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[2013] FCA 302
Federal Court of Australia
2013-01-09
Mr AJ, Barker J
Original judgment source is linked above.
overview 1 On 9 January 2013, I approved a scheme of arrangement in relation to the plaintiff (Cortona). These are the reasons for so doing.
second hearing 2 This is the second hearing of Cortona's application for orders approving a scheme of arrangement between it (Cortona) and its members (shareholders) pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Corporations Act) (scheme), and exempting Cortona pursuant to s 411(12) of the Corporations Act from compliance with the requirements of s 411(11). 3 The primary question that arises is whether approval should be granted for the scheme where all shares in Cortona will be transferred to Unity Mining Limited (Unity) and in return Cortona shareholders will receive 0.734 new Unity shares for each Cortona share held. 4 On 14 November 2012, at the first hearing of the application, an order was made for the convening of a meeting of shareholders (scheme meeting) and the Court also approved the scheme booklet (which contained an explanatory statement required by s 412(1)(a) to accompany notices of the meeting): see Cortona Resources Limited, in the matter of Cortona Resources Limited [2012] FCA 1295. 5 Section 411(4) primarily controls the process by which a scheme of arrangement may become binding, and so the matters to be considered at the second hearing, in the following terms: (4) A compromise or arrangement is binding on the creditors, or on a class of creditors, or on the members, or on a class of members, as the case may be, of the body and on the body or, if the body is in the course of being wound up, on the liquidator and contributories of the body, if, and only if: (a) at a meeting convened in accordance with an order of the Court under subsection (1) or (1A): (i) in the case of a compromise or arrangement between a body and its creditors or a class of creditors - the compromise or arrangement is agreed to by a majority in number of the creditors, or of the creditors included in that class of creditors, present and voting, either in person or by proxy, being a majority whose debts or claims against the company amount in the aggregate to at least 75% of the total amount of the debts and claims of the creditors present and voting in person or by proxy, or of the creditors included in that class present and voting in person or by proxy, as the case may be; and (ii) in the case of a compromise or arrangement between a body and its members or a class of members - a resolution in favour of the compromise or arrangement is: (A) unless the Court orders otherwise - passed by a majority in number of the members, or members in that class, present and voting (either in person or by proxy); and (B) if the body has a share capital - passed by 75% of the votes cast on the resolution; and (b) it is approved by order of the Court. It is understood that the Court has a broad discretion to approve a scheme under s 411(4)(b).
procedural requirements 6 The first question is whether there has been a meeting convened in accordance with the orders made by the Court at the first hearing and whether other matters required by the orders have been attended to. 7 In this regard all procedural matters have been satisfied. An office copy of the orders made by the Court was lodged with the Australian Securities and Investments Commission (ASIC) and the scheme booklet approved by the Court has also been registered with ASIC. Further, the scheme booklet was dispatched to shareholders by ordinary pre-paid post on 20 November 2012. 8 The scheme meeting was convened and held in accordance with the constitution of Cortona, the Corporations Act and the orders of the Court, and statutory majorities were obtained at the meeting. Further, proxies received by the share registry were collated, Cortona was provided with a proxy report on 20 December 2012 and at the scheme meeting the votes cast were recorded. Lastly, the second hearing of the scheme in this Court was advertised in accordance with the orders of the Court.
court's discretion 9 So far as the Court's discretion is concerned, I am satisfied that the scheme has been advanced in good faith and is fair and reasonable in that it will yield commercial benefits for the shareholders and is of a kind that is fair and reasonable from the viewpoint of an intelligent and honest person: Re Central Pacific Minerals NL [2002] FCA 239 at [14]. Moreover, an independent expert has concluded that the scheme is in the best interests of the shareholders. 10 There is also no person who has indicated an intention to appear at this second hearing or otherwise intends to object to the approval of the scheme. 11 Finally, the conditions precedent to the scheme have been satisfied, save for the approval of the scheme by order of the Court. 12 There may be a concern that only approximately 45.2% of Cortona's shares on issue were voted, and only approximately 17.5% of shareholders voted, which may suggest a defect in the procedure of convening the meeting: Avoca Resources Limited, in the matter of Avoca Resources Limited [2011] FCA 208 at [21]. However, given that there is nothing in the material before the Court to suggest that there was such a defect, the Court should proceed on the basis that it cannot assume the shareholders who did not participate either in person or by proxy did not have notice of the meeting, nor that their silence is to be taken as opposition to the scheme: Professional Investment Holdings Limited, in the matter of Professional Investment Holdings Limited (No 2) [2010] FCA 1336 at [7].
section 411(17) conditions 13 The Court's ultimate approval of the scheme is dependent upon the fulfilment of one of the two alternative conditions set out in s 411(17) of the Corporations Act: The Court must not approve a compromise or arrangement under this section unless: (a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or (b) there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement; but the Court need not approve a compromise or arrangement merely because a statement by ASIC stating that ASIC has no objection to the compromise or arrangement has been produced to the Court as mentioned in paragraph (b). 14 First, ASIC has provided a written statement to the effect that it has no objection to the scheme. 15 Secondly, I accept that 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. As such, this reason for preferring a scheme of arrangement to a Ch 6 takeover is not a proscribed purpose under s 411(17)(a): Re ACM Gold Limited; Re Mt Leyshon Gold Mines Limited (1992) 34 FCR 530 at 542-543; Re Stockbridge Ltd (1993) 9 ACSR 637 at 652-653. I am satisfied that there is no other reason to suggest that the scheme has been proposed for the purpose of enabling any person to avoid the operation of the provisions of Ch 6. 16 Therefore, both of the conditions in s 411(17) are satisfied, even though satisfaction of only one is necessary.
section 411(11) exemption 17 The Court is also asked to make an exemption order under s 411(12) of the Corporations Act, which will exempt the plaintiff from the s 411(11) obligation requiring 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 company's constitution issued after the order was made. In circumstances where Cortona will, from implementation of the scheme, become a wholly owned subsidiary of Unity, the s 411(11) requirements will serve no useful purpose. The Court will therefore make an order to that effect.
conclusion and order 18 In those circumstances the Court approves the scheme in the terms proposed by the plaintiff and grants it an exemption from compliance with s 411(11). I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.