Arrow Energy Limited, in the matter of Arrow Energy Limited [2011] FCA 2 (6 January 2011)

Last Updated: 10 January 2011

FEDERAL COURT OF AUSTRALIA

Arrow Energy Limited, in the matter of Arrow Energy Limited [2011] FCA 2

Citation:		Arrow Energy Limited, in the matter of Arrow Energy Limited [2011] FCA 2
Parties:		ARROW ENERGY LIMITED (ACN 078 521 936)
File number:		NSD 596 of 2010
Judge:		STONE J
Date of judgment:		6 January 2011
Legislation:		Corporations Act 2001 (Cth) ss 411, 412 Corporations Regulations 2001 (Cth)
Cases cited:		Arrow Energy Limited, in the matter of Arrow Energy Limited (No 2) [2011] FCA 3 Re Hills Motorway Management Ltd [2002] NSWSC 897; (2002) 43 ACSR 101
Date of hearing:	3 June 2010 and 16 July 2010
Place:	Sydney
Division:	GENERAL DIVISION
Category:	No catchwords
Number of paragraphs:	31
Counsel for the Plaintiff:	T F Bathurst QC
Solicitor for the Plaintiff:	Gilbert + Tobin
Counsel for CS CSG Australia Pty Ltd:	I M Jackman SC
Solicitors for CS CSG Australia Pty Ltd:	Allens Arthur Robinson and Blake Dawson

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 596 of 2010

IN THE MATTER OF ARROW ENERGY LIMITED (ACN 078 521 936)

ARROW ENERGY LIMITED (ACN 078 521 936) Plaintiff

JUDGE:	STONE J
DATE OF ORDER:	16 JULY 2010
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. Pursuant to Section 411(4)(b) of the Corporations Act 2001 (Cth) (the Act) the scheme of arrangement between Arrow Energy Limited (Arrow) (ACN 078 521 936) and the holders of fully-paid ordinary shares in Arrow, in the form set out in Annexure ‘A’ to these orders, be approved; and
2. Pursuant to section 411(12) of the Act, the requirements of section 411(11) be dispensed with.

Annexure “A”

SCHEME OF ARRANGEMENT

SCHEME OF ARRANGEMENT MADE UNDER SECTION 411 OF THE CORPORATIONS ACT 2001 (CTH)

PARTIES

1. Arrow Energy Limited ACN 078 521 936 (Arrow) of Level 19, AM-60, 42-60 Albert Street, Brisbane, Queensland, Australia; and
2. The holders of fully paid ordinary shares in the capital of Arrow Energy Limited.

RECITALS

1. Arrow is a public company incorporated in the State of Queensland. It is admitted to the official list of ASX and Arrow Shares are quoted on the stock market conducted by ASX.
2. Dart Energy is a company incorporated in the State of Queensland. It is, and until the Demerger Implementation Date will be, a wholly owned subsidiary of Arrow.

100. If the Demerger Scheme becomes Effective, then:

(a) Arrow will reduce its share capital by the Capital Reduction Amount;
(b) Arrow will pay the Demerger Dividend;
(c) Arrow will provide the Scheme Entitlements to the Scheme Shareholders in accordance with the provisions of the Demerger Scheme; and
(d) Dart Energy will cease to be a wholly owned subsidiary of Arrow from the Demerger Implementation Date.

4. As at 3 June 2010 there were 733,503,047 Arrow Shares on issue.
5. As at 3 June 2010 there were 10,322,465 Arrow Options on issue.

DEFINITIONS AND INTERPRETATION

1.1 Definitions

In this Scheme of Arrangement, unless the contrary intention appears or the context requires otherwise:

Arrow Board means the board of directors of Arrow from time to time.

Arrow Constitution means the constitution of Arrow.

Arrow Directors means the directors of Arrow as at the date of the Scheme Booklet.

Arrow Option means an option to subscribe for an Arrow Share and for the purposes of clause 1.7(f) means such an option that has not been exercised by 8:00am on the Second Court Date.

Arrow Share means a fully paid ordinary share in the capital of Arrow.

Arrow Share Register means the register of Arrow Shareholders maintained under section 169 of the Corporations Act.

Arrow Shareholder means a person who is registered in the Arrow Share Register as the holder of Arrow Shares.

ASIC means the Australian Securities and Investments Commission.

ASX means ASX Limited.

Business Day means a business day as defined in the Listing Rules.

Capital Reduction means a reduction of the share capital of Arrow by the Capital Reduction Amount, as described in resolution 1 of the Notice of General Meeting set out in the Scheme Booklet.

Capital Reduction Amount means, in respect of each Arrow Share held by a Scheme Shareholder as at the Record Date, the amount determined in accordance with the Capital Reduction Resolution.

