Equatorial Mining Pty Limited v Antofagasta Investment Company Limited

IN THE FEDERAL COURT OF AUSTRALIA new south wales DISTRICT REGISTRY GENERAL DIVISION NSD 2453 of 2013

BETWEEN: EQUATORIAL MINING PTY LIMITED ACN 009 199 482

AND: ANTOFAGASTA INVESTMENT COMPANY LIMITED ARBN 165 600 091

JUDGE: YATES J DATE: 13 JANUARY 2014 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This proceeding concerns a scheme for the reconstruction of Part 5.1 bodies involving compromises or arrangements within the meaning of s 411 of the Corporations Act 2001 (Cth) (the Act). 2 At the present time, the plaintiffs seek, amongst other things, orders pursuant to s 411(1) of the Act that: (a) the first plaintiff, Equatorial Mining Pty Limited (EQM), convene a meeting of the second plaintiff, Sierra Gorda Copper Pty Limited (SGC), as its sole member, for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement between EQM and SGC (the EQM scheme); and (b) SGC convene a meeting of the defendant, Antofagasta Investment Company Limited (AIC), as its sole member, for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement between SGC and AIC (the SGC scheme).

Background 3 EQM is a directly wholly-owned subsidiary of SGC. SGC acquired all the issued shares in the capital of EQM (49,902,956 fully-paid ordinary shares) in 2006, following a successful takeover bid. 4 EQM was incorporated in Western Australia as a no liability company. It was registered on 8 October 1986. It subsequently became a public company limited by shares. It is now a proprietary company limited by shares. EQM's principal business is holding shares in two Chilean companies. The first is CCM Leonor, which owns an interest in a Chilean copper mining operation. The second is CCM Equatorial Resources, which holds exploration and water licences in Chile and conducts mining exploration activities in that country. EQM has no employees. 5 SGC is a directly wholly-owned subsidiary of AIC. Its issued capital comprises two fully-paid ordinary shares. Its principal business is holding shares in EQM. SGC was incorporated in Victoria as a company limited by shares. It was registered on 14 August 2006. It has no employees. Under intercompany loan arrangements, SGC owes approximately $407,300,000 to AIC and approximately $799,000 to EQM. 6 AIC was incorporated in Jersey as a company limited by shares on 4 July 2006. It was registered as a foreign company under the Act on 16 September 2013. It is a wholly-owned subsidiary of Antofagasta plc (Antofagasta), a company incorporated in the United Kingdom and listed on the London Stock Exchange. 7 The principal business of Antofagasta and its subsidiaries (the Antofagasta group) is copper mining and mineral exploration, mainly in Chile. 8 Since SGC's acquisition of EQM in 2006, the senior management of the Antofagasta group has considered the simplification of the corporate chain through which the two Chilean companies are held, in order to achieve savings and other efficiencies. Antofagasta's board of directors has decided that the presence of EQM and SGC in that corporate chain is unnecessary, costly and inefficient. In May 2013, Antofagasta's board resolved to pursue the implementation of the proposed reconstruction resulting in the elimination of EQM and SGC from the Antofagasta group corporate structure. To this end, EQM, SGC and AIC entered into an Implementation Deed on 16 December 2013.

The proposed scheme for reconstruction 9 The proposed scheme for reconstruction (the scheme) comprises the following steps. First, all the Assets (as defined in the scheme) of EQM will be transferred to and become the Assets of SGC. Secondly, all the Liabilities (as defined in the scheme) of EQM will be transferred to and become the Liabilities of SGC. Thirdly, all the Assets of SGC (including the Assets transferred to SGC under the first step) will be transferred to and become the Assets of AIC and the market value (determined as at the date of transfer) of the Assets so transferred will be applied to reduce the loan owing by SGC to AIC. Fourthly, all the remaining Liabilities of SGC (including the Liabilities transferred to SGC in the second step) will be transferred to and become the Liabilities of AIC. Finally, with effect immediately thereafter, EQM and SGC will be deregistered by the Australian Securities and Investments Commission (ASIC) without winding up. 10 The compromise or arrangement between EQM and SGC and the compromise or arrangement between SGC and AIC are integral aspects of the scheme. 11 Clause 2.2 of the scheme, with respect to the compromise or arrangement between EQM and SGC, provides: EQM proposes the transfers and deregistration of EQM referred to in paragraphs (a), (b) and (e) of clause 2.1 as an arrangement and reconstruction between EQM and its member, SGC. SGC approves the Scheme and consents to the arrangement and reconstruction notwithstanding the diminution in the value of its shareholding in EQM and any rights it may have in connection with the arrangement and reconstruction (including pursuant to EQM's constitution) and waives any rights it may otherwise have as against EQM in connection with the arrangement and reconstruction. 12 Clause 2.3 of the scheme, with respect to the compromise or arrangement between SGC and AIC, provides: SGC proposes the transfers and deregistration of SGC referred to in paragraphs (c), (d) and (e) of clause 2.1 as an arrangement and compromise between SGC and its member, AIC. AIC approves the Scheme and consents to the arrangement and reconstruction notwithstanding the diminution in the value of its shareholding in SGC and any rights it may have in connection with the arrangement and reconstruction (including pursuant to SGC's constitution) and waives any rights it may otherwise have as against SGC in connection with the arrangement and reconstruction. 13 Once the proposed reconstruction is implemented, the intercompany loans between AIC, SGC and EQM will be extinguished and AIC will own all the remaining Assets and bear all the remaining Liabilities of EQM and SGC. As I have noted, EQM and SGC will be deregistered without winding up.

