FEDERAL COURT OF AUSTRALIA

Gindalbie Metals Limited, in the matter of Gindalbie Metals Limited [2019] FCA 953

ORDERS

THE COURT ORDERS THAT:

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

(a)    the plaintiff convene and hold a meeting of the holders of its ordinary shares (Shareholders) (Acquisition Scheme Meeting), for the purpose of considering, and if thought fit, agreeing, a scheme of arrangement (with or without modification) proposed to be made between the plaintiff and the Shareholders (other than Angang Group Hong Kong (Holdings) Limited and its related bodies corporate (Ansteel)) (Acquisition Scheme), being the scheme substantially in the form set out in Annexure B of the scheme booklet containing the explanatory statement for the Acquisition Scheme, which is annexed to the affidavit of Mark Anthony Paganin dated 24 May 2019 (Acquisition Scheme Booklet);

(b)    the Acquisition Scheme Meeting be held at 9.30 am (AWST) on 3 July 2019 at Perth Convention and Exhibition Centre, Meeting Room 8, Perth, in the State of Western Australia;

(c)    the Acquisition Scheme Booklet, containing the explanatory statement required by s 412(1)(a) of the Act, in the form annexed to the affidavit of Mark Anthony Paganin, be and is hereby appointed for distribution to Shareholders, subject to:

(i)    correction of any typographical or grammatical errors and final typesetting and formatting;

(ii)    any minor amendments required or approved by the Australian Securities and Investments Commission (ASIC) for registration under s 412(6) of the Act;

(iii)    correction or update of any relevant date references or last trading prices; and

(iv)    any other amendments approved by the Court.

2.    Pursuant to s 1319 of the Act:

(a)    Keith Francis Jones, or failing him, Andrew Robin Marshall, be the chairperson of the Acquisition Scheme Meeting (Chairperson) and report the result of the Acquisition Scheme Meeting to this Court;

(b)    subject to these orders, the Acquisition Scheme Meeting is to be convened, held and conducted in accordance with:

(i)    the provisions of Part 2G.2 of the 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; and

(ii)    the notice of meeting in the form or to the effect contained in Annexure E of the Acquisition Scheme Booklet, as approved;

(c)    the Chairperson of the Acquisition Scheme Meeting can adjourn the Acquisition Scheme Meeting in their absolute discretion for such time that the Chairperson thinks appropriate, to a time and place advised by the Chairperson;

(d)    at the Acquisition Scheme Meeting, two Shareholders, entitled to vote, present in person or by proxy or by an attorney under power, or by a corporate representative (if applicable) shall constitute a quorum;

(e)    at the Acquisition Scheme Meeting, each Shareholder, present and entitled to vote, will be entitled to one vote for each fully paid ordinary share in the capital of the plaintiff that the Shareholder is registered as holding at 5.00 pm (AWST) on 1 July 2019; and

(f)    at the Acquisition Scheme Meeting, voting on the resolution on whether to approve the Acquisition Scheme is to be conducted by way of a poll (declared by the Chairperson).

3.    Subject to registration of the Acquisition Scheme Booklet with ASIC pursuant to s 412(6) of the Act, the plaintiff shall, on or before 3 June 2019, despatch the following documents to each Shareholder registered on the plaintiff's register of members at 5.00 pm (AWST) on 24 May 2019 (Register), using the methods of service set out below:

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

(b)    a proxy form in respect of the Acquisition Scheme Meeting (Acquisition Scheme Proxy Form);

(c)    a loose-leaf version of the chairman's letter extracted from the Acquisition Scheme Booklet (with necessary changes to reflect that extraction); and

(d)    a reply-paid envelope addressed to Link Market Services Limited (Link).

4.    In the case of Shareholders whose registered addresses are outside of Australia, the plaintiff shall, on or before 3 June 2019, despatch a 'Relevant Foreign Resident Declaration Form' along with the documents identified in order 3.

