Australian Securities Commission v Marlborough Gold Mines Ltd

Overview of the Scheme 10 Rex is an Australian business involved in minerals exploration and development, with projects in copper and gold. Rex shares were admitted to the official list of the ASX on 20 September 2007. Rex has a 100% interest in two key assets, being the Hillside Copper-Gold Project (located on the Yorke Peninsula in South Australia) and the Hog Ranch Gold Property (Hog Ranch) (located in North-West Nevada, USA), in addition to a range of South Australian regional exploration licenses located on the Yorke Peninsula. Rex's registered office is in South Australia. 11 As at 8 July 2024 (the date of announcing the Scheme), Rex had on issue: (a) 767,901,670 Rex shares, which are quoted for trading on the ASX; (b) 33,730,000 options to subscribe for Rex shares, which are not quoted for trading on any stock exchange, and the terms of which are set out in the Rex Minerals Limited Option Plan Rules approved by Rex shareholders at its annual general meeting held on 16 November 2021; (c) 20,000,006 options received by certain institutional and sophisticated investors as part of a placement by Rex in August 2023, which are not quoted for trading on any stock exchange, and the terms of which were disclosed to the ASX on 3 August 2023; and (d) 15,000,000 Hog Ranch consideration rights which are not quoted for trading on any stock exchange, the terms of which were disclosed to ASX on 10 October 2019. 12 MACH Metals was incorporated as a proprietary limited company on 1 September 2023 by its immediate parent company, MACH Australia Holdings Pty Ltd, to acquire an initial interest in Rex. It has since acquired further shares in Rex. MACH Metals has no other investments. MACH Metals' registered office is in New South Wales and its related entities operate mining assets in Australia. MACH Metals' ultimate holding company is Droxford International Limited (I.B.C Number: 461087), a company incorporated in the British Virgin Islands and which is controlled by Mr Anthoni Salim, a Singaporean resident and Indonesian citizen. 13 On 8 July 2024, Rex entered into a Scheme Implementation Deed with MACH Metals dated 8 July 2024. Under the Scheme Implementation Deed, Rex agreed to propose the Scheme and both Rex and MACH Metals agreed to implement the Scheme on and subject to the terms and conditions of the Scheme Implementation Deed. The terms of the Scheme are set out in the proposed Scheme of Arrangement that is Schedule 2 to the Scheme Implementation Deed. 14 As noted above, the Scheme provides for the transfer of all shares in Rex to MACH Metals, except for those shares already held by MACH Metals. Upon implementation of the Scheme, Rex will become a wholly-owned subsidiary of MACH Metals and will apply to the ASX for termination of the official quotation of Rex shares on the financial market operated by the ASX, and to have itself removed from the official list of the ASX. 15 MACH Metals is not a party to the Scheme and cannot be directly bound by it (relevantly, under s 411 of the Act, a scheme is between a company and its members). The established practice in these circumstances is to require the entity providing the Scheme Consideration to execute a deed poll in favour of Scheme Shareholders. That practice has been followed in this case. On 14 August 2024, MACH Metals executed a deed poll (the Deed Poll) under which it covenants to provide the aggregate amount of the Scheme Consideration payable to Scheme Shareholders by no later than two business days prior to the date the Scheme is implemented, and to undertake all other actions attributed to it under the Scheme. 16 Rex has prepared a draft scheme booklet (Scheme Booklet) which sets out a detailed description of the Scheme and its advantages and disadvantages. It has been provided to and reviewed by the Australian Securities and Investments Commission (ASIC). On 3 September 2024, ASIC provided Rex's solicitors with a letter in the usual form, known as a "preliminary no objection letter". The letter stated that, based on ASIC's examination of the terms of the Scheme and the Scheme Booklet, ASIC does not currently propose to appear at the first court hearing to make submissions or intervene to oppose the Scheme. Consistently with that statement, ASIC did not appear at the first court hearing. 17 The Scheme Booklet records the unanimous recommendation of all Rex directors that Scheme Shareholders vote to approve the Scheme, and that all Rex directors intend to vote all Rex shares held or controlled by them in favour of the Scheme. The Scheme Booklet contains annexures including a Notice of Scheme Meeting, the Scheme, the Deed Poll and an independent expert report of BDO Corporate Finance Australia Pty Ltd (BDO). In the opinion of BDO, the Scheme is fair and reasonable and in the best interests of Scheme Shareholders in the absence of a superior proposal. 18 The Scheme provides for the acquisition by MACH Metals of all of the shares in Rex, not the issued options or the Hog Ranch consideration rights. Under the Scheme Implementation Deed, it is a condition precedent to the Scheme becoming effective that: (a) in respect of issued options, the options have been exercised, have expired, or the option-holder has entered into an option cancellation deed with Rex; and (b) in respect of the Hog Ranch consideration rights, Rex has taken all necessary steps to ensure that they are no longer in existence as at the second court hearing date. 19 The evidence discloses that, as at the date of the first Court hearing, Rex had 33,730,000 options on issue with exercise prices ranging from $0.175 to $0.47 (the balance of the options having expired or been exercised). Rex has entered into an option cancellation deed with the holders of each of those options under which, subject to the Scheme becoming effective, each option will be cancelled for an amount that is equal to the Scheme Consideration less the exercise price of the relevant option, which will be paid by MACH Metals. Thus, option-holders will receive the same effective consideration under the option cancellation deed as if they had exercised the options and received the Scheme Consideration as a Scheme Shareholder. 20 The evidence also discloses the following with respect to the Hog Ranch consideration rights. The consideration rights formed part of the consideration payable to the vendors of the Hog Ranch mining interests in 2019. The terms of the consideration rights were approved by members in an annual general meeting on 21 November 2019, and stipulated that each consideration right would convert to one Rex share if certain milestones relating to the Hog Ranch mining interests were achieved by 31 October 2024. The consideration rights would also convert to Rex shares if a change of control occurred by 31 October 2024. Relevantly, a change of control for these purposes is defined to include shareholders of Rex voting to approve a proposed scheme of arrangement. If, by 31 October 2024, the milestones have not been achieved, and a change of control has not occurred, the consideration rights will expire. It is known that the specified milestones will not be achieved by 31 October 2024. However, if the Scheme is approved by Scheme Shareholders by 31 October 2024, each consideration right will convert into one Rex share (which will then be transferred pursuant to the Scheme).

