FEDERAL COURT OF AUSTRALIA Rusina Mining NL, in the matter of Rusina Mining [2010] FCA 517 Citation: Rusina Mining NL, in the matter of Rusina Mining NL [2010] FCA 517 Parties: RUSINA MINING NL ACN 009 242 451 File number: WAD 79 of 2010 Judge: BARKER J Date of judgment: 30 April 2010 Catchwords: CORPORATIONS – application pursuant to s 411 Corporations Act 2001 (Cth) for orders convening meeting of shareholders to approve scheme of arrangement and approving explanatory statement – role of the Court – role of 'commercial morality' – disclosure – break fees Legislation: Corporations Act 2001 (Cth) s 9, s 411(1), s 411(2), s 411(2)(a), s 411(2)(b), s412(1)(a), s 412(6), s 412(8), s 636 Federal Court (Corporations) Rules 2000 (Cth) Cases cited: Re ACM Gold Ltd and Mt Leyshon Gold Mines Ltd (1992) 34 FCR 530 Re APN News & Media Ltd (2007) 62 ACSR 400; [2007] FCA 770 Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 Re Bolnisi Gold NL (No 2) (2007) 65 ACSR 510; [2007] FCA 2078 Re Brambles Industries Ltd (2006) 59 ACSR 501; [2006] FCA 1273 Re Central Pacific Minerals NL [2002] FCA 239 Re Crown Diamonds NL (2003) 54 ACSR 46; [2005] WASC 93 Re CSR Ltd [2010] FCAFC 34 Re Hawk Insurance Co Ltd [2002] BCC 300 Re International Gold Fields (2003) 21 ACLC 1199 Re Mincom Ltd (No 3) (2007) 64 ACSR 387; [2007] QSC 207 Re National Can Industries Ltd (No 1) (2003) 48 ACSR 409; [2003] ATP 40 Re NRMA Insurance Ltd (No 1) (2000) 156 FLR 349; [2000] NSWSC 82 Re Seven Network Ltd [2010] FCA 220 Re Stockbridge Ltd (1993) 9 ACSR 637 Re Warwick Resources Ltd [2009] FCA 1231 Date of hearing: 30 April 2010 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 60 Counsel for the Applicant: Mr MJ Feutrill Solicitor for the Applicant: Steinepreis Paganin IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 79 of 2010 IN THE MATTER OF RUSINA MINING NL ACN 009 242 451 RUSINA MINING NL ACN 009 242 451 Applicant JUDGE: BARKER J DATE OF ORDER: 30 APRIL 2010 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The Applicant is to convene a meeting at 10:00 am (WST) on 2 June 2010 ("Scheme Meeting") of each person, except European Nickel PLC, registered as a holder of fully paid ordinary shares issued by the Plaintiff ("Shareholders") for the purpose of considering and, if thought fit, approving (with or without amendment) the proposed scheme of arrangement which is Appendix 2 to the draft scheme booklet and explanatory statement ("Scheme"), being annexure "TMSH-6" to the affidavit of Mr Timothy Marcus Stephen Hanlon sworn on 13 April 2010 ("Scheme Booklet"). 2. The Scheme Meeting is to be convened, held and conducted: 2.1 in accordance with the provisions of Part 2G.2 of the Corporations Act 2001 (Cth) ("the Act") that apply to members of a company and the provisions of the Plaintiff's Constitution that are not inconsistent therewith and that apply to meetings of members; and 2.2 on the basis that Corporations Regulations 5.6.11 to 5.6.36A do not apply to the meeting. 3. Mr Gordon Theodore Getley,or failing him, Mr Robert Gordon Mathews Gregory,is to be appointed to act as Chairman of the Scheme Meeting and report the results of the Scheme Meeting to this Court. 4. The Scheme Booklet, being an explanatory statement required by section 412(1)(a) of the Act, is hereby approved (as amended in the manner described in the affidavit of Mr Timothy Marcus Stephen Hanlon sworn 23 April 2010 and subject to any minor amendments required or approved by ASIC for the purposes of registration thereof under section 412(6) of the Act). 5. Subject to registration of the Scheme Booklet pursuant to section 412(6) of the Act, the Applicant is to dispatch the Scheme Booklet to the Shareholders whose address is in the register maintained by Computershare Investor Services Pty Limited as at 5pm (WST) on 23 April 2010 by ordinary pre-paid post (or by airmail to overseas holders) on or before 3 May 2010. 6. The Applicant is to request the relevant newspapers to insert the attached notice (for the purpose of this order marked "A") in the public notices column of "The Australian" and "The West Australian", such advertisements to be published on or before 21 May 2010. 7. The Applicant has leave to apply, as soon as practicable after the Scheme Meeting, to relist the matter on 9June 2010 at 10.15 am for the hearing of an application for orders under sub-sections 411(4) and (6) of the Act approving the Scheme. 8. If the matter is relisted pursuant to order 7, the Applicant is to request the relevant newspapers to insert the attached notice (for the purpose of this order marked "B") in the public notices column of "The Australian" and "The West Australian", such advertisements to be published on or before 3 June 2010, or otherwise at least five days before any date (other than 9 June 2010) allocated for the hearing of any application for approval of the Scheme. 