Capital Reduction Entitlement means, in relation to a Scheme Shareholder, the Capital Reduction Amount multiplied by the number of Arrow Shares held by the Scheme Shareholder as at the Record Date.

Capital Reduction Resolution means the ordinary resolution to approve the Capital Reduction to be considered at the General Meeting.

CHESS means the Clearing House Electronic Subregister System.

Corporations Act means the Corporations Act 2001 (Cth) and the regulations made under that Act.

Court means the Federal Court of Australia.

CS CSG means CS CSG (Australia) Pty Ltd ACN 141 385 293.

Dart Energy means Dart Energy Limited ACN 122 588 505 formerly known as Arrow Energy International Pty Limited.

Dart Energy Share means a fully paid ordinary share in the capital of Dart Energy.

Dart Energy Share Register means the register of members of Dart Energy maintained under section 169 of the Corporations Act.

Demerger means the demerger of Dart Energy from Arrow to be implemented through the Capital Reduction and the Demerger Scheme in the manner more fully described in the Demerger Scheme.

Demerger Dividend means the dividend to be paid to the holders of the Scheme Shares in the amount determined by the Arrow Board and announced to the ASX on or prior to the Demerger Implementation Date.

Demerger Dividend Resolution means the resolution by the Arrow Board to pay the Demerger Dividend.

Demerger Entitlement means in relation to each Scheme Shareholder the aggregate of the Demerger Dividend and the Capital Reduction Entitlement payable to that Scheme Shareholder, subject to the terms of this Demerger Scheme.

Demerger Implementation Agreement means the agreement of that name between Arrow and Dart Energy dated 2 June 2010.

Demerger Implementation Date means the date that is two Business Days after the Record Date, or such other date as:

(a) Arrow and Dart Energy may agree in writing;
(b) ordered by the Court; or
(c) may be required by ASX.

Demerger Scheme means this scheme, subject to any alterations or conditions made or required by the Court pursuant to section 411 of the Corporations Act.

Demerger Scheme Deed Poll means the deed poll dated 3 June 2010 executed by Dart Energy in favour of Scheme Shareholders (subject to any amendments permitted by its terms).

Effective means the coming into effect, pursuant to section 411(10) of the Corporations Act, of the order of the Court made under section 411(4)(b) in relation to the Demerger Scheme.

Effective Date means the date on which the office copy of the Court order approving the Demerger Scheme under section 411(4)(b) of the Corporations Act is lodged with ASIC pursuant to section 411(10) of the Corporations Act, or if an earlier date is specified in the Court order for the coming into effect of the Demerger Scheme, that earlier date.

General Meeting means the general meeting of Arrow Shareholders convened to consider the Capital Reduction Resolution.

Ineligible Overseas Shareholder means each Scheme Shareholder whose Registered Address is in any jurisdiction other than Australia and its external territories or New Zealand.

Listing Rules means the listing rules of ASX from time to time as modified by any express written waiver or exemption given by ASX.

Nominee means the person nominated by Arrow to sell or facilitate the transfer of the Dart Energy Shares attributable to Ineligible Overseas Shareholders under the terms of the Demerger Scheme.

Record Date means 7:00pm on the fifth Business Day after the Effective Date.

Registered Address means, in relation to a Scheme Shareholder, the address of that Scheme Shareholder shown in the Arrow Share Register on the Record Date.

Scheme Booklet means the booklet dated 3 June 2010 approved by the Court under section 411(1) of the Corporations Act for distribution to Arrow Shareholders explaining the Demerger and containing, among other things, the explanatory statement as required by Part 5.1 of the Corporations Act in relation to the Demerger Scheme.

Scheme Entitlement means subject to clause 4.6:

(a) in the case of a Scheme Shareholder (other than an Ineligible Overseas Shareholder) – one Dart Energy Share for every two Arrow Shares held by the Scheme Shareholder as at the Record Date; and
(b) in the case of an Ineligible Overseas Shareholder – the cash proceeds the Ineligible Overseas Shareholder receives in accordance with clause 4.8 of the Demerger Scheme.

Scheme Meeting means the meeting of Arrow Shareholders ordered by the Court to be convened under section 411(1) of the Corporations Act for the purposes of considering the Demerger Scheme.

Scheme Shareholder means a person registered on the Arrow Share Register at the Record Date as the holder of a Scheme Share after registration of all transfer and transmission applications as provided for in clause 5.1.

Scheme Share means an Arrow Share on issue at the Record Date.

Second Court Date means the date on which the application made to the Court for an order for the purposes of section 411(4)(b) of the Corporations Act approving this Demerger Scheme is first heard.

