FEDERAL COURT OF AUSTRALIA

Cobalt One Limited, in the matter of Cobalt One Limited [2017] FCA 1228

ORDERS

THE COURT ORDERS THAT:

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

(a)    the Plaintiff, Cobalt One Limited (Cobalt), convene a meeting (Scheme Meeting) of the holders of fully paid ordinary shares in Cobalt for the purpose of considering and, if thought fit, approving a scheme of arrangement (with or without modification) proposed to be made between Cobalt and its shareholders (Scheme), the terms of which are contained in Attachment F to the scheme booklet containing the explanatory statement in relation to the Scheme, which is annexure STT-12 to the third affidavit of Sarah Terase Turner affirmed 11 October 2017 and filed in these proceedings (the Scheme Booklet);

(b)    the Scheme Meeting be held at the office of Cobalt One Limited at Level 1, 35 Richardson Street, West Perth, Western Australia at 10:00am (WST) on Friday, 17th November 2017;

(c)    Jason Anthony Bontempo or, failing him, Nicholas James Rowley, act as Chairperson of the Meeting and report the results of the Scheme Meeting to this Court; and

(d)    the Chairperson appointed for the Scheme Meeting have the power to adjourn the meeting or not in their absolute discretion for such time that the Chairperson considers appropriate.

2.    Pursuant to section 1319 of the Act, but subject to such orders as the Court makes, the Scheme Meeting be convened, held and conducted in accordance with the provisions of:

(a)    Part 2G.2 of the Act that apply to the members of a company, and have not been displaced or modified by Cobalt's constitution; and

(b)    Cobalt’s constitution that are not inconsistent with that Part and that apply to a meeting of members,

save that all voting at the Scheme Meeting be by poll demanded by the Chairperson.

3.    Pursuant to section 1319 of the Act and for the purposes of regulation 7.11.37(3)(b) of the Corporations Regulations 2001 (Cth) (the Corporations Regulations), the specified time for the purposes of identification of securities holdings for the Scheme Meeting, shall be 7:00pm (WST) on Wednesday, 15th November 2017 (Snap-Shot Date), with power to the Chairperson of the Scheme Meeting in his absolute discretion to allow late proxies up to the commencement of the meeting.

4.    Cobalt be exempted from compliance with the requirements of Rule 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) (Rules).

5.    The proposed Scheme Booklet, which comprises the Explanatory Statement as required by section 412(1)(a) of the Act and its annexures and the proposed proxy forms for the Scheme Meeting which are Annexures STT-12 to the third affidavit of Sarah Terase Turner affirmed 11 October 2017 and STT-4 to the first affidavit of Sarah Terase Turner affirmed 22 September 2017, be and are approved for distribution to Cobalt’s shareholders (subject to any amendments required or approved by the Australian Securities and Investments Commission (ASIC) for purposes of registration thereof under section 412(6) of the Act).

6.    Subject to registration of the Scheme Booklet with the ASIC pursuant to section 412(6) of the Act, Cobalt is to despatch to each Cobalt Shareholder with an address on the Cobalt register of members maintained by Advanced Share Registry Ltd ACN 127 175 946 (Advanced Share Registry):

(a)    a document substantially in the form of the Scheme Booklet;

(b)    a proxy form; and

(c)    a reply paid envelope addressed to Advanced Share Registry,

by:

(d)    ordinary pre-paid post to each Cobalt shareholder with a registered address in Australia; or

(e)    pre-paid airmail or air courier to each Cobalt shareholder with a registered address outside Australia; or

(f)    the nominated notification means in accordance with section 249J of the Act.

7.    Despatch of the documents referred to in paragraphs 6 of these Orders in accordance with the stated delivery methods on or before 16th October 2017 is to be taken to be sufficient notice of the Scheme Meeting.

8.    The time by which Cobalt shareholders must return their proxy forms for the Scheme Meeting be 10:00am (WST) on Wednesday, 15th November 2017.

9.    Leave be given to Cobalt to make application for orders under sections 411(4) and 411(6) of the Act following the Scheme Meeting for approval of the Scheme to be heard at 11:15 am on Monday, 27th November 2017, or such other date as the Court sees fit to set for such purpose.

10.    Cobalt publish notice of the hearing of that application in the form or to the effect of the advertisement (scheduled below for convenience) in Annexure STT-7 to the first affidavit of Sarah Terase Turner affirmed 22 September 2017 once in The West Australian newspaper at least 5 days before the date fixed for the hearing of that application, and Cobalt shall otherwise be exempted from compliance with Rule 3.4 of the Rules.