9. There be liberty for any interested party to apply upon the giving of 24 hours' notice to the ASIC and, where relevant, to the Applicant. 10. The Applicant is to lodge an office copy of these orders with the ASIC as soon as practicable. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 79 of 2010 IN THE MATTER OF RUSINA MINING NL ACN 009 242 451 RUSINA MINING NL ACN 009 242 451 Applicant JUDGE: BARKER J DATE: 30 APRIL 2010 PLACE: PERTH REASONS FOR JUDGMENT order made for first meeting of members 1 Part 5.1 of the Corporations Act 2001 (Cth) (Act) deals with arrangements and reconstructions of a Part 5.1 body. By s 411 the Court can ultimately approve an arrangement. Section 411 envisages three steps: · First, the calling of a meeting of either creditors or members depending on whose rights are to be rearranged. · Second, a vote by those persons. · Third, a further application to the Court for approval of the rearrangement. See Re CSR Ltd [2010] FCAFC 34, at [7]. 2 On 30 April 2010, I ordered a meeting of members of Rusina Mining NL, a Part 5.1 body (the company), pursuant to s 411(1) of the Act. These are the reasons for doing so. (I should also note that on 25 May 2010, I amended the orders made so that advertisement of the meeting was altered to 24 May 2010 for The West Australian and 25 May 2010 for The Australian). general principles 3 I have noted already the power of the Court under s 411(1) of the Act to order a meeting of the members of the company. That provision provides for the Court to order that the meeting be convened in such manner and to be held in such place or places (in this jurisdiction or elsewhere) as the Court directs. Where the Court makes such an order the Court may also approve the explanatory statement required by s 412(1)(a) of the Act to accompany notices of the meeting or meetings. 4 Section 411(2) further provides that the Court must not make an order of this nature unless: (a) 14 days notice of the hearing of the application, or such lesser period of notice as the Court or ASIC permits as been given to ASIC; and (b) the Court is satisfied that ASIC has had a reasonable opportunity: (i) 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 (ii) to make submissions to the Court in relation to the proposed compromise or arrangement and the draft explanatory statement. 5 As noted by the Full Court of this Court, s 411(2) contains a statement of the circumstances in which the first meeting must not be ordered: Re CSR Ltd, at [8]. Section 411 contains no statement of the criteria which must be satisfied before a meeting is ordered, but it is clear that the Court has a discretion to exercise as to whether the first meeting should be ordered: Re Hawk Insurance Co Ltd [2002] BCC 300 at 306 [21]. 6 In Re CSR Ltd, the Court (Keane CJ and Jacobson J at [12], Finkelstein J at [71]) referred favourably to the principles which should guide the exercise of the discretion conferred by s 411(1) as laid out by Emmett J in Re Central Pacific Minerals NL [2002] FCA 239, at [8] – [11], as follows: 8 Those principles require that the Court will not convene a meeting unless the arrangement proposed is of such a nature and is cast in such terms that, if the arrangement receives approval by the statutory majority at the relevant meeting, the Court will be likely to approve the arrangement on the hearing of any application that is unopposed. At the stage of convening a meeting, the Court will give consideration to compliance with such preliminary matters as are relevant to the holding of the meeting. Of paramount importance at that stage is the need to ensure that there will be sufficient disclosure, to those who will be affected by the arrangement, of its details and effect. The Court will also need to be satisfied, at that stage, that there has been reasonable opportunity for the Commission to examine the terms of the arrangement. 9 In exercising its discretion whether to convene a meeting, the Court will have regard to such matters as the acceptability of the documentation of the proposed arrangement, the commercial viability and morality of the arrangement, the likely acceptability of the arrangement, the bona fides of the proposals, whether the proposals could be achieved by another method and any objections or submissions by the Commission. It is always the practice of the Court, at the first stage, to go through the proposed arrangement, to raise matters as to the drafting of the documentation, to ascertain whether the arrangement complies with the substantive requirements of the law and to ensure that the arrangement, if given effect, will not involve any unfair or oppressive result. 10 In considering whether to convene a meeting, the Court will take into account questions of public policy as well as commercial morality. The Court will have regard to the interests of parties who will be bound by the arrangement and who might be careless of their own best interests. While security holders of a company may be considered to be better judges than the Court could be of what is to their commercial advantage, that does not extend to the technical or mechanical aspects of an arrangement. Security holders are likely to be influenced largely by their understanding of the broad economic consequences of an arrangement. However, they are entitled to rely on the Court's approval as a sufficient safeguard against defects at the technical or mechanical level. 11 Accordingly, for the purposes of protecting the interests of security holders who have not agreed to an arrangement and yet will be bound by it, the Court will ordinarily seek to ensure that the terms of the arrangement would be enforceable by all persons bound by it against those who are seeking to implement it or obtain benefits from it. The Court will also seek to ensure that the arrangement does not, without sufficient reason, include provisions that may create inroads upon or modify the benefits that a security holder bound by it might legitimately expect to obtain under it. The mere fact that the Court has convened a meeting does not, however, necessarily mean that the Court will approve the arrangement, even if the arrangement is unopposed at the third stage. 7 In Re CSR Ltd, the question whether the role of "public policy" or "commercial morality" is relevant to the exercise of discretion at the first stage of a s 411 approval process, was the subject of particular consideration by the Full Court. Keane CJ and Jacobson J in their joint judgment, at [64], expressed the view that the discretion to make an order under s 411(1) may properly be exercised in the negative "where the making of the order would be futile because the scheme as proposed is unlikely to be finally approved". It followed, in the opinion of their Honours, that it was not open to the learned primary judge on the facts in that case to refuse an order for convening a meeting of shareholders on the ground that the scheme was bound to be ultimately rejected by the Court: at [66]. 8 Finkelstein J, at [86], plainly desired to express a firmer view concerning the relevance of "commercial morality" at the s 411(1) stage and said that "notions of commercial morality should be jettisoned from the matters to be considered in approving a scheme". Both the joint judgment and that of Finkelstein J were at pains to emphasise that there are a number of reasons why it is not appropriate for the merits of the scheme to be considered at the convening hearing under s 411(1): see Keane CJ and Jacobson J, at [58]; Finkelstein J, at [78]. 9 The reasons of the Full Court in Re CSR Ltd are consistent with the essential propositions concerning the role of the Court at this early stage laid out by Jacobson J in Re Seven Network Ltd [2010] FCA 220, another recent decision of the Court, where his Honour, at [8] – [15], made the following points: · First, it is not for the Court to substitute its commercial judgment for that of properly informed shareholders, hence the emphasis is upon ensuring full disclosure. · Second, the absence of a contradictor sharpens the duty of an applicant and imposes a heavy responsibility of bringing to the Court's attention all matters that could be considered relevant to the exercise of the Court's discretion. · Third, by granting leave to convene the meeting, the Court does not give its imprimatur to the scheme but if the arrangement is one that is fit for consideration by the meeting of shareholders (or creditors) and is a commercial proposition that is likely to gain the Court's approval if passed by the statutory majorities, leave should ordinarily be given. · Fourth, a further factor to be taken into account is that the Court should be satisfied that Australian Securities and Investments Commission (ASIC) has had a reasonable opportunity to examine the proposal. · The report given in December 2009 entitled "Members' Schemes of Arrangement", by the Corporation and Markets Advisory Committee (CAMAC) referred in some detail to the role of the Court and ASIC in this regard and did not suggest that there ought to be a departure from the current practice. · CAMAC observed, in particular, that the bulk and complexity of many scheme documents and the exigencies of time added to the burden of the Court which is necessarily reliant on the diligence of counsel for the applicant. Counsel is required to anticipate the disclosure that is properly required and draw attention to any aspects of the scheme that are "potentially problematic". · CAMAC also pointed out that ASIC does not appear in Court to make submissions at the first Court hearing, unless it opposes the scheme or has concerns about it, but will provide a letter stating whether it proposes to intervene. In addition, ASIC has indicated the circumstances in which it will appear at the hearing in Regulatory Guide 60. · Importantly, the role of ASIC has been referred to by the High Court which has observed that its predecessor, the Australian Securities Commission, had an obligation to assist the Court by presenting argument if it deems that course necessary or desirable. summary of the proposed scheme 10 Here the applicant proposes an arrangement (scheme) for the purpose of effecting a merger between it and European Nickel plc (European Nickel). The applicant is incorporated in Western Australia and is listed on the Australian Securities Exchange (ASX) and the Alternative Investment Market of the London Stock Exchange (AIM). European Nickel is a company incorporated in the United Kingdom and is listed on the AIM. The applicant and European Nickel have entered into a merger implementation agreement as varied by a deed of variation (the MIA). 11 If the scheme is implemented, the members of the applicant who hold ordinary fully paid shares (shareholders) will receive one ordinary fully paid share in European Nickel or one CHESS Depository Interest (CDI) for every five shares held in the applicant, all accounting for the scheme consideration: see cl 4.2 MIA as varied by the deed of variation. European Nickel shares will be tradeable on the AIM and the CDIs will be traded on the ASX. The scheme will result in the applicant becoming a 100% owned subsidiary of European Nickel. The scheme consideration is secured by a Deed Poll entered into by European Nickel: see cl 9.1 scheme. 12 In addition to ordinary fully paid shares, the applicant has on issue various options. The holders of these options (option holders) are not directly included in the scheme. 13 It is a condition precedent to completion of the scheme that all options are exercised, acquired or cancelled under arrangements entered into with European Nickel. Option holders who enter into a option holder agreement will receive European Nickel shares as consideration for the transfer or cancellation of their options. Thus, if the scheme is implemented option holders will participate indirectly in the scheme. 14 There are a number of other conditions precedent to completion of the scheme: MIA cl 3.1; deed of variation cl 2. 15 It should also be noted that in relation to the trading of the shares on the AIM or the ASX or the provisions relating to option holders, the conditions precedent may be waived at the election of European Nickel. 16 It is also noted that there is a formula that, depending on any increased value in the equity of European Nickel, may see a fall in the ratio of European Nickel shares pursuant to the scheme from 5:1 to 4:1. technical requirements 17 I am satisfied that the scheme is an arrangement in respect of which the Court may order a meeting of the applicant's members pursuant to s 411(1). 18 First, the scheme as proposed would appear to fall within the concept of an "arrangement", which has been given a liberal meaning by the authorities: see Re ACM Gold Ltd and Mount Leyshom Mines Ltd (1992) 34 FCR 530 (Re ACM Gold), at 533 -535; Re NRMA Insurance Ltd (No 1) (2000) 156 FLR 349; [2000] NSWSC 82, at [20] (NRMA (No 1)). 19 The scheme does not appear to be prevented by the applicant's constitution. 20 There is no suggestion of an improper purpose before the Court, or lack of bona fides. 21 That the proposed merger could possibly be achieved by a direct takeover by European Nickel is not, I consider, a disentitling factor, certainly at this point. I refer to that matter further below. 22 There is no doubt the applicant is a "Part 5.1 body", as that expression is defined in s 9 of the Act to mean "a company or a registrable body that is registered under Div 1 or 2 of Part 5B.2". 23 The applicant only has one class of share on issue – ordinary fully paid shares. 24 European Nickel holds ordinary shares in the applicant, but has been excluded from the class of members to which the meeting relates. All holders of ordinary fully paid shares are to be treated as members of a single class. 25 As noted above, option holders exist but it is a condition precedent to completion of the scheme, albeit one that can be waived by European Nickel, that options are either exercised prior to implementation of the scheme or that they are acquired or cancelled under agreements to be entered into between European Nickel and the option holders before implementation of the scheme. Under these terms, option holders will effectively participate in the scheme as they will receive shares in European Nickel if they exercise the option (as they will then participate in the scheme as members of the applicant) or under the terms of any other agreement entered into with European Nickel. 