Federal Court of Australia

De Grey Mining Ltd, in the matter of De Grey Mining Ltd [2025] FCA 246

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 (Shares) in the capital of the plaintiff (Shareholders) for the purposes of considering and, if thought fit, agreeing (with or without amendment) to a scheme of arrangement (Scheme) proposed to be made between the plaintiff and the Shareholders who are Scheme Shareholders (as that term is defined in the scheme booklet (Scheme Booklet), a copy of which is annexure “JLS-6” to third affidavit of Janelle Louise Sputore sworn 10 March 2025 (Sputore Affidavit),being the scheme substantially in the form set out in Attachment D of the Scheme Booklet;

(b)    the Scheme Meeting be held as a hybrid meeting at 2.00pm (AWST) on 16 April 2025:

(i)    with the physical venue of the Scheme Meeting at the Melbourne Hotel, 33 Milligan St, Perth 6000 WA; and

(ii)    via an online platform that allows for remote participation, to be accessed substantially in accordance with the instructions set out in the notice of Scheme Meeting (at Attachment A of the Scheme Booklet) (Notice of Scheme Meeting); and

(c)    the Scheme Booklet, which contains the explanatory statement required by s 412(1)(a) of the Act, be approved for distribution to Shareholders substantially in the form of annexure “JLS-6” to the Sputore Affidavit, subject to:

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

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

(iii)    the correction or update of relevant dates or market price references and consequential amendments; and

(iv)    effecting any other amendments approved by the Court.

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

(a)    convened, held and conducted in accordance with the provisions of Pt 2G.2 of the Act that apply to members of a company and the provisions of the plaintiff’s constitution that apply to meetings of members that are not inconsistent with Pt 2G.2 of the Act;

(b)    convened using the Notice of Scheme Meeting substantially in the form contained in Attachment A of the Scheme Booklet (with any amendments contemplated by paragraph 1(c) above);

(c)    held and conducted pursuant to the arrangements for attending, participating and voting described in the Notice of Scheme Meeting and in accordance with the provisions of Pt 2G.2 of the Act; and

(d)    convened, held and conducted as if r 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) does not apply.

3.    Pursuant to s 1319 of the Act:

(a)    Simon Lill, or failing him, Peter Hood AO, be the chairperson of the Scheme Meeting (Chairperson);

(b)    the Chairperson have power to adjourn or postpone the Scheme Meeting in the Chairperson’s absolute discretion to such time, date and place that the Chairperson thinks appropriate (including as to whether the adjourned meeting should be held electronically);

(c)    at the 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;

(d)    at the Scheme Meeting, each Shareholder, present and entitled to vote, be entitled to one vote for each fully paid share in the capital of the plaintiff that the Shareholder is registered as holding at 7.00pm (AEST) on 14 April 2025; and

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

4.    Subject to registration of the Scheme Booklet with ASIC pursuant to s 412(6) of the Act, on or before 17 March 2025 (or such other day as directed by the Court), the plaintiff dispatch to each Shareholder who appears on the plaintiff’s register of members (Register) as at 7.00pm (AEDT) on 10 March 2025 (Register Time):

(a)    in the case of each Shareholder who has elected to receive shareholder communications from the plaintiff electronically (Email Shareholders), an email to the Shareholder’s nominated email address substantially in the form of the document at attachment “SLP-12” of the affidavit of Sarah Lorne Pledger affirmed 5 March 2025 (Pledger Affidavit) containing:

(i)    hyperlinks to websites where those Shareholders can:

A.    access and download the Scheme Booklet;

B.    lodge a proxy appointment for the Scheme Meeting online; and

C.    in the case of Email Shareholders who the plaintiff determines, based on the information in the Register at 5.00pm (AWST) on 7 March 2025 (Last Practicable Date), are likely to be Small Shareholders (as defined in the Scheme), access, download and lodge an opt-in notice substantially in the form of the document at attachment “SLP-2” of the Pledger Affidavit (Opt-in Notice); and

(ii)    a phone number and email address by which those Email Shareholders may request that they be sent printed hard copies of the Scheme Booklet;

(b)    in the case of each Shareholder who has elected to receive shareholder communications from the plaintiff by post (Postal Shareholders), using the methods of service set out in paragraph 5 below, hard copies of the following documents:

(i)    the Scheme Booklet;

(ii)    a personalised proxy form substantially in the form of the document at attachment “SLP-11” of the Pledger Affidavit (Proxy Form);

(iii)    in the case of Postal Shareholders who the plaintiff determines, based on the information in the Register at the Last Practicable Date, are Small Shareholders, a personalised copy of the Opt-in Notice; and

(iv)    either:

A.    in the case of each Postal Shareholder who has a registered physical address in Australia, a priority pre-paid post envelope addressed to Automic Pty Ltd (Automic); or

B.    in the case of each Postal Shareholder who has a registered physical address outside Australia, an unpaid airmail or air courier envelope addressed to Automic;

(c)    in the case of each Shareholder who is not an Email Shareholder or Postal Shareholder (Other Shareholders), using the methods of service set out in paragraph 5 below, hard copies of the following documents:

(i)    a letter substantially in the form at attachment “SLP-13” of the Pledger Affidavit containing:

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

B.    a phone number and email address by which Shareholders who did not receive a hard copy Scheme Booklet may request to be sent a hard copy;

(ii)    a personalised Proxy Form;

(iii)    in the case of Other Shareholders who the plaintiff determines, based on the information in the Register at the Last Practicable Date, are Small Shareholders, a hard copy Opt-in Notice; and

(iv)    either:

A.    in the case of each Other Shareholder who has a registered address in Australia, a priority pre-paid post envelope addressed to Automic; or

B.    in the case of each Postal Shareholder who has a registered physical address outside Australia, an unpaid airmail or air courier envelope addressed to Automic.

