Lithium Power International Ltd, in the matter of Lithium Power International Ltd [2023] FCA 1637

STEWART J: 1 The plaintiff, Lithium Power International Ltd (LPI), is proposing a scheme of arrangement for the Court's approval under Pt 5.1 of the Corporations Act 2001 (Cth). On 18 December 2023, I made orders pursuant to ss 411(1) and 1319 of the Corporations Act convening a meeting of LPI shareholders for the purpose of considering and, if thought fit, approving the scheme; and also approving an explanatory statement in the form of a Scheme Booklet for distribution to LPI shareholders to accompany a notice convening the scheme meeting. These are my reasons for making those orders. 2 LPI is an Australian public company listed in the Australian Securities Exchange (ASX). 3 On 18 October 2023, LPI announced to the ASX that it had entered into a binding scheme implementation deed (SID) with Corporación Nacional del Cobre de Chile (Codelco). Codelco is a Chilean State-owned company. It has nominated its wholly owned subsidiary, Salar de Maricunga SpA, as the entity which it is proposed will acquire LPI's shares pursuant to the scheme. 4 The scheme, if implemented, will result in Salar de Maricunga SpA acquiring all of the LPI shares, Codelco paying to scheme shareholders cash consideration of $0.57 per share, and the subsequent delisting of LPI from the ASX. 5 The independent expert appointed by LPI to assess the scheme has prepared an Independent Expert's Report. It concludes that in the absence of a superior proposal, the scheme is fair and reasonable to, and therefore in the best interests of, LPI shareholders. There is nothing in the approach of the expert that causes me to doubt the conclusions expressed in the report. 6 After the scheme becomes effective under s 411(10) of the Act, but before the transfer by scheme shareholders of their LPI shares to Salar de Maricunga SpA, Codelco must deposit, or procure the deposit of, an amount in cleared funds equal to the aggregate amount of the scheme consideration payable to all scheme shareholders into an Australian dollar denominated trust account operated by LPI as trustee for the scheme shareholders. LPI must pay or procure the payment of the scheme consideration to each scheme shareholder from the trust account. The transfer of the scheme shares to Salar de Maricunga SpA is subject to the payment of the scheme consideration in accordance with those steps. 7 This structure addresses a concern that shareholders should not, once the scheme has become effective, be in a position where their shares have been transferred but there is a delay in provision of the scheme consideration and where their only remedy would be to sue on the deed poll: Re APN News & Media Ltd [2007] FCA 770; 62 ACSR 400 at [43]. See Schemes of Arrangement Practice Note (GPN-SOA), [5(b)]. 8 The deed poll executed by Codelco and Salar De Maricunga SpA in favour of all scheme shareholders also contains an undertaking by those entities to provide the scheme consideration to each scheme shareholder in accordance with the scheme. There is no evidence with regard to the enforceability of the deed poll in Chile, but I do not regard that to be necessary: Schemes of Arrangement Practice Note (GPN-SOA), [5(a)]. 9 LPI's board of directors, each member of which is an LPI shareholder, has unanimously recommended that LPI shareholders vote in favour of the scheme. Each director will receive one-off bonus payments, the managing director and CEO will receive a change of control bonus, and each director will be entitled, pursuant to their employment or service contracts with LPI, to payments in lieu of their termination notice period. 10 LPI's board considers that it is appropriate for each director to have made a recommendation in respect of the scheme given their integral roles in the oversight of LPI and the expectation of LPI shareholders that the directors would make an informed recommendation, notwithstanding the benefits that they will each receive if the scheme is implemented. I have considered other cases dealing with this issue, and I am satisfied that it is not inappropriate for the directors to have made the recommendation that they have. See, for example, Re Kidman Resources Ltd [2019] FCA 1226; 375 ALR 760 at [113] and Re Villa World Ltd [2019] NSWSC 1207; 139 ACSR 550 at [34]-[40]. 11 The Court's concern at this stage with regard to benefits accruing to directors is to ensure that those benefits are properly disclosed: Kidman at [115]. I am satisfied that in this case they are. 12 The Schemes of Arrangement Practice Note (GPN-SOA) at [6] requires that the explanatory statement "prominently display" a notice to the effect that although the Court has ordered that a meeting be convened and has approved the explanatory statement, the Court has not formed any view as to the merits of the proposed scheme or how the members should vote, nor is it responsible for the content of the explanatory statement. Such a notice is included amongst other notices in a three and a half page "IMPORTANT NOTICES" document with which the Scheme Booklet commences. Although there may be some debate as to whether the notice in this case is "prominently display[ed]", in my view it is, even of only marginally so. 13 Under the SID, LPI undertakes to pay a break fee to Codelco in certain prescribed circumstances. The break fee is $3,850,000 (excluding GST) which is approximately 1% of the implied fully diluted equity value of LPI as at the time of entry into the SID. This proportion, as well as the circumstances in which the break fee is payable, accord with the guideline in the Australian Takeovers Panel Guidance Note 7: Lock-up devices at [48]-[52]. Break fees should reflect genuine commercial costs and risks; they should not operate coercively so as to distort the commercial incentives in a way that will increase the preference of shareholders for the scheme because the company has already committed to the payment of a large break fee which will dilute the equity interest of shareholders if they do not support the scheme: Gindalbie Metals Ltd, in the matter of Gindalbie Metals Ltd [2019] FCA 953; 137 ACSR 338 at [27]. I am satisfied of those matters in this case, and I am comforted by the arrangements in this case being within the "acceptable" range as discussed in Guidance Note 7. 14 The scheme is subject to customary exclusivity provisions, described as "no-existing discussions", "no-shop", "no-talk" and "no-due diligence". I am satisfied that these provisions exist for no more than a reasonable period capable of precise ascertainment (six months in this case), are subject to the directors' fiduciary duties and are not otherwise unlawful, and are disclosed with adequate prominence in the Scheme Booklet. See Re TPG Telecom Ltd [2020] NSWSC 772 at [22] and Guidance Note 7 at [17]-[38]. 15 Senior counsel for the plaintiff has carefully taken me through the various requirements justifying the orders sought. The principles to be applied are well established. The recent Schemes of Arrangement Practice Note (GPN-SOA) has assisted in bringing welcome clarity as to the Court's expectations where perhaps some uncertainty has recently existed. I am satisfied of the various matters, including the arrangements for the convening of the scheme meeting and the justification for dispensing with the requirements of rr 2.15 and 3.4 of the Federal Court (Corporations) Rules 2000 (Cth). 16 I acknowledge the careful and detailed submissions by senior counsel for the plaintiff, as well as the additional assistance of counsel for Codelco. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.