First Court Hearing
24 At the first court hearing, the Court noted that NSCA is a related company of Nexia Sydney Pty Ltd which operates EML's share registry through a division called Next Registries. NSCA included the following disclosure at page 2 of the Financial Services Guide preceding the Report:
Fees NSCA may receive
NSCA charges fees for preparing Reports. These fees will usually be agreed with, and paid by the Client. Fees are agreed on either a fixed fee or a time cost basis. In this instance, the Client has agreed to pay NSCA AUD$22,000 (excluding GST and out of pocket expenses) for preparing the Report. NSCA and its officers, representatives, related entities and associates will not receive any other fee or benefit in connection with the provision of this Report.
Referrals
NSCA does not pay commissions or provide any other benefits to any person for referring customers to them in connection with a Report.
Association and Relationships
Through a variety of corporate and trust structures NSCA is controlled by and operates as part of the group of companies of which Nexia Sydney Group Pty Ltd is the ultimate holding company ("Nexia Group"). NSCA's directors and authorised representative may be directors in the Nexia Group. Mr Brent Goldman, authorised representative of [Nexia Sydney Financial Solutions Pty Ltd] and director of Nexia Sydney Group Pty Ltd, has prepared this Report. The financial product advice in the Report is provided by NSCA and not by the Nexia Group.
From time to time NSCA, the Nexia Group and related entities ("Nexia entities"), may provide professional services, including audit, tax and financial advisory services, to companies and issuers of financial products in the ordinary course of their businesses.
Over the past two years AUD$27,100 (excluding GST) in professional fees has been received from the Client in respect of share registry services.
No individual involved in the preparation of the Report holds a substantial interest in, or is a substantial creditor of, the Client or has other material financial interests in the Scheme.
25 At page 33 of the Report, the following confirmation of independence is made:
Confirmation of Independence
Prior to accepting this engagement Nexia Sydney Corporate Advisory Pty Ltd ("NSCA") determined its independence with respect to EML and NBS with reference to ASIC Regulatory Guide 112: Independence of expert's Reports ("RG 112"). NSCA considers that it meets the requirements of RG 112 and that it is independent of EML and NBS.
Also, in accordance with s648(2) of the Corporations Act we confirm we are not aware of any business relationship or financial interest of a material nature with EML or NBS, its related parties or associates that would compromise our impartiality.
Mr Brent Goldman, authorised representative of NSCA, has prepared this Report. Neither he nor any related entities of NSCA have any interest in the promotion of the Scheme nor will NSCA receive any benefits, other than normal professional fees, directly or indirectly, for or in connection with the preparation of this Report. Our fee is not contingent upon the success or failure of the Scheme, and has been calculated with reference to time spent on the engagement at normal professional fee rates for work of this type. Accordingly, NSCA does not have any pecuniary interests that could reasonably be regarded as being capable of affecting our ability to give an unbiased opinion under this engagement.
NSCA provided a draft copy of this Report to the Directors and management of EML for their comment as to factual accuracy, as opposed to opinions, which are the responsibility of NSCA alone. Changes made to this Report, as a result of the review by the Directors and management of EML, have not changed the methodology or conclusions reached by NSCA.
26 The author of the Report, Brent James Goodman gave evidence that NSCA and Nexia Sydney are both wholly owned subsidiaries of Nexia Sydney Group Pty Ltd (Nexia Group) and that he is a director of each of those companies and a shareholder of Nexia Group. Mr Goodman says that although he is a director of Nexia Sydney, he does not have any involvement in Next Registries' day to day operations. He states that he has made enquiries as to the amount of fees paid by EML for registry services for the purposes of disclosure in the Report and he has not discussed the scheme with Mr Irving, who gives evidence in these proceedings in relation to services provided by Nexia Sydney in relation to the scheme. Mr Goodman says that Next Registries will receive the same benefit whether or not the scheme is approved and it is his opinion that none of these matters affect his or NSCA's independence for the purpose of providing the Report. Having considered this evidence, including the fees involved, and the disclosure in the Report, I accepted that none of those matters was sufficient to affect NSCA's independence for the purpose of providing the Report.
27 In accordance with regulatory requirements, EML's board separately commissioned a valuation report prepared by Barr Engineering Company and dated 13 November 2020 in relation to the Projects which is also contained in annexure D to the scheme booklet.