5.    The plaintiff shall dispatch the documents identified in paragraphs 4(b) and 4(c) above:

(a)    to each Shareholder who has a registered address in Australia, by pre-paid ordinary post to their registered address as recorded at the Register Time; and

(b)    to each other Shareholder who has a registered address outside Australia, by prepaid international airmail to their registered address as recorded at the Register Time.

6.    If it comes to the attention of the plaintiff that any email dispatched in accordance with paragraph 4(a) above results in the return of a receipt or notice that the email was undelivered, then the plaintiff shall dispatch to that Shareholder within a reasonable time thereafter the documents in accordance with paragraph 4(c) above using the methods of service set out in paragraph 5 above.

7.    The plaintiff is to cause a hard copy of the Scheme Booklet to be provided to any Shareholder if requested by a Shareholder before the date of the Scheme Meeting.

8.    Dispatch in accordance with paragraphs 4 to 5 above be taken to be sufficient notice of the Scheme Meeting.

9.    The plaintiff is not obliged to send documents in relation to the Scheme to any person who becomes a Shareholder after the Register Time.

10.    Evidence of the dispatch of the Scheme Booklet in accordance with these paragraphs may be given by statement on oath or affirmation on information and belief.

11.    The time by which Shareholders must return their Proxy Form (or lodge an electronic proxy appointment) in respect of the Scheme Meeting be 2.00pm (AWST) on 14 April 2025.

12.    Pursuant to r 3.3(2) of the Corporations Rules, notwithstanding s 249Y(3) of the Act, the appointment of a proxy in respect of the Scheme Meeting shall not be revoked or suspended by the appointing Shareholder (Appointor) attending and taking part in the relevant Scheme Meeting, but if the Appointer votes on a resolution at the Scheme Meeting, any vote(s) cast by the proxy must not be counted towards the relevant poll.

13.    The proceeding be adjourned to 10.15am (AWST) on 22 April 2025.

14.    The plaintiff give notice of the hearing of any application pursuant to s 411(4) and, if necessary, s 411(6) of the Act for orders approving the Scheme by publishing an announcement via the Australian Securities Exchange by 10 April 2025, substantially in the form annexed to these orders and marked “Annexure A”, and the plaintiff be otherwise relieved from compliance with r 3.4 of the Corporations Rules.

15.    Pursuant to r 1.3 of the Corporations Rules compliance with r 2.4(1) be dispensed with.

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

17.    The plaintiff has liberty to apply upon giving 24 hours’ notice to ASIC.

18.    These orders be entered forthwith.

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

REASONS FOR JUDGMENT

FEUTRILL J:

Introduction

1    On 14 January 2025 the plaintiff filed an originating process under s 411 and s 1319 of the Corporations Act 2001 (Cth) by which it seeks orders pursuant to s 411(1) to convene a meeting of the holders of ordinary fully paid shares in the plaintiff for the purpose of considering an arrangement proposed between the plaintiff and its members and orders pursuant to s 411(4)(b) and s 411(6) approving the scheme. On 10 March 2025 I pronounced orders on the plaintiff’s application to convene a meeting of its members (scheme members or shareholders) to consider a proposed scheme between the plaintiff and its members (scheme) and approving the despatch of a scheme booklet containing an explanatory statement (scheme booklet). These are my reasons for those orders.

Background

2    The plaintiff (De Grey or target) is an Australian public limited liability company which is listed on the Australian Securities Exchange. It is a gold exploration and development company. Its principal asset is known as the Hemi Gold Project located in the Pilbara region of Western Australia.

3    On 1 December 2024 the plaintiff and Northern Star Resources Ltd (bidder) made a scheme implementation deed (SID) with respect to the proposed scheme.

4    The bidder is a gold producer. It has three production centres. These are located in the Kalgoorlie area and Yandal (Northern Goldfields) areas of Western Australia and in the Tintian Gold Province in the State of Alaska in the United States of America (Pogo centre). It also has a 50% interest in a project known as the Central Tanami Project located in the Tanami region of the Northern Territory. The bidder is listed on the ASX. As at 7 March 2025, it had a market capitalisation of about AUD20 billion making it the largest Australian gold mining company and one of the 50 largest companies listed on the ASX.

5    If the proposed scheme were approved and implemented, the bidder would acquire all the issued shares in the plaintiff. The proposed scheme consideration is ‘script’ and is 0.119 new ordinary shares in the bidder for each ordinary share in the plaintiff (scheme share). If certain conditions precedent to implementation or completion of the proposed scheme were to be satisfied (or waived), the scheme would be implemented as follows.

