Carpathian Resources Ltd v Hendriks

Materials relied upon 8 Aurora relied on the following materials. (a) A third affidavit of Sarah Terase Turner, affirmed on 23 May 2014, which confirms that: (i) an office copy of the orders made by the Court on 14 April 2014 (Meeting Orders) was lodged with ASIC on 14 April 2014; (ii) a copy of the scheme booklet approved by the Court on 14 April 2014 (Scheme Booklet) was registered with ASIC on 14 April 2014; (iii) the second court hearing was advertised in accordance with the Meeting Orders; (iv) ASIC has provided a notice in writing that it has no objection to the Scheme under s 411(17)(b). (b) A second affidavit of Graham Rochford Dowland, Finance Director of the plaintiff, sworn on 21 May 2014, which confirms the publication and disclosure of new materials as a result of the increased Scheme Consideration. (c) A fourth affidavit of Jonathan Stewart, Chairperson of the Scheme Meeting, sworn on 21 May 2014, which confirms that: (i) a copy of the Scheme Booklet was registered with ASIC on 14 April 2014; (ii) the Scheme Meeting was held in accordance with the Meeting Orders on 21 May 2014; (iii) Mr Stewart's interests in Aurora were disclosed to the Scheme Meeting prior to the resolutions being proposed; (iv) the increased Scheme Consideration was announced prior to the resolutions being proposed; and (v) the statutory majorities were obtained in relation to the resolution to implement the Scheme (Scheme Resolution). (d) Affidavits of Rodney Rex Somes affirmed on 23 May 2014 (the Somes Affidavit) and Josette Gladys Koffyberg sworn on 16 May 2014 which confirm the details relating to the dispatch of the Scheme Booklet to Aurora's registered shareholders in accordance with the Meeting Orders. The Somes Affidavit also confirms that he: (i) caused the distribution on 15 May 2014 of further materials to shareholders registered in Australia as a result of the increase in Scheme Consideration; (ii) supervised the collation of proxies received by the share registry and reporting of the proxies to Aurora on 21 May 2014; and (iii) attended the Scheme Meeting as returning officer and recorded the votes cast in respect of the resolutions. (e) A second affidavit of Sarah Terase Turner affirmed on 22 May 2014, which attaches the second affidavit of Ms Koffyberg. This second affidavit of Ms Koffyberg, the original of which was filed on 26 May 2014, confirms the distribution of further materials to shareholders registered in Canada as a result of the increased Scheme Consideration. (f) A fourth affidavit of Sarah Terase Turner affirmed on 26 May 2014, which confirms that the conditions precedent to the Scheme becoming effective, except for the Court's approval, have been satisfied or waived. (g) The affidavits upon which the plaintiff relied at the first court hearing, which contain details of the Scheme and disclosure to members relating to the Scheme. 9 The plaintiff also has leave to rely upon a seventh affidavit of Sarah Terase Turner (Seventh Turner Affidavit), affirmed on 26 May 2014. The content was drawn to the Court's attention during the hearing and the original was filed after the hearing.

Jurisdiction to approve the Scheme 10 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 or by 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)). 11 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 Application of NRMA Ltd [No 2] (2000) 156 FLR 412 at [21]. However, the courts are generally reluctant to intervene with schemes in which the requisite majority has been reached by fully informed members: Re Application of NRMA Ltd [No 2].

Review by the Court 12 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]-[39] referred to the following list of 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 In re Alabama, New Orleans, Texas and Pacific Junction Railway Company [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 fair disclosure of all information material to the members' decision; and (e) whether minority shareholders would be oppressed by the scheme. 13 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: see, e.g., Central Pacific Minerals NL [2002] FCA 239 at [13]. 14 The Court must be satisfied that the meeting to approve the Scheme has been completed and that the Scheme Resolution has been passed in accordance with the statutory requirements (Central Pacific Minerals NL 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], referring to Re Simeon Wines Ltd (2002) 42 ACSR 454 at [11].

Compliance with the Court's directions and other procedural requirements 15 The plaintiff has satisfied the following requirements: (a) The Meeting Orders were lodged with ASIC. (b) The Scheme Booklet was registered with ASIC. (c) The Scheme Booklet 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 9 of the Meeting Orders and the further orders made on 14 May 2014. (e) The statutory majorities were obtained at the Scheme Meeting. (f) Notice of the second court hearing was given in accordance with order 11 of the Meeting Orders.

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: see Central Pacific Minerals NL at [13]. 17 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 Central Pacific Minerals NL at [13]-[14]. 18 This approach is the basis for Court practice in these matters. Proof of the relevant statutory majorities is sufficient to establish prima facie evidence of fairness. 19 The independent expert's report concluded that the Scheme is in the best interests of the members. 20 The Scheme is fair and reasonable because it: (a) will yield commercial benefits for Aurora's members; and (b) is of a kind that is fair and reasonable from the viewpoint of an intelligent and honest person: see Central Pacific Minerals NL at [12]-[14].

The Scheme Meeting 21 Aurora's members have voted in favour of the Scheme with the requisite majorities at the Scheme Meeting.

Voting discrepancy 22 Following the filing of submissions, Canadian counsel of Aurora, Davies Ward Phillips & Vineberg LLP, received a communication from one Canadian beneficial holder raising issues about the accuracy of the count as it related to their beneficial holding. 23 Investigations were promptly undertaken and revealed immaterial discrepancies in the count.

Supplementary materials relied upon 24 Aurora relied on the following materials: (a) An affidavit of Julie Mari Foster sworn on 26 May 2014, which confirms that: (i) there was a discrepancy in relation to the counting of votes but that corrective steps were taken, (b) a fifth affidavit of Sarah Terase Turner affirmed on 26 May 2014, which attaches: (i) an affidavit of Lara Elisabeth Donaldson sworn on 25 May 2014, the original of which has since been filed, confirming there was a discrepancy in relation to the counting of votes, though this discrepancy was immaterial to the voting outcome.

Immaterial voting issues 25 On 23 May 2014, Aurora received by email from Stéphanie Lachance, Vice President Responsible Investment and Corporate Secretary, Public Sector Pension Investment Board (PSP Investments), a copy of a letter dated 23 May 2014 from PSP Investments to Mr Jonathan Stewart, Executive Chairman of Aurora. 26 PSP Investments alleged that its votes were not properly reflected in the announcement by Aurora of the resolution at the Scheme Meeting. 27 Computershare Investor Services Inc (Computershare Canada) and Computershare Investor Services Pty Limited (Computershare Australia) provide registry services to Aurora in Canada and Australia respectively. 28 Computershare Canada and Computershare Australia reviewed the proxy forms received in relation to the resolutions to approve the Scheme. 29 On 23 and 24 May 2014, Computershare Canada conducted the review. 30 Aurora's registered shareholders were required to return their proxy forms for the Scheme Meeting by 9.30 am (Perth time) on Monday, 19 May 2014 (Proxy Deadline). 31 The date by which Canadian beneficial holders of shares in Aurora were to provide voting instructions on a "voting instruction form" (VIF) to their broker or intermediary was 9.30 pm (Toronto time) on Friday, 16 May 2014 (VIF Deadline). 32 It became apparent to Computershare Canada during the review that certain proxies that had been received before the Proxy Deadline had been omitted from Computershare Canada's report to Aurora of total proxies received on the incorrect basis that they had been received after the VIF Deadline. 33 Computershare Canada identified a total of 6,148,205 votes, and separately a revocation of 38,457 shares voted in favour, that had been omitted incorrectly from Computershare's final tabulation of proxies received because they had been received after the VIF Deadline. 34 The omitted proxies were lodged by: (a) CIBC Mellon voting 1,874,440 shares against the Scheme; (b) RBC Dominion voting 100,000 shares for the Scheme; (c) TD Waterhouse voting 227,800 shares for the Scheme; (d) Goldman Sachs voting 444,382 shares for the Scheme; and (e) Morgan Stanley voting 3,501,583 shares for the Scheme, and a revocation of 38,457 shares voted for the Scheme by JP Morgan was also incorrectly omitted. 35 Computershare Canada reported the results of the review to Aurora during a teleconference on 25 May 2014. 36 On the basis of the review of the proxies received by Computershare Canada in relation to the Scheme, Computershare Canada is satisfied that no other proxies were omitted from the Canadian proxy report. 37 Computershare Canada reviewed a copy of the voting report dated 21 May 2014 (Voting Report) that was issued by Mr Rodney Somes of Computershare Australia to the Chairman of Aurora. 38 The Voting Report outlines that "Total votes cast" was an amount of 306,467,063, with votes cast in favour of the Scheme being 269,577,602 (87.96%), and those cast against being 36,889,461(12.04%). 39 Accordingly, if the omitted votes, and the omitted revocation of votes, were added to those totals, the "Total votes cast" would have been 312,576,811, the votes cast in favour of the Scheme would have been 273,812,910 (87.60%), and those cast against would have been 38,763,901 (12.40%), and so there would have been no change to the outcome of the resolution. 40 On 25 May 2014 Aurora's solicitors, Gilbert + Tobin, sent a letter to the solicitors for PSP Investments, and copied to Ms Lachance of PSP Investments, in response to their letter dated 23 May 2014. 41 Annexed to the Seventh Turner Affidavit is an email from Mr Peter Knight of ASIC dated 26 May 2014, advising that ASIC has not, as a consequence of being made aware of the voting irregularities, changed its "no objection position" in relation to the Scheme.

Effect on the Court's jurisdiction 42 Section 411(4) requires the Court to be satisfied that the requisite majorities have been obtained. 43 Even after taking into account the revised figures following the minor discrepancy, it can be seen that both the Headcount Test and the Votes Test have been satisfied. 44 The general principle is that if there has been a rejection of a proxy or a vote that would not affect the outcome, the Court will not order any relief: see Carpathian Resources Ltd v Hendriks (2011) 81 ACSR 542 at [67], and cases there cited. Such is the case here.

Conditions precedent to the Scheme 45 Clause 3.1 of the Scheme Implementation Deed (Deed) and cl 3.1 of the Scheme set out various conditions precedent to the Scheme becoming effective (Conditions Precedent). 46 Conditions precedent certificates have been provided and confirm, as per cl 3.1 of the Deed and cl 3.1 of the Scheme, that the Conditions Precedent, except for the Court's approval of the Scheme, have been satisfied or waived. 47 If an order is made approving the Scheme, the Scheme will take effect in accordance with its terms.

Notification of right to be heard 48 As noted above, notice of the second court hearing has been given in accordance with order 11 of the Meeting Orders.

Options and performance rights 49 Prior to the first court hearing on 14 April 2014, Aurora had on issue: (a) options to purchase ordinary shares (Options) with various exercise prices and expiry dates; and (b) performance rights to acquire ordinary shares (Performance Rights) with various performance hurdles and vesting dates. 50 Some Performance Rights have lapsed, or will lapse, prior to the implementation date of the Scheme. Options and Performance Rights which do not lapse will vest in accordance with their terms before the "Record Date" or be the subject of cancellation deeds. 51 Senior counsel for the plaintiff informed the Court, and I accept, that each holder of Options and Performance Rights has entered into a deed (Options and Performance Rights Deeds) whereby: (a) the Options will be cancelled (to the extent they do not lapse) for the consideration set out in the Options and Performance Rights Deeds; and (b) Performance Rights will be cancelled (to the extent they do not lapse or vest in accordance with the terms of the Aurora Long Term Incentive Plan) in consideration for $4.10 per Performance Right (or the foreign currency equivalent). 52 I similarly accept that Baytex has entered into a deed poll (Deed Poll) for the benefit of the Options and Performance Rights holders whereby Baytex has undertaken, in addition to its obligations under the Options and Performance Rights Deeds, to procure the payment of: (a) increased consideration for the Options in accordance with Schedule 2 of the Deed Poll; and (b) increased consideration of $4.20 (or the foreign currency equivalent) per Performance Right in accordance with Schedule 1 of the Deed Poll.

Section 411(17) considerations 53 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. 54 ASIC has provided a written statement to the effect that it has no objection to the Scheme. The second alternative (s 411(17)(b)) has been satisfied (ASIC no objection letter). 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: see, e.g., Macquarie Private Capital A Limited [2008] NSWSC 323 at [29]. 55 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 the plaintiff'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): Re Coles Group Ltd (No 2) (2007) 215 FLR 411 at [75]-[80]. 56 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 Limited (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". 57 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 Limited at 541-543; Re Stockbridge Ltd (1993) 9 ACSR 637 at 652-653. 58 There is no reason to conclude that the Scheme has been proposed for the proscribed purpose.

The significance of no objection from ASIC 59 ASIC Regulatory Guide 60 provides that the primary consideration under s 411(17)(b) 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 para 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 the company. 60 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 to members 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 the Scheme 61 I am satisfied that the Court can and should approve the Scheme for the following reasons: (a) The Scheme, as amended, was agreed to by the statutory majorities required by section 411(4)(a)(ii) of the Corporations Act. The Scheme Resolution was carried as follows: In favour Against Abstentions 87.96% 12.04% - 269,577,602 36,889,461 600,367 (b) The outcome in (a) above, as I have explained, is affected by taking into account the omitted votes and the omitted revocation of votes (see [39] above) but not materially so. There is nothing to suggest that members voted other than in good faith or that they cast their votes for an improper purpose. (c) The conclusion of the independent expert (set out in the Scheme Booklet) was that the Scheme is in the best interests of Aurora's members. (d) 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). (e) Aurora 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 Booklet; and (ii) the absence of complaint about the Scheme by any regulatory body or member of the plaintiff; the Court may be satisfied that there was adequate disclosure of all information material to the members' decision. (f) There is nothing material which casts doubt on the procedural integrity of the meeting process or indicates that minority shareholders would be oppressed by the Scheme. (g) Section 411(17)(b) has been satisfied. 62 Neither ASIC nor any other person has given notice of their intention to appear before the Court to object to the approval of the Scheme.

Section 411(11) exemption 63 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). 64 If the Court approves the Scheme, the order will not effect any alteration of Aurora's constitution and will not affect its true construction. Further, Aurora will, from implementation of the Scheme, be a wholly owned subsidiary of Baytex, so there is no purpose to be served in having the order annexed to Aurora's constitution.

Conclusion 65 I am satisfied that the Court's directions and the statutory requirements have been complied with; that the requirements of s 411(17) are met; that the Scheme has not been proposed to avoid the operation of Ch 6; and that it is otherwise properly proposed, fair and reasonable. 66 There will be orders substantially in terms of the orders proposed by Aurora. I certify that the preceding sixty-six (66) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.