- Australian Securities Commission v Marlborough Gold Mines Ltd

Other aspects of the proposed scheme

Mr Izzo also refers to several other aspects of the proposed scheme. First, Mr Izzo notes that the SID contains certain exclusivity and reimbursement fee provisions, including "no existing discussions", "no-shop", "no-talk" and "no due diligence" obligations on SLR and also requires SLR to notify Red 5 if SLR receives any approach with respect to a Silver Lake Competing Proposal (as defined in the SID) and to provide Red 5 with any information provided to a third party in connection with a Silver Lake Competing Proposal, and allows Red 5 a "matching right" in respect of any Silver Lake Competing Proposal. Clause 12.8 of the SID contains a fiduciary exception to the "no talk" and "no due diligence" obligations on SLR. I accept that provisions of this character are now commonplace in schemes of arrangement and generally accepted by the case law, if sufficiently disclosed in the scheme booklet: Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 at [9] ; Re Villa World Ltd (2019) 139 ACSR 550; [2019] NSWSC 1207 at [23]; Re Aveo Group Ltd and Aveo Funds Management Ltd [2019] NSWSC 1348 at [44]. These provisions are adequately disclosed in the scheme booklet. Mr Izzo also points out that the exclusivity provisions referred to above operate during an exclusivity period commencing on 4 February 2024 and ending on the earliest of an End Date of 9 months after that date, the Implementation Date or termination of the SID in accordance with its terms. I accept that exclusivity periods of up to 9 months have previously been accepted in relatively complex transactions and this transaction is of that character: Re ELMO Software Pty Ltd [2023] NSWSC 12 at [29]. These provisions give rise to no reason not to convene the scheme meeting.
Second, Mr Izzo notes that the SID also provides a reimbursement fee arrangement, which requires SLR to pay an amount of $9.6 million to Red 5 in specified circumstances, which do not include SLR's shareholders not voting in favour of the proposed scheme. The amount of the reimbursement fee is less than 1% of the equity value of SLR as implied by the implied scheme consideration of $1.133 per SLR share and the total issued capital of SLR (on a fully diluted basis) at the trading day prior to the announcement of the scheme on 5 February 2024, and this level of reimbursement fee is consistent with the Takeovers Panel's guidance. A broadly reciprocal obligation required Red 5 to pay the same amount to SLR in certain circumstances. I accept that a break fee of this character is also commonplace in schemes of arrangement and accepted by the case law, and these provisions give rise to no reason not to convene the scheme meeting.
Third, Mr Izzo also addresses the position in respect of SLR performance rights, which are described in Mr Berg's affidavit at paragraphs 42 - 48, and other interests of the directors in the proposed scheme. Mr Izzo notes that SLR performance rights were issued under the SLR Employee Incentive Plan to Mr Tonkin, SLR's Managing Director, and to SLR senior executives and employees in accordance with specified vesting terms as determined by the SLR Board. The SLR performance rights have a nil exercise price and varying expiry dates and conditions for vesting in tranches as determined by the SLR board. Each SLR performance right entitles the holder to receive one SLR share upon vesting and exercise. Under the terms of the SLR Employee Incentive Plan, SLR performance rights will vest and be exercised upon the scheme being approved by SLR shareholders at the scheme meeting. Pursuant to cl 4.1 of the scheme, it is a condition precedent to the scheme that all SLR performance rights are cancelled, or vest and are exercised (if applicable), and the resulting new SLR shares issued, in accordance with their terms on or prior to the delivery time on the date of the second Court hearing.
Mr Izzo also notes that Mr Tonkin has entered into voluntary escrow arrangements in respect to approximately 50% of the new SLR shares that will be issued to him upon vesting and exercise of his SLR performance rights with a vesting date of 30 June 2025 and 30 June 2026, being approximately 1,063,420 SLR shares, and extending to the 3,651,785 shares in Red 5 that will be issued in respect of those SLR shares upon the implementation of the scheme, subject to the scheme becoming effective and applying until 30 June 2025. The remaining SLR shares issued to Mr Tonkin upon the vesting and exercise of his SLR performance rights with a vesting date of 30 June 2025 and 30 June 2026, extending to the Red 5 shares that will be issued to Mr Tonkin in respect of those SLR shares on implementation of the scheme are not subject to any escrow restrictions. No escrow applies to any of the new SLR shares that will be issued to Mr Tonkin upon vesting and exercise of SLR performance rights with a vesting date of 30 June 2024 and the Red 5 shares that will be issued to Mr Tonkin in respect of those SLR shares on implementation of the scheme. Mr Izzo also notes that several other senior executives of SLR have entered into voluntary escrow arrangements in respect of approximately 50% of the new SLR shares that will be issued to them upon vesting and exercise of their SLR performance rights with a vesting date of 30 June 2025 and 30 June 2026 and the Red 5 shares that will be issued in respect of those SLR shares upon the implementation of the scheme and those voluntary escrow restrictions are also subject to the scheme becoming effective and apply until 30 June 2025. Mr Izzo also notes that it is proposed that Mr Tonkin and three non-executive directors of SLR will be appointed directors of the merged group; Mr Tonkin will be Managing Director and Chief Executive Officer of the group; and the directors and Mr Tonkin will receive remuneration in that capacity.
