Federal Court of Australia Talon Energy Ltd, in the matter of Talon Energy Ltd [2023] FCA 1362 File number: WAD 260 of 2023 Judgment of: JACKSON J Date of judgment: 3 November 2023 Date of publication of reasons: 6 November 2023 Catchwords: CORPORATIONS - scheme of arrangement - first hearing to convene meeting of members pursuant to s 411(1) of the Corporations Act 2001 (Cth) - proposal for acquisition of shares - consideration of prerequisites and relevant matters - orders made Legislation: Corporations Act 2001 (Cth) ss 9, 411, 412, Parts 5.1, 6A.2 Corporations Regulations 2001 (Cth) Schedule 8, Part 3 Federal Court (Corporations) Rules 2000 (Cth) Cases cited: Re Advanced Share Registry Limited [2023] FCA 1338 Re Anatolia Energy Limited [2015] FCA 1134 Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 Re DDH1 Limited [2023] FCA 982 Re Essential Metals Limited [2023] FCA 240 Re Excelsior Gold Limited [2018] FCA 2064 Re Health House International Ltd [2023] WASC 133 Re NRMA Insurance Ltd [2000] NSWSC 82 Re Nzuri Copper Ltd [2019] WASC 189 Re OreCorp Limited [2023] FCA 1359 Re Tawana Resources NL (No 3) [2018] FCA 1952 Re Wellcom Group Limited [2019] FCA 1655 Re Xplore Wealth Limited [2020] FCA 1868 Division: General Division Registry: Western Australia National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 29 Date of hearing: 3 November 2023 Counsel for the Plaintiff: Mr AJ Papamatheos with Mr NJ Wallwork Solicitor for the Plaintiff: Steinepreis Paganin Counsel for the Interested Party: The interested party did not appear ORDERS WAD 260 of 2023 IN THE MATTER OF TALON ENERGY LTD (ACN 153 229 086) TALON ENERGY LTD (ACN 153 229 086) Plaintiff STRIKE ENERGY LIMITED Interested Party order made by: JACKSON J DATE OF ORDER: 3 NOVEMBER 2023 THE COURT ORDERS THAT: 1. Pursuant to s 411(1) of the Corporations Act 2001 (Cth): (a) the plaintiff is to convene and hold a meeting (Scheme Meeting) of the holders of its ordinary shares (Shareholders), for the purpose of considering and, if thought fit, agreeing (with or without modification), a scheme of arrangement proposed to be made between the plaintiff and the Shareholders (Scheme), being the scheme substantially in the form set out in Annexure AD-26 to the affidavit of Adrian Nicolas Di Menna sworn 2 November 2023 (Third Di Menna Affidavit); (b) the Scheme Meeting is to be held at 12.00 pm AWST on 7 December 2023 at The Celtic Club, 48 Ord Street, West Perth, Western Australia 6005; and (c) the scheme booklet set out in Annexure AD-23 of the Third Di Menna Affidavit (together with the Scheme, the Independent Expert's Report (at Annexure AD-24), the Technical Expert's Report (at Annexure AD-25) and the Deed Poll (at Annexure AD-21)) (Scheme Booklet), which contains an explanatory statement required by s 412(1)(a) of the Act, is approved for distribution to Shareholders, subject to: (i) correction of any typographical errors and formatting and correction or updating of any relevant dates, last trading prices or other minor details; (ii) any minor amendments required or approved by the Australian Securities and Investments Commission (ASIC) for registration under section 412(6) of the Act; (iii) the correction or update of any relevant date references, interests held by Shareholders, issued capital or last trading prices, or other references to figures and data; and (iv) adopting any amendments approved by the Court. 2. Subject to these orders and pursuant to section 1319 of the Act, the Scheme Meeting is to be: (a) convened and held in accordance with the provisions of Part 2G.2 of the Act that apply to members of a company, and the provisions of the plaintiff's constitution that apply to meetings of members that are not inconsistent therewith; (b) convened using a notice of scheme meeting substantially in the form contained in Annexure D of the Scheme Booklet (Notice of Scheme Meeting); (c) held and conducted pursuant to the arrangements for attending, participating, and voting described in the Notice of Scheme Meeting including in respect of the effect of a Shareholder's attendance at the Scheme Meeting on a proxy or attorney appointment by that Shareholder, and in accordance with the provisions of Part 2G.2 of the Act; and (d) convened, held, and conducted as if r 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) does not apply. 3. Pursuant to s 1319 of the Act: (a) Mr Toby Albert Hicks, or failing him, Ms Pia Melanie Drummond, is to be the chairperson of the Scheme Meeting (Chairperson) and is to report the result of the Scheme Meeting to this Court; (b) the Chairperson of the Scheme Meeting has the power to adjourn or postpone the Scheme Meeting in the Chairperson's absolute discretion for such time that the Chairperson thinks appropriate to a time and place advised by the Chairperson; (c) at the Scheme Meeting, two Shareholders entitled to vote, present in person or by proxy or by an attorney under power, or by a corporate representative (if applicable), shall constitute a quorum; (d) at the Scheme Meeting, each Shareholder present and entitled to vote is to be entitled to one vote for each fully paid ordinary share in the capital of the plaintiff that the Shareholder is registered as holding at 4.00 pm AWST on 5 December 2023; and (e) at the Scheme Meeting, voting on the resolution on whether to approve the Scheme is to be conducted by way of a poll (declared by the Chairperson). 