FEDERAL COURT OF AUSTRALIA Atlas Iron Limited, in the matter of Atlas Iron Limited (No 2) [2016] FCA 481 File number: NSD 423 of 2016 Judge: GLEESON J Date of judgment: 28 April 2016 Date of publication of reasons: 10 May 2016 Catchwords: CORPORATIONS – scheme of arrangement – scheme approved Legislation: Corporations Act 2001 (Cth) ss 411(4)(b), 411(11), 411(12) Federal Court (Corporations) Rules 2000 r 3.5 Corporations Regulations 2001 (Cth) regs 5.6.14A(1), 5.6.75 Securities Act of 1933 (US) s 3(a)(10) Cases cited: Re Central Pacific Minerals NL [2002] FCA 239 Re David Jones Ltd (No 3) [2014] FCA 753; (2014) 32 ACLC 14-037 Re NRMA Ltd (No 2) [2000] NSWSC 408; (2000) 156 FLR 412 Re Permanent Trustee Company Limited [2002] NSWSC 1177; (2002) 43 ACSR 601 Re Seven Network Limited (No 3) [2010] FCA 400 Re Seven Network Ltd (ACN 052 816 789) (No 3) [2010] FCA 400; (2010) 267 ALR 583 Re Solution 6 Holdings Ltd [2004] FCA 1049; (2004) 50 ACSR 113 Date of hearing: 28 April 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 22 Counsel for the Plaintiff: Mr I Jackman SC with Mr MA Izzo Solicitor for the Plaintiff: Ashurst Australia Counsel for the TLB Lenders: Mr J Williams Solicitors for the TLB Lenders: Gilbert & Tobin Table of Corrections 26 June 2017 The words "Date of publication of reasons: 10 May 2016" have been added to the cover page 26 June 2017 The letters "TBL" have been replaced with "TLB" in the heading preceding [21] and in [21]. ORDERS NSD 423 of 2016 IN THE MATTER OF ATLAS IRON LIMITED (ACN 110 396 168) BETWEEN: ATLAS IRON LIMITED (ACN 110 396 168) Plaintiff JUDGE: GLEESON J DATE OF ORDER: 28 april 2016 THE COURT ORDERS THAT: 1. Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) ("Corporations Act") the scheme of arrangement ("scheme") between the plaintiff, the lenders to the plaintiff under the Syndicated Facility Agreement dated 10 December 2012, and certain holders of subordinate claims against the plaintiff, being the scheme in the form contained in annexure A to the explanatory statement which is exhibit 1 in the proceeding, be and is hereby approved. 2. Pursuant to s 411(12) of the Corporations Act, the plaintiff be exempted from compliance with s 411(11) of the Corporations Act. THE COURT NOTES THAT: 3. The plaintiff will rely on the Court's approval of the scheme for the purposes of qualifying for exemption from the registration requirements of the Securities Act of 1933 (US), provided for by s 3(a)(10) of that Act, in connection with the shares and options to be issued as part of the implementation of the scheme. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT GLEESON J: 1 On 28 April 2016, I conducted the second court hearing concerning a scheme of arrangement proposed to be made between the plaintiff ("Atlas"), lenders pursuant to a Syndicated Facility Agreement dated 10 December 2012 ("TLB lenders"), and certain holders of subordinate claims against Atlas ("scheme"). At the conclusion of the hearing, I made orders, including an order pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) ("Act") approving the scheme. These are my reasons for making those orders. Background 2 The details of the scheme are described in Atlas Iron Limited, in the matter of Atlas Iron Limited [2016] FCA 366. 3 In support of the application for approval of the scheme, senior counsel for Atlas, Mr Jackman SC, read the following affidavits: (1) Affidavit of Matthew Christopher Benson sworn 13 April 2016; (2) Affidavit of Michael Mencher sworn 15 April 2016; (3) Affidavit of James Euan Campbell sworn 26 April 2016; (4) Affidavit of Philip Patrick Carter sworn 27 April 2016; (5) Affidavit of Cheryl Lynn Edwardes sworn 27 April 2016; (6) Affidavit of Rodney Rex Somes affirmed 27 April 2016; (7) Affidavit of Anthony Michael Walsh sworn 27 April 2016; (8) Affidavit of Camilla Clemente sworn 28 April 2016; and (9) Affidavit of Anthony Michael Walsh sworn 28 April 2016. 