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Peak Coal Limited (ACN 125 884 031), In the matter of Peak Coal Limited (ACN 125 884 031) [2010] FCA 6 (12 January 2010)

Last Updated: 13 January 2010

FEDERAL COURT OF AUSTRALIA

Peak Coal Limited (ACN 125 884 031), In the matter of Peak Coal Limited
(ACN 125 884 031) [2010] FCA 6

Citation:		Peak Coal Limited (ACN 125 884 031), In the matter of Peak Coal Limited (ACN 125 884 031) [2010] FCA 6

Parties:		PEAK COAL LIMITED (ACN 125 884 031)

File number:		WAD 181 of 2009

Judge:		MCKERRACHER J

Date of judgment:		12 January 2010

Catchwords:		CORPORATIONS LAW – Scheme of Arrangement – s 411 of the Corporations Act 2001 (Cth) approval

Legislation:		Corporations Act 2001 (Cth) Pt 5.1, Ch 6, Ch 6A, ss 411(2), 411(6), 411(17)

Cases cited:		Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 Re Stockbridge (1993) 9 ACSR 637

Date of hearing:	21 December 2009

Place:	Perth

Division:	GENERAL DIVISION

Category:	Catchwords

Number of paragraphs:	20

Solicitor for the Plaintiff:	Steinepreis Paganin

Counsel for the Plaintiff:	JG Young

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 181 of 2009

IN THE MATTER OF PEAK COAL LIMITED (ACN 125 884 031)

BETWEEN:

PEAK COAL LIMITED (ACN 125 884 031)
Plaintiff

JUDGE:	MCKERRACHER J
DATE OF ORDER:	21 DECEMBER 2009
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

Leave be given to the Plaintiff to convene a meeting (Shareholders Meeting) of each person registered as a holder of ordinary shares issued by the Plaintiff (Shareholder) as at 8.30 am (WST) 26 January 2010 for the purpose of considering and, if thought fit, approving (with or without amendment) the scheme of arrangement (Share Scheme) which is Appendix 2 of the scheme booklet, being annexure GL-6 to the affidavit of George Lazarou sworn on 15 October 2009 (Scheme Booklet), such meeting to be held on 28 January 2010 at 8.30 am (WST) at the Seminar Room, Royal Perth Golf Club, Labouchere Road, South Perth, Western Australia.
Leave be given to the Plaintiff to convene a meeting (Optionholders Meeting) of each person registered as a holder of an option issued by the Plaintiff with an exercise price of 20 cents expiring on 31 December 2011 (Optionholder) as at 9.00 am (WST) 26 January 2010 for the purpose of considering and, if thought fit, approving (with or without amendment) the scheme of arrangement which is Appendix 3 of the Scheme Booklet (Option Scheme), such meeting to be held on 28 January 2010 at 9.00 am (WST) (or, if later, as soon as possible after the conclusion of the Shareholders Meeting) at the Seminar Room, Royal Perth Golf Club, Labouchere Road, South Perth, Western Australia.

3. The Shareholders Meeting be convened, held and conducted:

(a) in accordance with the provisions of Part 2G.2 of the Corporations Act 2001 (Cth) (Act) that apply to members of a company and the provisions of the Plaintiff’s constitution that are not inconsistent therewith and that apply to meetings of members; and

(b) to the extent applicable, in accordance with Corporations Regulations 5.6.12 to 5.6.36.
4. The Optionholders Meeting be convened, held and conducted:

(a) 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 are not inconsistent therewith and that apply to meetings of creditors;

(b) on the basis that a quorum for the purpose of the Optionholders Meeting shall be 2 Optionholders, present in person or by proxy or attorney and otherwise as if such Optionholders were a separate class of members; and

Pursuant to Section 1319 of the Act, the Plaintiff be exempted from compliance with the requirements of Rule 2.15 of the Federal Court (Corporations) Rules 2000 and Regulation 5.6.36A of the Corporations Regulations 2001 (Cth).
That Mr Mark Joseph Ceglinski, or failing him, Mr George Lazarou, be appointed to act as Chairman of the Shareholders Meeting and of the Optionholders Meeting.
The Chairman appointed to the Shareholders Meeting and the Optionholders Meeting has the power to adjourn those meetings in his absolute discretion.
That Mr Mark Joseph Ceglinski, or failing him, Mr George Lazarou, is to report the results of the Shareholders Meeting and of the Optionholders Meeting to this Honourable Court.
The Scheme Booklet referred to in Appendix “A” (incorporating the amendments required by ASIC to the date hereof), being an explanatory statement required by section 412(1)(a) of the Act, be and is hereby approved (subject to any minor amendments required or approved by ASIC for the purposes of registration thereof under section 412(6) of the Act) which contains:

(a) a letter from the chairman of the Plaintiff;

(b) an overview of the schemes (Section 1);

(d) a summary of the key features of the Option Scheme (Section 3);

(e) an outline of the reasons for the schemes and an overview of the merged group (Section 4);

(f) details of the implementation of the schemes (Section 5);

(g) scheme recommendations and issue for consideration for scheme participants (Section 6);

(h) background information on the Plaintiff (Section 7);

(i) background information on Wildhorse Energy Limited (Section 8);

(j) taxation information for scheme participants (Section 9);

(k) additional information on the schemes (Section 10);

(l) the scheme implementation agreement entered between the Plaintiff and Wildhorse Energy Limited (as replaced by the replacement implementation agreement) (Appendix 1);

(m) the scheme of arrangement to be made between the Plaintiff and its members (Appendix 2);

(n) the scheme of arrangement to be made between the Plaintiff and its optionholders (Appendix 3);

(o) a deed poll in respect of the Share Scheme entered into by Wildhorse Energy Limited (Appendix 4);

(p) a deed poll in respect of the Option Scheme entered into by Wildhorse Energy Limited (Appendix 5);

(q) notice of the Shareholders Meeting and the proxy form (Appendix 6);

(r) notice of the Optionholders Meeting and the proxy form (Appendix 7);

(s) an independent expert’s report in respect of the Share Scheme prepared by BDO Kendalls Corporate Finance (WA) Pty Ltd (Appendix 8); and

(t) an independent expert’s report in respect of the Option Scheme prepared by BDO Kendalls Corporate Finance (WA) Pty Ltd (Appendix 9).

The Plaintiff shall (subject to the registration of the explanatory statement by ASIC pursuant to Section 412(6) of the Act):

(a) dispatch the Scheme Booklet to those Shareholders and Optionholders whose address is in the register maintained by Computershare Investor Services Pty Limited as at 5.00 pm (WST) on 18 December 2009 by ordinary pre-paid post (or by airmail to overseas holders) on or about 4 January 2009; and

(b) dispatch to those Shareholders who may hold an unmarketable parcel of fully paid ordinary shares in Wildhorse Energy Limited following implementation of the Share Scheme, a form to elect, if they wish to do so, to have those shares issued to a nominee for sale on their behalf, in the manner described in Section 2.16 of the Scheme Booklet.

The attached notice (for the purpose of this order marked “B”) be inserted in the public notices column of “The Australian” and “The West Australian”, such advertisements to be published on or about 8 January 2010.
The attached notice (for the purpose of this order marked “C”) be inserted in the public notices column of “The Australian” and “The West Australian”, such advertisements to be published on or about 8 January 2010.
The attached notice (for the purpose of this order marked “D”) be inserted in the public notices column of “The Australian” and “The West Australian”, such advertisements to be published on or about 29 January 2010.
Subject to approval of the Share Scheme and the Option Scheme at the meetings convened under Orders 1 and 2 above, leave is granted to make an application for orders under Sub-sections 411(4) and (6) of the Act at 9.00 am on 4 February 2010 for approval of the Share Scheme and the Option Scheme.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 181 of 2009

IN THE MATTER OF PEAK COAL LIMITED (ACN 125 884 031)

BETWEEN:

