Allied Gold Limited, Re [2011] QSC 108

SUPREME COURT OF QUEENSLAND CITATION: In the matter of Allied Gold Limited [2011] QSC 108 PARTIES: IN THE MATTER OF ALLIED GOLD LIMITED ACN 104 855 067 (Applicant) FILE NO/S: BS 3415 of 2011 DIVISION: Trial Division PROCEEDING: Originating Application ORIGINATING COURT: Supreme Court DELIVERED ON: Orders delivered ex tempore on 4 May 2011 Reasons delivered 11 May 2011 DELIVERED AT: Brisbane HEARING DATE: 4 May 2011 JUDGE: McMurdo J ORDER: Delivered ex tempore on 4 May 2011: 1. Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (the Act), the Applicant shall summon and convene a meeting (the share scheme meeting) of its shareholders (the shareholders) for the purpose of considering and, if thought fit, resolving (with or without modification) to approve the scheme of arrangement between them and the Applicant substantially in the form set out in the share scheme booklet (the share scheme booklet) included at tab 6 of exhibit FT1 of the affidavit of Frank Terranova sworn 29 April 2011 with the amendments identified in the affidavit of Andrew Rankin filed 4 May 2011. 2. Pursuant to section 411(1) of the Act, the Applicant shall summon and convene a meeting (the option scheme meeting) of holders of options to acquire shares of the Applicant (the optionholders) for the purpose of considering and, if thought fit, resolving (with or without modification) to approve the scheme of arrangement between them and the Applicant substantially in the form set out in the option scheme booklet (the option scheme booklet) included at tab 7 of exhibit FT1 of the affidavit of Frank Terranova sworn 29 April 2011 2011 with the amendments identified in the affidavit of Andrew Rankin sworn 4 May 2011. -- 1 of 12 -- 2 3. Upon the articles of association of Allied Gold Mining Plc being changed in accordance with the proposal contained in section 13.7 of the share scheme booklet, the share scheme meeting shall be held on 6 June 2011 at the Hilton Brisbane Hotel, 190 Elizabeth Street, Brisbane in the State of Queensland, at 10.30am (Brisbane Time) or as soon thereafter as is convenient. 4. The option scheme meeting shall be held on 6 June 2011 at the Hilton Brisbane Hotel, 190 Elizabeth Street, Brisbane in the State of Queensland, at 10.00am (Brisbane Time) or as soon thereafter as is convenient. 5. The share scheme meeting shall be convened by sending to the shareholders by ordinary pre-paid post on or before 6 May 2011: i. the share scheme booklet; ii. the notice of share scheme meeting; iii. a proxy form; substantially in the form contained at tab 6 of exhibit FT1 of the affidavit of Frank Terranova sworn 29 April 2011. 6. The option scheme meeting shall be convened by sending to the optionholders by ordinary pre-paid post on or before 6 May 2011: i. the option scheme booklet; ii. the notice of option scheme meeting; iii. a proxy form; substantially in the form contained at tab 7 of exhibit FT1 of the affidavit of Frank Terranova sworn 29 April 2011. 7. The documents identified in paragraph 5: i. shall be sent to those shareholders who are recorded in the Applicant’s register of shareholders, and to each shareholder at the address recorded in respect of that shareholder in the register of shareholders, as at 10.30am on 4 May 2011; ii. shall be deemed to be received in accordance with clauses 26.2 and 26.3 of the constitution of the Applicant as if the documents were notices of a general meeting. 8. The documents identified in paragraph 6: i. shall be sent to those optionholders who are recorded in the Applicant’s register of optionholders, and to each optionholder at the address recorded in respect of that optionholder in the register of optionholders, as at 10.30am on 4 May 2011; ii. shall be deemed to be received in accordance with clauses 26.2 and 26.3 of the constitution of the Applicant as if the documents were notices of a -- 2 of 12 -- 3 general meeting. 9. All voting at the share scheme meeting and the option scheme meeting (other than voting on any procedural motion) shall be conducted by poll. 10. A proxy may not vote at the share scheme meeting or the option scheme meeting unless the instrument appointing the proxy is received by 10.30am (Brisbane time) on 4 June 2011 sent to the Applicant at an address nominated by it in the share scheme booklet or the option scheme booklet. 11. Except as otherwise provided for in this order, the constitution of the Applicant shall govern the convening and proceedings of the share scheme meeting and the option scheme meeting as if it was a general meeting of the Applicant, except that: i. paragraphs 11.3, 12.3, 12.8, 12.9 and 12.10 of the constitution of the Applicant shall not apply; ii. the poll (referred to in paragraph 9 above) shall be taken irrespective of whether a majority demands it; and iii. a person’s entitlement to vote at the meeting will be the entitlement of that person as recorded in the Applicant’s register of shareholders or the register of optionholders at 10.30am on 4 June 2011. 