4. The board of the directors of the plaintiff has the power to approve for lodgement on the plaintiff's ASX announcements platform announcements regarding corrections, clarifications or changes to the arrangements for the Scheme Meeting where, in the board's discretion, such corrections, clarifications or changes are necessary to ensure that Shareholders as a whole will have a reasonable opportunity to participate in the Scheme Meeting, and such announcements are taken to be sufficient notice of any corrections, clarifications or changes to the meeting arrangements described in paragraph 2(c) above provided they are made on or before 12.00 pm AWST on 7 December 2023 and are explained by the Chairperson at the commencement of the Scheme Meeting. 5. Subject to registration of the Scheme Booklet with ASIC pursuant to s 412(6) of the Act, the plaintiff must, on or before 7 November 2023, dispatch the Scheme Booklet substantially in the form approved in paragraph 1(c) above to each Shareholder registered on the plaintiff's register of members at 7.00 pm AWST on 3 November 2023, by sending: (a) in the case of each Shareholder who has nominated an email address for the purpose of receiving shareholder communications (Email Shareholder), an email substantially in the form of the email template to Shareholders at annexure AD-13 to the second affidavit of Adrian Nicolas Di Menna sworn 1 November 2023 (Second Di Menna Affidavit), with such email to contain website links accessible by the Email Shareholder which enable the Email Shareholder to: (i) access and download the Scheme Booklet (and the Notice of Scheme Meeting); and (ii) complete and lodge their proxy form for the Scheme Meeting online; (b) in the case of each Shareholder who has expressly elected to receive shareholder communications by post (Postal Shareholders), using the methods of service set out in paragraph 6 below: (i) a copy of the Scheme Booklet; (ii) a proxy form in respect of the Scheme Meeting substantially in the form at annexure AD-14 to the Second Di Menna Affidavit; (iii) in the case of each Shareholder who has a registered address in Australia, a pre-paid post envelope addressed to Computershare Investor Services Pty Ltd (Computershare); and (iv) in the case of each other Shareholder who has a registered address outside Australia, an unpaid airmail envelope addressed to Computershare; (c) in the case of each Shareholder who is not an Email Shareholder or Postal Shareholder, using the methods of service set out in paragraph 6 below: (i) a letter substantially in the form at annexure AD-13 to the Second Di Menna Affidavit with such notice to contain: A. the address of a website which enables those Shareholders to access and download the Scheme Booklet; B. instructions on how to lodge their proxies for the Scheme Meeting; and C. a phone number by which those Shareholders may request to be sent printed copies of the Scheme Booklet; (ii) a proxy form in respect of the Scheme Meeting substantially in the form at annexure AD-14 of the Second Di Menna Affidavit; (iii) in the case of each Shareholder who has a registered address in Australia, a pre-paid post envelope addressed to Computershare; and (iv) in the case of each other Shareholder who has a registered address outside Australia, an unpaid airmail envelope addressed to Computershare. 6. The plaintiff must dispatch the documents identified in paragraphs 5(b) and (c) above: (a) to each Shareholder who has a registered address in Australia, by regular pre-paid post; and (b) to each other Shareholder who has a registered address outside Australia, by prepaid international airmail. 7. If it comes to the attention of the plaintiff that any email dispatched in accordance with paragraph 5(a) results in the return of a receipt or notice that the email was undeliverable, then, in respect of that Shareholder, the plaintiff will forthwith thereafter dispatch the documents identified in paragraph 5(c) using the method of service set out in paragraph 6. 8. Dispatch of the documents referred to above, in accordance with the terms of the paragraphs above, is taken to be sufficient notice of the Scheme Meeting. 9. Pursuant to r 5.04(1) and (3) (Item 23(a)) of the Federal Court Rules 2011 (Cth), evidence of the dispatch of the Scheme Booklet in accordance with these orders is to be given by way of statement on oath or affirmation on information and belief, at the 13 December 2023 approval hearing. 