FEDERAL COURT OF AUSTRALIA

Allkem Limited, in the matter of Allkem Limited [2023] FCA 1397

ORDERS

THE COURT ORDERS THAT:

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

(a)    the plaintiff convene and hold a meeting (Scheme Meeting) of the holders of fully paid ordinary shares in the capital of the plaintiff (Allkem Shareholders) for the purpose of considering and, if thought fit, agreeing to a proposed scheme of arrangement (with or without modifications) between the plaintiff and Allkem Shareholders in the form set out at annexure 'RSA-20' to the affidavit of Richard Stacy Anthon sworn 6 November 2023 (Second Anthon Affidavit) (Scheme);

(b)    the Scheme Meeting be held at 10.30 am (AWST) / 1.30 pm (AEDT) on Tuesday, 19 December 2023 at The Studio, Level 2, Crown Towers, Crown Perth Convention Centre, Great Eastern Highway Burswood, Western Australia 6100 and virtually via an online platform; and

(c)    the explanatory statement in annexure 'TMN-12' to the second affidavit of Toby Michael Newnes sworn 7 November 2023 (Second Newnes Affidavit), which contains the explanatory statement required by s 412(1)(a) of the Corporations Act, be approved for distribution to Allkem Shareholders, subject to:

(i)    the correction of any minor typographical or grammatical errors and final typesetting, formatting and page numbering;

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

(iii)    the correction or update of any relevant date references, interests held by shareholders of the plaintiff or shareholders of Arcadium Lithium plc or Livent Corporation, issued capital or last trading prices, or other references to figures and data; and

(iv)    any other amendments approved by the Court.

2.    Subject to these orders and pursuant to s 1319 of the Corporations Act, the Scheme Meeting is to be:

(a)    convened, held and conducted in accordance with the provisions of Part 2G.2 of the Corporations Act that apply to members of a company and the provisions of the plaintiff's constitution, as provided at annexure 'RSA-2' to the affidavit of Richard Stacy Anthon sworn 26 October 2023, that are not inconsistent therewith and that apply to meetings of members;

(b)    convened using the notice of scheme meeting substantially in the form contained in Annexure G of the Scheme Booklet (annexure TMN-12 to the Second Newnes Affidavit) (with any necessary amendments contemplated by order 1(c) above) (Notice of Scheme Meeting); and

(c)    held and conducted pursuant to the arrangements for attending, participating and voting described in the Notice of Scheme Meeting including in respect of the effect of an Allkem Shareholder's attendance at the Scheme Meeting on a proxy or attorney appointment by that Allkem Shareholder, and in accordance with the provisions of Part 2G.2 of the Corporations Act (Meeting Arrangements).

3.    Pursuant to s 1319 of the Corporations Act:

(a)    Mr Peter Coleman, or failing him, Mr Richard Seville, be the chairperson of the Scheme Meeting (Chairperson);

(b)    the Chairperson of the Scheme Meeting have power to adjourn or postpone the Scheme Meeting in the Chairperson's absolute discretion for such time that the Chairperson thinks appropriate, to a time and place advised by the Chairperson;

(c)    at the Scheme Meeting, two Allkem 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;

(d)    at the Scheme Meeting, each Allkem Shareholder, present and entitled to vote, be entitled to one vote for each fully paid ordinary share in the capital of the plaintiff that the Allkem Shareholder is registered as holding at 7.00 pm (AEDT) on 17 December 2023; and

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

4.    The board of the directors of the plaintiff shall have the power to approve for lodgement on the plaintiff's ASX announcements platform announcements regarding corrections, clarifications or changes to the arrangements for the Scheme Meeting where, in the board's discretion, such corrections, clarifications or changes are necessary to ensure that Allkem Shareholders as a whole will have a reasonable opportunity to participate in the Scheme Meeting, and such announcements will be taken to be sufficient notice of any corrections, clarifications or changes to the Meeting Arrangements provided they are made on or before 10.30 am (AWST) on 19 December 2023 and are explained by the Chairperson at the commencement of the Scheme Meeting.

5.    Subject to registration of the Scheme Booklet with ASIC pursuant to s 412(6) of the Corporations Act, the plaintiff shall, on or before Monday, 20 November 2023, despatch the Scheme Booklet substantially in the form approved in order 1(c) above to each Allkem Shareholder who appears on Allkem's register of members as at 7.00 pm (AEDT) on 8 November 2023 (Register Time), by sending:

(a)    in the case of each Allkem Shareholder who has nominated an email address for the purpose of receiving shareholder communications (Email Shareholder), an email substantially in the form of annexure 'TMN-6' to the first affidavit of Toby Michael Newnes sworn 7 November 2023 (First Newnes Affidavit), with such email to contain website links accessible by the Email Shareholders which enables the Email Shareholder to:

(i)    access and download an electronic copy of the Scheme Booklet;

(ii)    access, complete and lodge an online proxy form in respect of the Scheme Meeting substantially in the form of annexure 'RSA-16' to the Second Anthon Affidavit; and

(iii)    access the online platform to listen to and participate in the Scheme Meeting;

(b)    in the case of each Allkem Shareholder who has expressly elected to receive shareholder communications by post (Postal Shareholders), using the methods of service set out in order 6 below:

(i)    a printed copy of the Scheme Booklet;

(ii)    a personalised proxy form in respect of the Scheme Meeting substantially in the form of annexure 'RSA-16' to the Second Anthon Affidavit; and

(iii)    a reply paid envelope for the return of that Allkem Shareholder's proxy form;

(c)    in the case of each Allkem Shareholder who is not an Email Shareholder or Postal Shareholder, using the methods of service set out in order 6 below:

(i)    a letter substantially in the form of annexure 'TMN-7' to the First Newnes Affidavit which contains notice of:

A.    the address of a website which enables those Allkem Shareholders to access and download the Scheme Booklet;

B.    the address of a website which enables those Allkem Shareholders to access, complete and lodge an online proxy form for the Scheme Meeting; and

C.    how those Allkem Shareholders can request a free printed copy of the Scheme Booklet;

(ii)    a personalised proxy form in respect of the Scheme Meeting substantially in the form of annexure 'RSA-16' to the Second Anthon Affidavit; and

(iii)    a reply paid envelope for the return of that Allkem Shareholders' proxy form; and

(d)    in the case of Allkem Shareholders who are registered on Allkem's Canadian branch register, an election form substantially in the form of annexure 'TMN-9' to the First Newnes Affidavit.

6.    The plaintiff shall despatch the documents identified in orders 5(b), (c) and (d) above:

(a)    to each Allkem Shareholder who has a registered address in Australia, by standard post; and

(b)    to each other Allkem Shareholder who has a registered address outside Australia, by international airmail or air courier.

7.    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 Email Shareholder, the plaintiff will forthwith thereafter despatch the documents identified in order 5(c) using the method of service set out in order 6.

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

9.    The plaintiff is not obliged to send documents in accordance with order 5 to any person who becomes an Allkem Shareholder after the Register Time.

10.    The time by which the Allkem Shareholders must return their proxy form (or lodge an electronic proxy) in respect of the Scheme is 10.30 am (AWST) on Sunday, 17 December 2023.

11.    Pursuant to r 5.04(1) and (3) (Item 23(a)) of the Federal Court Rules 2011 (Cth), evidence of the despatch of the Scheme Booklet in accordance with these orders is to be given by way of statement on oath or affirmation on information and belief, at the hearing on Thursday, 21 December 2023 of an application under s 411(4)(b) of the Corporations Act and, if necessary, s 411(6) of the Corporations Act, for approval of the Scheme.

12.    Subject to these orders, the plaintiff will have power to postpone the Scheme Meeting to such time, date and place as it considers appropriate and, in that event, notwithstanding any other part of these orders:

(a)    only Allkem Shareholders whose names are recorded in the register of members of Allkem at 7.00 pm (AEDT) on the date that is two calendar days before the date of the postponed meeting will be eligible to vote at the Scheme Meeting;

(b)    a proxy in respect of the Scheme Meeting will be valid and effective if a proxy form is completed and delivered in accordance with its terms or a proxy is lodged online in accordance with the instructions on the proxy form at least 48 hours before the time scheduled for the postponed meeting; and

(c)    a reference in these orders to the Scheme Meeting is taken to include a reference to the postponed meeting.

13.    The plaintiff is to give notice of the hearing of its application pursuant to s 411(4) of the Corporations Act by publishing an announcement via the Australian Securities Exchange substantially in the form of Annexure A to these orders on or before Friday, 15 December 2023.

14.    Pursuant to r 1.3 of the Federal Court (Corporations) Rules 2000 (Cth), the plaintiff is to be exempted from compliance with r 2.4(1), r 2.15, r 3.2(b)(ii) and r 3.4, and Form 6.

15.    The proceeding be adjourned to 2.15 pm (AWST) on Wednesday, 20 December 2023, for the hearing of an application to approve the Scheme.

16.    The plaintiff must lodge an office copy of these orders with ASIC as soon as practicable after these orders are made.

17.    The plaintiff have liberty to apply.

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

Annexure A

Allkem Limited (ACN 112 589 910)

Notice of hearing to approve compromise or arrangement

TO: All members of Allkem Limited (ACN 112 589 910) (Allkem).

TAKE NOTICE that at 2.15 pm (AWST) on 20 December 2023 the Federal Court of Australia (situated at the Peter Durack Commonwealth Law Courts Building, 1 Victoria Avenue, Perth, Western Australia 6000) will hear an application by Allkem seeking the approval of an arrangement between Allkem and its members, as agreed to by resolution considered by the members of Allkem at a meeting of such members to be held at 10.30 am (AWST) / 1.30 pm (AEDT) on Tuesday, 19 December 2023 at The Studio, Level 2, Crown Towers, Crown Perth Convention Centre, Great Eastern Highway Burswood, Western Australia 6100 and online.

Allkem Limited (ASX: AKE, 'Allkem') refers to the proposed scheme of arrangement pursuant to which Arcadium Lithium plc would acquire 100% of the shares in Allkem ('Scheme'), in connection with the proposed merger of equals between Allkem and Livent Corporation announced to ASX on 10 May 2023.

