FEDERAL COURT OF AUSTRALIA

Triausmin Limited, in the matter of Triausmin Limited [2014] FCA 611

IN THE MATTER OF TRIAUSMIN LIMITED (ACN 062 002 475)

THE COURT ORDERS THAT:

1.    Pursuant to subsection 411(1) of the Corporations Act 2001 (Cth) (Act):

a)    the plaintiff, TriAusMin Limited (ACN 062 002 475) (TriAusMin), convene a meeting (Scheme Meeting) of the holders of shares in TriAusMin (Shareholders) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement to be made between TriAusMin and its Shareholders (Scheme), being the scheme substantially in the form contained in Annexure D of the explanatory statement (Scheme Booklet) which is Exhibit 1 in the proceedings; and

b)    the Scheme Meeting be held at 2.00 pm (Sydney time) on Monday, 28 July 2014 at The Grace Hotel, 77 York Street, Sydney NSW Australia.

2.    James Wendell Gill, or failing him, William Frederick Killinger, act as Chairperson of the Scheme Meeting.

3.    The Chairperson appointed to the Scheme Meeting have power to adjourn the Scheme Meeting in his absolute discretion.

4.    All voting at the Scheme Meeting to be by poll as declared by the Chairperson, except for procedural motions.

5.    Pursuant to subsection 411(1) of the Act, the Scheme Booklet be approved for distribution to Shareholders.

6.    Regulations 5.6.12 and 5.6.14 to 5.6.36A of the Corporations Regulations 2001 (Cth) shall not apply to the Scheme Meeting.

7.    Notice of the hearing of an application pursuant to subsection 411(4)(b) of the Act for orders approving the Scheme be published, substantially in the form of Annexure "A" to this Order, on or before Monday, 28 July 2014 in "The Australian" newspaper, and that TriAusMin otherwise be exempted from compliance with rule 3.4 of the Federal Court (Corporations) Rules 2000 (Cth).

8.    The Originating Process filed on 19 May 2014 be adjourned to 2.15 pm on 4 August 2014 before Farrell J.

9.    Liberty to apply be granted on 2 days' notice.

10.    These orders be entered forthwith.

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

IN THE MATTER OF TRIAUSMIN LIMITED (ACN 062 002 475)

REASONS FOR JUDGMENT

1    These are my reasons for making orders in Chambers on 6 June 2014 pursuant to an application in the first instance under s 411(1) of the Corporations Act 2001 (Cth) (Corporations Act) to convene a meeting (Scheme Meeting) of the shareholders of the plaintiff (TRO) to approve (with or without modification) a scheme of arrangement between TRO and its members (Scheme). TRO also sought directions under s 1319 as to the manner in which the Scheme Meeting is to be convened and conducted.

TRO

2    TRO is a public company which was registered in Australia on 21 October 1993. TRO has been admitted to the official list of the Australian Securities Exchange Limited (ASX) since 9 January 2004 and the Toronto Stock Exchange (TSX) since 22 January 2010.

3    TRO’s main business is exploration and development of base and precious metal deposits in the Lachlan Fold Belt of New South Wales. Its “flagship” project is the Woodlawn Project comprising the Woodlawn Tailings Retreatment Project, which hosts an 11.2 million tonne tailings deposit containing base and precious metals, and the Woodlawn Underground Project, which is a high grade underground deposit. Falling metal prices and diminished investor interest in the mineral resource sector has made it difficult for TRO to raise the funds necessary to pursue the development of the Woodlawn assets. At 31 December 2013, TRO had $0.8 million in cash and therefore required additional capital to fund the next steps in advancing the Woodlawn Project, existing exploration commitments and working capital.

4    Mr Simon Smith, company secretary and chief financial officer of TRO, affirmed an affidavit dated 28 May 2014. Mr Smith affirms that TRO is in a position to pay its debts as and when they become due and payable. As Mr Smith affirms, the position of creditors will not be adversely affected if the Scheme is approved and implemented.