1.2 Interpretation

In this Scheme of Arrangement, unless the contrary intention appears or the context requires otherwise:

(a) words and phrases (other than those defined in clause 1.1) have the same meaning (if any) given to them in the Corporations Act;
(b) the singular includes the plural and vice versa;
(c) each gender includes the other gender;
(d) references to persons includes references to individuals, corporations, other bodies corporate or bodies politic;
(e) references to paragraphs or clauses are to a paragraph or clause of this document;
(f) a reference to a statute, regulation or agreement is to such a statute, regulation or agreement as from time to time amended;
(g) a reference to a person includes a reference to a person’s executors, administrators, successors, substitutes (including, without limitation, persons taking by novation) and assigns;
(h) if a time period is specified and dates from a given date or the day of an act or event, it is to be calculated exclusive of that day;
(i) a reference to a day is to be interpreted as the period of time commencing at midnight and ending 24 hours later;
(j) a reference to any time is a reference to that time in Sydney, Australia;
(k) a reference to ‘dollars’ or ‘$’ is to the lawful currency of the Commonwealth of Australia;
(l) a reference to a document is that document as varied, novated, ratified or replaced from time to time;
(m) the interpretation of a substantive provision is not affected by any heading; and
(n) ‘includes’ in any form is not a word of limitation.

1.3 Business Day

Except where otherwise expressly provided, where the day on which any act, matter or thing is to be done is a day other than a Business Day, that act, matter or thing shall be done on the next Business Day.

BACKGROUND

1.4 Demerger Implementation Agreement

Arrow and Dart Energy have entered into the Demerger Implementation Agreement to facilitate, among other things, the implementation of the Demerger Scheme and the Capital Reduction.

1.5 Demerger Scheme Deed Poll

Dart Energy has entered into the Demerger Scheme Deed Poll in favour of the Scheme Shareholders pursuant to which it has agreed to:

(a) cause the name of each Scheme Shareholder (other than the Ineligible Overseas Shareholders) to be entered on the Dart Energy Share Register as the holder of the Dart Energy Shares to which the Scheme Shareholder is entitled under this Demerger Scheme; and
(b) cause the Nominee to be entered on the Dart Energy Share Register as the holder of the Dart Energy Shares to which Ineligible Overseas Shareholders would be entitled under this Demerger Scheme but for the operation of clause 4.4,

subject to the Demerger Scheme coming into effect on the Effective Date.

1.6 Capital Reduction

The Capital Reduction Resolution is to be voted on by the Arrow Shareholders at the General Meeting. The Demerger Scheme is conditional on the Capital Reduction Resolution being passed.

CONDITIONS

1.7 Conditions precedent to the Demerger Scheme

The Demerger Scheme is conditional upon the satisfaction or waiver in accordance with clause 3.2 of each of the following conditions precedent:

(a) Arrow Shareholders pass by the requisite majority vote, the Capital Reduction Resolution at the General Meeting;
(b) Arrow Shareholders approve the Demerger Scheme in accordance with Section 411(4)(a)(ii) of the Corporations Act at the Scheme Meeting;
(c) ASIC alters the details of Dart Energy’s registration under section 164 of the Corporations Act to reflect the company’s change in type from a proprietary company to a public company and under section 157(3) of the Corporations Act to reflect the company’s change of name from “Arrow Energy International Pty Limited” to “Dart Energy Limited”;
(d) before 8.00am on the Second Court Date, ASX approves the admission of Dart Energy to the official list of ASX, and grants permission for official quotation of the Dart Energy Shares on ASX, subject only to the Demerger Scheme becoming Effective, the provision of information required by ASX and other customary pre quotation conditions;
(e) no temporary restraining order, preliminary or permanent injunction or other order is issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the Demerger is in effect at 8.00am on the Second Court Date;
(f) as at 8:00am on the Second Court Date each holder of Arrow Options has entered into an agreement with Arrow to have the Arrow Options held by that person cancelled by no later than 6.00pm on the Second Court Date; and
(g) the Court approves the Demerger Scheme in accordance with section 411(4)(b) of the Corporations Act and an office copy of the order of the Court is lodged with ASIC.

1.8 Waiver of certain conditions precedent

The conditions precedent in clause 3.1 are for the benefit of Arrow and only Arrow may waive any one or more of these conditions precedent. Arrow must not waive the condition precedent in clause 3.1(f) without the prior written consent of CS CSG.

1.9 Certificate in relation to conditions

Arrow must provide to the Court on the Second Court Date a certificate confirming whether or not all the conditions precedent to this Demerger Scheme (other than the condition in clause 1.7(g) have been satisfied or waived.

1.10 Effective Date

This Demerger Scheme takes effect for all purposes on the Effective Date.

1.11 End Date

This Demerger Scheme lapses and has no further force or effect if the Effective Date is not on or before 30 September 2010 (or such later date as Arrow determines).