Relevant principles 21 Part 5.1 of the Act provides a procedure whereby an arrangement between a company and its members can be made binding on all members. Section 411 is the principal provision. The procedure involves three main steps: (a) an application to the Court for an order to convene a scheme meeting (s 411(1)); (b) if such an order is made, the convening of such a meeting at which a resolution to agree to the scheme is considered (s 411(4)(a)); and (c) if the resolution is passed by the necessary majorities, an application to the Court for an order approving the scheme (ss 411(4)(b) and 411(6)). 22 The present application concerns the first stage, being an application to the Court for an order to convene the Scheme Meeting. Section 411 of the Act confers a discretion on the Court to make an order convening the Scheme Meeting if certain statutory conditions are met, namely: (a) an arrangement is proposed between a Pt 5.1 body and its members (or any class of them (s 411(1)); (b) an application for the order is made in a summary way by that body (s 411(1)); (c) 14 days' notice of the hearing of the application has been given to ASIC (or such lesser period as the Court or ASIC permits) (s 411(2)(a)); and (d) the Court is satisfied that ASIC has had a reasonable opportunity to: (i) examine the terms of the proposed arrangement to which the application relates and a draft explanatory statement relating to the proposed arrangement; and (ii) make submissions to the Court in relation to the proposed arrangement and the draft explanatory statement required by s 412 (ss 411(2)(b) and 411(3)). 23 In addition to these requirements of s 411, the procedure is regulated by s 412 of the Act and reg 5.1.01 and Sch 8 to the Corporations Regulations 2001 (Cth) (Regulations), and by the Federal Court (Corporations) Rules 2000 (Cth) (Rules). The Regulations and the Rules prescribe certain information which is required to be sent to the members about the Scheme. 24 The principles which apply to the exercise of the Court's discretion at this first stage are well-known. In Re Amcor Ltd [2019] FCA 346 (Amcor), Beach J described the Court's role at the first court hearing as follows (at [47], emphasis in original): My function on an application to order the convening of a meeting is supervisory. At this stage I should generally confine myself to ensuring that certain procedural and substantive requirements have been met including dealing with adequate disclosure, with limited consideration of issues of fairness. But having said that, it is appropriate to consider the merits or fairness of a proposed scheme at the convening hearing if the issue is such as would unquestionably lead to a refusal to approve a proposed scheme at the approval hearing, that is, the proposed scheme appears now to be on its face "so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further" (Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [44] per French J). 25 It is not the Court's role to usurp the shareholders' decision whether to agree to a scheme. The question whether or not to accept particular consideration for shares is quintessentially a commercial matter for the members to assess, and they ought not be prevented from having the opportunity to do so, provided that the Court can be satisfied that they are acting on sufficient information and with time to consider what they are voting on: Crown Resorts Ltd, in the matter of Crown Resorts Ltd [2022] FCA 367 at [27], citing Amcor at [50] and Re ACM Gold Ltd (1992) 34 FCR 530 at 534. 26 Therefore, if the arrangement is one that seems fit for consideration by the meeting of members, and is a commercial proposition likely to gain the Court's approval if passed by the necessary majorities, then orders should be made to convene the meeting: Re Foundation Healthcare Ltd [2002] FCA 742; 42 ACSR 252 (Foundation Healthcare) at [36]. 27 In summary, the Court's task at the first court hearing is to assess first, whether the statutory prerequisites to the making of orders convening a meeting have been met and second, whether it is appropriate for the Court to exercise its discretion in favour of making those orders. Each of those matters is considered in turn.