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

The address for service on Allkem is:

C/- King & Wood Mallesons

Level 30, QV1 Building

250 St Georges Terrace, Perth WA 6000

Attention: James Wang

Email: james.wang@au.kwm.com

    John Sanders

    Chief Legal Officer and Company Secretary

    Allkem Limited

REASONS FOR JUDGMENT

BANKS-SMITH J:

1    On 8 November 2023 I heard an application under s 411 of the Corporations Act 2001 (Cth) for orders convening a scheme meeting and approving the despatch of the relevant scheme booklet, and for related directions. I made orders on that date for the reasons that follow.

Introduction

2    This proposed Scheme of arrangement between Allkem and its shareholders under Part 5.1 of the Corporations Act is another in a line of recent schemes fuelled by increased demand for lithium products.

3    The Scheme forms part of a broader conditional transaction which is intended to combine the plaintiff, Allkem Limited, and Livent Corporation under a new company, Arcadium Lithium plc, to create a global lithium chemicals producer with a presence in key lithium regions in a number of continents. It is clearly a significant transaction. The total value of the combined company at the date of the transaction agreement, as announced to the Australian Securities Exchange (ASX) on 10 May 2023, was said to be US$10.6 billion (A$15.7 billion).

4    Allkem is a public company limited by shares incorporated in Australia. It has its registered office in Brisbane. Allkem is admitted to the official list of the ASX, and Allkem shares are quoted on the securities exchange operated by the ASX and the Toronto Stock Exchange.

5    Allkem's operation in Australia is focussed on the Mt Cattlin hard-rock open pit mine and processing facility near Ravensthorpe in Western Australia. The mine produces spodumene concentrate, a lithium ore, which is exported from the Port of Esperance. The processing plant generates by-product tantalite concentrates. Allkem also has lithium projects or production plants in Argentina, Japan and Canada.

6    Livent is a public corporation incorporated in Delaware in the United States of America and its securities are listed on the New York Stock Exchange (NYSE). It is an interested person under r 2.13 of the Federal Court (Corporations Rules) 2000 (Cth) and was represented at the hearing.

7    Livent produces lithium compounds such as battery-grade lithium hydroxide and high purity lithium metal products. Its focus is on supplying high performance lithium compounds to the electric vehicle and broader battery markets. It has operations or facilities in Argentina, the United States and Canada, among other places.

8    Arcadium is incorporated in the Bailiwick of Jersey and it is intended that it be listed on the NYSE and on the ASX as a foreign exempt listing via CHESS depository interests (CDIs).

9    Allkem, Livent and Arcadium Lithium entered into a Transaction Agreement on or about 10 May 2023 to facilitate (among other things) the implementation of the Scheme, insofar as Allkem shareholders are concerned, and the implementation of a Merger in accordance with Delaware law, insofar as Livent stockholders are concerned. These processes are separate but parallel.

Scheme framework

10    If the Scheme is implemented, eligible shareholders will be entitled to receive the scheme consideration from Arcadium as follows:

(a)    Eligible Principal Register Shareholders (in short, Allkem shareholders with shares held on Allkem's principal Australian share register) will receive one Arcadium CDI for each Allkem share held at the record date as the scheme consideration by default, but may elect to receive Arcadium shares instead; and

(b)    Eligible Canadian Register Shareholders (in short, Allkem shareholders with shares held on the Canadian branch register of the Allkem share register) will receive one Arcadium share for each Allkem share held at the record date as the scheme consideration by default, but may elect to receive Arcadium CDIs instead.

11    Ineligible Overseas Shareholders (in short, Allkem shareholders whose address is outside Australia, Argentina, British Virgin Islands, Canada, China, the United States and a number of other identified countries) will not receive Arcadium shares or CDIs, and will instead receive their share of the net proceeds from the sale of Arcadium CDIs by a sale nominee. The sale nominee will receive a transfer of the ineligible shares, and will receive Arcadium CDIs for the purpose of selling them and distributing the proceeds to the Ineligible Overseas Shareholders (I will touch on these shareholders again in the context of class below).

12    It follows that Eligible Shareholders (those referred to at [10] above) will not receive, and are not entitled to receive, the scheme consideration in the form of cash.

13    I note that the use of CDIs by foreign corporations to facilitate quoting on the ASX was explained by Beach J in Amcor Limited, in the matter of Amcor Limited [2019] FCA 346 at [24]-[30].

Merger framework

14    The Merger closing will take place as soon as practicable following implementation of the Scheme. At the Merger closing, an indirect, wholly-owned subsidiary of Arcadium (Merger Subsidiary) will merge with and into Livent and:

(a)    each Livent share issued and outstanding immediately prior to the Merger, other than certain excluded shares, will automatically be converted into the right to receive 2.406 Arcadium shares;

(b)    holders of Livent shares who would otherwise have been entitled to receive a fraction of an Arcadium share will receive its proportionate cash entitlement from the sale by an exchange agent of Arcadium shares to which those fractional interests relate; and

(c)    each Merger Subsidiary share will be automatically converted into one fully paid share of Livent (as the surviving corporation in the Merger) and such shares will constitute the only outstanding shares of Livent as the surviving entity.

15    As a result of the Merger, Livent will become an indirect, wholly-owned subsidiary of Arcadium, and the former Livent stockholders will become holders of Arcadium shares.

16    It is expected that on completion of the transaction, former Allkem shareholders who receive the consideration under the Scheme in exchange for their Allkem shares will own 56% of Arcadium, and former Livent stockholders will, through shares in Arcadium received pursuant to the Merger, own approximately 44% of Arcadium, on a fully diluted basis.

17    The Scheme and the Merger are inter-conditional. The Scheme is subject to the Merger being capable of occurring and reasonably expected to occur promptly after implementation of the Scheme. The obligations of Livent and Arcadium to effect the Merger are conditional on the Scheme having been put into effect. I was told that if the Scheme is approved at the second court hearing, then all relevant conditions precedent to the Merger will have been satisfied.

Evidence relied upon

18    Allkem relied on the following affidavits:

(a)    affidavit of James Wang, solicitor for Allkem, attaching a copy of the Transaction Agreement and amendments, and an Allkem company search;

(b)    affidavit of Richard Anthon, Chief Corporate Development Officer at Allkem, attaching Allkem's constitution, the draft Scheme Booklet as lodged with the Australian Securities and Investments Commission (ASIC) and relevantly providing information about the verification process, director recommendations and consideration, the status of conditions precedent, the shareholder spread and location numbers (Australia and Canada), the break fee calculation and the Securities Act 1933 (US) exemption sought;

(c)    affidavit of Sara Ponessa, General Counsel and Secretary of Livent, deposing to the verification of matters relating to Livent in the Scheme Booklet and the conditions precedent;

(d)    second affidavit of Richard Anthon, providing information as to performance rights treatment and attaching the proxy form, proposed communications (investor calls inbound and outbound, investor presentation), foreign law advice on exclusivity, amended Transaction Agreement and deed poll;

(e)    second affidavit of James Wang, deposing to service of court documents on ASIC;

(f)    affidavit of Toby Newnes, also a solicitor for Allkem, attaching relevantly a marked up Scheme Booklet following ASIC conferral;

(g)    affidavit of Guy Alexander, solicitor for Livent and Arcadium, attaching a copy of an Arcadium resolution ratifying execution of the deed poll and advice concerning its execution; and

(h)    second affidavit of Toby Newnes, providing a clean copy of the Scheme Booklet and ASIC's 'indication of intent' letter.

19    For reasons set out more fully below, I am satisfied by reference to the above evidence and the submissions, that Allkem and Livent have taken into account the disclosure requirements and guidelines included in Part 5.1 and Part 6 of the Corporations Act, the prescribed requirements of the Corporations Regulations 2001 (Cth), ASIC's Regulatory Guide 60 and this Court's Schemes of Arrangement Practice Note (GPN-SOA).

Section 411 Corporations Act

20    Section 411(1) of the Corporations Act relevantly provides that where an arrangement is proposed between a Part 5.1 body and its members, the Court may order a meeting of the members to be convened in such manner and to be held in such place as the Court directs.

21    Section 412(1)(a) of the Corporations Act relevantly provides that where a meeting is convened under s 411, the Part 5.1 body must, with every notice convening the meeting, send a statement explaining the effect of the arrangement. It is usual, as in this case, for a Scheme Booklet to include such explanatory statement.

22    Where the Court makes an order convening a meeting, the Court may also approve the explanatory statement required by s 412(1)(a) to accompany the notice of such a meeting.

23    This application concerns only the convening of the first meeting, the approval of the Scheme Booklet and ancillary matters.

24    Section 411 does not set out the criteria that must be satisfied before a meeting is ordered. However, the authorities establish that the Court should order the convening of a scheme meeting and approve the despatch of an explanatory statement if satisfied of the following matters:

(a)    the plaintiff is a Part 5.1 body (defined in the Corporations Act);

(b)    the Scheme is an arrangement in respect of which the Court may order a meeting of the members or creditors;

(c)    the explanatory statement (that is, the Scheme Booklet) provides adequate disclosure and contains the prescribed information;

(d)    the proposed scheme is bona fide and properly proposed;

(e)    that there is no apparent reason why the Scheme should not, in due course, receive the Court's approval if the necessary majority of members' votes is achieved; and

(f)    any other procedural requirements have been met.

25    As to the relevant principles, they are discussed in many authorities including Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 at [9] (McKerracher J); Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 at [46]-[78] (Vaughan J); In the matter of Ovato Print Pty Ltd [2020] NSWSC 1683 at [19] (Black J); and Chevron (TAPL) Pty Ltd v Chevron Australia Pty Ltd, in the matter of Chevron (TAPL) Pty Ltd [2022] FCA 220 at [17]-[20].

26    The principles as to the nature of the review at the first court hearing are also summarised elsewhere: for example, Programmed Maintenance Services Limited, in the matter of Programmed Maintenance Services Limited [2017] FCA 1265 at [11]-[14] (McKerracher J); and Signature Gold Ltd, in the matter of Signature Gold Ltd [2017] FCA 1481 at [22]-[23] (Markovic J).

