Australian Securities Commission v Marlborough Goldmines Ltd

Listing Rule7.1 24 Listing Rule 7.1 (known as the 15% rule) prevents (loosely expressed) the issue of shares of more than 15% without shareholder approval. 25 It is unnecessary to trace through the operation of the terms of Listing Rule 7.1. It is sufficient to say that, absent the application of one of the Exceptions thereafter set out, the issue by Goldfields of these shares to the Scheme Participants would mean that Listing Rule 7.1 was enlivened. 26 Exception 5 under the Listing Rules is in the following terms: Exception 5 An issue under an off-market bid that is required to comply with the Corporations Act or under a merger by way of scheme of arrangement under Part 5.1 of the Corporations Act. 27 The parties are at issue over the proper construction of Exception 5. For the better understanding of the argument it is necessary to set out also Exception 6 which is in the following terms: Exception 6 An issue to fund the cash consideration in any of the following circumstances if the terms of the issue are disclosed in the takeover or scheme documents. · An off-market bid that is required to comply with the Corporations Act, when the offer becomes unconditional. · A market bid that is required to comply with the Corporations Act, when the market bid is announced under section 635 of the Corporations Act. · A merger by way of scheme of arrangement under Part 5.1 of the Corporations Act, when the arrangement is approved by the court under section 411(4) of the Corporations Act. 28 Mr Ireland's argument is that Exception 5 has nothing to say about the facts before me. He says that the proper construction of that exception is that the "merger by way of scheme of arrangement under Part 5.1 of the Corporations Act" is referring, and only referring, to a scheme of arrangement propounded by the company the subject of the obligation to comply with the Listing Rule, thus here a scheme of arrangement propounded by Goldfields, not Delta. 29 Mr Bathurst referred me to Re South African Supply and Cold Storage Company [1904] 2 Ch 268 at 281 where Buckley J referred to the meaning of "reconstruction" and "amalgamation" as not having any definite legal meaning each: is a commercial and not a legal term. He referred me to this in support of the submission that I should view what is happening as "merger by way of scheme of arrangement". He also referred me to various parts of the Scheme, information memorandum and deed poll. I did not understand Mr Ireland to dispute the proposition that what was before me here was "a merger by way of scheme of arrangement under Part 5.1 of the Corporations Act". His point was that it must be a merger under a scheme of arrangement propounded by Goldfields or to which Goldfields is a party. 30 Mr Bathurst pointed out that under Exception 6 there will be, or may be, issues of shares, in circumstances where a company such as Goldfields is seeking to take over a company, such as Delta, in an off-market bid or an on-market bid and where LR 7.1 would otherwise apply. In such circumstances it is analogous to the position here that the offeror company will make its bid without shareholder approval of the issue of shares, if the consideration or part thereof is by scrip. Mr Bathurst said, with some force, that if shareholder approval were required for scrip bids or partial scrip bids those types of consideration in take-overs would be rarely seen. 31 Returning to Exception 5 and recognising that interpretation of compliance with these rules under Chapter 19 is to be in accordance with their spirit, intention and purpose and by looking beyond form to substance in a way that best promotes the principles on which the Listing Rules are based (Listing Rule 19.2), the words of the exception must be attended to. Is this an issue under a merger by way of scheme of arrangement under Part 5.1? It seems to me that the answer to this question is, yes. I do not think that the exception was intended to be limited to schemes of arrangement propounded by parties in the position of Goldfields. Parties in the position of Goldfields, when considering takeovers or mergers will often use the issue of scrip for consideration in order to obtain control of the target company. The decision to enter such commitments is a business decision for the directors. The notion of using a scheme of arrangement to effect a merger presupposes an arrangement between a Part 5.1 body and its members. In circumstances where a party in the position of Goldfields is receiving a transfer or assignment of all the shares in the company with which it is to merge, the Scheme will, of necessity, have to involve the company in the position of Delta and its shareholders because it is the sale of the shares and thus the interference with the quiet enjoyment of the shareholders' rights in Delta which has to be effected. It is that which needs the scheme. There will not be any relevant arrangement between Goldfields and its members unless a similar arrangement is also to be made in some fashion affecting the rights of the shareholders in the company in the position of Goldfields. One could foresee that there might be the need for two schemes, one between the members and the company in the position of Delta, and the other between the members and the company in the position of Goldfields, if there were to be a more complex cross transferring of shares in each company. For instance, a new vehicle might be used to become the holding company of both companies, that is the company in the position of Delta and the company in the position of Goldfields such that each of those companies became subsidiaries of the merger vehicle company. Or the assets of each of the companies might be transferred to the merger vehicle company and shareholdings in the two companies might be exchanged for share holdings in the vehicle company. These are mechanisms by which a company in the position of Goldfields might merge with a company in the position of Delta and itself need to propound a scheme of arrangement with its members. However, the words of LR 7.1 are wide enough to incorporate and encompass what is occurring here. Whilst it means that the shareholders of Goldfields do not vote on a resolution to issue these shares and to in effect takeover Delta by a scrip consideration and in that way to merge these companies I do not think that that violates any principle by which this Listing Rule should be interpreted. It is not appropriate to add a gloss on both Exception 5 and Exception 6 or Exception 5 alone to limit each to a scheme of arrangement propounded by the company in respect of which the question as to compliance with Listing Rule 7.1 arises. As I said earlier, shareholders of bidding companies do not usually get to approve in general meeting a scrip bid decided upon by the directors. Here, the parties (the shareholders of Delta) who are having their shares and their rights in their shares directly affected in the legal sense are entitled and have the right to vote in a scheme of arrangement. The shareholders in Goldfields assume a position in the new group dependent upon the terms of the arrangement which has been decided upon by the board of Goldfields having given it due consideration. They will be in the same position they would be in in a company in which the same steps had been taken by way of off market bid or on market bid, that is they would not have a right to vote at a shareholders' meeting. On balance I am of the view that the construction propounded by Mr Bathurst is correct. 32 Looking at the matter on the assumption that I am wrong about the proper construction of Exception 5, there would be a breach of LR 7.1. However that does not, contrary to the submissions of Mr Ireland, lead to the conclusion that the documents which commit Goldfields to this arrangement are unlawful. Section 777 of the Corporations Act is in the following terms: 777 Power of Court to order compliance with or enforcement of business rules or listing rules of securities exchange (1) Where a person who is under an obligation to comply with or enforce the business rules or listing rules of a securities exchange fails to comply with or enforce any of those business rules or listing rules, as the case may be, the Court may, on the application of ASIC, the securities exchange or a person aggrieved by the failure and after giving to the person aggrieved by the failure and the person against whom the order is sought an opportunity of being heard, make an order giving directions concerning compliance with, or enforcement of, those business rules or listing rules to: (a) that last-mentioned person; and (b) if that person is a body corporate - the directors of that body corporate. (2) For the purposes of subsection (1), a body corporate that is, with its agreement, consent or acquiescence, included in the official list of a securities exchange, or an associate of such a body corporate, is taken to be under an obligation to comply with the listing rules of that securities exchange to the extent to which those rules purport to apply in relation to the body corporate or associate, as the case may be. (3) For the purposes of subsection (1), if a disclosing entity that is an undertaking to which interests in a registered scheme relate is, with the responsible entity's agreement, consent or acquiescence, included in the official list of a securities exchange, the responsible entity, or an associate of the responsible entity, is taken to be under an obligation to comply with the listing rules of that securities exchange to the extent to which those rules apply to the responsible entity or associate. (4) For the purposes of subsection (1), if a body corporate fails to comply with or enforce provisions of the business rules or listing rules of a securities exchange, a person who holds securities of the body corporate that are quoted on a stock market of the securities exchange is taken to be a person aggrieved by the failure. (5) Subsection (4) does not limit the circumstances in which a person may be aggrieved by a failure for the purposes of subsection (1). 33 The terms of s 777 make it plain that a breach of the Listing Rules is not an unlawful act. The legislation provides for a method of enforcement of those rules; but breach of the Listing Rules is not to be equated with breach of a statute or acting in a contravention of a statute. Subsection 777(2) provides for the satisfaction of the opening words of subs 777(1) in relation to listed companies: that it is a person who is under an obligation to comply with the business rules or listing rules. To approve this scheme would not in my view be approving an arrangement containing a provision which is inconsistent with the express or implied provisions of the Act. 34 There is evidence before me that the ASX has the view and had at relevant times the view that Exception 5 applied. I note that the obviously informed advisers of Ms Porter who drafted the complaint did not lay claim to LR 7.1 as a basis for a complaint. The evidence is clear before me to allow an inference to be drawn that the advisers of Delta and Goldfields were of like view. While the view of the ASX as to the proper construction of its rules is not binding on me I think it is relevant as one factor to take into account to assess what a Court might do under s 777. I am not being asked by anyone to act under that section. However, I do not think it irrelevant to the exercise of any discretion by a Court under s 777 that the regulating body, the ASX, has the view it did about its own rules. 35 ASIC has indicated a view that the ASX has primary responsibility for ensuring compliance with its Listing Rules, and in the circumstances, sees no reason to disagree with the ASX's view on the operation of Exception 5 in this case. 36 There is no evidence before me of any contemplated action by any party under s 777. 37 In these circumstances, even if I am wrong in my view as to the proper construction of Exception 5 I would approve the Scheme, leaving events to take their course should some application under s 777 be brought.

Listing Rule 7.22 - Reorganisation of Options 38 Listing Rule 7.22 is in the following terms: An entity with options on issue must comply with the following rules in relation to the way the options are treated under a reorganisation. [Various rules are then set out.] 39 Ms Porter's complaints here face a further difficulty. This matter about which she complains concerns the option holders in Delta. While I gave Ms Porter standing to put her submissions through Mr Ireland, she plainly has no interest in relation to this matter. 40 In any event the method of dealing with the options proposed in the Scheme is one which is in accordance with the rights of the option holders. That is, Delta is dealing with its option holders in accordance with their existing rights by requiring either a payment out or the option holder to take up the option so as to participate in the Scheme. The steps taken in relation to the option holder are in no way a reorganisation of those rights. LR 7.22 has no application.

Listing Rule 10 41 Listing Rules 10.1, 10.1.3 and 10.2 are relevantly in the following terms: 10.1 An entity… must ensure that neither it, nor any of its child entities, acquires a substantial asset from any of the following persons without the approval of holders of the entity's ordinary securities. … 10.1.3 A substantial holder, if the person and the person's associates have a relevant interest, or had a relevant interest at any time in the 6 months before the transaction, in at least 10% of the total votes attached to the voting securities. 10.2 An asset is substantial if its value, or its value of the consideration for it is, or in ASX's opinion is, 5 % or more of the equity interests of the entity as set out in the latest accounts given to ASX under the listing rules. 42 Listing Rule 10.2.1 provides: In calculating the value, each of the following rules applies. · Intangibles will be included. · Provisions for depreciation and amortisation will be deducted. · Liabilities acquired as part of an acquisition will not be deducted. · Separate transactions will be aggregated if, in ASX's opinion, they form part of the same commercial transaction. [emphasis added] 43 When Ms Porter complained about this matter she raised LR 10.1. She identified a substantial shareholder being Perpetual Trustees Australia Limited (Perpetual). In the complaint she identified Perpetual as holding over 10 percent of the shares in Goldfields. Perpetual held these shares for a wide range of people who, from the face of the Form 604 Notices, appear to be corporate fund managers and the like. In her complaint Ms Porter also identified the fact that Perpetual's shareholding in Delta (on the same basis) meant that on any likely value of Delta shares Perpetual's shareholding was worth more than the 5 percent of the equity interests of Goldfields as set out in Goldfields' last accounts. 44 The difficulty with this argument is that the ASX has informed the parties that it has not formed the opinion that the shareholdings of Perpetual should be aggregated for the purposes of LR 10.2 and 10.2.1. 45 So, Mr Ireland in his submissions was forced to identify another company, to which I will refer as RBC, which had a significant number of shares in Delta, in order to find a possible breach of LR 10. 46 Mr Ireland pointed to various dates in October and November at which RBC had a sufficient number of Goldfields shares such that at relevant prices the parcel amounted to more than 5 percent of the equity interests of Goldfields. However, Mr Bathurst identified the fact that RBC had sold down its shareholding and when one went to the 10 December 2001 substantial shareholder notice of Perpetual in Delta one found that RBC had a shareholding which, on any view of the likely share price of Delta on the evidence before me, was below the 5 percent level. 47 Mr Bathurst also demonstrated from the material before me that at no time had RBC a 10 percent shareholding in Goldfields. 48 Mr Bathurst therefore said that the claimed application of LR 10.1 by reference to RBC failed both limbs: LR 10.1 and LR 10.2: It was not a substantial shareholder in Goldfields and the assets (shares in Delta) being transferred to Goldfields by it were not greater in value than 5 percent of the equity interests of Goldfields. 49 Mr Ireland's response to this was that in relation to the application of LR 10.2 one looked to the time of the entry into the Merger Implementation Agreement and deed poll rather than a time close to the approval of the meeting, that is in December. 50 LR 10.1 deals with the need for shareholder approval where a substantial asset is to be "acquired" from a substantial shareholder. The word "acquire" is defined in Listing Rule 19.12 as follows: To acquire or agree to acquire directly or through another person by any means including the following: · Granting or exercising an option. · Enforcing collateral and taking an asset. · Increasing an economic interest. · Acquiring part of an asset. 51 Thus, LR 10.1 must be read substituting the words "agrees to acquire" for the word "acquires". Under the Merger Implementation Agreement Goldfields in September agreed to enter into the deed poll. This was done in November. That deed poll contained an obligation to issue the number of Goldfields shares to each Scheme Participant by reference to shareholding held by the Scheme Participant in Delta at the Record Date. It was not an agreement to acquire the shares held by the Scheme Participant at any other time. At one level the relevant time to assess when there was an agreement to acquire is at either September or November. However, the substance of the obligation is to acquire property which is only identifiable in the future. At the moment the evidence is that the substantive legal obligation undertaken is to acquire shares from RBC in a value less than 5 percent of the equity interests of Goldfields. 52 Thus, in respect of the application of 10.2 I agree with Mr Bathurst that there has not been demonstrated any agreement to acquire a substantial asset from RBC. 53 I also agree with the submissions of Mr Bathurst that if RBC is to be looked at for the purposes of 10.2 it has to be looked at for the purposes of 10.1. The substantial shareholder notices of Perpetual include RBC and other entities for whom Perpetual holds shares. There is no satisfactory evidence which would persuade me that RBC is an associate of any of the other parties named in the substantial shareholder notices such that it could be said that RBC and an associate had 10 percent or more in Goldfields. On the evidence before me LR 10.1 does not apply. 54 If I am wrong about this, I note that the complaint about Listing Rule 10.1 was fully articulated, at least in relation to Perpetual, to the ASX and the ASIC. Neither has perceived a problem. Also, the ASX sent Goldfields a letter saying that it (the ASX) had decided not to apply LR 10.1 to the merger. Listing Rule 10.8 provides for the consultation by a party with the ASX on the application of Rule 10.1. LR 10.8 and 10.8.1. are in the following form: Listing Rule 10.8 Before acquiring or disposing of an asset, an entity may seek the written opinion of ASX on whether approval is required under rule 10.1. The entity must give ASX complete details of the transaction. ASX will only be bound by its written opinion if the details given to it remain materially unchanged at the time of the transaction. [emphasis added] Listing Rule 10.8.1 If an entity does not have a written opinion from ASX that approval is not required under rule 10.1, ASX may require the entity to take the corrective action set out in rule 10.9. 55 This rule contemplates on its face that the ASX will be bound by its own written opinion if the details given to it remain materially unchanged. There is evidence before me of the appropriate informing of the ASX of the relevant matters in these proceedings including the complaints of Ms Porter. The opinion of the ASX has been given. 56 Listing Rule 10.9 deals with corrective action. It is in the following terms: Listing Rule 10.9 An entity must take corrective action if ASX requires it to. The corrective action, at the option of the entity, is either of the following: 10.9.1 Cancelling the transaction (or arranging for its cancellation). 10.9.2 Seeking the approval of holders of ordinary securities to the transaction. If approval is not obtained, the entity must cancel the transaction (or arrange for its cancellation). 57 At least under the rules the ASX appears to have disentitled itself from requiring Goldfields to take corrective action under 10.9 in respect of some breach of LR 10.1. 58 It is strictly unnecessary for me to deal with the argument put forward by Mr Bathurst that the reasons of the Full Court of the Supreme Court of Western Australia in Quancorp Pty Ltd v McDonalds [1999] WASCA 33 preclude any relief under s 777 in circumstances where such an opinion of the ASX has been provided. It is not clear to me that that decision stands for such a broad proposition. However, looking at any future possible application under s 777, if I be wrong for some reason about the matters concerning RBC, I think the view of the ASX which has been taken would be a powerful consideration why a Court would not exercise its discretion. That view would only be reinforced by the recognition that ASIC had been apprised of the relevant matters and not sought to take any action or indicate any view of concern. 59 For the above reasons, I am of the view that there has been no breach of any Listing Rule by Goldfields. So, the matters raised by Ms Porter cannot amount to relevant considerations relevant to any view not to approve the Scheme. 60 Recognising that I may wrong about these matters, I am of the view that they are not matters of such a character as should prevent me from approving the Scheme. There are contracts on foot from Goldfields. Nothing said by McLelland J in Re Glendale would in my view be offended by approving this Scheme. If there is a breach of a Listing Rule the consequences of that are contained within the Listing Rules and s 777. It is the case that the constitution of Goldfields provides that the directors have power to issue shares but "subject to the Law (now the Act) and the Listing Rules". This does not make voidable, independently of an application under s 777, an issue of shares in breach of a Listing Rule made with the power provided under s 124 of the Act. It does not follow that because there has been a breach of the Listing Rules that leads to the necessary consequence, irrespective of s 777, that the issue is voidable and would be set aside. The qualification to the directors' power in clause 8 of the constitution of Goldfields is that the power is subject to the Act and the Listing Rules. This incorporates, it seems to me, s 777. 61 Further, to the extent that there may have been a breach of Listing 10.1, in all the circumstances and given the examination of the matter by the ASX and the ASIC, I do not see the possibility of some action which may or may not be brought, and which Ms Porter has not said she would bring, under s 777 as a ground to prevent approval of the Scheme in circumstances where, in my opinion, it otherwise merits that approval. 62 As to the options point, that is Listing Rule 7.22, in my view it is plain that the Listing Rules have not been breached. 63 For the above reasons I was not persuaded that I should refuse to approve the Scheme in circumstances where I am otherwise persuaded that it is an appropriate course under Part 5.1 of the Act. It was for those reasons that I made the orders which I did yesterday. 64 As to the question of costs by the objector, Ms Porter, the matter would have been concluded by lunchtime on Thursday 13 December 2001 at the latest had she not sought to intervene. The objections she has raised have not been frivolous. Little notice was given by her. However, as Mr Ireland quite correctly pointed out, little notice was provided for by my orders of 8November. I do not think she should be criticised for lateness of attendance. The matter was, if I may say with respect, responsibly and efficiently argued by Mr Ireland. No time was wasted in the manner in which the objections were put forward. The participation by the objector has lengthened the approval process since lunchtime on Thursday. Some additional legal costs flow from that, no doubt. I have power under subrule 2.13(2) of the Federal Court (Corporations) Rules 2000 to direct that Ms Porter pay such additional costs. Having heard from the parties I do not propose in this case to order that she do so. The factors which I have taken into account include the matters to which I have referred above, that is that the application has not been made frivolously or captiously or inefficiently or other than responsibly. There may well be commercial considerations underlying Ms Porters' attempt to require a meeting of the shareholders of Goldfields to be held. She was not cross-examined on her affidavit. The Court invites people to hearings of this kind in its approval and ordering of advertisements. In the advertisement there was no identification of a possible costs penalty which might arise out of the application of rule 2.13 if parties came to lodge and voice their objections to the Scheme being approved. In these circumstances, and not by way of laying down any general rule at all, I do not propose to order that any costs be paid by Ms Porter. I certify that the preceding sixty four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop.

Associate: Dated: 18 December 2001 Counsel for Deltal Gold Ltd: Mr T F Bathurst QC

Solicitor for Delta Gold Ltd: Allens Arthur Robinson

Counsel for Goldfields Ltd: Mr N C Hutley SC

Counsel for objector: Mr J M Ireland QC

Solicitor for objector: Gilbert and Tobin

Date of Hearing: 8 November, 13 December 2001

Date of Orders on Notice of Motion: 17 December 2001

Date of Reasons for Orders: 18 December 2001