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[2015] FCA 1162
Federal Court of Australia
2015-10-29
Jacobson J, McKerracher J
Original judgment source is linked above.
NATURE OF APPLICATION 1 These are reasons for making orders on the 'second hearing' approving the scheme of arrangement between Black Range Minerals Limited and certain of its members (Scheme) under s 411(4)(b) of the Corporations Act 2001 (Cth) (Corporations Act) and exempting the Black Range Minerals pursuant to s 411(12) of the Corporations Act from compliance with the requirements of s 411(11) of the Corporations Act. 2 Under the Scheme all of the issued fully paid ordinary shares in the capital of Black Range Minerals will be transferred to Western Uranium Corporation (Scheme Shares). Holders of Scheme Shares (Shareholders) will receive one fully paid ordinary share in the capital of Western Uranium Corporation for every 750 Scheme Shares held on the record date (Scheme Consideration).
ISSUES TO BE CONSIDERED 3 As Black Range Minerals submit, the Court's primary concern at the second hearing in respect of a scheme is that the statutory requirements have been met. 4 In Re Seven Network Ltd (No 3) (2010) 267 ALR 583, Jacobson J referred to the following list of considerations (at [35]-[40]): (a) whether the Shareholders have voted in good faith and not for an improper purpose; (b) whether the proposed Scheme 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: see Fowler v Lindholm (2009) 178 FCR 563 (at [79]); (c) whether Black Range Minerals has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion; (d) whether there has been full and frank disclosure of all information material to the Shareholders' decision; (e) whether minority class members would be oppressed by the scheme; and (f) whether the Scheme offends public policy: see Re Seven. 5 The Court's jurisdiction in relation to an arrangement is supervisory. The Court is to be satisfied that there has been no oppression and the arrangement is one that is capable of being accepted: Re Central Pacific Minerals NL [2002] FCA 239 (at [13]). 6 The Court must be satisfied that the meeting to approve the Scheme has been completed and that the resolution has been passed in accordance with the statutory requirements: Re Central Pacific Minerals (at [12]). 7 Black Range Minerals provided a 'Second Court Hearing Checklist' which identifies the directions made in the Court orders dated 16 July 2015 (Meeting Orders), and other procedural requirements that must be met, together with the location of the evidence demonstrating that those requirements have been met. 8 From the material filed it is apparent that: (a) the Meeting Orders were lodged with ASIC; (b) the Scheme Booklet was registered with ASIC; (c) the Scheme Booklet was dispatched to Shareholders in accordance with the Meeting Orders; (d) the Scheme Meeting was convened and held in accordance with the Meeting Orders; (e) the statutory majorities were obtained at the Scheme Meeting; and (f) notice of the Second Court Hearing was given in accordance with the Meeting Orders.
Statutory majorities 9 By s 411(4) of the Corporations Act an arrangement is binding on the members of a company and the company if at a meeting convened in accordance with an order of the Court, a resolution in favour of the arrangement is: (a) passed by a majority in number of the members present and voting (either in person or by proxy): Corporations Act, s 411(4)(a)(ii)(A) (Headcount Test); (b) if the body has a share capital - passed by 75% of the votes cast on the resolution: Corporations Act, s 411(4)(a)(ii)(B) (Votes Test), and (c) the arrangement is approved by order of the Court: Corporations Act, s 411(4)(b). 10 The Scheme Meeting was convened on the basis that all Shareholders were members of a single class for the purposes of s 411(1) and s 411(4).
Fair and reasonable scheme 11 As Black Range Minerals submits, the Court generally takes the view that the members are the best judges of whether an arrangement is to their commercial advantage and will be reluctant to make a decision contrary to the views expressed at meetings. The Court may withhold its approval in the following instances: (a) where a majority is shown to be acting in bad faith; (b) where a majority's acceptance is in the nature of a fraud on the minority; or (c) where there is an objection to the scheme such that a reasonable person might not approve it. This approach is the basis for Court practice in these matters. Proof of the relevant statutory majorities is sufficient to establish prima facie evidence of fairness. 12 The independent expert report of Mr John Van Dieren of 16 June 2015 contained in the Scheme Booklet concluded that the Scheme is in the best interests of Shareholders. The Shareholders have voted in favour of the Scheme with the requisite majorities at the Scheme Meeting. 13 It is submitted, and I accept, that the Scheme is fair and reasonable because it: (a) will yield commercial benefits for the Shareholders; and (b) is of a kind that is fair and reasonable from the viewpoint of an intelligent and honest person: Re Central Pacific Minerals (at [12]-[14]). 14 At the first Court hearing the Court's attention was drawn to exclusivity provisions in the Merger Implementation Agreement (MIA), break-fee provisions in the MIA and a credit facility agreement. I am satisfied that none of those matters adversely affects the fairness of the Scheme.
Credit facility 15 At the first Court hearing, I also requested Black Range Minerals to specifically address the issue of a credit facility at the second Court hearing. The evidence discloses that: (a) The credit facility and its terms were disclosed in the Scheme Booklet. By the credit facility, Western agreed to provide Black Range Minerals with up to $450,000 on certain terms. The principal and interest were to become repayable on the earlier of 60 days after the MIA is terminated, 60 days after the Scheme Meeting or 1 October 2015. (b) As of 30 June 2015, Black Range Minerals had drawn $442,204 under the facility and as of 26 June 2015 also had a working capital deficiency of $222,003 (excluding the balance of the credit facility). 16 Since the Scheme Meeting, the credit facility has been amended to provide additional funding of $100,000 to meet short-term working capital requirements. 17 In relation to the fairness of the proposed Scheme, the relevant question is whether the existence and terms of the credit facility might have had the effect of coercing Shareholders to vote in favour of the Scheme or deter a competing bidder from making a bid. I noted and addressed these issues in Re Peak Coal Ltd [2010] FCA 6 (at [7]). 18 As Black Range Minerals submit, if the MIA were terminated or the Scheme was not approved by the Shareholders, Black Range Minerals had 60 days to obtain alternative funding. Also, the interest rate (8% simple interest) was not excessive. Such terms were not uncommercial and Black Range Minerals required funding from Western or some other source for working capital in the short-term. It is to be inferred in these circumstances that the directors considered the credit facility to be in Black Range Minerals' best interests because the MIA provided a solution to the difficulty of raising funds to progress Black Range Minerals' projects. I accept Black Range Minerals' submission that the credit facility in this case should not have had a coercive or deterrent effect because, irrespective of whether Black Range Minerals entered into the MIA with Western, it would have required a source of funding for short-term working capital. If such funding had been provided by a third party, any competing bidder would have had to consider debt finance or short-term liabilities. Likewise, the Shareholders, when considering if the Scheme was in their best interest, would always have taken into account the ability of Black Range Minerals to raise funds to meet its debts, repay its loans and fund future expenditure on its projects. 19 Reasonable commercial people might consider the Scheme to be in their best interests as it will indirectly provide them with a source of funding to overcome Black Range Minerals' working capital deficiency and advance Black Range Minerals' projects in the future. 20 The existence and terms of the credit facility are not reasons for considering that the proposed Scheme is unfair, nor for refusing to approve it.
CONCLUSION 21 Counsel for Black Range Minerals supplied detailed submissions in support of the orders. It is unnecessary to deal with all those matters, as the relevant principles are addressed in many authorities. The main matter to address was the credit facility. 22 For reasons otherwise addressed in Black Range Minerals' submissions, I was satisfied that the following orders were appropriate:
Fowler
Lindholm