(1)    On the implementation date (expected to be 5 May 2025), the bidder would issue the scheme consideration to the scheme members (other than ineligible holders) and, as applicable, to the sale agent [clause 5.1 and clause 5.2 of the proposed scheme].

(2)    Subject to the provision of the scheme consideration by the bidder, all the scheme shares would be transferred to the bidder [clause 4.2 of the proposed scheme] and the bidder would be beneficially entitled to the shares and hold proxy rights in respect of them pending its registration in the share register [clause 9.3 and clause 9.4 of the proposed scheme].

(3)    Ineligible foreign shareholders would not receive the shares in the bidder as scheme consideration – instead, the shares to which they would otherwise be entitled would be issued to a sale agent and sold under a standard sale process, with the net sale proceeds remitted to ineligible foreign shareholders [clause 5.6 of the proposed scheme].

(4)    Scheme members whose entitlement to the scheme consideration would be less than a marketable parcel of the bidder’s shares (assessed by reference to the closing price of the bidder’s shares on ASX on the trading day prior to the record date) would, unless they elect otherwise, not receive shares in the bidder as scheme consideration. Instead, the shares to which such holders (non-electing small shareholders under the proposed scheme) would otherwise be entitled would be issued to a sale agent and dealt with under the same sale process described for ineligible foreign shareholders, and the non-electing small shareholders would receive the net sale proceeds. Small shareholders would be able to elect to receive shares in the bidder by completing and returning a form to the plaintiff’s share registry [clause 5.6 of the proposed scheme].

(5)    The bidder would be entitled to withhold from the scheme consideration payable to a scheme member any amount payable to the Commissioner of Taxation as a GST withholding, by procuring that the necessary number of new bidder shares which the scheme member would have been entitled to receive under the proposed scheme be issued to the sale agent and dealt with under the sale process described earlier [clauses 5.6(d) and (g) of the proposed scheme].

6    After implementation of the proposed scheme, the plaintiff would become a wholly owned subsidiary of the bidder. The plaintiff would be delisted and proposed scheme members (excluding non-electing small shareholders and ineligible foreign holders) would hold approximately 20% of the issued shares in the bidder.

Evidence and other materials

7    The plaintiff filed and relied on the following materials in support of the interlocutory orders made to convene the scheme meeting.

8    An affidavit of Jamie Matthew Ammendolea sworn 14 January 2025. Mr Ammendolea is a solicitor in the employ of the plaintiff’s solicitors. His affidavit exhibits an extract of the ASIC companies register for the plaintiff and a copy of the scheme implementation deed.

9    An affidavit of Sarah Lorne Pledger (also known as Sarah Standish) affirmed 5 March 2025. Ms Pledger is the general legal counsel and company secretary of the plaintiff. In her affidavit she deposes facts concerning:

(a)    the business and capital structure of the plaintiff;

(b)    verification of the factual information related to the plaintiff in the explanatory statement to be provided to scheme members in connection with the proposed scheme (draft scheme booklet);

(c)    notification to ASIC of the hearing, and provision to ASIC of the draft scheme booklet and the scheme more than 14 days before the first court hearing;

(d)    the amount of the break fee;

(e)    the exclusivity provisions in the SID and the period and coverage;

(f)    mitigation of performance risk associated with the proposed scheme; and

(g)    consents to act as chairperson or alternate chairperson of the proposed scheme meeting.

10    An affidavit of Hilary Fare Macdonald affirmed 5 March 2025. Ms Macdonald is the chief legal officer and company secretary of the bidder. In her affidavit she deposes facts concerning the process by which information relating to the bidder contained in the draft scheme booklet was verified. She also deposes that the bidder intends to rely on an exemption under US securities law that would permit it to issue new shares in the bidder as part of the scheme consideration to scheme members located in the USA.

11    An affidavit of Janelle Louise Sputore sworn 7 March 2025 and two further affidavits of her both sworn 10 March 2025. Ms Sputore is also a solicitor in the employ of the plaintiff’s solicitors. She deposes facts concerning communications with ASIC relating to amendments to the draft scheme booklet, certain facts relating to the composition of the plaintiff’s members and exhibits letters from ASIC and a final version of the proposed scheme booklet.

12    I accept the uncontested facts deposed in the affidavits to which reference has been made. I also accept the information contained in the exhibits to the affidavits.

Applicable principles

13    The principles applicable to the exercise of the Court’s power under s 411(1) to convene a meeting between a company and its members are well settled and have been summarised and set out in numerous judgments of this and other courts. I take the following principles to be well-established and not in need of further explanation: Eumundi Group Limited, in the matter of Eumundi Group Limited [2024] FCA 1510 at [26]-[32] (Feutrill J).

14    Section 411(1) confers a discretion on the Court to make appropriate orders to convene a meeting of a company’s members where the following pre-conditions are met.

(1)    A compromise or arrangement is proposed between a Part 5.1 body and its members (or any class of them) (s 411(1)).

(2)    An application is made in a summary way for an order by the body or a member of the body (s 411(1)).

(3)    Fourteen days’ notice of the hearing of the application has been given to ASIC (or such lesser period as the Court or ASIC permits (s 411(2)(a)).