5    Exhibit SDLS-2 to Mr Smith’s affidavit is TRO’s interim financial report for the half year to 31 December 2013. The independent auditor’s review report by BDO East Coast Partnership dated 19 February 2014 contains the following paragraph headed “Emphasis of matter” in relation to the interim financial report:

Without modifying our conclusion, we draw attention to Note 1 in the half-year financial report, which indicates that the ability of the consolidated entity to continue as a going concern is dependent upon the future successful raising of necessary funding through equity and successful exploration of the consolidated entity’s tenements. These conditions, along with other matters as set out in Note 1, indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity’s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business.

The bidder

6    In mid-2013, Heron Resources Limited (Heron) expressed an interest in a possible takeover of TRO. Heron is an Australian exploration company, shares in which are traded on ASX. As at 31 March 2014, Heron had cash and marketable securities of approximately $38.6 million and no debt; its key asset is the Kalgoorlie Nickel Project, a nickel laterite deposit in Western Australia. Heron’s market capitalisation as at 7 March 2014 was $36.7 million.

The Scheme

7    On 10 March 2014, TRO and Heron announced that they had entered into a Scheme Implementation Agreement (Implementation Agreement) in relation to an acquisition scheme under which TRO shareholders would receive one new Heron share for every 2.33 TRO shares. It is intended to seek listing of the Heron shares on TSX as well as ASX. Upon implementation of the Scheme, TRO shareholders will hold approximately 30% of Heron and TRO will be a wholly owned subsidiary of Heron.

8    The strategic focus of the merged entity would be to advance the Woodlawn Underground Project to a production decision stage, enhancing the value of the Woodlawn Tailings Retreatment Project, and on completing a bankable feasibility study involving a combined development program for those Projects.

9    Using the closing price of $0.145 per Heron share on 7 March 2014 (the last day before the announcement), the implied price of each TRO share is $0.062, giving TRO an implied equity value of $15.6 million. On this basis the Scheme Consideration would represent a premium of 48% and 53% to the 30 day volume weighted average price per share of TRO on ASX and TSX respectively up to 7 March 2014, the last trading day before the announcement.

TRO capital structure

10    TRO had 251,389,050 shares on issue as at 31 December 2013.

11    Features of the proposal relevant to the capital structure of TRO are:

a.    To fund TRO, on 12 March 2014, Heron was issued 1,300,000 convertible notes with a face value of one dollar each, convertible into 32,500,000 TRO shares and with an interest rate of 8% (Convertible Notes). If the Implementation Agreement is terminated the balance of monies owing under the Convertible Notes will become payable and Heron may elect whether to be paid cash or TRO shares (at a price of $0.04 per share). If Heron elects to receive TRO shares, TRO may nonetheless elect to pay cash. If the Implementation Agreement is not terminated, the Convertible Notes mature on 31 December 2014 and Heron may elect to receive cash or shares. Upon conversion of the Convertible Notes, Heron would hold approximately 12% of TRO’s issued shares.

b.    It is a condition of the Implementation Agreement that the 11 holders of 8,583,333 TRO options enter into cancellation deeds under which they will exchange the TRO options for options over Heron shares in the same ratio as the Scheme Consideration. The exercise price would be adjusted by multiplying the exercise price of the cancelled TRO option by 2.33 (rounded to the nearest cent). ASX has waived Listing Rule 6.23.2 so that the TRO options may be cancelled without shareholder approval.

independent expert recommendation

12    The independent expert, Value Adviser Associates Pty Ltd, has concluded that in the absence of a superior proposal, the Scheme Consideration is fair and reasonable and the Scheme is in the best interests of TRO shareholders.

