Australian Securities Commission v Marlborough Goldmines Ltd

REASONS FOR ORDERS ON NOTICE OF MOTION 1 There is before the Court a notice of motion dated 12 December 2001 brought under s 411 of the Corporations Act 2001 (the Act) to approve a scheme of arrangement between the plaintiff, Delta Gold Limited (Delta), and its members, (the Scheme). The Scheme is propounded for the purpose of effecting a merger between Delta and Goldfields Limited (Goldfields) as set out in the scheme document annexed to the notice of motion. 2 On 8 November 2001 I made orders for the holding of a meeting of the members of Delta to consider the Scheme. That meeting occurred on Wednesday 12 December 2001. 3 Evidence has been put before me which is unnecessary to itemise in these reasons which makes clear that there was compliance with the orders which I made on 8 November 2001 for the advertising, conduct and supervision of the meeting and of the voting at the meeting. At the meeting the members present and voting and voting by proxy overwhelmingly voted in favour of the resolution put to the meeting to enter the Scheme. The voting was scrutinised and recorded. In summary, over 99 percent of the votes cast at the meeting were in favour of the resolution and over 98 percent of shareholders who voted were in favour of the resolution. There was one abstention. 4 The Scheme in broad terms is as follows: Delta has only one class of issued capital being ordinary shares. The main features of this Scheme are that all shares in Delta held by the Scheme Participants (as defined, relevantly being the shareholders at the relevant date) will be transferred to Goldfields. Thus Delta will become a wholly owned subsidiary of Goldfields and in that way the operations and conduct of the two companies, Delta and Goldfields, will merge. Each company conducts the business of exploring for and producing gold, mainly in Australia. In consideration of the transfer of the Delta shares, Goldfields will issue to each Scheme Participant 187 fully paid shares in Goldfields for every 200 Delta shares held by the Scheme Participant and transferred to Goldfields. 5 For the purposes of the Scheme the Scheme Participants are persons who were registered in the register of members of Delta as the holders of shares in Delta as at 5.00 pm on the fifth business day following the date on which the Scheme becomes effective, being a person other than Goldfields or any member who holds a Delta share on behalf of or for the benefit of Goldfields or its subsidiaries. 6 The trading in Goldfields shares in the arrangements contemplated was to be suspended at the close of trading on 13 December 2001 being the day on which the Court was to hear the approval application. I heard the application on that date and adjourned it to 2.15 pm on 17 December 2001. 7 The implementation date of the Scheme is the fifth business day after the Merger Record Date. The Merger Record Date is 5.00 pm Sydney time on the fifth business day following the Effective Date. The Effective Date is the day of the coming into effect, pursuant to subs 411(10) of the Act, of the order of the Court made under para 411(4)(b) in relation to the Scheme; that is, when an office copy of the order is lodged with the Australian Securities and Investments Commission (ASIC). 8 The information memorandum which was sent to all members of Delta prior to the meeting of members on 12 December contains material sufficient in my opinion for the members to have made an appropriate commercial decision to vote in favour of or against the resolution which was put to them, depending upon their own commercial views. The information memorandum contained an independent expert's report from Grant Samuel and Associates, the summary of which was to the following effect: In Grant Samuel's opinion the proposed merger between Delta and Goldfields is in the best interest of Delta Shareholders. The terms of the merger are consistent with the relative values being contributed to the merged company by Delta and Goldfields. The merger is expected to release significant value, through cost synergies and the consolidation of the gold operations of Delta and Goldfields in the Kalgoorlie region. There is potential for a market re - rating of the shares in the merged Delta/Goldfields, which will become a substantial gold company by Australian standards. Shares in both Delta and Goldfields have outperformed the Australian and international gold sectors by a significant margin since the announcement of the proposed Merger. Grant Samuel believes that Delta shareholders are likely to be better off if the merger proceeds. Accordingly Grant Samuel has concluded that the merger is in the best interests of Delta shareholders. 9 Given that what is occurring is the purchasing of all the shares in Delta by Goldfields for a scrip consideration it is necessary to have regard to subs 411(17) of the Act which is in the following terms: (17) 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). 10 There was before me a letter from ASIC to Delta dated 12 December 2001 which made clear the view of ASIC that it had no objection to the Scheme proceeding for the purposes of para 411(17)(b). In the light of the letter from ASIC which I am satisfied on the material before me was brought about by an adequate disclosure of the relevant material, and in the light of the material put in evidence before me, I am satisfied as to the matters set out in para 411(17)(a) of the Act. I am satisfied that ASIC has been given of notice of all relevant matters in relation to this application and was given adequate information concerning it prior to the first hearing on 8 November 2001. Subject to the matters with which I am about to deal, I am otherwise satisfied that I should make an order under s 411 approving the Scheme. 11 One of the orders which I made on 8 November was that notices in identified forms be taken out in daily newspapers. The first such advertisement was to appear not less than 14 days before the date appointed for the Scheme meeting and the second not less than five days before the date appointed for the second court hearing. These advertisements made persons who read them aware that if a party wished to express opposition to the approval of the Scheme by the Court any such person proposing to be heard on such motion should give prior notice to the company's solicitors Allens Arthur Robinson and file a notice of appearance and affidavit evidence at least one day before the date fixed for the hearing of the application. 12 Jacqueline Fiona Porter through her solicitors Gilbert & Tobin as agent for Perth lawyers filed a notice of appearance on 12 December 2001, one day before the date for hearing. Mr Ireland QC appeared on behalf of Ms Porter. Ms Porter is not a shareholder of Delta; she is a shareholder of Goldfields. Mr Ireland sought leave under Rule 2.13 of the Federal Court (Corporations) Rules 2000 for leave to be heard. This rule, relevantly, provides: Leave to creditor, contributory or officer to be heard (1) The Court may grant leave to any person who is, or who claims to be: (a) a creditor, contributory or officer of a corporation; or (b) an officer of a creditor, or contributory, of a corporation; or (c) any other interested person; to be heard in a proceeding without becoming a party to the proceeding. (2) If the Court considers that the attendance of a person to whom leave has been granted under subrule (1) has resulted in additional costs for any party, or the corporation, which should be borne by the person to whom leave was granted, the Court may: (a) direct that the person pay the costs; and (b) order that the person not be heard further in the proceeding until the costs are paid or secured to the Court's satisfaction. 13 After some discussion and after Mr Bathurst QC (who appeared for Delta) and Mr Hutley SC (who appeared for Goldfields) had had an opportunity to peruse the nature of the matters which Mr Ireland wished to raise on behalf of Ms Porter, I took the course of allowing Mr Ireland to participate in the hearing and to put such submissions as he thought appropriate on the matters he wished to raise. At the end of the hearing on Thursday 13 December I made an order granting leave to Ms Porter to be heard in the notice of motion before me without becoming a party to the proceedings. I will deal with the question of costs in due course. 14 Before going to Mr Ireland's submissions I should note that Ms Porter in late November sought to make her complaints known to ASIC and Delta. On or about 28 November 2001 she sent a document entitled "Extract of Complaint" to ASIC and Delta. The complaint was almost ten pages closely typed, dealing with a number of matters. It was plainly drafted by an experienced commercial person or commercial lawyer. It dealt first with the alleged failure by Goldfields to comply with the Australian Stock Exchange (ASX) Listing Rule 10.1. This is a matter which Mr Ireland pressed before me and to which I will return. Ms Porter also raised questions of compliance with the Act and Regulations made under the Act. These complaints were subdivided into a number of matters. The first dealt with option holders in Delta and how they were being treated. Mr Ireland dealt in part with what Ms Porter raised in the complaint in this respect and I will return to that matter. The second subcategory of alleged failure of compliance with the Act and the Regulations dealt with Policy Statement 60 of ASIC and reverse takeovers, ss 710 to 713 of the Act and policy statements regarding disclosure of fees, questions as to what was said to be the uncertainty as to the independence of Grant Samuel and KPMG, various queries in relation to draft reports and changes to draft reports, inadequate disclosure of methodology and assumptions and what was said to be an impermissible use of market prices as a measure of value. From the evidence before me it is clear that these matters were considered by ASIC and not thought to warrant any action. Mr Ireland did not press any of these matters and thus I do not propose to deal with any of them. The third subcategory of complaint in the section in Ms Porter's complaint concerning compliance with the Act and Regulations was a further section dealing with other disclosure "issues" and the clarity and accuracy of information provided in the information memorandum, compliance with Regulation 5.1.01 in Schedule 8 of the Corporations Regulations, ASIC Policy Statement 142 and what was said to be a lack of constitutional power to implement the Scheme. Once again all these matters were examined by ASIC and Mr Ireland does not press any of them save for the last matter concerning the terms of the constitution of Goldfields to which I will come. 15 Ms Porter's complaints focus upon the lack of any approval or opportunity for approval by a general meeting of the shareholders of Goldfields to vote to approve the decision of the directors to agree to enter the Scheme by the execution of the Merger Implementation Agreement made on 17 September 2001. There is no suggestion that the decision of the directors to have Goldfields enter the Merger Implementation Agreement was not made bona fide and for the purposes of Goldfields and in the perceived best interests of Goldfields. There has been no suggestion before me of any impropriety whatsoever in the entry into the Merger Implementation Agreement. By that agreement, the detailed provisions of which I do not set out here, Delta agreed to propose the Ordinary Scheme upon and subject to the terms and conditions of the Agreement and Goldfields agreed to assist Delta in proposing the Ordinary Scheme upon and subject to the terms of the Agreement. There were various conditions precedent to the obligations of the parties, which conditions precedent have either been satisfied or waived. Goldfields' obligations are set out in clause 6.2 of the Implementation Agreement which I set out below: 6.2 Goldfields' obligations Goldfields must take all necessary steps to assist Delta implement the Ordinary Scheme as soon as is reasonably practicable including, without limitation, taking each of the following steps: (a) Goldfields Information: promptly provide the Goldfields Information to Delta for inclusion in the Scheme Booklet; (b) Independent Expert: (Subject to the agreement of the Independent Expert to a confidentiality undertaking in a form reasonably required by Goldfields) promptly provide assistance or information reasonably requested by the Independent Expert to enable it to prepare its report for the Scheme Booklet; (c) Access to Information: provide to Delta and its authorised representatives reasonable access to employees, offices and other facilities, and to the books and records, of Goldfields and its subsidiaries for the purpose of implementing the Merger provided that nothing in this clause 6.2(c) requires Goldfields to provide to Delta information concerning Goldfields': (1) consideration of the Merger; or (2) assessment of Delta; (d) Representation: procure that it is represented by counsel at the Court hearings convened for the purposes of section 411(4)(b) of the Corporations Act, at which, through its counsel, Goldfields will undertake (if requested by the Court) to do all such things and take all such steps within its power as may be necessary in order to ensure the fulfilment of its obligations under the agreement and the Ordinary Scheme; and (e) Deed Poll: prior to the despatch of the Scheme Booklet, enter into a deed poll in the form of Annexure 2 (or in such other form as is agreed between Delta and Goldfields). [Emphasis in original] 16 The deed poll which was executed by Goldfields on 9 November 2001 in favour of "each holder of ordinary shares from time to time" in Delta contained the following recitals: Recitals A. The directors of Delta consider that it is in the interests of Delta that Delta Shareholders should consider approving the Scheme. B. Accordingly, the directors of Delta have resolved that Delta should propound