FEDERAL COURT OF AUSTRALIA Talison Lithium Limited, in the matter of Talison Lithium Limited [2012] FCA 1422 Citation: Talison Lithium Limited, in the matter of Talison Lithium Limited [2012] FCA 1422 Parties: TALISON LITHIUM LIMITED (ACN 140 122 078) File number: WAD 275 of 2012 Judge: SIOPIS J Date of judgment: 25 October 2012 Catchwords: CORPORATIONS – schemes of arrangement – approval for the holding of scheme meetings Legislation: Corporations Act 2001 (Cth) Ch 2E, ss 210, 260A(1), 411(1) Cases cited: Re Hills Motorway Ltd (No 4500/02) (2003) 43 ACSR 101 Date of hearing: 25 October 2012 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 20 Counsel for the Plaintiff: Mr SK Dharmananda SC Solicitor for the Plaintiff: Clayton Utz Counsel for Rockwood Holdings Inc: Mr RW Douglas IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 275 of 2012 IN THE MATTER OF TALISON LITHIUM LIMITED (Acn 140 122 078) TALISON LITHIUM LIMITED (ACN 140 122 078) Plaintiff JUDGE: SIOPIS J DATE OF ORDER: 25 OCTOBER 2012 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. Pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act): (a) the plaintiff, Talison Lithium Limited (Talison) convene a meeting (Share Scheme Meeting) of the holders of ordinary shares in Talison (the Talison Shareholders), for the purpose of considering and, if thought fit, approving a scheme of arrangement (with or without modification) proposed to be made between Talison and Talison Shareholders (Share Scheme), the terms of which are contained at Annexure D to the scheme booklet containing the explanatory statement in relation to the share scheme which is annexure PRO1 in these proceedings (the Scheme Booklet); (b) the Share Scheme Meeting is to be held on Thursday, 29 November 2012 at 10.00 am (Perth time) at the Duxton Hotel, 1 St Georges Terrace, Perth, Western Australia; (c) Peter Charles Robinson or, failing him, Peter Robert Oliver, act as chairperson of the Share Scheme Meeting and report the result of the Share Scheme Meeting to this Court; (d) the chairperson has the power to adjourn the Share Scheme Meeting for such time that the chairperson considers appropriate; and (e) a Talison Shareholder with a registered address otherwise than in Australia (Other Talison Shareholder) may appoint more than 2 proxies in respect of the Share Scheme Meeting. If an Other Talison Shareholder appoints more than 2 proxies, the appointment must specify the number of the Other Talison Shareholder's votes each proxy must exercise otherwise the appointment will be discharged. 2. Pursuant to s 411(a) of the Act: (a) Talison convene a meeting (Option Scheme Meeting) of the holders of options to acquire ordinary shares in Talison (the Talison Optionholders), for the purpose of considering and, if thought fit, approving a scheme of arrangement (with or without modification) proposed to be made between Talison and Talison Optionholders (Option Scheme), the terms of which are contained in Annexure F of the scheme booklet; (b) the Option Scheme Meeting be held on Thursday, 29 November 2012 at 10.30 am (or, if later, immediately following the conclusion of the Share Scheme Meeting) at the Duxton Hotel, 1 St Georges Terrace, Perth, Western Australia; (c) Peter Charles Robinson or, failing him, Peter Robert Oliver, act as chairperson of the Option Scheme Meeting; and (d) the chairperson have the power to adjourn the Option Scheme Meeting for such time that the chairperson considers appropriate. 3. The explanatory statement in the Scheme Booklet is approved for distribution to Talison Shareholders and Talison Optionholders. 4. Pursuant to s 1319 of the Act, r 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) shall not apply to the Share Scheme Meeting or the Option Scheme Meeting (the Scheme Meetings), except in so far as that rule applies regulation 5.6.13 of the Corporations Regulations 2001 (Cth) to the Scheme Meetings. Subject to these Orders and pursuant to s 1319 of the Act, each Scheme Meeting is to 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 Talison's constitution that are not inconsistent therewith and that apply to meetings of members, provided that at the Option Scheme Meeting each Talison Optionholder will have voting power commensurate with the value of their Talison Options as provided for in section 6.5 of the Scheme Booklet; (b) convened, held and conducted on the basis that Corporations Regulations 5.6.12 and 5.6.14 to 5.6.36A do not apply to the meeting; and (c) convened using the notices of meeting in the form or to the effect of the notices contained in Annexures H and I of the Scheme Booklet. 