Barrick (Australia Pacific Exploration) Pty Limited v Barrick

BACKGROUND 3 Altona entered into a Merger Implementation Deed (MID) with CMMC whereby CMMC, through its wholly-owned subsidiary CMMC Australia, was to acquire 100% of the ordinary shares in Altona pursuant to the Scheme. I initially made orders on 16 February 2018 for the convening of a meeting to consider the Scheme on 26 March 2018 (Scheme Meeting) and approving an explanatory statement in the form of a Scheme Book (Scheme Book) for distribution to Altona's shareholders.

ISSUES PRESENTED 4 The principal issues are as follows: (a) The Court's primary concern at the second Court hearing in respect of a scheme is that the statutory requirements and court directions have been met. (b) Under s 411(17) of the Act, the Court must be satisfied that the Scheme has not been proposed to avoid the operation of Ch 6 of the Act and Altona must produce a statement in writing from the Australian Securities and Investments Commission (ASIC) to the effect that the ASIC has no objection to the Scheme. The Court must also be satisfied, in making an order under s 411(4)(b) of the Act, that the scheme is otherwise properly proposed, fair and reasonable: see, for example, Sierra Mining Ltd, in the matter of Sierra Mining Ltd [2014] FCA 694 per Gilmour J (at [32]-[33] and the cases therein cited).

EVIDENCE 5 Altona relies on the following materials: (a) the fifth affidavit of Mr Mannolini affirmed 29 March 2018 (Fifth Mannolini Affidavit), which confirms that: (i) an office copy of the orders granted by the Court on 16 February 2018 (Meeting Orders) was lodged with ASIC on 16 February 2018; (ii) a copy of the Scheme Book was registered at ASIC on 16 February 2018; and (iii) the second Court hearing was advertised in accordance with the Meeting Orders; (b) the second affidavit of Mr Maloney (Second Maloney Affidavit), Chairperson of the Scheme Meeting, affirmed on 27 March 2018, which deposes that: (i) a copy of the Scheme Book approved by the Court on 16 February 2018 was registered at ASIC on 16 February 2018; (ii) the Scheme Meeting was held in accordance with Altona's Constitution and the Act; (iii) Mr Maloney's interests in Altona were disclosed to the Scheme Meeting prior to the resolutions being proposed; and (iv) the statutory majorities were obtained in relation to the resolution to implement the Scheme (Scheme Resolution); (c) the affidavit of Ms McAuley affirmed on 29 March 2018 (McAuley Affidavit), which confirms the details relating to the dispatch of the Scheme Book to Altona's registered shareholders who have nominated, pursuant to s 249J of the Act, an email address for the purpose of receiving communications from Altona (Electronic Shareholders) in accordance with the Meeting Orders, and in which she confirms that she: (i) supervised the collation of proxies received by the share registry and reporting of the proxies to Altona on 24 March 2018; and (ii) collated the voting results of the 'tagged shareholders' who voted by proxy and at the Scheme Meeting (and Ms McAuley reports on the votes cast by those shareholders, as requested by ASIC on 16 February 2018); (d) the affidavit of Mr Scott affirmed on 28 March 2018 (Scott Affidavit), which confirms the details relating to the dispatch of the Scheme Book by post to Altona's registered shareholders in accordance with the Meeting Orders; (e) the third affidavit of Mr Cowden affirmed on 29 March 2018 (Third Cowden Affidavit), which notes the proxy solicitation campaign undertaken by Altona and the release of CMMC's 2017 audited annual financial statements; (f) the affidavit of Ms Lewis affirmed on 29 March 2018 (Lewis Affidavit), which confirms that she attended the Scheme Meeting as returning officer and recorded the votes cast in respect of the resolutions; (g) the second affidavit of Ms Nawata affirmed on 28 March 2018 (Second Nawata Affidavit) and the second affidavit of Mr O'Rouke (Second O'Rourke Affidavit) in relation to the satisfaction of certain conditions precedent required under clause 3.1 of the MID by CMMC and CMMC Australia; (h) the sixth affidavit of Mr Mannolini (Sixth Mannolini Affidavit) affirmed 3 April 2018, which confirms that: (i) the conditions precedent to the Scheme becoming effective, except for the Court's approval, have been satisfied or waived; and (ii) the ASIC has provided a notice in writing that it has no objection to the Scheme under s 411(17)(b) of the Act; (i) the affidavit of Mr Cohen, sworn on 3 April 2018, which deposes to his belief that the condition in cl 3.1(n) of the MID will be satisfied; and (j) the affidavits upon which Altona relied at the first Court hearing, which contain details of the Scheme and disclosure to members relating to the Scheme.