Power to make orders under s 411 28 Rex submitted, and I am satisfied, that all relevant statutory prerequisites have been satisfied. 29 First, Rex, being a company registered under the Act, is a "Part 5.1 body" and I am satisfied that the proposed Scheme is an "arrangement" between Rex and its shareholders for the purpose of s 411 of the Act. 30 Second, Rex has made this application to the Court. 31 Third, ASIC has been given notice of the first court hearing in accordance with s 411(2)(a) and, as required by s 411(2)(b), ASIC has had a reasonable opportunity to examine the terms of the proposed Scheme and the draft explanatory statement (in the form of the Scheme Booklet) and to make submissions to the Court. On 3 September 2024, ASIC provided Rex's solicitors with a "preliminary no objection letter". 32 Fourth, as to compliance with the Rules: (a) the evidence relied upon by Rex includes an ASIC company extract recording the results of a search of the records of ASIC in relation to Rex carried out no earlier than seven days before the originating process was filed, as required by r 2.4(2); (b) the necessary evidence about the proposed chairperson and alternate chairperson of the Scheme Meeting has been provided, as required by r 3.2; and (c) Rex's proposed orders annex a copy of the Scheme, as required by r 3.3(1). 33 Fifth, as to compliance with the Regulations, s 412(1) of the Act and Sch 8 (Pt 3) of the Regulations set out the disclosure requirements of the explanatory statement (which is in the form of the Scheme Booklet). I am satisfied that each of the three aspects to the requirements of s 412(1) has been fulfilled. 34 In light of the procedural requirements having been satisfied, the Court's discretion to make the convening orders is enlivened.

Exercise of the Court's discretion 35 The relevant discretionary consideration involves two main questions: (a) first, whether the Scheme is fit for consideration by the members (in this regard see for example FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 per Street CJ; Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504); and (b) second, whether the members are to be properly informed as to the nature of the Scheme: see Re NRMA Insurance Ltd (No 1) [2000] NSWSC 82; 156 FLR 349 at [30]; Foundation Healthcare at [38].

The Scheme is fit for consideration 36 In addressing the first question of whether a scheme is fit for consideration by the members, the Court will scrutinise the terms of the scheme to satisfy itself that the scheme is of such a nature and cast in such terms that, if agreed to at the Scheme Meeting, the Court would be likely to approve the scheme at the second court hearing. 37 In the context of schemes for the transfer of all of the shares in a company to an acquirer, the Court will also scrutinise the terms of the agreement between the company and the acquirer to implement the scheme (which in this case is recorded in the Scheme Implementation Deed between Rex and MACH Metals). Typically, the company and the acquirer agree commercial terms governing their negotiations and dealings, including such matters as representations and warranties, exclusivity arrangements, break fees if the transaction does not proceed and the funding arrangements for the proposed transaction. Strictly, commercial terms of that kind are not part of the scheme and do not form any part of the arrangements that are approved by shareholders pursuant to the scheme. They are a commercial arrangement between the company and the acquirer. The appropriateness of such commercial terms is a matter for the business judgment of the directors of the company. However, the Court will seek to ensure that the terms agreed between the company and the acquirer have no potential to cause prejudice or unfairness to the company's shareholders in connection with their consideration of the scheme and the implementation of the scheme if it is approved. For example, break fees may adversely affect the interests of shareholders if the amount and terms of the fee are such that it is likely to coerce shareholders into agreeing to a scheme: see Re SFE Corporation Ltd (2006) 59 ACSR 82 at [7]; Re APN News & Media Ltd (2007) 62 ACSR 400 at [37]-[55]; Re Toll Holdings Ltd [2015] VSC 123 at [27]-[30].

Terms of the Scheme 38 The Scheme proposal is fit for consideration by the members of Rex. As noted earlier, the question whether or not to accept particular consideration for shares is quintessentially a commercial matter for the members to assess. The terms of the Scheme are in standard form and do not raise any specific matters of concern from the perspective of shareholders.