10. The time by which Shareholders must return their Scheme proxy form (or lodge an electronic proxy in respect of the Scheme) is 12.00 pm AWST on 5 December 2023. 11. The plaintiff must give notice of the hearing of its application pursuant to s 411(4) of the Act, and that notice of the hearing of an application pursuant to s 411(4)(b) of the Act for orders approving the Scheme is to be published once by way of an ASX announcement to be released on the plaintiff's ASX announcements platform, substantially in the form of Annexure A to these orders, with such advertisement to be published on or before 8 December 2023, and the plaintiff is to be otherwise exempted from compliance with r 3.4 of the Rules. 12. The proceeding is adjourned to 2.15 pm AWST on 13 December 2023, for the hearing of an application to approve the Scheme. 13. The plaintiff must lodge an office copy of these orders with ASIC as soon as practicable after these orders are made. 14. Liberty to apply on 24 hours' notice to ASIC. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. Annexure a TALON ENERGY LTD (ACN 153 229 086) Notice of hearing to approve compromise or arrangement TO: All members of TALON ENERGY LTD (ACN 153 229 086) (Talon) TAKE NOTICE that at 2:15pm (AWST) on 13 December 2023, the Federal Court of Australia (situated at the Peter Durack Commonwealth Law Courts Building, 1 Victoria Avenue, Perth, Western Australia 6000) will hear an application by Talon seeking the approval of an arrangement between Talon and its members, as agreed to by resolution considered by the members of Talon at a meeting of such members held on Thursday, 7 December 2023 at The Celtic Club, 48 Ord Street, West Perth, Western Australia 6005 at 12:00pm (AWST). If you wish to oppose the approval of the arrangement, you must file and serve on Talon a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on Talon at its address for service at least one day before the date fixed for the hearing of the application. The address for service on Talon is: c/- Steinepreis Paganin Level 4, 16 Milligan Street PERTH WA 6000 Attention: Adrian Di Menna Email: adimenna@steinpag.com.au Colby Hauser Managing Director and Chief Executive Officer Talon Energy Ltd REASONS FOR JUDGMENT JACKSON J: 1 The plaintiff, Talon Energy Ltd, is proposing a scheme of arrangement for the Court's approval under Part 5.1 of the Corporations Act 2001 (Cth) (Scheme). On 3 November 2023 I made orders convening a meeting of the shareholders of Talon to vote on whether to approve the Scheme (Scheme Meeting). These are my reasons for those orders. 2 The shares in Talon are listed on the Australian Securities Exchange (ASX). On 14 August 2023, Talon and another company listed on the ASX, Strike Energy Limited, announced that they had executed a Scheme Implementation Deed (SID) under which it is proposed that Strike will acquire 100% of the fully paid ordinary shares in Talon. Talon and Strike then announced they had executed an amended SID on 11 October 2023. 3 The main part of Talon's business concerns exploration, development and production in relation to natural gas fields in the Perth Basin. There is also a joint venture in Mongolia, which is proposed to be the subject of a divestment transaction described below. Strike's business is similar, including gas assets in the Perth Basin, and it is the larger of the two companies by market capitalisation. Strike and Talon are joint venture partners in the Walyering Gas Field Project in the Perth Basin. 4 The proposed consideration to be provided to Talon shareholders pursuant to the Scheme is 0.4828 new fully paid ordinary shares in Strike for every one share in Talon held at the record date for the Scheme (Scheme Consideration). In that way, if the Scheme is approved and implemented, the assets of Talon will be combined with those of Strike, and Talon shareholders will become shareholders in Strike. Together, their holding will comprise about 11% of Strike's issued share capital. Materials relied on 5 Talon relied on the following affidavits in support of its application for orders under s 411(1) of the Corporations Act: (a) four affidavits of Adrian Di Menna, a senior associate at Talon's solicitors, Steinepreis Paganin, sworn 20 October 2023, 1 November 2023 and two on 2 November 2023; (b) affidavit of Talon's Managing Director and Chief Executive Officer, Colby Hauser, sworn 23 October 2023; (c) affidavit of Toby Hicks, a partner at Steinepreis Paganin, sworn 26 October 2023; (d) affidavit of Pia Drummond, a partner at Steinepreis Paganin, sworn 26 October 2023; (e) affidavit of Emily Donley, a solicitor at Strike's solicitors, DLA Piper, affirmed 1 November 2023; and (f) affidavit of Stuart Nicholls, Strike's Managing Director and Chief Executive Officer, affirmed 1 November 2023. The principles governing schemes of arrangement 6 Section 411(4) of the Corporations Act provides that a scheme of arrangement is binding on members if: (a) a resolution in favour of it is passed by a majority of the number of members (unless the Court otherwise orders) and by 75% of the votes cast on the resolution; and (b) it is approved by order of the Court. 