Federal Court of Australia Base Resources Limited, in the matter of Base Resources Limited [2024] FCA 1069 File number(s): WAD 191 of 2024 Judgment of: MCELWAINE J Date of judgment: 12 September 2024 Catchwords: SCHEMES OF ARRANGEMENT- second Court hearing- order sought under s 411(1) of the Corporations Act 2001 (Cth)- form of orders where intention to apply for an exemption under US Securities Exchange Act 1933-scheme approved-no issue of principle-orders made Legislation: Corporations Act 2001 (Cth) Federal Court (Corporations) Rules 2000 (Cth) Securities Act of 1933 (US) Cases cited: Alumina Ltd, in the matter of Alumina Limited [2024] FCA 806 Division: General Division Registry: Western Australia National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 23 Date of hearing: 12 September 2024 Counsel for the Plaintiff: A Papamatheos Interested Party: J Park ORDERS WAD 191 of 2024 IN THE MATTER OF IN THE MATTER OF BASE RESOURCES LIMITED ACN 125 546 910 BASE RESOURCES LIMITED ACN 125 546 910 Plaintiff order made by: MCELWAINE J DATE OF ORDER: 12 September 2024 OTHER MATTERS A. There has been produced to the Court a statement in writing by the Australian Securities & Investments Commission (ASIC) in accordance with section 411(17)(b) of the Corporations Act 2001 (Cth) (Act) that ASIC has no objection to the proposed scheme of arrangement which was agreed to by the shareholders of the plaintiff at a meeting on 5 September 2024, (Scheme), a copy of which Scheme was substantially in the form set out in annexure SWR-11 to the second affidavit of Simon William Reed sworn on 31 July 2024 (Second Reed Affidavit) before this Court at the first hearing on 1 August 2024. B. It is the intention of Energy Fuels Inc. (Energy Fuels) and the plaintiff to rely on Section 3(a)(10) of the United States Securities Act of 1933, as amended (U.S. Securities Act), and that the declaration of the fairness of, and the approval of, the Scheme, by the Court will serve as a basis for reliance on the exemption provided by Section 3(a)(10) of the U.S. Securities Act, from the registration requirements otherwise imposed by that Act, regarding the issuance and distribution of securities of Energy Fuels, pursuant to the Scheme. C. The Court notes the following matters: a. the Court was advised before commencement of the approval hearing that Energy Fuels and the plaintiff intend to rely upon the exemption provided by Section 3(a)(10) of the U.S. Securities Act on the basis of the Court's approval of the Scheme; b. the Court has been informed of the securities to be offered as scheme consideration, and an independent expert report has valued those securities and concluded that the proposal is in the best interests of the plaintiff's shareholders; c. the Court, as it is statutorily required to do, has held a hearing to consider the procedural and substantive fairness and reasonableness of the proposed Scheme; and d. that hearing was open to the public, and any person to whom Energy Fuels shares are to be issued had standing to appear. Notice of the date of that hearing was included in the Scheme Booklet sent to all shareholders, and it was included in the Notice of the second Court hearing. THE COURT ORDERS THAT: 1. Pursuant to section 411(4)(b) of the Act, the scheme of arrangement between the plaintiff and the holders of fully paid ordinary shares in the capital of the plaintiff, as set out in annexure SWR-11 to the Second Reed Affidavit, is approved. 2. Pursuant to section 411(12) of the Act, the plaintiff be exempted from compliance with section 411(1) of the Act in respect of the Scheme. 3. The plaintiff must lodge an office copy of these orders with ASIC on or before 13 September 2024. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Delivered ex tempore, revised from transcript) MCELWAINE J 1 On 1 August 2024, I made orders (Scheme Orders) pursuant to s 411 (1) of the Corporations Act 2001(Cth), that a meeting of the members of Base Resources Ltd be convened for the purpose of considering, and if thought fit, approving a Scheme of Arrangement (with or without modifications) proposed to be made between Base Resources and its shareholders (other than excluded shareholders). At a high level of generality, the Scheme, if implemented, would effect the acquisition by EFR Australia Pty Ltd of all of the issued shares in Base Resources for a scheme consideration of 0.0260 shares in Energy Fuels Inc, of which EFR Australia is a subsidiary. For a price of approximately US $240 million in equivalent shares, EFR Australia would acquire Base Resources. Base Resources operates mines in foreign countries. 2 The commercial purpose of the Scheme is to establish a significant business in the critical minerals sector with a focus on rare earth elements comprising uranium and heavy mineral sands. The Scheme also provide for funding and development of the existing mines owned by Base Resources. 3 The detail of the Scheme is set out in the Scheme Booklet, as attached to the affidavit of Simon Reed made on 31 July 2024. The orders provided for the Scheme meeting to be held at 11 am on Thursday, 5 September 2024 in Perth. Procedural orders were made as to the manner of conducting the Scheme meeting and for the votes of shareholders to be cast. 4 Before the Court today is the second Court hearing which seeks approval of the Scheme pursuant to s 411 (4) (b) of the Corporations Act. Base Resources relies upon the following evidence by affidavit: (1) Danielle Petch made on 6 September 2024; (2) Scott Sobey made on 9 September 2024; (3) Rodney Somes made on 9 September 2024; (4) Simon Reed made on 9 September 2024; and (5) Simon reed made on 12 September 2024 5 The evidence establishes and I find accordingly as follows. 