26 As to other formalities, at least 14 days notice of the hearing was given to ASIC, as required by s 411(2)(a) of the Act. An ASIC company search of the applicant had been carried out no earlier than seven days before the originating process was filed, a copy of which was annexed to the affidavit of Timothy Marcus Stephen Hanlon, sworn 13 April 2010 in support of the originating process, in accordance with r 2.4 of the Federal Court (Corporations) Rules 2000 (Cth). The names of persons nominated as chairperson and alternate chairperson for the proposed meeting has been dealt with in accordance with r 3.2 of those rules. ASIC notice 27 ASIC has been given appropriate notice of the application and has provided the applicant's solicitors with written advice indicating that it does not intend to appear at the hearing and make submissions. I am satisfied that ASIC has had reasonable time to examine the terms of the scheme and make submissions. The requirements of s 411(2)(b) are therefore, in my view, satisfied. explanatory statement – disclosure 28 The explanatory statement is required to: · explain the effect of the scheme, the material interests of the directors and the effect of the scheme on those interests of the scheme insofar as that effect is different from the effect on the like interests of other persons; and · set out such information as is prescribed in any other information that is material to the making of a decision by a creditor or a member whether or not to agree to the compromise arrangement, being information that is within the knowledge of the directors and has not previously disclosed to the creditors or members. 29 In addition, the applicant is not permitted to send out the scheme booklet unless a copy of it has been registered with ASIC: s 412(6). ASIC is not permitted to register the scheme booklet unless it appears to comply with the Act and ASIC is of the opinion it does not contain any matter that is false in any material particular or materially misleading in the form or context in which it appears: s 412(8). 30 As noted, ASIC has not made any submissions in relation to this application. scheme booklet – disclosure issues 31 The scheme booklet appears to contain the information that may be regarded as material for the making of a decision by a member of the company. I accept that the applicant has taken the view that the level of disclosure given should be and is similar to that which would be required under Ch 6 of the Act in the case of a scrip‑for‑scrip takeover offer: see NRMA (No 1), at [16]. 32 The scheme checklist includes cross references to s 636 (bidders statement, under Ch 6) and where that information is to be found in the scheme booklet. 33 The applicant has also included an independent expert's report on the merits of the application in the scheme booklet. I will return to the terms of that report shortly. 34 The independent expert's report has been prepared in conformity with ASIC Regulatory Guide 111 (Content of Expert Reports) and Regulatory Guide 112 (Independence of Experts). 35 To the extent that there is material information previously published by either the applicant or European Nickel not contained in the scheme booklet, the scheme booklet directs members to the places where they may obtain that information. 36 I am satisfied that the scheme booklet meets the requirements of s 412(1)(a) of the Act. 37 The affidavit of Timothy Marcus Stephen Hanlon, made 13 April 2010, also deposes to the fact that he and the directors of the applicant consider the contents of the scheme booklet to be accurate insofar as statements of fact relate to the applicant and that he has no reason to believe that statements of fact relating to European Nickel are inaccurate. In a further affidavit of Mr Hanlon, made 23 April 2010, and the affidavit of Matthew Richmond Hawtin, made 23 April 2010, the deponents give evidence of the applicant undertaking a due diligence process for the purpose of verifying the accuracy of the statements in the scheme booklet and that the applicant intends to correct any errors discovered in that process before the scheme booklet is sent to members. 38 In all of these circumstances, I am satisfied that on the face of it the scheme booklet as it is proposed to be amended gives proper disclosure that there is nothing misleading or deceptive in any material sense in it. Particular matters brought to the attention of the court by the applicant 39 The applicant highlights the fact that an independent expert's report has been provided and is attached to the scheme booklet. It concludes that while the scheme is not fair (because of the value of the scheme consideration) it is reasonable (because of various potential benefits that may flow in the longer term from the merger). Therefore the scheme is in the best interests of the shareholders. 