12. With the exception of regulation 5.6.13, regulations 5.6.12 to 5.6.36A of the Corporations Regulations 2001 shall not apply to the share scheme meeting and to the option scheme meeting. 13. Frank Terranova, or in his absence, Peter Torre shall act as chairman of each of the share scheme meeting and the option scheme meeting and, in the absence of either, the share scheme meeting and the option scheme meeting shall elect some other person as chairman. 14. The explanatory statements contained in the share scheme booklet and the option scheme booklet, in substantially the form contained in tabs 6 and 7 of exhibit FT1 of the affidavit of Frank Terranova sworn 29 April 2011 with the amendments identified in the affidavit of Andrew Rankin filed 4 May 2011, are approved. 15. The Applicant has liberty to apply. 16. The balance of the Application filed 20 April 2011 is adjourned to 20 June 2011. CATCHWORDS: CORPORATIONS – ARRANGEMENTS AND RECONSTRUCTIONS – SCHEMES OF ARRANGEMENT OR COMPROMISE – APPLICATION FOR ORDER FOR MEETING – where the applicant company applied for orders to convene meetings of the members and option holders to consider schemes of arrangement – where the schemes -- 3 of 12 -- 4 provide for the „top hatting‟ of the applicant company by a UK company – whether the court should order meetings and approve an explanatory statement – whether separate meetings should be convened for different classes of shareholders and option holders Corporations Act 2001 (Cth), s 411 Companies Act 2006 (UK) Securities Act of 1933 (USA), s 3(a)(10) Re Asia Oil & Minerals Ltd (1986) 5 NSWLR 42, cited Re HIH Casualty and General Insurance Limited (2006) 57 ACSR 791, cited Re Kaz Group Ltd [2004] FCA 738 , cited Re MIA Group Ltd (2004) 50 ACSR 29, cited Re NRMA Insurance Ltd (No 1) (2000) 156 FLR 349, cited Re Opes Prime Stockbroking Ltd (2009) 179 FCR 20, cited UDL Argos Engineering & Heavy Industries Co Ltd v Li Oi Lin [2001] 3 HKLRD 634, applied COUNSEL: R Lilley SC with C Jennings for the applicant SOLICITORS: Norton Rose for the applicant [1] On 4 May 2011, I made orders to convene meetings of the members and option holders of Allied Gold Limited to consider two concurrent schemes of arrangement. I also then approved explanatory statements to be sent to shareholders and option holders. These are my reasons for the orders made on that day. [2] The schemes, each of which would be dependent upon the other being effective, would together provide for what is described as the “top hatting” of this company („the Australian company)‟ by a recently incorporated company, Allied Gold Mining Plc („the UK company‟). All of the shares of the Australian company would be transferred to the UK company, in exchange for which shares would be issued in the UK company. The shares to be so issued would constitute effectively all of the capital of the UK company. The result would be that the ultimate ownership of the group, presently headed by the Australian company, would be in the same investors but the group would be headed by the UK company. [3] In the same way, under the so-called Option Scheme, the UK company would issue share options in substitution for the existing options issued by the Australian company, which options would be cancelled. [4] The Australian company is a public company listed on the Australian Stock Exchange („ASX‟), the Toronto Stock Exchange („TSX‟) and that market of the London Stock Exchange called the AIM. Its business is gold production, with projects in Papua New Guinea and the Solomon Islands. It has a number of wholly- owned subsidiaries domiciled in Australia, Canada, the United States of America, the Solomon Islands and Papua New Guinea. It is incorporated in Western -- 4 of 12 -- 5 Australia and has its principal place of business in Queensland. It has only one class of shares, of which there are about 1.198 billion shares. [5] The UK company was incorporated on 7 March 2011. It has one share which is held by a director of the Australian company. It has not traded or undertaken any other activity save in relation to the proposed schemes. Its present articles of association are the Model Articles as prescribed under the Companies Act 2006 (UK). It is proposed that the UK company will adopt new articles of association substantially as contained in part of the share scheme booklet to be sent to shareholders and option holders. There is evidence that the proposed articles would comply in all respects with the relevant law of England and Wales. It is proposed that those new articles will be adopted prior to the second court hearing which has been set down for 20 June 2011. [6] The Australian company has recently raised about A$93 million of further capital, for the purposes of retiring some existing debt facilities, funding further projects and providing working capital for exploration and other purposes. At a special general meeting, to be held immediately prior to the meetings convened