Tawana Resources NL, in the matter of Tawana Resources NL (No 3) [2018] FCA 1952 - FCA 2018 case summary — Zoe

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Tawana Resources NL, in the matter of Tawana Resources NL (No 3) [2018] FCA 1952

[2018] FCA 1952

Federal Court of Australia|2018-12-03|Before: Mr AJ, Smith J

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At a glance

Source facts

Court

Federal Court of Australia

Decision date

2018-12-03

Before

Mr AJ, Smith J

Source

Original judgment source is linked above.

Judgment (5 paragraphs)

[1]

Pursuant to section 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the plaintiff, Tawana Resources NL, and the holders of fully paid ordinary shares in the plaintiff, in the form contained in Annexure D to the Scheme Booklet (Annexure HLF-20 to the affidavit of Heath Ford Lewis filed 17 August 2018) be approved (Scheme of Arrangement).
Pursuant to section 411(12) of the Act, the plaintiff be exempted from compliance with section 411(11) of the Act, in relation to the Scheme of Arrangement.
Pursuant to section 1322(4)(d) of the Act, the time for compliance with order 2 of the orders of the court made on 8 November 2018 is extended to 16 November 2018.
These orders be entered forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

[2]

BANKS-SMITH J: 1 On 17 August 2018 I made orders approving the convening of a meeting of shareholders for the purpose of considering 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 On 8 November 2018 I made 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: Tawana Resources NL, in the matter of Tawana Resources NL (No 2) [2018] FCA 1724. 3 The scheme meeting was reconvened on 27 November 2018 and the members agreed to the scheme by the requisite statutory majorities. 4 Accordingly, on 3 December 2018 Tawana sought approval of the scheme and I made orders on that date. These are my reasons.

[3]

Nature of scheme 5 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). 6 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 will become a fully owned subsidiary of Alliance and Tawana will be delisted. Jurisdiction to approve scheme 7 Section 411(4) of the Corporations Act 2001 (Cth) (Act) 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 Cast Test), and the arrangement is approved by order of the Court. Relevant considerations for second court hearing 8 The considerations relevant to the Court's decision to approve a scheme pursuant to s 411(4)(b) of the Act are well established. Where a majority of members have approved a scheme, the Court is not bound to approve it. However, the Court should be slow to conclude that a scheme is unreasonable or unfair, provided that the members have been properly informed of matters relevant to the making of their decision, as that would otherwise involve the Court substituting its commercial judgment for that of the body of members: Seven Network Limited, in the matter of Seven Network Limited (No 3) [2010] FCA 400; (2010) 267 ALR 583 at [31]-[40] (Jacobson J). 9 The matters the Court must take into account in deciding whether to approve the scheme were summarised in Seven Network Limited (No 3) and David Jones Limited, in the matter of David Jones Limited (No 3) [2014] FCA 753 (Farrell J) and include whether: (a) the orders of the Court convening the scheme meeting were complied with; (b) the resolution to approve the scheme was passed by the requisite majority, and whether other statutory requirements have been satisfied; (c) all conditions to which the scheme is subject (other than Court approval and lodgement of the Court's orders with the Australian Securities and Investments Commission (ASIC) have been met or waived; (d) the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it; (e) there was full and fair disclosure to shareholders of all information material to the decision whether to vote for or against the scheme; (f) the company has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion; and (g) the Court is satisfied under s 411(17) that the scheme has not been proposed to avoid Chapter 6 of the Act, or that the company has a statement from ASIC that it has no objection to the scheme.

[4]

