Auvex Resources Ltd, in the matter of Auvex Resources Ltd [2011] FCA 820

Federal Court of Australia|2011-07-22|Before: Gilmour J

Nature of Application 1 This is an application for orders approving the scheme of arrangement between the plaintiff and its members (Scheme) under s 411(4)(b) of the Corporations Act 2001 (Cth) (Corporations Act) and exempting the plaintiff pursuant to s 411(12) of the Corporations Act from compliance with the requirements of s 411(11) of the Corporations Act. I made orders approving the Scheme on 20 July 2011. These are my reasons for making those orders. 2 The Scheme involves an arrangement where all shares in the plaintiff will be transferred to Mineral Resources Limited (MRL). 3 The Court's primary concern at the second court hearing in respect of a scheme is that there has been compliance with the Court's orders as well as with the statutory requirements. 4 The Court must be satisfied under s 411(17) that the scheme has not been proposed to avoid the operation of Chapter 6 of the Act or the plaintiff has produced a statement in writing from the ASIC to the effect that the ASIC has no objection to the Scheme. The Court must also be satisfied under s 411(4)(b) that the Scheme is otherwise properly proposed, fair and reasonable. 5 Each of these matters is dealt with, in turn, below.

Jurisdiction to Approve Scheme 7 Section 411(4) relevantly provides that an arrangement is binding on the members of a company and the company if at a meeting convened in accordance with an order of the Court, a resolution in favour of the arrangement is: (a) passed by a majority in number of the members present and voting (either in person in proxy) (s 411(4)(a)(ii)(A)) (Headcount Test); and (b) if the body has a share capital - passed by 75% of the votes cast on the resolution (s 411 (4)(a)(ii)(B)) (Votes Test), and the arrangement is approved by order of the Court (s 411(4)(b)). 8 The court has a broad discretion to approve a scheme and is not bound to approve it merely because the court has previously made orders for the convening of a meeting or because the statutory majorities have been achieved: Re NRMA Ltd (No 2) (2000) 34 ACSR 261 at [21]. 9 The courts are generally reluctant to intervene with schemes in which the requisite majority has been reached by fully informed members: Re NRMA Ltd (No 2).

Standard of Review 10 Jacobson J considered the principles which govern the Court's discretion to approve a scheme, in Re Seven Network Ltd (No 3) (2010) 267 ALR 583 at [35]-[40] and listed the following considerations set out by the Corporations and Markets Advisory Committee in its December 2009 report: (a) whether the members have voted in good faith and not for an improper purpose; (b) whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it. This leading test of fairness was set out by Fry LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 247; (c) whether the plaintiff has brought to the attention of the court all matters that could be considered relevant to the exercise of the court's discretion; (d) whether there has been full and frank disclosure of all information material to the members' decision; and (e) whether minority shareholders would be oppressed by the scheme. 11 The Court's jurisdiction in relation to an arrangement is supervisory. The Court is to be satisfied that there has been no oppression and the arrangement is one that is capable of being accepted. 12 The Court must be satisfied that the meeting to approve the scheme has been completed and that the resolution has been passed in accordance with the statutory requirements: Re Central Pacific Minerals NL [2002] FCA 239 at [12]. It must also be satisfied that the scheme is fair and reasonable to members in a general sense: Re Solution 6 Holdings Ltd (2004) 50 ACSR 113 at [21].

Compliance with Court's Directions and other Procedural Requirements 13 I am satisfied that the plaintiff has satisfied the following requirements: (a) The Meeting Orders were lodged with the ASIC, (b) The Scheme Booklet was registered with the ASIC. (c) The Scheme Booklet was dispatched to members in accordance with order 10 of the Meeting Orders. (d) The meeting was convened and held in accordance with orders 3 to 7 of the Meeting Orders. (e) The statutory majorities were obtained at the Scheme Meeting. (f) Notice of the second court hearing was given in accordance with order 9 of the Meeting Orders.

Fair and Reasonable Scheme 14 The Court generally takes the view that the members are the best judges of whether an arrangement is to their commercial advantage and will be reluctant to make a decision contrary to the views expressed at meetings. 15 The Court may withhold its approval in the following instances: (a) where a majority is shown to be acting in bad faith; (b) where a majority's acceptance is in the nature of a fraud on the minority; or (c) where there is an objection to the scheme such that a reasonable person might not approve it. 16 Proof of the relevant statutory majorities is sufficient to establish prima facie evidence of fairness. 17 The Independent Experts' report concluded that the Scheme is in the best interests of the members. The plaintiff's members have voted in favour of the Scheme with the requisite majorities at the Scheme Meeting. 18 The Scheme is fair and reasonable because it will yield commercial benefits for the plaintiff's members and it is of a kind that is fair and reasonable from the viewpoint of an intelligent and honest person: Re Central Pacific at [12]-[14].

Conditions Precedent to the Scheme 19 Clause 3.1 of the Implementation Deed (at pp 152 and 153 of the First Crawford affidavit) and clause 2.1 of the Scheme (at pp 215 and 216 of the First Crawford affidavit) set out various conditions precedent to the Scheme becoming effective (Conditions Precedent). 20 Conditions precedent certificates, as provided for at clause 2.2 in the Scheme are annexed to the Second Crawford affidavit. The certificates confirm, so far as the plaintiff and MRL are concerned, that the Conditions Precedent, except for the Court's approval of the Scheme, have been satisfied or waived. 21 If an order is made approving the Scheme, the Scheme will take effect in accordance with its terms.

Notification of Right to be Heard 22 As noted above, notice of the second court hearing has been given in accordance with order 9 of the Meeting Orders. 23 The plaintiff has not received a notice of appearance from any person or any indication that any person intends objecting to approval of the Scheme.

Section 411(17) Considerations 24 The Court's ultimate approval of the scheme is dependent upon fulfilment of one of two alternative conditions set out in s 411(17) of the Corporations Act. 25 ASIC has provided a written statement to the effect that it has no objection to the Scheme. Accordingly, the second alternative (s 411(17)(b)) is satisfied. Production of a "no objection letter" usually brings an end to the issue, but the letter does not bring to an end the Court's discretion: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [29]. 26 If the Court were to find that the Scheme had been proposed for the purpose of avoiding the operation of a provision of Chapter 6 and that the existence of this proscribed purpose would work oppressively, unjustly or unfairly against the plaintiffs members or some other interested party, that finding may be taken into consideration as part of the exercise of the Court's power to approve the Scheme under s 411(4)(b): Re Coles Group Ltd (No 2) [2007] VSC 523 at [75] - [80]. 27 As to the existence of this proscribed purpose, the Court is not to take an excessively rigid view but a liberal and practical approach. In Re ACM Gold Limited & Mt Leyshon Gold Mines Ltd (1992) 34 FCR 530 at 538, O'Loughlin J observed that the "proposition that ... [an] arrangement must be struck down if it could have been implemented as a takeover scheme" was "far too rigid". 28 Where the directors of a target company consider a merger proposal is in the best interests of the members of the target company the implementation of the merger by a method that provides for the certainty of outcome, namely 100% ownership by the bidder company, through a single process is a commercially rational reason for choosing a scheme of arrangement over a Chapter 6 takeover. This reason for preferring a scheme of arrangement to a Chapter 6 takeover is not a proscribed purpose: Re ACM Gold Ltd, at 541-543; Re Stockbridge Ltd (1993) 9 ACSR 637, at 652-653. 29 There is no reason to conclude that the Scheme has been proposed for the proscribed purpose.

The significance of no objection from ASIC 30 ASIC Regulatory Guide 60 provides that the primary consideration for ASIC is whether, having regard to the principles in s 602 of the Corporations Act, shareholders are adversely affected by the takeover being implemented by a scheme of arrangement rather than a takeover bid (see paragraph 60.16). These principles relate to: (a) sufficient time for shareholders to make a decision; (b) sufficient information to make a decision; and (c) reasonable and equal opportunities to share in any benefits that flow from a person acquiring a substantial interest in their company. 31 ASIC Regulatory Guide 60 (at RG 60.104) indicates that ASIC issues a "no objection letter" if it is satisfied that: (a) all material information has been disclosed; (b) the standard of disclosure meets the requirements of the relevant Corporations Regulations; (c) the standard of disclosure is equivalent to the standard that would be required by the disclosure obligations and principles in s 602 of the Corporations Act relating to takeover bids; and (d) there are no other reasons to oppose the scheme, such as public policy grounds.

Approval of Scheme of Arrangement 32 I am satisfied that the Court ought approve the Scheme for the following reasons: (a) The Scheme was agreed to by the statutory majorities required by s 411(4)(a)(ii) of the Corporations Act. The resolution was carried unanimously with more than 88 million votes exercised and with no abstentions. There is nothing to suggest that members voted other than in good faith or that they cast their votes for an improper purpose. (b) The conclusion of the Independent Experts, set out in the Scheme Booklet, was that the Scheme is in the best interests of the plaintiff's members. (c) The Court assessed, at a threshold level, the reasonableness of the Scheme at the first court hearing, subject always to new matters being brought to the Court's attention at the second court hearing. There were no new matters. (d) The plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion. Moreover, from the disclosure in the Scheme Booklet and the absence of complaint about the Scheme by any regulatory body or member of the plaintiff, I am satisfied that there has been adequate disclosure of all information material to the members' decision. (e) There is nothing which casts doubt on the procedural integrity of the meeting process or indicates that minority shareholders would be oppressed by the Scheme. (f) Section 411(17)(b) has been satisfied. 33 No person has given notice of their intention to appear before the Court to object to approval of the Scheme.

Section 411(11) Exemption 34 Section 411(11) of the Corporations Act requires a copy of every order of the Court made for the purposes of s 411(4)(b) to be annexed to every copy of the relevant company's Constitution issued after the order was made. An exemption from this requirement may be granted under s 411(12). 35 If the Court approves the Scheme, the order will not effect any alteration of the plaintiff's Constitution and will not affect its true construction. Further, the plaintiff will, from implementation of the Scheme, be a wholly owned subsidiary of MRL, so there is no purpose to be served in having the order annexed to the plaintiff's Constitution. An exemption pursuant to s 411(12) was granted for similar reasons in Re Foundation Healthcare Ltd (No 2) (2002) 43 ACSR 680.

Conclusion 36 For all these reasons I am satisfied that there has been compliance with the Court's orders and with the statutory requirements and that the requirements of s 411(17) are met and that the Scheme has not been proposed to avoid the operation of Chapter 6 and is otherwise properly proposed, fair and reasonable. 37 There will be orders in terms of the minute of proposed orders. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.

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