First Pacific Advisers LLC v Boart Longyear Ltd

COLVIN J: 1 OreCorp Limited is an Australian public company listed on the Australian Securities Exchange (ASX). It is a mining development and exploration company. Its key project is the Nyanzaga gold project in Tanzania. OreCorp proposes to implement a scheme of arrangement whereby Silvercorp Metals Inc will acquire all of the shares in OreCorp (other than those already held by Silvercorp and its related entities) (Scheme). Silvercorp is a Canadian precious metals mining company listed on the Toronto and New York Stock Exchanges. It has international mining interests. The Scheme is proposed on the basis that Silvercorp is well-positioned to fund and advance the Nyanzaga project into commercial production. 2 On 2 November 2023, I made orders approving the convening of a meeting of members of OreCorp to consider the Scheme. At the time, I indicated that I would provide my reasons for doing so. These are my reasons.

The Scheme 3 The Scheme would involve Silvercorp acquiring the shares in OreCorp that are not already held by Silvercorp and its related entities (Scheme shares) for a cash payment of A$0.15 per share together with 0.0967 fully paid shares in Silvercorp in respect of each OreCorp Scheme share. 4 Certain ineligible shareholders, as defined, will not be able to take up the scrip consideration. Instead, the share component of their consideration will be sold on-market and the proceeds of sale paid to them. This arrangement applies to shareholders outside identified jurisdictions. This is a common arrangement often included in schemes. It is also proposed to apply this arrangement to the holders of unmarketable parcels. On the basis of a submission that the holders of such shares are subject to the operation of a constitutional provision by which unmarketable parcels can be sold and proceeds paid to the shareholder, I was satisfied that there was no apparent unfairness in that aspect of the Scheme of a kind that may justify not making the orders sought and also that it did not create a separate class in respect of those shareholders for the purpose of approval of the Scheme. In both instances, shareholders will receive consideration of broadly equivalent value for the same shareholding interest. 5 The Scheme also has provisions dealing with the holders of options and performance rights which will mean the holders of those rights will agree to cancellation or revocation if the Scheme proceeds. Therefore, they will not be separately affected by the implementation of the Scheme if approved. 6 The Scheme also has a mechanism by which the holders of Scheme shares may choose to receive the scrip consideration in the form of a CHESS Depositary Interest or CDI listed on the ASX instead of Silvercorp shares. The CDI is a mechanism by which an investor in shares in non-Australian companies may be able to hold and trade their interest in those shares on the ASX in circumstances where the shares themselves will be held by a third party. Holders of Scheme shares will be invited to elect between shares in Silvercorp or CDIs in respect of those shares as the form in which they will receive the non-cash component of the consideration to be paid if the Scheme is approved and implemented. 7 As at the time of the hearing, CDIs in respect of Silvercorp shares had not been approved for quotation on the ASX. However, Silvercorp has agreed to use its reasonable endeavours to apply for admission of Silvercorp to the ASX and for CDIs in respect of fully paid shares in Silvercorp to be approved for official quotation on the ASX. 8 The Scheme allows for the uncertainty associated with whether the CDIs will be quoted by providing that if the ASX has not formally approved the quotation of the CDIs by the time the Court is asked to make orders approving the Scheme then any election to receive CDIs will be void and of no effect and the shareholder will receive shares in Silvercorp (which will only be tradable on the Toronto or New York Stock Exchanges). This is a significant aspect of the Scheme because it means that there is the possibility that at the time that shareholders are asked to vote they may not know whether the option to receive CDIs will be possible. That is to say, they will not know whether the consideration to be paid under the terms of the Scheme will result in an interest that is quoted in Australian dollars and is readily tradable on the ASX using the CHESS mechanism for settlements or whether it will take the form of overseas shareholding. 9 Of course, it is possible that Silvercorp will obtain quotation of the CDIs before the meeting and that an announcement might be made to the market to that effect. However, at the time that it is proposed to despatch the materials to convene the meeting of shareholders in OreCorp to consider the Scheme there is an uncertainty as to the form in which the non-cash component of the consideration may be received if the Scheme is approved and implemented.

The role of the Court 10 Recently, Shariff J collected together a concise summary of the preconditions to the exercise of the discretion conferred by s 411 of the Corporations Act 2001 (Cth) to order that a meeting be convened to consider a scheme: Tamboran Resources Limited, in the matter of Tamboran Resources Limited [2023] FCA 1331 at [15]-[17]. I gratefully adopt that summary which is reproduced below for ease of reference. 11 The summary provided by Shariff J is as follows: These principles have been outlined in a number of recent decisions of this Court: Dealt Holdings Ltd, in the matter of Dealt Holdings Ltd [2022] FCA 1104 at [22]-[26] per Halley J; MOQ Limited, in the matter of MOQ Limited [2022] FCA 1160 per Halley J; Blackmores Limited, in the matter of Blackmores Limited [2023] FCA 624 per Jackman J; DDH1 Limited, in the matter of DDH1 Limited [2023] FCA 982 per Colvin J; Newcrest Mining Limited, in the matter of Newcrest Mining Limited [2023] FCA 1080 per Beach J; Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 1101 per Jackson J; Mithril Resources Ltd, in the matter of Mithril Resources Ltd [2023] FCA 1177 per Derrington J. These authorities establish that the Court must be satisfied of a number of preconditions to the exercise of its discretion. The preconditions include that: (a) the proposed scheme must be an 'arrangement'; (b) the proposed scheme must be in respect of a Part 5.1 body and as between that body and its creditors or members; (c) an application for an order pursuant to s 411(1) must be made to the Court in a summary way by the Part 5.1 body, or any creditor or member; (d) 14 days' notice of the Court hearing at which the order is sought, or such lesser period as ASIC or the Court permits, must be given to ASIC; (e) the Court must be satisfied that ASIC has had a reasonable opportunity: (i) to examine the terms of the proposed scheme to which the application relates and a draft explanatory statement relating to the proposed scheme; and (ii) to make submissions to the Court in relation to the proposed scheme and the draft explanatory statement. (f) the proposed scheme is bona fide and properly proposed; (g) the requirements in ss 411(3) and 412 of the Act, and reg 5.1.01 and Sch 8 to the Corporations Regulations 2001 (Cth) (Regulations), regarding the information that is to be sent to creditors or members about the scheme have been met, such that the explanatory statement relating to the proposed scheme will provide sufficient disclosure to creditors or members; (h) all other procedural requirements have been met, including those in the Rules; and (i) the proposed scheme is 'fit for consideration' at the meeting, in the sense that there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of members' or creditors' votes is achieved. In relation to the last of the above matters, the authorities state that it is not necessary for the Court to descend into the commercial merits of the proposed scheme and that the proposed arrangement is one that is fit for consideration by a meeting of members if it is likely to gain the Court's approval if passed by the necessary majority: see Essential Metals Limited, in the matter of Essential Metals Ltd [2023] FCA 240 at [24] per Banks-Smith J. 12 I note, in addition, that as the legislation allows for a scheme as between a company and its members (or creditors) or any class of them, it is appropriate when considering whether the above conditions have been met to also consider whether the nature of the scheme means that distinct classes amongst those invited to approve the scheme have been appropriately addressed, particularly whether voting should occur on the basis of separate classes or there should be separate meetings. As to the test to be applied: see First Pacific Advisers LLC v Boart Longyear Ltd [2017] NSWCA 116 at [80] (Bathurst CJ, Beazley P and Leeming JA agreeing). 13 I proceed on the basis that the Court's role is as explained in my reasons in DDH1 Limited, in the matter of DDH1 Limited [2023] FCA 982 at [4]-[14]. In my assessment, the Scheme takes a form and has characteristics which place it in a category of scheme in respect of which the Court in many such cases has favourably exercised its discretion to order that a meeting be convened to consider the scheme: as to which, see DDH1 at [25]. In such circumstances, short form reasons are appropriate.