7 The section envisages three steps in the process of approving a scheme: first, the calling of a meeting of members; second, a vote by those persons; and third, a further application to the Court for approval of the arrangement: Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [7] (Keane CJ and Jacobson J, Finkelstein J agreeing). 8 In relation to the first of these steps, the Court is empowered to order the necessary meetings to be convened and to approve the explanatory statement (Scheme Booklet) that must be sent to every member with the notice of meeting: s 411(1), s 412(1)(a). 9 In Re Xplore Wealth Limited [2020] FCA 1868 at [23]-[24], Markovic J summarised the requirements that must be satisfied before those orders will be made: At the first court hearing, the Court will order the convening of a scheme meeting and approve a draft explanatory statement to be sent to scheme members if it is satisfied of the following matters: (1) the plaintiff is a Pt 5.1 body; (2) the proposed scheme is a compromise or (relevantly) an arrangement within the meaning of s 411(1) of the Act; (3) the scheme booklet will provide proper disclosure to shareholders; (4) the scheme is bona fide and properly proposed; (5) the Australian Securities and Investments Commission (ASIC) has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions to the Court, and has had 14 days' notice of the date of the first court hearing; and (6) the procedural requirements of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules) have been met. … In addition, 'the court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the … meeting the court would be likely to approve it on the hearing of a petition which is unopposed': F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72. Are the prerequisites for convening a meeting satisfied? 10 On the basis of the affidavits described above, I was satisfied that Talon and the proposed Scheme complied with the following prerequisites, so that it was open for the Court to order that the Scheme Meeting be convened: (1) Talon is a Part 5.1 body, which is relevantly defined in s 9 of the Corporations Act to include a company. (2) The Scheme is an arrangement between Talon and its members within the meaning of s 411(1) of the Act, as it concerns the rights and obligations of Talon's members: see Re NRMA Insurance Ltd [2000] NSWSC 82 at [20] (Santow J). (3) There will be only one class of members voting on the Scheme for the purposes of s 411(4)(a)(ii) of the Corporations Act. The directors of Talon have given voting intention statements saying that they intend to vote all their shares in favour of the Scheme in the absence of a superior proposal and provided that the independent expert continues to conclude that the Scheme is in the best interests of Talon shareholders. These voting intention statements are not class creating: Re Tawana Resources NL (No 3) [2018] FCA 1952 at [23]-[32] (Banks-Smith J). Nor are the separate securities held by the directors and others, being a total of 12 million options and 12.5 million performance rights: Re Excelsior Gold Limited [2018] FCA 2064 at [32], [36] (McKerracher J). (4) The Scheme is bona fide and properly proposed. (5) The Australian Securities and Investments Commission (ASIC) has had a reasonable opportunity to examine the terms of the Scheme and the Scheme Booklet and make submissions to the Court, and has had 14 days' notice of the date of the first court hearing. A letter from ASIC was in evidence saying that it did not propose to appear to make submissions or intervene to oppose the Scheme at the first court hearing, and ASIC did not appear. (6) ASIC has provided the standard waiver as to the inclusion in the Scheme Booklet of information about changes to the financial position of the company since the date of the last balance sheet laid before the company in general meeting or sent to shareholders, which would otherwise be required under paragraph 8302(h) of Part 3 of Schedule 8 of the Corporations Regulations 2001 (Cth). (7) All other procedural requirements have been met, including those in the Federal Court (Corporations) Rules 2000 (Cth). The requisite consents to act as chairperson and alternate chairperson have been provided. 11 In addition, scrutiny of the Scheme Booklet to ensure that it makes proper disclosure is an important aspect of the Court's function at the first scheme hearing: see Re DDH1 Limited [2023] FCA 982 at [17]-[20] (Colvin J). Here, I was satisfied that the Scheme Booklet provides adequate disclosure and contains all information prescribed to be necessary. It has been professionally prepared and verified according to a process described in detail in the affidavits. It includes the independent expert report and a technical report into Talon's assets. The company made amendments to earlier drafts to take account of comments by ASIC, and the disclosure of the interests that directors of Talon have in the Scheme are prominent. The exercise of the discretion 12 Recently in Re Advanced Share Registry Limited [2023] FCA 1338 at [26], Banks-Smith J summarised the standard of review at the first hearing to approve the convening of a scheme meeting as follows: In summary, the standard of review is whether the proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members. It is not necessary for the Court to descend into the commercial merits of the proposed scheme. If the proposed arrangement is one that seems fit for consideration by a meeting of members and is a commercial proposition likely to gain the Court's approval if passed by the necessary majority, then leave should be given to convene the meeting. 13 The proposed Scheme fulfils these criteria. It is a straightforward scheme for the acquisition of all of the shares in Talon in return for the issue of shares in Strike. The independent expert report concluded that, in the absence of a superior proposal, the Scheme is fair and reasonable to Talon shareholders and therefore in their best interests. The report concluded that the value of the Scheme Consideration, being shares in Strike valued on a minority basis, exceeds the estimated value of shares in Talon valued on a control basis, at low and preferred value estimates, and 'across a majority of the range' (Mr Di Menna's third affidavit p 263-264 - what this appears to be saying is that only at the very highest point in the range of values identified for Talon shares would the value of those shares exceed the highest possible value of the Scheme Consideration). 14 Other benefits of the Scheme that the independent expert report identified include that: (a) Talon shareholders will gain exposure to Strike's portfolio of Perth Basin assets; (b) shareholders will retain exposure to Walyering, albeit with a diluted interest; (c) the merger will create a group with a stronger balance sheet, access to Strike's cash reserves and debt funding which will reduce potential dilution from equity fund raisings; and (d) the shares that Talon shareholders receive in Strike will have increased liquidity and lower volatility than shares in Talon. 15 Potential disadvantages identified by the independent expert report include: (a) the dilution of the interest of Talon shareholders in the company and its assets, including dilution of their exposure to Walyering; (b) shareholders will be exposed to the risk associated with holding shares in a company with debt; and (c) the exact value of the Scheme Consideration is not certain. 16 These commercial advantages and disadvantages are all disclosed in the Scheme materials and shareholders are able to weigh them for themselves in deciding whether to approve the Scheme. Talon's directors unanimously recommend that shareholders vote in favour of the Scheme, in the absence of a superior proposal and subject to the independent expert continuing to conclude that the Scheme is in the best interests of Talon shareholders. It is a proposal that is fit to be put to shareholders. 17 Several features of the Scheme that were brought to the Court's attention are common to transactions of this kind and do not require extensive comment: (1) Any options for the allotment of shares in Talon that are not exercised before the Scheme record date will remain on issue, albeit the option holder will then be entitled to the issue of shares in an unlisted subsidiary of Strike. Strike may utilise the compulsory acquisition procedures in Part 6A.2 of the Corporations Act to acquire any outstanding options after the implementation of the Scheme. (2) The performance rights will automatically vest, that is be converted into shares, upon the Court making an order to approve the Scheme, so that those who hold them may participate in the Scheme as ordinary shareholders. (3) As has been mentioned, the interests that each of the directors have, including their shares in Talon, options and performance rights, have been prominently disclosed. I did not consider that the nature or extent of those interests disqualified the directors from stating their voting intentions: see for comparison Re Essential Metals Limited [2023] FCA 240 at [70]-[79] (Banks-Smith J) and the authorities considered there. (4) Two of the directors hold shares in Strike. They are the non-executive Chairman, Greg Columbus, and another non-executive director, David Casey. The value of Mr Columbus's interest in particular is material. But these directors have no other interest in Strike or connection with it, for example as employees or advisors. I determined that it was appropriate for these directors to state their voting intentions, notwithstanding their present interests in