FEDERAL COURT OF AUSTRALIA

Coventry Resources Limited, in the matter of Coventry Resources Limited [2012] FCA 1252

THE COURT ORDERS THAT:

1.    Pursuant to s 411 of the Corporations Act 2001 (Cth) (Corporations Act), the plaintiff convene:

(a)    a meeting of holders of fully paid ordinary shares in the capital of the plaintiff (shareholders) to be held in Perth, Western Australia on 13 December 2012 at 10:00 am or on such other date and such other time as the Court may approve (share scheme meeting) for the purpose of considering and if thought fit, approving with or without modifications, the scheme of arrangement proposed between the plaintiff and its shareholders (share scheme) which is Appendix 2 to the draft scheme booklet and explanatory statement, being annexure NFD-1 to the affidavit of Nicholas Findlay Day sworn on 2 November 2012 and filed herein (scheme booklet).

(b)    a meeting of holders of options to subscribe for shares in the plaintiff of the classes set out in the scheme booklet (optionholders) to be held in Perth, Western Australia on 13 December 2012 at 10:30 am or on such other date and such other time as the Court may approve (option scheme meeting) for the purpose of considering and if thought fit, approving with or without modifications, the scheme of arrangement proposed between the Plaintiff and its optionholders (option scheme) which is Appendix 4 to the draft scheme booklet,

(together, the scheme meetings).

2.    The scheme booklet, which contains an explanatory statement required by s 412(1)(a) of the Corporations Act, be and is approved, subject to:

(a)    adopting the marked-up amendments contained in Annexure “TAH-10” to the Affidavit of Toby Albert Hicks sworn 8 November 2012;

(b)    replacing the independent expert and technical reports at pages 385 to 494 in the Affidavit of Nicholas Findlay Day sworn 2 November 2012 with the independent expert and technical reports that constituted Annexure “TAH-13” to the Affidavit of Toby Albert Hicks sworn 8 November 2012; and

(c)    a copy of these orders highlighting order 9 be circulated to shareholders and optionholders physically attending each of the scheme meetings.

3.    Subject to registration of the scheme booklet pursuant to s 412(6) of the Corporations Act, the plaintiff is to dispatch, on or before 13 November 2012 or such other date as directed by the Court, a document substantially in the form of the scheme booklet (as amended in order 2 above) to the shareholders and optionholders who appear on the register of members and register of optionholders on 12 November 2012 by ordinary pre-paid post (or by airmail to overseas holders).

4.    Subject to these orders, the scheme meetings are to be:

(a)    convened, held and conducted in accordance with the provisions of Part 2G.2 of the Corporations Act that apply to members of a company and the provisions of the plaintiff’s constitution that are not inconsistent therewith and that apply to meetings of members;

(b)    convened, held and conducted pursuant to s 1319 of the Corporations Act, on the basis that Corporations Regulations 5.6.11 to 5.6.11A and 5.6.13A to 5.6.36A do not apply to the scheme meetings; and

(c)    convened using the notice of meeting in the form or the effect of the notice contained in Appendix 6 of the scheme booklet, for the Share Scheme Meeting and Appendix 7 of the scheme booklet, for the option scheme Meeting.

5.    Michael Haynes or, failing him, Toby Hicks is to be appointed to act as chairperson of the scheme meetings and report the result of the scheme meetings to this Court.

6.    The chairperson can adjourn the scheme meetings in his discretion.

7.    Two Shareholders or two optionholders present in person or by proxy, corporate representative or attorney under power and entitled to vote shall constitute a quorum for each of the Share Scheme Meeting and option scheme Meeting.

8.    Voting on the resolution to approve the Share Scheme, for the Share Scheme Meeting and to approve the option scheme, for the option scheme Meeting, is to be conducted by way of poll.

9.    The matter may be relisted on 14 December 2012 at 2.15pm for such application as appropriate following the scheme meetings.

10.    The plaintiff is to give notice of the hearing of the application pursuant to s 411(4)(b) of the Corporations Act for orders approving the share scheme or option scheme or both by:

(a)    publishing an advertisement in the public notices column of “The Australian” and “The West Australian”, substantially in the form of Annexure “A” to these orders such advertisement to be published on 7 December 2012; and

(b)    publishing on the plaintiff’s website, a notice substantially in the form of Annexure “A” on 7 December 2012

and the plaintiff otherwise be exempted from compliance with rule 3.4 of the Federal Court (Corporations) Rules 2000.

11.    As soon as reasonably practicable the plaintiff is to publish on the plaintiff’s website a notice substantially in the form of Annexure “B”.

