mr Lewis, this was done to assist him to focus on running the scheme meetings without the need for Mr Lewis personally to log into the Automatic Online Platform and take the technical electronic steps for casting votes during the scheme meetings and for Mr Gill this was done for convenience, so he did not have to log in separately to the Automatic Online Platform to vote during the scheme meetings. With respect to their individual securities, these votes overrode the proxy votes earlier submitted by Mr Lewis and Mr Gill and those proxy votes were revoked. In affidavits sworn by him, Mr Cooper explained the process for entering votes into the Automatic Online Platform and how he manually entered the votes of Mr Lewis and Mr Gill into the Automatic Online Platform system in accordance with their instructions. I accept the submission for AuStar that the procedure followed is to be distinguished from the appointment of a proxy to cast a vote at a meeting, which would have had to be submitted 48 hours before the meeting. Rather Mr Cooper assisted in the execution of the procedure by which Mr Lewis and Mr Gill cast their votes at the meeting and I do not think anything arises from the way in which Mr Lewis and Mr Gill cast their votes to cause any question to arise about whether their votes were validly cast. 6 The third matter concerns the conditions precedent to the schemes. In Re Legend Corporation Limited (No 2) [2019] FCA 1444 at [28], O'Bryan J noted that there has been some discussion in the cases as to whether there is a need for primary evidence as to the satisfaction of conditions precedent or whether certificates executed by the parties confirming satisfaction of the conditions precedent may be accepted by the Court as sufficient proof. His Honour was of the view that whether or not primary evidence is required depends upon the subject matter of the condition and the possible effect on members' interests if the condition is waived, rather than satisfied. In the present matter, both primary evidence (where available) and certificates regarding the satisfaction or waiver of conditions precedent have been provided and no issue arises as to the sufficiency of the evidence furnished. 7 The fourth matter concerns the intention of AuStar and White Rock to rely upon my approval of the schemes for the purposes of qualifying for the exemption under s 3(a)(10) of the Securities Act of 1933 15 USC (US Securities Act), from US registration/prospectus requirements in connection with White Rock issuing the consideration securities to those AuStar shareholders and optionholders who are US residents. 8 Consistent with the approach adopted in other cases (see Re Atlantic Gold NL (No 2) [2014] FCA 869, [8]; Re Amcor Limited (No 2) [2019] FCA 842 [32]-[38]) I record the following matters: (a) I was advised before the approval hearing that AuStar and White Rock would rely on the s 3(a)(10) of the US Securities Act exemption on the basis of the Court's approval of the schemes; (b) I was informed of the securities to be offered as scheme consideration, and the manner in which the scheme consideration will be calculated. I was also taken to an independent expert report which concluded that the schemes are in the best interests of AuStar's shareholders and optionholders; and (c) I held a hearing to consider the fairness and reasonableness of the proposed schemes. That hearing was open to the public and any person to whom the new securities are to be issued; further, notice of the date of the approval hearing was included in the scheme booklets sent to all shareholders and optionholders of AuStar prior to the proposals being considered at the scheme meetings, and was advertised in a daily newspaper circulating throughout the country. No security holder gave notice of any intention to appear at the second court hearing to oppose the approval of the schemes. 9 There was no reason to doubt that the schemes are fair and reasonable so that an intelligent and honest person, properly informed and acting alone, might approve it. The independent expert concluded that the schemes are fair and reasonable and in the best interests of the shareholders and optionholders in the absence of a superior proposal. There was also no reason to doubt that AuStar has brought to the Court's attention the matters that could be considered relevant to the exercise of the Court's discretion, or to doubt that there has been full and fair disclosure of the information material to the decision whether to approve the scheme. There is also nothing about the schemes to indicate that the schemes might offend public policy or adversely affect the interests of other groups who are not parties to the schemes. 10 I also made an order pursuant to s 411(12) of the Act that AuStar be exempt from compliance with s 411(11) of the Act, which requires a copy of the Court's order approving the scheme of arrangement be annexed to every copy of AuStar's constitution issued after the order is made. Section 411(12) allows the Court to exempt a body from compliance with this provision. There was no utility in having this order annexed to AuStar's constitution, given that neither of the schemes amend AuStar's constitution and furthermore, on implementation, AuStar will become a wholly owned subsidiary of White Rock and be delisted from the ASX. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Davies.