PEAK COAL LIMITED (ACN 125 884 031)
Plaintiff

JUDGE:	MCKERRACHER J
DATE:	12 JANUARY 2010
PLACE:	PERTH

REASONS FOR JUDGMENT

The plaintiff (Peak Coal) applies today for leave to convene a shareholders’ meeting to approve a Scheme of Arrangement. Peak Coal has proposed two separate but interdependent Schemes of Arrangement, namely, a scheme between Peak Coal and its members and a scheme between Peak Coal and the holders of one tranche of unlisted options to acquire ordinary fully paid shares of Peak Coal exercisable at 20 cents on or before 31 December 2011 (the Schemes).
Evidence in support of the Schemes discloses that their purposes are to implement a merger in accordance with Pt 5.1 of the Corporations Act 2001 (Cth) (the Act) between Peak Coal and Wild Horse Energy Limited (Wild Horse).
The evidence discloses that Peak Coal and Wild Horse entered into a replacement Implementation Agreement on 14 October 2009. That Agreement was in substitution for an original Implementation Agreement entered into on 1 September 2009. The replacement Agreement, now known as the Implementation Agreement, is Appendix 1 to the Scheme Booklet prepared by Peak Coal. The material terms of that Agreement are summarised within the Scheme Booklet (at s 5.2).
The exchange of listed shares under the Scheme involves the members of Peak Coal receiving one new Wild Horse share for each three of their shares in Peak Coal which in turn are to be transferred to Wild Horse. If approved and implemented, the share scheme will result in Peak Coal becoming a 100 per cent owned subsidiary of Wild Horse. Wild Horse shares will be tradable on the ASX securities market (ASX).
Pursuant to the option scheme which is Appendix 3 to the Scheme Booklet, there is provision for the cancellation of the Peak Coal Scheme Options which at present are not listed on the ASX and the issue of one new Wild Horse option for each three Peak Coal Scheme Options having the same exercise date and an exercise price being three times the exercise price of the Peak Coal Scheme Options. The new options in Wild Horse will not be listed on the ASX.
Peak Coal contends (and I accept) that the Schemes are relatively conventional in nature. Features in that regard are that there is only one class of shares on issue by Peak Coal. They are ordinary shares. Only one tranche of options is the subject of the Options Scheme although there are 11 tranches of options. The Implementation Agreement contains limited ‘no shop’ and ‘no talk’ provisions in cl 9.1 and cl 9.2. These are, however, subject to an overriding exception in circumstances which place the fiduciary or statutory obligations in precedence to the provisions of the ‘no shop’ or ‘no talk’ provisions.
There is no ‘break fee’ in this Implementation Agreement. There is, however, provision for Wild Horse to make a loan of $500,000 to Peak Coal for budgeted working capital expenditure. That loan will be repayable on 90 days notice if the Implementation Agreement terminates. This raises similar considerations to break fees. As Lindgren J observed in Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 at [52], the question is whether the fee or the loan arrangement would be ‘likely to coerce offeree shareholders into agreeing to the scheme, or to deter companies from making a competing offer?’ Peak Coal argues that the loan arrangements are not anti-competitive. The amount of the loan is, in the overall scheme of things, not particularly great. Any bidder wanting or having the capacity to make a competing offer on the face of the matter could also arrange a comparable loan facility if it were otherwise able to participate in making a bid. As to the question of whether the loan arrangement is coercive, in the absence of the loan agreement, Peak Coal would have to obtain finance from another source to fund its activities. It can be taken that the directors consider those activities are in the best interests of Peak Coal and the holders of its securities. There are no penalties applicable to repayment and no obviously onerous terms. It is conspicuous that the loan is free of interest. In any event, there is provision (cl 9.4) for Peak Coal to continue discussions with third parties with respect to future capital raisings so as to allow Peak Coal to approach third parties to raise future capital if this Implementation Agreement terminates.