13    It has assessed the fair market value of each TRO share as $0.54 (incorporating a 20% control premium) and the value of the Scheme Consideration as $0.541 using share price estimates for fair market value. By his affidavit sworn on 29 May 2014 Mr Michael Churchill, who co-authored the independent expert report with Ms Megan Raynal, consented to the inclusion of the report dated 9 April 2014, which has been updated to 27 May in the Scheme Booklet. Ms Raynal affirmed an affidavit of 30 May 2014 in which she explained some aspects of the approach which the authors took in relying on an internal valuation model for the Woodlawn Tailings Retreatment Project.

Directors’ recommendation and chairman of the scheme meeting

14    The directors of TRO unanimously recommend the Scheme in the absence of a superior proposal and subject to the independent expert concluding that the Scheme is in the best interests of TRO shareholders. I note that each of the five directors hold a substantial number of TRO shares and options.

15    TRO Chairman, Dr James Gill, and Tri Origin Exploration Limited, who are described in the Scheme Booklet as “Supporting Shareholders” and who together hold 26.4% of TRO’s issued capital, have indicated their intention to vote their shares in favour of the transaction.

16    In his affidavit affirmed on 22 May 2014, Dr Gill deposed that he consented to act as Chairman of the Scheme Meeting, that he holds 37,223,010 shares and 500,000 TRO options and that he intends to enter into an option cancellation deed. He also disclosed that he will be appointed Deputy Chairman of Heron and he will receive remuneration consistent with the terms of the Heron chairman’s remuneration which is $100,000. I do not consider that these interests disqualify Dr Gill from acting as Chairman of the Scheme Meeting.

17    In his affidavit affirmed on 28 May 2014, Mr William Killinger AM, the Deputy Chairman of TRO, consented to act as Chairman of the Scheme Meeting if Dr Gill is not available. Mr Killinger disclosed that he had 2,442,082 TRO shares and 600,000 TRO options and that he intends to enter into an option cancellation deed. I do not consider that these interests disqualify Mr Killinger from acting as Chairman of the Scheme Meeting.

18    No directors of Heron hold shares in TRO. One Heron employee who was involved in negotiating the Implementation Deed, Mr Kempson, holds 2,000,000 TRO shares. In the context, I do not consider that Mr Kempson’s employment should be treated as class creating.

Conditions

19    Conditions of the Scheme and Implementation Agreement include:

a.    TSX having given approval to Heron shares being listed and posted for trading;

b.    All option holders having agreed to cancel their options in exchange for Heron shares;

c.    Obtaining any consents under TRO’s key contracts, the need for which being triggered by the Scheme;

d.    The TRO Board not withdrawing or varying its recommendation of the Scheme and the Supporting Shareholders not changing, qualifying or withdrawing their voting intentions (in the absence of a superior proposal).

e.    The “Final Completion” of the transfer of the SML 20 mining lease by 30 June 2014 having occurred and TRO having completed due diligence for Special Mining Lease S(C&PL)L20 and the results being reasonably acceptable to Heron;

f.    The S&P/ASX 200 index not falling below 4,370 for four or more consecutive days between 8 March 2014 and the Second Court Date;

g.    No Bidder or Target Material Adverse Change or Target Regulated Event having occurred.

Exclusivity provisions

20    The Implementation Agreement contains exclusivity provisions including “no shop”, “no talk”, “no due diligence”, “provision of information” and “notification and matching right” provisions which endure during the exclusivity period.

21    In relation to these provisions I note that:

a.    the exclusivity period will last until the earlier of termination of the Implementation Agreement, implementation of the Scheme and 31 December 2014;

b.    the “no talk” and “no due diligence” obligations are subject to a fiduciary carve out which enables the directors to entertain a competing proposal if the directors in good faith consider that it is likely to result in a superior proposal, subject to their obtaining written legal advice; and

c.    the notification and matching rights provision requires TRO to give Heron five business days’ notice of material terms of the competing proposal and the opportunity to match a superior proposal which is likely to result in the decision of the directors to qualify or withdraw their recommendation.

22    There is provision for a mutual break fee of $250,000 (plus applicable GST). It is payable by Heron if TRO terminates the Implementation Agreement for a material breach by Heron.