IMPLEMENTATION OF THIS DEMERGER SCHEME

1.12 Issue of Dart Energy Shares to Arrow

Immediately prior to Arrow reducing its capital under clause 1.13, Dart Energy will issue the number of Dart Energy Shares specified in clause 2.10(b) of the Demerger Implementation Agreement to Arrow and Arrow, with the consent of Dart Energy, will apply all intercompany debt owing by Dart Energy to it in consideration for the issue of those Dart Energy Shares. The Dart Energy Shares must:

(a) be validly issued;
(b) be fully paid; and
(c) rank pari passu in all respects with all other Dart Energy Shares then issued and outstanding

1.13 Capital Reduction

(a) On the Demerger Implementation Date, Arrow must reduce its capital by the Capital Reduction Amount.
(b) Arrow will apply each Scheme Shareholder’s Capital Reduction Entitlement in accordance with clause 1.15.

1.14 Demerger Dividend

(a) On or before the Effective Date the Arrow Board must pass the Demerger Dividend Resolution.
(b) Arrow will apply each Scheme Shareholder’s entitlement to the Demerger Dividend in accordance with clause 1.15.

1.15 Demerger Entitlement

(a) Each Scheme Shareholder (other than Ineligible Overseas Shareholders) directs Arrow to apply and Arrow must apply the Demerger Entitlement of that Scheme Shareholder as consideration for the transfer by Arrow to that Scheme Shareholder of the Scheme Entitlement of that Scheme Shareholder.
(b) Each Ineligible Overseas Shareholder directs Arrow to apply and Arrow must apply the Demerger Entitlement of that Ineligible Overseas Shareholder as consideration for the transfer by Arrow to the Nominee of the number of Dart Energy Shares that the Ineligible Overseas Shareholder would have, but for clause 4.8, been entitled to receive under this Demerger Scheme being (subject to clause 4.6) one Dart Energy Share for every two Scheme Shares held by the Ineligible Overseas Shareholder.

1.16 Transfer of Dart Energy Shares

Arrow must execute a transfer or transfers of all the Dart Energy Shares to the Scheme Shareholders (other than Ineligible Overseas Shareholders) or the Nominee (in respect of the Ineligible Overseas Shareholder), as the case may be, on the basis of one Dart Energy Share for every two Scheme Shares held by the Scheme Shareholders including the Ineligible Overseas Shareholders, and deliver the transfer or transfers to Dart Energy for registration on the Demerger Implementation Date.

1.17 Fractional entitlements

If the number of Scheme Shares held by a Scheme Shareholder is, after aggregating all holdings of Scheme Shares held by that Scheme Shareholder, such that an entitlement of that Scheme Shareholder to Dart Energy Shares is not a whole number then any such fractional entitlement to Dart Energy Shares will be rounded down to the nearest whole number of Dart Energy Shares and the fractional entitlement will be disregarded.

1.18 Registration of transfers

On the Demerger Implementation Date, Dart Energy must register the transfers delivered to it under clause 1.16 by entering in the Dart Energy Register:

(a) the name of each Scheme Shareholder (other than Ineligible Overseas Shareholders) in respect of the Dart Energy Shares transferred to the relevant Scheme Shareholder; and
(b) the name of the Nominee in respect of those Dart Energy Shares that would otherwise be transferred to each Scheme Shareholder who is an Ineligible Overseas Shareholder.

1.19 Sale of Ineligible Overseas Shareholders’ entitlements to Dart Energy Shares

(a) The right to receive Dart Energy Shares under the Demerger Scheme will not be available to an Ineligible Overseas Shareholder.
(b) The Dart Energy Shares that would, but for clause 1.19(a), have been issued to an Ineligible Overseas Shareholder will instead be issued to the Nominee in accordance with clause 4.4(b).
(c) Where Dart Energy Shares are issued to the Nominee in accordance with clause 4.4(b), Arrow must ensure that the Nominee:

(i) as soon as practicable and in any event within 20 Business Days after the Demerger Implementation Date, offers all such Dart Energy Shares registered in its name pursuant to clause 1.18(b) for sale on ASX (or entitlements thereto where such sales are effected at a time when trading in Dart Energy Shares on ASX takes places on a deferred settlement basis) in such manner, at such price or prices or on such other terms as the Nominee determines in good faith (and at the risk of the Ineligible Overseas Shareholder); and
(ii) within 5 Business Days after the receipt by the Nominee of the whole of the proceeds of sale of all such Dart Energy Shares, remits the proceeds of sale of all such Dart Energy Shares (after deduction of any fees, applicable brokerage, taxes, charges or costs of sale) to Arrow.

