Chesser Resources Limited, in the matter of Chesser Resources Limited (No 2) [2023] FCA 1067

FEUTRILL J: 1 The plaintiff (Chesser) seeks orders pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) approving an arrangement (Scheme) between Chesser and its members (shareholders). The shareholders agreed to the Scheme at a meeting held on 25 August 2023 by voting in favour of a resolution to approve the Scheme in majorities that exceeded those prescribed in s 411(4)(a)(ii) of the Act. The meeting of shareholders was convened in accordance with orders made at the first court hearing on 19 July 2023: Chesser Resources Limited, in the matter of Chesser Resources Limited [2023] FCA 1021 (terms defined or described in those reasons are used in these reasons as so defined or described). 2 If approved, the Scheme will result in Fortuna Silver Mines Inc acquiring all the issued share capital of Chesser from its shareholders. The shareholders will be issued shares in Fortuna and Chesser will become a wholly owned subsidiary of Fortuna. 3 The principles applicable to the approval of an arrangement at a second court hearing are well-established. In summary: (1) The Court should be satisfied that: (a) the meeting of members was convened and held in accordance with Court's orders at the first court hearing; (b) the statutory majorities (headcount and voting power) were achieved at the meeting: s 411(4)(a)(ii); (c) all conditions to which the arrangement is subject (other than Court approval and lodgement on the Court's orders with ASIC) have been met or waived; and (d) the arrangement has not been proposed to avoid Ch 6 of the Act or a statement in writing by ASIC is produced to the Court stating that ASIC has no objection to the arrangement: s 411(17). (2) The Court has a discretion whether to approve a Scheme. It is not bound to approve it merely because orders have been made to convene a meeting at the first court hearing and the statutory majorities have been achieved. (3) The Court's jurisdiction is supervisory. It is to be satisfied that there has been an absence of oppression and that the arrangement is one capable of being accepted. (4) The Court will usually approach the task upon the basis that members are better judges of what is in their commercial interests that the Court. It is not the role of the Court to usurp the decision of the members by imposing its own commercial judgment on the arrangement, nor to satisfy itself that no better arrangement could have been devised. (5) Nonetheless, attainment of the statutory majorities is only a threshold that must be met. If the Court is satisfied that the meeting is unrepresentative, or that those voting in favour of the arrangement have done so with a special interest to promote which differs from the interests of the ordinary independent and objective members, then the vote in favour of the resolution may not be given effect by sanction of the Court. (6) In general, the Court will take into account six factors as informing the discretion whether or not to approve the arrangement. First, whether the members have voted in good faith and not for an improper purpose. Second, 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. Third, 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. Fourth, and related to the third, whether there has been full and fair disclosure of all information material to the decision. Fifth, whether a minority of members would be oppressed by the arrangement. Sixth, whether the arrangement offends public policy. That includes a discretion not to approve even if the requirements of s 411(17) have been met. See, e.g., Seven Network Limited (ACN 052 816 789), in the matter of Seven Network Limited (No 3) [2010] FCA 400; (2010) 267 ALR 583 at [31]-[40] (Jacobson J) (and the authorities there cited); Avita Medical Limited, in the matter of Avita Medical Limited (No 3) [2020] FCA 896 at [3]-[4] (Jagot J) (and the authorities there cited). 4 Chesser has filed written submissions in support of the orders it has sought for approval of the Scheme. Chesser has also made oral submissions. It relies on the affidavit materials filed, read and relied upon in support of its application for orders to convene the meeting of the shareholders. It has also filed, read and relied upon further affidavit material comprising a second affidavit of Mr Grove sworn 31 August 2023 and a third affidavit of Mr Church sworn 5 September 2023. Chesser also tendered certificates executed by each of Chesser and Fortuna indicating that all conditions precedent to the Scheme becoming effective had been satisfied or waived, except for an order of the Court approving the Scheme. 5 I am satisfied, based on Chesser's submissions and the affidavit material, that the meeting of shareholders was convened and held in accordance with the orders of 19 July 2023 and there has been compliance with the other aspects of those orders. 6 On 19 July 2023 a Scheme booklet substantially in the form approved at the first court hearing and a copy of the sealed orders of 19 July 2023 were provided to ASIC. On 19 July 2023 Chesser also published a notice on the ASX Market Announcement Platform. On 20 July 2023 a copy of the Scheme booklet was uploaded onto the Chesser website. On 24 July 2023 electronic or hardcopy communications were sent to shareholders in the manner required by the orders of 19 July 2023. On 16 August 2023 electronic and hardcopy communications were sent to shareholders who (which) had become Chesser members after 17 July 2023. 