5. Subject to registration of the Scheme Booklet with the Australian Securities and Investments Commission (ASIC) pursuant to s 412(b) of the Act, Talison is to despatch to each Talison Shareholder and each Talison Optionholder with a registered address in Australia (Australian Holder): (i) a document substantially in the form of the Scheme Booklet; (ii) a proxy form; and (iii) a reply-paid (for use in Australia only) envelope addressed to Computershare Investor Services Pty Limited, by ordinary pre-paid post from Australia addressed to the relevant address set out in the Talison register of members. 6. Subject to registration of the Scheme Booklet with ASIC pursuant to s 412(b) of the Act, Talison is to dispatch to each Talison Shareholder and each Talison Optionholder with a registered address otherwise than in Australia (Non-Australian Holder): (i) a document substantially in the form of the Scheme Booklet; (ii) a proxy form; and (iii) a reply-paid (for use in Canada only) envelope addressed to Computershare Investor Services Inc, by: (iv) ordinary pre-paid post to each Non-Australian Holder with a registered address in Canada; and (v) pre-paid airmail or air courier to each Non-Australian Holder with a registered outside Canada, in each case from Canada addressed to the relevant address set out in the Talison register of members. 7. Despatch of the documents referred to in paragraphs 5 and 6 of these Orders in accordance with the delivery methods stated therein on or before 6 November 2012 is to be taken to be sufficient notice of the Scheme Meetings. 8. The time by which Talison Shareholders and Talison Optionholders must return their proxy forms for the Share Scheme Meeting and the Option Scheme Meeting (the Scheme Meetings) respectively be 12 noon (Perth time) on 27 November 2012. 9. All voting at the Share Scheme Meeting and the Option Scheme Meeting (the Scheme Meetings) be by poll declared by the chairperson. 10. If the matter is relisted, the plaintiff is to give notice of the hearing of the application pursuant to s 411(4) of the Act and that notice be published once in "The Australian" newspaper by an advertisement substantially in the form of "Annexure A" to these Orders, such advertisement to be published on or before 30 November 2012 and Talison be otherwise exempted from compliance with r 3.4 of the Federal Court (Corporations) Rules 2000 (Cth). 11. The proceeding be adjourned to 4 December 2012 at 10.15 am for hearing of any application to approve the Share Scheme and Option Scheme. Annexure A Talison Lithium Limited Notice of Hearing to Approve Schemes of Arrangement pursuant to section 411 of the Corporations Act 2001 (Cth) To all members and optionholders of Talison Lithium Limited ACN 140 122 078 (Talison) TAKE NOTICE that at 10.15 am on 4 December 2012, the Federal Court of Australia at Peter Durack Commonwealth Law Courts Building, 1 Victoria Avenue, Perth WA 6000 will hear an application by Talison seeking the approval of: (a) the arrangement between Talison and its ordinary shareholders, if agreed to by a meeting of ordinary shareholders to be held at the Duxton Hotel, 1 St Georges Terrace, Perth, Western Australia at 10.00 am (Perth time) on 29 November 2012 and (b) the arrangement between Talison and its optionholders, if agreed to by a meeting of optionholders to be held at the same address at 10.30 am (Perth time) (or immediately following the conclusion of the meeting of ordinary shareholders) on 29 November 2012. If you wish to oppose the approval of the above arrangements, you must file and serve on Talison a Notice of Appearance, in the prescribed form, together with any Affidavit on which you wish to rely on at the hearing. The Notice of Appearance and Affidavit must be served on Talison at its address for service by no later than 5.00 pm on 3 December 2012. The address for service of Talison is c/- Clayton Utz, Level 27, QV.1 Building, 250 St Georges Terrace, Perth WA 6000 (Reference: Heath Lewis) Facsimile: 08 9481 3095 Email: hlewis@claytonutz.com A copy of the Scheme Booklet is available at www.talisonlithium.com. ________________________________ Company Secretary Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 275 of 2012 IN THE MATTER OF TALISON LITHIUM LIMITED (Acn 140 122 078) TALISON LITHIUM LIMITED (ACN 140 122 078) Plaintiff JUDGE: SIOPIS J DATE: 25 OCTOBER 2012 PLACE: PERTH REASONS FOR JUDGMENT 1 This is an application by Talison Lithium Limited (Talison), for orders under s 411(1) of the Corporations Act 2001 (Cth) for the convening of meetings to consider, and if thought fit, approve two schemes of arrangement. The first scheme of arrangement is between the company and its members. The second scheme of arrangement is between the company and its option holders. 