(d) Within 5 Business Days after receipt by Arrow of the remittance under clause 1.19(c)(c)(ii), Arrow must do all things required to ensure the payment by cheque in Australian currency drawn on an Australian bank to each Ineligible Overseas Shareholder of that proportion of the net proceeds of sale (after deduction of any fees, applicable brokerage, taxes, charges or costs of sale) of all such Dart Energy Shares as is equal to the proportion that the number of Dart Energy Shares issued to the Nominee under clause 4.4(b) in respect of that Ineligible Overseas Shareholder bears to the total number of Dart Energy Shares issued to the Nominee under clause 4.4(b) in respect of all such Ineligible Overseas Shareholders. Payment is to be sent by post to the Ineligible Overseas Shareholder within 30 Business Days after the Demerger Implementation Date.
(e) Each Ineligible Overseas Shareholder appoints Arrow as its agent to receive on its behalf any financial services guide or other notices which may be given by the Nominee to the Ineligible Overseas Shareholders.
(f) Payment in accordance with clause 1.19(d) fully satisfies and discharges all obligations of Arrow and Dart Energy to Ineligible Overseas Shareholders in relation to Demerger Entitlement and the Scheme Entitlement of the Ineligible Overseas Shareholders.

1.20 Dispatch of holding statements

Dart Energy must by no later than 12.00pm on the Business Day prior to the day on which the Dart Energy Shares commence ordinary settlement trading on ASX, dispatch or procure the dispatch to each Scheme Shareholder (other than Ineligible Overseas Shareholders) or to the Nominee (as the case may be) by prepaid post to their Registered Address, CHESS holding statements for Dart Energy Shares to which they are entitled under this Demerger Scheme (and in the case of Scheme Shareholders that are joint holders of Arrow Shares such holding statements must be forwarded to the holder whose name appears first in the Arrow Share Register on the Record Date).

DEALINGS IN ARROW SHARES

1.21 Dealings in Arrow Shares by Scheme Shareholders

For the purposes of establishing who is a Scheme Shareholder, dealings in Arrow Shares will be recognised by Arrow provided that:

(a) in the case of dealings of the type to be effected on CHESS, the transferee is registered as the holder of the relevant Arrow Shares on or before the Record Date; or
(b) in all other cases, registrable transfer or transmission applications in respect of those dealings are received at the place where the Arrow Share Register is kept on or before the Record Date,

and Arrow will not accept for registration or recognise for the purpose of establishing who are Scheme Shareholders any transfer or transmission application in respect of Arrow Shares received after the Record Date.

1.22 Arrow Share Register

For the purpose of determining entitlements to participate in this Demerger Scheme, Arrow must maintain the Arrow Share Register in accordance with the provisions of this clause 0 and the Arrow Share Register in this form solely determines entitlements to the Dart Energy Shares.

1.23 Registration of holdings

Arrow must register any registrable transfer or transmission applications received in accordance with clause 1.21(b) on or before the Record Date.

GENERAL PROVISIONS

1.24 Agreement to become a member of Dart Energy

Under the Demerger Scheme:

(a) each Scheme Shareholder agrees and acknowledges that the provision to it of its Demerger Entitlement and Scheme Entitlement in accordance with the terms of the Demerger Scheme constitutes the satisfaction of all of its entitlements under the Demerger Scheme including without limitation its Scheme Entitlement and Demerger Entitlement; and
(b) each Scheme Shareholder (other than Ineligible Overseas Shareholders) agrees to become a member of Dart Energy and to have its name entered in the Dart Energy Share Register and accepts the Dart Energy Shares transferred to them under the Demerger Scheme on the terms and conditions of the constitution of Dart Energy,

without the need for any further act by a Scheme Shareholder.

1.25 Appointment of agent and attorney

Each Scheme Shareholder, without the need for any further act, irrevocably appoints Arrow as its agent and attorney for the purpose of:

(a) executing any document or doing any other act necessary to give effect to the terms of the Demerger Scheme including, without limitation, the communication of the Scheme Shareholder’s agreement under clauses 1.24 and 1.28 and instructions under clause 1.27; and
(b) enforcing the Demerger Scheme Deed Poll against Dart Energy,

and Arrow accepts such appointment. Arrow, as agent of each Scheme Shareholder, may sub delegate its functions under this clause 1.25 to all or any of its directors and secretaries (jointly and severally).

1.26 Enforcement of Demerger Scheme Deed Poll

Arrow undertakes in favour of each Scheme Shareholder that it will enforce the Demerger Scheme Deed Poll against Dart Energy on behalf of and as agent and attorney for Scheme Shareholders.