Strike. Those interests are prominently disclosed in the Scheme Booklet and Talon's shareholders can assess the intentions of these directors accordingly. The nature and extent of the interests are not such as to make it unrealistic to think that the directors can bring an unbiased mind to their voting intentions: see Re Wellcom Group Limited [2019] FCA 1655 at [59] (O'Bryan J). (5) Certain foreign shareholders and holders of small unmarketable parcels will have the Strike shares to which they are entitled compulsorily sold on market and the proceeds remitted to them. These arrangements are not uncommon and are not class creating as the shareholders in question still receive the same considerations as other Talon shareholders, albeit in the form of cash rather than scrip: see Tony Damian and Andrew Rich, Schemes, Takeovers and Himalayan Peaks (4th ed) [6.4.27]. On the basis of a submission that this arrangement was consistent with a constitutional provision permitting the compulsory sale of unmarketable parcels, I was satisfied that there was no apparent unfairness and that it was not class creating: see similarly Re OreCorp Limited [2023] FCA 1359 at [4] (Colvin J). (6) The Scheme is subject to a number of commonly seen conditions precedent and, setting aside the condition requiring Court approval of the Scheme itself, there is no reason to think that they will not be fulfilled by the time the Scheme comes to be implemented. (7) Appropriate provision has been made to manage the risk for Talon shareholders that Strike will not perform its obligations under the Scheme. Strike has executed a deed poll in favour of Talon shareholders. In particular, title in shares in Talon will not pass to Strike until after Strike has provided the Scheme Consideration. (8) There are exclusivity (no talk, no shop and no due diligence) provisions that are appropriately drafted, including with 'fiduciary' carve-outs for directors of Talon if they become aware of a competing proposal. (9) There is a break fee in standard terms that was negotiated at arms' length, which is set at the threshold of 1% of the total equity value of Talon that has been identified as appropriate by the Takeovers Panel (Guidance Note GN7, paras 48-49). (10) There appears to be nothing in the nature of a collateral benefit that has been offered to any shareholder in return for their support of the Scheme. 18 Only three aspects of the Scheme require separate comment. The Gurvantes transaction 19 Talon holds a 33% interest in a project in Mongolia known as the Gurvantes XXXV Coal Seam Gas Project. The balance of the project is owned by another ASX listed company, TMK Energy Limited. Talon and TMK have entered into a binding heads of agreement under which Talon's interest in the project will, in effect, be transferred to TMK by way of the acquisition of a subsidiary of Talon. In return, TMK will issue up to 1.1 billion shares and up to 550 million options to Talon. Talon will then distribute those securities to its shareholders by way of a capital reduction. This transaction requires the approval of Talon's shareholders, including the approval of an amendment to Talon's constitution to permit the in-specie distribution. That will be sought at a meeting that is to be held before the Scheme Meeting. 20 The transactions are not interdependent - the Scheme is not, for example, conditional on whether the Gurvantes transaction has gone ahead. There will be no change to the Scheme Consideration whether or not the Gurvantes transaction does go ahead. In a sense, if the transaction does not go ahead, that could result in a windfall to Strike, as it will retain the interest in the Gurvantes project via its then subsidiary Talon, without having to provide any consideration above the Scheme Consideration. 21 Nevertheless, I did not consider that to be a reason not to convene the Scheme Meeting. Talon shareholders will know by the time of the Scheme Meeting whether the Gurvantes transaction has gone ahead or not. The transaction will have been fully disclosed to them. The Scheme Booklet specifically says that Strike may acquire all of Talon's interest in the Gurvantes project, with Talon shareholders not receiving any consideration above the Scheme Consideration. The independent expert report expresses the opinion that the Scheme will be fair even if the Gurvantes transaction does not complete. 22 In addition, the impact of the capital reduction on the net equity of Talon is unlikely to prejudice creditors: Talon's accounts value the interest in the Gurvantes project at about $9.1 million (book value) where Talon's total assets are valued at about $44.5 million and liabilities at about $6 million. So that will leave a substantial surplus of assets over liabilities, even if the divestment goes ahead. Further, Strike seeks to become the holding company of Talon if the Scheme is implemented, and so can be expected to be comfortable with the net equity of the company after the proposed capital reduction. A debt facility from Strike 23 Strike has advanced funds to Talon under a secured debt facility agreement. The funds were required to meet Talon's short term working capital needs while the Scheme process is underway. The security includes a general security agreement over all of Talon's assets. 