12.    The plaintiff, the Australian Securities Investments Commission and any interested party has liberty to apply to relist the matter on 24 hours’ written notice.

“A”

Form 6    Notice of hearing to approve compromise or arrangement

(rule 3.4)

TO all the creditors and members of Coventry Resources Limited (ACN 082 901 362).

TAKE NOTICE that at 2.15pm on Friday, the 14th of December 2012 at the Federal Court of Australia, Peter Durack Commonwealth Law Courts Building, 1 Victoria Avenue, Perth, Western Australia the Federal Court will hear an application by Coventry Resources Limited at which it will seek the approval of a compromise or arrangement between the above-named company and its members if a resolution to enter into that compromise or arrangement is passed by the meeting of the members of the company to be held on 13 December 2012.

TAKE FURTHER NOTICE that at 2.15pm on Friday, the 14th of December 2012 at the Federal Court of Australia, Peter Durack Commonwealth Law Courts Building, 1 Victoria Avenue, Perth, Western Australia the Federal Court will hear an application by Coventry Resources Limited at which it will seek the approval of a compromise or arrangement between the above-named company and its optionholders if a resolution to enter into that compromise or arrangement is passed by the meeting of the optionholders to be held on 13 December 2012.

If you wish to oppose the approval of one or both of the compromises or arrangements, you must file and serve on the plaintiff a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on the plaintiff at its address for service at least 1 day before the date fixed for the hearing of the application.

The address for service of the plaintiff is care of Steinepreis Paganin, Level 4, 16 Milligan Street, Perth, Western Australia.

Name of person giving notice or of person’s legal practitioner: Toby Hicks

9 November 2012

ASX Announcement

SCHEME OF ARRANGEMENT

COURT ORDERS CONVENING OF SCHEME MEETINGS

The directors of Coventry Resources Limited (Coventry) are pleased to announce that today, Friday, 9 November 2012, the Federal Court of Australia made orders for the convening of a meeting of Coventry shareholders and a separate meeting of Coventry optionholders (Scheme Meetings) to vote on the separate court sanctioned schemes of arrangement under Part 5.1 of the Corporations Act (Schemes).

If the Schemes are approved by shareholders and optionholders at the scheme meetings, Coventry will merge with Crescent Resources Corp, a company incorporated in the Province of British Columbia Canada, and listed on the TSX-V (Crescent).

The scheme meetings will be held at Holiday Inn, 778-788 Hay Street, Perth, Western Australia on Thursday, 13 December 2012 at the following times:

•    Share Scheme Meeting – 10.00 am; and

•    option scheme Meeting – 10.30 am (or immediately after the Share Scheme Meeting, if later).

If the Schemes are implemented:

•    Crescent will acquire all of the issued fully paid share capital of Coventry (Coventry Shares) by means of a court sanctioned scheme of arrangement under Part 5.1 of the Corporations Act (Share Scheme) under which existing Coventry Shares will be exchanged for fully paid and non-assessable common shares in the capital of Crescent; and

•    under a separate scheme of arrangement under Part 5.1 of the Australian Corporations Act (Option Scheme), Crescent will acquire all of the existing Coventry options to acquire Coventry Shares (Coventry Options) in exchange for options to acquire shares in the issued capital of Crescent (Crescent Consideration Options).

scheme booklet (including Explanatory Statement)

Details of the Schemes, including details of how Coventry shareholders and, optionholders can vote at the scheme meetings are set out in the scheme booklet prepared by Coventry (scheme booklet).

Coventry will today lodge the scheme booklet with the Australian Securities and Investments Commission for registration (ASIC).

The relevant scheme booklet, notice of scheme meetings and instructions on how to vote will be posted to Coventry shareholders and optionholders and lodged with the Australian Securities Exchange (ASX) and the TSX-V on Tuesday, 13 November 2012.

The scheme booklet outlines all of the information that will be useful to you as Coventry shareholders and Coventry optionholders in determining how you should vote at each of the scheme meetings. Coventry shareholders and optionholders should read the scheme booklet in its entirety before making a decision whether or not to vote in favour of the Schemes.

Independent Expert

Coventry has engaged BDO Corporate Finance (WA) Pty Ltd (Independent Expert) to prepare an Independent Expert’s Report on whether the Schemes are in the best interests of Coventry shareholders and Coventry optionholders. The Independent Expert has determined that the Schemes are in the best interests of Coventry shareholders and Coventry optionholders. The Independent Expert has determined that the Share Scheme is not fair but reasonable and therefore is in the best interests of Coventry Shareholders; and the option scheme is fair and reasonable and therefore in the best interests of the Coventry optionholders.

Director’s Recommendation

The directors of Coventry unanimously support the proposed Share Scheme and option scheme and recommend that Coventry shareholders and Coventry optionholders vote in favour of them, as they intend to do in respect of their own holdings of Coventry Shares and Coventry Options, at the scheme meetings. If you are unable to attend the meetings, I encourage you to vote by completing and returning the relevant proxy forms enclosed with this scheme booklet.

Second Court Hearing Date

If the Coventry shareholders and optionholders approve the Schemes at their meetings on Thursday, 13 December 2012, the Federal Court of Australia will hold a second hearing to determine if final approval of the Schemes should be granted. That second court hearing is scheduled for Friday, 14 December 2012 at 2.15pm in the Federal Court of Australia at 1 Victoria Avenue Perth Western Australia.

For further information

If you have any questions, please call the Coventry Company Secretary, Nick Day on +61 08 9324 1266 from outside Australia (normal call charges apply) and 08 9324 1266 from within Australia between 8.30 am and 5.00 pm (WST), Monday to Friday.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF COVENTRY RESOURCES LIMITED

REASONS FOR JUDGMENT

APPLICATION TO CONVENE MEETINGs TO CONSIDER SCHEMEs OF ARRANGEMENT

1    On 9 November 2012, I made orders under s 411(1) of the Corporations Act 2001 (Cth) (Corporations Act or Act) convening a meeting to consider:

(a)    A proposed share scheme of arrangement (share scheme) between the plaintiff (Coventry) and its shareholders (shareholders); and

(b)    A proposed option scheme of arrangement (option scheme) between Coventry and its optionholders (optionholders).

These are the reasons for so doing.

purpose of schemes

2    Coventry is an Australian Securities Exchange (ASX) listed public company with issued share capital of 240,256,037 ordinary fully paid shares (as at 2 November 2012). The share scheme would effect a merger by the acquisition of all of the fully paid ordinary shares in Coventry (scheme shares) by Crescent Resources Corporation (Crescent), a British Columbian (Canadian) company listed on the Toronto Stock Exchange – Venture Exchange (TSX-V), in exchange for 0.2513 Crescent shares per Coventry share (scheme consideration). For certain overseas ineligible shareholders, Crescent shares will be issued to a nominee, the nominee will sell those shares and the net proceeds will be distributed to the shareholder. This is explained in more detail below.

3    Coventry has issued 47,138,752 options to acquire fully paid ordinary shares (options). None of the options are listed on the ASX. An option scheme is proposed by which Crescent will acquire all of the existing Coventry options in exchange for options to acquire shares in the issued capital of Crescent (Crescent consideration options). The option scheme is subject to the share scheme becoming effective. The number of Crescent options provided will be 0.2513 Crescent options, for each Coventry option, to subscribe for a fully paid share in Crescent. It is intended that all foreign optionholders will be issued with Crescent options  These optionholders are domiciled in Canada, Singapore and Hong Kong. This is explained in more detail below.

4    If the share scheme were implemented Coventry would become a wholly owned subsidiary of Crescent and would be delisted from the ASX. If the option scheme were implemented the optionholders would become holders of options in Crescent on similar terms. 

Materials

5    Coventry relies on:

(a)    the affidavit of Mr Nicholas Findlay Day sworn 2 November 2012 (Day affidavit);

(b)    the affidavit of Mr Toby Albert Hicks sworn 8 November 2012 (first Hicks affidavit);

(c)    the affidavit of Mr Michael John Alexander Haynes sworn 7 November 2012 (Haynes affidavit);

(d)    the independent expert report of BDO Corporate Finance (WA) Pty Ltd prepared by Mr Adam Myers and Mr Sherif Andrawes dated 4 October 2012 (independent expert report) (to be found at pages 385-494 of the Day affidavit); and

(e)    the further affidavit of Mr Hicks sworn 8 November 2012 (second Hicks affidavit).

Issues

6    There are three stages to an application under s 411: (1) Court approval to convene the scheme meetings and approval of a draft explanatory statement to be sent to the shareholders and optionholders; (2) shareholders and optionholders voting on the schemes at the scheme meetings; and (3) Court approval of the schemes: Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [7] (Re CSR Ltd).

7     The principal questions relevant to this, the first stage are as follows:

(1)    Are there compromises or arrangements?

(2)    Is there a Pt 5.1 body?

(3)    Are there members or creditors of a company?

(4)    Are there classes of members or creditors?

(5)    Should the Court make orders to convene meetings?

Standard of Review

8    The standard of review at this stage is whether the schemes are not inappropriate and are ones that sensible business people might consider of benefit: Re Sonodyne International Ltd (1994) 15 ACSR 494 (Re Sonodyne International Ltd) at 499 (Hayne J).

9    If the proposed arrangement is one that seems fit for consideration by a meeting of members (or creditors) and is a commercial proposition likely to gain the Court's approval if passed by the necessary majorities, then leave should be given to convene the meeting: Re ACM Gold Ltd (1992) 34 FCR 530 at 365 (O’Loughlin J).

10    The Court is not required to be satisfied either at the convening or approval stage that no better scheme could have been devised: Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 at 265 (Re Foundation Healthcare) (French J).

11    While s 411(2) contains a statement of the circumstances in which a scheme meeting must not be ordered, s 411 contains no statement of the criteria that must be satisfied before a meeting is ordered: Re CSR Ltd at [8].

12    Nonetheless, it is relatively settled that the Court should order the convening of the scheme meetings and approve the dispatch of the scheme booklet (explanatory statement) if satisfied of the following matters: 

(1)    The schemes are arrangements in respect of which the Court may order a meeting of the members or creditors: s 411(1). That is: the schemes are arrangements; Coventry is a Pt 5.1 body; the schemes’ participants are members or creditors of Coventry; and the scheme meetings will be convened between members or creditors of the same class 

(2)    The Australian Securities and Investments Commission (ASIC) has had a reasonable opportunity to: examine the terms of the scheme and explanatory statement; and make submissions to the Court in relation thereto: s 411(2)(b).

(3)    The explanatory statement: provides adequate disclosure: s 412(1)(a)(i); and contains the prescribed information: s 412(1)(a)(ii), reg 5.1.01 and Sch 8 cl 8301 to cl 8310 of the Corporations Regulations 2001 (Cth) (Regulations).

(4)    The procedural requirements of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules) have been met.

(5)    That there is no apparent reason why the scheme should not, in due course, receive the Court’s approval if the necessary majority of member’s votes is achieved.

See, for example: Re Applications of NRMA Ltd (No 1) [2000] NSWSC 82; (2000) 156 FLR 349 (Re NRMA Ltd (No 1)) at [3], [14]-[41] (Santow J); Re Ranger Minerals Ltd; Ex parte Ranger Minerals Ltd [2002] WASC 207; (2002) 42 ACSR 582 at [21]-[23], [31]-[36], [40] and [47] (Parker J); Re Hills Motorway Ltd (No 4500/02) [2002] NSWSC 897; (2002) 43 ACSR 101 (Re Hills Motorway Ltd) at [5] (Barrett J); Re Orica Limited [2010] VSC 231 at [7] (Davies J); Re MAC Services Group Ltd [2010] NSWSC 1316; (2010) 80 ACSR 390 at [5] (Barrett J).

Section 411(1) members’ or creditors’ scheme

13    The word “arrangement” is of wide import. As was said in Re NRMA Ltd (No 1) at [20]:

Generally speaking, unless the arrangement is ultra vires the company or seeks to deal with a matter for which a special procedure is laid down by the Corporations Law or to evade a restriction imposed by the Corporations Law, almost any arrangement otherwise legal which touches or concerns the rights and obligations of the company or its members or creditors, and which is properly proposed, may come under s 411 …

14    The proposal before the Court is an arrangement.

15    Section 411 of the Act confers jurisdiction on the Court in respect of a Pt 5.1 body.

16    The term “Part 5.1 body” is defined in s 9 of the Act to mean, relevantly, a company. Coventry is a company: see first Day affidavit, at paras [11] and “NFD-3” to “NFD-7” (pages 495-743).

17    The term “member” is defined in s 9 to mean, in relation to a company, a person who is a member under s 231. Broadly, a person is a member of a company if they are a member of the company on its registration, or agree to become a member of the company after its registration and their name is entered on the register of members  The shareholders are members. 

18    Optionholders have generally been considered to be contingent creditors: Re MIA Group Ltd [2004] NSWSC 712; (2004) 50 ACSR 29 (Re MIA Group) at [3]-[9] (Barrett J); In the matter of Australian Energy Ltd [2006] FCA 155 at [10] (Lindgren J); Re AXA Asia Pacific Holdings Ltd [2011] VSC 4 at [2] (Croft J); ASIC Regulatory Guide 60 at 60.61. A contrary view was taken in Re Niagara Mining Ltd [2002] FCA 1651; (2002) 132 FCR 266. Recently, Hall J has held that there is now an established line of contrary authority on national legislation (the Corporations Act) and it should not be departed from: Re Westgold Resources Ltd [2012] WASC 301 at [16]. I accept the optionholders should be treated as creditors for the purposes of s 411.

19    An arrangement to which s 411(1) applies is one between a company and its members or creditors or any class of them. It is only such an arrangement to which the Court may grant its approval pursuant to s 411(6).

20    Section 411 does not define the term “class”. However, in the leading case of Sovereign Life Assurance Company v Dodd [1892] 2 QB 573, Bowen LJ said (at 583) that the term ought to be given such a meaning:

… as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest.

21    In this case all shareholders have the same rights in the share scheme. That is, the right to receive the share scheme consideration.

22    In this case all optionholders have the same rights in the option scheme. That is, the right to receive the option scheme consideration.

23    Notwithstanding different characteristics of the options in terms of exercise price and expiry, the experts have used a consistent and indiscriminate application of the same pricing or valuation methodology for all the options  Consequently, notwithstanding the different characteristics of the options, there is sufficient community of interest between optionholders so that it is appropriate that a single meeting of all optionholders be convened: Re MIA Group at [14]; Warwick Resources Limited, in the matter of Warwick Resources Limited [2009] FCA 1231 (Re Warwick Resources Limited) at [9] (Siopis J); Re Sino Gold Mining Ltd (ACN 093 518 579) [2009] FCA 1277; (2009) 74 ACSR 647 at [40]-[58] (Lindgren J).

24    To the extent that a shareholder also holds options, the shareholder will receive share scheme consideration for the shares and option scheme consideration for the options shareholders in this situation will not receive additional or different consideration, as a shareholder, from the consideration other shareholders will receive. Likewise, optionholders in this situation will not receive additional or different consideration, as optionholders, from the consideration other optionholders will receive. See Gantry Acquisition Corp v Parker & Parsley Petroleum Australia Pty Ltd (1994) 51 FCR 554 at 563; Ampolex Ltd v Mobil Exploration & Producing Australia Pty Ltd (1996) 65 FCR 503 at 535, 536; Re Normandy Mining Ltd (No 4) (2002) 40 ACSR 474 at [37]. See also ASIC reg 60 (Schemes of Arrangement), para 60.23 and Takeovers Panel GN21 (Collateral Benefits).

ASIC Consideration

25    The jurisdiction of the Court to make an order convening meetings under s 411(1) is conditional upon the matters set out in s 411(2). Section 411(2) requires that the Court be satisfied of two matters before making an order, first, that ASIC has been given 14 days notice of the hearing, or such lesser period of notice as the Court or ASIC permits: s 411(2)(a). Second, that ASIC has had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement and to make submissions to the Court: s 411(2)(b).

26    The scheme booklet was lodged with ASIC on 15 October 2012 and the substituted scheme booklet was lodged on 6 November 2012. Formal notice of the date and time of the hearing was given to ASIC on 2 November 2012.

27    ASIC has now indicated, as the second Hicks affidavit discloses, that it does not wish to be heard on the first court hearing.

Draft Explanatory Statement

28    The scheme booklet containing the draft explanatory statement is Annexure NFD-1 of the Day affidavit. It comprises:

(a)    the body of the text (Day affidavit, pages 25-196);

(b)    Appendix 1, the merger implementation deed (pages 198-316);

(c)    Appendix 2, the share scheme (pages 318-336);

(d)    Appendix 3, the deed poll for the share scheme (pages 337-346);

(e)    Appendix 4, the option scheme (pages 347-361);

(f)    Appendix 5, the deed poll for the option scheme (pages 362-371);

(g)    Appendix 6, the notice of share scheme meeting (pages 372-374);

(h)    Appendix 7, the notice of option scheme meeting (pages 375-378);

(i)    Appendix 9, an independent expert’s report together with a technical report on the value of Coventry’s mining assets (IER) (pages 384-394).

29    The emphasis is on proper disclosure: Seven Network Limited (ACN 052 816 789), in the matter of Seven Network Limited [2010] FCA 220 at [8]. The explanatory statement must provide proper disclosure as required in s 411(3) of the Corporations Act. It must essentially set out “all the main facts as will enable shareholders to exercise their judgement on the proposed scheme”: In re Dorman, Long and Company, Limited [1934] Ch 635 at 665-6 Maugham J; applied by Santow J in Re NRMA  Ltd (No 1) at 602 and French J in Re Foundation Healthcare at 263.

30    The scheme booklet prepared by Coventry in relation to the schemes has been drafted to satisfy the disclosure requirements prescribed in:

(a)    ASIC Regulatory Guides 60, 111 and 112;

(b)    the takeover provisions of the Corporations Act;

(c)    the prospectus provisions of the Corporations Act; and

(d)    section 411(3) and s 412 and Sch 8 of the Corporations Regulations. 

31    The explanatory statement will be registered by ASIC before it is despatched in accordance with s 412(6).

32    ASIC considers that for schemes of arrangement where an essential part of the overall transaction is that members of the target company accept shares in the acquiring company, s 412(1) requires the same level of disclosure as would meet the requirements of a bidder's statement for a scrip takeover: see ASIC Regulatory Guide 60 at RG 60.66.

33    Section 636, which sets out the disclosure requirements for a bidder's statement under a takeover, refers, inter alia, to s 710 to s 713. Sections 710 to 713 set out some of the disclosure requirements for a prospectus  The scheme booklet must also comply with s 636 and s 710 to s 713. These matters have been dealt with.

34    Regulation 5.1.01 of the Regulations prescribes the information for the explanatory statement as required by s 411(3)(b) and s 412(1)(a)(ii). In respect of a scheme between a Pt 5.1 body and its members, or a class of its members, reg 5.1.01(1)(b) requires the explanatory statement to state the matters set out, and have annexed to it the reports and copies of documents mentioned, in Pt 3 of Sch 8 to the Regulations 

35    Part 3 of Sch 8 to the Regulations is entitled “Prescribed information relating to proposed compromise or arrangement with members or a class of members” and contains ten items, item 8301 to item 8310 inclusive. Each of these items is considered.

Procedural matters

36    Rule 3.2 requires Coventry to file an affidavit stating the names of the persons who have been nominated to be the chairperson and alternate chairperson of the scheme meetings, that each person nominated is willing to act as chairperson, has had no previous relationship or dealing with Coventry, or any other person interested in the schemes except as disclosed in the affidavit, and has no interest or obligation that may give rise to a conflict of interest or duty if the person were to act as chairperson of the meeting, except as disclosed in the affidavit.

37    This requirement is satisfied by the Haynes affidavit.

Order Convening Meetings – The Court’s Discretion

38    The Court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the members’ meeting, the Court would be likely to approve it on the hearing of the petition which is unopposed: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 (Street CJ).

39    However, the role of the Court at this stage of the process of a company propounding and implementing a scheme of arrangement is not to scrutinise finally whether the scheme should be approved. That decision must await the expression of the will of the members at the meeting and any argument that may be advanced on behalf of dissenting members or other interested parties at the time of the application for approval: Re Sonodyne International Ltd at 497.

40    The schemes proposed by Coventry are not so obviously unfair or otherwise inappropriate that they should be stopped in their tracks before going any further: see Re Foundation Healthcare at 265.

41    Further, the conclusion of the independent expert that the scheme is in the best interests of the members, confirms that the schemes are such that sensible business people would consider them to be of benefit to the shareholders and optionholders 

42    The following observations address a number of matters relating to the fairness and appropriateness of the schemes  Although none of these matters provides a basis for refusing to convene the scheme meetings, the Court’s attention is drawn to them because the application is made ex-parte.

43    The Court should be satisfied that the scheme is properly proposed (bona fides and intra vires). However, where there is no suggestion of an improper purpose on the material before the Court, bona fides is a matter for consideration on any application to approve the scheme: Re NRMA Ltd (No 1) at [22]-[24]. Coventry’s constitution does not prevent the schemes: Day affidavit, NFD-3 (pp504-565). There is nothing in the material before the Court that suggests the scheme has not been properly proposed.

44    The Court should be satisfied, prima facie, that there has been proper disclosure with nothing misleading or deceptive in any material sense: Re NRMA Ltd (No 1) at [3]. As noted above, the scheme booklet meets the disclosure requirements of s 411(3) and s 412, ASIC Guidance Note GN60, the takeover and prospectus provisions of the Corporations Act and Sch 8 of the Regulations.  Accordingly, the Court should be satisfied that there has been proper disclosure.

45    Additionally, the Court should be satisfied that there is nothing apparently misleading or deceptive in the scheme booklet:

(a)    Coventry’s directors consider the contents of the scheme booklet to be accurate insofar as statements of fact relate to Coventry and there is no reason to believe that statements of fact relating to Crescent are inaccurate: Day affidavit, at paras [72]-[74];

(b)    Coventry has undertaken a process for the purpose of verifying the accuracy of the statements in the scheme booklet: Day affidavit, at paras [70]-[71] and [75]-[79]; first Hicks affidavit, at paras [3]-[8]; and second Hicks affidavit.