Terms relating to issued options and Hog Ranch consideration rights 39 As noted earlier, Rex has entered into an option cancellation deed with the holders of issued options under which, subject to the Scheme becoming effective, each option will be cancelled for an amount that is equal to the Scheme Consideration less the exercise price of the relevant option. The effect of that arrangement is that option-holders will receive the same effective consideration under the option cancellation deed as if they had exercised the options and received the Scheme Consideration as a Scheme Shareholder. A question arises whether Scheme Shareholders who also hold options and have entered into an option cancellation deed with Rex should form a separate class, for the purposes of s 411(1), from Scheme Shareholders who do not hold such rights, for the reason that those Scheme Shareholders will receive an additional benefit from the Scheme arising from those rights. In circumstances where it is determined that certain shareholders should form a separate class, a separate meeting to vote on the scheme is required for each class. This question has been considered in many cases such as Re Skilled Group Ltd (No 1) [2015] VSC 789; 113 ACSR 525 at [82], Re Healthscope [2019] FCA 542; 139 ACSR 608 at [167]) and Amcor at [85]). In my view, s 411(1) does not require that Scheme Shareholders who also hold Rex options be treated as a separate class of shareholder. The benefit that they will receive under the option cancellation deed is equivalent to the benefit being received by all other shareholders under the Scheme, such that they may be regarded as having a community of interest with all other shareholders. 40 Scheme Shareholders who hold Hog Ranch consideration rights will also receive an additional benefit if the Scheme is approved before 31 October 2024 in comparison to other Scheme Shareholders. This is because, if the Scheme is approved before 31 October 2024, each consideration right will convert into one Rex share and will be transferred pursuant to the Scheme for the Scheme Consideration. Again, in my view, s 411(1) does not require that Scheme Shareholders who also hold Hog Ranch consideration rights be treated as a separate class of shareholder. The benefit that they will receive through the implementation of the Scheme arises because of pre-existing rights (that is, by virtue of holding the Hog Ranch consideration rights), and the benefit is equivalent to the benefit being received by all other shareholders under the Scheme.

Funding of the Scheme Consideration by MACH Metals and performance risk 41 If the Scheme is implemented, Scheme Shareholders are entitled to be paid the Scheme Consideration of $0.47 cash per Rex share held on the Scheme Record Date. Based on Rex's fully diluted share capital as at 28 August 2024, the maximum amount of Scheme Consideration payable by MACH Metals to Scheme Shareholders under the Scheme is approximately $325 million (which includes $12 million to pay the cancellation consideration under the option cancellation deeds). 42 In Re DuluxGroup Ltd [2019] FCA 961 I observed, at [25]: … the entity that will be providing the Scheme Consideration is not party to the Scheme and is not (and cannot be) directly bound by it. As such, its obligations do not depend upon s 411 of the Act, which is confined to the obligations of the plaintiff company and its members: Re Westfield Holdings Ltd (2004) 49 ACSR 734 at 739. In considering whether to approve a scheme involving the participation of a person other than the plaintiff company and its members …, it is important to ensure that that other party is bound to perform the role assigned to it and that its obligations are able to be enforced. In this context, the courts have considered the "performance risk" as regards the obligations to be performed by the non-scheme party: see for example Re Amcor Ltd [2019] FCA 346 at [53]; Re Coles Group Ltd (2007) 25 ACLC 1380 at 1386 [38]; Re Lonsdale Financial Group Ltd [2007] VSC 394 at [42]; Re KAZ Group Ltd [2004] FCA 738 at [4]-[5]; Re Healthscope Ltd [2010] VSC 367 at [31]-[32]; Re Mitchell Communication Group [2010] VSC 423 at [30]-[31]; Re AWB Ltd [2010] VSC 456 at [16]; and Re AXA Asia Pacific Holdings Ltd [2011] VSC 4 at [21]-[25]. 43 Consistently with usual practice, the Scheme Implementation Deed required MACH Metals to enter into a Deed Poll in favour of Scheme Shareholders, which binds MACH Metals to perform the actions attributed to it under the Scheme, including the provision of the Scheme Consideration. 44 The Deed Poll entered into by MACH Metals is, however, only as valuable as the net worth of MACH Metals. No evidence was adduced with respect to the net worth of MACH Metals. The ASIC extract discloses that MACH Metals' issued share capital comprises one ordinary share paid to $1.00. Whilst the evidence discloses that MACH Metals holds a substantial shareholding in Rex (15.52% of the issued shares), no evidence was adduced with respect to the source of capital used to fund that acquisition, whether by way of inter-group loan or external debt funding, or to MACH Metals' balance sheet more generally. 45 Any concerns about MACH Metals' financial capacity to satisfy its obligation under the Deed Poll might have been removed by securing a guarantee from another member of the MACH Group which has published accounts. That step was not taken, however. 46 The Scheme Booklet discloses that MACH Metals intends to fund payment of the Scheme Consideration from a combination of: (a) equity funding from the MACH Group; and (b) debt funding under a term loan facility with various banks being international banks who are active in the debt market for transactions of this nature. 47 The Scheme Booklet also contains the following statements concerning the debt funding: The MACH Group has received credit-approved commitment letters and term sheet (Commitments) for combined debt commitments (Acquisition Facility) in an aggregate amount of no less than $245 million from DBS Bank Ltd., Australia Branch; Sumitomo Mitsui Banking Corporation; and Taipei Fubon Commercial Bank Co., Ltd. The Acquisition Facility will be available to MACH Metals for the purposes of funding MACH Metals' obligations to pay the Scheme Consideration. Drawing under the Acquisition Facility will be subject to customary terms (based on APLMA syndicated facility agreement terms) and conditions precedent including: • the execution of definitive long form documents; • receipt of FIRB approval; • confirmation that the Effective Date has occurred; and • satisfactory know-your-customer checks on the borrower and guarantor entities. The commitments are subject to termination if the above conditions are not fulfilled by a long-stop date of 19 November 2024 (or such later date as agreed by the lenders) to draw on the Acquisition Facility. The Acquisition Facility is also expected to be subject to customary events of default including payment default, insolvency proceedings, compliance with laws and material adverse change. It is expected that as of the Second Court Date, the Commitments will be superseded by a definitive long form facility agreement. It is expected that the abovementioned conditions precedent will be satisfied before the Second Court Date. As at the date of this Scheme Booklet, MACH Metals is not aware of any circumstances which would prevent the satisfaction of the conditions precedent to drawing the Acquisition Facility. No amounts have already been drawn down from the Acquisition Facility. 48 The Scheme Booklet also contains the following opinion expressed on behalf of MACH Metals: On the basis of the arrangements described above, MACH Metals is of the opinion that it has a reasonable basis for forming the view, and it holds the view, that it will be able to satisfy its obligations to fund the Scheme Consideration as and when it is due and payable under the terms of the Scheme, as well as the costs associated with the Scheme. 49 The company secretary of MACH Metals, Michael Howard, deposed to the verification of those statements in the Scheme Booklet that he undertook together with Ferdian Purnamasidi, a director of MACH Metals, and Jason Culpeper, the Chief Financial Officer and a director of MACH Metals. 50 On the basis of that verification, it appears that MACH Metals has obtained equity and debt funding commitments that, in the ordinary course, will enable it to satisfy its obligation to pay the Scheme Consideration if the Scheme is approved. Further, it also appears that the debt funding commitments will be finalised prior to the second court hearing date. 51 The terms of the Deed Poll provide that MACH Metals must deposit the Scheme Consideration in a trust account operated by Rex as trustee for the Scheme Shareholders no later than two business days before the implementation date of the Scheme. The transfer of the Scheme Shares to MACH Metals pursuant to the Scheme is subject to the Scheme Consideration having first been deposited in the trust account. Those provisions ensure that no transfer of shares to MACH Metals will occur unless and until the Scheme Consideration has been received by Rex. 52 While the funding arrangements that have been put in place to date by MACH Metals do not provide absolute certainty that MACH Metals will be able to complete the transaction should it be approved by shareholders and the Court, the funding arrangements do provide a suitable commercial basis for the Scheme to be considered by shareholders. The terms of the Scheme ensure that there is no risk that shareholders will be required to transfer their shares without receiving the promised consideration. Accordingly, I do not consider that the performance risk is of such a magnitude that the Court ought to refrain from making an order convening the scheme meeting. I do, however, consider it appropriate to note two matters. First, in schemes of this kind, the parties ought to give consideration to the provision of a guarantee from a parent company to support the deed poll. Such a guarantee provides greater surety as to the acquiring company's ability to comply with its obligations under the deed poll, thereby reducing performance risk. Second, the Court expects that, at the second court hearing, further evidence will be adduced confirming that MACH Metals has secured the necessary funding to pay the Scheme Consideration.