24 Strike has announced that if the Scheme is not successfully implemented, it will call on all existing drawn funds under the facility agreement, and if the funds are not repaid in 60 days it will enforce its security over Talon's interest in the Walyering Gas Field Project (where Strike is the other joint venturer). 25 I did not consider that this was any reason not to convene the Scheme Meeting. The Court may be concerned to see that a loan from the acquirer under a Scheme to the target does not operate as a lock up device: Re Nzuri Copper Ltd [2019] WASC 189 at [67]-[68] (Vaughan J). The question may be put in terms of whether the loan agreement will prevent free consideration of the proposed scheme by members: see Re Anatolia Energy Limited [2015] FCA 1134 at [44]-[45] (McKerracher J). 26 For the following reasons I did not consider that the facility here would deter a competing proposal or impede free consideration of the Scheme by members: (1) A decision by Talon shareholders not to vote in favour of the Scheme is not an event of default under the facility agreement. (2) The amount involved (a facility limit of $6 million, with about $3.3 million currently drawn down) is not so large in the scheme of things as to deter any competing bidder who may be interested in acquiring Talon. (3) Consistently with Strike's announcement described above, under the facility agreement Strike must provide 60 days' notice of an intention to take action in event of a default. This is likely to give Talon time to refinance, or raise equity or otherwise put itself into a position where it can repay the facility. It will also give any competing bidder time to arrange refinancing or repayment and to incorporate that into the terms of the competing bid. (4) The interest rate on the loan is not modest. It is the bank bill swap rate plus 11% per annum. But that is commensurate with the interest rates on other facilities that have been held to be reasonable and commercial: see e.g. Re Health House International Ltd [2023] WASC 133 at [55], [59] (Hill J), where the interest rates were 12% per annum and 18% on overdue amounts (at a time of lower generally prevailing interest rates). (5) Mr Hauser's affidavit contains evidence that the Board was in advanced negotiations for alternative sources of funding before agreeing to the facility with Strike, and in that context it considered that the funding from Strike was necessary to fund its short term working capital needs during the Scheme process and was content with the terms of the facility agreement. It can be inferred from this that the facility agreement is on arms' length commercial terms. (6) The independent expert report refers to the funding facility and to Strike's announced intention to call on the loan if the Scheme is not implemented, without making adverse comment. (7) ASIC was made aware of the facility agreement and has not raised any concerns. Shareholder communications 27 Talon has engaged Alliance Advisors, a shareholder engagement firm, to manage shareholder communications. Alliance has prepared scripts for inbound and outbound telephone calls based on information in the Scheme Booklet. The scripts have been reviewed by Talon's lawyers to ensure that they are materially similar to the information in the Scheme Booklet. They have not, however, been given to the Court for approval. 28 Alliance will make outbound calls to Talon's largest 100 shareholders in order to remind them to vote and to ascertain their voting intentions. It is not intended for Alliance to provide any information materially different to that which is contained in the Scheme Booklet and the shareholders will be encouraged to read the booklet in full. Any material deviations from this or concerns raised will be reported to the Court at the second court hearing. Inbound calls will also be dealt with on this basis. 29 This disclosure of the fact and nature of the intended communications with shareholders, and the fact that the communications are not intended to deviate from the Scheme Booklet, together with the acknowledgement of the evidence that will be provided at the second court hearing, is consistent with the approach outlined in recent authorities in this Court: in particular Re Essential Metals at [99]-[102] and Re DDH1 at [22], [50]-[51]. I therefore considered the proposed approach to be appropriate, and did not consider it necessary to review the proposed scripts before convening the first Scheme Meeting. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson. Associate: Dated: 6 November 2023