27    In summary, the standard of review is whether the proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members. It is not necessary for the Court to descend into the commercial merits of the proposed scheme. If the proposed arrangement is one that seems fit for consideration by a meeting of members and is a commercial proposition likely to gain the Court's approval if passed by the necessary majority, then leave should be given to convene the meeting.

Consideration - particular matters relevant to the Scheme

28    There is no question that Allkem falls within the definition of a Part 5.1 body. Nor is there any issue that the proposal before the Court is an arrangement. It concerns a change in the rights of members in their capacity as members of Allkem, and is of a nature recognised as an arrangement. It is similar in structure to the scheme approved in Amcor.

29    The requisite consents to act as chairperson and alternate chairperson have been provided.

30    However, a number of matters require particular comment having regard to the complexity and circumstances of this Scheme, and the ex parte nature of the hearing.

Explanatory statement - the Scheme Booklet

31    Section 412(1) of the Corporations Act requires every notice to members convening a scheme meeting to be accompanied by an explanatory statement, explaining the effect of the proposed arrangement, and making prescribed disclosure of matters such as directors' relevant interests. It must also provide any information material to the making of a decision by a member, which has not previously been disclosed.

32    In this case, the Scheme Booklet incorporates the explanatory statement, and relevantly addresses the reasons why the Allkem directors unanimously recommend that members vote in favour of the Scheme. It includes key information about the scheme meeting, voting, risk factors, Australian taxation considerations and other information the directors consider material. Relevantly, it also attaches a copy of the report of the independent experts (Kroll Australia Pty Ltd), an independent expert's technical report, the Transaction Agreement, the proposed Scheme, a deed poll to be executed by Arcadium in favour of the shareholders and a comparison of shareholders' rights having regard to Australian and Jersey law.

33    I have considered the Scheme Booklet in the form in which it was provided to ASIC and in its final consolidated form.

34    I have reviewed the affidavit evidence to ensure that the matters which must be disclosed have been adequately disclosed (including the prescribed matters referred to in s 412(1)(a) of the Corporations Act and Schedule 8 of the Corporations Regulations) and I consider that is the case. I had the assistance of a compliance schedule provided with the written submissions.

35    The Practice Note relevantly notes that the appropriate verification of matters in the explanatory statement is an important component of satisfying the Court that it should order that a scheme meeting be convened.

36    Allkem and Livent both provided affidavit evidence from suitably experienced persons as to due diligence and the verification processes in respect of the explanatory statement.

37    I am satisfied that it is appropriate to approve the explanatory statement for distribution.

Independent expert

38    Although an independent expert's report is not strictly required in this case, it is not uncommon for directors of a company to commission one to ensure that they are providing the information that is material to the making of a decision by a member. One was provided in this case, prepared by Kroll.

39    Kroll concluded that, in the absence of a superior offer, and considering the implications of the transaction as a whole, the Scheme is fair and is in the best interests of shareholders. At Part 3.3 of its report, Kroll set out the advantages and disadvantages of the Scheme in terms that I consider are clear and accessible to shareholders.

40    Behre Dolbear Australia Pty Ltd prepared an independent technical expert's report, which provided technical input to Kroll for the purposes of preparing its report.

41    Both reports are included in final form in the Scheme Booklet for despatch to shareholders.

ASIC's position

42    The jurisdiction of the Court to make an order to convene meetings under s 411(1) of the Corporations Act is conditional upon satisfaction of the two matters set out in s 411(2). The Court must be satisfied, first, that ASIC has been given (relevantly) 14 days' notice of the hearing; and second, that ASIC has had a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement and to make submissions to the Court.

43    I am satisfied as to both of these matters on the evidence.

44    By letter dated 7 November 2023, ASIC informed Allkem that the timing requirement had been satisfied, and that ASIC is of the view that it has had a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement, and to make submissions to the Court.

45    ASIC did not seek to intervene or be heard at the hearing. ASIC communicated with the solicitors for Allkem on a draft of the Scheme Booklet, and as a result certain amendments were made, which were apparent from a marked-up version of the draft Scheme Booklet.

Consideration - particular matters relevant to the Scheme

Scheme consideration and the election mechanism

46    The terms of the Scheme contain an election mechanism for the Eligible Principal Register Shareholders and the Eligible Canadian Register Shareholders to choose between Arcadium shares and Arcadium CDIs. The election mechanism is described in clause 4.1 of the Scheme. It involves some complexities, but I am satisfied that it is suitably and clearly explained in the Scheme Booklet. The Scheme Booklet also explains how election forms are to be obtained and completed.

47    Under the Transaction Agreement, it is a condition precedent to the Scheme that the ASX provides approval for the admission of Arcadium as a foreign exempt listing to the official list of the ASX and approval for official quotation of the CDIs.