Other terms of the Scheme Implementation Deed 53 The Scheme Implementation Deed entered into between Rex and MACH Metals contains commercial terms governing their negotiations and dealings in respect of the Scheme transaction, including such matters as representations and warranties, exclusivity arrangements, the payment of a break fee by Rex to MACH Metals if the transaction does not proceed and the funding arrangements for the proposed transaction. As stated earlier, those commercial terms are strictly not part of the Scheme and do not form any part of the arrangements that are approved by shareholders pursuant to the scheme. They are a commercial arrangement between Rex and MACH Metals. The appropriateness of such commercial terms is a matter for the business judgment of the directors of those companies. However, the Court will seek to ensure that the terms have no potential to cause prejudice or unfairness to Rex's shareholders in connection with their consideration of the Scheme and the implementation of the Scheme if it is approved. 54 Having examined the commercial terms contained in the Scheme Implementation Deed, I am satisfied that they have no potential to cause prejudice or unfairness to Rex's shareholders in connection with their consideration of the Scheme and the implementation of the Scheme if it is approved. Most relevantly in this context, the break fee is not framed so as to coerce shareholders into agreeing to the Scheme. In particular, the break fee is not payable by reason of Rex shareholders failing to approve the Scheme.

Members are to be properly informed 55 The second principal matter relevant to the exercise of the Court's discretion to convene a scheme meeting is the adequacy of the information to be provided to shareholders. As noted above, s 412(1) of the Act and Sch 8 (Pt 3) of the Regulations set out the disclosure requirements of the explanatory statement (which in this case is in the form of the Scheme Booklet). If the Court is satisfied that the statutory disclosure requirements are met, it will ordinarily be satisfied that the information to be provided to shareholders is adequate for the purposes of the exercise of the Court's discretion to convene a meeting: see for example Re Opes Prime Stockbroking Ltd (2009) 179 FCR 20 at [94]-[99] and [102]. 56 Each of Rex and MACH metals have adduced evidence concerning the verification, by each company, of the information contained in the Scheme Booklet. In the case of Rex, the Chief Executive Officer and Managing Director, Richard Laufmann, deposed to the steps taken by Rex to verify all information in the Scheme Booklet other than information that related specifically to MACH Metals, which steps involved senior executives of Rex and its legal advisers. In the case of MACH Metals, the company secretary of MACH Metals, Michael Howard, deposed to the steps taken by MACH Metals to verify the information in the Scheme Booklet that related specifically to MACH Metals, which steps involved senior executives of MACH Metals and its legal advisers. 57 As the Scheme is solely a members' scheme, it is necessary that the explanatory statement be registered by ASIC before the notice of meeting is sent to Rex shareholders: s 412(6) of the Act. Before registering the statement, ASIC must conclude that it appears to comply with the requirements of the Act and must form the opinion that the statement does not contain any matter that is false in a material particular or materially misleading in the form and context where it appears: s 412(8) of the Act. Rex has provided the draft Scheme Booklet to ASIC, together with all amendments. 58 Schemes of arrangement are not required to be the subject of a report by an independent expert unless the parties have a common director or the acquiring company controls 30% of the scheme company: see reg 5.1.01 and Sch 8, cl 8303 of the Regulations. Neither is applicable to the Scheme in this case. Nevertheless, Rex has obtained a report from BDO as to whether, in its opinion, the Scheme is in the best interests of Rex shareholders. BDO has expressed the opinion that, in the absence of a superior proposal, the Scheme is fair and reasonable and in the best interests of Rex shareholders. 59 One issue concerning the content of the Scheme Booklet has arisen in this matter. It concerns the recommendation to shareholders made by directors and the disclosure of directors' additional interests in the Scheme transaction. 60 Clause 8301 of Sch 8 of the Regulations relevantly requires each director of Rex to state in the explanatory statement: (a) whether the director recommends the acceptance of the Scheme or recommends against acceptance and, in either case, his or her reasons for so recommending; or (b) if the director is not available to consider the Scheme - that the director is not so available and the cause of his or her not being available; or (c) in any other case - that the director does not desire to make, or does not consider himself or herself justified in making, a recommendation and, if the director so requires, his or her reasons for not wishing to do so. 61 The Scheme Booklet records the unanimous recommendation of all Rex directors that Scheme Shareholders vote to approve the Scheme. That recommendation is stated in large font on the front cover of the Scheme Booklet and in other places within the Scheme Booklet including the chairman's letter and the summary of key information. 62 Rex has five directors. Three of those directors, Mr Richard Laufmann, Ms Amber Rivamonte and Mr Andrew Seaton, will receive additional benefits if the Scheme is approved, by reason of their holding security interests in Rex that are additional to ordinary Rex shares. In those circumstances, a question that must be considered is whether it is appropriate for those directors to make a recommendation to shareholders in respect of the Scheme. A related question is whether and in what manner the recommendation should be qualified by disclosure of the director's additional interest. 63 As recognised by cl 8301(c) of Sch 8 of the Regulations, a director may consider that he or she is not justified in making a recommendation to shareholders with respect to a scheme. In some circumstances, the director may have a material personal interest in the outcome of the Scheme which is not shared with the shareholders. The material personal interest may be of such a kind and such a magnitude that it would necessarily colour the director's opinion with respect to the scheme (either positively or negatively) and make it improper for the director to purport to give a recommendation to shareholders. 