(4)    The Court is satisfied that ASIC has had a reasonable opportunity (s 411(2)(b)):

(a)    to examine the terms of the proposed compromise or arrangement to which the application relates and a draft explanatory statement relating to the proposed compromise or arrangement; and

(b)    to make submissions to the Court in relation to the proposed compromise or arrangement and the draft explanatory statement.

15    In the exercise of the Court’s discretion, it should be satisfied of the following further matters which may overlap to some degree.

(1)    The proposed scheme is bona fide and properly proposed.

(2)    The members are properly informed of the nature of the proposed scheme before the meeting, including that requirements in s 411(3) and s 412 of the Act and reg 5.1.01 and Sch 8 of the Corporations Regulations 2001 (Cth) regarding the information that is to be sent to scheme members about the scheme have been met, that the explanatory statement relating to the proposed scheme will provide sufficient disclosure to members, and there is nothing obviously ambiguous, inaccurate, or misleading in the information to be sent to them. The explanatory statement should also meet the disclosure requirements set out in ASIC Regulatory Guide 60 relating to the preparation of independent expert reports (ASIC Regulatory Guides 111 and 112) and the takeover and prospectus provisions of the Act to the extent these are applicable to a proposed scheme.

(3)    The proposed scheme is ‘fit for consideration’ by the proposed meeting in the sense that it is of such a nature and cast in such terms that if it achieves the statutory majorities at the meeting the Court would likely approve it at the second court hearing if unopposed.

(4)    All applicable procedural requirements, including those of the Federal Court (Corporations) Rules 2000 (Cth), have been or will be met or otherwise that it is appropriate to modify or dispense with one or more of them.

16    As s 411(1) allows for a compromise or arrangement between a company and its members (or any class of them), it is appropriate when considering if the pre-conditions have been met and the scheme is properly proposed to consider whether the nature of the proposed scheme means that there are separate classes and that there should be separate meetings convened between members of separate classes.

17    The question of whether or not to vote in favour of a proposed scheme is a commercial matter for the members to assess. In general, members should not be prevented from having the opportunity to do so provided that they are adequately informed and have sufficient time to consider the proposed compromise or arrangement.

18    The Court’s role under s 411 is supervisory. In general, at the first court hearing the Court should confine itself to ensuring that the applicable procedural and substantive requirements are met (including that there will be adequate disclosure), with limited consideration of issues of fairness. The Court should only consider the merits or fairness of a proposed compromise or arrangement at such a hearing if the issue is such as would unquestionably lead to a refusal to approve it at the approval hearing (second court hearing).

19    Bearing in mind that in most circumstances applications to convene meetings and to approve arrangements are heard in the absence of a contradictor, the role and function that ASIC performs under s 411 and s 1330 of the Act is quite important for the proper performance of the Court’s supervisory function. ASIC has an obligation to assist the Court by presenting arguments if it deems that course to be necessary or desirable and its approach to that obligation is explained in RG 60.4. Having regard to these matters, where ASIC has provided its usual letter to a scheme proponent before the first court hearing and has indicated that it does not wish to appear and make submissions at that hearing, the Court is entitled to infer that ASIC has discharged its obligation to assist the Court. Similarly, the absence of a contradictor sharpens the duty of the plaintiff and imposes a heavy responsibility on it to bring to the Court’s attention all matters that could be considered relevant to the exercise of the Court’s discretion. As a consequence, the Court is entitled, in the exercise of its supervisory function, to be confident that all relevant and material matters are before the Court.

Conclusions as to pre-conditions, procedural requirements and discretionary considerations

20    On the originating process and facts deposed and documents exhibited to the affidavits the plaintiff filed in support of its application, I was satisfied of the following matters.

(1)    The plaintiff is a Part 5.1 body and the proposed scheme is an ‘arrangement’ between the plaintiff and its members. As explained later in these reasons, while certain matters are disclosed that raise potential issues relating to classes of members, there is no reason to require separate meetings of separate classes of scheme members for the proposed scheme.

(2)    Notice was given to ASIC within 14 days of the hearing and it has had a reasonable opportunity to examine the terms of the proposed scheme and draft explanatory statement and make submissions to the Court on them.

(3)    ASIC provided its usual letter to the scheme proponent indicating that it does not wish to appear and make submissions at the first court hearing. Thus, ASIC has discharged its obligation to assist the Court by reviewing the scheme documents, reviewing the nature and function of the scheme, representing the interests of investors and creditors and ensuring that all matters that are relevant to the Court’s decision are properly brought to its attention before it makes orders convening a scheme meeting.

(4)    The application to convene the scheme meeting was made in a summary way and all procedural requirements have been met or, to the extent that they have not been met, it is appropriate to modify or dispense with them in the manner recorded in the orders. In particular, the required company search of the plaintiff has been undertaken and the required matters in respect of the proposed chair and alternative chair for the scheme meeting have been proven.

(5)    Having considered and evaluated the terms of the scheme implementation deed, the proposed scheme, the deed poll, and the plaintiff’s constitution, the proposed scheme is bona fide and properly proposed.

(6)    Having considered the draft scheme booklet (including the draft explanatory statement), the scheme booklet provides adequate disclosures in sufficiently clear language of the nature of the proposed scheme, including the prescribed information and, on the evidence, that appropriate steps have been taken to ensure that the information to be provided to scheme members is accurate such that scheme members will be properly informed before the scheme meeting.

