Sundance Resources Limited, in the matter of Sundance Resources Limited [2012] FCA 1290

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 297 of 2012

IN THE MATTER OF SUNDANCE RESOURCES LIMITED ACN 055 719 394 SUNDANCE RESOURCES LIMITED ACN 055 719 394

JUDGE: MCKERRACHER J DATE: 19 November 2012 PLACE: PERTH

INTRODUCTION 1 These are reasons for orders made after a first hearing in relation a proposed scheme of arrangement. The plaintiff (Sundance) sought orders under s 411(1) and s 1319 of the Corporations Act 2001 (Cth) (CA) to convene a meeting to consider the scheme of arrangement with its ordinary shareholders and certain ancillary relief. Sundance, in accordance with the CA, consulted with the Australian Securities and Investments Commission (ASIC). ASIC did not intervene.

OUTLINE OF SCHEME 2 Sundance is an Australian incorporated public company listed on the Australian Securities Exchange (ASX) with approximately 21,588 registered holders (as at 7 November 2012) of an aggregate of 3,052,227,034 ordinary shares (Shares). It is in the business of international iron ore exploration and development, with assets in the Republic of Cameroon and the Republic of Congo. 3 A scheme is proposed between Sundance and its ordinary shareholders (Scheme). The Scheme involves the acquisition of all of the Shares of Sundance by Hanlong (Africa) Mining Investment Ltd (Hanlong), a Hong Kong incorporated company whose ultimate parent company is Sichuan Hanlong (Group) Co., Limited (Sichuan). Sichuan is incorporated in the People's Republic of China. 4 The Scheme contemplates that: Sundance shareholders will transfer their Shares to Hanlong; Sundance shareholders will receive AUD0.45 for each Share; the Scheme will effect the acquisition of Sundance by Hanlong and will result in Sundance becoming a wholly owned subsidiary of Hanlong; Sundance will cease to be listed on the ASX; and if the Scheme is approved by members and the Court, Sundance options will be cancelled or exercised prior to scheme implementation.

EVIDENCE IN SUPPORT 5 Sundance relied on eight affidavits plus an affidavit of Mr Nelson Feng Chen of 8 November 2012 filed by Hanlong on 9 November 2012.

ISSUES FOR DETERMINATION 6 As stated many times, there are three stages to a successful application under s 411 CA. First, the Court approves the convening of the scheme meeting and approves a draft explanatory statement to be sent to the members. Second, members vote on the scheme at the scheme meeting. Third, the Court approves the scheme: Re CSR Ltd (2010) 183 FCR 358 (at [7]); Re Foundation Healthcare Ltd (2002) 42 ACSR 252 (at [36]). Questions relevant to the first stage are as follows: Is there a compromise or arrangement? Is there a Part 5.1 body? Are there members of a company? Are there classes of members? Should the Court make orders to convene a meeting? 7 I will deal with each of these first stage questions in turn.

Arrangement 8 The word 'arrangement' is of wide import: Re NRMA Insurance Ltd (No 1) (2000) 156 FLR 349 (at [20]). 9 The Sundance board unanimously recommends that, in the absence of a superior proposal, Sundance shareholders vote in favour of the Scheme at the proposed Scheme meeting. 10 Ernst & Young Transaction Advisory Services Limited (Ernst & Young), the independent expert appointed by the Sundance board to assess the Scheme, has prepared a report and concluded that the proposal is in the best interests of Sundance shareholders. Ernst & Young states that Sundance has been valued in the range of AUD1,216,948 to AUD2,023,090, giving a value per share range of AUD0.39 to AUD0.65 with a midpoint value of AUD0.52 per share. It concludes that Sundance shareholders are likely to be better off if the Scheme proceeds. 11 Critically as Sundance reminded me, it is for the members to decide if they should accept the terms of the Scheme as amended. The Scheme is bona fide and is properly proposed. As the Full Federal Court observed in Re CSR Ltd (at [64]-[65]), it is not the appropriate time at the first court hearing to seek an order convening a meeting of shareholders to determine whether the scheme would be ultimately approved by the Court. Rather, as French J (as his Honour then was) noted in Re Foundation Healthcare Ltd, the question is whether the scheme is so blatantly unfair that it should be stopped in its tracks. 12 Section 411 of the Act confers jurisdiction on the Court in respect of a Pt 5.1 body. The term 'Part 5.1 body' is defined in s 9 CA to mean, relevantly, a company. Sundance is a company. 13 An arrangement to which s 411(1) CA applies is one between a company and its members or any class of them. It is only such an arrangement to which the Court may grant its approval pursuant to s 411(6). 14 Section 411 does not define the term 'class'. However, in the leading case of Sovereign Life Assurance Company v Dodd [1892] 2 QB 573, Bowen LJ said (at 583) that the term ought to be given such a meaning: … as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. 15 In this case, all members have the same rights in the Scheme. That is, the right to receive the scheme consideration. 16 As for the option holders, to the extent that a member also holds options the member will receive no different consideration because the conversion of that member's options only gives an entitlement to a greater share of the scheme consideration. An option holder who converts his or her options will be treated as a member and those holders on the record date recorded as members will share on the scheme consideration. The receipt of such amounts does not result in a member receiving a right or benefit under the scheme that is different to other members, and the amount is received as holder of and in exchange for options.

TEST AT STAGE 1 17 As submitted by Sundance, the standard of review at this stage is whether the Scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members: Re Sonodyne International Ltd (1994) 15 ACSR 494 (at 499) per Hayne J. If the proposed arrangement is one that seems fit for consideration by a meeting of members and is a commercial proposition likely to gain the Court's approval if passed by the necessary majorities, then leave should be given to convene the meeting: Re ACM Gold Ltd (1992) 34 FCR 530 (at 535) per O'Loughlin J. The Court is not required to be satisfied either at the convening or approval stage that no better scheme could have been devised: Re Foundation Healthcare Ltd (at [44]) per French J. 18 Orders should be made convening of the Scheme meeting and approve the dispatch of the Scheme Booklet (explanatory statement) if the Court is satisfied of the following matters: The Scheme is an arrangement in respect of which the Court may order a meeting of the members: s 411(1) CA. In other words: the Scheme is an arrangement; Sundance is a Pt 5.1 Body; the Scheme participants are members of Sundance; and the Scheme meeting will be convened between members of the same class. ASIC has had a reasonable opportunity to examine the terms of the Scheme and explanatory statement and make submissions to the Court in relation thereto: s 411(2)(b) CA. The explanatory statement provides adequate disclosure (s 412(1)(a)(i) CA) and contains the prescribed information (s 412(1)(a)(ii), r 5.1.01 and Sch 8 cl 8301-8319 of the Corporations Regulations). The procedural requirements of the Federal Court (Corporations) Rules 2000 (Corporations Rules) have been met. There is no apparent reason why the Scheme should not, in due course, receive the Court's approval if the necessary majority of members' votes is achieved: Re NRMA Insurance Ltd (No 1) (at [3], [14]-[41]) per Santow J; Re Ranger Minerals Ltd (2002) 42 ACSR 582 (at [21]-[23], [31]-[36], [40] and [47]) per Parker J; Re Hills Motorway Ltd (2002) 43 ACSR 101 (at [5]) per Barrett J; Re Orica Ltd [2010] VSC 231 (at [7]) per Davies J; Re MAC Services Group Ltd (2010) 80 ACSR 390 (at [5]) per Barrett J.

DISCLOSURE OF UNUSUAL ASPECTS 19 In light of the ex parte nature of the hearing and the disclosure principle described by Barrett J in Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 (at [7]), there were a number of aspects of the transaction which Sundance brought to my attention. Sundance's overall submission, which I accepted, was that none of the matters that follow should be of concern to the Court.

DEAL PROTECTION CLAUSES 20 Under cl 14 of the Scheme Implementation Agreement (SIA), Sundance and Hanlong acknowledge that Sundance is not subject to any exclusivity obligations and, as such, any direct or implicit solicitation of offers made by Sundance to any third party regarding the sale of any of its securities or assets will not breach the terms of the SIA. 21 Under cl 11.2 of the SIA, Sundance has agreed to pay a break fee of AUD13,720,000 if Hanlong validly terminates the SIA in accordance with cl 16.1(b)(ii) of the SIA. The lack of exclusivity obligations and the break fee are disclosed, respectively, at section 6.11(d) and section 6.11(e) of the Scheme Booklet. 22 The affidavit of Mr Brian Conrick of 7 November 2012 discloses (at [45]) that the break fee does not exceed 1% of the equity value of Sundance calculated by reference to the total number of issued Sundance shares at 24 August 2012 multiplied by the Scheme price (AUD0.45). Therefore Sundance submits that it is not a matter calling for further comment, particularly given the observation of the Takeovers Panel in Guidance Note 7 on 'Lock-up Devices'. Sundance also relies on Robson J's observations in Re Coles Group Ltd [2007] VSC 389 (at [69]). Sundance makes the following points in relation to this obligation: the break fee payable by Sundance is within the Takeovers Panel Guidelines; the break fee is not payable by Sundance if the shareholders vote down the Scheme; the circumstances in which the break fee is payable by Sundance are set out in cl 11.2 of the SIA; there is also a break fee payable by Hanlong in certain circumstances set out in cl 11.3 of the SIA; there is contractual acknowledgement by each party that the break fee is designed to pay the genuine and reasonable estimate of the costs that would actually be suffered by the other of them - see cl 11.7 of the SIA; and both Sundance and Hanlong are represented by legal firms recognised as practising in the mergers and acquisitions area.

NOTICE OF SECOND HEARING 23 Regulation 3.4 of the Corporations Rules requires that notice of the second hearing be published in a newspaper at least 5 days before the date fixed for the hearing of the application. Sundance wishes to publish the notice on 13 December 2012, being 5 days before the proposed date of the second hearing (18 December 2012), though prior to the Scheme meeting. An order to this effect was recently made by Hall J in Re Westgold Resources Ltd (No 2) [2012] WASC 395. His Honour there said (at [10]): The meetings were convened on 3 October 2012 and those meetings will be considered in more detail below. Where the members or option holders vote in favour of a scheme of arrangement it is then necessary for the company to return to the court for approval of the scheme. In the normal course, notice of the making of the second application to the court would be published following any meetings. In the present case, the dates of the meetings and the second application hearing were such that if notice was only published following the meetings it would provide insufficient notice of the hearing. In these circumstances, I made a further order on 25 September 2012 permitting notice of this hearing to be published before the date of the meetings to allow for at least five days notice of this court hearing. 24 For the same reason given in Re Westgold Resources Ltd, a similar order was sought and made in this proceeding.

CONVENING SHAREHOLDER MEETING 25 Sundance proposes to convene a meeting of shareholders in accordance with Pt 2G.2 CA and the terms of its constitution. In particular, Sundance will deem that a notice sent by post is given on the day after the date of its posting, in accordance with its constitution.

RISK AND TITLE 26 Clause 5.2 of the Scheme document deals with performance risk by timing the provision of the scheme consideration such that it must be provided before the transfer of Shares from Sundance to Hanlong takes place. Clause 4.5 of the Scheme document provides for a transfer of the Shares with clear title. A clause to this effect was approved by Lindgren J in Re Investa Properties Ltd [2007] FCA 1104 (at [22]-[30]). 27 Clause 4.5 of the Scheme provides for a shareholder warranty that the Shares are transferred free of encumbrances. Specific disclosure of this appears in section 6.7 of the Scheme Booklet. 28 Clause 4.6 of the Scheme document provides that the proxy right does not arise until the scheme consideration is paid.

ASIC CONSIDERATION 29 The jurisdiction of the Court to make an order convening meetings under s 411(1) CA is conditional upon the matters set out in s 411(2). Section 411(2) requires that the Court be satisfied of two matters before making an order. First, that ASIC has been given 14 days notice of the hearing, or such lesser period of notice as the Court or ASIC permits. Second, that ASIC has had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement and to make submissions to the Court. 30 The Scheme Booklet was lodged with ASIC on 24 October 2012 and updated and provided to ASIC on 5 November 2012. Notice of the date and time of the hearing was given to ASIC on 24 October 2012. As noted at the outset, ASIC indicated that it did not intend to attend or make submissions at the first court hearing. This followed a period of consultation and review of the documents since the date of first lodgement.

CONCLUSION AND ORDERS SOUGHT 31 There was no order sought that went beyond existing practice. For those reasons and for the reasons advanced by Sundance, orders were made in terms of the minute provided by Sundance. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.