TriAusMin Limited, in the matter of TriAusMin Limited (No 2) [2014] FCA 833

Irregularities in despatch of Scheme Booklet 7 Scheme Booklets were not despatched to five Canadian shareholders at the same time as they were despatched to other shareholders, 27 June 2014. The five Canadian shareholders held an aggregate of 1,530 shares and shareholder communications despatched to them previously had been returned on at least three consecutive occasions. Mr Peterson gave evidence that it is the practice in Canada not to despatch notices of shareholders meetings to such a shareholder until they have advised the company of a new address. Mr Smith's evidence is that copies of the Scheme Booklet and related materials were sent to these shareholders on 18 July 2014 after he became aware of the practice. 8 Having regard to the Canadian practice, Mr Smith's steps to remedy the failure to despatch the Scheme Booklet ten days before the scheduled dates of the meeting and the small number of shares concerned, I am satisfied that this procedural irregularity does not give rise to substantial injustice such as would necessitate orders under s 1322(2) and this issue does not prevent the Court making orders under s 411(4)(b): see Re Alchemia Limited (No 2) [2012] FCA 1136 at [9]-[11].

Low voter turnout 9 The number of TRO shareholders who were eligible to vote at the Scheme Meeting was 1,463 holding 251,389,050 shares. Only 160 or 10.94% of TRO shareholders who were eligible to do so voted at the Scheme Meeting. Those shareholders who exercised votes held 52.9% of the shares. The Supporting Shareholders, Dr Gill and Tri Origin Exploration Limited, accounted for 26.4% of the votes. 10 Although the statutory requirement under s 411(4)(a)(ii) has been satisfied, it is the usual practice of the Court at the second court hearing to consider the number of shareholders who attended the Scheme Meeting in person or by proxy. Low shareholder turnout may be an indication that some procedural irregularity occurred. It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme: Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [7] and Re Seven Network Limited (No 3) (2010) 267 ALR 583 (Re Seven Network Ltd) at [61] per Jacobson J; apathy should not be presumed to be antagonism: Re Matine Limited (1998) 28 ACSR 268 at 295 per Santow J. 11 Nonetheless it does call for consideration to ensure that the vote not unrepresentative, since the court retains the discretion to withhold its approval in that case: see Re Seven Network Ltd at [61] and Re BTR plc [2000] 1 BCLC 740 at 747. It is relevant to consider whether members have been deterred from attending or voting at the meeting: Re Cape plc [2006] EWHC 1446 at [20] per David Richards J. 12 Relatively low shareholder turnout did not prevent orders being made in Re Avoca Resources Limited [2011] FCA 208 (11.49% of shareholders holding 72.38% of shares) or Re Cortona Resources Limited (No 2) [2013] FCA 302 (17.5% of shareholders holding 45.2% of shares); see also Re Redcape Property Fund Limited and The Trust Company (RE Services) Limited [2012] NSWSC 486 per Black J at [6]. In Re Auzex Resources Limited (No 2) [2012] QSC 101 at [18] Applegarth J noted that a turnout of 9.75% of shareholders representing 42.3% of votes was substantially higher than at annual general meetings of the company. In Re Osiris Insurance Ltd [1999] 1 BCLC 182 only 35 of 971, scheme creditors with claims worth approximately 41% of the total value attended the meeting and Re British Aviation Insurance Co Ltd [2006] 1 BCLC 665, creditor turnout was 15% representing approximately 50% of claims. See Damian T and Rich A, Schemes, Takeovers and Himalayan Peaks (3rd edition, 2013, University of Sydney) at 4.4.2 for a full discussion of this issue. 13 I do not consider that the low voter turnout should prevent the Court from making orders under s 411(4)(b): a. Those TRO shareholders who did vote voted overwhelmingly in favour of the Scheme; b. The Scheme Booklet disclosed at Section 2.12 that the Supporting Shareholders intended to vote in favour of the Scheme; c. Turnout at the annual general meeting for 2013 was 2.73% of TRO shareholders, at the 2012 annual general meeting it was 1.78% of TRO shareholders and at an extraordinary general meeting held in 2012, turnout was 2.22% of TRO shareholders. Accordingly, the turnout at the Scheme Meeting of more than 10% was significantly higher than normal, even if it represented only approximately 26.5% of votes cast (excluding in this calculation the Supporting Shareholders). d. Except for the five Canadian shareholders referred to above (who held 1,530 shares in aggregate), there is nothing to suggest irregularity in the manner of despatch of the Scheme Booklets. e. There is no evidence of any issue which would have deterred shareholders from voting at or from attending the Scheme Meeting. Mr Smith gave evidence that, on 28 July 2014 (the date of the Scheme Meeting), 827 of the 1,463 shareholders (that is 56.5%) held 10,000 TRO shares or less. Having regard to the implied value of the Scheme Consideration referred to in the Scheme Booklet of A$0.062 per TRO share, the value of these holdings was a maximum of $620. I do not regard this as a deterrent to attending and voting in any relevant sense. It may explain relatively low turnout, as was accepted by David Richards J in Re Uniq plc [2011] EWHC 749 at [22]-[23]. 14 Mr Parkinson and Mr Smith gave evidence that invalid or late proxies in favour of the Scheme were received from a further 12 shareholders who account for 3,207,000 TRO shares. TRO submitted that this should be taken into account. I do not accept this submission in the absence of knowing why proxies were late. As a general rule the Court should only take into account valid votes; to do otherwise opens up a pathway for manipulation which should not be encouraged.

Amendments to Notice of Meeting 15 The Voting Instruction Form, Notice of Meeting and Request for Financial Statements Form sent to Canadian shareholders varied from the form approved by the Court on 6 June 2014. 16 Mr Peterson gave evidence that the Voting Instruction Form and the Request for Financial Statements Form are required by Canadian regulation and that they are in a usual form. 17 Mr Gardos gave evidence that TSX requested an amendment to the Notice of Meeting approved by the Court to clarify that all Heron shares following implementation of the Scheme would be listed on both TSX and ASX in full. Accordingly, to comply, the following paragraph was inserted after the biographies of the directors and senior officers of the merged entity (Clarification): Under section 8.2(e) on page 90 of the Scheme Booklet it states: "in terms of geographic spread, it is expected that as at the Implementation Date, HRR will have approximately 23% of its shares listed on the TSX, and approximately 77% listed on the ASX." TriAusMin seeks to clarify this disclosure by noting the issued and outstanding shares of the merged entity will be the same on each exchange and that at the effective date of the Scheme, 23% of the merged entity's shares will be held by former TriAusMin shareholders while 77% of the Merged Entity's shares will be held by former Heron shareholders. 18 Mr Foreman, Counsel for TRO, advised the Court at the commencement of the second court hearing that the Clarification is wrong. The Scheme Booklet correctly advises TRO shareholders that upon implementation of the Scheme they will hold approximately 30% of the issued Heron shares, not 23%. Only Canadian shareholders were advised of the Clarification. ASIC was advised of the error after it had issued its "usual letter". Ms Chew gave evidence of her communications with ASIC. ASIC indicated that it did not wish to make comment provided that the Court was advised of the issue and TRO made correcting statements to TSX. 19 In Re Coates Hire Limited (No 2) [2007] FCA 2105 (Re Coates Hire), Emmett J said at [6]-[7]: Finally, the materials that were sent to shareholders included covering letters from the chairman of the Company. Where the Court orders that a document in a particular form be sent to shareholders, the document[s] should not be accompanied by any further document that has not itself been approved by the Court. If it is proposed that other documents, such as covering letters, be sent, a draft of those other documents should be put before the Court at the time of the application for the order that the meeting be convened. The other documents can then be incorporated into the Court's order. The materials sent to shareholders included letters that had not been brought to the attention of the Court prior to the making of the orders on 9 November 2007. I am satisfied that the failure to put those matters before the Court was not intentional and was the result of an oversight. The letters in question are now in evidence. I am satisfied that there is nothing untoward in the contents of those letters that would interfere with the exercise by the Court of its discretion to approve the scheme. 20 In Re Centro Retail Limited [2011] NSWSC 1321 at [10]-[11], Barrett J noted with approval Emmett J's comments in Re Coates Hire at [6] and said that the only appropriate method for supplementary information to be despatched after orders had been made under s 411(1) was with the supervision of the Court; the Court approved "message" embodied in the explanatory statement should not be "interfered with" by unilateral supplementation by the company. I agree. 21 In this case, the despatch of the documents (other than the Notice of Meeting) was required under Canadian regulation; it should not interfere with the exercise of discretion to approve the Scheme. Having said that, the existence of the Canadian regulation is something of which TRO should have been aware. It had Canadian legal advice and its securities are listed on TSX. It was therefore open to it to have included these materials with the documents provided to the Court before the first court hearing. 22 The inclusion of the material in the Notice of Meeting should not have occurred without Court approval. It has emerged that the Clarification is wrong: the fact that it was TSX (or any other regulator) which required the additional information to be included in the Notice of Meeting does not obviate the need to approach the Court after s 411(1) orders have been made. What has occurred is not good practice. Having said that, the Scheme Booklet did advise the correct position and the error is in favour of TRO shareholders. I do not consider that the inclusion of the Clarification in the Notice of Meeting should prevent orders being made.

US Securities Act 1933 23 TRO gave notice at the first court hearing that TRO and Heron propose to rely on the exemption from registration requirements under the Securities Act 1933 (USA) provided by s 3(a)(10). As I have noted previously in Re Simavita Holdings Limited [2013] FCA 1274 at [51], it has become relatively common for the Court to make certain statements in reasons for this purpose. Accordingly, I make the following statements: a. The Scheme contemplates the receipt of Heron shares as consideration for the transfer of TRO shares; b. The Court had been advised before commencement of the second court hearing to approve the Scheme of the intention to rely on the s 3(a)(10) exemption on the basis of the Court's approval of the Scheme; c. The Court does not act as a valuer. The Court has been informed of the value of TRO shares and the value of the Heron shares to be received as consideration for the transfer of TRO shares: see TriAusMin at [12]-[13]. The valuation was prepared by an expert which the Court has been advised is independent of TRO and Heron and it is a sworn valuation. The Court has taken this evidence into account in determining whether the Scheme is fair and should be approved; d. The Court held a hearing to consider the fairness and reasonableness of the proposed Scheme; e. That hearing was open to the public and each TRO shareholder to whom Heron shares are to be issued had standing to appear; f. Notice of the date of the second court hearing was included in the Scheme Booklet sent to all shareholders of TRO before the proposal was considered by the Scheme Meeting. The date and time of the second court hearing was advertised in a daily newspaper circulating throughout Australia; and g. There was no appearance by any shareholder.

Conclusion 24 I am satisfied that all formal matters have been addressed and nothing has been brought to my attention which would prevent the Court from making the orders sought by TRO. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.