46    Pursuant to the terms of the share scheme deed poll, share scheme, option scheme deed poll, option scheme and merger implementation deed, Crescent is required, prior to transfer of the Coventry scheme shares and Coventry scheme options, to:

(a)    provide each eligible scheme shareholder the total number of new Crescent shares to which that eligible scheme shareholder is entitled; and

(b)    issue the nominee, in accordance with the scheme, the total number of new Crescent shares to which ineligible foreign coventry shareholders would otherwise have been entitled;

(c)    provide each scheme optionholder the total number of new Crescent options to which that scheme optionholder is entitled.

See cl 3, 7.8(b) of the share scheme deed poll, cl 4.2, 5, 7.2, 7.3 of the share scheme, cl 3.1, 7.8(b) of the option scheme deed poll, cl 4.2, 5, 7.2, 7.3 of the option scheme, cl 2.2, 4.4 and 4.6(a) of the merger implementation deed.

47    Pursuant to these terms Coventry is not obliged to transfer any shares to Crescent until the scheme consideration has been provided. The scheme consideration also does not involve the payment of money.

48    It follows that there is no significant performance or credit risk in this case: see, for example, Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 (Re APN News & Media Ltd) at [23].

49    The merger implementation deed contains provisions that prevent Coventry’s directors soliciting alternative proposals and requiring Coventry to give notice of unsolicited proposals: cl 12.1, 12.2, 12.3 and 12.4 of the merger implementation deed. Crescent is subject to the same obligations.

50    Exclusivity provisions should meet the following criteria to satisfy the Court of any concerns relating to the impact of these provisions on competition and directors’ duties:

(a)    The period should be no more than a reasonable period capable of precise ascertainment.

(b)    They should be framed so that they are subject to an overriding obligation not to breach the directors’ fiduciary duties or be otherwise unlawful.

(c)    There should be adequate prominence given to the constraint in the explanatory statement.

Re Arthur Yates & Co Ltd [2001] NSWSC 40; (2001) 36 ACSR 758 at [9]; Re APN News & Media Ltd at [29]-[35], [55]; Re Warwick Resources Ltd at [18].

51    The exclusivity provisions meet these criteria in this case.

(a)    The exclusivity period is around 4 months (7 September 2012 to approximately early January 2013): merger implementation deed, at cl 1.1 and 12; Day affidavit, at para [90]. Periods of a similar length have been regarded as reasonable in other cases: Re APN News & Media Ltd at [31] (3.5 months). Indeed, periods of up to seven months have been considered reasonable: Talent2 International Limited, in the matter of Talent2 International Limited [2012] FCA 771 at [41] (Yates J, citing five other recent decisions).

(b)    The provisions are mutual.

(c)    The exclusivity provisions contain directors’ fiduciary duty qualifications: cl 12.3(a) and cl 12.5 of the merger implementation deed.

(d)    Prominence is given to the exclusivity provisions: s 14.2 of the scheme booklet.

52    The provisions were negotiated at arm’s-length and included as commercial terms: Day affidavit, at paras [93]-[97]. That is, they form part of the consideration for securing a valuable opportunity (the scheme) for the benefit of the shareholders and optionholders and are considered commonplace in such transactions: Day affidavit, at paras [91(c)]-[91(d)].

53    The merger implementation deed contains break fee provisions: cl 13 of the merger implementation deed.

54    The Court examines break fee provisions to see that they do not operate unfairly or unduly fetter competition.

55    Under these provisions Coventry may become liable to pay Crescent a break fee of $150,000 in certain circumstances (break fee); cl 13.2 merger implementation deed. Crescent may also become liable to pay Coventry the break fee in similar circumstances: cl 13.3.

56    Coventry will not be liable to pay the break fee if the scheme becomes effective in any event: cl 13.4. Coventry will not be liable if Coventry is entitled to terminate the merger implementation deed: cl 13.2(a).

57    Coventry’s potential liability to pay the break fee does not, in my view, provide a basis for refusing to allow the shareholders or optionholders to vote on the merits of the scheme for the following reasons:

(a)    The break fee is a little more than 1% of Coventry’s equity value. That is, it is not unduly anti-competitive.

(b)    The break fee is reciprocal.

(c)    The break fee was negotiated at arm’s-length and was accepted as a commercial term of the merger implementation deed: Day affidavit, at paras [86(d)]-[86(e)] and [93]-[97].

(d)    The break fee provisions, insofar as they affect Coventry, may fairly be regarded as the price for securing a valuable opportunity (the schemes) for the benefit of the shareholders and optionholders  That price is commercially reasonable.

See Re Bolnisi Gold NL (No 2) [2007] FCA 2078; (2007) 165 FCR 45 at [2], [12], [38], [39]; Re APN News & Media Ltd at [49]-[55]; Re Rusina Mining at [50]-[56]; Takeovers Panel Guidance Note GN7, paras 9 and 10.

58    The scheme contains a provision in which the shareholders warrant that their shares are fully paid and unencumbered: cl 7.6(b) of the share scheme (page 334) and cl 7.6(b) of the option scheme (page 359). The existence of the provision is drawn to the attention of the shareholders and optionholders in the scheme booklet: sections 4.11 and 13.7 of the scheme booklet (pages 61 and 162-163).

59    Warranties in these terms generally do not give rise to the concern, expressed by some Courts, that encumbrances may gain the impression that the transfer adversely affects their security: Re APN News & Media Ltd at [57]-[63]; Investa Properties Limited, in the matter of Investa Properties Limited [2007] FCA 1104 (Investa); Hostworks Group Limited ACN 008 010 820, in the matter of Hostworks Group Limited ACN 008 010 820 [2008] FCA 64 at [41]; Macquarie Private Capital A Limited [2008] NSWSC 323 at [13]-[14].

60    The schemes contain the usual “clear title” or “no encumbrance” provisions: cl 7.6(a) of the share scheme (page 334) and cl 7.6(a) of the option scheme (page 359). These are expressed to be to “the extent permitted by law”. So expressed the provisions do not give rise to the concern, expressed by some Courts, that third parties may gain the impression that their interests would be extinguished by the term: Investa at [25]-[30] (Lindgren J); Scarborough Equities Limited, in the matter of Scarborough Equities Limited (No 2) [2009] FCA 484 at [9]-[10] (Siopis J); Tower Australia Group Limited, in the matter of Tower Australia Group Limited [2011] FCA 224 at [15] (Stone J).

61    It is intended that shareholders in Canada, Hong Kong, the United States of America, Singapore and New Zealand will receive share scheme consideration.

62    There is the need for an exemption from the requirement under the Securities Act of 1933 (USA) (Securities Act) to register an offer or sale of securities, so far as the scheme of arrangement may have shareholders in the United States. 

63    Section 3(a)(10) of the Securities Act provides an exemption from the requirement to register securities in the United States under the Securities Act, for certain court-approved exchange offers. 

64    To obtain a s  3 exemption, the Court must be advised, prior to the hearing at which Coventry will seek orders approving the schemes, that the issuer of securities will not seek registration of the securities under the Securities Act, and will rely on the s  3 exemption, based on the Court’s approval, in the event that the Court approves the schemes  see Professional Investment Holdings Limited, in the matter of Professional Investment Holdings Limited (No 2) [2010] FCA 1336 at [55]; Re Cytopia Ltd (No. 2) [2010] VSC 4 at [23]; and Re Avoca Resources Limited, in the matter of Avoca Resources Limited [2011] FCA 208 at [29](b).

65    The Court has been suitably apprised of Coventry’s intention to rely on a s 3 exemption: originating process at page 1 and in the Day affidavit, at para [40].

66    Crescent shares will not be issued to shareholders in countries in respect of which Coventry and Crescent are not reasonably satisfied that the laws of those countries would permit the issue and allotment of Crescent shares to those shareholders  These shareholders will receive the scheme consideration as the sale proceeds from a sale of Crescent shares issued to a nominee who will sell those shares on behalf of the shareholders  A process for the use of a sale agent exists under the merger implementation deed (cl 4.4). Such processes are not considered to be “class-creating”: Re Hills Motorway Ltd at [9]-[13]; Re Opes Prime Stockbroking Ltd (No 2) [2009] FCA 813; (2009) 179 FCR 20 at [64]; oOh!Media Group Limited, in the matter of oOh! Media Group Limited [2012] FCA 26 at [30] (Yates J); Aston Resources Limited, in the matter of Aston Resources Limited [2012] FCA 229 at [32]-[33].

67    It is intended that optionholders in Canada, Singapore and Hong Kong will receive the option scheme consideration. These are the only countries outside Australia in which optionholders are located: Day affidavit at [41] and NFD-14 (page 958).

Conclusion

68    As each of the matters relevant to an order convening meetings under s 411 were, in my view, satisfied, on 9 November 2012 I made the above orders sought by the plaintiff, including an order requiring the advance notification of the second Court hearing scheduled for 14 December 2012, given its close proximity to the meetings to be convened on 13 December 2012.

Associate:

Dated:    9 November 2012