1.27 Instructions to Arrow

Except for a Scheme Shareholder’s tax file number, all binding instructions or notifications between a Scheme Shareholder (other than an Ineligible Overseas Shareholder) and Arrow relating to Scheme Shares or a Scheme Shareholder’s status as an Arrow Shareholder (including, without limitation, any instructions relating to communications from Arrow and whether dividends are to be paid by cheque or into a specified bank account) will, to the extent permitted, from the Record Date be deemed, by reason of the Demerger Scheme, to be similarly binding instructions or notifications to, and accepted by, Dart Energy in respect of Dart Energy Shares transferred to Scheme Shareholders until those instructions or notifications are, in each case, revoked or amended in writing addressed to Dart Energy (at its registered address from time to time) or the Dart Energy Share Registry.

1.28 Scheme Shareholder’s consent

Each Scheme Shareholder consents to Arrow and Dart Energy doing all things necessary, incidental or expedient to the implementation and performance of the Demerger Scheme and acknowledges that the Demerger Scheme binds Arrow and all of the Arrow Shareholders from time to time (including those who do not attend the Scheme Meeting, do not vote at that meeting or vote against the Demerger Scheme).

1.29 Amendments to the Demerger Scheme

If the Court proposes to approve the Demerger Scheme subject to any alterations or conditions, Arrow may, by its counsel or solicitors, and with the consent of Dart Energy, consent to those alterations or conditions on behalf of all persons concerned, including a Scheme Shareholder.

GENERAL

1.30 Inconsistencies

To the extent of inconsistency between the Demerger Scheme and the Arrow Constitution, the Demerger Scheme overrides the Arrow Constitution and binds Arrow and all Arrow Shareholders.

1.31 Further assurance

Arrow will execute all deeds and other documents and do all acts and things necessary or expedient for the implementation and performance of the Demerger Scheme and will, on behalf of Scheme Shareholders, procure Dart Energy to execute all documents and do all acts and things necessary or desirable for the implementation and performance of the steps attributed to Dart Energy under the Demerger Scheme.

1.32 Costs

Except as otherwise expressly stated in the Demerger Scheme, Arrow will pay any costs, and any stamp duty and any related fines or penalties, which are payable on or in respect of this Demerger Scheme or on any document referred to in this Demerger Scheme.

1.33 Governing law

This Demerger Scheme is governed by the laws of the State of Queensland, Australia.

1.34 Official quotation of Dart Energy Shares

Arrow will procure that on or before the Effective Date, Dart Energy applies to ASX for admission of Dart Energy to the official list of ASX and for Dart Energy Shares to be quoted on ASX.

1.35 Notices

Any notice or other communication to Arrow in respect of this Demerger Scheme must be in legible writing and in English and:

(a) addressed as shown below:

Attention: Company Secretary

Address: Level 19, AM-60
42-60 Ann Street
Brisbane Qld 4000

Fax no: [phone];

(b) must be signed by the person making the communication or by a person duly authorised by that person;
(c) must be delivered or posted by prepaid post to the address, or sent by fax to the fax number, of Arrow in accordance with clause 6.6(a); and
(d) will be regarded as received by Arrow:

(i) if sent by fax, at the local time (in the place of receipt of that fax) which then equates to the time at which that fax is sent as shown on the transmission report which is produced by the machine from which that fax is sent and which confirms transmission of that fax in its entirety, unless that local time is not a Business Day, or is after 5:00pm on a Business Day, in which case that communication will be regarded as received at 9:00am on the next Business Day; and
(ii) in any other case, on delivery at the address of Arrow as provided in clause 6.6(a), unless that delivery is not made on a Business Day, or after 5:00pm on a Business Day, in which case that communication will be regarded as received at 9:00am on the next Business Day.

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 Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 596 of 2010

IN THE MATTER OF ARROW ENERGY LIMITED (ACN 078 521 936)

ARROW ENERGY LIMITED (ACN 078 521 936) Plaintiff

JUDGE:	STONE J
DATE:	6 JANUARY 2011
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Background

1. The application in this proceeding (Demerger Proceeding) was brought pursuant to s 411(1) of the Corporations Act 2001 (Cth). It concerns a scheme of arrangement (Demerger Scheme) between the plaintiff, Arrow Energy Limited (Arrow) and certain of its shareholders.
2. On 3 June 2010, following the first court hearing in the Demerger Proceeding, I made orders for the convening of a meeting of the plaintiff’s shareholders for the purpose of considering and, if thought fit, approving the Demerger Scheme substantially in the form of a draft document which was attached to the Demerger Scheme Booklet (DSB). The DSB was exhibited to the affidavit of Melinda Jane Sanders affirmed 2 June 2010 (First Sanders Affidavit). The orders specified the location and time for the meeting and approved the explanatory statement required under s 412(1)(a) of the Corporations Act as contained in the DSB. They also required Arrow to place an advertisement in The Australian newspaper, substantially in the form exhibited to the First Sanders Affidavit, not later than 5 days prior to the date fixed for the hearing of any application to approve the demerger. I also made ancillary orders in relation to shareholder proxy forms and the conduct of the shareholder meeting. The orders made on 3 June 2010 are set out in Schedule 1 to these reasons.
3. The proceeding was stood over to 16 July 2010 for the hearing of any application to approve the Demerger Scheme. That application was made and at the second court hearing on 16 July 2010, I ordered that the Demerger Scheme be approved. These are my reasons for the orders made on 3 June 2010 as well as those for the approval of the Demerger Scheme on 16 July 2010.