by my orders, the shareholders of the Australian company will be asked to ratify that capital raising. However, the schemes are not dependent on the outcome of that meeting. [7] At that same special general meeting, shareholders of the Australian company will be asked to approve the issue of 1.5 million options to one of its directors, Mr ST Harvey. The circumstances of this proposed issue are set out in the material which will be sent to shareholders and option holders. At present there are 59.538 million options on issue, at exercise prices of $0.35 or $0.50. If all options were to be exercised, the Australian company would receive A$25.514 million and the shares thereby issued would represent 4.7% of the Australian company‟s then issued share capital. All of the options are held by directors or employees of the Australian company. [8] According to the report of Ernst & Young to be sent within each scheme booklet, the geographic spread of investors in the Australian company has changed over time, shifting away from Australia to the UK and North America. Since September 2006, the shareholders registered by an Australian address have decreased from 22% to 8%, whilst those with a UK address have increased from 27% to 49% and those with addresses in Canada or the United States of America have increased from 20% to 33%. Again according to Ernst & Young, this is one of the advantages of the proposed schemes in that a UK holding company would better reflect the present geographic spread of investors. [9] A further advantage, again according to Ernst & Young and endorsed unanimously by the directors of the Australian company, is to have the shares listed on the main market of the London Stock Exchange, where it is proposed to list the shares in the UK company. Ernst & Young say that “the rationale … as a means of increasing the liquidity of the Company‟s shares appears reasonable”. Another advantage is said to be the enhanced ability to raise capital from the UK and European markets -- 5 of 12 -- 6 due to the “increased visibility” of the UK company in those markets and for other reasons. [10] Other advantages are also offered by the directors and endorsed by Ernst & Young, including the ability of shareholders to participate in the CREST system, which is the UK equivalent of the CHESS system on the ASX. At present, shareholders of the Australian company participate in the CREST system only through the UK equivalent of CDIs (CHESS depositary interests), under which their shares are held on trust for them by a nominee company. The proposed schemes would result in a limitation of the same kind being placed instead upon investors using the CHESS system. They would hold their interests in the UK company as CDIs. According to the terms of the proposed scheme booklets, that would cause some disadvantage to those investors wishing to continue to use the CHESS system, because the CDIs would be less liquid, meaning that they would be “less easily traded with minimum loss of value … than their presently held Allied Gold shares because there is generally a lack of liquidity in the market for foreign companies with secondary listings on ASX”. The booklet will further explain this as follows: “In particular, those securities have less liquidity because: (a) the most liquid market is usually the company‟s home market, in this case, Allied Gold Mining PLc‟s home market is the Main Market; (b) the transaction costs are often cheaper in that home market; (c) some Australian institutional investors have restrictions on their investment in foreign companies; and (d) Allied Gold Mining PLc is unable to directly participate in CHESS.” [11] The proposed scheme booklets, and in particular the draft explanatory statements, have been examined by the Australian Securities and Investments Commission („ASIC‟). That particular description of the disadvantage to investors who wish to continue to trade through CHESS was included after discussions with officers of ASIC. That change and others have been made to the explanatory statements which had been approved by the board of directors of the Australian company on 29 April 2011. But the board then authorised one of its members, Mr Terranova, to approve any further amendments which were “necessary”. The addition of the reference to this particular disadvantage of the schemes is a substantial amendment. But I was satisfied that Mr Terranova was authorised to make that amendment (and others which need not be mentioned here). The explanatory statements had already referred to the advantage of greater liquidity from investors not having to trade in the London market through a nominee. The converse, which is the disadvantage of less liquidity from investors trading on the ASX, may have been apparent to investors. This amendment, to make that more clear, logically follows from what the directors had approved. -- 6 of 12 -- 7 [12] It might be thought then that the outcome of the schemes could have a different impact