DISCLOSURE

It appears to me that the Explanatory Statement explains the effect of the proposed Arrangement, sets out the ‘prescribed information’ and gives the other information that is material to the making of a decision by a creditor or member as to whether or not to agree to the arrangement. On the face of matters it is not evident there is any material omission or misstatement. There appears to be no lesser disclosure than that which would be required in a conventional takeover under Ch 6 of the Act. The Explanatory Statement contains information which meets the Ch 6 requirements of that Chapter for a scrip takeover scheme. It follows that Peak Coal’s members will receive the treatment and protection which would occur if the merger in Wild Horse were part of a takeover.
The option holders have been dealt with on the basis that they are within the broad terminology of ‘members’ of a Pt 5.1 body. This approach conforms with the policy expressed by the Australian Securities and Investments Commission (ASIC) in its Regulatory Guide 60 (at 60.61 – 60.64). The evidence discloses that Peak Coal has applied for and has been granted relief from certain of the disclosure requirements.
Peak Coal have supplied a checklist identifying the requirements of the Act and the Corporations Regulations 2001 (Cth) with respect to the information to be included in the Explanatory Statement identifying those parts of the Statement where the information is located.

ARRANGEMENT

Within the broad meaning of ‘arrangement’ there is little doubt that the proposed Schemes fall within an arrangement.

PART 5.1 BODY

Such a body is defined in s 9 of the Act as a company or a registerable body registered under Div 1 or Div 2 of Pt 5B.2 of the Act. Peak Coal is a company.

PROPRIETY OF THE PROPOSAL

As to the question of whether the Schemes are properly proposed, the bona fides of proposing the Schemes is not a matter to which close attention would usually be given at this stage unless something improper emerged. It is not apparent that there is any aspect of the Schemes which is inconsistent with Peak Coal’s Constitution. There is only one class of share in Peak Coal on issue. There is a conclusion by an independent expert that the Schemes are fair and reasonable and are in the best interests of the members and option holders. This taken with the other observations expressed in these short reasons lead to the conclusion that the Schemes are arrangements which sensible business people could consider to be of benefit to the scheme participants and which those voting in relation to them may reasonably support.
That part of the Scheme which is the Options Scheme might, in one sense, be classified as a creditors’ scheme. However, as there is no indication that implementation of the Schemes would deplete the ability of Peak Coal to meet its obligations towards creditors, a further meeting of other creditors or other involvement of such creditors is not apparent on the face of matters at this stage.

REASONABLE NOTICE TO ASIC

An important consideration is the satisfaction of the requirement under s 411(2) of the Act. The Court must be satisfied that ASIC has had 14 days notice of this hearing or such lesser period of notice as is appropriate in the circumstances and that ASIC has had a reasonable opportunity to examine the terms of the Schemes and the draft Explanatory Statement and to make submissions to the Court should it wish to do so. The draft of the Scheme Booklet was lodged on or about 14 October 2009. That document contained the draft Schemes, Explanatory Statement and independent expert’s report. Formal notice of the date and time of the hearing was given pursuant to the originating process. After the preparation of the revised independent expert’s report as required by ASIC, an amended Scheme Booklet containing the Explanatory Statement and revised independent expert’s report was lodged with ASIC on 2 December 2009. Formal notice of the date and time of the new hearing date was given. In those circumstances, ASIC has had a reasonable opportunity to examine the terms of the proposed Schemes and to make submissions to the Court. Although ASIC’s policy is not to give a statement in writing as contemplated by s 411(17) of the Act until the approval stage referred to in s 411(6) of the Act, it has confirmed in a letter to Peak Coal’s solicitors that it does not intend to appear to make submissions or to intervene to oppose the Scheme at this hearing. The requirements of s 411(2) of the Act are satisfied.
As previously observed, it can reasonably be said that persons within the classes in question ‘might well approve’ of the scheme (see Re Stockbridge (1993) 9 ACSR 637 at 646 and 647 per Murray J). The directors of each of Peak Coal and Wild Horse obviously consider that to be so and have recommended acceptance.
In addition, if Wild Horse were to make a takeover bid under Ch 6 of the Act for both shares and options, it could not be guaranteed 100 per cent ownership of Peak Coal or a sufficient number of acceptances of the bid by members to allow it to acquire the remaining shares through compulsory acquisition provisions of Ch 6A of the Act. The Schemes, in the circumstances, provide a greater level of certainty at an earlier stage in ascertaining whether 100 per cent ownership of the issued capital of Peak Coal (present and potential) is achievable. It is improbable that the directors of Wild Horse would agree to its obligations associated with the proposed merger - including the conduct of due diligence investigations into Peak Coal and permitting due diligence investigations by Peak Coal into Wild Horse, making the loan to Peak Coal to fund its budgeted working capital expenditure and agreeing to reimburse 50 per cent of Peak Coal’s expenses of the transaction and the Schemes - if it could not be guaranteed of acquiring a 100 per cent interest within a shorter timeframe than that achievable by way of a takeover bid under Ch 6 of the Act.
I have had regard to the location and timing of the proposed scheme meetings which seem in order.