6 A copy of the Scheme Orders was lodged with ASIC on 1 August 2024. The final version of the Scheme Booklet was registered with ASIC on 1 August 2024, prior to its dispatch. On 1 August 2024, Base Resources announced to the ASX the fact of the making of the Scheme Orders and in that announcement disclosed that it expected the Scheme Booklet and its accompanying material to be dispatched on 6 August 2024. It advised that shareholders could expect to receive the Scheme Booklet and the accompanying material together with an updated timetable for the Scheme, including the time, date and location of the Scheme meeting. 7 On 2 August 2024, Base Resources announced to the ASX that the Scheme Booklet had been registered and attached to it a copy of the Scheme Booklet including the independent expert report. 8 The procedural requirements for dispatch of the Scheme Booklet, the placing of website links, the provision of hard copies by post to a limited number of shareholders (i.e. those who do not receive notifications by email) have been complied with. 9 The Scheme meeting was convened at 11 am on 5 September 2024 in Perth. Mr Scott Sobey acted as the chair. 10 The Scheme meeting was conducted in person and by virtual technology. Limited questions were asked by members. Those questions did not raise any issues of unfairness or non-disclosure. The members then voted upon the resolution to approve the Scheme. In excess of 803 million votes were cast in favour of the Scheme and approximately 930,000 votes were cast against it: a ratio of approximately 99.88% to 0.12%. 164 shareholders voted in favour and 12 voted against. The turnout at the Scheme meeting was significant. 11 The result was that the Scheme was approved by the required majorities, that is, a majority in number of the members present and voting and by 75% of the votes cast on the resolution: s 411 (4) (a) (ii) of the Corporations Act. 12 The range of discretionary matters that this Court considers in the exercise of its discretion to approve of the Scheme are well-known, and I recently set out the primary authorities in Re Alumina Ltd [2024] FCA 806 at [8]: The principles which inform the exercise of the discretion to approve of a scheme of arrangement are settled; see generally Re Amcor Ltd (No 2) [2019] FCA 842 at [7] – [11], Beach J and Re Australia and New Zealand Banking Group Ltd (No 2) [2022] FCA 1547 at [10], O'Bryan J. In Re Amcor Ltd, Beach J with characteristic succinctness at [7] – [8] in part said: In essence, my role at the second court hearing is to assess the Scheme taking into account whether the Scheme is sufficiently fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it. Of course, I can only approve a scheme of arrangement if the requisite majority of shareholders vote in favour of it, but I am not bound to approve the Scheme simply because I previously made orders for the convening of a Scheme meeting and subsequently the requisite majority agreed to it. But I accept that shareholders voting collectively at the Scheme meeting are better judges than I of what is to their commercial advantage and in their interests and accordingly, absent good reason, I should give effect to their intentions. Now whilst there is no exhaustive statement of the matters as to which I must be satisfied before granting approval, it is not in doubt that in exercising my power under s 411(4)(b), I should be satisfied that: (a) the Scheme complies with the law, including the relevant procedural requirements; (b) the Scheme was approved by shareholders acting in good faith and for proper purposes; (c) there has been an accurate and comprehensive disclosure of the details of the Scheme and its effect to those voting on it; (d) there is no suggestion of oppression of any minority; (e) there is no evidence that any third parties will be disproportionately adversely affected by the operation of the Scheme; (f) the Scheme does not offend against any aspect of public policy; and (g) all matters that could be considered relevant to the exercise of my discretion have been drawn to my attention. 13 Base Resources has prepared its evidence conformably with the Court's Schemes of Arrangement Practice Note (GPN-SOA) dated 13 October 2023. I must be satisfied that the Scheme Orders have been complied with, that the Scheme meeting was properly convened and that each requirement of the Federal Court (Corporations) Rules 2000 (Cth) has been met, that full and fair disclosure has been provided to the members of all information material to the proposed resolution and that no matters of concern relevant to the exercise of my discretion have been brought to my attention. 14 I am satisfied as to those matters. Specifically, I am satisfied that: (1) The members have voted in good faith and for a proper purpose; (2) The Scheme is for an acquisition transaction that is common; (3) The independent expert report from PricewaterhouseCoopers Securities Ltd has concluded, after reviewing the Base Resources financial statements for the financial year ended 30 June 2024, that the Scheme is fair and reasonable and therefore is in the best interests of shareholders in the absence of any other relevant information or a superior proposal. There is no superior proposal and no other information has been drawn to my attention; (4) ASIC has not objected to the Scheme as evidenced by the correspondence dated 11 September 2024; (5) No objecting member has appeared at this hearing; (6) It is not the function of this Court to apply its commercial judgment to the arrangement that is proposed. The members are best placed to make that commercial judgment; and (7) The overwhelming vote in favour of the proposed Scheme is strong evidence as to its fairness, reasonableness and that it is in the best interests of the members. The independent expert report confirms those matters. 