upon different classes of shareholders (or option holders), being those who would use the CHESS system and those who would use the CREST system. The former will be disadvantaged in that respect (although not, according to the directors and Ernst & Young, disadvantaged overall), whilst the converse will apply to the users of the CREST system. This raised the question of whether there should be separate meetings for those classes. [13] However, the focus must be upon the differences, if any, between different groups of shareholders or option holders, by reason of any differences in their respective legal rights as such. In UDL Argos Engineering & Heavy Industries Co Ltd v Li Oi Lin,1 Lord Millett said that the test is whether the legal rights of persons are sufficiently similar or dissimilar, and not whether there is a sufficient similarity or dissimilarity of interests not derived from such legal rights and that “[t]he fact that individuals may hold divergent views based on their private interests not derived from their legal rights against the company is not a ground for calling separate meetings”.2 Australian Courts have applied the same principle: see eg Re NRMA Insurance Ltd (No 1);3 Re HIH Casualty and General Insurance Limited4 and Re Opes Prime Stockbroking Ltd.5 [14] In the proposed scheme for shareholders, there are different provisions according to whether, at the relevant date,6 a shareholder is what is described as an Eligible (CDI) Scheme Member, which is defined to mean a shareholder who is then recorded on the Australian register of the company‟s shareholders. On the implementation date those shareholders would receive CDIs, the shares being held by the nominee. Other shareholders participating in the scheme would be issued with shares in the UK company. However, the CDIs could be converted to shares in the UK company (just as, I was informed, shares in the UK company could be converted to CDIs). The CDI interest would confer the same entitlements as the legal ownership of the relevant shares, except that a holder of a CDI could not attend a shareholders‟ meeting but instead would have to participate in the meeting through a proxy. Still, there would be but one class of shares in the UK company, the investor‟s interest would be in the same parcel of shares, and whether the investor chose to hold them through a nominee so as to trade them as CDIs on the ASX or to hold them in its own name so as to trade them as shares on the London Stock Exchange, would be that investor‟s choice according to its own circumstances. Accordingly, it did not seem that there was a dissimilarity in the respective legal entitlements of Australian and non-Australian investors, as shareholders which would require separate meetings to be convened. If that is not a proper view of the position, then it could be reconsidered at the adjourned hearing if there is a challenge to the scheme upon this basis. All that I have said on this different meetings question would apply equally to the option holders. 1 [2001] 3 HKLRD 634. 2 UDL Argos Engineering & Heavy Industries Co Ltd v Li Oi Lin [2001] 3 HKLRD 634 at [27]. 3 (2000) 156 FLR 349. 4 (2006) 57 ACSR 791 at [67]-[70]. 5 (2009) 179 FCR 20 at [64]. 6 Four business days after the so-called effective date which is when notice of the Court approval of the scheme would be lodged with ASIC. -- 7 of 12 -- 8 [15] The Australian company is clearly a Part 5.1 body and each proposal is an arrangement within the meaning of that term in s 411 of the Corporations Act 2001 (Cth). The prevailing view would seem to be that the arrangement involving option holders is one proposed between the company and creditors.7 [16] It is the unanimous view of the board of the Australian company, supported by the opinion of Ernst & Young, that the proposed schemes are in the best interests of shareholders and option holders. [17] ASIC was duly notified of the proposed scheme and of the hearing on 4 May, and by a letter, it advised that it did not intend to appear at that hearing and that consistently with its policy in relation to statements under s 411(17)(b) of the Act, it would not provide such a statement until the second court hearing. I was satisfied that ASIC was given a reasonable opportunity to examine the terms of each proposed scheme and the then draft explanatory statement relating to it, as well as to make submissions to the Court about those matters. As already mentioned, some amendments were made to the draft explanatory statement as a result of suggestions by ASIC. [18] As to the implementation of the proposed schemes, the UK company has entered into deeds poll whereby it covenants in favour of shareholders and option holders of the Australian company to perform its obligations under the respective schemes. The Australian company and the UK company have entered into the so-called Implementation Agreement, whereby each agrees to perform their respective obligations under the schemes. [19] As to any risk of non-performance of the UK company, the scheme requires the UK company to issue the relevant shares and options on the implementation date before shares in the Australian company are transferred to it or before the options in the Australian company are cancelled. The shares in the Australian company would be transferred by the Australian company acting on behalf of each shareholder. Clause 4.8 of the proposed share scheme would have the effect of authorising the Australian company to do everything necessary to implement and give effect to the share scheme, including the execution of an instrument of transfer of shares in favour of the UK company. Because the scheme requires this transfer to occur after the provision by the UK company of its consideration for that transfer, it appears to follow that a transfer made without the prior provision, albeit within the same day, of the consideration to be furnished by the UK company, would be unauthorised and ineffective. As discussed at the hearing, consideration might be given to some amendment to the documents to make that yet clearer. Similarly the scheme for option holders provides that their options will be cancelled only once there has been provision by the UK company of the relevant consideration. In the circumstances, I am satisfied that the various documents will together remove any undue risk of non- performance to the detriment of shareholders or option holders. 7 Re Asia Oil & Minerals Ltd (1986) 5 NSWLR 42; Re Kaz Group Ltd [2004] FCA 738 and Re MIA Group Ltd (2004) 50 ACSR 29. -- 8 of 12 -- 9 [20] Within the scheme booklets there are other expert reports. In particular, there are opinions as to the effect of taxation laws of Australia and the United States relevant to the proposed schemes, as well as opinions as to the impact of relevant corporate laws of England, the United States and Canada. There is also a report by Royal Bank of Canada Europe Limited as to the likelihood of the UK company being listed on the main market of the London Stock Exchange. Similarly, there is a report from independent advisers confirming the prospects of a listing on the TSX. [21] There would be some shareholders who would be ineligible to participate in the share scheme. For the most part, they are defined as shareholders with addresses on the registry of the Australian company which are not in Australia, the United Kingdom, New Zealand, the United States of America, Canada or Papua New Guinea, although in some cases, shareholders with addresses outside those countries might be treated a eligible if it is considered that they would be legally competent to be issued with shares by the UK company. Ineligible shareholders would not participate in the sense of receiving shares in the UK company. Instead, their shares would be transferred once the corresponding shares in the UK company have been issued to a nominee on their behalf, who would then sell the shares and remit the proceeds to them. Their circumstances should provide no impediment to the consideration of the share scheme. [22] There was evidence from the financial controller of the Australian company, to whose affidavit was exhibited the company‟s annual report for the year ending 30 June 2010 and its half yearly report for the period ending 31 December 2010. He verified the financial information set out in the share scheme booklet. The material changes to the financial position of the Australian company since 31 December 2010 have already been mentioned. They are the recent capital raising and the possibility of the issues of further options to Mr Harvey. [23] In all the circumstances, I was satisfied each scheme was one which should be allowed to go forward to a meeting. I was also satisfied that the proposed explanatory statement, as amended before the hearing, should be approved. More particularly, I was persuaded to make orders in the terms which appear at the end of these reasons. [24] One other matter should be noted. It was brought to the Court‟s attention that if the schemes are approved, the UK company intends to rely on such approval for the purpose of qualifying for an exemption from the registration requirements of the Securities Act of 1933 (USA), pursuant to s 3(a)(10) thereof, with respect to the issue of the UK company‟s shares to the Australian company‟s shareholders in the United States. Bringing that matter to this Court‟s attention is apparently a condition precedent of the availability of such an exemption. [25] The orders made by me on 4 May were as follows: 1. Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (the Act), the Applicant shall summon and convene a meeting (the share scheme meeting) of its shareholders (the shareholders) for the purpose of considering and, if -- 9 of 12 -- 10 thought fit, resolving (with or without modification) to approve the scheme of arrangement between them and the Applicant substantially in the form set out in the share scheme booklet (the share scheme booklet) included at tab 6 of exhibit FT1 of the affidavit of Frank Terranova sworn 29 April 2011 with the amendments identified in the affidavit of Andrew Rankin filed 4 May 2011. 