Mr Izzo submits and I accept that benefits of this kind do not preclude the relevant directors making a recommendation to SLR shareholders, where sufficiently disclosed in the scheme booklet: Re SMS Management & Technology Ltd [2017] VSC 257; Re Kidman Resources Ltd (2019) 375 ALR 760; (2019) 139 ACSR 122; [2019] FCA 1226; Re BINGO Industries Ltd [2021] NSWSC 798; Re RXP Services Ltd [2021] FCA 38; Re Mainstream Group Holdings Ltd [2021] FCA 948; Re Pendal Group Ltd (No 2) [2022] NSWSC 1648 at [25]; Re Probiotec Ltd [2024] FCA 298 at [67]. I also accept that information relating to the interests of SLR directors including Mr Tonkin in the outcome of the scheme is prominently disclosed at sections 4.4, 4.10, 6.7 and 8.4 of the scheme booklet and in the "SRL Chairperson Letter" contained in the scheme booklet.
I also accept that holders of the SLR performance rights are not in a separate class of members by reason only that they also hold such rights: Re Cashcard Australia Ltd (2004) 48 ACSR 738; Re Foster's Group Ltd (No 2) [2011] VSC 547 at [38]-[43]; Re ELMO Software Pty Ltd [2023] NSWSC 12 at [25]; Re Link Administration Holdings Ltd [2024] NSWSC 331 at [13]; Re Ansararda Group Ltd [2024] NSWSC 411 at [20].
Fourth, Mr Izzo also addresses SLR's proposed communications with shareholders, which are addressed in paragraphs 94 to 100 of Mr Berg's affidavit. These communications will take the form of the establishment of a shareholder information line to answer shareholder queries, an outbound call campaign in respect of large shareholders and the dispatch of reminder to vote emails. I had no concerns with SLR's proposed script for the inbound information line, which provided information responding to shareholder questions in a manner that reflected the content of the scheme booklet. However, a potential difficulty arose from the script for SLR's proposed outbound campaign which, in its original version, provided limited information to scheme shareholders but strongly advocated that they vote in favour of the scheme, and raised a real risk that, at the second Court hearing, it would be impossible to know the extent to which the outcome of the scheme meeting had reflected votes cast by shareholders who had been urged to vote in favour of the scheme in outbound calls without being provided with substantial information about it, and had taken that course rather than reading the scheme booklet of nearly 700 pages. In accordance with the procedure now contemplated by the Harmonised Practice Note in respect of schemes, reflected in Equity Practice Note 4 in this Court, I would have treated that matter as one which did not prevent the convening of the scheme meeting, but it would have been relevant to the question whether the scheme should be approved at the second Court hearing. In the event, SLR sensibly undertook a revision of the script for the outbound call campaign, so as to introduce greater informational content in it and reduce the level of advocacy contained in it, and further emphasised the desirability of shareholders reading the scheme booklet. No issues arise with that script in its revised version which are likely to cause difficulty at the second Court hearing.
Fifth, as I noted above, Mr Izzo points out certain SLR shareholders (being Ineligible Overseas Shareholders and Relevant Small Parcel Shareholders) will not receive Red 5 shares and the shares that would otherwise be issued to them will be issued to a sale agent and the proceeds of the sale of those shares will be remitted to them. Mr Izzo submits and I accept that sale facilities of this kind do not require that these shareholders vote in a separate class and, even if there is a formal difference in terms of respective shareholders rights under the scheme, it does not destroy their ability to consult together with other shareholders in their common interest: Re Wesfarmers Ltd [2018] WASC 308 at [96], [98]; Re Amcor Ltd [2019] FCA 346 at [41]-[44]; Re Sundance Energy Australia Ltd [2019] FCA 1944 at [14].
Sixth, Mr Izzo also addresses the position as to deemed warranties. He points out that the scheme provides for a warranty by which SLR shareholders warrant that their SLR shares are fully paid and free from all security interests of third parties, and that they have full power to sell and to transfer their shares. He submits and I accept that the case law has permitted deemed warranties of this kind provided they are adequately disclosed: Re Intega Group Ltd [2021] NSWSC 1434 at [24]. I accept that SLR shareholders are informed of this warranty in the scheme booklet.
Seventh, Mr Izzo points out that, if the Court approves the scheme, SLR and Red 5 intend to rely on s 3(a)(10) of the Securities Act 1933 (US), which provides an exemption from the registration requirements of that statute and on the Court's approval of the scheme, among other things, to qualify for that exemption, in relation to SLR shareholders with a registered address in the United States of America. I recognise that this intention is drawn to the attention of SLR shareholders under the heading 'United States' in section 12.8(i) of the scheme booklet. A condition of the exemption under this section is that the Court consider the fairness of the scheme of arrangement; that consideration will be undertaken at the second Court hearing; and I now need only note that that SLR and Red 5 do intend to rely on this exemption and that this matter will be raised again with the Court at the second Court hearing: Re Amcor Ltd (No 2) [2019] FCA 842.

At a glance

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Judgment (7 paragraphs)

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Legislation Cited (2)

Cases Cited (30)

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