28 At the first court hearing, senior counsel for EML drew the following matters to the Court's attention:
(1) The evidence read contained proof of:
(a) The fact that EML is a Part 5.1 body;
(b) Details of EML's capital and constitution;
(c) The fact that (through the SIA), EML had committed itself to propounding the scheme, which is prima facie evidence that the scheme is bona fide and properly proposed;
(d) The contents of scheme booklet, which includes the disclosures set out above, the text of the proposed scheme, the SIA, the deed poll (under which NBS commits, for the benefit of EML shareholders, to perform its obligations), the Report, the valuation report, the notice of scheme meeting and the form of the proposed proxy form. The Court notes that the terms of the scheme of arrangement are in usual form and provide for payment of scheme consideration before title to EML shares passes;
(e) The form of the email by which access to the scheme booklet may be obtained;
(f) Evidence of Mr Lewis' consent to act as chairman of the scheme meeting and Mr Pringle's consent to act in lieu of Mr Lewis if he is unable to do so;
(g) Evidence that the scheme booklet was provided to ASIC within the timeframe required by s 411(2)(a) of the Corporations Act and ASIC's "usual letter" indicating compliance with that requirement and that it did not intend to attend the second court hearing to intervene or oppose the Court making orders convening the scheme meeting; and
(h) Verification of factual information in the scheme booklet, which I note is in the usual form.
(2) Under the SIA (as amended on 12 February 2021), EML agreed to pay NBS a "reimbursement fee" of the lesser of C$100,000 or 1% of the equity value of EML if the scheme did not proceed in the circumstances disclosed in section 10.9 of the scheme booklet. The SIA contains "no talk" and notification of unsolicited approaches obligations which are subject to a usual fiduciary carve out and "no shop" obligations. The reimbursement fee is not payable because EML shareholders vote against the scheme. These arrangements are generally in what has become customary form, having regard to relevant guidance provided by the Takeovers Panel.
(3) The scheme booklet would be despatched to EML shareholders by electronic means. All 123 shareholders had provided email addresses for that purpose. Provision was made for despatch by mail in the event of email delivery failure.
(4) NBS intends to rely on an exemption from prospectus requirements of applicable Canadian provincial and harmonised securities laws under s 2.11 of National Instrument 45-106 - Prospectus Exemptions of the Canadian Securities Administrators in relation to the issue of NBS shares in implementation of the scheme.
(5) NBS also intends to issue scheme consideration in reliance on the exemption from registration requirements under s 3(a)(10) of the Securities Act of 1933 (US).
29 I summarised the principles relevant to when a court will convene a scheme meeting in Capilano Honey Limited, in the matter of Capilano Honey Limited [2018] FCA 1568; (2018) 131 ACSR 9 at [32]-[34] as follows:
32 The Court will order that a scheme meeting be convened and approve a draft explanatory statement to be sent to shareholders if it is satisfied that:
(1) The plaintiff is a Pt 5.1 body;
(2) The proposed scheme is a compromise or (relevantly) an "arrangement" within the meaning of s 411. …;
(3) The scheme booklet will provide proper disclosure to shareholders;
(4) The scheme is bona fide and properly proposed;
(5) ASIC has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions and it has had at least 14 days' notice of the proposed hearing date;
(6) The procedural requirements of the Federal Court (Corporations) Rules 2000 (Cth) have been met; and
(7) The scheme is of such a nature and cast in such terms that, if it receives a statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed.
33 The application for leave to summon a scheme meeting is in the nature of an interlocutory proceeding and is a preliminary to the final determination which is to be made when the matter comes back to the Court for approval after the holding of the meetings which have been directed: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504-05. By granting leave, the Court does not give its imprimatur to the proposed scheme. At the stage of ordering a scheme meeting, the Court does not ordinarily go very far into the question of whether the arrangement is one that warrants the approval of the Court; that question is to be answered when the scheme returns to the Court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further: see Re Foundation Healthcare Limited (2002) 42 ACSR 252; [2002] FCA 742 at [36] and [44] per French J, cited with approval in Re CSR Limited (2010) 183 FCR 358; [2010] FCAFC 34 at [58] per Keane CJ and Jacobson J. Chief Justice Keane and Jacobson J went on to say (at [59] and [61]) that the adverb "blatantly" and the term "contrary to public policy" emphasise that the enquiry under s 411(1) is not intended to resolve difficult questions on which reasonable minds may differ, although it has long been recognised that a clear want of utility in putting in train the process of s 411(1) is a good reason to decline to order the convening of the first meeting.
34 At the first court hearing, the Court is concerned with whether the proposed scheme is one which is adequately explained to those who have a financial interest in it and whether there is any obvious flaw in the scheme, such that it would be inappropriate even for it to be submitted for consideration: see Re Abacus Funds Management Ltd (2006) 24 ACLC 211; [2005] NSWSC 1309 at [23]. The Court is not required to be satisfied that no better scheme could have been proposed. The question is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed to be of benefit to members: see Centrebet International Limited [2011] FCA 870 at [29] per Emmett J.
30 Having regard to those principles and the evidence read at the first court hearing, I made orders on 18 February 2021 concerning the convening and conduct of the scheme meeting and approving the scheme booklet for despatch.
