Gindalbie Metals Limited, in the matter of Gindalbie Metals Limited (No 2) [2019] FCA 1066

COLVIN J: 1 On 24 May 2019, I made orders for a meeting of shareholders of Gindalbie Metals Limited (Gindalbie) to be convened to consider two schemes of arrangement: Re Gindalbie Metals Limited [2019] FCA 953. On 8 July 2019, I made orders approving the schemes. These are my reasons for making those orders.

Statutory and procedural requirements 2 A meeting to consider the schemes was convened and held on 3 July 2019. There was a relatively modest attendance by shareholders at the meeting. Resolutions to approve the schemes were passed by the requisite majorities under s 411(4)(a) of the Corporations Act 2001 (Cth). There was no material before me to indicate that the schemes had been proposed for the purpose of avoiding the provisions of Chapter 6 of the Corporations Act. There was evidence to the effect that the conditions precedent to the operation of the schemes had been met or waived. Checklists were provided demonstrating that there had been compliance with the matters the subject of the orders of 24 May 2019 save that as to three shareholders, notice of the meeting was late for reasons I will explain. There was evidence demonstrating that the scheme booklets had been dispatched. In those circumstances, I was satisfied that the disclosure obligations under s 412(1) had been met. 3 The Australian Securities and Investments Commission advised that it has no objection and no shareholder or other interested party sought to appear to raise any matter against the making of orders approving the schemes. 4 In my view, there were three matters that required particular consideration. 5 First, as I have noted, there was a relatively low shareholder turnout. This aspect was considered by Farrell J in Re TriAusMin Limited (No 2) [2014] FCA 833 at [10]-[12]. Where there is a low turnout the court will consider whether there has been a procedural irregularity in relation to notification or whether the vote may have been unrepresentative. 6 In Re Decimal Software Limited (No 2) [2018] FCA 2040, Banks-Smith J brought to account four matters in approving a scheme with a very low shareholder turnout, namely (a) a comparison with the turnout at annual general meetings; (b) there were many shareholders with small holdings for whom the scheme was of relatively minor commercial interests; (c) those who did vote voted overwhelmingly in favour of the scheme; and (d) there had been an ASX announcement reminding shareholders of the importance of voting. 7 In this case there was a concerted effort before the meeting was convened to obtain up to date information for contacting shareholders: see [20]-[21] of my earlier reasons. When the scheme was announced, there was agitation led by a particular shareholder for a different approach which resulted in media reports, a published notice by Gindalbie in a national newspaper and an ASX announcement by the company. There were also other ASX announcements about the scheme. There was no suggestion of any procedural irregularity. The scheme documents included a clear summary of the key aspects of the scheme and matters that should be considered both for and against the scheme: see my earlier reasons at [22]-[23]. Finally, the shareholder attendance was many multiples greater than at the last two annual general meetings for Gindalbie. 8 In those circumstances, I was satisfied that this was not a case where there should be concerns about whether there was a properly informed opportunity for shareholders to participate in the scheme meetings. 9 Second, the orders as to convening the scheme meeting provided for shareholders as at 24 May 2019 to be notified on or before 3 June 2019. In the result, notification occurred by reference to a list of shareholders as at 23 May 2019. There were three new shareholders registered with effect from 24 May 2019. Notifications to those shareholders were sent on 7 June 2019. They accounted for a very small number of the overall shareholding. The notification occurred almost one month before the meeting. In those circumstances I was satisfied that there should be orders to excuse the failure to provide the notification within the time specified in the orders for convening the meeting. 10 Third, at the hearing to consider the making of orders to convene the meeting to consider the schemes, I raised an issue about the limitation on liability provided for by the schemes as proposed. They each included a provision excusing certain officers or employees from liability 'for anything done or omitted to be done in performance of this Scheme in good faith'. At the earlier hearing I proceeded on the basis that any issue as to the limitation could be dealt with at the hearing to approve the scheme if supported by shareholders: see my earlier reasons at [31]. 11 In Re Wesfarmers Limited (No 2) [2018] WASC 357, Vaughan J considered a clause which was expressed in the same terms. At [49] his Honour held: …On its proper construction the clause will not exclude liability for acts or omissions in breach of the scheme terms or in breach of the deed poll. Such acts or omissions could not be in performance of the scheme or the deed poll. Accordingly, the clause will not deprive members of their intended benefits under the scheme. To the extent that the clause offers some comfort to those who must implement the mechanics of the scheme it may be seen as facilitating the scheme. I was thus persuaded that [the clause] ought to remain as part of the scheme to be approved. 12 Submissions were advanced in reliance upon the approach adopted by Vaughan J. On the basis that the scheme provisions were being advanced to have that meaning I was satisfied that the scheme should be approved with the inclusion of such a provision. A clause which purported to excuse or limit liability for a failure to implement a scheme would be in a different category.

Additional Share Purchases by Chairman of Gindalbie 13 The scheme booklet referred to the Chairman of Gindalbie, Mr Keith Jones, holding 300,000 ordinary shares in the company. After the scheme booklets were prepared and before the meeting of shareholders to consider the schemes, a superannuation fund of which Mr Jones is a beneficiary acquired more shares in Gindalbie in on-market dealings. The consideration paid was about $400,000. On 24 June 2019, Gindalbie made an announcement disclosing the then shareholdings of directors which included the additional shares held by Mr Jones. The total shareholding in which Mr Jones held a relevant interest as at the date of the scheme meeting was almost 1% of the shares in Gindalbie. 14 Mr Jones, in his capacity as Chairman, provided a covering letter to Gindalbie shareholders in the scheme booklet for each scheme in which he referred to the fact that the independent directors of Gindalbie had unanimously recommended that shareholders vote in favour of the schemes. Mr Jones was one of those independent directors. 15 There was no suggestion of any benefit to Mr Jones through the schemes other than through his position as a shareholder. It was not a collateral benefit of the kind that gave rise to the concerns expressed by Farrell J in Re Gazal Corporation Limited [2019] FCA 701 at [32]. It was not an instance where there was an interest that was different from that of any other shareholder. 16 I was satisfied that there was no issue that arose from the on-market share dealings that would bear upon the court's decision whether to approve the scheme.

Supervisory discretion 17 There remains a discretion whether to approve a scheme of arrangement in circumstances where the statutory and procedural requirements have been met. It is an important protection for the interests of shareholders and the regulation of the mechanisms by which a party may be required to sell company shares. Of particular relevance in this case is the fact that the schemes were approved by a relatively modest number of shareholders and that they will result in shareholders receiving monetary consideration and shares in an unlisted entity (Coda Minerals Limited (Coda)) with a different overall business focus to that currently undertaken by Gindalbie, being its interest in the Karara iron ore project. 18 The commercial value of the transaction to be implemented by the schemes is addressed by an expert report provided by BDO Corporate Finance (WA) Pty Ltd. In my earlier reasons, I dealt with the issue of movements in the iron ore price and whether those movements were materially relevant to the opinions expressed by the expert. In evidence was a letter dated 5 July 2019 from the expert confirming that the expert was aware of the current iron ore spot price and had considered its impact on the report. The letter stated that it was the view of the expert that the report was not required to be updated. An earlier letter to similar effect was tabled at the meeting of shareholders to consider the schemes. 19 The approach to be adopted as to the exercise of the court's discretion when considering whether to approve a scheme was recently reviewed by Vaughan J in Re Wesfarmers (No 2). His Honour summarised the approach to be adopted in the following terms (at [13]-[16]): The role of the court in approving a scheme of arrangement is supervisory. The court has a discretion whether to approve a scheme and is not bound to approve merely because it previously made an order to convene the scheme meeting or because the statutory majorities have been achieved. However, the court will usually approach its task on the basis that the members are better judges of what is in their own commercial interests than the court. In Re Seven Network Ltd (No 3) there was identification of six factors commonly taken into account in informing the court's discretion on whether or not to approve a scheme: (1) Whether the shareholders voted in good faith and not for an improper purpose. (2) Whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone in respect of his or her interest as a member, might approve it. (3) Whether the scheme proponent has brought to the attention of the court all matters that could be considered relevant to the exercise of the court's discretion. (4) Whether there has been full and fair disclosure of all information material to the decision whether to vote for or against the scheme. (5) Whether minority shareholders would be oppressed by the scheme. (6) Whether the scheme offends public policy. The function of the court does not extend to usurping the views of the shareholders. However, the court is not a mere rubber stamp and will look at the arrangement to ensure that it is a reasonable one. In doing so the court is primarily concerned with whether the proposal is 'fair and reasonable' in the sense described in the second factor mentioned in the preceding paragraph. In that respect the court does not determine that the scheme is intrinsically in the members' interest or otherwise. The court ought only require satisfaction that the arrangement is one which is capable of being accepted. The court ought also be satisfied that there is an absence of oppression. (citations omitted). 20 Submissions to the following effect were advanced as to the supervisory discretion: (1) Full disclosure had been made to shareholders as to benefits and potential benefits of the schemes and their potential disadvantages and, in particular, shareholders had been provided with the following: (a) a summary of the schemes; (b) details of the break fee that was payable in certain circumstances; (c) an independent expert's report as to whether the acquisition scheme was in the best interests of shareholders; (d) the terms of the schemes; (e) deeds poll by those responsible for performance of obligations to implement the schemes. (2) Financial information had been verified; (3) Performance risks had been addressed and sufficiently protected against; (4) The schemes were commercially viable; (5) Gindalbie had not received any superior offer; and (6) There was no suggestion of a lack of good faith or commercially immoral behaviour. 21 As to whether the schemes were commercially viable, there was no matter that I identified that might raise practical or legal difficulty for the implementation of the schemes. Rational commercial reasons had been advanced to support the schemes. The information provided appeared to be sufficient to enable shareholders to make their own informed judgment as to whether to support the schemes. Otherwise, the affidavit material before me supported the above submissions. On that basis, I was satisfied that I should exercise the supervisory discretion in favour of approving the schemes.

Hearing date for approval 22 When I made orders approving the convening of the scheme meetings, there were limited dates when the matter might be listed for the hearing of an application for orders approving the schemes if supported by the requisite majority of shareholders. In the result, I listed the matter on a date that was one day short of the statutory period on the basis that there might be an adjournment if there was notified objection. There was no notified objection and, in the circumstances, I was satisfied that there should be a formal order abridging time by one day.

Conclusion 23 For the reasons I have expressed I was satisfied that orders should be made approving both schemes, orders should be made to excuse the non-compliance in respect of service on three shareholders and orders made abridging time by one day. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin.