Straits Resources Limited, in the matter of Straits Resources Limited (No 2) [2011] FCA 47

Federal Court of Australia|2011-01-31|Before: Jacobson J

Introduction 1 This is the second court hearing of an application to approve a scheme of arrangement between Straits Resources Ltd ("Straits") and its ordinary shareholders pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) ("the Act"). The scheme is described in the documentation as the Demerger Scheme. There is a second related scheme of arrangement known as the Acquisition Scheme but the meeting to consider that scheme is not due to be held until March 2011.

Approval at Scheme Meeting 2 The Scheme Meeting for the Demerger Scheme was held in accordance with orders of the Court on 21 January 2011. The Demerger Scheme was approved by an overwhelming number of those members whose votes were cast. 3 A total of 232,619,637 votes were cast at the meeting. Of those, 232,372,840 votes, representing 406 shareholders, voted in favour of the resolution to approve the Demerger Scheme. These numbers translate to 99.89 % in value of votes cast in favour of the Scheme and 93.98 % of shareholders present and voting in favour of the Scheme. 4 At the first court hearing I required the votes of Standard Chartered Private Equity Limited ("Standard Chartered") to be tagged for identification at the meeting. Standard Chartered cast 61,139,221 votes, being the total of its shareholding, in favour of the resolution to approve the Demerger Scheme. 5 If those votes are ignored the figures still disclose an overwhelming approval for the Demerger Scheme. Ignoring the Standard Chartered votes, a total of 171,480,416 votes were cast and 171,233,619 votes, representing 405 shareholders, voted in favour of the Demerger Scheme. The figures translate to 99.86 % in value of votes cast to approve the Scheme and 93.97 % in number of shareholders. 6 At the general meeting held after the Demerger Scheme Meeting on 21 January 2011 Straits shareholders also voted overwhelmingly in favour of the ordinary resolution to approve the capital reduction to which I referred in my judgment given in relation to the first court hearing (see Straits Resources Limited, in the matter of Straits Resources Limited [2010] FCA 1466).

Role of the Court 7 I endeavoured to summarise the principles applicable to the exercise of the discretion to approve a scheme of arrangement in Re Seven Network Limited (No 3) (2010) 77 ACSR 701 ("Seven Network") at [31]ff. It is unnecessary to repeat the principles. 8 It is sufficient to say that the court is required to consider whether there has been compliance with the provisions of the Act and whether the majority of the shareholders are acting in good faith in voting in favour of the scheme and also whether the scheme is one that is capable of being accepted by shareholders looking to their own commercial advantage. It is well established that the court ordinarily approaches its task upon the basis that the members are better judges of what is in their commercial interests than the court.

Consideration 9 I am satisfied in accordance with the well-established principles applicable to the exercise of the discretion that I ought to approve the Demerger Scheme. The evidence satisfies me that all of the necessary procedural steps have been complied with. 10 The only issue which I raised with Mr F Gleeson SC, who appears for the plaintiff, related to the number of votes cast at the meeting. There is authority in an English decision Re BTR Plc [2000] 1 BCLC 740 ("Re BTR") to which I referred in Seven Network at [34], that the court may exercise its discretion to refuse approval if the court is satisfied that the meeting is "unrepresentative" or that those voting in favour at the meeting have done so with a special interest to promote. 11 I am satisfied that this principle is not enlivened in the present case. It is clear from the numbers of shareholders voting in favour, to which I referred above, that it cannot be said that the meeting was unrepresentative in the sense referred to in Re BTR. 12 Although the number of shareholders voting at the meeting appears on its face to be a small percentage of total shareholders, this does not mean in the present case that the vote was unrepresentative. It is true that only 432 shareholders out of a total of 3969 cast their votes but those 432 shareholders represented approximately 74 % of the total number of issued shares. 13 Even if the votes cast by Standard Chartered are ignored, there were still 405 shareholders representing approximately 67 % of the total number of issued shares who voted in favour of the Demerger Scheme. In those circumstances I do not consider the meeting to be unrepresentative, or that those who voted in favour did so with a special interest to promote.

The Securities Act 1933 (US) exemption 14 Straits Metals intends to rely upon the Court's approval of the Demerger Scheme for the purposes of the exemption conferred on United States shareholders under s 3(a)(10) of the Securities Act 1933 (US) in connection with the implementation of the Demerger Scheme and the issue of shares in Straits Metals, in accordance with clauses 4.2 and 4.6 of the Demerger Scheme. 15 The principles which have been applied by the courts in relation to the application for an exemption were summarised by me in the decision in Re Solution 6 Holdings Limited (2004) 50 ACSR 113 ("Re Solution 6") at [38]ff. I do not need to repeat what I said in relation to the principles stated in those authorities. 16 It is sufficient to say that the court exercises a supervisory jurisdiction in the sense referred to in the decisions which I summarised in Re Solution 6. The court does not act as a valuer but it receives assistance from the existence of an independent report from an unaligned expert. 17 In this matter I have, in evidence, the expert report of Mr Pendergast and Ms Moore of Ernst & Young Transaction and Advisory Services Ltd. The authors of that report have concluded that the Demerger Scheme is in the best interests of the shareholders of Straits. 18 Also, the other matters referred to in the authorities have been satisfied. These include the notification to the court and the shareholders of the intention to rely upon the exemption and upon the fact that the present application was open to all shareholders to attend. No shareholder attended before me to express opposition to approval of the Demerger Scheme.

Amendment to the Scheme 19 The only other issue which arises is of a technical nature. There was a typographical error in the terms of the Demerger Scheme which described the number of shares in Straits previously on issue as 255,203,613 shares instead of the correct figure which was 255,203,614 shares. 20 Accordingly, Straits asked me to make an order under s 411(6) of the Act to approve the Demerger Scheme subject to an alteration to clause 2.1(d)(i) concerning the number of Straits shares on issue as at the date of the Demerger Implementation Agreement. 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: see Re Independent Practitioner Network Limited (No 2) (2008) 26 ACLC 1,249 at [10] - [17] per Lindgren J; see also Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [36] - [43].

Conclusion 22 For these reasons I propose to make orders in accordance with the draft orders handed to me by Mr Gleeson. 23 I will mark Mr Gleeson's outline of plaintiff's submissions together with his amended outline of submissions as MFI1. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

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