Conclusions as to preconditions 14 Detailed written submissions were provided in support of the application for orders approving the holding of a meeting to approve the Scheme. Having regard to the matters set out in those submissions and the affidavit evidence I was satisfied that: (1) OreCorp is a Part 5.1 body; (2) the Scheme is proposed between OreCorp and its shareholders; (3) the required company search had been undertaken; (4) the Scheme can be properly described as an arrangement; (5) the Scheme is bona fide and properly proposed; (6) the 14 day notice period to the Australian Securities and Investments Commission (ASIC) under s 411(2)(a) of the Corporations Act of the Court hearing was satisfied; (7) having regard to the matters I described in DDH1 at [17]-[22], and having scrutinised the Scheme Booklet (subject to one matter concerning the CDI's, as described below), the booklet provides adequate disclosure and contains the prescribed information and that, on the evidence, appropriate steps appear to have been taken to ensure that the information has been properly verified; (8) no issues arise which require votes to be taken on the basis of separate classes of shareholders; (9) ASIC has had a reasonable opportunity to examine the terms of the Scheme and the Scheme Booklet, and to make any submissions to the Court; (10) ASIC does not oppose the Scheme; (11) the required matters have been proven in respect of the proposed chair and alternative chair for the shareholder meeting to consider the Scheme; (12) issues in relation to performance risk were addressed by mechanisms that are usual and appropriate; and (13) the Scheme was of a kind that was fit for consideration in the sense that if it received the requisite majorities the Court was likely to approve the scheme at a further hearing. 15 On the above basis I was satisfied that the Court had a discretion whether to approve the Scheme.

Disclosure concerning the CDIs 16 In the course of the oral hearing, I raised concerns as to whether the prospect that shareholders who chose the CDI option may not receive that option if Silvercorp did not obtain quotation of the CDIs before any hearing to approve the Scheme was adequately disclosed. Counsel proposed the inclusion of the following language in the Chairperson's letter: 'Scheme Shareholders should note that even if an election to receive New Silvercorp CDIs is validly made, this will be void and of no effect if ASX has not formally approved the ASX Quotation by 5.00pm on the Business Day before the Second Court Date. In these circumstances, such Scheme Shareholders (other than Ineligible Shareholders) will receive their Scrip Consideration in the form of New Silvercorp Shares'. Those words were to be followed by a sentence directing the reader to the more detailed explanation in s 10.3(c) and s 8.2(f) of the Scheme Booklet. The same change was to be made to the relevant part of the frequently asked questions part of the Scheme Booklet. 17 I approved the making of those changes and on that basis was satisfied that the position in relation to the option to take the scrip consideration in the form of a CDI was adequately disclosed.

Particular matters of significance in the present case 18 In considering whether to exercise the discretion to approve the Scheme, I considered the following matters to be of particular significance.

Communications with shareholders 19 The Court was informed that OreCorp does not propose to conduct an 'outbound communication campaign or contact OreCorp Shareholders with respect to the Scheme'. However, an 'inbound' information line will be administered inhouse by the OreCorp share registry. In DDH1 I expressed the following views concerning shareholder communications (at [22]): In Essential Metals [Limited, in the matter of Essential Metals Limited [2023] FCA 240] Banks‑Smith J dealt with the authorities in terms with which I respectfully agree: at [87]‑[102]. In essence, when asked to make an order that a meeting be convened to consider a scheme, the Court should be informed about any plan in relation to communications with members (or creditors). Further, the proponent of the scheme must proceed on the basis that, at the time of moving the Court for orders approving the scheme, the Court will need to be informed about any relevant matters that have arisen from the manner in which communications have occurred in the period leading up to the meeting. However, there is no requirement for all such plans (or the scripts to be used) to be approved by the Court at the time of considering whether to order a meeting to be convened. 20 Since then, the Court has published its Schemes of Arrangement Practice Note (GPN-SOA). It includes the following: The Court expects that the Court's approval should be sought for a supplementary explanatory statement to be sent to securityholders in a scheme. The Court also expects that the nature of the scheme proponent's intended communications with securityholders should be disclosed at the first Court hearing. Parties may also wish to continue the existing practice of drawing the Court's attention to material communications to securityholders after the first Court hearing, at least by a communication to the chambers of the judge hearing the application, to reduce the risk of difficulties arising at the second Court hearing. 21 I note also the recent summary of that practice by Black J: In the matter of InvoCare Limited [2023] NSWSC 1180 at [25]-[26]. As his Honour there observed the Court is concerned to consider whether the content of shareholder communications that have been undertaken have undermined the integrity of the scheme process. For that reason, such matters will be considered at any hearing that seeks approval of a Scheme on the basis that the requisite majorities have been achieved at a meeting convened in accordance with orders of the Court. 22 In the present case, OreCorp did not seek to provide scripts as to how inbound inquiries might be addressed. However, I made clear that at any hearing to approve the Scheme the Court expected to be provided with evidence that enabled the Court to conclude that there had been no aspect of shareholder communications that had in fact occurred that might be considered to undermine the integrity of the process.

ASIC communications 23 Oral submissions were made concerning matters of significance that had been raised by ASIC and the steps that had been taken to revise the Scheme Booklet to address those concerns. They included amendments to ensure that possible disadvantages to the scheme were referred to in the Chairperson letters. This approach to ASIC communications accords with the approach I outlined in DDH1 and, on the basis of the submissions put, I was satisfied that there were no matters arising from the communications with ASIC that may bear upon the exercise of discretion despite being resolved to the satisfaction of ASIC.

Recommendation by directors of OreCorp 24 I was satisfied that the financial benefits to be received by those OreCorp directors who held options and performance rights were sufficiently disclosed and that those interests were not of a kind or of a value that prevented those directors from properly making such recommendations. In that regard, I noted that it was proposed to include in the proposed Scheme Booklet the report of an independent expert to the effect that the Scheme is fair and reasonable and therefore in the best interests of OreCorp shareholders.

Break fee and exclusivity arrangements 25 Submissions were made which described the nature of the break fee which had been agreed and the exclusivity arrangements. I was satisfied that they were in accord with arrangements of the kind that have been generally viewed as not giving rise to concern when it comes to court approval.

Voting intention statement 26 The Court's attention was drawn to a voting intention statement that had been provided by Rollason Pty Ltd. It controlled about 12.3% of the shares in OreCorp. Its intention was disclosed in the Scheme Booklet. Submissions were made to the effect that the voting intention statement followed the form of guidance issued by the Takeover Panel. There was evidence that no inducement had been offered to secure the statement. In those circumstances, I was satisfied that no issue arose in relation to the statement.

United States Securities Act 27 The attention of the Court was drawn to the intention to rely upon the exemption from the registration requirements under United States securities law in connection with the implementation of the Scheme and the issue of Silvercorp shares to holders of Scheme shares resident in the United States.

Orders dispensing with newspaper publication 28 I was satisfied that it was appropriate for publication of the hearing for approval of the scheme to be given by ASX announcement and I dispensed with the requirement for newspaper publication: see Vita Group Ltd, in the matter of Vita Group Ltd [2023] FCA 400 at [23] (Jackman J).

Conclusion 29 In the above circumstances and for the above reasons, I was persuaded that it was appropriate to exercise the discretion in favour of ordering that a meeting be convened to consider the scheme in the terms proposed by OreCorp and for usual orders to be made exempting compliance with aspects of the Federal Court (Corporations) Rules 2000 (Cth). I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.