40 In my view, the analysis contained in the expert report is appropriately detailed and provides necessary explanation to readers of it. 41 Counsel for the applicant points out that in some cases courts have been reluctant to order convening a meeting where there is little or no security for the consideration to be paid for the securities the subject of an arrangement. However, in this case as the scheme consideration is shares in European Nickel, which will only be issued if approved by the current European Nickel shareholders and that approval is a condition precedent to the completion of the scheme, there is no significant performance or credit risk. I accept that would appear to be so: see Re Brambles Industries Ltd (2006) 59 ACSR 501; [2006] FCA 1273, at [9]. 42 Counsel for the applicant also draws attention to the exclusivity provisions in the MIA, which prevent the applicant's directors from soliciting alternate proposals: see MIA cl 8.1 – 8.5. 43 A number of cases have considered that exclusivity provisions should satisfy the following concerns at the first stage of convening meetings: · The period should be no more than a reasonable period capable of precise ascertainment. · They should be framed so that they are subject to an overriding obligation not to breach the directors' fiduciary duties or otherwise be unlawful. · There should be an adequate prominence given to the constraint in the explanatory statement. See Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40, at [9]; Re APN News & Media Ltd (2007) 62 ACSR 400; [2007] FCA 770 (APN News), at [29] – [35], [55]; Re Warwick Resources Ltd [2009] FCA 1231, at [11]. 44 In my view, the exclusivity provisions generally satisfy these criteria in this case. 45 I note that the provisions were included after what appear to be arms length negotiations and consideration and deliberations to their merit by the directors of the applicant. 46 The exclusivity period is for six months. The applicant says in practice the period will in fact be less. That is, the period up to the date of any meeting. Periods of similar length have been regarded as reasonable in other cases, such as APN News, at [31]. I do not consider the six month period to count against the making of the order in this case. 47 The exclusivity provisions contain directors' fiduciary duty qualifications: see MIA cl 8.4. In any event, the exclusivity provisions do not prevent the applicant from dealing with unsolicited proposals. However, the applicant is required to give European Nickel notice of such proposals and an opportunity to match them: see MIA cl 8.3. 48 Adequate prominence is given to the exclusivity provisions in the scheme booklet at 9.2. 49 The next matter that counsel drew particular attention to was the break fee provisions in the MIA. Under these, the applicant is liable to pay European Nickel US$250,000 in certain circumstances. Likewise, European Nickel is liable to pay the applicant US$250,000: see MIA cl 9.1 – 9.6. 50 Counsel for the applicant submits the applicant's break fee provision is in part a "naked" break fee. A break fee may be described as "naked" where it is payable if the scheme is not approved by the applicant's shareholders: see Re Bolnisi Gold NL (No 2) (2007) 65 ACSR 510; [2007] FCA 7078 (Re Bolnisi), at [2]. Here however the break fee is only partially naked because it is only triggered in circumstances where the shareholders vote against the scheme notwithstanding that an independent expert has opined that the scheme is in the best interest of the shareholders: MIA cl 9.3(e). While the break fee provisions are reciprocal in some respects, they are not reciprocal naked break fees, that is if European Nickel's shareholders fail to approve the resolutions necessary to give effect to the scheme this will not trigger European Nickel's obligation to pay the break fee. 51 While reciprocity may be a basis for considering that a naked break fee does not operate unfairly – in this respect, it was one of the considerations taken into account in Re Bolnisi – counsel for the applicant submits that the absence of reciprocity does not suggest a naked break fee is unfair. In this a naked break fee is essentially the price of buying the opportunity for the applicant's shareholders, which is akin to an option: see Re Bolnisi, at [14]; Re National Can Industries Ltd (No 1) (2003) 48 ACSR 409: [2003] ATP 40 (Takeovers Panel), at [42], [51]. An option should not be considered per se an unfair transaction, nor should a naked break fee be so considered. Counsel submits that the most important consideration is whether the break fee is excessive. That is, whether it operates as a penalty or is likely to coerce the shareholders to vote in favour of the scheme, as discussed in Re Bolnisi, at [12]. In the context of takeovers, a break fee of less than 1% of the equity value of a company is not considered likely to be coercive: Takeovers Panel Guidance Note 7, [8]; APN News, at [49] – [55]; Re Bolnisi, at [39]. 52 In this case, I am satisfied on the face of it that the break fee payable by the applicant is not excessive and accept the submissions of counsel in this regard, namely that: · the break fee was negotiated at arms length; · the applicant's directors gave consideration to the break fee provisions and determined the risk of paying it was reasonable, having regard to the benefits of the scheme; · the applicant's directors have negotiated a partially reciprocal break fee provision; · the amount of the fee appears to be a genuine pre‑estimate of the costs likely to be wasted if the scheme is not implemented; and · the break fee is less than 1% of the equity value of the applicant as at the date the MIA was executed. 53 In these circumstances, I consider the break fee does not provide a basis for refusing to allow the shareholders to vote on merits of the scheme. 54 Similarly, I do not consider that cl 9.3(c) and (d) of the MIA should be considered to have this effect. Counsel for the applicant drew attention to the fact that these provisions of the MIA also trigger the break fee. Clause 9.3(c) provides that: Any of the Rusina directors fail to recommend the scheme or withdraw, revise, revoke or qualify a recommendation previously made. Clause 9.3(d) provides: Any of the Rusina directors do not exercise any votes attached to any Rusina share which he or she holds or controls in favour of the scheme at the scheme meeting. 55 I accept that these provisions, which may be considered to have a coercive element to them, do not oblige a director as a director or in the personal exercise of a share vote, to act in a way which requires them to breach any duties they have at law. Further, the provisions are clearly there in the scheme booklet for all to see and may be the subject of comment by any member at the convened meeting. In other words, the commerciality of the scheme proposal is fully disclosed for consideration by members at a convened meeting. 56 Finally, I am not satisfied that there is any basis upon which I should consider that, if approved by members at a meeting, the Court would be unlikely to grant final approval to the scheme. The purpose of the scheme 57 I mention above that there is a question whether the objectives of the parties could not or should not have been achieved pursuant to a takeover made under Ch 6 of the Act. 58 The applicant says that if the merger were to be implemented by way of an offer under a takeover bid it would be unlikely that all shareholders would accept it, and therefore assuming that 90% of shareholders accept it, it would be necessary to use the compulsory acquisition provisions of Ch 6A to obtain 100% ownership of the applicant. The scheme instead offers a single process through which the objectives of the scheme will be achieved, while a takeover under Ch 6 is likely to be the first of a two stage process. The applicant submits that where there is a feature of the scheme that cannot, or cannot necessarily, be achieved in a takeover under Ch 6, a specific intention to avoid the operation of a provision of Ch 6 should not be inferred, from a party's desire to take advantage of a perceived or actual procedural advantage of effecting a merger under Part 5.1, rather than a takeover under Ch 6: see for example, Re ACM Gold, at 542 – 543; Re Stockbridge Ltd (1993) 9 ACSR 637, at 652 ­– 653; Re International Gold Fields (2003) 21 ACLC 1199, at [20] ­– [28]; Re Crown Diamonds NL (2005) 54 ACSR 46; [2005] WASC 93, at 47 – 51. However, counsel for the applicant notes that in Re Mincom Ltd (No 3) (2007) 64 ACSR 387; [2007] QSC 207, at [57], [79], Fryberg J inferred a specific purpose to avoid the operation of s 650C from a general intention to effect a merger with great certainty of timing. Counsel for the applicant would distinguish Mincom (No 3) on the facts, and in any event submits that it is against the weight of authority. 59 In my view, this is not an issue that need be determined at this stage of the arrangement approval process. There is insufficient evidence at this point for that question to be resolved. I am satisfied that this is not an issue that, in effect, requires the arrangement approval process to be "stopped in its tracks". conclusion and order 60 For the reasons given above, I am satisfied that the Court should give its approval under s 411(1) to convene a meeting of members to consider the arrangement proposed and the orders sought by the applicant in its minute, dated 28 April 2010, should be made. I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker Associate: Dated: 30 April 2010