15 There are conditions precedent to the implementation of the Scheme about which I must be satisfied, unless they are waived before the Scheme becomes effective. The fourth affidavit of Simon Reed establishes satisfaction of those conditions precedent, as evidenced by the certificate which is annexure SWR33 dated 12 September 2024. The affidavit also attaches the correspondence from ASIC of 11 September 2024 whereby, in the usual terms, ASIC states that it does not oppose the scheme and does not intend to appear. I find according to that evidence of Mr Reed. 16 I am also satisfied that full and fair disclosure has been made of the proposed scheme. It was prepared with professional external advice, has been verified by Base Resources and Energy Fuels and reviewed by ASIC. The members have not raised any issue about the adequacy of disclosure prior to the Scheme meeting. 17 There is no evidence of any minority member oppression. There is no further matter relevant to the exercise of my discretion that has been drawn to my attention. 18 An order is sought to that the requirement at s 411 (11) of the Corporations Act that a copy of the order made approving the Scheme be annexed to the constitution be dispensed with. There is plainly no utility in enforcing that requirement in this case, and that order will be made. 19 Section 411 (17) of the Corporations Act provides that this Court must not approve a compromise or arrangement unless satisfied that it has not been proposed for the purpose of enabling any person to avoid the operation of any provisions of Chapter 6 or there is produced to the Court a statement in writing by ASIC that it has no objection to the arrangement. ASIC has provided a letter to that effect. In any event, I am otherwise satisfied that the Scheme has not been proposed for the prohibited purpose. 20 There is no matter of public policy that would warrant refusal of the exercise of my discretion. 21 There is a further issue relating to the US Securities Act of 1933. If the Scheme is approved, Energy Fuels intends to rely on s 3 (a) (10) of that Act to engage the exemption from certain registration requirements for the common shares in Energy Fuels to be issued under the Scheme. I dealt with a similar application in Re Alumina at [20] – [22] as follows: There is one complicating aspect of the Scheme. All securities offered in the United States of America must satisfy the registration requirements of the Securities Act 1933 and be registered with the US Securities and Exchange Commission. There are requirements to disclose financial information and to comply with the registration requirements, which include a prospectus. However, there is the prospect of engaging the exemption at s 3(a)(10) in the case of securities issued in exchange for other securities and where the terms and conditions are approved of by a court after consideration of the fairness of the terms and conditions. Alumina intends to apply to engage the exemption. The exemption provides: Except as hereinafter expressly provided, the provisions of this subchapter shall not apply to any of the following classes of securities: … [10] ... any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval. The operation of this provision was considered by Beach J, in Re Newcrest Mining Ltd [2023] FCA 1080 at [72]: Now before an issuer can rely on the exemption, a number of conditions must be satisfied. These conditions arise from the combined effect of the matters set out in s 3(a)(10) of the Securities Act as well as the Staff Legal Bulletin No. 3A (CF), Division of Corporation Finance, SEC, 18 June 2008 (SLB 3A). These conditions have been considered by me for the purposes of other schemes (Re Amcor (No 2) [2019] FCA 842 at [32] to [38]). One of the conditions is that the relevant court must be advised before any hearing at which the fairness of the terms and conditions of the Scheme is approved that the issuer will rely on the s 3(a)(10) exemption based on that court's approval in the event that the Scheme is in fact approved (s 3(a)(10)) of the Securities Act as well as SLB 3A. Further conditions include that the Court approve the terms and conditions of the issuance and exchange to be conducted pursuant to the Scheme of arrangement and that the Court find, before approving the transaction, that the terms and conditions of the exchange are fair, both procedurally and substantively, to those to whom securities will be issued. 22 I proceed in the same manner in this matter, by addressing the matters relevant to the application of the exemption in my reasons. I record that I am satisfied as to the following matters: (a) I was advised prior to commencement of the approval hearing that reliance would be placed on the exemption based on this Court's approval of the Scheme; (b) I have been informed that the securities to be offered as consideration for the Scheme, as explained in the independent expert report, is fair and reasonable and therefore in the best interests of Base Resources shareholders in the absence of a superior proposal; (c) As required by the Corporations Act, this Court has considered at this hearing the fairness and reasonableness of the Scheme and has concluded that it meets the statutory requirements; (d) The hearing has been open to the public and any person with proper interest has standing to appear. Notice of the hearing was given. No shareholder has appeared in opposition to the Scheme; and (e) It is appropriate to include a notation in today's orders to the effect that Base Resources will rely on this Court's approval of the Scheme for the purposes of engaging exemption. 23 I have been provided with draft orders. I am satisfied that the orders proposed should be made. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine. Associate: Dated: 12 September 2024