4 No representative of the Australian Securities and Investments Commission ("ASIC") and no creditor (apart from the supporting TLB lenders) or shareholder of Atlas appeared at the second court hearing. Atlas received no notice of any intention to appear at the second court hearing from any other creditor or shareholder. Consideration 5 The general principles which guide the Court's discretion at the second court hearing are very well established. The Court has a discretion whether to approve a scheme, and is not bound to approve it merely because it has previously made orders for the convening of meetings or because the statutory majorities have been achieved: Re Seven Network Ltd (ACN 052 816 789) (No 3) [2010] FCA 400; (2010) 267 ALR 583 ("Re Seven Network") at [31], citing Re NRMA Ltd (No 2) [2000] NSWSC 408; (2000) 156 FLR 412 ("Re NRMA Ltd") at [22]. 6 The matters the Court must take into account in deciding whether to approve the Scheme include: (a) whether the orders of the Court convening the scheme meeting were complied with; (b) whether the resolution to approve the scheme was passed by the requisite majority; (c) whether other statutory requirements have been satisfied; (d) whether all conditions to which the scheme is subject (other than Court approval and lodgement of the Court's orders with ASIC) have been met or waived; (e) whether the scheme is fair and reasonable so that an intelligent and honest member of the relevant class (being the TLB lenders), properly informed and acting alone, might approve it. In considering this question, it is not the role of the Court to usurp the decision of the relevant class by imposing its own commercial judgement on the scheme or to consider whether a better scheme might have been proposed; (f) whether Atlas has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion; and (g) whether there was full and fair disclosure to the TLB lenders of all information material to the decision whether to vote for or against the Scheme. See Re David Jones Ltd (No 3) [2014] FCA 753; (2014) 32 ACLC 14-037 at [3] (Farrell J) referring to Re Solution 6 Holdings Ltd [2004] FCA 1049; (2004) 50 ACSR 113 at [18]-[24]; Re Permanent Trustee Company Limited [2002] NSWSC 1177; (2002) 43 ACSR 601 at [8]-[10]; Re Central Pacific Minerals NL [2002] FCA 239 at [8]-[14]; Re Seven Network at [35]-[39]. Compliance with 31 March 2016 and 6 April 2016 orders 7 I am satisfied that: (1) The scheme booklet was dispatched to the TLB lenders in accordance with order 3 made on 31 March 2016. This was demonstrated by the affidavits of Mr Mencher and Mr Benson. There were some minor changes to the version of the scheme booklet that had been approved by the Court, confined to correcting errors and inserting missing details (affidavit of Ms Clemente sworn 28 April 2016). (2) The scheme meeting was held in accordance with orders 4 to 6 of the 31 March 2016 orders. Mr Walsh chaired the scheme meeting. PPB Advisory was engaged to provide services in relation to the scheme, including to review and collate proofs of debt and proxy forms and Mr Carter acted as returning officer for the poll (Mr Carter's affidavit); (3) Consistently with order 9, Mr Walsh relied on a lender list provided by the Credit Suisse AG, Cayman Island Branch, in determining the extent to which to accept each proof of debt lodged (affidavit of Mr Walsh sworn 27 April 2016 at [7], [12(b)]). The list relied on was current as at 31 March 2016 (rather than 18 April 2016 as specified in order 9) because this is the "Voting Entitlement Record Date" stipulated in s 7.5 of the explanatory statement (affidavit of Mr Walsh sworn 27 April 2016 at [15], [17]). (4) Consistently with order 11, the date of the second court hearing was advertised in The Australian newspaper on 19 April 2016 in the form required by order 11 made on 31 March 2016, as varied on 6 April 2016 (affidavit of Ms Clemente at [9] and p 105 of exhibit "CC-3"). Statutory majority and voter turnout 8 The statutory majority in favour of the scheme have been obtained. 9 At the meeting of the TLB lenders, 68 of 71 TLB lenders voted by proxy. The resolution to approve the scheme was passed unanimously. 