FEDERAL COURT OF AUSTRALIA

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

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

THE COURT ORDERS THAT:

1.    Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the plaintiff, TriAusMin Limited (ACN 062 002 475) (TriAusMin), and its shareholders (Scheme), being in the form contained in Annexure D of the Scheme Booklet which was registered with the Australian Securities and Investments Commission on 6 June 2014 and which is Exhibit 1 in this proceedings, be approved.

2.    Pursuant to s 411(12) of the Act, TriAusMin be exempted from compliance with s 411(11) of the Act in relation to the Scheme.

3.    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    This is an application by the plaintiff (TRO) for orders under s 411(4)(b) of the Corporations Act 2001 (Cth) (Corporations Act) approving a scheme of arrangement between TRO and its members pursuant to which TRO shareholders will receive one share in Heron Resources Limited (Heron) for every 2.33 TRO shares held (Scheme). TRO also seeks an order under s 411 (12) that s 411(11) not apply.

2    On 6 June 2014, I made orders for despatch of a Scheme Booklet and to convene a Scheme Meeting on 28 July 2014: see Re TriAusMin Limited [2014] FCA 611 (TriAusMin). Words defined in those reasons and in the Scheme Booklet bear the same meaning in these reasons unless otherwise indicated. All references to section numbers refer to the Corporations Act unless otherwise specified.

3    Dr James Gill, Chairman of TRO, gave evidence that:

   a.    He acted as Chairman of the Scheme Meeting, which was held at the time and place specified in my orders of 6 June 2014;

   b.    He advised the meeting that the no Superior Proposal had been received;

   c.    The results of the poll were that the resolution approving the Scheme was passed by a majority of 99.93% comprising 132,932,936 votes for and 93,500 votes against the Scheme (1500 abstaining). Of the shareholders who attended and voted at the meeting in person or by proxy, 158 voted for and two voted against the resolution.

4    The Australian Securities & Investments Commission (ASIC) provided its “usual letter” under s 411(17)(b) on 4 August 2014. Certificates dated 4 August 2014 executed on behalf of TRO and Heron were tendered. The Certificates are to the effect that the conditions of the Scheme (other than Court approval and lodgement of orders under s 411(4)(b) with ASIC) have been satisfied or waived.

5    I am satisfied, subject to the three matters which were drawn to my attention and discussed below, that the Scheme Booklets were despatched and the Scheme Meeting was held in accordance with my orders dated 6 June 2014. I am satisfied TRO is a Part 5.1 body and that the resolution was passed by the majority of shareholders attending and voting at the Scheme Meeting required to satisfy s 411(4)(a)(ii). The following affidavits were read in support of these conclusions:

     a.    Dr James Gill, Chairman of TRO, affirmed on 29 July 2014. The affidavit related to the conduct of the Scheme Meeting;

     b.    Ms Mary Huang, a solicitor employed by Addisons, the Australian lawyers for TRO, affirmed on 30 July 2014. The affidavit related to lodgement of documents with ASIC;

     c.    Mr Dennis Peterson, a principal of Peterson Law Professional Corporation, the Canadian legal advisors to TRO, sworn on 31 July 2014. The affidavit related to Canadian practice with respect to communications with shareholders;

     d.    Mr David Gardos, a solicitor employed by Peterson Law Professional Corporation, sworn on 31 July 2014. The affidavit related to communications with the Toronto Stock Exchange (TSX);

     e.    Mr David Parkinson, an employee of Boardroom Pty Limited, affirmed on 31 July 2014. Boardroom Pty Limited provides share registry services to TRO in Australia and was responsible for proxy collation and vote tallying services at the Scheme Meeting. Mr Parkinson was returning officer at the Scheme Meeting;

     f.    Mr Steven Hoy of Budget Mailing Services Pty Ltd sworn on 1 August 2014. This affidavit relates to mailing of the Scheme Booklet to Australian and foreign shareholders outside North America;

     g.    Mr Simon Smith, company secretary and chief financial officer of TRO, affirmed on 1 August 2014. The affidavit relates to despatch of the Scheme Booklets and related material, notice to the auditor, appointment of Boardroom Pty Ltd, shareholder turnout, the execution of option cancellation deeds to satisfy a condition precedent to the Scheme, publication of notice of the second court hearing in the Australian on 11 July 2014 in accordance with the orders made on 6 June 2014 and the fact that he has not received notice of anyone’s intention to appear at the second court hearing in relation to the Scheme. This affidavit annexed copies of affidavits sworn on 30 June 2014 and 21 July 2014 by Ms Lori Winchester of Equity Financial Trust Company, which performed mailing services to Canadian shareholders and collated proxies. It also annexed a copy of an affidavit sworn on 11 July 2014 by Mr Rasheed Mohammed in relation to mailing of material to shareholders. Mr Peterson gave evidence that the affidavits of Ms Winchester and Mr Mohammed are in a form which would be acceptable to a Canadian court; and

     h.    Ms Li-Jean Chew, of Addisons, affirmed on 4 August 2014. Ms Chew gave evidence about her communications with ASIC.

6    Three matters were drawn to my attention: (1) irregularities in relation to despatch of the Scheme Booklet to five Canadian shareholders; (2) the relatively low voter turnout at the Scheme Meeting; and (3) amendments made to the Notice of Meeting (required by TSX) after the first court hearing and circulation to shareholders of other formal documents which were not approved by the Court.

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.

Associate:

Dated:    11 August 2014