2. Pursuant to section 411(1) of the Act, the Applicant shall summon and convene a meeting (the option scheme meeting) of holders of options to acquire shares of the Applicant (the optionholders) for the purpose of considering and, if thought fit, resolving (with or without modification) to approve the scheme of arrangement between them and the Applicant substantially in the form set out in the option scheme booklet (the option scheme booklet) included at tab 7 of exhibit FT1 of the affidavit of Frank Terranova sworn 29 April 2011 2011 with the amendments identified in the affidavit of Andrew Rankin sworn 4 May 2011. 3. Upon the articles of association of Allied Gold Mining Plc being changed in accordance with the proposal contained in section 13.7 of the share scheme booklet, the share scheme meeting shall be held on 6 June 2011 at the Hilton Brisbane Hotel, 190 Elizabeth Street, Brisbane in the State of Queensland, at 10.30am (Brisbane Time) or as soon thereafter as is convenient. 4. The option scheme meeting shall be held on 6 June 2011 at the Hilton Brisbane Hotel, 190 Elizabeth Street, Brisbane in the State of Queensland, at 10.00am (Brisbane Time) or as soon thereafter as is convenient. 5. The share scheme meeting shall be convened by sending to the shareholders by ordinary pre-paid post on or before 6 May 2011: i. the share scheme booklet; ii. the notice of share scheme meeting; iii. a proxy form; substantially in the form contained at tab 6 of exhibit FT1 of the affidavit of Frank Terranova sworn 29 April 2011. 6. The option scheme meeting shall be convened by sending to the optionholders by ordinary pre-paid post on or before 6 May 2011: i. the option scheme booklet; ii. the notice of option scheme meeting; iii. a proxy form; substantially in the form contained at tab 7 of exhibit FT1 of the affidavit of Frank Terranova sworn 29 April 2011. 7. The documents identified in paragraph 5: -- 10 of 12 -- 11 i. shall be sent to those shareholders who are recorded in the Applicant‟s register of shareholders, and to each shareholder at the address recorded in respect of that shareholder in the register of shareholders, as at 10.30am on 4 May 2011; ii. shall be deemed to be received in accordance with clauses 26.2 and 26.3 of the constitution of the Applicant as if the documents were notices of a general meeting. 8. The documents identified in paragraph 6: i. shall be sent to those optionholders who are recorded in the Applicant‟s register of optionholders, and to each optionholder at the address recorded in respect of that optionholder in the register of optionholders, as at 10.30am on 4 May 2011; ii. shall be deemed to be received in accordance with clauses 26.2 and 26.3 of the constitution of the Applicant as if the documents were notices of a general meeting. 9. All voting at the share scheme meeting and the option scheme meeting (other than voting on any procedural motion) shall be conducted by poll. 10. A proxy may not vote at the share scheme meeting or the option scheme meeting unless the instrument appointing the proxy is received by 10.30am (Brisbane time) on 4 June 2011 sent to the Applicant at an address nominated by it in the share scheme booklet or the option scheme booklet. 11. Except as otherwise provided for in this order, the constitution of the Applicant shall govern the convening and proceedings of the share scheme meeting and the option scheme meeting as if it was a general meeting of the Applicant, except that: i. paragraphs 11.3, 12.3, 12.8, 12.9 and 12.10 of the constitution of the Applicant shall not apply; ii. the poll (referred to in paragraph 9 above) shall be taken irrespective of whether a majority demands it; and iii. a person‟s entitlement to vote at the meeting will be the entitlement of that person as recorded in the Applicant‟s register of shareholders or the register of optionholders at 10.30am on 4 June 2011. 12. With the exception of regulation 5.6.13, regulations 5.6.12 to 5.6.36A of the Corporations Regulations 2001 shall not apply to the share scheme meeting and to the option scheme meeting. 13. Frank Terranova, or in his absence, Peter Torre shall act as chairman of each of the share scheme meeting and the option scheme meeting and, in the absence of either, the share scheme meeting and the option scheme meeting shall elect some other person as chairman. -- 11 of 12 -- 12 14. The explanatory statements contained in the share scheme booklet and the option scheme booklet, in substantially the form contained in tabs 6 and 7 of exhibit FT1 of the affidavit of Frank Terranova sworn 29 April 2011 with the amendments identified in the affidavit of Andrew Rankin filed 4 May 2011, are approved. 15. The Applicant has liberty to apply. 16. The balance of the Application filed 20 April 2011 is adjourned to 20 June 2011. -- 12 of 12 --