Marengo Mining Ltd, in the matter of Marengo Mining Ltd (No 2) [2012] FCA 1498

REASONS FOR JUDGMENT 1 On 18 December 2012 I approved a scheme of arrangement in relation to the plaintiff (Marengo Mining). These are the reasons for so doing. 2 This is the second hearing of Marengo Mining's application for an order approving a scheme of arrangement with shareholders (the scheme), pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Corporations Act). 3 At the first hearing of the application an order was made for the convening of a meeting of shareholders and the Court then approved the explanatory statement required by s 412(1)(a) to accompany notices of the meeting: see Marengo Mining Ltd, in the matter of Marengo Mining Ltd [2012] FCA 1220. These reasons should be read with that decision in mind. 4 Section 411(4) controls the process by which the scheme may become binding and so the matters to be considered by the Court at the second hearing. It is understood that the Court has a broad discretion to approve the scheme under s 411(4)(b). 5 The first question is whether there has been a meeting convened in accordance with the order made by the Court at the first hearing, that satisfies the requirements of subparas (i) and (ii) of s 411(4)(a) and whether other matters required by the order have been complied with. 6 In this regard all procedural matters have been satisfied. The explanatory statement in the form of the scheme booklet has been duly registered in accordance with s 412(6) of the Corporations Act. The explanatory statement with the notice of the meeting, an errata note, the proxy form for the meeting and the meeting order made by the Court were despatched by ordinary prepaid post or, in the case of overseas shareholders, by air mail, before 6pm (WST) Tuesday 6 November 2012, in all but 91 cases. 7 As to these 91 shareholders, the relevant meeting documents were notified to them using the nominated notification means allowed by s 249J of the Corporations Act. Because that means of notification had not been expressly provided for in the orders convening the meeting, I consider it appropriate to vary order 8 of the meeting orders, as proposed by Marengo Mining, to allow despatch of the meeting papers by electronic notification, pursuant to s 249J(3A), rather than by post. 8 It would appear that, on a first hearing under s 411, a plaintiff should keep in mind the possibility that s 249J may apply and frame the service requirements accordingly. 9 At the second hearing, the Court was additionally advised about service difficulties on some 152 non-registered beneficial holders of Marengo Mining's ordinary shares that resulted in them being served by notices posted in the United States on 7 November 2012, one day after the date referred to in order 8 of the meeting convening orders. 10 The Court is advised that pursuant to Canadian securities law, which applies in respect of these 152 non-registered beneficial holders, beneficial holders are entitled to object to their intermediary disclosing information about them and their ownership of shares to the issuer of the shares. Those beneficial holders who do object are referred to as Objecting Beneficial Owners (OBOs). Beneficial holders who have not objected to their intermediary disclosing information about them and their ownership of shares are referred to as Non-Objecting Beneficial Owners (NOBOs). It would appear to be the case, as Marengo Mining submits, that it cannot provide the Court with a list of OBOs as it does not have access to that information. 11 Canadian National Instrument 54-101 specifies certain obligations that reporting issuers, such as Marengo Mining, have in relation to communication to beneficial owners. Pursuant to that instrument Marengo Mining is required to mail notice of the scheme meeting to beneficial holders at least 21 days in advance of the meeting and to provide to intermediaries any documents to be posted to beneficial holders in advance of the deadline for mailing. In this case, on 7 November 2012 the meeting documents were sent by Broadbridge Financial Solutions of New York, United States (Broadbridge US) who, with Broadbridge Canada, together maintain the register for these beneficial holders, to the beneficial holders for whom it acts as a intermediary, which was one day after the date the meeting documents were required to be despatched by the Court order. However, the documents were provided to Broadbridge US in advance of the mailing date as contemplated by the Canadian National Instrument. 12 I accept that the failure of Broadbridge US to mail on time was a result of Hurricane Sandy. I also note that the United States Securities and Exchange Commission has extended filing deadlines as a result of Hurricane Sandy. 13 I also accept that, notwithstanding these events, the meeting documents were posted to beneficial holders for whom Broadbridge US acts as an intermediary 28 clear days before the meeting scheduled for 6 December 2012, and so the beneficial holders were provided with notice that was mailed more than 21 days before the scheme meeting. 14 I accept that Marengo Mining has satisfied its notice obligations to the beneficial holders under Canadian National Instrument 54-101, despite the delay by Broadbridge US in despatching the meeting documents. 15 These events also suggest that on a first hearing a plaintiff should direct attention to whether there are any particular service rules governing beneficial holders such as the OBOs and NOBOs in this case, which require the Court's meeting orders to be framed in particular ways. 16 I should note that the provisions of Div 3 of the Federal Court (Corporations) Rules 2000 (Cth) and the orders made by the Court at the first hearing have been complied with, including those provisions relating to advertisement of notice of this second hearing and service of documents on the Australian Securities and Investments Commission (ASIC), in accordance with order 10 and Rules 2.6, 2.12 and 3.4 (noting that former Rule 2.11 was deleted by the Federal Court (Corporations) Amendment Rules 2012 (No 1) (Cth)). 17 The report of the chairman of the meeting shows that the total number of members present and voting either in person or by representative/attorney and by proxy was 431 and further shows the results of the scheme meeting. As a result, the "headcount" calculation shows a 94.33% headcount vote in favour. From the minutes of the meeting it is apparent that the headcount majority excluded eight members present by proxy, on the basis that they voted both "for" and "against" the resolution. I accept that it is appropriate to exclude those eight members in calculating the voting results: see Re Spark Infrastructure Holdings No 1 Ltd [2010] NSWSC 1497; (2010) 79 NSWLR 756. On that basis the voting majority of members present and voting in person or by a representative/attorney or by proxy "for" was some 484,693,062 from a total number of votes cast on the poll of 485,406,485, meeting the 75% requirement specified by s 411(4)(a)(ii). 18 Senior counsel for Marengo Mining drew attention to the discrepancy regarding a number of votes "abstained" in the "poll report" for the scheme meeting as compared with a number appearing in the minutes of the meeting. It appears that the minutes of the meeting overstated the votes attributable to proxies abstaining by 5,086 because of a calculation error (in that the number of votes "abstaining" by Australian shareholders was 20,000 and by Papua New Guinea shareholders was 5,086, but the total was incorrectly calculated by adding an amount of 25,086 by Australian shareholders and 5,086 by Papua New Guinea shareholders). I accept that the calculation error related to the number of votes only and not the number of members present and voting. 19 Thus, the special statutory majorities, that is to say the numerical or "headcount" majority as well as the voting majority met the requirements of s 411(4)(a)(ii) of the Corporations Act. 20 So far as the Court's discretion is concerned, I am satisfied that the scheme has been advanced in good faith and is fair and reasonable in that an intelligent and honest person who is a member of the shareholder class acting alone in respect of his or her interests as a member might approve of it. 21 I am also satisfied that the scheme is fair and reasonable, this also being confirmed by the opinion of an independent expert. 22 As senior counsel for Marengo Mining points out, the scheme is quintessentially a "top hat" scheme and does not involve a control transaction. 23 This is relevant not only to the characterisation of the scheme as fair and reasonable, but also to the additional requirement of s 411(17)(a) of the Corporations Act that Ch 6 does not apply to it. 24 I am satisfied Marengo Mining has brought all relevant matters to the Court's attention. 25 Section 411(17)(b) of the Corporations Act is also met in this case as ASIC has issued a no objection letter. 26 A question of unconditionality of conditions precedent was raised at the second hearing. While all conditions precedent had been satisfied, save for the approval of the scheme by this Court, there was one condition precedent that was in a state of flux at the time of the second hearing. The condition precedent as affected by a subsequent certificate required that amendments of the rules of the Port Moresby Stock Exchange be given which also depended on the Board of the Papua New Guinea Securities Commission not disallowing amendments made to provide for the listing of depository interests by 20 December 2012. By reason of this circumstance - 20 December 2012 being two days after the second hearing - and rather than leave the matter to the operation of the scheme and related documents, the Court required an amendment to the scheme to specify that the scheme as approved must be lodged with ASIC by 4 January 2013. That additional period was designed to enable Marengo Mining to take account of final developments in Papua New Guinea and to lodge the approved scheme within the available business day period over Christmas and New Year. 27 The Court also notes that Marengo Mining intends to rely upon the Court's approval for the purposes of claiming exemption under s 3(a)(10) of the Securities Act of 1933 (US) in connection with the implementation of the proposed scheme. It is understood that Marengo Mining will make reference to this decision for those purposes. In that regard, the Court notes its findings on both the first hearing and on the second hearing leading to approval of the scheme under s 411 of the Corporations Act. 28 In those circumstances, the Court approves the scheme in the terms proposed by the plaintiff with the amendment mentioned in respect of the date of lodgement. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (5 paragraphs)

Legislation Cited (3)

Cases Cited (3)

Cited By (6)