the Scheme. C. The effect of the Scheme will be that all shares in Delta will be transferred to Goldfields such that Goldfields will hold all the issued shares in Delta. D. On 17 September 2001 Delta and Goldfields entered into a Merger Implementation Agreement (Agreement). [Emphasis in original] E. In the Agreement, Goldfields agreed to do certain things which may be necessary or expedient on its part to implement the Scheme including without limitation but subject to the satisfaction of the Conditions Precedent, issuing Goldfields Shares in consideration for the transfer to it of all Delta Shares. F. Goldfields is entering into this Deed Poll for the purpose of covenanting in favour of the Delta Shareholders to perform certain of its obligations under this Agreement. 17 Within clause 2 of the deed poll, Goldfields' obligations under clause 3, to which I will come, were subject to the Scheme becoming effective. If the Scheme did not become effective the obligations of Goldfields under the deed poll would terminate when the Merger Implementation Agreement terminated. 18 Under clause 3(a) of the deed poll, subject to clause 2, and a clause dealing with foreign shareholders, on the Implementation Date, that is 31 December 2001, in consideration of the transfer of each Delta share to Goldfields, Goldfields shall issue the number of new Goldfields shares to each Scheme Participant in respect of each Delta share registered in the name of that Scheme Participant in the register at the Record Date in numbers calculated in accordance with the provisions of clause 5.1 of the Agreement. Clause 5.1 of the Merger Implementation Agreement provided for the ratio of shares in the scrip issue to which I have earlier made reference. 19 Mr Ireland, on behalf of Ms Porter, put forward three matters, two concern ASX Listing Rule 7 and one concerns ASX Listing Rule 10. Before going to those matters in a little detail I should identify the general thrust of Mr Ireland's submissions. He, naturally as he had to, recognised that Ms Porter is not a shareholder of Delta and that the matter before me is the approval of the Scheme between the members of Delta and Delta. However he said that the Court should not make an order approving the Scheme where participation by an outsider is an essential element in the Scheme, unless the outsider first becomes bound by contract to implement the Scheme: see Re Glendale Land Development Ltd (in liq) [1982] 2 NSWLR 563 at 567 per McLelland J. Mr Ireland developed that submission and put the proposition that the Court should not order approval of the Scheme if the outsider's contract is vulnerable to attack by reason of some apparent inherent vice. Mr Ireland recognised that the Merger Implementation Agreement and deed poll entered by Goldfields through its Board are not nullities or void. For the reasons which I will discuss shortly he said that they were voidable. (Though, as I indicated above, there is no suggestion before me of any impropriety on the part of Goldfields' directors or that there are matters for complaint beyond what has been raised before me.) 20 Mr Ireland also referred to Australian Securities Commission v Marlborough Goldmines Ltd (1993) 177 CLR 485 at 502 where in a joint judgment Mason CJ, Brennan J, Dawson J, Toohey J and Gaudron J said: Whatever the basis for the United Kingdom decisions which sanctioned such an arrangement involving an alteration of rights, the interpretation given to the predecessors of s 411 provides no justification for regarding the section as constituting authority for approving an arrangement containing a provision which is inconsistent with the express or implied provisions of the Law. [emphasis added.] 21 It is in this legal framework that Mr Ireland directed the Court to what he said were failures to comply with the Listing Rules by Goldfields. 22 The three objections raised before me are set out in the written submissions of Mr Ireland as follows: 6. The three principal objections that would be raised on behalf of Ms Porter to the approval of the proposed scheme are: (a) the implementation of the scheme of arrangement necessarily involves an unlawful act, namely the issue of securities in Goldfields without shareholder approval required by ASX Lisitng Rule 7.1; (b) the implementation of the scheme of arrangement involves the acquisition by Goldfields of a substantial asset within the meaning of ASX Listing Rule 10.1 which again requires shareholder approval by Goldfields, which has not been obtained; (c) the mechanism which has been adopted to extinguish options held over Delta shares does not comply with ASX Listing Rule 7.22. 23 I will deal with the three matters.