(7)    Having regard to the matters referred to below under the headings ‘Specific matters raised by the plaintiff’ and ‘Other matters’, the plaintiff has discharged its duty and responsibility of bringing to the Court’s attention all matters that could be considered relevant to the exercise of the Court’s discretion and, as such, all relevant material is before the Court.

(8)    The proposed scheme is fit for consideration in the sense that if the required majorities were achieved at the scheme meeting the Court would be likely to approve the scheme if unopposed at the second court hearing. That is, there is no issue of merit or fairness that would unquestionably lead to a refusal to approve the proposed scheme at the second court hearing.

21    It follows that I was satisfied that I should exercise the discretionary power to order the plaintiff to convene the scheme meeting.

Specific matters raised by the plaintiff

22    The plaintiff drew to the Court’s attention and addressed the following specific matters that could have had a bearing on the exercise of the Court’s discretion to make orders to convene the scheme meeting. For the reasons given, I accepted that none of these matters was a reason or sufficient reason for refusing to make the requested orders.

Collateral benefits and class issues

23    Section 411(1) and s 411(4) refer, relevantly, to an arrangement between members or a class of members and the company. The term ‘class of members’ is not defined, but it is generally accepted that the focus of the concept of ‘class’ is on ‘persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to a common interest’: Sovereign Life Assurance Co (In Liquidation) v Dodd [1892] 2 QB 573 at 583 (Bowen LJ). Thus, the focus is on ‘rights’ not on ‘interests’ per se. Members with divergent interests but essentially the same rights are generally able to consult with a view to their common interest with respect to their ‘rights’: A-Cap Energy Limited, in the matter of A-Cap Energy Limited [2023] FCA 1142 at [31] (Feutrill J) and the authorities there cited.

24    Here, there are four matters that raise matters of relevance to the issue of class. Three of these matters the plaintiff has drawn to the Court’s attention (performance and share rights, special exertion payments and retention and incentive payments) and a fourth matter (ineligible holders) arises from the issue of scheme consideration to the sale agent, sale of scheme shares, and payment of the net proceeds to certain scheme members.

25    The three matters the plaintiff has drawn to the Court’s attention all concern benefits that only certain scheme members would receive if the proposed scheme were implemented. Such benefits have the potential to result in scheme members having different ‘rights’ under the scheme or certain scheme members receiving additional consideration for scheme shares under the proposed scheme. The existence of different rights raises an issue as to whether scheme members should be divided into different classes. The existence of additional benefits also raises a question about the fairness of the scheme, in the context of a change of control transaction, and whether the public policy of Ch 6 of the Act would be undermined if the proposed scheme were approved.

26    Collateral benefits are not permitted under a takeover bid: s 623 of the Act. However, in general, a benefit given or offered to a shareholder in a capacity other than as shareholder is not a ‘collateral benefit’ for the purposes of s 623. For example, benefits given or offered to employees in their capacity as employees, not shareholders, are not such ‘benefits’: A-Cap Energy at [27]-[28] (Feutrill J) and the authorities there cited. Such benefits are also not generally ‘class-creating’.

Performance and share rights

27    The plaintiff has a long-term incentive scheme pursuant to which employees have been issued certain performance rights and directors certain share rights. There are 6,385,456 performance rights on issue of which 1,505,416 have been issued to one of the plaintiff’s directors. There are 136,913 share rights on issue all of which have been issued to the plaintiff’s directors. Upon vesting, holders of performance rights would be issued one share per right for no consideration and holders of share rights would be issued one share per right.

28    Under the terms of the scheme implementation deed [clause 6.6] the plaintiff must ensure that prior to the Record Date (as that term is defined in the proposed scheme) all performance and share rights have been converted into shares or forfeited. Under the terms of the performance and share rights they would vest automatically if the proposed scheme were approved at the second court hearing. The plaintiff has received completed exercise notices from all holders of performance rights to be held in escrow with instructions to process the exercise notices upon vesting in connection with the proposed scheme. The treatment of the performance rights and share rights and the vesting and the directors’ interests in them are disclosed prominently in the draft scheme booklet.

29    I do not consider that shares that would be received in connection with performance rights or share rights to be a collateral benefit or class-creating. While the accelerated vesting of these rights may create a separate reason (or interest) for the holders of these rights to vote in favour of the proposed scheme, the shares that would be received upon exercise of the vested rights would not be, in substance, rights received as a scheme member that are additional to the rights other scheme members would receive. They would be rights derived from pre-existing and separate rights under the terms of the performance and share rights and the circumstance of the change of control contemplated by approval of the proposed scheme.

Special exertion payments

30    The plaintiff’s directors have approved the payment of special exertion payments to directors and certain employees for the purpose of recognising the significant additional time and service they have provided and are expected to provide to the plaintiff outside the scope of their ordinary duties in the lead up to implementation of the proposed scheme. These payments will be made irrespective of whether or not the proposed scheme is approved and implemented. The special exertion payments are disclosed and explained in the draft scheme booklet.