Evidence relied upon 10 In addition to the affidavits relied upon for the purpose of the previous hearings, Tawana relies on the following evidence: (a) affidavit of Rebekah Kirkwood explaining the typesetting procedure for the scheme booklet; (b) affidavit of Paige Taylor explaining the typesetting procedure for the supplementary scheme booklet; (c) affidavit of Rodney Somes of Computershare Investor Services Pty Limited (Computershare) deposing to the maintenance of the Tawana share register and the printing, collation and despatch procedure for the scheme booklets, original proxy forms, supplementary scheme booklets, new proxy forms and foreign resident declaration forms to Tawana shareholders other than those in South Africa; (d) affidavit of Matthew Clark of a South African printing services contractor, WB Corporate Communications (WBCC), explaining the printing, collation and despatch procedure for the scheme booklets, supplementary scheme booklets and South African-specific forms to Tawana shareholders in South Africa; (e) further affidavit of Robert Benussi, the non-executive chairman and director of Tawana and scheme meeting chairperson, deposing to the effect that the scheme meeting was held in accordance with the Act, the court orders and the constitution of Tawana, and that the statutory majorities on the resolution to approve the scheme were obtained; (f) further affidavit of Rodney Somes deposing to Computershare's receipt of proxy forms, and the conduct of the scheme meeting in his capacity as returning officer; (g) affidavit of Heath Lewis, legal adviser to Tawana and partner of King & Wood Mallesons, which confirms that the requisite documents were lodged with ASIC, and that advertisements regarding the hearing to approve the scheme were placed in The Australian and The West Australian newspapers on Tawana's behalf; (h) further affidavit of Heath Lewis confirming that all conditions precedent have been satisfied prior to the court hearing (and including correspondence with the ASX as to the proposed listing of Alliance on its official list), confirming that ASIC has given a statement in writing pursuant to s 411(17)(b) of the Act and attaching the relevant letter from ASIC, and confirming that no objections to the scheme have been raised. Voting majorities 11 I am satisfied that the requisite majorities were achieved at the shareholders' meeting. In fact, the scheme was overwhelmingly approved by the shareholders. 12 Of 367,237,683 votes cast, 363,760,791 were in favour of the resolution, being 99.05% for the Votes Cast Test. 13 Of 814 shareholders who voted, 751 voted in favour, being 92.26% of the Headcount Test. 14 The shares voted were 367,237,683 of the 578,086,517 shares on issue, indicating that approximately 63% of shares on issue were voted. Tagged votes - Mr Calderwood 15 ASIC requested that the votes of Mr Calderwood be tagged. Mr Calderwood is the managing director of Tawana and holds approximately 3.8% of shares. He stands to potentially receive a bonus of some $180,000 if the scheme is implemented. 16 Mr Somes' evidence satisfies me that the votes of Mr Calderwood and related parties voted their total 35,522,363 shares in favour of the scheme and that if their votes were removed from the Headcount Test and Votes Cast Test, the scheme would still have attained the statutory majorities (the hypothetical results being 98.95% and 92.21% respectively). Late despatch to four shareholders 17 The Court order provided a regime for despatch of the original and supplementary materials, and I am satisfied on the basis of the evidence that those orders were substantially complied with. There was evidence of only one aspect where there was non-compliance: four shareholders in South Africa were sent (by WBCC within South Africa) hard copy packs four days later than required, but still ten days prior to the date of the reconvened hearing. The error occurred due to inadvertence, as Computershare originally provided some, but not all, of the documents for despatch by WBCC. Mr Clark deposed to the error and explained that as soon as WBCC was on notice of the error, the documents were posted. 18 Tawana submits that the non-compliance is a procedural irregularity that is automatically validated under s 1322(1)(b)(ii) of the Act. I agree. The number of shares concerned was small and would not have affected the outcome of the resolutions. The shareholders who received late despatch of those documents represent 0.06% of the number of shareholders and held an aggregate of 0.17% of the shares on issue. The supplementary scheme booklet was in fact despatched in accordance with the orders, and it is only the updated proxy form and foreign resident declaration forms that were delayed. Even if those shareholders failed to vote, they still participate in the scheme and will receive scheme consideration. In the circumstances, the procedural irregularity is of no real consequence. However, for the avoidance of doubt I will accede to Tawana's request that I make an order under s 1322(4)(d) extending the time for the despatch of documents from 12 November 2018 to 16 November 2018. Other procedural matters complied with 19 Subject to the particular matters already addressed, having reviewed the evidence, I am satisfied the procedural requirements of the Act and orders have been met. 20 The orders and scheme booklet were lodged with ASIC. 21 The Court's orders regarding despatch of the notice of meeting, supplementary scheme booklet and proxy forms to the members were otherwise complied with. 22 The reconvened meeting was advertised as required by the orders as amended. Voting intention statements 23 Five shareholders of Tawana provided voting intention statements (including Mr Calderwood) in advance of publication of the original scheme booklet. 24 I addressed this issue after the first court hearing: Tawana Resources NL, in the matter of Tawana Resources NL [2018] FCA 1456 at [49]-[55]. I was of the view that the voting intention statements did not create a separate class comprising those shareholders who provided such statements. 25 As was explained in the supplementary scheme booklet, ASIC had originally expressed some concern that the voting intention statement process may constitute an arrangement between Alliance and those particular shareholders such that Alliance may be treated under the Act as having a relevant interest in the Tawana shares held by those shareholders (Alliance did not otherwise own shares in Tawana or have any voting power with respect to Tawana). If so, that may result in Alliance having a relevant interest in more than 20% of Tawana's shares in breach of s 606 of the Act (which is within Ch 6 of the Act and deals with prohibited acquisitions of relevant interests in voting shares). 26 During the course of communications prior to the issue of the supplementary scheme booklet, each of those shareholders later re-confirmed to Tawana its intention to vote in favour of the scheme, and that information was included in the supplementary scheme booklet. ASIC reviewed in draft an email sent to each of the relevant shareholders at that time seeking indications of their voting intentions. 27 By the time the supplementary scheme booklet was finalised, ASIC had indicated that its concerns had been ameliorated and it did not require the votes of the shareholders to be tagged, other than with respect to Mr Calderwood. ASIC's updated position was disclosed in the supplementary scheme booklet. 28 It should be noted that prior to the first court hearing Tawana's solicitors had informed ASIC that Alliance had confirmed that it had not entered into any agreement, understanding or arrangement with any of the shareholders who had provided voting intention statements (Lewis affidavit 16 August 2018, p 101). 29 Although I am conscious of the lack of any contradictor, I do not consider the mere suggestion raised by ASIC of potential for the voting intention statements to give rise to an interest contrary to s 606 of the Act is, in the circumstances of this case, a reason to exercise my discretion to refuse the scheme. That is particularly so in circumstances where ASIC updated its position after the first court hearing. 30 I have reached my view taking into account the following: (a) neither ASIC nor any other third party has sought to agitate the position further with respect to s 606 of the Act, despite full disclosure; (b) according to ASIC's Regulatory Guide 60: (i) ASIC will object to a proposed scheme of arrangement if it considers that the scheme will deprive shareholders of the benefits or protections of a takeover under Ch 6; (ii) ASIC will provide a statement under s 411(17)(b) if the applicant satisfies it that there are no other reasons to oppose the scheme, for example, on public policy grounds; (c) against that backdrop, ASIC has provided its 'no objection' letter under s 411(17) stating that it has no objection to the scheme; (d) ASIC informed King & Wood Mallesons that the concerns it may have had were ameliorated by the fact that amended voting intention statements were provided by the shareholders prior to the despatch of the supplementary scheme booklet (Lewis affidavit of 7 November 2018, attached email of 5 November 2018, p 97); (e) ASIC has not sought to make submissions to the Court about this issue; (f) at the time of considering Tawana's application to despatch a supplementary scheme booklet, ASIC indicated in writing (letter to King & Wood Mallesons of 7 November 2018) that it had considered further the position regarding whether Alliance may have acquired a relevant interest, and said that having monitored the process, it did not require the votes of shareholders who had provided voting intention statements to be tagged; (g) there was no evidence before me of any agreement or arrangement as to voting between the relevant shareholders and Alliance; (h) leaving aside the position of Mr Calderwood (dealt with separately above), there was no evidence of any collateral benefit provided by Alliance to the shareholders in exchange for making the statements as to their intention; (i) there was full disclosure to shareholders about the position with voting intention statements, including identification of each relevant holder of the shares, their percentage holding, their precise statement of intention (subject to a superior proposal and with capacity to sell prior to the scheme meeting) and there was prominent disclosure in the scheme booklet and supplementary scheme booklet respectively as to ASIC's original and updated position; and (j) I do not consider there were circumstances that required a basis for tagging or disregarding the votes of the relevant shareholders. 31 Counsel for Tawana submitted that in any event, s 607 of the Act provides that a transaction is not invalid merely because it involves a contravention of s 606 and that the question of breach does not fall to be determined as part of an application for approval of a scheme. Section 607 is in my view relevant, but depending on the circumstances, the fact that arrangements between parties comprise a breach of s 606 may well be a matter to be taken into account in the exercise of the court's discretion on an application to approve a scheme. However, this is not a case where that question needs to be determined. 32 Having had careful regard to the issues raised as to the voting intention statements, I am of the view that any concerns that ASIC may have had and which were subsequently ameliorated do not outweigh the commercial judgment applied by the shareholders, shareholders who voted with the benefit of full disclosure. Conditions precedent to the scheme 33 Mr Lewis' final affidavit attached the requisite certificates on behalf of Tawana and Alliance as to the satisfaction of the conditions precedent. Scheme fair and reasonable 34 The Court generally takes the view that the members are in the best position to judge whether an arrangement is in their commercial interests and will be reluctant to make a decision contrary to the views expressed at the meeting. 35 The conclusion of the independent expert, including for the purpose of the supplementary scheme booklet, remained to the effect that the scheme is fair and reasonable. 36 The Tawana directors support and recommend the scheme. 37 Proof of the relevant statutory majorities is sufficient to establish that prima facie the scheme is fair. No person came forward at any of the three hearings to oppose the scheme. 38 There has been, in my view, full and frank disclosure, particularly as a result of the decision to seek orders to issue the supplementary scheme booklet. 39 Taking into account those matters, I considered that the scheme is evidently fair and reasonable.