International Coal Holdings Limited, in the matter of International Coal Holdings Limited (formerly Straits Resources Limited) [2011] FCA 209

REASONS FOR JUDGMENT 1 This is the second Court hearing of an application to approve a scheme of arrangement between International Coal Holdings Limited (formerly Straits Resources Limited) ACN 056 601 417 (Straits ICH) and the holders of ordinary shares in Straits ICH (the Acquisition Scheme). The effect of the Acquisition Scheme will be that all scheme shares will be transferred to PTT Mining Limited (PTTML), a copy incorporated in Hong Kong, and PTTML will provide or procure the provision of the scheme consideration to scheme shareholders. 2 The Acquisition Scheme follows on from another scheme (the Demerger Scheme) approved by the Court on 31 January 2011 (see Straits Resources Limited, in the matter of Straits Resources Limited (No. 2) [2011] FCA 47). Before that hearing, on 17 December 2010 (see Straits Resources Limited, in the matter of Straits Resources Limited [2010] FCA 1466), the Court had made orders for the convening of a scheme meeting in relation to the present scheme and related matters (the Acquisition Scheme Meeting). 3 The application for approval of the Acquisition Scheme is supported by the following affidavits, which were also read in support of the application for the convening of the Acquisition Scheme Meeting: those of Michael Gibson, affirmed 16 December 2010; Stephanie Daveson, affirmed 16 December 2010; and Peerachat Pinprayong, affirmed 15 December, 2010. These affidavits concern the verification of the factual information in respect of Straits ICH and PTTML. Two further affidavits concern the verification of the independent experts' reports: those of Ken Pendergast of Ernst & Young, affirmed 16 December 2010, and Roger Port of PriceWaterhouseCoopers, affirmed 14 December 2010. 4 In addition, a number of affidavits involving matters occurring after the first Court hearing were read in support of this application for approval. The first is the affidavit of Juanita Rayson, affirmed 22 February 2011. Ms Rayson is a solicitor employed by Corrs Chambers Westgarth, the solicitors for Straits ICH. She deposes to the planned holding of the Acquisition Scheme Meeting on 25 February 2011 in Perth; the release of half-yearly financial results for Straits ICH; and the status of discussions with the Australian Tax Office (ATO) in relation to a private ruling of 22 February 2011, which resulted in an announcement to the Australian Stock Exchange (ASX). 5 The second is the affidavit of Alan Good, affirmed 28 February 2011. Mr Good is a Director of Straits ICH. His affidavit confirms the convening of the Acquisition Scheme Meeting and the results of the voting which took place. In short, of the total number of votes cast, 91.86% (representing 84.54% of the shareholders voting) were cast in favour of the resolution to approve the Acquisition Scheme. 6 The third is the affidavit of Mark Hands, affirmed 28 February 2011. Mr Hands is the Company Secretary of Straits ICH. His evidence deals with a range of procedural matters relating to the holding of the Acquisition Scheme Meeting, including: the provision of the booklet containing an explanatory statement in relation to the Acquisition Scheme (the Acquisition Scheme Booklet) to Straits ICH's auditor, PriceWaterhouseCoopers, as required by s 249K of the Corporations Act 2001 (Cth) (Corporations Act); the dispatch of the Acquisition Scheme Booklet, a proxy form for the Acquisition Scheme Meeting, and a reply paid envelope (the Acquisition Scheme Documents) to Straits ICH shareholders; the ASX announcement in respect of the independent experts' review of Straits ICH's half-yearly financial results and the ATO ruling of 22 February 2011; the receipt of proxies by Straits ICH; the conduct of the Acquisition Scheme Meeting; and the making of the ASX announcement on 25 February following the Acquisition Scheme meeting. 7 Mr Hands also caused the publication of an advertisement in The Australian on 25 February 2011, giving notice of this hearing of Straits ICH's application for approval of the Acquisition Scheme (listed today at 10.15 a.m.). 8 The other matter with which Mr Hands' affidavit deals is an error in the reference in Recital B of the Acquisition Scheme to the number of Straits ICH shares on issue as at the date of the Scheme Implementation Agreement. The error is that the number there recorded is 255,203,613, when in fact the correct number is 255,203,614. The error is sought to be corrected as part of this hearing by approval of an amendment of the Acquisition Scheme to that effect. 9 The fourth affidavit is that of Justin Grove, sworn 28 February 2011. Mr Grove is a solicitor employed by the solicitors for Straits ICH. Mr Grove deposes to arrangements with Optima Digital Print (Optima), the company retained by Straits ICH to attend to the printing of the Acquisition Scheme Booklet, in regard to the changes required to that booklet. His affidavit notes the lodgement of the Court orders of 17 December 2010 with the Australian Securities and Investments Commission (ASIC) on 20 December 2010, and the registration of the Acquisition Scheme Booklet with ASIC on 21 December 2010. 10 The fifth affidavit is that of Gary King, affirmed 18 February 2011. It concerns the receipt and printing of the Acquisition Scheme Booklet by Optima, of which Mr King is the Managing Director. His affidavit deals with the receipt and printing of the Acquisition Scheme Booklet; the receipt of proxy forms for the Acquisition Scheme meeting; and the collation and dispatch of the Acquisition Scheme Documents. 11 The sixth affidavit, affirmed by Joanne Fabling on 1 March 2011, deals with other procedural issues relating to the Acquisition Scheme Meeting. Ms Fabling is the Relationship Manager for Straits ICH. She is employed by Computershare Investor Services Pty Ltd (Computershare), which, on behalf of Straits ICH, maintains its company register and shareholder information. Her affidavit deals with: the production of proxy forms for the Acquisition Scheme Meeting; the dispatch of those forms; the email notification sent to certain shareholders who had indicated that they wished to receive information by email; the dispatch of hard copies of the Acquisition Scheme Documents to those email recipients who could not be contacted by email; the receipt of the proxy forms; and the preparation of a proxy report setting out the total number of valid proxies received within the relevant time period. 12 Ms Fabling also deals with her attendance at the Acquisition Scheme Meeting on 25 February 2011 and the tasks undertaken by Computershare in relation to the registration of shareholders, voting procedure, the preparation of a Poll Report, and the tagging of votes cast by Standard Chartered Private Equity Limited (SCPE). According to the poll information reported in Ms Fabling's affidavit, if the votes cast by SCPE are ignored for the purpose of determining the approval percentages at the Acquisition Scheme Meeting, the results are that 79.42% of the votes cast (representing 91.84% of the shareholders voting) were cast in favour of the approval of the scheme. 13 The seventh affidavit is that of Ken Pendergast, Chartered Accountant, affirmed 28 February 2011. It provides information in relation to the previous expert's report. Mr Pendergast is a Director of Ernst & Young Transaction Advisory Services Limited; his previous affidavit, affirmed on 16 December 2010, is referred to above. In this more recent affidavit Mr Pendergast confirms that he has reviewed Straits ICH's half-yearly financial results and that those results, in his words, "have not affected the conclusion expressed in the Independent Expert's Report that the Acquisition Proposal to be implemented by scheme of arrangement between the Straits ICH [sic] and its shareholders is in the best interests of Straits ICH's shareholders". 14 Finally there is the affidavit of Stanley Lewis, affirmed 3 March 2011, who is a partner of the solicitors for Straits ICH. According to Mr Lewis' affidavit, the advertisement placed in The Australian on 25 February 2011 giving notice of this hearing named Mr Lewis as the legal practitioner for the purposes of serving any notice of appearance. At the time of affirming his affidavit, Mr Lewis was not aware of any notice of appearance in this matter, had not been served with any such notice, and had not received notice either in writing or by telephone from any Straits ICH shareholder or any other person to the effect that they intended to appear at this hearing. 15 Mr Lewis' affidavit annexes two certificates, one signed by Straits ICH and one by PTTML, in accordance with cl 2.2(a) of the Acquisition Scheme, stating that all of the relevant conditions precedent have been satisfied. Mr Lewis' affidavit otherwise annexes a letter from ASIC dated 1 March 2011, stating that under s 411(17)(b) of the Corporations Act ASIC has no objection to the Acquisition Scheme. 16 As noted in the written submissions provided by the plaintiff in relation to this hearing (the Plaintiff's Submissions), the principles applying to the Court's role in approving a scheme of arrangement under s 411 of the Corporations Act are well known. It is sufficient for me to quote paragraphs 8, 9 and 10 of the Plaintiff's Submissions, which state as follows: [8] The role of the Court in approving schemes is supervisory in nature. In deciding whether to approve a scheme, the Court must consider whether there has been compliance with the [Corporations] Act, whether the majority of shareholders are acting in good faith in voting in favour of the scheme, and whether the scheme is one that is capable of being accepted by shareholders looking to their own commercial advantage: Re NRMA No.[1] (2000) 33 ACSR 595 at [41]; Re Seven Network Ltd (No. 3) (2010) 77 ACSR 701 at [31]-[44]. [9] Where there is no opposition to the order for approval, and there are no public policy grounds for withholding approval, considerable weight should be given to the commercial judgment of those who have voted to approve the scheme: Re Bond Corp Holdings Ltd (1991) 5 WAR 143 at 154; Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 at [47]; Re BRL Hardy Ltd (2003) 45 ACSR 397 at [20]; Re Central Pacific Minerals NL [2002] FCA 239 at [13]. [10] It is sufficient for the Court to reach the view that the proposal embodied in the scheme is fair and reasonable, in the sense that an intelligent and honest person, who was a member of the class affected, and acting alone in respect of his or her interest as such a member, might approve of it: Re Crusader Ltd [1996] 1 Qd R 117 at 130; Re BRL Hardy Ltd (2003) 45 ACSR 397 at [21]. 17 The Plaintiff's Submissions also detail the compliance of the scheme with the substantive and procedural requirements needed for approval to be granted under s 411(6) of the Corporations Act. In addition, those submissions explain that an order for exemption under s 411(11) is sought. The orders of the Court will not effect any change to the Constitution of Straits ICH, and accordingly there is no utility in the Court's order being annexed to the company's Constitution. 18 The Plaintiff's Submissions also note that the evidence reflects that a Deed Poll in favour of ordinary shareholders of Straits ICH was executed on 2 December 2010 on behalf of PTTML and PTT International Company Limited (the parent company of PTTML). In accordance with this Deed Poll, and as the submissions state, there is no "performance risk" (as defined in the Acquisition Scheme) under that scheme, as PTTML is required to provide the cash consideration ($544.1 million) before members of Straits ICH are divested of their shares on the Implementation Date (as defined in the Acquisition Scheme). The cash consideration is to be paid by PTTML into a trust account operated by Straits ICH as trustee for its shareholders. The consideration per share is identified in the Plaintiff's Submissions is $1.72 in cash and, as the certificates provided in accordance with cl 2.2A of the Acquisition Scheme confirm, all conditions precedent to the payment of that consideration have been satisfied. 19 The Plaintiff's Submissions also deal with the minor amendment proposed to the Acquisition Scheme in relation to the number of shares on issue. This amendment was the same as that dealt with by Jacobson J in his decision of 31 January 2011. As Jacobson J said at [21]: The amendment which is sought is of a formal or minor technical nature. It does not disadvantage any Straits shareholder and, in my opinion, would not have affected the shareholders' approval of the Demerger Scheme by the requisite statutory majorities. [Citations omitted.] 20 I have reached the same conclusion in relation to the Acquisition Scheme. As the Plaintiff's Submissions point out, the independent expert has concluded that the Acquisition Scheme is fair and reasonable and therefore in the best interests of Straits ICH shareholders. The results of the voting at the Acquisition Scheme Meeting show that the shareholders have strongly agreed to the Acquisition Scheme. As indicated above, where there is no opposition to an order for approval (as in the present case) and there are no public policy grounds for withholding approval (also applicable in the present case), "considerable weight should be given to the commercial judgment of those who have voted to approve the scheme". 21 In these circumstances I am satisfied that Straits ICH has made out its case for approval of the Acquisition Scheme pursuant to s 411(4)(b) of the Corporations Act, and that I should make the exemption order and the minor amendment which is otherwise required. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.