FEDERAL COURT OF AUSTRALIA Xceed Resources Ltd, in the matter of Xceed Resources Ltd [2014] FCA 170 Citation: Xceed Resources Ltd, in the matter of Xceed Resources Ltd [2014] FCA 170 Parties: XCEED RESOURCES LTD (ABN 79 009 181 006) File number: WAD 438 of 2013 Judge: GILMOUR J Date of judgment: 6 February 2014 Catchwords: CORPORATIONS – scheme of arrangement – s 411 of the Corporations Act 2001 (Cth) – procedural irregularity cured – expert report concluded scheme not fair but reasonable – best interests of shareholders – exemption granted pursuant to s 411(12) – scheme approved. Legislation: Corporations Act 2001 (Cth) ss 411(4)(b), 411(6), (11), (12), (17), 1322(2) Cases cited: Investorinfo Limited (ACN 088 838 779), in the matter of Investorinfo Limited (ACN 088 838 779) [2005] FCA 1848 Date of hearing: 6 February 2014 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 11 Counsel for the Plaintiff: Mr A J Papamatheos Solicitor for the Plaintiff: Steinepreis Paganin IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 438 of 2013 IN THE MATTER OF XCEED RESOURCES LTD (ABN 79 009 181 006) XCEED RESOURCES LTD (ABN 79 009 181 006) Plaintiff JUDGE: GILMOUR J DATE OF ORDER: 6 FEBRUARY 2014 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. Pursuant to section 411(4)(b) of the Corporations Act 2001 (Cth) (Corporations Act) the scheme of arrangement between the plaintiff and its members, a copy of which is annexed to the second affidavit of Peter Christopher Wall sworn on 13 December 2013, and being part of annexure "PCW-7" at pages 50-64, is approved. 2. Pursuant to section 411(12) of the Corporations Act, the plaintiff is exempted from compliance with section 411(11) of the Corporations Act, in relation to the scheme of arrangement referred to in order 1. 3. The plaintiff is to lodge an office copy of these orders with the Australian Securities and Investments Commission on 7 February 2014 or, in any event, as soon as practicable thereafter. 4. These orders be entered forthwith. 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 438 of 2013 IN THE MATTER OF XCEED RESOURCES LTD (ABN 79 009 181 006) XCEED RESOURCES LTD (ABN 79 009 181 006) Plaintiff JUDGE: GILMOUR J DATE: 6 FEBRUARY 2014 PLACE: PERTH REASONS FOR JUDGMENT 1 I delivered an ex tempore judgment in this matter on 6 February 2014 although I reserved the right to edit these reasons. These are my reasons, edited, but not so as to alter the substance of the reasons. 2 This is an application for orders approving a scheme of arrangement between the plaintiff, Xceed Resources Limited (Xceed), and its members under s 411(4)(b) of the Corporations Act 2001 (Cth) and exempting Xceed pursuant to s 411(12) from compliance with the requirements of s 411(11). The scheme involves all of the issued fully paid shares in the capital of Xceed being transferred to Keaton Energy Holdings Limited (Keaton Energy) in accordance with Part 5.1 of the Corporations Act. 3 I have before me the several affidavits identified in para 6 of the plaintiff's written outline of submissions, including that of Mr Cameron Bill sworn 6 February 2014 and which was foreshadowed in those submissions. The law generally applicable to such applications is well established and it is set out acceptably in the plaintiff's written submissions. An irregularity – the Venmyn Deloitte report 4 It was contemplated by Xceed and the Australian Securities and Investments Commission (ASIC) that the Venmyn Deloitte report, which was the valuation of the mineral assets of Xceed, would be included in the scheme booklet. However, the version of the scheme booklet referred to in the orders made by the Court on 16 December 2013 did not include this report. The amendments and inclusions listed in Order 2(a)-(c) should have included a reference to that report, as was included in the earlier version of the scheme booklet. This procedural irregularity will be validated or cured automatically under s 1322(2) of the Corporations Act unless the Court orders otherwise. ASIC considered the report integral to the scheme booklet. The report was for the purpose of the shareholders being able to verify the value of the assets of Xceed. The Court had regard to it at the first court hearing. It was included in the scheme booklet that was sent to shareholders. In the circumstances, I am satisfied that there is no reason why the irregularity should not be automatically cured under that provision. 5 The plaintiff also sought at the hearing a minor amendment to the scheme, although the scheme put to the shareholders at the second meeting did not self-evidently contain that amendment. It concerns the definition of "Scheme Implementation Deed". 6 The plaintiff seeks an amendment to introduce to the definition the words, after "2013" when it first appears in the definition, "as amended by an amendment deed dated 20 November 2013". Despite not being contained in the scheme which was put to the meeting of shareholders, the fact of the amendment deed was known to them. It was contained in the scheme booklet which is the booklet which was approved by ASIC. It is an amendment of the kind which the Court is empowered to permit under s 411(6): see Investorinfo Limited (ACN 088 838 779), in the matter of Investorinfo Limited (ACN 088 838 779) [2005] FCA 1848 at [6]-[7], and cases there cited. It will effect no substantive change to the scheme of arrangement and I would permit the amendment. Section 411(17) of the Corporations Act 7 The Court's approval of the scheme is dependent upon fulfilment of one of two alternative conditions set out in s 411(17) of the Corporations Act. In this case, the second alternative, that ASIC has provided a written statement to the effect that it has no objection to the scheme, has been satisfied. There is no evidence to suggest that the scheme has been proposed for the proscribed purpose of avoiding the operation of Ch 6 of the Corporations Act, nor is there evidence before the Court that the shareholders voting in favour of the scheme have acted other than in good faith or in pursuit of any illegitimate or improper purpose. The Court generally takes the view that the members are the best judges of whether an arrangement is to their commercial advantage and will be reluctant to make a decision contrary to the views expressed at meetings. Proof of the relevant statutory majorities is sufficient to establish prima facie evidence of fairness. Xceed's shareholders have voted in favour of the scheme with the requisite majorities at the scheme meeting. Further, the report prepared by RSM Bird Cameron Corporate Pty Ltd, as the independent expert, and which is contained in the scheme booklet, concluded that the scheme, whilst not fair, is reasonable and is in the best interests of Xceed shareholders. The scheme is also reasonable because it will yield commercial benefits for the Xceed shareholders. The aggregate scheme consideration for Xceed's shares is at a premium to previous trading prices on the ASX market for Xceed shares as described in the scheme booklet. Conditions precedent 8 At the first court hearing submissions were made to the Court as to three types of conditions precedent: first, conditions which are to be satisfied prior to the scheme meeting; second, conditions which are to be satisfied prior to the second court hearing; and third, conditions which are satisfied upon the Court approving the scheme under s 411(4)(b). The first two types of conditions have been satisfied or deemed satisfied or waived by reason of the certificates confirming such, as exchanged by Xceed and Keaton Energy. As to the third type of condition, I am satisfied for the following reasons that there is not unacceptable scheme conditionality in the transaction. In this regard I accept the submissions of the plaintiff contained in its outline of written submissions at paras 48-50: 48. The relevant condition is in the Implementation Deed at cl 3.2(f) (as amended by the Amendment Deed, cl 2.1(h). It relates to part of the finance Keaton Energy needs for funds to pay for the shares in Xceed from the Gunvor Financing Arrangements (approximately AUD$6 million of the AUD$19.67million of Aggregate Scheme Consideration). 49. The provision, as amended, reads: "3.2 The Conditions to the Scheme are: … (f) (Court approval of Scheme) the Court makes orders under section 411(4)(b) of the Corporations Act approving the Scheme and consequently: (i) JSE Issue Approval thereby automatically becomes unconditional and the Gunvor Financing Arrangements thereby automatically become unconditional; and (ii) the subscription proceeds of approximately US$6,000,000 from the issue of shares in the Bidder pursuant to the Gunvor Financing Arrangements are thereby unconditionally available to Bidder for payment by Bidder as part of the Aggregate Scheme Consideration in accordance with this document, the Scheme and Deed Poll;" 50. This provision does not involve unacceptable scheme conditionality for the following reasons. (a) The evidence from the CEO of Keaton Energy is that the JSE Issue Approval has been obtained: Second Glad Affidavit at [15]-[17]. A copy of the JSE Issue Approval can be found at AG-6 of the Second Glad Affidavit. (b) The JSE Issue Approval is only conditional upon ordinary and continuing compliance with the JSE listing rules and regulations. The evidence of the CEO of Keaton Energy is that Keaton Energy is in compliance with those rules and regulations: Second Glad Affidavit at [17]. (c) The funds are in escrow in Investec Bank's account: Letter from Investec Bank, at Annexure AG-5 to the Second Glad Affidavit. (d) The CEO of Keaton Energy has confirmed that Plusbay Limited (Gunvor's affiliate) has entered into an Escrow Agreement between Keaton Energy, Plusbay and Investec Bank, so that it will provide the consent to Investec Bank to release the funds upon the Scheme being Effective (on lodgement of the orders on Friday 7 February 2014). See Second Glad Affidavit at [13]. (e) Clause 3.2(f)(i) requires the "Gunvor Financing Arrangements [to] thereby automatically become unconditional" upon the Court's order. While the Escrow Agreement is actually effective from the date of registration of the Court's order (the Effective date for s 411(10)), it is submitted that the certainty of those contractual arrangements and the obligation on Plusbay to sign, are such that, for the purpose of cl 3.2(f)(i) of the Implementation Deed, the Gunvor Financing Arrangements are automatically unconditional. (f) The condition in 3.2(f) does not provide a third party with a discretion to vary the Scheme at will (cf: Re Alchemia Limited [2012] FCA 927 at [30]-[31] (Yates J)). (g) The condition in 3.2(f) does not appear to confer an unguided discretion upon a third party, or permit Xceed or Keaton Energy to avoid the transaction at will. (h) The Shareholders of Xceed were informed of the nature of this condition in the Explanatory Statement that they received, prior to voting in favour of the Scheme. See First McAlinden Affidavit at Exhibit SM-1, Tab 2, pp 57-59. (i) There has also been no objection from the regulator, ASIC, as to this condition. (j) The Second Glad Affidavit contains further evidence concerning the funding of the scheme consideration of $19.67 million for all Xceed Shares pursuant to the Scheme. 9 I am otherwise satisfied that the requirements of s 411 have been complied with other than s 411(11). However, I am satisfied that an exemption from this requirement should be granted under s 411(12). 10 For these reasons I would in the exercise of my statutory discretion approve this scheme. There will be orders in terms of the minute of proposed orders provided by the plaintiff dated 6 February 2014, subject to an amendment to para 1. The words "hereto and marked A" will be deleted and after the word "annexed" the following words will be inserted: "to the second affidavit of Peter Christopher Wall sworn on 13 December 2013, and being part of annexure PCW-7 at pages 50-64". 11 There will be orders accordingly. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour. Associate: Dated: 18 March 2014