23    The fee is payable by TRO if any TRO director withdraws, qualifies or changes his recommendation or support of the Scheme other than because the independent expert has opined that the Scheme is not in the best interests of shareholders (as long as the reason is not the existence of a competing proposal). It is also payable if TRO announces a superior proposal, or if Heron terminates the Implementation Agreement for breach by TRO, upon the happening of a material adverse change in relation to TRO or the occurrence of a Target Regulated Event. The range of events which comprise a Target Regulated Event goes beyond the events described in s 652C of the Corporations Act. These are not unusual conditions for the payment of a break fee, although it is notable that the Implementation Agreement is highly prescriptive of the directors’ freedom of action in managing the affairs of TRO during the exclusivity period.

24    Unusually, the break fee is payable by TRO if a competing proposal is announced before 31 December 2014 (or such later date as TRO and Heron may agree) and by 8 March 2015 (the anniversary of the execution of the Implementation Agreement) a third party has acquired 20% or more of TRO’s total voting power and the competing proposal is or becomes unconditional.

25    Mr Wayne Taylor, the managing director and chief executive officer of TRO, affirmed an affidavit on 29 May 2014 and Mr Ian Buchhorn, the managing director and chief executive officer of Heron swore an affidavit of 30 May 2014. Each deposed that the exclusivity provisions were negotiated. Mr Taylor deposed that he considers the break fee is not excessive, that it is a genuine pre-estimate of costs and that the Board considered that the benefits of the Scheme outweighed the risk of having to pay the break fee. He pointed out that Heron must also pay a break fee. He said that between May 2013 and February 2014 TRO undertook considerable efforts to identify investors who would be prepared to finance the advancement of the Woodlawn Underground Project; the Scheme proposal is the outcome of those efforts. Mr Buchhorn notes that the break fee is not payable by either party if the Scheme is not approved by shareholders or if the independent expert opines that the Scheme is not in the best interests of TRO shareholders. Notably Mr Buchhorn does not say that Heron would not otherwise have entered into the Scheme proposal.

26    There are three issues concerning the exclusivity provisions and the break fee applicable to TRO.

27    The first is that the break fee exceeds 1% of the equity value of TRO implied by the Scheme Consideration. It therefore exceeds the Takeovers Panel’s guideline set out in Guidance Note 7: Lock-up Devices. The break fee is approximately 1.6% of TRO’s equity value implied by the Scheme Consideration. Counsel for TRO, in my view correctly, submits that this may be justified having regard to the actual costs incurred by each of the parties due to the complexity of the Scheme proposal and TRO’s relatively low equity value.

28    The second element of concern is that the exclusivity period exceeds nine months and it is effectively 12 months in relation to control transactions (see [24] above). That is a much longer period than actually required to effect the Scheme proposal, given that the Scheme Meeting is proposed for 28 July 2014, even recognising the complexities introduced by the condition that the key SML 20 mining lease connected with the Woodlawn Project be transferred to TRO by 30 June 2014 and the need to secure TSX quotation of Heron shares.

29    Further, the Implementation Agreement contains provisions more akin to a private sale agreement; for instance, although Heron would not have a right to terminate the Implementation Agreement because the TRO shareholders did not approve the Scheme, Heron would have a right to terminate the Implementation Deed and receive payment of the break fee if, among other things, at any time before 31 December 2014, TRO:

    incurs any capital expenditure exceeding $200,000 in aggregate;

    incurs $100,000 worth of financial indebtedness outside the ordinary course of its business;

    acquires or disposes of any entity, business or asset (other than trade inventories or consumables) exceeding $500,000 in aggregate;

     provides financial accommodation to a third party; or

    shareholders pass a special resolution.

30    This gives Heron a considerable measure of control of TRO’s actions and although it may be justified up to the point at which shareholders vote on a Scheme proposal and it is implemented, it is difficult to see the justification for this measure of control for a long period after that time. It is not unusual for exclusivity periods to operate for a slightly longer time than the typical scheme timetable envisages for convening a scheme meeting and implementation of an approved scheme. This can be justified as necessary to accommodate possible slippages in the timetable. However, the existence of provisions of the kind in this Implementation Agreement would normally suggest that the exclusivity period should be short.

31    The third issue is that although TRO submitted that there was no break fee associated with the Convertible Notes that is the commercial effect of the Implementation Agreement. If TRO shareholders do not approve the Scheme, in order to be free of the exclusivity provisions and the prescriptions on its activities referred to as “Target Regulated Events” TRO must pay the break fee in order to terminate the Implementation Agreement. If this occurs before the Convertible Notes mature on 31 December 2014, Heron can require repayment of the Convertible Notes. I infer that the end date in the Implementation Agreement is so long because the extent of the Target Regulated Events protects Heron’s position as a lender as well as giving Heron control of significant aspects of how TRO may conduct its business.

32    Counsel drew the Court’s attention to the judgment of Jacobson J in Re Professional Investment Holdings Ltd [2010] FCA 1193 at [12]-[22] (Re Professional Investment Holdings). Justice Jacobson was called upon to consider whether an early repayment fee payable by a company for the redemption of convertible notes would amount to a break fee if schemes proposed in relation to the company were not approved by shareholders and in circumstances where the noteholder would, if the notes were not redeemed, have the right to be issued shares equal to 12% of the company. His concern was whether a condition such as that might be an obstacle to shareholders wishing to vote against the scheme exercising their vote freely. At the second court hearing, Jacobson J noted that even if the fee were to be treated as a break fee it would amount to between 0.94% and 1.11% of the enterprise value of the company: see Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [21]-[27].

33    The application which I am now considering is different from Re Professional Investment Holdings Ltd because the obligation to pay the break fee is characterised by the parties in the Implementation Agreement as a break fee. There may be an issue, if the Scheme is not approved and the break fee becomes payable (for some other reason since there is no “naked no vote” trigger for payment of the break fee), as to whether the true nature of the break fee is a penalty connected with the early repayment obligation on the Convertible Notes. That is not an issue I need to resolve.

34    Counsel drew attention to the comments of Santow J in Re Arthur Yates & Co Ltd (2001) 36 ACSR 758 at [9]:

The present clause does not involve any break fee though to a degree there are overlapping issues. It is important that an exclusivity clause satisfy the following concerns:

(a)    it should be for no more than a reasonable period capable of precise ascertainment, hence the need to ensure that any exclusivity period is properly defined;

(b)    while an exclusivity clause may differentiate between actively soliciting an alternative merger proposal or simply dealing with an unsolicited one, in either case it is important that such an exclusivity clause be framed so that it is subject to the overriding obligation not to breach the directors’ fiduciary duties or be otherwise unlawful; and

(c)    there should be adequate prominence given to that constraint in the explanatory memorandum sent to shareholders.

35    These statements of principle have been adopted by Justices of this Court and of many of the Supreme Courts of the States.

36    I do not consider that the length of the exclusivity period (and in particular its effective extension to March 2015) is appropriate. Although the exclusivity period is precisely ascertainable it is more extensive than may be required to effect the Scheme within a reasonable timeframe and carries control implications for an extensive period after TRO shareholders vote on the Scheme if they do not approve it. Actions taken to implement the exclusivity provisions and any requirement to pay a break fee at a time after the Scheme is not approved (should that occur) may well fall for adverse consideration by the Takeovers Panel. Were an application to be made to the Takeovers Panel before the second court hearing, it may be relevant to the Court’s consideration of the application to approve the Scheme under s 411(4)(b).

37    However, I do not consider that the exclusivity or break fee provisions should be an obstacle to my making orders under s 411(1) in this case because:

(1)    TRO sought sources of financial accommodation necessary to develop its tenements over a long period from May 2013 and I have no reason to doubt Mr Taylor’s evidence of the difficulty in obtaining investor interest;

(2)    The qualification in the auditor’s review report on the half yearly financial statements indicates TRO’s need for capital in order to continue as a going concern;

(3)    There is commercial sense (and in light of (2), possibly some urgency) in the merger of a company which apparently has viable tenements which require funding but which has no ready access to funds and another company also in the mining industry which has available funds and no debt. In that circumstance, shareholders should not be deprived of the opportunity of considering the proposal and obtaining ongoing benefit as shareholders in the merged entity;

(4)    The directors of TRO consider the risk of TRO being required to pay the break fee is outweighed by the opportunity offered by the proposal;

(5)    The break fee is not payable merely by reason that the shareholders vote against the Scheme and this fact is prominently disclosed early in the Scheme Booklet;

(6)    The break fee exceeds the $190,000 of costs which Mr Buchhorn said that Heron has incurred to date but it is not an unlikely assessment of what Heron’s total costs will ultimately amount to even though it exceeds 1% of the implied equity value of TRO. I note that TRO has spent in excess of $300,000;

(7)    Heron must also pay a break fee of the same size if the Implementation Deed is terminated for Heron’s breach, albeit that TRO has already incurred more costs as the Scheme company; and

(8)    If the shareholders do vote against the Scheme, it may be open to TRO shareholders or directors to seek relief from the Takeovers Panel if Heron seeks to rely on the exclusivity provisions and require payment of the break fee.

Performance Risk and foreign shareholders

38    Performance risk has been dealt with in the usual manner. Clause 3 of the Scheme (which is set out in Annexure D to the Scheme Booklet) provides for the Scheme Consideration to be issued to TRO shareholders (other than ineligible foreign shareholders) before the transfer of TRO shares to Heron.

39    Heron will issue Scheme Consideration to Patersons Securities Limited (Patersons) as nominee for ineligible foreign shareholders to procure the sale of the Heron shares. Heron must then, in consultation with Patersons, procure the payment of the net proceeds to those ineligible foreign shareholders. This is the usual manner for dealing with foreign shareholders who are ineligible to receive an offer of securities under their domestic laws. The Court was advised that approximately 1% of TRO shareholders would be ineligible foreign shareholders.

40    On 30 May 2014 Heron executed a deed poll in the usual form in favour of TRO shareholders. The deed poll is Exhibit 3 in these proceedings.

Verification

41    Mr Taylor deposed that TRO had conducted a due diligence and verification procedure in relation to the Scheme Booklet. It appears to be a usual procedure of this kind. Mr Buchhorn was less fulsome in his evidence, but he too has deposed that the Heron information in the Scheme Booklet was prepared under his supervision, that it was reviewed by the Board of Directors and certain company officers who have undertaken a verification process to confirm that it is true and correct in all material respects and does not contain misleading or deceptive statements or omit material information.

ASIC

42    Ms Li-Jean Chew of Addisons, lawyers for TRO, affirmed an affidavit dated 29 May 2014 in relation to the provision of drafts of the Scheme Booklet, independent expert’s report and the originating process to ASIC. Officers of ASIC raised a number of issues in relation to the Scheme Booklet and the report which were addressed by the solicitors for TRO and Ms Raynal. ASIC has provided the “usual letter” and I am satisfied that the requirements of s 411(2) have been met.

Canadian issues

43    Counsel advised the Court that approximately 77% of TRO’s shareholders have Canadian addresses. TRO shares are quoted on TSX. It is therefore appropriate that the Scheme Booklet take into account their information requirements. Section 4.5 deals with voting by Canadian Beneficial Holders. General Canadian taxation considerations appear to have been set out in Section 9 of the Scheme Booklet in the same level of detail as Australian taxation considerations. Section 11.7 provides an outline of Canadian securities law. Section 11.8 contains information fulfilling a Canadian disclosure requirement concerning collateral benefits. Annexure C is an Explanatory Memorandum and Management Information Circular. This information is provided in a manner which is unlikely to be confusing to Australian shareholders.

44    Mr Dennis Peterson of Peterson Law Professional Corporation of Toronto, Canada, swore an affidavit dated 28 May 2014. He deposed that he is a lawyer who was admitted to the Ontario Bar more than 25 years ago and he has experience in prospectus financing, private placements and mergers and acquisitions with particular emphasis on the resource sector, and that he has worked with companies listed on TSX and TSX Ventures Exchange. Mr Peterson advised TRO in relation to the Canadian law aspects of the Scheme. He was provided with a copy of Practice Note CM 7 issued by the Court.

45    Mr Peterson deposes that he reviewed the Scheme Booklet and he holds the opinion that the Scheme Booklet complies with the requirements of Canadian law.

US Securities Act of 1933

46    Counsel drew to the Court’s attention that TRO intends to rely on an exemption from the registration requirements of the Securities Act of 1933 (USA) provided by s 3(a)(10) of that Act. If the Court determines to make orders under s 411(4)(b) at the second court hearing, he would therefore ask the Court to make statements of the kind referred to in Re Simavita Holdings Limited [2013] FCA 1274 at [50] in its reasons for making those orders.

Events post hearing

47    When I heard the application on 30 May 2014, TRO was not in a position to complete a number of gaps in the draft of the Scheme Booklet in Exhibit WRT-A, which was considered by the Court at the hearing, and to supply Exhibit 1 to allow orders to be made. This was due to the need to satisfy some regulatory matters in Canada before the date for the Scheme Meeting could be ascertained with certainty.

48    On 3 June 2014 TRO supplied a mark-up of proposed amendments to the Scheme Booklet considered on 30 May 2014 which was set out in Exhbit WRT-A and draft orders. The mark up revealed that as at 30 May 2014 the price of a Heron share was $0.115 (compared to $0.145 on 7 March 2014). TRO was asked to provide submissions on a number of issues including:

(1)     whether the references in the Scheme Booklet to the premium which the Scheme Consideration represented compared to the TRO share price on 7 March 2014 required qualification in light of the fall in the Heron share price, notwithstanding statements in the Scheme Booklet to the effect that the value of the Scheme Consideration would be affected by volatility in the Heron share price;

(2)    whether the independent expert’s opinion was affected and whether the 9 April 2014 date of the opinion should be revised, recognising that it had been “brought forward” to 28 May 2014;

(3)     whether some of the disclosures in the Scheme Booklet dealing with TRO’s position if the Scheme was not approved should be made more prominent in light of the “emphasis statement” contained in the Interim Financial Statement of 31 December 2014; and

(4)    whether ASIC was aware of the proposed amendments.

49    A copy of the Court’s queries and submissions from TRO, together with proposed amendments to the Scheme Booklet in response to the Court’s queries, were provided to ASIC. Reference to the Heron share price on 30 May 2014 was inserted near references to the premium calculated as at 7 March 2014 and cross-referenced to section 7.11 of the Scheme Booklet which sets out movements in the Heron share price. The fact that TRO would need to source capital to repay the Convertible Notes on 31 December 2014 and to fund its activities if the Scheme is not approved was made more prominent. No change was made to the independent expert’s report on the basis that Mr Churchill had affirmed on 29 May 2014 that he had not become aware of any circumstance which would alter his opinion.

50    On 6 June 2014, ASIC indicated that it did not wish to make submissions on the matters raised.

51    I note that the fall in the Heron share price means that the implied equity value of TRO has also fallen and therefore the break fee will be proportionately larger. I do not consider that this is a reason not to make the orders.

Conclusion

52    The proposed Scheme is a common form of “arrangement”. I am a satisfied that the formal requirements of s 411(1) and (2) have been met and that, having regard to the principles which I summarised in Re Associated Advisory Practices Limited [2013] FCA 761 at [22], I should make the orders proposed which are in a usual form.

Associate:

Dated:    11 June 2014