31    I do not consider the special exertion payments to be collateral benefits or class-creating. These payments are not conditional upon implementation of the proposed scheme and, in any event, are payments made in connection with the recipient’s position as employee or director. The payments are not made in connection with the recipient’s holding, if any, of shares in the plaintiff.

Retention and incentive payments

32    In addition to the special exertion payments, the plaintiff’s directors approved the offer of short-term retention and incentive payments to certain of the plaintiff’s employees. The payments were offered to align the recipients’ interests with those of the scheme members in implementing the proposed scheme. These payments are explained and disclosed prominently in the draft scheme booklet.

33    Glenn Robert Jardine is the managing director of the plaintiff. He will receive a retention and incentive payment of $342,500 (including superannuation but excluding applicable taxes). That payment is conditional upon implementation of the proposed scheme. Board approval of the retention and incentive payment was made in the absence of Mr Jardine. That is, Mr Jardine did not participate in the board deliberation or resolution on that matter. Mr Jardine is the holder of 1,505,416 performance rights and 747,156 scheme shares. If the proposed scheme were implemented his performance rights would vest and he would become the holder of 1,505,416 scheme shares. The value of those scheme shares, based on the implied value in the independent expert report, is $3,131,265. Mr Jardine’s existing holding of scheme shares (747,156) have an implied value of $1,554,084. Therefore, the implied value of all scheme shares that Mr Jardine would hold if the proposed scheme were implemented is $4,685,349. Accordingly, the total value of scheme consideration and retention and incentive payment would be $5,027,849 of which the retention and incentive payment ($342,500) is about 7%.

34    I also do not consider the retention and incentive payment to Mr Jardine to be a collateral benefit or class-creating. It is a payment that Mr Jardine would receive as an employee of the plaintiff. It is intended to align his interests, as employee, with the interests of scheme members in the implementation of the proposed scheme. Further, while the payment is not insubstantial, having regard to the relative value of the scheme consideration that Mr Jardine would receive, the retention and incentive payment is not of such a magnitude as to render his interests so divergent from other scheme members to make him unable to consult with them with a view to a common interest.

Ineligible holders

35    In addition to the matters the plaintiff has specifically drawn to the Court’s attention, the proposed scheme would not operate consistently in relation to all scheme members. Scheme members whose registered address is outside Australia, New Zealand or certain other agreed countries would not be issued new bidder shares as scheme consideration. For these scheme members (referred to as ineligible foreign holders), the scheme consideration would be issued to a sale agent which would sell the shares and remit the net proceeds to ineligible foreign holders. There are 14 ineligible foreign holders holding 282,887 scheme shares. Therefore, these holders are a small fraction of scheme members and scheme shares.

36    Scheme members with unmarketable parcels of bidder shares would also not be issued with scheme consideration unless they complete opt-in forms. If small shareholders do not opt-in, as with ineligible foreign holders, the sale agent would be issued with and sell the new bidder shares and remit the net proceeds to the small shareholders. There are 349 small shareholders representing approximately 2.73% of the scheme members. Again, that is a small fraction of scheme members holding a very small proportion of scheme shares.

37    Notwithstanding the different treatment of ineligible foreign holders and small shareholders, I do not consider the rights of these two kinds of scheme members to be so different that they cannot consult with other scheme members in a meeting about their common interest. That is, I do not consider the different treatment of them to be class-creating.

Directors’ recommendations

38    The plaintiff’s directors have unanimously recommended that the scheme members vote in favour of the proposed scheme in the absence of a superior proposal and subject to the independent expert concluding and continuing to conclude that the scheme is fair and reasonable and therefore in the best interests of scheme members.

39    Although it is a fact sensitive question, I have previously expressed the view that it is ordinarily appropriate for a director who is to receive a financial benefit to make a recommendation, but in so doing that director must fully and prominently disclose that benefit in the scheme booklet. Further, in general, shareholders would expect a director to make a recommendation even when the director may receive a substantial financial benefit from the proposed scheme: e.g., Eumundi at [52]-[53]; Chesser Resources Limited, in the matter of Chesser Resources Limited [2023] FCA 1021 at [61]-[63]; A-Cap Energy at [56]-[57] and the authorities there cited. See, also, ThinkSmart Limited, in the matter of ThinkSmart Limited [2022] FCA 1314 at [51]-[53] (Jackson J) and the authorities there cited; Allkem Limited, in the matter of Allkem Limited [2023] FCA 1397 at [55] (Banks-Smith J) and the authorities there cited.

40    The benefits that each director would receive in connection with the proposed scheme are fully and prominently disclosed in the draft scheme booklet. With the exception of Mr Jardine, the financial benefits that the directors would receive are aligned with the scheme members’ interests because the directors would receive the benefits as shareholders either through existing holdings or through vesting of performance rights and share rights. To the extent that the receipt of scheme consideration may be thought to create an ‘interest’ on the part of the directors to recommend the proposed scheme and that interest diverges from the interests of other scheme members, the information is fully disclosed and scheme members can form opinions about those matters when deciding what is in their individual interests and whether or not to accept the directors’ recommendations.

41    In the case of Mr Jardine, as already mentioned, he has an additional ‘incentive’ to recommend the proposed scheme because he would receive a retention and incentive payment, as employee, in the sum of $342,500. Again, that payment is fully and prominently disclosed in the draft scheme booklet and other scheme members can form an opinion about the extent to which that additional payment could have influenced Mr Jardine’s recommendation.