5.    On or before 3 June 2019, the plaintiff shall despatch the documents identified in order 3 and, where relevant, order 4:

(a)    to each Shareholder who has nominated an electronic address for the purposes of receiving Gindalbie communications (including notices of any meeting) from Link, by email, substantially in the form of Annexure RM-10 to the affidavit of Rebecca Moylan filed on 22 May 2019 in this proceeding, with such email to:

(i)    contain a link to a website at which the Shareholder can access the Acquisition Scheme Booklet; and

(ii)    contain a link to a website at which the Shareholder can lodge an electronic proxy form in respect of the Acquisition Scheme; and

(b)    to each other shareholder who has a registered address in Australia, by prepaid post; and

(c)    to each other shareholder who has a registered address outside of Australia, by prepaid airmail or air courier.

6.    If it comes to the attention of the plaintiff that any email despatched in accordance with order 5(a) results in the return of a receipt or notice that the email was undeliverable, then, in respect of that Shareholder, the plaintiff will forthwith despatch thereafter the documents identified in order 3 and, where relevant, order 4, using the method of service set out in order 5(b) or 5(c) (as relevant).

7.    Despatch of the documents referred to above, in accordance with the terms of orders above, shall be taken to be sufficient notice of the Acquisition Scheme Meeting.

8.    The time by which the Shareholders must return their Acquisition Scheme Proxy Form (or lodge an electronic proxy in respect of the Acquisition Scheme) is 9.30 am (AWST) on 1 July 2019.

9.    Rule 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules) shall not apply to the Acquisition Scheme Meeting.

10.    The plaintiff is to give notice of the hearing of its application pursuant to s 411(4) of the Act, and that notice of the hearing of an application pursuant to s 411(4)(b) of the Act for orders approving the Acquisition Scheme is to be published once in 'The Australian' newspaper by an advertisement substantially in the form of Annexure A to these orders, with such advertisement to be published on or before 4 July 2019, and the plaintiff is to be otherwise exempted from compliance with r 3.4 of the Corporations Rules.

11.    The proceeding be adjourned to 10.15 am (AWST) on 8 July 2019, for the hearing of an application to approve the Acquisition Scheme.

12.    These orders be entered forthwith.

Annexure A

Gindalbie Metals Limited (ACN 060 857 614)

Notice of Hearing to Approve Scheme of Arrangement pursuant to s 411 of the Corporations Act 2001 (Cth)

To all members of Gindalbie Metals Limited (ACN 060 857 614) (Gindalbie):

TAKE NOTICE that at 10.15 am (AWST) on 8 July 2019, the Federal Court of Australia at the Peter Durack Commonwealth Law Courts Building, 1 Victoria Avenue, Perth, Western Australia 6000 will hear an application by Gindalbie seeking the approval of a scheme of arrangement between Gindalbie and its ordinary shareholders (other than Angang Group Hong Kong (Holdings) Limited and its related bodies corporate), as proposed by a resolution passed by the meeting of ordinary shareholders held at 9.30 am (AWST) on 3 July 2019.

If you wish to oppose the approval of the above arrangement, you must file and serve on Gindalbie a notice of appearance, in the prescribed form, together with any affidavit which you wish to rely on at the hearing. The notice of appearance and affidavit must be served on Gindalbie at its address for service by no later than one business day before 8 July 2019.

The address for service upon Gindalbie is:

c/- Clayton Utz

Level 27, QV.1 Building

250 St Georges Terrace

PERTH WA 6000

Reference: Cameron Belyea

Facsimile: 08 9481 3095

Email: cbelyea@claytonutz.com.

A copy of the Scheme Booklet is available from the ASX's website at www.asx.com.au.

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

ORDERS

THE COURT ORDERS THAT:

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

(a)    the plaintiff convene and hold a meeting of the holders of its ordinary shares (Shareholders) (Demerger Scheme Meeting), for the purpose of considering, and if thought fit, agreeing, a scheme of arrangement (with or without modification) proposed to be made between the plaintiff and the Shareholders (Demerger Scheme), being the scheme substantially in the form set out in Annexure F of the scheme booklet containing the explanatory statement for the Demerger Scheme, which is annexed to the affidavit of Mark Anthony Paganin dated 24 May 2019 (Demerger Scheme Booklet);

(b)    the Demerger Scheme Meeting be held at 10.30 am (AWST) on 3 July 2019 at Perth Convention and Exhibition Centre, Meeting Room 8, Perth, in the State of Western Australia;

(c)    the Demerger Scheme Booklet, containing the explanatory statement required by s 412(1)(a) of the Act, in the form annexed to the affidavit of Mark Anthony Paganin, be and is hereby appointed for distribution to Shareholders, subject to:

(i)    correction of any typographical or grammatical errors and final typesetting and formatting;

(ii)    any minor amendments required or approved by the Australian Securities and Investments Commission (ASIC) for registration under s 412(6) of the Act;

(iii)    correction or update of any relevant date references or last trading prices; and

(iv)    any other amendments approved by the Court.

2.    Pursuant to s 1319 of the Act:

(a)    Keith Francis Jones, or failing him, Andrew Robin Marshall, be the chairperson of the Demerger Scheme Meeting (Chairperson) and report the result of the Demerger Scheme Meeting to this Court;

(b)    subject to these orders, the Demerger Scheme Meeting is to be convened, held and conducted in accordance with:

(i)    the provisions of Part 2G.2 of the 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; and

(ii)    the notice of meeting in the form or to the effect contained in Annexure H of the Demerger Scheme Booklet, as approved;

(c)    the Chairperson of the Demerger Scheme Meeting can adjourn the Demerger Scheme Meeting in their absolute discretion for such time that the Chairperson thinks appropriate, to a time and place advised by the Chairperson;

(d)    at the Demerger Scheme Meeting, two Shareholders, entitled to vote, present in person or by proxy or by an attorney under power, or by a corporate representative (if applicable) shall constitute a quorum;

(e)    at the Demerger Scheme Meeting, each Shareholder, present and entitled to vote, will be entitled to one vote for each fully paid ordinary share in the capital of the plaintiff that the Shareholder is registered as holding at 5.00 pm (AWST) on 1 July 2019; and

(f)    at the Demerger Scheme Meeting, voting on the resolution on whether to approve the Demerger Scheme is to be conducted by way of a poll (declared by the Chairperson).

3.    Subject to registration of the Demerger Scheme Booklet with ASIC pursuant to s 412(6) of the Act, the plaintiff shall, on or before 3 June 2019, despatch the following documents to each Shareholder registered on the plaintiff's register of members at 5.00 pm (AWST) on 24 May 2019 (Register), using the methods of service set out below:

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

(b)    a proxy form in respect of the Demerger Scheme Meeting (Demerger Scheme Proxy Form);

(c)    a proxy form in respect of the general meeting to consider the proposed 'Demerger Capital Reduction', as defined in the affidavit of Rebecca Moylan filed on 22 May 2019 in this proceeding (General Meeting Proxy Form);

(d)    a loose-leaf version of the chairman's letter extracted from the Demerger Scheme Booklet (with necessary changes to reflect that extraction); and

(e)    a reply-paid envelope addressed to Link Market Services Limited (Link).

4.    In the case of Shareholders whose registered addresses are in New Zealand, the plaintiff shall, on or before 3 June 2019, despatch a 'New Zealand Investor Certificate', 'New Zealand Certificate of Eligible Investor' and associated covering letter, along with the documents identified in order 3.

5.    On or before 3 June 2019, the plaintiff shall despatch the documents identified in order 3 and, where relevant, order 4:

(a)    to each Shareholder who has nominated an electronic address for the purposes of receiving Gindalbie communications (including notices of any meeting) from Link, by email, substantially in the form of Annexure RM-10 to the affidavit of Rebecca Moylan filed on 22 May 2019 in WAD 262 of 2019, with such email to:

(i)    contain a link to a website at which the Shareholder can access the Demerger Scheme Booklet; and

(ii)    contain a link to a website at which the Shareholder can lodge an electronic proxy form in respect of the Demerger Scheme; and

(b)    to each other shareholder who has a registered address in Australia, by prepaid post; and

(c)    to each other shareholder who has a registered address outside of Australia, by prepaid airmail or air courier.