2 Talison is a public company which is incorporated in Australia. It carries on lithium exploration and extraction and operates mining projects in the Greenbushes area in the south-west of Western Australia. The company's shares are listed on the Toronto Stock Exchange. 3 The members' scheme of arrangement is quite straightforward. It is proposed that a wholly owned subsidiary of Rockwood Holdings Inc will acquire all the shares in Talison for a scheme consideration of CAD6.50 per share. Rockwood Holdings Inc is an American company whose shares are listed on the New York Stock Exchange. The Australian subsidiary which has been incorporated to acquire the shares of the Talison shareholders under the scheme of arrangement is Rockwood Lithium Australia Pty Ltd (Rockwood). Talison will become a wholly owned subsidiary of Rockwood Holdings Inc, and it will be delisted from the Toronto Stock Exchange. 4 The proposed scheme consideration is above the share price at which the Talison shares were trading at the time of the announcement of the proposed bid by Rockwood. Further, there is expert evidence that based on a valuation of Talison and its shares, the proposed scheme consideration is said to be fair. 5 Under the proposed option holders' scheme of arrangement, Rockwood will acquire the options held by the option holders for the scheme consideration less the exercise price of the options. There is a complication with the option scheme of arrangement arising from the fact that the options relate to Talison shares which are held in a trust called the Talison Long Term Incentive Plans Trust. I will say something more about this later. 6 There is only one class of members and one class of option holders. 7 In the case of Re Hills Motorway Ltd (No 4500/02) (2003) 43 ACSR 101 at [5], Barrett J observed as follows: The task of the court, in deciding whether to make orders under s 411 convening a meeting of members, has been expressed in various ways. According to the formulation adopted by Santow J in Re NRMA Insurance Ltd (2000) 33 ACSR 523, the court must see, on the material placed before it, that the proposal fits within the statutory concept of arrangement or compromise, that there will be available to members all the main facts relevant to the exercise of their judgment, that ASIC has had a reasonable opportunity to examine the proposal and that the scheme is so conceived and presented as to that structure, purpose and effect that there is no apparent reason, so far as can be foreseen, why it should not, in due course, receive the court's approval if the necessary majority of members' votes is achieved. To substantially similar effect are the recent observations of Austin J in Re GIO Building Society Ltd and Australian Securities and Investments Commission (2001) 39 ACSR 77, French J in Re Foundation Healthcare Ltd (2002) 42 ACSR 252 and Parker J in Re Ranger Minerals Ltd; Ex parte Ranger Minerals Ltd (2002) 42 ACSR 582. 8 I am satisfied that each of the schemes of arrangement falls within the meaning of an arrangement. Further, one of the documents which has been filed by Talison, as part of a well presented application, is a checklist referring to those parts of the evidence and those parts of the scheme booklet which demonstrate that there has been compliance with the Corporations Rules and Corporations Regulations and that there has been adequate disclosure of the material facts in the scheme booklet. 9 The next question is whether the Australian Securities and Investment Commission (ASIC) has been informed of the application and has had an opportunity to peruse the proposed scheme booklet and the schemes of arrangement. I have been informed by senior counsel that ASIC and the solicitors for the proponent of the schemes have engaged in a process of consultation and negotiation in respect of the scheme booklet. There is, also, in the evidence before me, a letter from ASIC of 24 October 2012, which is in the usual form, saying that it does not intend, at this stage, to appear to oppose the making of the orders today but reserves its right to appear at the second hearing. 10 Senior counsel for Talison has also drawn my attention to a number of provisions in the Scheme Implementation Agreement (the implementation agreement). 11 Clause 9 of the implementation agreement deals with the exclusivity arrangements, described as the "no shop, no talk and no due diligence" arrangements. The Court's concern with clauses of this kind is to see that they do not disadvantage the shareholders by unduly restricting the directors of a target company from considering competing offers. 12 There is no objection, in my view, to these particular provisions. First, the exclusivity period is for a maximum of just over five months and expires in January 2013 at the latest. I am content with that. Secondly, cl 9 has what is called a "fiduciary duty carve out", in acceptable terms. I am, therefore, content, if the schemes of arrangement are approved at the meetings that the "no shop, no talk, no due diligence" provisions would not stand in the way of the approval of the schemes by the Court. 13 The next provision of the implementation agreement to which counsel drew my attention was the break fee provision, which provides for the payment by Talison of a break fee of CAD7 million in certain circumstances. 14 The break fee is not payable simply because the members choose to vote against the scheme of arrangement. Further, the amount of the break fee is less than 1% of the equity value of Talison. It is within the guidelines set out in the Takeover Panel Guidance Note 7 on Lockup Devices. So I do not regard the break fee provision as a provision which would prevent the approval of the schemes at the second hearing, were there requisite majorities to be obtained. 15 My attention was also drawn to the fact that there are provisions relating to the option holders' scheme of arrangement, which raises potential issues under s 260A(1) of the Corporations Act in relation to the question of the giving of financial assistance, and under Ch 2E of the Corporations Act in relation to the provision of related party benefits. 16 The option holders' scheme contemplates that Talison will make an advance to each option holder of the amount required to exercise each option to acquire Talison shares, in anticipation of transferring those shares to Rockwood. Each option holder will then owe a debt to Talison. Rockwood has, however, agreed to acquire that debt from Talison and that debt will be set off against the amount payable by Rockwood to the option holder as the scheme consideration. There will then be a receivable from Rockwood to Talison. There is an expert opinion from Ernst & Young to the effect that Talison will not be prejudiced by entering into that arrangement, and, that in particular, Talison will still be able to pay its creditors and the shareholders will not be adversely affected either. So at least at this stage, and on the evidence and submissions currently before me, I do not see that the provisions of s 260A(1) of the Corporations Act will constitute a prohibition against the approval of the schemes should the schemes get the requisite majorities at the meetings. 17 The loan arrangements which are part of the option holders' scheme will apply to the directors of Talison and so invoke the related party financial benefit provisions of the Corporations Act. Senior counsel has drawn my attention to s 210 of the Corporations Act which provides an exception to the requirement of member approval for related party financial benefits, when the transaction was entered into at arm's length. Senior counsel has also referred to the evidence from Mr Oliver that these arrangements - which apply not only to the directors, but to all option holders - have been negotiated at arm's length. There is expert evidence to similar effect from Ernst & Young. Again, on the evidence and the submissions before me today, I do not see the provisions in Ch 2E of the Corporations Act precluding approval of the schemes in the event that the requisite majorities are obtained. It will always be open, of course, to anyone, including ASIC, to object at the second hearing, to the approval of the schemes by the Court on the grounds that there are aspects of the schemes that contravene the Corporations Act. 18 Senior counsel has also referred me to some of the other issues which are frequently addressed, namely, performance risk and the transfer of the shares and options with clear title. I am content with the provisions in each of the schemes relating to those matters. 19 As to the question of whether the schemes are fair and reasonable, this is something which will be considered at the second hearing. At this stage, I am content to rely on the fact that the experts have come to the view that the schemes are fair and reasonable. So I do not, at this stage, see this issue as being an impediment to approval of the schemes at the second hearing. 20 I will, accordingly, make the orders which are sought today. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate: Dated: 13 December 2012