42    I do not consider, at this stage of the proceeding, that any of the financial benefits that the directors would receive if the proposed scheme were implemented, including Mr Jardine’s retention and incentive payment, is of such a nature as to render it inappropriate for them to make recommendations to scheme members about the merits of the proposed scheme. In this respect, I also take into account that the directors’ recommendations are qualified by and subject to the independent expert continuing to opine that the proposed scheme is in the scheme members’ best interests.

Communications with scheme members

43    The plaintiff intends to undertake a ‘proxy solicitation’ process and has engaged proxy solicitation advisors. Under the process the plaintiff intends establishing a shareholder information line maintained by the proxy solicitation advisors. The plaintiff also intends conducting ‘outbound’ communications with retail and institutional shareholders. Call scripts for ‘inbound’ and ‘outbound’ communications have been prepared based on information in the draft scheme booklet. These call scripts have not been disclosed to the Court. The plaintiff also intends conducting presentations to proxy advisory firms. A copy of the presentation was exhibited to Ms Pledger’s affidavit. It appears to be based on the contents of the draft scheme booklet. Otherwise, the extent to which the call scripts and presentation have been disclosed to ASIC and ASIC has considered and commented upon them was not addressed in the evidence.

44    In accordance with s 411(1) the Court may approve the explanatory statement required by s 412(1)(a) to accompany notices of the meeting. The Court would also expect the scheme proponent to obtain the Court’s approval to send a supplementary explanatory statement to scheme members. Outside these formal communications, in general, it is not necessary to obtain ‘pre-approval’ of the Court to make oral or informal communications with scheme members. However, if and to the extent that such communications take place, they should be consistent with the information contained in the explanatory statement the Court has approved and not contain inaccurate or misleading statements that could or would undermine the integrity of the scheme meeting process. In accordance with the scheme proponent’s duty of candour, the Court would expect oral or informal communications of that character to be disclosed at the time the Court’s approval of the proposed scheme is sought. See, e.g., the disclosure of informal communications and discussion of its effect in A-Cap Energy Limited, in the matter of A-Cap Energy Limited (No 2) [2023] FCA 1356 at [21]-[39] (Feutrill J).

45    Further, in circumstances in which a scheme proponent undertakes proxy solicitation and initiates informal communications with scheme members, the risk of the scheme proponent providing information that is inconsistent with the approved explanatory statement and undermining the integrity of the scheme meeting process is obvious. Therefore, depending upon the circumstances, where it is likely or expected that there will be informal communications with scheme members, it is prudent to disclose the nature and extent of those communications to the Court at the second court hearing so as to allow the Court to assess the extent to which: (1) there were informal communications; (2) they were consistent with the approved explanatory statement; and (3) they may, otherwise, have affected the integrity of the scheme meeting process: see, e.g., the observations of Colvin J in OreCorp Limited, in the matter of OreCorp Limited [2023] FCA 1359 at [19]-[22].

46    It follows that I do not consider that evidence of an intention to engage in proxy solicitation or to do so without requesting Court approval of the form of communications with scheme members provides discretionary grounds for refusing to make the requested orders to convene the scheme meeting. However, conducting a proxy solicitation process and initiating informal communications with scheme member are matters that, without full disclosure of the nature and extent of those communications, could affect the exercise of the Court’s discretion at any second court hearing for approval of the scheme.

Performance risk

47    The bidder has executed a deed poll pursuant to which it promises to perform its obligations under the proposed scheme and submits to the non-exclusive jurisdiction of the courts of Western Australia. The plaintiff and its directors may act as agent for the scheme members and their attorney to enforce the deed poll. Otherwise, under the terms of the proposed scheme, transfer of the scheme shares is subject to provision of the scheme consideration. Having regard to these matters, the risk of non-performance of the bidder’s obligations under the proposed scheme is more theoretical than real.

Deemed warranties

48    The proposed scheme contains ‘deemed warranty’ and ‘no encumbrance’ provisions that are standard in transactions of this nature. I accept that scheme members are informed of these provisions and the effect of them in the draft scheme booklet. Consistently with well-established authority, deemed warranties and no encumbrance provisions in these terms that are disclosed and explained are acceptable.

Exclusivity provisions

49    The scheme implementation deed contains exclusivity provisions in the form of ‘no shop’, ‘no talk’, ‘no due diligence’, ‘notifications’ and ‘matching right’ [clause 8]. Provisions to this effect are also standard in transactions of this nature. The provisions are also subject to an appropriate ‘fiduciary carve out’ from the ‘no talk’ and ‘no due diligence’ as well as from the requirement to disclose the identity of any third party making a competing proposal under the ‘notification’ provision. These provisions, subject to possible extension, operate for a period of seven months from the date of the SID. The provisions are disclosed and explained in the draft scheme booklet.

50    I accept that, consistently with well-established authorities of this and other courts, exclusivity provisions do not undermine the merits or fairness of a scheme if they operate for a reasonable period capable of precise identification, are subject to an appropriate ‘fiduciary and statutory duty carve out’, are not otherwise unlawful, and are adequately, prominently and accurately explained in the draft scheme booklet. I am satisfied that the exclusivity provisions meet these criteria in this case.

Break fees

51    The scheme implementation deed provides for the plaintiff to pay the bidder a break fee of $50 million in certain circumstances. That fee is approximately 1% of the equity value of the plaintiff based on the implied value of the scheme consideration at the date of the scheme implementation deed.

52    I accept that, consistently with well-established authorities of this and other courts, the break fee that would be payable by the plaintiff is acceptable. Break fees are common in ‘takeover’ schemes and takeovers under the Act. The Australian Government Takeovers Panel Guidance Note 7 provides guidance on the circumstances in which break fees are unlikely to involve ‘unacceptable circumstances’. Break fees may be unacceptable because they may act to coerce acceptance of takeover offers or votes in favour of proposed takeover schemes. In general, as here, break fees less than or approximately 1% of the implied equity value of the total scheme consideration are not regarded as unacceptable.

53    I also accept that there are additional reasons that the break fee that would be payable by the plaintiff in this case is not coercive or unacceptable.

(a)    If the scheme is not approved by scheme members or the Court, the break fee is not payable.

(b)    The break fee is not payable by the plaintiff if one or more of the directors fails to provide, withdraws, or modifies his or her scheme recommendation, or recommends that the plaintiff’s shareholders vote in favour of a competing proposal, as a result of the independent expert opining that the scheme is not in the best interests of the scheme members or that the offer is other than fair and reasonable, except in circumstances where that conclusion is reached because of a competing proposal.

(c)    The amount of the break fee was evidently negotiated, after advice, at arm’s length and represents a fair and reasonable pre-estimate of the transaction costs the bidder would likely incur should the proposed scheme not proceed.

(d)    A reciprocal break fee of $100 million is payable by the bidder to the plaintiff (in different circumstances) in recognition of the need for the bidder to reimburse the plaintiff for its costs in certain circumstances. Therefore, the plaintiff’s obligation to pay a break-fee is not one-sided.

54    The break fees are also identified and adequately explained in the draft scheme booklet.

Other matters

Independent expert report

55    An independent expert has opined that, in the absence of a superior proposal, the proposed scheme is fair and reasonable and in the best interests of the scheme members. I accept that report supports the fitness of the proposed scheme for consideration.

Bona fide and properly proposed

56    There is nothing in the materials before the Court to suggest that the proposed scheme is not bona fide or properly proposed. Further, the proposed scheme is not prevented by the plaintiff’s constitution.

Conditions precedent

57    The implementation deed, as varied, and the proposed scheme are subject to a number of conditions precedent. Terms to similar effect are common and uncontroversial in ‘takeover’ schemes.

58    A summary of the conditions precedent and their effect is disclosed in the draft scheme booklet. The existence of these conditions precedent do not render the proposed scheme unfit for consideration.

Dispensation and variation of rules

Hybrid meeting

59    The plaintiff requested that the Court make orders permitting the meeting to be conducted both at a physical location and online. Convening the meeting in this manner could lead to both a proxy appointed by a scheme member and a scheme member attending the meeting. In these circumstances, pursuant to s 249Y(3) the proxy’s authority to speak and vote for a member is suspended while the member is present at the meeting if the company’s constitution does not deal with that matter. That could lead to a circumstance in which a proxy physically present would not be able to speak or vote for an appointer attending online. To address that possibility the plaintiff has requested that the Court make an order under r 3.3(2) of the Corporations Rules to allow for a proxy appointed not to be revoked or suspended by the appointing scheme member attending and taking part in the scheme meeting. However, if the appointer votes on a resolution at the meeting, any votes cast by the proxy would not be counted towards the outcome of the poll.

60    The necessity for the requested order is not obvious because the plaintiff’s constitution contains an article to the effect that the appointment of a proxy is not revoked by the appointing shareholder attending and taking part in the meeting unless the shareholder actually votes, in which case the proxy’s appointment is deemed revoked with respect to voting on that resolution. That article appears have substantially the same effect as the requested order and to render the default position under s 249Y(3) inapplicable.

61    On the assumption that the order has been requested out of an abundance of caution and given that hybrid meetings have become common-place, I am satisfied that it is appropriate to make an order in the form requested.

Notice of second court hearing

62    Rule 3.4 of the Corporations Rules provides that, unless otherwise ordered, notice of the second court hearing is to be published in a newspaper circulating in the State or Territory in which the Part 5.1 body has is principal, or last known, place of business. The plaintiff requested that an order be made to the effect that notice of any second court hearing be given by publishing an announcement via the ASX.

63    Approximately 39% of scheme members have elected to receive communications electronically. These members represent approximately 71% of the scheme shares. Taking into account that companies listed on the ASX habitually communicate with their members through ASX announcements and the proportion of scheme members in number and voting power who have elected to receive, in effect, all communications from the plaintiff electronically, I am satisfied that it is appropriate to make an order in the form sought and otherwise to dispense with the requirement of r 3.4 of the Corporations Rules.

Disposition

64    For these reasons orders were made substantially in the terms of the plaintiff’s minute of proposed orders filed on 10 March 2025.

Associate:

Dated:    21 March 2025