11.    Cobalt, ASIC and any interested party has liberty to list the matter on 18 hours’ written notice.

12.    An office copy of these orders shall be lodged with ASIC as soon as practicable after these orders are made.

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

SCHEDULE 1

NOTICE OF HEARING TO APPROVE COMPROMISE OR ARRANGEMENT

Take notice that at 11:15am (WST) on Monday, 27 November 2017 the Federal Court of Australia at Level 6 of the Peter Durack Commonwealth Law Building, 1 Victoria Avenue Perth, will hear an application by Cobalt One Limited (Cobalt) seeking the approval of a Scheme of Arrangement proposed between Cobalt and its members, if such Scheme of Arrangement is approved by those members at the Court ordered meeting convened to be held on Friday, 17 November 2017.

If you wish to oppose the approval of the Scheme of Arrangement, you must file and serve on Cobalt 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 Cobalt at its address for service at least one day before the day fixed for the hearing of the application.

The address for service on Cobalt is c/- Gilbert + Tobin, Level 16, Brookfield Place Tower 2, 123 St Georges Terrace, Perth WA 6000 (Attention: Sarah Turner). Email: STurner@gtlaw.com.au

A copy of the Scheme Booklet is available at www.cobaltonelimited.com

Gilbert + Tobin

Level 16, Brookfield Place Tower 2

123 St Georges Terrace

Perth WA 6000

REASONS FOR JUDGMENT

SIOPIS J:

1    This is an application under s 411(1) of the Corporations Act 2001 (Cth) to convene a meeting of the members of the plaintiff, Cobalt One Limited (Cobalt One), for the purpose of considering and, if thought fit, passing a resolution in favour of a proposed scheme of arrangement between the company and its members.

2    Cobalt One is a public company which has its shares listed on the Australian Securities Exchange. The company is the holder of tenements for the exploration for cobalt in Canada. It has approximately 682 million fully paid ordinary shares on issue. There are also a number of options, but the options are to be dealt with outside of the scheme. Mr Nicholas Rowley, a non-executive director of Cobalt One, has deposed in some detail as to how the options are to be dealt with.

3    Under the scheme of arrangement, First Cobalt Corporation (First Cobalt), a Canadian company, will acquire all of the issued shares in Cobalt One. The shares in First Cobalt are quoted on the TSX-Venture Exchange. The scheme consideration will be 0.145 new First Cobalt shares or 0.145 new First Cobalt CHESS Depository Interests, for each Cobalt One share. The new First Cobalt CDIs will be quoted on the Australian Securities Exchange.

4    First Cobalt also operates in the cobalt exploration industry, and it has cobalt exploration tenements in the same area in Canada where the Cobalt One tenements are located. First Cobalt is contemplating, or in the process of effecting, a merger with another Canadian company which is also in the cobalt exploration industry. The object of the acquisition of Cobalt One and the acquisition of the other company in Canada is to consolidate the three companies into a single effective operation, “to create the largest pure-play cobalt exploration and development company in the world”.

5    When an application under s 411(1) of the Corporations Act comes before a court at the first hearing, the court has regard to a number of matters.

6    The first is whether the scheme is an arrangement within the terms of the Corporations Act. In this case the scheme clearly qualifies.

7    The next question is whether the Australian Securities and Investments Commission (ASIC) has been given sufficient notice of the hearing. The affidavit material before the Court shows that there has been compliance with this condition. The material also shows that ASIC has provided to the solicitors for Cobalt One a letter dated 12 October 2017 stating that ASIC does not propose to attend the hearing today and does not intend to oppose the making of the orders sought by Cobalt One today.

8    Then there is a question as to whether the provisions of the Corporations Act and Corporations Regulations 2001 (Cth) have been complied with. In that regard, I have been supplied with a helpful chart which sets out the relevant provisions in the Act and Regulations and identifies those parts of the affidavit material which evidence such compliance with those provisions.

9    In relation to the question of the sufficiency of disclosure regarding the scheme of arrangement in the scheme booklet, there is affidavit evidence from Ms Sarah Turner, a partner in Gilbert + Tobin, the law firm advising Cobalt One, which shows that the solicitors acting for Cobalt One and ASIC have engaged in correspondence over a period of time as to the content of the proposed scheme booklet and that amendments have been made to accommodate ASIC’s concerns. In this regard, it should be observed that ASIC has the view that there are some shareholders who may, perhaps, be regarded as having an interest over and above that of the ordinary shareholders in the outcome of the vote at the scheme meeting. ASIC has asked Cobalt One to tag the votes of those shareholders, and Cobalt One has agreed to do so.

10    There is also an affidavit from Mr Rowley in which he deposes that the information about Cobalt One in the scheme booklet has been the subject of scrutiny by a working group and that to the best of his knowledge, after making reasonable inquiries, the statements regarding Cobalt One in the scheme booklet are true; and there has been no omission of material information. First Cobalt has issued a certificate to similar effect in relation to the statements in the scheme booklet about First Cobalt. This certificate has been verified in an affidavit by Mr Trent Mell, president and chief executive officer of First Cobalt.

11    I also note that the scheme booklet contains a statement which complies with the Federal Court’s Commercial and Corporations Practice Note (C&C-1).

12    I am satisfied that the scheme booklet provides sufficient information to the members of Cobalt One such that they will have a fair opportunity to assess the merits and the demerits of the scheme.

13    Then there is a question of whether there is any material before the Court which indicates that if sufficient votes were cast at the meeting to approve the scheme, the Court might, at the second hearing, nevertheless, decline to make orders approving the scheme.

14    In this regard counsel for Cobalt One has referred me to a number of issues.

15    The first issue relates to the expert report. This report has been has been prepared by Mr Ken Pendergast and Mr Stuart Bright of Ernst & Young. The report states that in the opinion of the experts the scheme of arrangement is not fair, but is reasonable and is in the best interests of the Cobalt One shareholders.

16    By reference to the ASIC Regulatory Guide 111 – Content of expert reports, the experts have compared the share price of Cobalt One and the pro forma value of a merged First Cobalt share (adjusted to reflect the scheme consideration of 0.145 of a First Cobalt share for each Cobalt One share) over a period prior to the announcement of the scheme of arrangement. The analysis states that over the period Cobalt One’s share price ranged between 9.3 cents and 14.5 cents, whereas the adjusted pro forma First Cobalt share value ranged between 7.8 cents and 13.9 cents. It is on this basis that the experts expressed the opinion that the scheme is not fair.

17    However, the expert report then goes on to consider the advantages and disadvantages of the scheme, and essentially finds that there are material advantages which render the scheme reasonable, and in the best interests of the Cobalt One shareholders.

18    In the case of Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [44], French J (as his Honour then was) observed in relation to the role of a court at the first hearing:

The court at the stage of ordering a meeting to approve a scheme does not ordinarily go very far into the question of whether the arrangement is one which warrants the approval of the court: Re NRMA Ltd at FLR 359; ACSR 605. That question is to be answered when the scheme returns to the court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further. The court is not required to be satisfied either at the convening or approval stage that no better scheme could have been devised. The scheme, on the face of it, is not obviously unfair or otherwise inappropriate. If there are interests adversely and unfairly affected then the probability is that the question will arise at either or both the scheme meetings or the final approval stage.

19    In similar circumstances to this, where an expert report had opined that the scheme was not fair but reasonable, Brereton J observed in In the matter of CIC Australia Limited [2015] NSWSC 557 at [17]:

Ultimately, so long as they are properly appraised that the independent expert considers the scheme not to be fair and why, it is for the scheme shareholders to decide whether it is an offer that they should accept.

20    I am satisfied that the expert report is expressed in terms which will afford the members an opportunity to understand, and assess, the basis of the experts’ opinion and also the advantages and disadvantages of the scheme.

21    The expert report will be available for the shareholders to consider in deciding whether to approve the scheme. The content of that report does not constitute a reason why the orders should not be made for the convening of the meeting (Blackgold International Holdings Limited, in the matter of Blackgold International Holdings Limited [2017] FCA 601 at [19]).

22    Counsel for Cobalt One also referred to the question of performance risk. Mr Mell has deposed that First Cobalt has entered into a deed poll for the benefit of the shareholders of Cobalt One promising that First Cobalt will issue the scheme consideration. I have seen a copy of the deed poll and am satisfied that performance risk has been dealt with.

23    The last matter to which my attention was drawn, was the fact that the scheme implementation agreement contains exclusivity provisions and a break fee. In relation to the exclusivity provisions, there is a fiduciary carve-out which mitigates the prohibitions on “no shop” and “no talk”. I am satisfied that there is also nothing objectionable in relation to that issue.

24    There is also provision for a break fee which is equal to 1% of the equity value of Cobalt One and falls within the ambit of the Takeovers Panel Guidance Note 7: Lock-up devices. I am satisfied that there is nothing objectionable arising from the break fee provision.

25    In this regard, I would also observe that there is evidence that these clauses are the product of arm’s length negotiations between the two firms of solicitors, Jackson McDonald representing First Cobalt and Gilbert + Tobin representing Cobalt One.

26    Accordingly, I am content to make the orders that are contained in the minute of proposed orders, other than order 11.

Associate:

Dated:    17 October 2017