31 The affidavits read at the first court hearing and exhibits tendered were as follows:
(1) Affidavits affirmed by Peter William Stokes, a partner in McCullough Robertson Lawyers, EML's solicitors in this proceeding:
(a) on 15 January 2021, to which are annexed an extract of information obtained from ASIC's records in relation to EML on 14 January 2021 and a corporate profile of NBS obtained from Innovation, Science and Economic Development, Canada on 12 January 2021. This evidence confirms NBS' existence and that EML is a company and therefore a Part 5.1 body; and
(b) on 17 February 2021, to which was attached a letter dated 16 February 2021 from ASIC to the directors of EML confirming that a draft of the explanatory statement (included in the scheme booklet) was first provided to ASIC on 27 January 2021 and indicating that ASIC did not intend to make submissions or intervene to oppose the scheme at the first court hearing;
(2) Affidavits affirmed by Mr Lewis:
(a) on 15 February 2021, in which Mr Lewis consents to act as chair of the scheme meeting, confirms his recommendation in relation to the scheme, discloses his direct and indirect interests in shares in EML and notes that the terms of his employment by NBS and appointment to the board of NBS have not yet been finalised but he understands that his entitlements will not be materially different to those arising from his position with EML;
(b) on 16 February 2021, deposing to EML's incorporation, its share capital, its directors, its business, its constitution, the fact that 37.1% of its shareholders reside in New South Wales, 14.63% in the United States and 8.94% in Canada, the negotiation of exclusivity provisions and reimbursement fees, the verification process for the scheme booklet, the draft scheme booklet and proposals for how the scheme booklet will be despatched and conduct of the scheme meeting. I note that at the first court hearing, senior counsel confirmed his instructions that all EML shareholders were registered at addresses in Australia, Canada or the United States of America; and
(c) on 16 February 2021, deposing that the draft scheme booklet was approved by EML's board on 15 February 2021 pursuant to a circular resolution;
(3) An affidavit affirmed on 12 February 2021 by Mr Pringle in which he consents to act as chair of the scheme meeting if Mr Lewis is unable to do so and he makes declarations as to the nature of his interests in shares in EML, his role at EML and his proposed role at NBS;
(4) An affidavit affirmed on 15 February 2021 by Neil Maxwell Irving, a manager employed by Nexia Sydney whose duties include managing Next Registries. He gives evidence that Next Registries maintains EML's share register and it has been engaged by EML to provide services in relation to dispatching materials and the conduct of the scheme meeting;
(5) Affidavits affirmed by Brent James Goldman, a director of NSCA:
(a) on 15 February 2021, deposing that NSCA is an authorised corporate representative of Nexia Sydney Financial Solutions Pty Ltd which holds an Australian financial services licence; that he had been shown a copy of the Federal Court of Australia's Expert Evidence Practice Note GPN-EXPT; the facts of his curriculum vitae and that he was responsible for the preparation of the draft of the Report annexed to the affidavit and held the opinions expressed in it;
(b) on 16 February 2021, annexing an amended Report; and
(c) on 17 February 2021, deposing to relationships between NSCA, Nexia Sydney and Nexia Group and NSCA's independence, as discussed previously in these reasons and annexing an updated version of the Report;
(6) An affidavit affirmed on 12 February 2021 by Bradley Mark Dunn, a senior mining geologist with Barr Engineering Co annexing a copy of the valuation report and giving evidence that he has the opinions set out in the report and consents to its inclusion in the scheme booklet;
(7) An affidavit affirmed by Mr Barbeau on 15 February 2021 in which he gives evidence as to the verification of information relating to NBS in the scheme booklet and concerning negotiation of the exclusivity and reimbursement fee provisions in the SIA;
(8) An affidavit affirmed on 16 February 2021 by Kathleen Matheson, an overseas qualified solicitor employed by McCullough Robertson, in relation to lodgement of the draft scheme booklet with ASIC. I note that on 16 February 2021, an officer of ASIC advised Ms Matheson that:
As discussed in our conversation yesterday we note that ASIC's preference is for the inclusion of audited financial information in the scheme booklet. However we recognise that in the current unique circumstances of Electric Metals this may not be possible. Accordingly whilst we have no further comments on the draft scheme booklet (in the form attached to your email yesterday at 5:52 PM AEST), we also wanted to advise you of our current position with regards to the scheme and this issue. We understand that the company's audited financial statements for 31 December 2020 is expected to be released after the registration of the scheme booklet and sometime before the second court hearing. In this regard we note that we reserve our right to take any action we deem appropriate including withholding our no objection letter, if we consider that the information in these reports is material to shareholders' decision on how to vote on the scheme and that shareholders have not been provided a reasonable opportunity to consider this information when deciding how to vote.
(9) An affidavit affirmed by Jessica Claire Bland, a solicitor employed by McCullough Robertson, on 18 February 2021 setting out correspondence with ASIC;
(10) Exhibit A being the scheme booklet approved for despatch to EML shareholders;
(11) Exhibit B being the form of the email to be sent to EML shareholders providing access to the scheme booklet and proxy forms and details of how the scheme meeting may be viewed (but not attended) online; and
(12) Exhibit C being a proposed hard copy notice to shareholders advising of how electronic access to the scheme booklet or a hard copy of it may be obtained, voting at the scheme meeting may be achieved and details of how the scheme meeting may be viewed (but not attended) online.