Talison Lithium Ltd, in the matter of Talison Lithium Ltd (No 2) [2013] FCA 535

Federal Court of Australia|2013-05-31|Before: Mr J, Gilmour J

REASONS FOR JUDGMENT 1 The plaintiff, Talison Lithium Limited (ACN 140 122 078) seeks orders pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (the Act) approving the schemes of arrangement between Talison and the holders (Shareholders) of its ordinary shares (Shares) (Share Scheme) and Talison and the holders (Optionholders) of its options (Options) (Option Scheme) (together the Schemes) and an order pursuant to s 411(12) of the Act exempting Talison from compliance with s 411(11) of the Act. 2 The question is whether the Court should grant approval for the Schemes to give effect to the acquisition by Windfield Holdings Pty Ltd of 100% of the outstanding Shares and 100% of the outstanding Options. 3 The Court's primary concern at the second court hearing in respect of a scheme is whether there has been compliance with the Court's directions and statutory requirements for passage of the scheme. 4 The Court must be satisfied under s 411(17) that the scheme has not been proposed to avoid Ch 6, or that the plaintiff has a statement from the Australian Securities & Investments Commission (ASIC) that it has no objection to the scheme. The Court must also be satisfied that the scheme is properly proposed, fair and reasonable.

Amendment to Scheme Booklet 6 At the first hearing on 19 December 2012, the Court made orders (Orders), inter alia, approving the scheme booklet, annexure marked "HFL2" to the second affidavit of Heath Ford Lewis sworn 18 December 2012 (First Hearing Scheme Booklet). 7 On 20 December 2012, the Court made orders (Supplementary Orders) changing the venue of the Scheme Meetings and approving amendments to the First Hearing Scheme Booklet to change all references to the venue of the Scheme Meetings so as to be consistent with the Supplementary Orders. 8 Since the time that the second affidavit of Heath Lewis was sworn and when the Supplementary Orders were made, but prior to despatch to Shareholders and Optionholders, amendments were made to the First Hearing Scheme Booklet to insert dates that could only be ascertained after the first hearing. The amendments were not substantive.

Compliance with orders 9 The plaintiff has complied with the Orders and the Supplementary Orders.

Jurisdiction to approve scheme 10 Section 411(4) relevantly provides that an arrangement is binding on the members of a company and the company if at a meeting convened in accordance with an order of the Court, a resolution in favour of the arrangement is: (a) passed by a majority in number of the members present and voting (either in person or by proxy) (s 411(4)(a)(ii)(A)) (Headcount Test); and (b) if the body has a share capital - passed by 75% of the votes cast on the resolution (s 411 (4)(a)(ii)(B)) (Votes Test), and the arrangement is approved by order of the Court (s 411(4)(b)). 11 The Court has a broad discretion to approve a scheme and is not bound to approve it merely because the Court has previously made orders for the convening of a meeting or because the statutory majorities have been achieved: Re NRMA Ltd (No 2) (2000) 156 FLR 412 at [21]. The courts are generally reluctant to intervene with schemes in which the requisite majority has been reached by fully informed members: Re NRMA Ltd (No 2).

Approval 12 The principles which govern the court's discretion to approve a scheme are well established and were adverted to by Jacobson J in Re Seven Network Ltd (No 3) (2010) 267 ALR 583 at [35]-[40]. There is no need to repeat these here. 13 The Court's jurisdiction in relation to an arrangement is supervisory. The Court is to be satisfied that there has been no oppression and the arrangement is one that is capable of being accepted. The Court must be satisfied that the meeting to approve the scheme has been completed and that the resolution has been passed in accordance with the statutory requirements: Central Pacific Minerals NL [2002] FCA 239 at [12]. 14 The Court's ultimate approval of the scheme is dependent upon fulfilment of one of two alternative conditions set out in s 411(17) of the Act. 15 ASIC has provided a written statement to the effect that it has no objection to the Scheme although it has invited the Court's attention to certain matters for the purposes of the hearing. Despite this, the second alternative condition (s 411(17)(b)) is, in effect, satisfied. The ASIC letter is in the 'usual form' save for raising matters concerning whether financing conditions precedent will be satisfied. 16 If the Court were to find that the Scheme had been proposed for the purpose of avoiding the operation of a provision of Ch 6 (proscribed purpose) and that the existence of the proscribed purpose would work oppressively, unjustly or unfairly against the plaintiff's members or some other interested party, that finding may be taken into consideration as part of the exercise of the Court's power to approve the scheme under s 411(4)(b): Re Coles Group Ltd (No 2) (2007) 215 FLR 411 at [75]-[80]. 17 Where the directors of a target company consider a merger proposal is in the best interests of the members of the target company the implementation of the merger by a method that provides for the certainty of outcome (100% ownership by the bidder company) through a single process is a commercially rational reason for choosing a scheme of arrangement over a Ch 6 takeover. This reason for preferring a scheme of arrangement to a Ch 6 takeover is not a proscribed purpose: Re ACM Gold Limited; Re Mt Leyshon Gold Mines Limited (1992) 34 FCR 530 at 541-543. 18 There is no reason to conclude that the Scheme has been proposed for the proscribed purpose. 19 ASIC is properly entitled to raise these for the Court's consideration, however, in my opinion, it is not strictly a matter under s 411(17) of the Act but rather is a matter that is to be considered in the context of the Court's discretion in respect to approval of the Schemes under s 411(4) of the Act. I accept the plaintiff's submission that properly understood, ASIC's point is about the satisfaction of a condition subsequent to court approval. 20 There is no conditionality within the Schemes concerning Windfield's financing package. Instead, the Schemes, in terms, require Windfield to satisfy its funding requirements by 5.00 pm the day before the Implementation Date (that is 5.00 pm on Monday, 25 March 2013). This construct protects the applicant's securityholders from performance risk in respect of the Schemes, the elements of which can be summarised this way: (a) each of the applicant and Windfield, acting through responsible boards of directors, must issue the relevant certificates of satisfaction or waiver of the Conditions; (b) the deposit of scheme consideration into trust accounts operated by Talison (or a depositary appointed by Talison) in cleared funds by 5.00 pm the Business Day prior to the Implementation Date (that is by 5.00 pm on Monday, 25 March 2013), failing which Talison becomes entitled to receive the break fee of approximately US$25 million (already paid and held) and terminate the SIA; and (c) Windfield has entered into a deed polls in favour of the Shareholders and the Optionholders pursuant to which Windfield is obliged to pay the scheme consideration in accordance with terms of the Share Scheme and the Option Scheme, respectively. 21 Accordingly, the Windfield financing package does not involve unacceptable scheme conditionality. There are provisions that work to ensure self-executing efficacy. To the extent the financing package is a relevant issue at all, its temporal relevance is confined to the funding obligation due when Windfield deposits the scheme consideration into the relevant trust account, that is, by 5.00 pm on Monday, 25 March 2013. 22 I am satisfied on the evidence as to the following: (a) there is no performance risk to the Schemes; (b) the conditions have been satisfied (subject only to Court approval); (c) each of the conditions within the Windfield financing are self-executing and are matters likely to be satisfied in any event; (d) in the event that the conditions to the Windfield financing are not satisfied, the Shares and Options will not be transferred and the status quo will be preserved; (e) in the event that the conditions to the Windfield financing are not satisfied, Talison will retain Windfield's deposit of US$25 million currently in an account operated by Talison; and (f) the Court may, consistently with the authorities and previous practice, exercise its discretion to approve the Schemes in such circumstances, even if it is not certain that the Windfield financing conditions will be satisfied. 23 The matters, quite properly raised by ASIC in its letter, for the Court's consideration are not such as to preclude approval of the schemes pursuant to s 411(17) or otherwise. The ASIC letter satisfied the provisions of s 411(17)(b) of the Act.

Notice of this hearing 24 On 7 March 2013, a notice of this hearing was published in The Australian newspaper. The notice was amended to reflect: (a) the change of address of the Scheme Meetings approved by the Court in the Supplementary Orders; and (b) that the notice was published after the Scheme Meetings were held. 25 While usual practice to is to publish the notice prior to the Scheme Meetings, 99.98% of all votes cast were in favour of the Share Scheme and 99.93% (by value) of all votes cast were in favour of the Option Scheme. For that reason, the plaintiff submits, and I accept, that the amendments to the notice do not have any significant impact on the likelihood of a person opposing the Schemes. In any event, the notice gave persons 5 days to file a notice of appearance in opposition to the Schemes. The notice directed persons who wished to oppose the approval of the Schemes to file and serve on Talison a notice of appearance and affidavit at the address for service given in the advertisement. Mr Heath Lewis of Clayton Utz was named as the relevant contact. The third Lewis Affidavit confirmed that no notice of an intention to oppose approval of the Schemes had been received by Mr Lewis up until the time of filing that affidavit. 26 There are no specific requirements of the Act or the Federal Court (Corporations) Rules 2000 (Cth) for notice of the application to be given to ASIC, however, notice of this hearing was served on ASIC.

Conditions precedent 27 The Schemes are subject to a number of conditions being satisfied. These conditions precedent are referred to in cl 2.1 of the Share Scheme and of the Option Scheme respectively, which cross references to the conditions precedent referred to in the implementation agreement dated 6 December 2012. 28 A certificate has been provided to the Court that the conditions in cll 2.1(a) and (b) of the Share Scheme and of the Option Scheme have been satisfied. 29 I am satisfied that grounds exist for the Court to exercise its discretion to approve the Schemes. These include the following: (a) The statutory majorities have been obtained. 99.98% of all votes cast were in favour of the Share Scheme and 99.93% (by value) of all votes cast were in favour of the Option Scheme. (b) The opinion of the Independent Expert is that the transaction is fair and reasonable and in the best interests of Shareholders. (c) There is no contrary evidence and nothing in the Independent Expert's Report on its face that suggests that this opinion lacks validity. (d) Reasonableness of the scheme was prima facie established at the first hearing under the Eastment principle. No new matters were brought to the Court's attention at the second hearing to affect this. (e) ASIC has provided a letter under s 411(17)(b). (f) There is no criticism of the disclosure by any regulatory body or shareholder. 30 Accordingly, I am satisfied that the provisions under s 411 of the Act have been satisfied. 31 I am satisfied from the material provided by the applicant that there has been full disclosure of all relevant matters. There is nothing to suggest that shareholders voted other than in good faith or that they cast their votes for an improper purpose. There is nothing which casts doubt on the procedural integrity of the meeting process. No party appeared to oppose the grant of orders.

Conclusion 32 For all these reasons I am satisfied that the legislative requirements have all been met and that the Court ought exercise its discretion in approving the Schemes. 33 There will be orders accordingly. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.

Corporations Act 2001(Cth)ss 411(4)(b), 411(11), 411(12), 411(17)

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