64 Courts have expressed differing views on the question whether a director who is entitled to receive an additional benefit if the Scheme is approved should make a voting recommendation to members. In some cases, courts have taken the view that, as a general rule, a director who will receive a substantial benefit from the Scheme should decline to make a voting recommendation to shareholders, but that the making of such a recommendation may not preclude the court making orders convening a meeting if the benefits are adequately disclosed in the scheme booklet: see for example Re Gazal Corporation Ltd [2019] FCA 701 at [27]-[34], Re Ruralco Holdings Ltd [2019] FCA 878; 136 ACSR 628 at [26]-[28]; Re Nzuri Copper Ltd [2019] WASC 189 at [83]-[89]; Re Navitas Ltd; Ex parte Navitas Ltd (No 2) [2019] WASC 218 at [31]-[38]. In other cases, courts have taken the view that it will ordinarily be appropriate for a director who is to receive a financial benefit to make a voting recommendation, but such benefits should be fully and prominently disclosed in the Scheme Booklet: see for example, Re SMS Management & Technology Ltd [2017] VSC 257 at [24]-[26]; Re Kidman Resources Ltd [2019] FCA 1226; 139 ACSR 122 at [104]-[115]; Re QMS Media Ltd [2019] FCA 2172 at [85]-[88]; Re RXP Services Ltd [2021] FCA 38 at [41]-[48]; Re BINGO Industries Ltd [2021] NSWSC 798 at [14]-[16]; Re Villa World Ltd [2019] NSWSC 1207; 139 ACSR 550 at [27]-[40]; Re ERM Power Ltd [2019] NSWSC 1502 at [16]-[18]; Re Isentia Group Ltd [2021] NSWSC 910 at [19]; Re Japara Healthcare Limited [2021] FCA 1150; 156 ACSR 695 at [72]. 65 In Re Wellcom Group Ltd [2019] FCA 1655 at [51] and [59], I expressed the view that the divergence in the authorities on this question may be more apparent than real. In each matter it will be the court's role, in accordance with its supervisory jurisdiction under s 411, to scrutinise any director voting recommendations and the circumstances in which they are made. This includes the nature of the disclosure of any additional benefits to be received by directors if the scheme is implemented. As Vaughan J observed in Re Mod Resources Ltd [2019] WASC 326 at [86], the question is fact sensitive. 66 In the present matter, each of Mr Laufmann, Ms Rivamonte and Mr Seaton will benefit from the early vesting of options held by them if the Scheme is approved. Having regard to the Scheme Consideration of $0.47 per Scheme Share, if vested the value of the options held by those directors would be $350,000 in respect of each of Mr Laufmann and Ms Rivamonte, and $13,067 in respect of Mr Seaton. In my view, those additional benefits do not preclude Mr Laufmann, Ms Rivamonte and Mr Seaton from making a recommendation to shareholders. The options held by the directors afford them an interest in Rex, and the outcome of the Scheme, of an equivalent kind to a shareholding interest, with the result that their recommendation is unlikely to be materially coloured by the interest. It is nonetheless appropriate that proper disclosure of the additional benefit is made in the Scheme Booklet. 67 Each of Mr Laufmann and Ms Rivamonte also hold consideration rights which, as discussed above, formed part of the consideration paid for the sale to Rex of the Hog Ranch mining interests in 2019. If the Scheme is approved by Rex shareholders by 31 October 2024, each consideration right will convert into one Rex share. If that does not occur, all of the consideration rights will expire (as the relevant milestones for the vesting of the consideration rights will not have been achieved). Having regard to the Scheme Consideration of $0.47 per Scheme Share, if the Scheme is approved by 31 October 2024, Mr Laufmann will effectively receive a payment $455,537 in respect of the consideration rights and Ms Rivamonte will receive a payment of $1,822,146. Those are material benefits to each of Mr Laufmann and Ms Rivamonte. They are benefits that will be lost if the Scheme is not approved by 31 October 2024. It is reasonable to assume that those additional benefits may influence the decision of Mr Laufmann and Ms Rivamonte to recommend the Scheme to shareholders. In the circumstances, a question arises whether it is appropriate for Mr Laufmann and Ms Rivamonte to make a recommendation to shareholders. 68 Having considered the nature of the Scheme and the information in the Scheme Booklet, including particularly the independent expert report, I do not consider that the Court should prevent Mr Laufmann and Ms Rivamonte from making a recommendation to shareholders. Ultimately, it is a matter for Mr Laufmann and Ms Rivamonte to determine whether they are able to do so without being unduly compromised by the additional payments they are due to receive if the Scheme is approved before 31 October 2024. In that context, the opinion of BDO as an independent expert, that in the absence of a superior proposal the Scheme is fair and reasonable and in the best interests of Rex shareholders, is a relevant factor. 69 Nevertheless, it is important that shareholders are made aware of the directors' additional interests in the Scheme transaction when reading the directors' recommendation. This is particularly the case in respect of the consideration rights held by Mr Laufmann and Ms Rivamonte. 70 In that respect, the draft Scheme Booklet provided to the Court was inadequate in two respects. First, the directors' recommendation was stated in large font on the front cover of the Scheme Booklet, but without any qualification concerning the directors' interests in the Scheme. At the request of the Court, Rex agreed to amend the front cover to include a statement, in equally large font, to the effect that, when considering the recommendation of the directors, shareholders should note that certain Rex directors will receive benefits if the Scheme proceeds and referring shareholders to relevant parts of the Scheme Booklet. Second, at other parts of the Scheme Booklet where the directors' recommendation was repeated, statements were made concerning the value of options held by the directors but not the value of the consideration rights. Again at the request of the Court, Rex agreed to amend those sections of the Scheme Booklet to make reference to the value of the consideration rights. With those amendments, I am satisfied that the Scheme Booklet provides adequate disclosure of the additional benefits the directors will receive should the Scheme proceed.

Section 411(17) of the Act 71 The Court's power to approve a scheme is restricted by s 411(17) of the Act, which provides as follows: The Court must not approve a compromise or arrangement under this section unless: (a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or (b) there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement; but the Court need not approve a compromise or arrangement merely because a statement by ASIC stating that ASIC has no objection to the compromise or arrangement has been produced to the Court as mentioned in paragraph (b). 72 This is a matter which affects the final approval of the Scheme, rather than the making of an order to convene a scheme meeting: Re Macquarie Private Capital A Ltd [2008] NSWSC 323; 26 ACLC 366 at [27]. 73 Schemes of arrangement which effect an acquisition of all of the shares in a company will usually raise a question whether the arrangement has been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6, as per s 411(17)(a). For that reason, the company will usually request that ASIC provide a statement in writing that ASIC has no objection to the compromise or arrangement for the purposes of s 411(17)(b), and a copy of that statement will be tendered at the second court hearing. ASIC's "Regulatory Guide 60 - Schemes of arrangement" (RG 60) states (at [104] and [106]) that, at the second court hearing, ASIC will provide a statement under s 411(17)(b) if: (a) all material information relating to the proposed scheme has been disclosed to ASIC; (b) the standard of disclosure to all members fulfils the requirements under reg 5.1.01 and Sch 8 of the Regulations; (c) the standard of disclosure to, and treatment of, all members is equivalent to the standard that would be required by the disclosure requirements and the principles in s 602 of the Act relating to the target securities in a takeover bid; and (d) there are no other reasons to oppose the scheme (e.g. public policy grounds) and the other matters referred to in RG 60 have been complied with. 74 Section 411(17) does not present a bar to a meeting being convened at the first court hearing if it seems likely that ASIC will produce the relevant statement at the second court hearing: Re Lonsdale Financial Group Ltd [2007] VSC 394 at [40]. In the present case, ASIC does not oppose the application for convening the meeting. It is therefore appropriate to proceed on the basis that ASIC will in due course provide a statement for the purpose of s 411(17)(b).