Parties in the proceeding 14 All relevant parties are before the Court. AIC has been joined as a defendant in the proceeding, in accordance with the approach discussed in Royal Victorian Institute for the Blind Ltd v RBS.RVIB.VAF Ltd (2004) 206 ALR 581 at [17]; see also SGIC Insurance Ltd v Insurance Australia Ltd (2004) 51 ACSR 470 at [6]. 15 Evidence has been given by Alejandro Rivera, a director of AIC, that the board of AIC has resolved that AIC, as the defendant in the proceeding, agrees to waive any requirement that it be served with the originating process or any other documents filed in the proceeding. It is also convenient to mention that the board of AIC has resolved that AIC consents to the proposed transfer to it by SGC of the assets and liabilities to which I have referred. Mr Rivera has given evidence that AIC does not intend to appear at the proposed second court hearing. 16 SGC, as the transferee from EQM of the assets and liabilities to which I have referred, has not been joined in the proceeding as a defendant because it is already joined as the second plaintiff. The same approach to joinder was taken in Alstom Limited v Alstom Transport Australia Pty Limited [2013] FCA 1182 at [3].

The recommendations of directors 17 The directors of EQM consider that the scheme is fair and reasonable and in the best interests of SGC. Similarly, the directors of SGC consider that the scheme is fair and reasonable and in the best interests of AIC.

The position of creditors 18 The directors of EQM are of the view that the interests of EQM's creditors will not be adversely affected by the scheme. Similarly, the directors of SGC are of the view that the interests of SGC's creditors will not be adversely affected. 19 In this connection, the evidence before the Court is that EQM and SGC, respectively, have no trade creditors. Further, EQM and SGC, respectively, have no external creditors (meaning creditors other than related bodies corporate within the Antofagasta group) other than those relating to the ongoing existence of each corporate entity (represented by, for example, ASIC fees, professional advisers' fees, directors' fees and the costs of implementing the scheme). 20 This position has been verified by Russell Andrew Forsyth Stewart, who is a director of EQM and a director of SGC. Further, based on his own knowledge, and his inquiries of group management personnel, the other directors of EQM and SGC, and the Antofagasta group's Australian solicitors, Mr Stewart has deposed that, as at 17 December 2013, there are no unsatisfied judgments against, and no legal proceedings pending by or against, EQM or SGC. 21 Mr Rivera has given evidence that, to the best of his knowledge and belief, there has been no material adverse change in the position of AIC since 30 June 2013, which would adversely affect creditors of EQM and SGC on implementation of the scheme, except as disclosed in the explanatory statement.

The explanatory statement 22 The draft explanatory statement relating to the scheme (the explanatory statement) sets out and discusses, amongst other things, the financial position of EQM and SGC. It includes pro forma balance sheets and cashflow statements with respect to each company. The total debt owed to external creditors is noted. 23 Evidence has been given by Mr Rivera and Mr Stewart concerning the verification of material statements in the explanatory statement. 24 Mr Rivera has given evidence that, having made reasonable inquiries, all material statements in the explanatory statement relating to AIC are true and correct to the best of his knowledge, information and belief. A resolution of the board of AIC approving the explanatory statement is in evidence. 25 In his affidavit, Mr Stewart has set out the steps taken to verify information in the explanatory statement relating to EQM, SGC and their respective directors. Relying on the verification process he has described, Mr Stewart has given evidence that, having made reasonable inquiries, all material statements in the explanatory statement are true and correct to the best of his knowledge, information and belief. Further, on 16 December 2013, the board of EQM resolved to approve the explanatory statement. Similarly, on 16 December 2013, the board of SGC resolved to approve the explanatory statement. 26 ASIC has relieved EQM and SGC of the requirement to include an independent expert's report in the explanatory statement as issued: see clause 8303 of Part 3 of Schedule 8 of the Corporations Regulations 1990 (Cth) (the Regulations). There is also evidence before the Court that the requirements of s 411(2)(a) of the Act (requiring ASIC to be given at least 14 days' notice of the hearing of an application under s 411(1)) and s 411(2)(b) of the Act (requiring ASIC to be afforded a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement, and to make submissions thereon) have been satisfied: see exhibit A.