10 Mr Walsh gave evidence that, of the three TLB lenders who did not vote: (a) the Commonwealth Bank of Australia submitted a proof of debt and general proxy in favour of two of the Commonwealth Bank of Australia's officers, however, neither officer attended the scheme meeting to vote; (b) Credit Suisse Loan Funding LLC submitted a proof of debt and proxy in favour of the Scheme Resolution dated 22 April 2016, however, as those documents were submitted after the scheme meeting, they were not admitted for voting purposes; (c) no proof of debt or proxy was received from Caterpillar Financial Australia Pty Limited. 11 The total TLB debt held by the 68 TLB lenders who voted comprised approximately US$223.4 million (affidavit of Mr Walsh sworn 27 April 2016 at [24]). By contrast, the three TLB lenders who did not vote held a combined total of some US$35.1 million of the TLB debt. Had they voted against the resolution, it could not have affected the outcome (affidavit of Mr Walsh sworn 27 April 2016 at [27], [28]). Compliance with other statutory requirements 12 On 4 April 2016, ASIC was provided with a copy of the scheme booklet as approved by the Court (affidavit of Mr Campbell at [5]). I am therefore satisfied that ASIC has had a reasonable opportunity to examine the explanatory statement and make submissions to the Court in relation to it as required by s 412(7). 13 The orders of the Court were sealed, lodged with ASIC and served on the scheme administrators as required by r 3.5 of the Federal Court (Corporations) Rules 2000 (affidavit of Mr Campbell at [5], [8]). 14 A notice of the scheme meeting was published on the notices website maintained by ASIC in accordance with regs 5.6.14A(1) and 5.6.75 of the Corporations Regulations 2001 (Cth) (affidavit of Ms Clemente at [8]). 15 No issue arises under s 411(17) given that this is a creditors scheme that could not be effected under the provisions of Chapter 6. Satisfaction of conditions precedent 16 Mr Walsh has signed a certificate indicating that the conditions precedent stipulated in cl 3.1 of the scheme have been satisfied (other than those relating to the Court's approval of the scheme) (affidavit of Mr Walsh sworn 28 April 2016 at [8]). Is the proposal fair and reasonable? 17 The shareholder meeting required under ASX Listing Rule 7.1 was held on 27 April 2016. The resolution approving the issue of shares and options to the TLB lenders was approved by a 97.87% majority. Forty-five per cent of all shares in Atlas on issue were voted at the shareholder meeting (affidavit of Ms Edwardes). The number of shareholders who participated in the vote was 3,453. 18 In addition, on 16 April 2016, Atlas sent a letter to each of its shareholders (by email or post), which was also published on the ASX market announcements platform and on Atlas's website on 18 April 2016, regarding the resolution to be considered at the shareholder meeting. 19 I am satisfied that the proposal is fair and reasonable, by reference to the following matters: (a) no one has come forward to Atlas or the Court to oppose the scheme. There were no contentious issues raised by members at the Listing Rule 7.1 meeting. No regulator has raised an objection to the scheme; (b) the scheme has been overwhelmingly supported by those shareholders who attended the Listing Rule 7.1 meeting and there was substantial attendance at the meeting; (c) the expert report of PPB Advisory expresses an independent opinion that the scheme is fair and reasonable and in the best interests of the TLB lenders. Has Atlas brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's jurisdiction? 20 I have no reason to doubt that Atlas has brought to the Court's attention all matters that could be considered relevant. Has there been full and fair disclosure to the TBL lenders of all information material to their decision to approve or reject the scheme? 21 There is no criticism of the substance of the disclosure by any lender or by ASIC. Nothing has been brought to my attention which would lead me to think that the TBL lenders might have been provided with inadequate information. Conclusion 22 For those reasons, I was satisfied that I should approve the scheme and make the other orders that I made on 28 April 2016. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate: Dated: 10 May 2016