CONCLUSION

I am satisfied that the Schemes are on their face commercial propositions which are properly structured. Having regard to the disclosure in the draft Explanatory Statement, it appears to me that they are capable of being understood by the shareholders and option holders respectively. It appears to me that they would be likely to gain the Court’s approval on an uncontested motion. Other elements of Div 3 of the Federal Court (Corporations) Rules and the provisions under s 411 of the Act appear to have been complied with.
In those circumstances I will make the following orders:
1. Leave be given to the Plaintiff to convene a meeting (Shareholders Meeting) of each person registered as a holder of ordinary shares issued by the Plaintiff (Shareholder) as at 8.30 am (WST) 26 January 2010 for the purpose of considering and, if thought fit, approving (with or without amendment) the scheme of arrangement (Share Scheme) which is Appendix 2 of the scheme booklet, being annexure GL-6 to the affidavit of George Lazarou sworn on 15 October 2009 (Scheme Booklet), such meeting to be held on 28 January 2010 at 8.30 am (WST) at the Seminar Room, Royal Perth Golf Club, Labouchere Road, South Perth, Western Australia.
2. Leave be given to the Plaintiff to convene a meeting (Optionholders Meeting) of each person registered as a holder of an option issued by the Plaintiff with an exercise price of 20 cents expiring on 31 December 2011 (Optionholder) as at 9.00 am (WST) 26 January 2010 for the purpose of considering and, if thought fit, approving (with or without amendment) the scheme of arrangement which is Appendix 3 of the Scheme Booklet (Option Scheme), such meeting to be held on 28 January 2010 at 9.00 am (WST) (or, if later, as soon as possible after the conclusion of the Shareholders Meeting) at the Seminar Room, Royal Perth Golf Club, Labouchere Road, South Perth, Western Australia.

3. The Shareholders Meeting be convened, held and conducted:

(b) to the extent applicable, in accordance with Corporations Regulations 5.6.12 to 5.6.36.
4. The Optionholders Meeting be convened, held and conducted:

Pursuant to Section 1319 of the Act, the Plaintiff be exempted from compliance with the requirements of Rule 2.15 of the Federal Court (Corporations) Rules 2000 and Regulation 5.6.36A of the Corporations Regulations 2001 (Cth).
That Mr Mark Joseph Ceglinski, or failing him, Mr George Lazarou, be appointed to act as Chairman of the Shareholders Meeting and of the Optionholders Meeting.
The Chairman appointed to the Shareholders Meeting and the Optionholders Meeting has the power to adjourn those meetings in his absolute discretion.
That Mr Mark Joseph Ceglinski, or failing him, Mr George Lazarou, is to report the results of the Shareholders Meeting and of the Optionholders Meeting to this Honourable Court.
The Scheme Booklet referred to in Appendix “A” (incorporating the amendments required by ASIC to the date hereof), being an explanatory statement required by section 412(1)(a) of the Act, be and is hereby approved (subject to any minor amendments required or approved by ASIC for the purposes of registration thereof under section 412(6) of the Act) which contains: