Barrick Mining Company (Australia) Pty Ltd v Barrick Administration Company Pty Ltd, in the matter of Barrick Mining Company

COLVIN J: 1 Patersons Securities Limited (Patersons) is an unlisted public company with 204 shareholders. It is a wealth management and capital markets firm. It is proposed that Patersons will become a subsidiary of Canaccord Financial Group (Australia) Pty Ltd (Canaccord Australia) which is itself a subsidiary of a Canadian company listed on the Toronto Stock Exchange. It is proposed that Canaccord Australia will acquire all the shares in Patersons under the terms of the scheme of arrangement pursuant to which cash consideration of up to $25 million will be paid to Patersons shareholders. 2 Patersons brings an application under s 411(1) of the Corporations Act 2011 (Cth) for orders convening a meeting of the members of Patersons to consider the scheme and to approve the scheme if approved by the members. At this first court hearing stage, the Court is only concerned with the making of orders to convene the meeting to consider the scheme. 3 The proper approach to review at the first court hearing as part of the process to approve a scheme is to consider 'whether the proposed scheme is not inappropriate and is one that sensible business people might consider of benefit to [the shareholders of the company]': Spookfish Limited, in the matter of Spookfish Limited [2018] FCA 1550 at [14] (Banks-Smith J). I summarised the principles to be applied in Barrick Mining Company (Australia) Pty Ltd v Barrick Administration Company Pty Ltd, in the matter of Barrick Mining Company (Australia) Pty Ltd [2018] FCA 1958 at [7]-[11]. 4 The scheme is recommended by all directors of Patersons. They say that if approved and implemented, the scheme will benefit shareholders because the price to be paid is fair and reasonable, there is no superior proposal for the shares and there is no active secondary market for shares in Patersons. As to the recommendation of the directors, the issues raised by Farrell J in Gazal Corporation Limited, in the matter of Gazal Corporation Limited [2019] FCA 701 at [29]-[32], most recently considered by O'Callaghan J in Kidman Resources Limited, in the matter of Kidman Resources Limited [2019] FCA 1226 at [104]-[107], do not arise on the affidavit material. 5 In addition to the directors' recommendation, even though an independent expert's report is not required because Canaccord Australia and its associates do not own shares in Patersons and there are no common directors, such a report has been prepared. The independent experts say that the price that would be paid under the scheme is a premium of 37.7% to the 12 month volume weighted average price for shares in Patersons and a 56% premium to net tangible assets. Also, the business of Patersons is sub-scale in the current environment and therefore more exposed to market risk, and if the sale does not proceed there may be a need to buy out those who have invested capital in Patersons over time. 6 Having regard to the terms of the recommendation by the directors, the independent experts' report and the simple financial metrics and structure of the scheme, I am satisfied that the scheme is a commercial proposition that it is appropriate for consideration by members. 7 Further, on the basis of the affidavit material, the disclosure provided by the proposed scheme booklet gives sufficient information for shareholders to make a commercial assessment of the proposal. There is no material before me to suggest that there is anything incomplete or misleading about the proposal. 8 The scheme provides for a basic consideration of 22.05 cents per share and an additional payment of up to 1.5 cents per share subject to adjustment according to the terms of a deed, which amount is payable two years later. It is possible that the adjustment may be as to the full extent of the additional payment, with the result that there is no additional payment at all. This is clearly disclosed in the proposed scheme booklet. There is provision for a mechanism to resolve any disputes as to adjustments and for funding a representative of former Patersons shareholders in that regard. Even if there is no additional payment, in the opinion of the independent expert, the base consideration is still above the valuation range for the shares. 9 There is no real performance risk because the scheme, if approved and implemented, provides for the share consideration to be placed in an escrow account in cleared funds well prior to the transfer of shares. 10 The scheme provides that each Patersons shareholder is deemed to have provided warranties as to their shareholding being fully paid and free of security interests. Such clauses are common and are acceptable provided they are fully disclosed: APN News & Media Limited, in the matter of APN News & Media Limited [2007] FCA 770 at [59]-[63] (Lindgren J); and DuluxGroup Ltd, in the matter of DuluxGroup Ltd [2019] FCA 961 at [27] (O'Bryan J). 11 There is provision for a break fee representing less than 1% of the total consideration which is within the guideline given by the Takeovers Panel Guidance Note 7 - Lock-up devices. There is no indication that the fee does not reflect genuine commercial costs and risks. 12 Patersons has agreed an exclusivity period in relation to the transaction which is proposed to be implemented by the scheme, which period extends until 10 March 2020. It was agreed in June 2019. It is subject to a fiduciary and statutory duty carve-out. It is consistent with periods that have been found to be acceptable in other cases: see, in particular, the authorities referred to by Moshinsky J in Verdant Minerals Ltd, in the matter of Verdant Minerals Ltd [2019] FCA 556 at [51]. 13 There are no unusual conditions precedent to the proposed scheme and most have been met. 14 I have been informed this morning informally of further approvals that have been obtained in Canada and those matters will be the subject of formal evidence in due course if the matter is to proceed to further consideration. 15 The proposed scheme meeting will be immediately followed by a general meeting to amend the constitution of Patersons to remove an article that prohibits any shareholder from acquiring or holding 20% or more of the total shares on issue. As was submitted to me today, it would be expected that if shareholders supported the scheme, they would then support that general meeting proposal. However, it is not a matter that is required to be approved by the Court and it gives rise to no issue for approval of the scheme on the present application. Therefore, it is not a matter that should stand in the way of the orders being made to convene a meeting for consideration of the scheme. 16 The requisite notice for the purposes of s 411(2) has been given to the Australian Securities and Investment Commission (ASIC). It does not seek to make any submissions to the Court on the application for orders to convene the meeting. ASIC has provided its usual letter indicating that it does not propose to appear to make submissions or to intervene to oppose the scheme at this first hearing. 17 As to s 411(17), the letter refers to an application having been made by Patersons for a written statement to the effect that ASIC has no objection to the scheme. The letter refers to ASIC's policy that it does not provide such a statement until the second Court hearing in relation to any scheme of arrangement. The letter says that this is because 'ASIC will not be in a position to advise the Court properly until it has had an opportunity to observe the entire scheme process'. It is also said to be consistent with the wording of the section which relates to the approval by the Court of the scheme. Nevertheless, the letter does state that the current position of ASIC is that it does not currently propose to appear or make submissions to intervene to oppose the scheme, based on the information available to ASIC as at the date of the letter on matters that ASIC would have regard to before it would state that it has no objection to a scheme under s 411(17)(b). 18 I was invited to approach compliance with s 411(17) on the basis that it would be dealt with at the second hearing in the event that the scheme was approved by members of Patersons. Reliance was placed upon the reasoning of Barrett J in Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [23]-[31]. It was also the view expressed more recently by Reeves J in Airtrain Holdings Limited, in the matter of Airtrain Holdings Limited [2013] FCA 209 at [54]-[55]. I will proceed on that basis. 19 Finally, the application was supported by submissions and a checklist demonstrating compliance with other aspects of s 411 and s 412 and the inclusion of the prescribed information in the scheme booklets as proof of the required company search and the disclosure of interests and conflicts of the proposed chairperson and alternative chairperson for the scheme meetings. 20 For those reasons, I am satisfied it is appropriate for the Court to make the orders sought to convene a meeting of members of Patersons to consider the proposed scheme. I will make orders substantially in terms of the minute of proposed orders. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin.