Verdant Minerals Ltd, in the matter of Verdant Minerals Ltd (No 2) [2019] FCA 841

Federal Court of Australia|2019-05-31|Before: Moshinsky J

This proceeding concerns a scheme of arrangement between the plaintiff and the holders of ordinary shares in the plaintiff other than Washington H. Soul Pattinson and Company Ltd (Scheme), the terms of which are set out in Annexure C to the Explanatory Booklet, a copy of which is annexed as tab 1 of KML-3 to the Third Affidavit of Ms Kylie Marie Lane affirmed on 17 April 2019.
A statement dated 30 May 2019 has been given by the Australian Securities and Investments Commission in accordance with s 411(17)(b) of the Corporations Act 2001 (Cth) (Corporations Act).

The time for compliance with paragraph 2 of the orders dated 16 April 2019 be extended to 29 April 2019.
Pursuant to s 411(4) of the Corporations Act, the Scheme be approved.
Pursuant to s 411(12) of the Corporations Act, the plaintiff be exempted from compliance with s 411(11) of the Corporations Act in respect of the Scheme.

Introduction 1 On 16 April 2019, I made orders that the plaintiff (Verdant) convene and hold a meeting (Scheme Meeting) of holders of ordinary shares in Verdant other than Washington H. Soul Pattinson and Company Ltd (Scheme Shareholders) to consider and, if thought fit, approve (with or without modification) a scheme of arrangement proposed to be made between Verdant and Scheme Shareholders (the Scheme). These orders were varied in one respect on 18 April 2019. The background to, and the key terms of, the Scheme are set out in Verdant Minerals Ltd, in the matter of Verdant Minerals Ltd [2019] FCA 556 (my earlier reasons). 2 These reasons should be read together with my earlier reasons. I adopt the abbreviations used in my earlier reasons. I will refer to the orders made on 16 April 2019, as varied on 18 April 2019, as the Convening Orders. 3 The Scheme Meeting was held on 29 May 2019 and the Scheme was agreed to by the statutory majorities required by s 411(4)(a) of the Corporations Act 2001 (Cth). Verdant now seeks an order pursuant to s 411(4)(b) of the Corporations Act that the scheme be approved. Verdant also seeks an exemption from compliance with the requirement of s 411(11) pursuant to s 411(12). 4 In support of this application, Verdant relies on the following affidavits: (a) the First Tziolis Affidavit; (b) the Second Tziolis Affidavit; (c) the affidavit of Ms Lane dated 17 April 2019 (referred to at [86] of my earlier reasons); (d) an affidavit of Mr Whiteside affirmed on 29 May 2019; (e) an affidavit of Mr Tziolis affirmed on 29 May 2019; (f) an affidavit of Cory Hall (the Managing Director of Precision Mail Pty Ltd) affirmed on 29 May 2019; (g) an affidavit of Bruce Arnold (the Chief Financial Officer and Company Secretary of Verdant) affirmed on 29 May 2019; (h) an affidavit of Michael Hutchison (a client relationship manager at Computershare Investor Services Pty Ltd) affirmed on 29 May 2019; and (i) two further affidavits of Ms Lane, affirmed on 29 May 2019 and 31 May 2019. 5 For the reasons that follow, I consider it appropriate to make orders substantially in the terms sought by Verdant. I will also make an additional order as discussed later in these reasons.

Applicable principles 6 In approving a scheme of arrangement, the role of the Court is supervisory, requiring the Court to be satisfied that there has been no oppression and that the compromise or arrangement is one that is capable of being accepted by shareholders looking to their own commercial advantage. In Re NRMA Ltd (2000) 33 ACSR 595 at [41], Santow J quoted with approval the following passage from Renard IA and Santamaria JG, Takeovers and Reconstructions in Australia (Butterworths, Sydney, 1990, looseleaf), at [1523]: … the court will determine: (1) whether all the conditions required by CL s 411 have been complied with; (2) whether the majority of members or creditors, though acting regularly, have acted in good faith and not in pursuit of some illegitimate purpose; and (3) whether the proposal was "at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such member, might approve it".* Fundamentally, the jurisdiction is supervisory; the court is concerned to be satisfied that there has been an absence of oppression and that the compromise or arrangement is one which is capable of being accepted: see Re Dorman Long & Co Ltd [1934] Ch 635; Scottish Insurance Corp Ltd v Wilsons and Clyde Coal Co Ltd [1949] AC 462 at 486. * Per Fry LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 212 at 247. A passage to similar effect appears at [1545] of the current version of this text. 7 In deciding whether to give final approval to a scheme of arrangement, the Court will typically wish to be satisfied of the following matters: (a) that the orders of the Court convening a meeting of members were complied with; (b) that the meeting of members so convened has approved the scheme with the requisite majority; (c) that all the statutory requirements have been complied with; (d) that the majority of members have acted in good faith and not for any illegitimate purpose; (e) there is no suggestion of oppression of any minority; (f) that the scheme is fair and reasonable so that an intelligent and honest person, who is a member and acting alone in respect of his or her interest as a member, might approve it; (g) that there was full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme; and (h) that the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion. See Re NRMA Ltd (2000) 33 ACSR 595 at [41] per Santow J; Re Seven Network Ltd (No 3) (2010) 77 ACSR 701 at [31]-[44] per Jacobson J; Re Solution 6 Holdings Ltd (2004) 50 ACSR 113 at [18]-[21]; Re Signature Capital Investments Ltd (No 2) [2016] FCA 385 at [4]; Re Medical Australia Ltd (No 2) [2017] FCA 1429 at [4]-[5]; Re Permanent Trustee Co Ltd (2003) 43 ASCR 601 at [8]-[10]; and Re Healthscope Ltd (No 2) [2019] FCA 759 at [6]-[7], [11]-[14].