Jurisdiction 27 EQM and SGC have specifically drawn to the Court's attention a matter that potentially affects the Court's jurisdiction in relation to the making, at the proposed second court hearing, of foreshadowed orders under s 413(1) of the Act providing for the transfer to AIC of the assets and liabilities to which I have referred. This matter concerns the meaning of the word "company" where appearing in that provision in relation to the defined expression "transferee company". 28 In that connection, s 413(1) of the Act provides: Where an application is made to the Court under this Part for the approval of a compromise or arrangement and it is shown to the Court that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of a Part 5.1 body or Part 5.1 bodies or the amalgamation of 2 or more Part 5.1 bodies and that, under the scheme, the whole or any part of the undertaking or of the property of a body concerned in the scheme (in this section called the transferor body) is to be transferred to a company (in this section called the transferee company), the Court may, either by the order approving the compromise or arrangement or by a later order, provide for all or any of the following matters: (a) the transfer to the transferee company of the whole or a part of the undertaking and of the property or liabilities of the transferor body; (b) the allotting or appropriation by the transferee company of shares, debentures, policies or other interests in that company that, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person; (c) the continuation by or against the transferee company of any legal proceedings pending by or against the transferor body; (d) if the transferor body is a company - the deregistration by ASIC, without winding up, of the transferor body; (e) the provision to be made for any persons who, within such time and in such manner as the Court directs, dissent from the compromise or arrangement; (f) the transfer or allotment of any interest in property to any person concerned in the compromise or arrangement; (g) such incidental, consequential and supplemental matters as are necessary to ensure that the reconstruction or amalgamation is fully and effectively carried out. 29 EQM and SGC submit that, for the purposes of s 413(1) of the Act, AIC is a "company" and, specifically, a "transferee company", even though, under the definition of "company" in s 9 of the Act, AIC is not "a company registered under this Act". Alternatively, they submit that the scheme has incidents (namely, the transfer of property and liabilities from EQM to SGC) that will enliven the jurisdiction to make orders under s 413(1) to transfer property and liabilities from SGC to AIC to ensure that the reconstruction is fully and effectively carried out. The plaintiffs' submissions in this regard are articulated in written submissions and supplementary written submissions which I have marked MFI 1 and MFI 2 respectively. In my view, the determination of the question raised should be left to the second court hearing, when the relevant orders will be sought. My provisional view is that there is no jurisdictional impediment to the Court making the foreshadowed orders, if otherwise appropriate.

Other matters 30 I am satisfied that each plaintiff is a Part 5.1 body and that the EQM scheme and the SGC scheme are each a compromise or arrangement for the purposes of s 411(1) of the Act: see Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [39]; Re MIA Group Ltd (2004) 50 ACSR 29 at [2]-[9]; Re Sino Gold Mining Ltd (2009) 74 ACSR 647 at [4]. I am satisfied that the proposed scheme for reconstruction is a scheme for the reconstruction or amalgamation of Part 5.1 bodies. I am also satisfied that AIC is a Part 5.1 body. 31 I am satisfied that the proposed schemes are of such a nature and are cast in such terms that, if each receives the requisite statutory majority, and assuming the schemes are unopposed, the Court would be likely to approve them: see cases cited in Talent2 International Limited, in the matter of Talent2 International Limited [2012] FCA 771 at [49]. 32 The plaintiffs have sought dispensation with the requirement of r 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) (the Rules) relating to the application of regs 5.6.11 to 5.6.36A of the Regulations. That dispensation should be granted. The plaintiffs have also sought to be exempted from compliance with r 3.4 of the Rules on the basis that a notice be published in The Australian newspaper five business days before the second court hearing. I am satisfied that the form and manner of giving the notice proposed by the plaintiffs are appropriate. 33 Finally, given the essentially in-house nature of the proposed reconstruction, the plaintiffs seek that the relevant meetings be held on short notice. This is in accordance with the approach in Green and Gold Foods Pty Limited and Ors (Supreme Court of New South Wales, No 2662 of 1998, Santow J, 9 June 1998) followed in SGIC Insurance at [16]. On the basis of the evidence before me, I am satisfied that it is appropriate to provide for the meetings to be held on short notice as proposed.

Disposition 34 Orders as sought should be made. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.