6.    If it comes to the attention of the plaintiff that any email despatched in accordance with order 5(a) results in the return of a receipt or notice that the email was undeliverable, then, in respect of that Shareholder, the plaintiff will forthwith despatch thereafter the documents identified in order 3 and, where relevant, order 4, using the method of service set out in order 5(b) or 5(c) (as relevant).

7.    Despatch of the documents referred to above, in accordance with the terms of orders above, shall be taken to be sufficient notice of the Demerger Scheme Meeting.

8.    The time by which the Shareholders must return their Demerger Scheme Proxy Form (or lodge an electronic proxy in respect of the Demerger Scheme) is 10.30 am (AWST) on 1 July 2019.

9.    Rule 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules) shall not apply to the Demerger Scheme Meeting.

10.    The plaintiff is to give notice of the hearing of its application pursuant to s 411(4) of the Act, and that notice of the hearing of an application pursuant to s 411(4)(b) of the Act for orders approving the Demerger Scheme is to be published once in 'The Australian' newspaper by an advertisement substantially in the form of Annexure A to these orders, with such advertisement to be published on or before 4 July 2019, and the plaintiff is to be otherwise exempted from compliance with r 3.4 of the Corporations Rules.

11.    The proceeding be adjourned to 10.15 am (AWST) on 8 July 2019, for the hearing of an application to approve the Demerger Scheme.

12.    These orders be entered forthwith.

THE COURT NOTES THAT:

13.    There will be an amendment to page 13 of the Demerger Scheme Booklet by adding an additional heading 'Key Considerations in Voting On the Demerger' and inserting the text: 'Eligible Gindalbie Shareholders will receive unlisted Coda Shares unless and until the requirements for listing on the ASX can be met (if at all). Please refer to pages 74 and 90'.

Annexure A

Gindalbie Metals Limited (ACN 060 857 614)

Notice of Hearing to Approve Scheme of Arrangement pursuant to s 411 of the Corporations Act 2001 (Cth)

To all members of Gindalbie Metals Limited (ACN 060 857 614) (Gindalbie):

TAKE NOTICE that at 10.15 am (AWST) on 8 July 2019, the Federal Court of Australia at the Peter Durack Commonwealth Law Courts Building, 1 Victoria Avenue, Perth, Western Australia 6000 will hear an application by Gindalbie seeking the approval of a scheme of arrangement between Gindalbie and its ordinary shareholders, as proposed by a resolution passed by the meeting of ordinary shareholders held at 10.30 am (AWST) on 3 July 2019.

If you wish to oppose the approval of the above arrangement, you must file and serve on Gindalbie a notice of appearance, in the prescribed form, together with any affidavit which you wish to rely on at the hearing. The notice of appearance and affidavit must be served on Gindalbie at its address for service by no later than one business day before 8 July 2019.

The address for service upon Gindalbie is:

c/- Clayton Utz

Level 27, QV.1 Building

250 St Georges Terrace

PERTH WA 6000

Reference: Cameron Belyea

Facsimile: 08 9481 3095

Email: cbelyea@claytonutz.com.

A copy of the Scheme Booklet is available from the ASX's website at www.asx.com.au.

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

REASONS FOR JUDGMENT

COLVIN J:

1    On 24 May 2019 I made orders for a meeting of Gindalbie Metals Limited (Gindalbie) to be convened to consider two schemes of arrangement with its ordinary shareholders. These are my reasons for making orders generally in the terms sought. The applications in respect of the schemes were heard together.

Gindalbie

2    Gindalbie is a public company. It is listed on the Australian Securities Exchange (ASX). Coda Minerals Limited (Coda) is a wholly owned subsidiary of Gindalbie.

3    Gindalbie has an interest of about 48% in the Karara iron ore project to the east of Geraldton in Western Australia. The remaining majority interest is held by Angang Group Hong Kong (Holdings) (Ansteel) and related entities. The project carries over $US3 billion in debt. The Gindalbie interest in the project is carried at a nil value in its accounts. The project is operating at a loss. There is the potential for future cash calls for the project that could result in a reduction in Gindalbie's interest in the project. Gindalbie also holds cash and term deposits as well as its interest in Coda. Coda has a right to earn through exploration expenditure up to a 75% interest in the Mount Gunson copper-cobalt project south-east of Woomera in South Australia. Gindalbie also holds interests known as the Lodestone Magnetite Project not far from Karara. Its holding value in Gindalbie's accounts is $1.36 million.

The schemes

4    Two inter-conditional schemes of arrangement are proposed. The first is a scheme under which Ansteel and its related entities will acquire all the ordinary shares in Gindalbie not already held by them. The second is a scheme to demerge Gindalbie and Coda. In order to effect the demerger scheme, Gindalbie plans to reduce its share capital. The capital reduction does not require court approval, but is a matter that forms part of the steps to be implemented in order to give effect to the schemes if approved.

5    The acquisition scheme is said to provide an opportunity for shareholders in Gindalbie to 'step away from the overhang of liabilities from Karara' (being an asset that was considered to be unlikely to ever deliver a financial return to Gindalbie) in exchange for a price for each share that was a significant premium to the trading price up to the announcement of the proposed schemes.

6    The demerger scheme is said to enable shareholders in Gindalbie to emerge with an ownership stake in a new company focussed on the Mount Gunson project with the potential to unlock value not reflected in the market price of Gindalbie shares prior to the announcement of the proposed schemes. Coda would be an exploration company 'with a clear focus on progressing Mt Gunson'.

7    One feature of the schemes being proposed on an inter-conditional basis is that shareholders in Gindalbie will be asked, in effect, to consider exchanging their listed and publicly tradable shares in Gindalbie for a cash payment and an ongoing interest as a shareholder in Coda, an unlisted entity focussed on the Mount Gunson project. It is proposed that Coda would then undertake an equity capital raising introducing the potential for dilution of the interest of any shareholder who did not contribute. Ansteel has agreed not to participate in any capital raising by Coda within 12 months of the demerger so its interest would be diluted in that event. It was also proposed that Coda would apply for admission to the official list of the ASX as soon as practicable after the demerger, though listing was not guaranteed.

Principles to be applied

8    The proper approach to review at the first court hearing as part of the process to approve a scheme of arrangement is to consider 'whether the proposed scheme is not inappropriate and is one that sensible business people might consider of benefit to [the shareholders of the company]': Spookfish Limited, in the matter of Spookfish Limited [2018] FCA 1550 at [14] (Banks-Smith J).

9    In Barrick Mining Company (Australia) Pty Ltd v Barrick Administration Company Pty Ltd, in the matter of Barrick Mining Company (Australia) Pty Ltd [2018] FCA 1958 at [7]-[11], I summarised the principles to be applied by the Court when considering whether to grant leave to convene a meeting to approve a scheme of arrangement. For convenience of reference I set out that summary:

Generally, leave will not be given to convene a meeting to approve a scheme unless the proposed arrangement is of a kind that falls within the legislative provisions, is fit for consideration by shareholders and is likely to obtain Court approval if passed by the requisite majority and is unopposed when approval is sought: Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504.

In considering whether to approve the convening of a meeting of shareholders to consider a particular scheme, the Court exercises a discretion. The evident purpose of the requirement for an approval from the Court is to supervise the circumstances in which shareholders may be invited to consider a scheme and thereby afford some protection for shareholders. The approach to be adopted was described in the following way by Emmett J in Central Pacific Minerals NL [2002] FCA 239 at [9]-[11] (accepted in CSR Limited at [12]):

In exercising its discretion whether to convene a meeting, the Court will have regard to such matters as the acceptability of the documentation of the proposed arrangement, the commercial viability and morality of the arrangement, the likely acceptability of the arrangement, the bona fides of the proposals, whether the proposals could be achieved by another method and any objections or submissions by the Commission. It is always the practice of the Court, at the first stage, to go through the proposed arrangement, to raise matters as to the drafting of the documentation, to ascertain whether the arrangement complies with the substantive requirements of the law and to ensure that the arrangement, if given effect, will not involve any unfair or oppressive result.

In considering whether to convene a meeting, the Court will take into account questions of public policy as well as commercial morality. The Court will have regard to the interests of parties who will be bound by the arrangement and who might be careless of their own best interests. While security holders of a company may be considered to be better judges than the Court could be of what is to their commercial advantage, that does not extend to the technical or mechanical aspects of an arrangement. Security holders are likely to be influenced largely by their understanding of the broad economic consequences of an arrangement. However, they are entitled to rely on the Court's approval as a sufficient safeguard against defects at the technical or mechanical level.

Accordingly, for the purposes of protecting the interests of security holders who have not agreed to an arrangement and yet will be bound by it, the Court will ordinarily seek to ensure that the terms of the arrangement would be enforceable by all persons bound by it against those who are seeking to implement it or obtain benefits from it. The Court will also seek to ensure that the arrangement does not, without sufficient reason, include provisions that may create inroads upon or modify the benefits that a security holder bound by it might legitimately expect to obtain under it. The mere fact that the Court has convened a meeting does not, however, necessarily mean that the Court will approve the arrangement, even if the arrangement is unopposed at the third stage.

The role of the Court in considering whether to approve the convening of a meeting is supervisory. It is concerned with the legal effectiveness of the proposed arrangement if approved, the form of disclosure to be given to shareholders and whether the scheme is within the bounds of that which might be approved if unopposed by shareholders. Within those confines, the assessment of the commerciality of the proposal is a matter for shareholders.

However, in discharging the statutory role entrusted by s 411, the Court is dependent upon the discharge by counsel for the moving party of the obligation to make disclosure and to draw matters of significance to the attention of the Court.

The matters to be considered were summarised recently by Vaughan J in Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 at [60]-[63] …

Checklist and formal matters

10    The present applications were supported by written submissions containing a checklist of references demonstrating that there was compliance with the formal requirements of s 411 and s 412 of the Corporations Act 2001 (Cth) and the inclusion of prescribed information in the scheme booklets. There was proof of the required company search and the disclosure of consent, interest and conflicts of the proposed chairperson and alternative chairperson for the scheme meetings.

11    The schemes were proposed on the basis of evidence demonstrating belief as to respects in which the schemes would be of benefit to shareholders if implemented. The evidence meets the statutory requirement in that regard.

Specific matters

12    The following specific matters were considered in the course of the hearing for orders to approve the convening of the scheme meetings.

The Australian Securities and Investments Commission

13    The requirements of s 411(2) were met. The Australian Securities and Investments Commission (ASIC) was notified of the proposed schemes and given the required reasonable opportunity to consider the terms of the schemes and the explanatory statements in the scheme booklets and to make submissions to the Court. It did not seek to appear and make submissions. There was a relatively minor issue brought to the attention of the Court at the request of ASIC. It concerned the size of the scheme booklet which was proposed to be printed in B5 format for circulation to shareholders. The format which is slightly smaller than the usual A4 format was to facilitate efficient posting. Sample booklets were provided to the Court. I was satisfied that they were clear and legible and that it was appropriate for the scheme booklets to be provided to shareholders in the B5 format.

Content of the scheme booklets

14    Updated versions of the scheme booklets were made available on the morning of the hearing. Senior counsel for Gindalbie informed the Court that there had been no material changes to the contents of the draft scheme booklets that had been provided as annexures to affidavits in support of the application. Save for the specific matters referred to below, I was satisfied that the booklets, though on the long side when it came to the balance between information and accessibility of that information for shareholders, provided adequate disclosure of the main facts that were necessary for shareholders to be able to make a judgment in their own interests as to the schemes.

Iron ore price

15    The information in the acquisition scheme booklet stated that on its sales of iron ore Karara has received a premium relative to the 62% Platts IODEX price of between 15% and 33%. It noted that Karara was not expected to become profitable on a modified all-in-cost basis 'under current iron ore price forecasts'. Figures were provided showing that in 2018 the cost of production was about A$27.00 per tonne above the average price received by Karara. The report explained that Karara was 'conceptualised during a different and unprecedented time in the global iron ore cycle, when the benchmark iron ore price was continuously trading above US$120 per tonne'. The report also referred to the potential expansion of production within the capacity of existing infrastructure.

16    The expert's report as to the value of the shares in Gindalbie identified a range of values measured on a control basis prior to the proposed transaction that was to include the schemes of between 0.017 cents per share (low) and 0.022 cents per share (high). The consideration proposed to be paid for shares in Gindalbie under the acquisition scheme was 0.026 cents per share (with shareholders also receiving shares in Coda as part of the demerger scheme). The expert's analysis was based upon iron ore prices being forecast to tend downwards over the next two years before stabilizing and recovering slightly to around US$72 a dry metric tonne in 2023 and then moving higher to around $US77 over the long-term (2024 onwards).

17    By the time the matter came before me, sentiment in relation to the iron ore price had moved considerably according to public reports. Indeed, there were reports that the benchmark price had exceeded $US100 per tonne. The expert's report included sensitivities to fluctuations in the iron ore price of up to ±8%. However, the fluctuation in the iron ore price as stated in the public reports compared to the forecasts used by the expert exceeded those bounds by a considerable margin.

18    I raised the matter with counsel and following an adjournment it was confirmed that the expert adhered to the opinions stated in the report notwithstanding the recent fluctuation in the iron ore price. It was proposed that a letter from the expert in the following terms would be made available to shareholders by release on Gindalbie's ASX platform and would also be tabled by the chairperson at the shareholders meeting to consider the acquisition scheme:

We confirm that we are aware of the current Iron Ore Price and accordingly we have considered the impact of this on long term forecasts as they relate to our report.

In accordance with our obligations under RG 111 it is our view that our report is not required to be updated, we will of course continue to monitor matters that may affect our report in accordance with the Regulatory Guide.

19    On that basis I was satisfied that information as to the fluctuations in the iron ore price had been considered and would be before shareholders to enable them to make their own commercial judgment in that regard.

Lost shareholders

20    As at March 2019, some 741 of 12,369 shareholders in Gindalbie (being almost 6%) had been unresponsive to communications and were identified as 'lost shareholders'. Since then a campaign had been conducted to encourage shareholders to update their contact details. As a result the contact details for about 20 shareholders were updated. Their remained 719 lost shareholders as at the date of the application. Of those, 700 had registered postal addresses in Australia and the balance had registered postal addresses outside Australia. Those addresses were to be used for the dispatch of scheme booklets which would also be uploaded to Gindalbie's ASX platform. The constitution of Gindalbie provided for notification by notices being exhibited in the registered office of Gindalbie where it was believed that the shareholder was not known at the registered address. It was proposed to comply with those provisions by way of further notification.

21    In those circumstances I was satisfied that appropriate steps were to be taken to notify shareholders of the scheme meetings.

Prominence of notification of risk that Coda shares may not be publicly tradable

22    The scheme booklet for the demerger scheme provided a one page 'Summary of considerations relevant to your vote'. It was given a prominent position in the scheme booklet and was in a form that was likely to be consulted by shareholders seeking a high level understanding of the main considerations that might bear upon their decision whether to support the demerger scheme. There was a reference at the foot of the page to the reasons being discussed in more detail on following pages where there was the following statement (within 5 pages of more detailed information):

Coda intends to apply for admission to the official list of the ASX as soon as practicable after the Demerger Implementation Date. The Coda Shares received under the Demerger will not be able to be traded on the ASX, and Eligible Gindalbie Shareholders will continue to hold shares in a public unlisted company, unless and until such time as the requirements for listing on the ASX can be met (if at all). Listing is at the ASX's discretion, and there is a risk that Coda may not meet the requirements for admission to the official list of the ASX and achieve quotation of Coda Shares.

23    However, despite their evident importance, there was no mention of these matters in the Summary. After taking instructions, senior counsel proposed that the scheme booklet for the demerger scheme be amended by adding to the Summary page an additional heading 'Key Considerations in Voting On the Demerger' and inserting the text: 'Eligible Gindalbie Shareholders will receive unlisted Coda Shares unless and until the requirements for listing on the ASX can be met (if at all). Please refer to pages 74 and 90'. Orders were made on the basis that a change to that effect would be made to the booklet.

Sequence of schemes

24    The schemes are both proposed on the basis that they are inter-conditional and also dependent upon a reduction in capital. However, participation in the demerger and receipt of Coda shares for Gindalbie shares was a dealing that needed to occur before the acquisition scheme occurred. I was satisfied that the definitions of dates and categories of shareholders in the scheme of arrangement provisions as to implementation of the scheme would ensure that all shareholders in Gindalbie at the time of the approval of the schemes would participate in the issue of shares in Coda.

Foreign shareholders

25    The schemes included proposals to deal appropriately with the position of foreign shareholders. The capital gains tax consequences for foreign residents had been brought to account.

Unlisted Gindalbie options

26    The scheme implementation agreement provides for Gindalbie to put in place arrangements so that all unlisted Gindalbie options on issue will have vested prior to the relevant date for implementation of the schemes, if approved. The unlisted options are held by the chief executive officer and the chief financial officer of Gindalbie. The agreed term reflects the existing terms upon which the unlisted options have been issued and does not confer any additional advantage upon the holders of those options as part of the schemes.

Break Fee

27    The scheme implementation agreement provides for a break fee of up to $500,000. The fee is not payable if the schemes are approved and implemented. The fee represents about 1.28% of the equity value of Gindalbie (on a fully diluted basis having regard to the consideration payable under the acquisition scheme). This is slightly above the 1% guideline given by Australian Takeovers Panel Guidance Note 7 - Lock up devices. Break fees should reflect genuine commercial costs and risks. They should not operate coercively so as to distort the commercial incentives in a way that will increase the preference of shareholders for the scheme because the company has already committed to the payment of a large break fee which will dilute the equity interest of shareholders if they do not support the scheme: Rusina Mining NL, in the matter of Rusina Mining [2010] FCA 517 at [52] (Barker J).

28    I was satisfied that the break fee was not excessive or coercive in all the circumstances.

Performance

29    There was evidence to support the ability of Ansteel with the support of its parent Ansteel Group Co Ltd to perform its obligations under the schemes if implemented.

Limitation on liability under the schemes

30    Each of the schemes as proposed included a provision with wording to the following effect:

Neither Gindalbie nor Ansteel (or Coda in the case of the demerger scheme), nor any of their respective officers or employees, will be liable for anything done or omitted to be done in the performance of this scheme in good faith.

31    Given literal effect, such a provision may excuse failures to perform the scheme of a kind that would compromise the statutory requirement that an approved scheme is binding and therefore must be carried into effect: s 411(4). It was submitted that as the issue concerned an obligation that would arise as to the extent to which the scheme must be carried into effect if approved, then it could be considered further at the second scheme meeting at which time further submissions could be received and considered. I proceeded on that basis.

Chapter 6

32    The interdependent nature of the schemes and the fact that the overall contemplated transaction included both the acquisition of shares in Gindalbie and the demerger of Gindalbie and Coda following a reduction in capital meant that I was satisfied, on the material before me, that no issue arose as to the avoidance of the operation of the provisions of Chapter 6 of the Corporations Act and the application of the prohibition in s 411(7).

Conclusion

33    For the above reasons I made orders in the terms sought to allow the meetings of shareholders to be convened to consider the proposed schemes of arrangement.

Associate:

Dated:    19 June 2019