7 On 9 August 2023 Fortuna released its unaudited interim consolidated financial results for the three and six months ended 30 June 2023. On 10 August 2023 Chesser published a notice through the ASX Market Announcement Platform in which it gave notice of that release and identified a website at which those financial results were available. The notice also indicated that Grant Thornton Corporate Finance Ltd, which had provided the independent expert report that formed part of the Scheme booklet, had considered the financial results and had confirmed that the results had not changed its opinion that the Scheme is fair and reasonable and in the best interests of the shareholders, in the absence of a superior proposal. Further, that Chesser's directors continued to unanimously recommend that the shareholders vote in favour of the Scheme, in the absence of a superior proposal, and that the directors intended to vote, or cause to be voted, all Chesser shares in which they have a relevant interest in favour of the Scheme. That recommendation and voting intention of the directors included a footnote identifying the directors' interest in Chesser shares and other securities affected by the proposed Scheme. 8 That meeting was held on 25 August 2023. Mr Gibson was chair of the meeting. Voting upon the resolution to approve the Scheme was conducted by way of a poll in accordance with the orders of 19 July 2023. A representatives of Computershare Investor Services Pty Ltd, which provides share registry services to Chesser, acted as returning officers, supervised the voting procedures and reported the outcome of the poll to Mr Gibson. The report of the poll records that 99.91% of votes cast (voting power) were in favour of the resolution and 93.10% of shareholders voting (headcount) were in favour of the resolution. No shareholder present in person or by proxy was excluded from voting on the resolution. Therefore, the statutory majorities were easily met and exceeded. 9 The number of votes cast was 238,221,366. That represents 40.50% of the 588,601,348 fully paid ordinary shares Chesser has issued. There were 87 shareholders present in person or by proxy. The evidence does not indicate what proportion of shareholders that represents. However, based on evidence of voter turn-out at Chesser meetings over the last three years it is likely to be around 20% of shareholders. Also, based on voter turn-out over that period, the number of votes cast at the meeting on 25 August 2023 was significantly greater than the proportion of votes cast at any other meeting of shareholders in that period. I am satisfied that the votes cast and shareholders present at the meeting held on 25 August 2023 is representative of the views of the shareholders, as a whole, as to the commercial merit of the Scheme. 10 ASIC has provided a statement in writing conforming with s 411(17)(b) of the Act. In Chesser Resources I mentioned the importance of the ASIC's role and function in applications of this nature. I take into account that ASIC has not appeared or made submissions in opposition to approval of the Scheme nor has it brought any matter to the attention of the Court. 11 As noted earlier, Chesser has tendered certificates executed by each of Chesser and Fortuna stating that all conditions precedent in clause 3.1 of the SID have been satisfied, as contemplated and required by cl 5.1(s) of the SID. 12 Clause 3.1(k) of the SID provides, in effect, that a conditions precedent to the Scheme becoming effective is that there are no Chesser unlisted options on issue at the Record Date (as defined in the SID). There are two holders of unlisted options. On 9 May 2023 Chesser, Fortuna and the option holders made deeds for cancellation of the options. The terms of these cancellation deeds were such that the unlisted options would be cancelled on the Implementation Date (as defined in the SID). The Implementation Date is five business days after the Record Date. Therefore, the condition precedent in cl 3.1(k) could not be satisfied if the cancellation deeds were performed in accordance with their terms. 13 On 4 September 2023, the terms of the deeds were varied by side letters. The relevant effect of the side letters was that the options would be cancelled and the consideration for cancellation paid on the Record Date. The effect of the variation to the terms of the option cancellation deeds is the option holders will be paid consideration five business days earlier and before the Scheme is implemented. The cancellation of the options on the Record Date is also consistent with the condition precedent in cl 3.1(k) of the SID. 14 In the Scheme booklet (and explanatory statement) the Court approved and that was despatched to shareholders, the terms of the option cancellation deeds were disclosed and summarised. Section 12.3(a) of the Scheme booklet indicated that the total consideration for the cancellation of the options was $126,143 and that the options would be cancelled on the Implementation Date. 15 As explained in Chesser Resources (at [47]) the option cancellation deeds sit outside the Scheme. The consideration for the options was determined by market-based valuations and is not altered by the side letters. I do not consider that cancellation and payment for the options earlier than disclosed and before implementation of the Scheme is material. However, consistently with Chesser's obligation of full and frank disclosure on an application of this nature it has quite properly been drawn to the Court's attention because it is a change from the information that was disclosed in the Scheme booklet to shareholders before the Scheme meeting at which the Scheme was approved. It was also necessary to demonstrate the manner in which cl 3.1(k) of the SID was to be satisfied having regard to the terms of the option cancellation deeds referred to in the Scheme booklet. 