JURISDICTION TO APPROVE SCHEME 6 Section 411(4) of the Act 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) of the Act) (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) of the Act) (Votes Test), (c) and the arrangement is approved by order of the Court (s 411(4)(b) of the Act). 7 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) 156 FLR 412 per Santow J (at [21]-[22]). 8 The Courts are generally reluctant to intervene with schemes in which the requisite majority has been reached by fully informed members.

STANDARD OF REVIEW 9 In considering the principles which govern the Court's discretion to approve a scheme, Jacobson J in Re Seven Network Ltd (No 3) (2010) 267 ALR 583 (at [35]-[40]) referred to the following list of considerations set out by the Corporations and Markets Advisory Committee in its December 2009 Report and supporting authorities: (a) whether the members have voted in good faith and not for an improper purpose: Re Foundation Healthcare Ltd (No 2) (2002) 43 ACSR 680; (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: Fowler Lindholm (2009) 178 FCR 563. 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: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; (d) whether there has been full and frank disclosure of all information material to the members' decision: Re NRMA Ltd (No 2) (at [30]); (e) whether minority shareholders would be oppressed by the scheme: Re Ranger Minerals Ltd; Ex parte Ranger Minerals Ltd (2002) 42 ACSR 582; and (f) whether the scheme offends public policy: CSR Ltd, Re of CSR Ltd (2010) 265 ALR 703 (at [51]-[56]) 10 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. 11 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 per Emmett J (at [12]), and 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 12 Altona filed a 'Scheme of Arrangement Second Court Hearing Checklist' (Second Checklist). 13 The Second Checklist identifies the Court directions made in the Meeting Orders and the other procedural requirements that must be met, together with the location of the evidence demonstrating that those requirements have been met. 14 The Second Checklist and the materials confirm that Altona has satisfied the following requirements: (a) The Meeting Orders were lodged with the ASIC. (b) The Scheme Book was registered with the ASIC. (c) The Scheme Book was dispatched to members in accordance with orders 6 and 7 of the Meeting Orders. (d) The meeting was convened and held in accordance with orders 1, 2, 3 and 8 of the Meeting Orders, including relevantly, in a manner compliant with Pt 2G.2 of the Act and Altona's Constitution. (e) The statutory majorities were obtained at the Scheme Meeting. (f) Notice of the second Court hearing was given in accordance with order 10 of the Meeting Orders. 15 The Second Checklist was updated at the hearing on 3 April 2018.

FAIR AND REASONABLE SCHEME 16 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. However, 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. See Barrick (Australia Pacific Exploration) Pty Limited v Barrick (PD) Australia Pty Limited, in the matter of Barrick (Australia Pacific Exploration) Pty Limited (No 2) [2017] FCA 1076 per Barker J (at [32]) 17 Proof of the relevant statutory majorities is sufficient to establish prima facie evidence of fairness. 18 The Independent Expert's report, compiled by KPMG Financial Advisory Services (Australia) Pty Ltd, concluded that the scheme is not 'fair', but is 'reasonable' and that overall the scheme is 'in the best interests' of the members. Altona's members have voted in favour of the Scheme with the requisite majorities, which were not insignificant at the Scheme Meeting. 19 The Scheme is reasonable, as its completion will enhance the prospects for development of Altona's Cloncurry Project and, based on the exchange ratio and the closing traded price for a CMMC share on the day prior to the announcement of the scheme, Scheme Shareholders will receive a premium compared with the recent trading prices of Altona shares.

CONDITIONS PRECEDENT TO THE SCHEME 20 Clause 3.1 of the MID (detailed in pp 36 to 38 of the first affidavit of Mr Cowden affirmed on 25 January 2018 (First Cowden Affidavit)) and cl 2.1 of the Scheme (which is at p 91 of the First Cowden Affidavit) set out various conditions precedent to the Scheme becoming effective (Conditions Precedent). 21 Conditions precedent certificates were confirmed, as per cl 3.7 of the MID and cl 2.2 of the Scheme, that attested the Conditions Precedent, except for the Court's approval of the Scheme, had been satisfied or waived.

NOTIFICATION OF RIGHT TO BE HEARD 22 As noted above, notice of the second Court hearing was given in accordance with order 10 of the Meeting Orders.

SECTION 411(17) CONSIDERATIONS 23 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 Act. 24 ASIC provided a written statement to the effect that it has no objection to the Scheme. Thus, the second alternative (s 411(17)(b) of the Act) was satisfied. Production of a 'no objection letter' usually brings an end to the issue of ASIC's objections, but the letter does not bring to an end the Court's discretion: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 per Barrett J (at [29]). 25 If the Court were to find that the Scheme had been proposed for the purpose of avoiding the operation of a provision of Ch 6 (proscribed purpose) and that the existence of the proscribed purpose would work oppressively, unjustly or unfairly against Altona's 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) of the Act: Re Coles Group (No 2) (2007) 215 FLR 411 per Robson J (at [75]-[78]). 26 As to the existence of the proscribed purpose, the Court is not to take an excessively rigid view but a liberal and practical approach. In Re ACM Gold Limited; Re 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, or any part of it, could have been implemented as a takeover scheme' was 'far too rigid'. 27 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 (100% ownership by the bidder company) through a single process is a commercially rational reason for choosing a scheme of arrangement over a Ch 6 takeover. This reason for preferring a scheme of arrangement to a Ch 6 takeover is not a proscribed purpose: Re ACM Gold Ltd (at 541-543); Re Stockbridge Ltd (1993) 9 ACSR 637 (at 652-654). 28 There is no reason to conclude that the Scheme has been proposed for the proscribed purpose.

THE SIGNIFICANCE OF NO OBJECTION FROM THE ASIC 29 ASIC Regulatory Guide 60: Schemes of arrangement (RG60) provides that the primary consideration for the ASIC is whether, having regard to the principles in s 602 of the Act, shareholders are adversely affected by the takeover being implemented by a scheme of arrangement, rather than a takeover bid (see RG 60.16). As detailed in RG 60 (at RG 60.19), 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. 30 RG 60 (at RG 60.104) indicates that ASIC issues a 'no objection letter' if it is satisfied that: (a) all material information relating to the proposed scheme has been disclosed to ASIC; (b) the standard of disclosure to all members meets the requirements of the relevant Corporations Regulations 2001 (Cth); (c) the standard of disclosure to, and treatment of, all members is equivalent to the standard that would be required by the disclosure requirements and principles in section 602 of the 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 31 It is appropriate to 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 Act. The Scheme Resolution was carried as follows: In favour Against Abstentions 295,667,953 26,529,511 912,850 91.51% 8.21% 0.28%

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 Expert (set out in the Scheme Book) was that the Scheme is not fair but reasonable in the absence of a 'superior proposal', and is in the best interests of Altona's members. (c) The Court assessed, at a threshold level, the reasonableness of the Scheme at the first Court hearing (subject to new matters being brought to the Court's attention at the second Court hearing). (d) Altona has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion and from: (i) the disclosure in the Scheme Book; and (ii) the absence of complaint about by any regulatory body or member of Altona, the Court may be satisfied on the balancing probabilities that there was adequate disclosure of all information material to the members' decision. (e) There is nothing otherwise 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) of the Act has been satisfied.

SECTION 411(11) EXEMPTION 32 Section 411(11) of the Act requires a copy of every order of the Court made for the purposes of s 411(4)(b) of the Act 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) of the Act. If the Court approves this Scheme, the order will not affect any alteration of Altona's Constitution and will not affect its true construction. Further, Altona will, from implementation of the Scheme, be a wholly-owned subsidiary of CMMC, via CMMC Australia, so there is no purpose to be served in having the order annexed to Altona's Constitution. An exemption pursuant to s 411(12) of the Act was granted for similar reasons by French J (as his Honour then was) in Re Foundation Healthcare Ltd (No 2).

CONCLUSION 33 I am satisfied that: (a) the Court's directions and the statutory requirements have been complied with; and (b) the requirements of s 411(17) of the Act are met and the Scheme has not been proposed to avoid the operation of Ch 6 and is otherwise properly proposed, fair and reasonable. 34 The Scheme is approved. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.