Compliance with Convening Orders 8 Order 2 of the Convening Orders provided that the Scheme Meeting be convened by sending on or before 26 April 2019 to each Scheme Shareholder a copy of the Scheme Booklet. 9 Electronic dispatch of the Scheme Booklet to Scheme Shareholders who had nominated an electronic address for the purposes of receiving notices of meeting (Email Shareholders) was completed, in accordance with the Convening Orders, on 26 April 2019. 10 Electronic dispatch to six Email Shareholders was undeliverable, and a hard copy of the Scheme Booklet and a personalised proxy form were sent to those shareholders on 30 April 2019 in accordance with Order 4 of the Convening Orders. 11 However, in relation to Scheme Shareholders other than Email Shareholders (Postal Shareholders), the relevant documents (i.e. the Scheme Booklet and proxy form) were sent on Monday, 29 April 2019 rather than the date required by the Convening Orders (i.e. Friday, 26 April 2019). The reasons for this are explained in the affidavit of Mr Arnold. In [18] of his affidavit, Mr Arnold states that dispatch to Postal Shareholders occurred on 29 April 2019 rather than on 26 April 2019 due to a combination of the following factors: (a) a delay of two business days (from 16 April to 18 April 2019) in Verdant providing McLaren Press with the Scheme Booklet for printing due to the inadvertent omission of an annexure to the independent expert's report in the Scheme Booklet which required further orders of the Court before the Scheme Booklet could be dispatched; (b) three public holidays between the date of the Convening Orders (18 April 2019) and the date for dispatch of the Scheme Booklet (26 April 2019); and (c) the resin that bound the spine of the Dispatch Scheme Booklet took longer than expected to dry, which meant that McLaren Press was delayed in providing the printed copies of the Scheme Booklet to Precision Mail for dispatch. 12 That the documents were dispatched on 29 April 2019 is confirmed in Mr Hall's affidavit. Mr Hall states at [8] of his affidavit that on 29 April 2019, Precision Mail received 1,904 printed copies of the Scheme Booklet for inclusion in the pack to be dispatched (along with additional spare copies of the Scheme Booklet). Mr Hall states at [9]-[10] that, on 29 April 2019, Precision Mail staff worked under his instruction and supervision to prepare 1,904 copies of the dispatch pack, and that on 29 April 2019 Precision Mail delivered 1,904 dispatch packs to Australia Post to be distributed to each of the Postal Shareholders as follows: (a) by prepaid ordinary post to each Postal Shareholder whose registered address was within Australia; and (b) by airmail to each Postal Shareholder whose registered address was outside Australia. 13 Although there has been non-compliance with Order 2 as indicated above, the period of notice afforded to Postal Shareholders was nevertheless 28 days (treating notice as having been given on the next business day after the documents were sent). Thus, the notice provisions in Verdant's Constitution and in the Corporations Act have been complied with. Further, an adequate explanation has been provided for the dispatch of the documents on 29 April 2019 rather than 26 April 2019. At the hearing this morning I raised with counsel for Verdant whether it would be appropriate to make an order extending time for compliance with Order 2 of the Convening Orders, that is, extending the time to 29 April 2019. Counsel for Verdant submitted that such an order would be appropriate. In the circumstances, I consider it appropriate to extend the time for compliance with Order 2 of the Convening Orders from 26 April 2019 to 29 April 2019. I will make an order to this effect. 14 Apart from the issue discussed above, there has been compliance with the Convening Orders. In particular, the affidavit evidence shows that: (a) copies of the Scheme Booklet were dispatched to Scheme Shareholders in accordance with the procedure in the Convening Orders (save for the matter referred to above); (b) personalised proxy forms were sent to Scheme Shareholders in accordance with Orders 2 and 3 of the Convening Orders; and (c) the Scheme Meeting was held at 9.15 am (Melbourne time) on 29 May 2019 at Ashurst Australia, Level 26, 181 William Street, Melbourne, Victoria, chaired by Mr Whiteside, and conducted in accordance with the Convening Orders.

Notice of this hearing 15 A notice of hearing substantially in the form of tab 20 of annexure "CNT-4" to the Second Tziolis Affidavit was published in The Australian newspaper on 24 May 2019. 16 In addition to publication of the notice of the second hearing in The Australian newspaper, the Scheme Booklet states that any Scheme Shareholder may appear at the Second Court Hearing, expected to be held on 31 May 2019 in the Federal Court of Australia, and may oppose the approval of the Scheme. 17 The affidavit evidence indicates that no notice of appearance has been served on the plaintiff's solicitors, Ashurst Australia, by any person who wishes to oppose approval of the Scheme. No person has appeared today in opposition to the Scheme being approved.

Approval of Scheme at Scheme Meeting 18 The affidavit evidence establishes that, at the Scheme Meeting, Mr Whiteside as Chairman proposed that the Scheme Shareholders consider the resolution contained in the Notice of Scheme Meeting (the Scheme Resolution). 19 372 Scheme Shareholders were present at the Scheme Meeting, either in person or by proxy. Voting on the Scheme Resolution was by poll and 294 of the Scheme Shareholders who were present voted in favour of the Scheme Resolution. The Scheme Shareholders voting in favour of the Scheme Resolution represented: (a) 79.02% of all Scheme Shareholders present and voting at the Scheme Meeting; and (b) 84.72% of all votes cast on the Scheme Resolution. 20 The statutory majorities in s 411(4)(a)(ii)(A) and (B) of the Corporations Act have therefore been satisfied.

Statutory requirements otherwise satisfied 21 The affidavit evidence and Verdant's written submissions for this hearing demonstrate that the requirements of s 412(6) of the Corporations Act and r 3.5(b) of the Federal Court (Corporations) Rules 2000 have been satisfied.

Conditions precedent 22 The affidavit evidence and Verdant's written submissions for this hearing establish that all conditions precedent (other than Court approval) have been satisfied or waived.

Section 411(17) 23 ASIC has provided a letter dated 30 May 2019 stating that, under s 411(17)(b) of the Corporations Act, it "has no objection to the proposed scheme of arrangement under Part 5.1 of the Corporations Act between Verdant Minerals Limited ACN 122 131 622 (Company) and its members, other than Washington H. Soul Pattinson and Company Limited ACN 000 002 728". 24 The letter also states that "[t]his advice is given having regard to ASIC's criteria for providing a statement in writing that it has no objection, as set out in Regulatory Guide 60 Schemes of arrangement". 25 Accordingly, any bar to approval of the Scheme under s 411(17) of the Corporations Act has been removed.

Exercise of discretion 26 In my view, this is an appropriate case for the Court to make an order approving the Scheme pursuant to s 411(4)(b) of the Corporations Act. In reaching this view, I have had regard to the role of the Court (as described above) and to the following matters: (a) the attitude of the Scheme Shareholders as reflected in the voting results at the Scheme Meeting; (b) there is nothing to suggest that the Scheme Shareholders voted other than in good faith; (c) the opinion of the independent expert (PwC Securities) (the Independent Expert) that the Scheme is fair and reasonable to, and in the best interests of, Scheme Shareholders; (d) the position of ASIC that it has no objection to the Scheme; (e) no Scheme Shareholder has given notice of an intention to oppose the Scheme, and no Scheme Shareholder has appeared today to oppose the Scheme; (f) the terms and nature of the Scheme and the transaction; (g) the unanimous recommendation of the Verdant independent board committee members (being the three directors of the Verdant board other than Mr Cooper); (h) there is nothing to suggest that the Scheme was proposed by Verdant other than in good faith; (i) there is nothing to suggest that any shareholder was oppressed; (j) the Scheme contains measures to protect shareholders against performance risk; (k) the conditions precedent to the Scheme have been satisfied or waived; (l) the Scheme Booklet fully discloses the potential advantages and disadvantages of the Scheme; and (m) schemes of this kind (that is, schemes facilitating an appropriate change of control of a company) have consistently been approved by the Court. 27 In reaching the view that the Scheme should be approved, I have also had regard to the description of the Scheme and the matters discussed in my earlier reasons, which remain relevant. Further, I have had regard to the evidence of Mr Tziolis that no matters have occurred since the first court hearing that should be brought to the attention of the Court and that there has been no change in the recommendation of the Independent Expert. 28 In light of the above, I am satisfied that the Scheme is "at least so far fair and reasonable, as that an intelligent and honest [person], who is a member of that class, and acting alone in respect of [their] interest as such a member, might approve of it" (Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 247), and that it is accordingly appropriate that the Court exercise its jurisdiction to approve the Scheme.

Exemption under s 411(12) 29 Verdant seeks an order that, pursuant to s 411(12) of the Corporations Act, Verdant be exempted from compliance with s 411(11) of the Corporations Act in respect of the Scheme. 30 I accept that it is appropriate in the circumstances to make such an order. There is no need for the Court order approving the Scheme to be annexed to every copy of the Verdant Constitution because there is no alteration to the Constitution and Verdant shareholders are fully informed of the Scheme. An order under s 411(12) is regularly made on this basis.

Conclusion 31 I will therefore make orders to the effect that: (a) The time for compliance with Order 2 of the Convening Orders be extended to 29 April 2019. (b) Pursuant to s 411(4) of the Corporations Act, the Scheme be approved. (c) Pursuant to s 411(12) of the Corporations Act, Verdant be exempted from compliance with s 411(11) of the Corporations Act in respect of the Scheme. (d) These orders be entered forthwith. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.

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