16 I am satisfied that there has been full and fair disclosure to shareholders of all information material to the decision whether or not to vote in favour of the Scheme, as set out in the Scheme booklet (including the explanatory statement). There is also evidence, in terms of the independent expert report, that the Scheme is in the best interests of the shareholders in the absence of a superior proposal. There is otherwise no information before the Court to suggest that the Scheme is other than one that is fair and reasonable such that an intelligent and honest shareholder, properly informed and acting alone, would approve. There is no evidence of any superior proposal. 17 Chesser has also requested that the Court note in its reasons certain matters for the purpose of the issue of Fortuna shares qualifying for an exemption from the prospectus requirements of Canadian securities laws. Chesser submits that the exemption is available under s 2.11 of National Instrument 45-106 - Prospectus Exemptions. In Mr Grove's first affidavit he deposes that Fortuna intends relying on the matters the subject of the requested notation in order to qualify for such an exemption. It is common for courts to provide notations of the requested kind for the purposes of qualifying the issue of securities for an exemption from the prospectus requirements under s 3(a)(10) of the Securities Act of 1933 (US): see, e.g., Amcor Limited, in the matter of Amcor Limited (No 2) [2019] FCA 842 at [33], [37] (Beach J). 18 Clause cl 3.1(g) of the SID provides that it is a condition precedent to the Scheme taking effect that the issue of New Fortuna Shares (as defined in the SID) is exempt from, or otherwise not subject to, the prospectus requirements of applicable Canadian securities laws. There was no direct evidence of the applicable Canadian securities laws. However, Chesser provided the Court with an unofficial consolidated version of National Instrument 45-106. Chesser submits that appropriate notation in the reasons of the Court will assist Fortuna to obtain an exemption in accordance with s 2.11 of National Instrument 45-106. 19 On the basis of the condition precedent, the certificates of satisfaction of conditions precedent and Chesser's submissions, I am satisfied that it is appropriate to make a notation in these reasons in the form requested. Section 2.11 of National Instrument 45-106 evidently provides that the prospectus requirement does not apply to a distribution of a security in connection with an amalgamation, merger, reorganisation or arrangement that is under a statutory procedure. On the face of it, the Scheme is of that character. 20 Accordingly, the Court notes that Chesser and Fortuna rely on: (a) the fact of the Scheme is consummated under the statutory provisions of the Act; (b) the Scheme booklet which describes the Scheme has been delivered to each shareholder whose approval is required pursuant to the order made by the Court on 19 July 2023 before the Scheme can proceed; and (c) the fact that, for the purpose of qualifying for the exemption form the prospectus requirements of s 2.11 of National Instrument 45-106 - Prospectus Exemptions, in connection with the provision of consideration under the Scheme, the distribution of new Fortuna shares will occur in connection with an arrangement under a statutory procedure. 21 Otherwise, I am satisfied that all relevant matters have been brought to my attention and that orders should be made approving the Scheme. I am also satisfied that Chesser should be exempted from compliance with s 411(11) (annexing a copy of the orders under s 411(4)(b) to the company's constitution) in accordance with s 411(12) of the Act. The Scheme will not alter the rights of the members, creditors or other persons dealing with Chesser. 22 Last, I note that Chesser has not published a notice of the application to approve the Scheme in the form required by the orders of 19 July 2023 because the form of those orders made reference to an incorrect exhibit to Mr Grove's first affidavit. I am satisfied that the form in which Chesser actually published notice of the second court hearing was the correct form for that publication and it reflected the true intention of the Court's orders of 18 July 2023. Therefore, an order will be made to the effect that publication of the notice Chesser actually published was good and sufficient compliance with para 10 of the orders of 19 July 2023. Otherwise, orders will be made in terms of the short minute of orders Chesser has proposed. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Feutrill.