Conclusion on exercise of discretion 75 I am satisfied that the Scheme is of such a nature and cast in such terms that, if it achieves the statutory majorities at the Scheme Meeting, the Court would be likely to approve it, and that the Scheme Booklet will properly inform members as to the nature of the Scheme. It is therefore appropriate to make the orders sought convening the Scheme Meeting.

Approval by the Court of the explanatory statement 76 Subsection 411(1) provides that, if the Court has made an order convening a meeting or meetings of members or creditors, the Court "may approve the explanatory statement" (which in this matter is in the form of the Scheme Booklet). The practice of courts varies in this respect. Consistent with recent practice in this Court, I have not made an order approving the Scheme Booklet: see Amcor at [114]-[115] and Re Verdant Minerals Ltd [2019] FCA 556 at [84].

Dispatch of the explanatory statement 77 Rex sought orders to dispatch the Scheme Booklet (including the Notice of Scheme Meeting at Annexure C to the Scheme Booklet) to the effect that: (a) Scheme Shareholders who have elected to receive notices of meeting and proxy forms by email (Email Shareholders) will be sent an email which contains a hyperlink to a website from which the Email Shareholder may (i) view and download a copy of the Scheme Booklet, and (ii) lodge online an electronic voting form containing a proxy appointment and voting preference; (b) Scheme Shareholders who have elected to receive notices of meeting and proxy forms by post (Postal Shareholders) will be sent, in hardcopy, (i) the Scheme Booklet, (ii) a personalised proxy form, and (iii) a business reply-paid envelope for the return of the proxy form; and (c) Scheme Shareholders who are not Email Shareholders or Postal Shareholders (Non-Electing Shareholders), will be sent, in hard copy, (i) a letter which contains a URL address to a website from which the Non-Electing Shareholder may view and download an electronic copy of the Scheme Booklet and lodge online an electronic voting form containing a proxy appointment and voting preference, (ii) a personalised proxy form, and (iii) a business reply-paid envelope for the return of the proxy form. 78 I am satisfied that those methods of sending the meeting documents to Rex shareholders comply with the requirements of Div 2 of Pt 1.2AA of the Act. 79 I have also made an order to the effect that, if it comes to the attention of Rex that any email dispatched to Email Shareholders has returned an undeliverable or undelivered receipt for an Email Shareholder's nominated email address, Rex is to dispatch to that Email Shareholder, within a reasonable time thereafter, the relevant documents in accordance with the Non-Electing Shareholder procedure. Given the significance of the transaction to Rex members and the protective role performed by the Court in exercising powers under s 411 of the Act, in my view it is desirable for the Court to make such an order to ensure that as many members as possible are notified of the Scheme Meeting and can exercise their right to vote in respect of the Scheme.

Conclusion 80 In conclusion, I am satisfied that this is a suitable case for the exercise of the Court's discretion to make orders convening a meeting of Scheme Shareholders to enable the Scheme to be considered. I certify that the preceding eighty (80) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan.