Tawana Resources NL, in the matter of Tawana Resources NL (No 2) [2018] FCA 1724

BANKS-SMITH J: 1 On 17 August 2018 I made orders approving the convening of a meeting of shareholders to consider a scheme of arrangement, and approving the distribution of a scheme booklet: Tawana Resources NL, in the matter of Tawana Resources NL [2018] FCA 1456. 2 The meeting was convened on 26 September 2018 and adjourned. Certain events have intervened and Tawana wishes to make further disclosure. It appropriately recognised that it must approach the Court for orders before despatching additional material: Coates Hire Limited No 2, in the matter of Coates Hire Limited [2007] FCA 2105 at [6] (Emmett J). 3 Tawana seeks orders for leave to provide supplementary materials by way of a supplementary scheme booklet to the shareholders and to reconvene the scheme meeting on a different date and at a different venue. 4 I made orders granting the application on 8 November 2018 and now provide my reasons.

Materials 5 Tawana relies on the materials filed in support of its original application to the court, and also relies on four further affidavits: (1) affidavit of Alexei Fedetov filed 6 November 2018; (2) affidavit of Pauline Gately filed 8 November 2018; (3) further affidavit of Alexei Fedetov filed 8 November 2018; and (4) affidavit of Heath Lewis filed 8 November 2019. 6 The factual matters referred to below are based on the evidence provided by those further affidavits.

Summary of need for disclosure 7 As summarised in my previous reasons, Tawana is a public company with shares listed on the Australian Securities Exchange (ASX) and the Johannesburg Stock Exchange. Its business is the development and operation of the Bald Hill lithium and tantalum mine in Western Australia. That project is owned 50% by each of Tawana (through a wholly owned subsidiary) and Alliance Minerals Assets Limited (Alliance). 8 By the proposed scheme, Alliance is to acquire Tawana's shares on the basis of providing 1.1 fully paid shares in Alliance for each share in Tawana held at the record date. In this manner Tawana would become a fully owned subsidiary of Alliance and Tawana would be delisted. 9 One of the conditions precedent to the scheme becoming effective is a requirement that Alliance be listed on the ASX so that the scheme consideration could be traded on the ASX. 10 One of the matters that was disclosed in the original scheme booklet despatched to shareholders was that in the event the merged group (Alliance and its subsidiaries, including Tawana) was unable to obtain sufficient funding for ongoing operating and capital requirements, there is a material uncertainty as to whether the merged group would continue as a going concern. 11 After despatch of the scheme booklet, Alliance approached the ASX to ascertain whether that matter would prevent Alliance being granted approval for admission to the official list of the ASX. The ASX declined to confirm its position, and so there was uncertainty as to whether or not the condition precedent would be satisfied within the timetable proposed for the scheme. Alliance and Tawana then agreed to waive the ASX listing condition and executed a letter agreement to that effect. Tawana released an ASX announcement confirming that outcome. 12 Following the waiver of the condition precedent, Tawana entered into arrangements for further funding from a third party (relevantly, Tribeca Investment Partners) by way of a secured $20 million term facility to be made available to its subsidiary, Lithco No 2 Pty Ltd (Lithco), and a further secured $20 million term facility to be made available to Lithco (as part of the merged group) upon implementation of the scheme. Tawana then secured an early advance as to $10 million, to be repaid and replaced by the first secured $20 million facility. Again, these developments were notified to the market by Tawana by an ASX announcement. Formal documentation with respect to those facilities has been executed. 13 The directors of Tawana and Alliance were then satisfied that the financial arrangements that had been secured should alleviate concern about the material uncertainty previously disclosed, so facilitating admission of Alliance post implementation to the ASX. Accordingly, they resolved to reinstate the condition precedent to the scheme and an executed letter agreement to that effect was executed and provided to the Court. 14 As a result of those matters, Tawana, in consultation with the Australian Securities and Investments Commission (ASIC), prepared the draft supplementary scheme booklet. The supplementary scheme booklet confirms that the waiver of the ASX listing condition has been revoked, provides a replacement Independent Expert Report (IER) (from BDO Corporate Finance (WA) Pty Ltd (BDO)), a replacement Independent Limited Assurance Report (ILAR) (from Ernst & Young Transaction Advisory Services Limited (EY)), updated financial information, details regarding the reconvened scheme meeting and an explanation as to how Tawana shareholders that have already voted via proxy can change their vote, should they wish to do so. 15 The supplementary scheme booklet is organised as follows: (a) a preliminary section containing the parts entitled 'Important Notices', 'Important Dates - Revised Timetable' and 'Letter from the Chairman of Tawana; (b) Section 1 - ASX Listing Condition; (c) Section 2 - Debt Arrangements; (d) Section 3 - Tawana Historical Financial Information; (e) Section 4 - Alliance Historical Financial Information; (f) Section 5 - Pro Forma Historical Financial Information; (g) Section 6 - Replacement IER; (h) Section 7 - Recommendation and Voting Intentions; (i) Section 8 - Australian Tax Implications of the Scheme; (j) Section 9 - Election Forms; (k) Section 10 - Postponed Scheme Meeting and Voting; (l) Section 11 - Conditions Precedent; (m) Section 12 - Consents; (n) Section 13 - Fees and Costs; (o) Section 14 - Important Notice Associated with Court Order under s 411(1) of the Corporations Act; (p) Section 15 - Writs relating to Former Alliance Executives; (q) Section 16 - Additional Information; (r) Annexure A - a copy of the Replacement IER (prepared by BDO); (s) Annexure B - a copy of the Replacement ILAR (prepared by EY); and (t) Annexure C - a copy of the Notice of Postponed Scheme Meeting. 16 In particular, I have had regard to sections 1 to 6 that address the ASX listing condition and financial arrangements referred to above, the disclosure of a change in valuation of Tawana shares from that disclosed in the first BDO report and the explanation to shareholders that they may change their votes if they have already provided a proxy (a matter highlighted in several places in the supplementary materials). 17 I have also noted the disclosure by Alliance of writs issued against it by the previous chief executive officer and executive director of Alliance. Those former executives seek (relevantly) compensation by way of 3,750,000 shares to be issued in their favour in Alliance. Without forming any view as to the prospects of success of the claims made by those persons, BDO was asked to consider whether the issue of those shares would impact its analysis. BDO confirms in its updated IER that any such share issue would not change its opinion that the scheme is fair and reasonable to Tawana shareholders and is in their best interests, absent a superior proposal. BDO provides reasons in support of its conclusion by way of valuation evidence that takes into account the potential for the additional shares to issue. 18 I consider that the supplementary scheme booklet provides adequate disclosure of the events that have led to the application and that it is appropriate that the shareholders be informed of the matters contained in it. Although the supplementary scheme booklet is long and contains considerable financial information, in my view the key information as to events since the previous court orders is presented in an accessible and readable way. 19 It remains necessary to consider whether it is appropriate for the Court to make the further orders sought.

Power to make orders 20 There is no question that the Court has power under s 1319 of the Corporations Act 2001 (Cth) (Act) to vacate or vary orders made under s 411 in relation to meetings for a scheme of arrangement, including orders adjourning a meeting convened under that section or authorising the despatch of further explanatory material: see Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited (No 2) [2015] FCA 410 at [10]-[13] (McKerracher J). 21 Counsel for Tawana usefully set out a list of the matters that generally fall for consideration at the hearing of an application such as this, and I adopt that list: (a) whether there remains utility in the proposed scheme (with or without modification) being put to the shareholders in the sense that something is capable of approval at a second court hearing if agreed by the requisite majorities; (b) whether any proposed modification to the scheme or some other development in the related transactions is permissible (to the same standard as at the first hearing and in the sense of the modification being lawful and for a proper purpose, fair, not unreasonable and not oppressive of a minority); (c) whether the Court should grant leave to despatch any proposed supplementary disclosure to shareholders having regard to: (i) there being a change in circumstances that warrants further disclosure; (ii) the obligation of the company and its directors to provide members with new material information about a proposed scheme; (iii) the Court being satisfied prima facie that there will be proper disclosure by sending the proposed supplementary materials; (d) whether there has been notice to ASIC and any indication of ASIC's position (including taking into account [60.91]-[60.93] of the ASIC Regulatory Guide 60); (e) whether there are any other matters relevant to the Court's discretion to allow the proposed scheme to be considered; and (f) what procedural directions under s 1319 of the Act are appropriate in the circumstances for any adjourned or postponed scheme meeting, including as to: (i) despatch of any replacement or supplementary notice of meeting; (ii) the sufficiency of notice, both as to time and content; (iii) treatment of existing votes and proxies; (iv) setting of the time for eligibility to vote; (v) validation of any steps and advertisement; and (vi) any other consequential or ancillary orders.

Utility in the proposed scheme meeting proceeding 22 This is not a scenario where there has been a change of circumstances that undermines the veracity of the scheme. In Kasbah Resources Limited, in the matter of Kasbah Resources Limited (No 2) [2016] FCA 1518 (McKerracher J), for example, there had been an error which led to a change in the view of the independent expert. 23 In this case, BDO, having considered the events since its previous IER, reached the same view that it held previously that the scheme is fair and in the interests of the shareholders. The change in circumstances is, essentially, the securing of finance by Tawana which the directors of Tawana perceive should assist the prospect that Alliance will be admitted to the official list of the ASX. According to Tawana, the changes in circumstances by way of the waiver of the condition precedent, the securing of financial assistance, followed by the revocation of the waiver of the condition precedent, in effect return the transaction to where it was when it first came before the Court on 17 August 2018. 24 It seems to me that the scheme should still be placed before the shareholders for their consideration. It is for the shareholders to decide whether they wish to approve the scheme. I do not consider anything now disclosed since the last orders alters that position.

No modifications to proposed scheme 25 No modification to the terms of the proposed scheme are proposed.

Leave to despatch supplementary scheme booklet 26 The approach to supplementary disclosure is the same as to the initial explanatory statement: see In the Matter of the Trust Company Limited [2013] NSWSC 1946 at [7] (Black J). That is, the Court must be satisfied that there has been proper disclosure with nothing misleading or deceptive in any material sense. 27 In addition to the comments above as to my review of the supplementary scheme booklet, I note the evidence relied upon on this application indicates that Tawana has undertaken a process of verifying the accuracy of the statements in the supplementary scheme booklet and Alliance has also undertaken a similar process, insofar as the information relates to Alliance. 28 The directors of Tawana and the executive chairperson of Alliance have confirmed that based on the verification process they are satisfied that the information contained in the supplementary scheme booklet is in all material respects correct.

ASIC's position 29 As made clear by [60.91] to [60.93] of the ASIC Regulatory Guide 60, ASIC's concerns for supplementary disclosure are to apply the same review of the supplementary disclosure as with an initial explanatory statement, and to ensure that all scheme participants have at least 10 days to consider any supplementary disclosure that is distributed before being required to vote on the scheme. 30 ASIC has had the opportunity to consider the supplementary scheme booklet in draft. Communications passing between ASIC and Tawana's solicitors with respect to the developments were disclosed to the Court, and were useful in highlighting particular matters that ASIC considered should be addressed. While ASIC's position on court applications for schemes is clear (it does not provide a statement under s 411(17)(b) of the Act until the confirmation court hearing, and does not advise the court until it has observed the entire scheme process), I consider it an important feature that Tawana's solicitors have considered ASIC's comments and apparently accommodated and addressed such matters by amendments to the supplementary scheme booklet where it was considered appropriate. 31 By letter dated 7 November 2018 to Tawana's lawyers, ASIC confirmed that it did not intend to appear at the hearing before me regarding the supplementary materials to intervene or oppose the orders sought.

Appropriate procedural directions under s 1319 of the Act 32 Tawana sought an order approving the supplementary scheme booklet and applicable proxy form for despatch. Such orders are not uncommon in such circumstances. Examples where such an order has been made include Associated Advisory Practices Limited, in the matter of Associated Advisory Practices Limited (No 2) [2013] FCA 979 (Farrell J) and Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited (No 3) [2015] FCA 596 (McKerracher J). 33 Tawana proposes that the same method of despatch as was ordered with respect to the original scheme booklet be implemented and I consider that is appropriate. Importantly, the reconvened scheme meeting is scheduled for 27 November 2018. Despatch of the supplementary scheme booklet is anticipated to occur by 12 November 2018. Such a timeline would provide a period of some 15 days between despatch and the meeting, a period which is comparable with that in various authorities. 34 Counsel for Tawana referred to a number of cases where the period of days between despatch and meeting ranged from 10 days to 20 days. In Seven Network Limited, in the matter of Seven Network Limited (No 2) [2010] FCA 355 (Jacobson J) materials were despatched only eight days before the meeting. In Amcom (No 2) McKerracher J noted the approach of ASIC that the target shareholders should have at least 10 days to consider any supplementary information, but also said that there is some flexibility with respect to that period, and the Court is entitled to take into account other matters, such as whether the market has already been informed by way of market announcements of the information. 35 In this case, the anticipated period of 15 days falls within acceptable parameters, even taking into account that the supplementary scheme booklet discloses a number of events since the first orders were made. The position as to the Alliance ASX listing has been referred to in Tawana's ASX announcements. The condition precedent as to the Alliance ASX listing was always part of the scheme implementation agreement and was the subject of disclosure in the original scheme booklet. Further, although the main part of the supplementary disclosure in the supplementary scheme booklet runs to some 37 pages, it is clearly set out and accompanied by a letter from the chairman of Tawana which provides a succinct and accessible summary. The summary refers to the new funding arrangements and the ASX listing condition. I consider that the period of time between the despatch of the supplementary scheme booklet and the proposed reconvened meeting is sufficient in this case. 36 Tawana also proposes that there be a revised notice of meeting. Again, such a course has been ordered with respect to other schemes (see, for example, Nexus Energy Ltd, in the matter of Nexus Energy Ltd [2014] FCA 558 (Gilmour J)), and I consider it appropriate to make such an order, as it makes clear the details of the meeting to the recipient shareholders. 37 Finally, it is important to mention the issue of proxies. Tawana seeks an order to the effect that it is entitled to treat as valid those proxy forms that have already been received and to deem such proxy votes to have voted on the resolutions to be considered at the reconvened scheme meeting. 38 Treatment of valid proxies received as valid for a reconvened meeting has been ordered and was the subject of comment by McKerracher J in Amcom (No 3) at [81]-[82]. The important factor identified by his Honour was that there was no change to the scheme as a consequence of the new information being disclosed. That factor is also present in this case. 39 Shareholders who have already submitted a proxy form are able to revoke and resubmit their proxies if the information contained in the supplementary scheme booklet influences the way in which they wish to vote. The supplementary scheme booklet clearly states that a shareholder who has provided a proxy form already may revoke it prior to its use. Such information is repeated in various places for the attention of the shareholders. 40 In the circumstances it is appropriate to make the orders with respect to proxies sought by Tawana. I note that this is not always the approach of the court. For example, in Associated Advisory Practices Limited Farrell J (at [18]) considered it appropriate that new proxy forms be despatched with the supplementary materials, taking into account that there was diminution in the value of the scheme consideration being offered in that case. However, I do not consider such an approach is required by the circumstances of this case. 41 I note generally that it would not be appropriate to make orders of the nature now sought if I considered it unlikely that the Court would finally approve the scheme. If that were the case, this course would be futile and would be an inappropriate exercise of discretion: see CSR Limited, in the matter of CSR Limited [2010] FCAFC 34; (2010) 183 FCR 358 at [64] (Keane CJ and Jacobson J). 42 It is not apparent to me that any of the matters that have required disclosure, nor the need to extend the time for the convening of the meeting, should influence my original view as expressed at the first court hearing that it is appropriate that the scheme proceed to be considered by the shareholders.

Conclusion 43 For those reasons, I was willing to make the orders sought. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Banks-Smith.