48    The question then arises as to the value of the scheme consideration and the manner in which that information is disclosed in the Scheme Booklet. In summary, the scheme consideration that Eligible Shareholders will receive by way of Arcadium shares or Arcadium CDIs is fixed: it is a fixed number for each Allkem share held, and is not a number of shares which will be determined based on a fixed market value. Shareholders will not have publicly available trading information about the Arcadium shares, as they will not have traded. Further, the implied value may increase or decrease depending on the price of Allkem or Livent shares. However, it is explained in the Scheme Booklet that irrespective of movements in the price of those shares, on the implementation day the Eligible Shareholders (or the sale nominee, in the case of Ineligible Overseas Shareholders) will receive the scheme consideration, being either one Arcadium share or one Arcadium CDI (depending on their election) in exchange for each scheme share held. Allkem submitted that Arcadium CDIs are economically equivalent to the rights attaching to a Arcadium share, meaning that regardless of the election that is made by the shareholder, the value of the scheme consideration they receive will remain the same.

Performance rights

49    Allkem currently operates a Performance Rights and Options Plan (PROP), pursuant to which the Allkem board may invite any employee or other person as determined by the Allkem board to participate in its sole and absolute discretion. Each performance right entitles the participant to receive one Allkem share for nil consideration if the performance right vests.

50    The Scheme is considered a 'change of control event' under the terms of the PROP, such that the Allkem board has a discretion to accelerate the vesting of performance rights.

51    The Allkem board has resolved under the PROP and the Transaction Agreement that, subject to shareholder approval at the scheme meeting and the approval of the Merger, any unvested performance rights on issue will vest and become exercisable, and Allkem shares will issue in respect of those vested performance rights before the record date so that those Allkem shares will participate in the Scheme (those shares will not influence the voting as they do not vest until after the scheme meeting). As to unvested performance rights that were not exercised and so lapsed, Arcadium will, after the scheme implementation date, grant to applicable employees certain comparable performance rights with respect to Arcadium shares, all of which will vest in full should an employee become redundant within 12 months.

52    The question is whether employees who hold both shares and performance rights are therefore to be treated differently to other shareholders, such that the arrangement is class creating.

53    I accept Allkem's submission that employees are not treated differently for voting purposes under the proposed Scheme on account of holding these two different securities. I do not consider that the prospect of receipt of additional Allkem shares prior to the record date or comparable performance rights connected to Arcadium shares (depending on whether performance rights vested or lapsed), gives rise to a divergence of interest with other shareholders: see for example Re Skilled Group Limited (No 1) [2015] VSC 789 at [82] (Robson J); and Amcor at [84]-[86].

54    The manner in which these performance rights are dealt with is disclosed in the Scheme Booklet.

Voting position, benefits and recommendation of directors

55    The board of Allkem unanimously recommends that shareholders vote in favour of the Scheme in the absence of a superior proposal, and subject to Kroll continuing to conclude that it is in the best interests of the shareholders. Each director has indicated that they will vote in favour of the Scheme, but this has to be considered having regard to the fact that they will receive benefits if the transaction completes. I considered the various authorities as to director benefits and recommendations in Asaleo Care Limited, in the matter of Asaleo Care Limited [2021] FCA 406 at [70]-[71]; and in Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 240 at [72]-[74]. I consider it is ordinarily appropriate for directors to make a recommendation, but there must be clear disclosure in the Scheme Booklet of their interests, and the nature and extent of the proposed disclosure of their interests must be carefully assessed. It is a fact-sensitive assessment: ThinkSmart Limited, in the matter of ThinkSmart Limited [2022] FCA 1314 at [52] (Jackson J).

56    In this case, the Scheme Booklet discloses that Allkem directors will receive certain benefits in connection with the Scheme. In particular, it states that each non-executive director will receive a special exertion fee to recognise the time and effort spent in connection with the evaluation, design and negotiation of the transaction. Certain of the non-executive directors are proposed to be appointed directors of Arcadium upon implementation of the transaction. Mr Pérez de Solay (Allkem chief executive officer) will receive certain benefits, including accelerated vesting of performance rights (consistent with the rights of other holders of performance rights), a redundancy payment under his employment arrangements, and a one-off 'Transaction Completion Bonus' of US$500,000. The number of shares held by the directors and the potential benefits they will receive are also disclosed in the Scheme Booklet.

57    The Scheme Booklet sets out that each of the Allkem directors considers that it is appropriate for them to make a recommendation in relation to the Scheme, as each of them believes that the benefits are not of such materiality to them that they impact their consideration of the Scheme or their ability to make a recommendation to Allkem shareholders.

58    Further, the voting intention statements given by the directors of Allkem are not class creating: Tawana Resources NL, in the matter of Tawana Resources NL (No 3) [2018] FCA 1952 at [23]-[32].

59    It is important, however, to address further the director entitlements in this case.

60    Allkem submitted that there was nothing in the transaction which may be viewed as a collateral benefit that might induce directors to vote their shares in favour of the Scheme.

61    In particular, Allkem explained that the performance rights granted to Mr Pérez de Solay and other shareholders were granted pursuant to the PROP, which was approved in November 2022, prior to entry into the Scheme and the Transaction Agreement. The performance rights held by Mr Pérez De Solay will be worth approximately $1,457,846.123. The accelerated vesting of those performance rights was determined by applying the same methodology which the Allkem board applied to all performance rights currently on issue. Accordingly, the performance rights would have been paid to Mr Pérez De Solay in the ordinary course, but will be accelerated and pro-rated because of the transaction.

62    An additional 109,955 performance rights were expected to be issued to Mr Pérez De Solay, subject to shareholder approval at Allkem's annual general meeting scheduled to be held on 8 November 2023 (the same day as the first court hearing). Of these performance rights, a maximum of 18,325 may vest on an accelerated basis in connection with the transaction, and they are worth approximately $111,885.

63    Mr Pérez De Solay is entitled to other benefits and payments, including a short-term incentive payment, based on his current base salary. His entitlement arose under an incentive program already in place prior to entry into the Transaction Agreement. Similarly, an entitlement to a one-off redundancy payment would have been paid to Mr Pérez De Solay in the ordinary course and irrespective of the completion of the Scheme and the Transaction Agreement.

64    Mr Pérez De Solay has received other financial benefits, including a Merger Completion Bonus of US$500,000 and one-off Retention Bonus of $187,500.

65    As to the payment of special exertion fees to the directors, such a course is permitted under the Allkem constitution, which was adopted in November 2022. Directors would therefore have been eligible to receive such fees prior to and before entry into the Transaction Agreement, and shareholder approval was not required and did not need to be sought for these payments.

66    According to Allkem, the quantum of the financial benefits to directors are not excessive, extravagant or out of the ordinary, having regard to the broader value of the transaction (A$15.7 billion).

67    All of these entitlements have been disclosed in the Scheme Booklet. Indeed, amendments to the Scheme Booklet have been made to highlight these entitlements (see in particular clause 4.8(a) as to Mr Pérez De Solay's entitlements, where the potential total value of the benefits, apart from salary and ongoing incentives during his 9-month notice period, is estimated to be US$2.84 million). I infer the amendments were incorporated after communications with ASIC.

68    The benefits are not overtly out of the ordinary having regard to the transaction as a whole. The directors stand to receive certain of the benefits regardless of the transaction, and some entitlements arose by way of rights under the constitution and PROP that arose prior in time to the Transaction Agreement. Mr Pérez De Solay will not receive the proposed additional performance rights without shareholder approval.

69    In all of the circumstances, having regard to the nature of the benefits and the prominent disclosure of such benefits in the Scheme Booklet, I accept that there is no reason to depart from the ordinary approach that the directors may make recommendations with respect to the Scheme.

70    It is also important to bear in mind that the recommendations of the directors are contingent upon Kroll continuing to conclude the Scheme is in the best interests of shareholders. The shareholders will receive Kroll's report. Kroll's report provides an important cross-check as to the commercial benefits and risks of the Scheme overall.

Conditions precedent

71    There are a number of relevant conditions precedent, but they are disclosed prominently in the Scheme Booklet, and will be addressed at the second court hearing, assuming the Scheme is approved by members.

72    For present purposes, the evidence confirms that Allkem and Ms Ponessa (on behalf of Livent and Arcadium) are not aware of any fact, matter or circumstance that has resulted in or is likely to result in the failure of the conditions precedent to the Scheme.

Performance risk

73    The performance or credit risk to shareholders that they may be left without shares and without consideration is managed by detailed terms in both the Transaction Agreement and the Scheme that address when title and consideration pass, together with the potential to rely on a deed poll in their favour.

74    In summary, the Scheme provides that the transfer of the Allkem shares by shareholders (or the sale nominee) to Arcadium on the implementation date is subject to the obligations of Arcadium to provide the scheme consideration (Arcadium shares and CDIs) to the scheme shareholders on the implementation date. No beneficial title passes to Arcadium unless and until the scheme consideration has been provided. There are detailed express provisions as to when Eligible Shareholders' names are entered into the Arcadium register, and when the Arcadium CDIs will be issued to a subsidiary or custodian of the ASX. A similar regime was implemented and explained in Amcor at [20]-[32]. The process is explained fully in the Scheme Booklet.

75    Further, by the deed poll annexed to Mr Anthon's second affidavit, each of the Allkem shareholders participating in the Scheme has the benefit of what would seem on its face to be an enforceable covenant from Arcadium that it will perform its obligations under the Scheme.

76    I was informed by Allkem that ASIC in conferral had raised the potential risk that the Transaction Agreement might be terminated after the Scheme is implemented but before the Merger closes. Allkem submitted that such risk was mitigated by a number of matters:

(a)    the only condition to the Merger is the Scheme being implemented;

(b)    Allkem or Livent can only terminate the Transaction Agreement before the Merger closing in limited circumstances; and

(c)    the transaction will effectively be a re-domiciliation scheme, and because it is a condition to the Scheme that the NYSE and ASX listing of Arcadium will occur, Allkem shareholders will hold their consideration shares in Arcadium (as listed on the NYSE) or consideration CDIs (as listed on the ASX) regardless - that is, even without the Merger, they will hold equivalent listed securities tradeable on a substantial exchange.

77    There is force to these submissions, and so whilst a risk for shareholders remains, such risk would appear to have been addressed carefully with steps crafted to minimise it. In any event the risk is accurately disclosed in the Scheme Booklet.

Lock up devices - break fee and exclusivity

78    As the Practice Note explains, the Court expects a scheme proponent to lead evidence at the first court hearing concerning any break fee as a percentage of the implied equity value of the Scheme proponent and the general nature and length of any exclusivity provisions.

79    In this case, nothing novel arises with respect to the break fee and satisfactory evidence has been provided. The break fee is reciprocal and represents approximately 1% of the total implied equity value of Allkem at the time of the announcement of the transaction. The circumstances in which it may be payable by Allkem are conventional.

80    The exclusivity provisions in the Transaction Agreement comply with the Courts' usual requirements, in that they only continue for a reasonable period of time capable of precise ascertainment (nine months, extendable up to 12 months), and are subject to the usual carve out for directors' statutory and fiduciary duties. Allkem has received legal advice that having regard to the terms of the Transaction Agreement, the applicable law with respect to the Allkem directors' statutory and fiduciary duties is Australian law. The exclusivity provisions are disclosed in the Scheme Booklet. Reciprocal and identical provisions apply to Livent.

81    The nine month period is at the upper end but not outside periods that have been approved: Re Dyno Nobel Ltd [2008] VSC 154 at [26]-[27] (Robson J) (nine months but could be implemented in less); Ludowici Limited, in the matter of Ludowici Limited [2012] FCA 489 at [8] (Emmett J) (10 months considered reasonable taking into account requirement of overseas regulatory approvals); and Tawana at [34] (nine months noting requirement of regulatory approvals). Given the foreign exchange approval required in this case, I do not consider the time period is unreasonable.

82    There is one aspect of the fiduciary carve out to the exclusivity arrangement that was the subject of detailed submission. Under the Transaction Agreement, the 'no talk' and 'no due diligence' exclusivity provisions, and a 'matching right', apply until approval by the shareholders of the Scheme at the scheme meeting. They do not apply during the period between the scheme meeting and the second court hearing. However, as Allkem submitted, if something occurred in that intervening period, it would need to be disclosed to the Court and would be considered in the course of the exercise of the Court's discretion at the second hearing. As senior counsel noted, practically speaking, the prospect of some relevant occurrence is small, because the scheme meeting is proposed to be heard the day before the second court hearing.

83    I am satisfied that the exclusivity provisions are not unduly restrictive on the Allkem board and do not undermine the fairness of the Scheme or the Scheme being in the best interests of shareholders.

Ineligible Overseas Shareholders

84    As described above, Ineligible Overseas Shareholders will not be eligible to receive the scheme consideration, being the Arcadium shares or CDIs, but instead, prior to the scheme implementation date, the Allkem shares held by Ineligible Overseas Shareholders will be transferred to a sale nominee to be appointed by Allkem. The Ineligible Overseas Shareholders will receive net proceeds of sale from the sale nominee.

85    This procedure is outlined in the Scheme and disclosed in the Scheme Booklet. Such processes, when they deal with foreign ineligible shareholders, are not uncommon and are not considered to be class creating: for example, OreCorp Limited, in the matter of OreCorp Limited [2023] FCA 1359 at [4] (Colvin J).

A single class

86    All Allkem shareholders have the same right to receive the scheme consideration under the Scheme. I have separately addressed above the three factors relevant to this issue in this case: director voting intention statements, performance rights and Ineligible Overseas Shareholders. I am satisfied that no separate class arises.

Deemed warranties

87    The Scheme contains 'Warranties by Scheme Shareholders' provisions in which the shareholders warrant that their Shares are fully paid and unencumbered. These warranties are disclosed in the Scheme Booklet and are conventional: Tawana at [28]-[29].

Exemption under the Securities Act 1933 (US)

88    Allkem and Arcadium intend to rely on an exemption under the Securities Act 1933 (US). It is not necessary for me to address this issue now, but disclosure was appropriate: Amcor at [118].

Proposed communications with shareholders

89    As the Practice Note also acknowledges, the Court expects that the nature of the scheme proponent's intended communications with security holders should be disclosed at the first court hearing.

90    This has been done in this case. I have been informed of the retention of a third-party shareholder engagement firm, the intention to maintain a telephone information line, the ability for shareholders to access a video of senior executives of both Allkem and Livent speaking about the Scheme, and the intention to conduct briefing sessions.

91    The evidence disclosed that these proposed communications are not intended to deviate from the material included in the Scheme Booklet. Any material deviations or concerns raised will be reported to the Court at the second hearing. There was no suggestion that I should approve the script or the detail of any such shareholder communications.

92    This approach is appropriate and consistent with that outlined in recent authorities in this Court: in particular Essential Metals at [99]-[102]; DDH1 Limited, in the matter of DDH1 Limited [2023] FCA 982 at [22], [50]-[51] (Colvin J); and Talon Energy Ltd, in the matter of Talon Energy Ltd [2023] FCA 1362 at [29] (Jackson J).

Other orders and dispensations

93    Procedural dispensations that were requested, including as to the manner of advertising, were conventional and there was no reason to withhold dispensation or refuse other standard ancillary relief.

Conclusion

94    In my view the Scheme, if considered and adopted by the Allkem members, is of such a nature that in the absence of opposition it would be approved at the second court hearing. Accordingly, I made orders convening the meeting as asked.

Associate:

Dated:    10 November 2023