Corporations - Scheme of Arrangement - Exchange of shares for shares to be issued in Canadian incorporated company - Corporations Act, s 411 - Notice to Foreign Investments Review Board and Department of Treasury

Corporations Act 2001 (Cth)

Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213

Re Chevron (Sydney) Ltd [1963] VicRp 39; [1963] VR 249

Re Amcor Ltd (2000) 34 ACSR 199; [2000] VSC 157

Re Challenge Bank Ltd (1995) 19 ACSR 421

Re Dorman, Long & Company Ltd [1934] 1 Ch 635

Re Foundation Healthcare Ltd (No 2) [2002] FCA 973; [2002] 43 ACSR 680

Re Hudson Conway Ltd [2000] VSC 21; (2000) 33 ACSR 657

Re Landmark Corporation Limited [1968] 1 NSWR 759

Re NRMA Insurance Ltd (No 1) [2000] NSWSC 82; (2000) 156 FLR 349; (2000) 33 ACSR 595

Re NRMA Insurance Ltd (No 2) [2000] NSWSC 408; (2000) 34 ACSR 261

Re Pheon Pty Ltd (1986) 47 SASR 427; (1986) 11 ACLR 142

Re Sonodyne International Ltd (1994) 15 ACSR 494

1 EM HEENAN J: Before the court is an application under s 411 of the Corporations Act for the approval of a scheme of arrangement affecting the shareholders in Equinox Resources Ltd. This scheme has been approved by a statutory majority of the shareholders of the company at a meeting of shareholders which I am satisfied was properly convened and conducted in accordance with the provisions of s 411 of the Act and in accordance with the orders which I made on 10 May 2004. On that occasion application was made and granted for leave to convene a meeting of shareholders to consider, and if thought appropriate, to pass the resolutions which would be a necessary preliminary to the approval by the Court of the proposed scheme.

2 The nature of the scheme proposed is outlined in the reasons which I published on 10 May when granting leave to convene the meeting of shareholders. It is only necessary therefore for me to repeat some brief features of the proposed scheme. Its effect is that all the issued shares of Equinox Resources Ltd, being some 215 million shares plus options presently held by various shareholders and option holders, would change hands.

3 The issued shares would be purchased or acquired by a Canadian incorporated company listed on the Toronto stock exchange. The options would be cancelled and the Canadian incorporated company would become the sole proprietor of all the issued capital in Equinox Resources Ltd. The present shareholders would obtain shares in the Canadian incorporated company according to a formula laid out in the scheme documents. In effect, the Canadian listed and incorporated company would become the proprietor of all the shares in Equinox Resources Ltd and its present shareholders would, subject to the formula, take shares in the Canadian incorporated parent.

4 As explained in my reasons of 10 May, nothing in the proposal affects creditors, whether secured or unsecured, of Equinox Resources Ltd nor does it modify in any way the rights of shareholders in Equinox Resources Ltd. That statement requires some elaboration. The scheme does involve the present shareholders exchanging their shares in Resources for shares in the Canadian incorporated and listed parent. So, existing shareholders would part with their shares in the company but the rights attaching to the shares would not be altered by the scheme.

5 Because of the lack of any direct effect of the proposed scheme upon existing shareholders in the sense that I have described or upon creditors, there is less reason for the court to be concerned about the effect of this reconstruction upon third persons. Accordingly, the prime need is for the court to be satisfied that the shareholders of Equinox Resources Ltd have been properly informed of the details and the consequences of the implementation of the proposed scheme.

6 I am satisfied that this has been accomplished by the distribution of the scheme documents in the manner set out in the affidavits which have been treated as read in support of this application. There are the nine affidavits which were tendered as exhibits this morning. It is not necessary for me to go to those directly.

7 The meeting of shareholders to consider the resolution designed to implement the scheme, subject to ultimate approval of the court, was held in Perth on 15 June. The details of the meeting are set out in the affidavit of Mr D G Reynolds sworn 15 June 2004. The minutes of the meeting, the list of shareholders and other relevant documents are attached. The resolution which was proposed for consideration at that meeting and which was passed in the circumstances I shall shortly describe was as follows:

"Pursuant to and in accordance with the provisions of section 411 of the Corporations Act the arrangement proposed between Equinox Resources and its shareholders as contained in and more particularly described in the scheme booklet accompanying the notice convening this meeting is agreed to and the Board of directors of Equinox Resources is authorised to agree to such alterations or conditions as are thought fit by the Court and subject to approval of the scheme by the Court to implement the scheme with any such alterations or conditions."

8 I should add that no alterations or conditions have been sought and I do not consider it is necessary to consider any.

9 Notice of the meeting was given in the proper form to the shareholders and it was also advertised in the manner set out in the affidavits. At the scheme meeting shareholders in aggregate holding 139,757,896 shares voted in person or by proxy. There were 91 such shareholders present and voting.

10 All shareholders present and voting voted in favour of the implementation of the scheme, there being no dissentients. They held approximately 65 per cent of the issued shares of the company.

11 When granting leave to convene this meeting and making the orders of 10 May 2004 I directed that at the meeting shareholders who also held options for the issue of other shares in the company, who would as a consequence of the introduction of the proposed scheme if approved have those options cancelled and be issued with shares in the Canadian incorporated and listed parent, should have their votes counted separately. The reason for this direction was because of the potentiality, slight though it was, that an outcome, in the sense of approval or otherwise, of a resolution by shareholders to pass this scheme might have been determined by the votes of shareholders who held options and whose interests were not exactly congruent with the interests of all other shareholders.

12 A separate record of the voting of the shareholders who held options in the company was made at the meeting and is reported to this Court in the affidavit of Mr Reynolds. It shows that there were nine such option holders who, between them, held a little over 15 million shares in the company who were among those who voted unanimously in approval of the resolution propounding the scheme.

13 I do not consider that I should ignore or dil ute the influence of the votes cast by shareholders who held options. However, I note, with some reassurance, that even if one were to do so, there would still be approximately 124 million shares, the votes of which were cast in favour of this resolution and that those shares, excluding the option holders, represent approximately 57 per cent of the issued capital of the company.

14 In short there has been overwhelming approval for this proposal by all concerned and I am satisfied that the shareholders of the company have exercised their own judgment and their personal rights to indicate what they consider to be in the best interests of the company for its future operations.

15 That being the case the only other consideration of any significance which requires the court's attention is whether or not this is a transaction which needs to be reported to, or to have the approval of, the Treasurer of the Commonwealth, under the legislation relating to foreign takeovers. By the order of 10 May 2004 I directed that details of the proposed transaction and the scheme documents should be provided to the Treasurer of the Commonwealth and in an affidavit of Ms M N Campion sworn 28 May 2004 filed in support of these proceedings there is a description of how those directions were faithfully carried out. Correspondence between the solicitors for the applicant and an executive member of the Foreign Investments Review Board at the Treasury of the Commonwealth is annexed.

16 It is enough for me to say that I am satisfied that the details of this proposed scheme have been fully disclosed to the Treasury of the Commonwealth and that the Treasury has indicated that it has no objection to the implementation of the scheme. The FIRB representative has indicated that it regards the implementation of the scheme, although perhaps not the subsequent capital raising, as being outside the scope of the provisions of the Foreign Acquisitions and Takeovers Act 1975. That being the case I do not think it is necessary or appropriate for me to inquire further into that issue.

17 There is also before the court affidavit evidence that the details of the proposed scheme and of the resolution passed at the meeting of shareholders have been provided to the Australian Stock Exchange, and to the Australian Securities and Investments Commission. There is a letter from the Australian Securities and Investments Commission dated 16 June annexed to an affidavit of Ms Campion sworn 17 June 2004 indicating that, pursuant to s 411(17)(b) of the Act, ASIC has no objection to the above scheme of arrangement on the basis that it is satisfied that it has not been proposed for the purpose of enabling any person to avoid the operation of any provisions of Chapter 6 of the Act. Chapter 6 of the Act, of course, relates to takeover provisions. The effect of this scheme if implemented will of course result, in practical terms, in the takeover of Resources Ltd by the Canadian incorporated and listed company already mentioned. However, by virtue of s 411(17) of the Act that consequence is not an impediment to the approval of the proposed scheme of arrangement because there has been produced to the court a statement in writing by ASIC stating that ASIC has no objection to the arrangement.

18 I have been referred by counsel for the applicant to the decision of Bryson J sitting in the Supreme Court of New South Wales in Re Arnotts Ltd (1998) 16 ACLC 423 dealing with a case under s 411 which itself involved, in effect, a takeover. His Honour there said apropos the significance of such a statement from ASIC as follows:

"The Commission's [being the predecessor to ASIC] statement of non-objection to the scheme removed from consideration the possibility of the courts withholding approval on the ground of intended avoidance of Chapter 6 of the law. However, it did not remove the possibility that approval could be withheld on the basis that a formal takeover would have been more appropriate for reasons other than just intended avoidance."

19 I note in addition that in Re Stockbridge Ltd (1993) 9 ACSR 637 Murray J concluded that where it was not the purpose of the scheme to avoid the takeover provisions of Chapter 6 a scheme could, and should, be approved and that in any event it is relevant for the court to proceed on the basis that the takeover provisions of Chapter 6 will not be regarded as having dominance over, or as automatically taking precedence over, the scheme provisions of Chapter 5.

20 That proposition is well-established. Further authority to that effect is to be found in the decision of O'Loughlin J sitting in the Federal Court of Australia in Adelaide in the case of ACM Gold Ltd v Mt Leyshon Gold Mines Ltd [1992] FCA 89; (1992) 7 ACSR 231. Accordingly I am satisfied that in the present circumstances the fact that this arrangement, if implemented, will produce what is in effect a takeover is no impediment to its approval.

21 I am also asked by counsel for the applicant company to grant an exemption under subs 411(12) of the Corporations Act from compliance with the requirements of subs 411(11). Subsection 411(11) reads:

"Subject to subsection (12) a copy of every order of the court made for the purposes of paragraph 4(b) must be annexed to every copy of the constitution of the body issued after the order has been made."

22 I am satisfied that the purpose of that provision is to ensure that any modification of the rights of shareholders of the company which is the subject of the scheme or any other provision in the scheme which may affect the interests of persons dealing with the company, such as prospective creditors or purchasers of shares, will be sure to have the opportunity of seeing what the exact rights of shareholders in the company or of its creditors are, as modified, if at all, by the scheme which has been approved.

23 However, as I have already indicated, this proposed scheme will not involve modification of any rights of shareholders or of creditors or of persons dealing with the company and, consequently, there is no need to insist on compliance with that provision. Accordingly I will grant the exemption which is sought.

24 In those circumstances I consider that the scheme of arrangement should be and is approved and I will make orders as sought in the minute before me dated 11 June 2004.