Summary of the Demerger Scheme

4. Arrow is a public company having over 732 million shares quoted on the Australian Securities Exchange (ASX). It is primarily involved in the exploration and development of coal seam gas in Queensland. The Arrow shareholders entitled to participate in the Scheme (Demerger Scheme Shareholders) were the holders of fully paid ordinary shares in Arrow as at 7.00 pm on the fifth business day following the date on which the Demerger Scheme became effective (Demerger Record Date).
5. Under the Demerger Scheme, the Demerger Scheme Shareholders, with the exception of Ineligible Overseas Shareholders (see [22]-[23] below), were to receive one share in Dart Energy Limited (Dart Energy) for every two of their Arrow shares. Any entitlement to a fraction of a Dart Energy share was to be rounded down to the nearest whole Dart Energy share.
6. The Demerger Scheme Shareholders were not required to pay any cash for the Dart Energy Shares. Instead each shareholder was to be credited with a capital reduction amount and a demerger dividend for each Arrow share held at the relevant time. The amounts credited were to be applied as consideration for the Dart Energy Shares received under the Demerger Scheme. The capital reduction was an essential element of the Demerger Scheme and therefore it was conditional on the Arrow Shareholders passing, by the requisite majority vote, the Capital Reduction Resolution at a general meeting of the company to be held on the same date as the Demerger Scheme Meeting.
7. Under the heading “Demerger Proposal at a Glance”, the outcome of the Demerger Scheme was summarised in the DSB which addressed the Arrow shareholders as follows:

If the Demerger Proposal is approved and implemented, you will:

• continue to hold the same number of shares in Arrow as you hold on the Demerger Record Date;
• receive one Dart Energy Share for every two Arrow Shares you hold on the Demerger Record Date (unless you are an Ineligible Overseas Shareholder); and
• if you are an Ineligible Overseas Shareholder, the Dart Energy Shares that you would otherwise have received under the Demerger Proposal will be transferred to and sold by the Nominee with the net proceeds of sale remitted to you.

It is proposed that Dart Energy will be admitted to the Official List of ASX. This means that if the Demerger Proposal is implemented Arrow Shareholders will be able to trade Dart Energy Shares to which they become entitled under the Demerger Proposal on ASX.

The Acquisition Scheme

8. The Demerger Scheme was proposed in conjunction with a separate scheme of arrangement under Part 5.1 of the Corporations Act (Acquisition Scheme) under which the shareholders’ post-demerger Arrow shares would be acquired by CS CSG (Australia) Pty Ltd for a cash consideration of $4.70 per share. The Acquisition Scheme is the subject of the application in NSD 598 of 2010 and of separate reasons; In the matter of Arrow Energy Limited [2011] FCA 3. That application was conditional on the Demerger Scheme being implemented. The condition was not reciprocal and, subject to the relevant approvals and the fulfilment of certain conditions, the Demerger Scheme was to be implemented even if the Acquisition Scheme did not proceed. In fact the Acquisition Scheme did proceed and orders approving that scheme were made on 29 July 2010.

The first court hearing

9. The plaintiff filed a number of affidavits in support of its application for orders convening the Scheme Meeting and approval of the explanatory statement required under s 412(1)(a) of the Corporations Act. The exhibits to those affidavits contained the DSB as well as various reports and draft documents referred to in these reasons. The evidence adduced at the first hearing satisfied me that the explanatory statement contained in the DSB conformed to the requirements of s 412. In particular it explained the effect of the Demerger Scheme, set out the prescribed information and all additional information that was material to the shareholders’ decision whether to approve the Demerger Scheme. The DSB was approved at the first hearing and, apart from minor and immaterial amendments was issued to the Shareholders in that form.
10. The DSB contained a letter from the Arrow Chairman, John Reynolds, which gave a broad overview of the Demerger Scheme and its connection with the Acquisition Scheme. It stated that the Arrow Directors recommended that, “in the absence of a superior proposal” the shareholders vote in favour of the proposal and added that the directors intended to do the same in respect of the Arrow shares they hold or control. The Chairman’s letter also observed that:

Dart Energy has an established portfolio of CSG [Coal Seam Gas] assets in high growth markets in Asia with strong local partners and, in Australia, a management team that has a proven ability to commercialise large scale CSG assets ...

11. Apart from the overview of the Demerger Scheme contained in the Chairman’s letter the DSB also contains a list of key dates and frequently asked questions. There are detailed information sections which address the advantage, disadvantages and risks of the Demerger Scheme, information on Dart Energy, especially with respect to its financial status, and a consideration of the position should the Demerger Scheme not be implemented. Annexed to the DSB were a number of reports including a report provided by the investigating accountant and tax expert, Pricewaterhouse Coopers Securities Limited (PWC). The PWC report stated that Arrow had applied to the Commissioner of Taxation for a ruling as to the income tax implications of the Demerger Scheme. It discussed the tax implications of demerger roll-over relief but also stressed that there was no guarantee that the Commissioner would give the ruling requested. The report also discussed the tax implications should relief not be available.
12. The Independent Expert’s report dated 31 May 2010 provided by Deloitte Corporate Finance Pty Limited (Deloitte) discussed the advantages and disadvantages of the proposed Demerger Scheme including the initial uncertainty about Dart Energy’s ability to attract sufficient investment to meet its expenditure requirements. In a letter provided with the report the Independent Expert referred to the likelihood that Arrow Shareholders might sell their shareholding in Dart Energy “due to its relatively higher risk/return profile, offshore strategy and lower market capitalisation”. It observed that:

Until the shareholder base of Dart Energy is rebalanced, a risk exists that price volatility or lack of liquidity in shares of Dart Energy will result in the combined value of Dart Energy and Arrow being lower than the current market capitalisation of Arrow.

13. Despite these and other disadvantages seen in the Demerger Scheme, the Independent Expert concluded that the advantages outweighed the disadvantages and that “it is in the best interests of Arrow Shareholders in the absence of a superior proposal”. It emphasised that individual Arrow shareholders should consider their individual circumstances and, if in doubt, consult an independent adviser.
14. The estimates of gas reserves and contingent and prospective resources have been certified by the Reserve Experts, Netherland, Sewell and Associates (Inc) (NSAI) in a geological report included in the material for shareholders. This report analyses the contingent resources of Dart Energy in certain coal seam gas properties in Australia, Indonesia and Vietnam as well as “unrisked prospective resources” in China and Indonesia.
15. PWC, Deloitte and NSAI have all taken responsibility for the information provided for inclusion in the DSB. On 31 March 2010 Arrow, itself established a due diligence committee which, among other things, oversaw the due diligence and verification processes for the DSB. The processes are described in the affidavit of Stephen Grant Bizzell, an executive director of Arrow, sworn on 1 June 2010. The details given by Mr Bizzell show that the processes were careful and diligent and were such as to invite confidence in the accuracy of the information in the DSB and associated reports.
16. The DSB stated that the Arrow directors unanimously recommended that the shareholders vote in favour of the Scheme. The statement described the advantages and disadvantages of the proposal. The advantages were said to include the fact that following the demerger both Dart Energy and Arrow would have greater flexibility to pursue independent sttrategic objectives. Dart Energy would have the benefit of a management teamand board with a proven track record as well as technical and commercial expertise. It also said that Dart Energy, once independently listed, would have access to additional liquidity to meet its funding requirements.
17. The uncertainty about Dart Energy’s ability to meet those funding requirements was a recognised disadvantage of the Demerger Scheme which was identified and clearly explained in a number of places in the DSB. Dart Energy’s intention to raise new capital and to access new funding was made clear, however, the difficulties in that regard were also pointed out. Dart Energy would be smaller than Arrow prior to the demerger and it would have “less mature assets” and therefore initially a more limited cash flow. This and other disadvantages such as the additional composite costs of maintaining a separate board of directors, management, share registry as well as separate information technology and reporting system were clearly laid out. Other risks of the proposed demerger were explained, including the general economic conditions, the risks inherent in commodity prices, currency prices, capital costs and funding.
18. Two shareholder meetings were required for the Demerger Scheme to proceed. The purpose of the first meeting was to put the Demerger Scheme to the Fully Paid Shareholders for approval. The DSB attached a Notice of Demerger Scheme Meeting scheduled for 14 July 2010 at the Brisbane Convention and Exhibition Centre at 10.00 am. The notice stated that the resolution to be put to the meeting would be as follows:

That, pursuant to and in accordance with Section 411 of the Corporations Act, the Demerger Scheme, the terms of which are contained in and more particularly described in the Demerger Scheme Booklet (of which this Notice of Demerger Scheme Meeting forms part) is approved (with or without modification as approved by the Court).

19. The second meeting was a general meeting at which the Fully Paid Shareholders were asked to approve, inter alia, the capital reduction which was a precondition for the Demerger Scheme.
20. In their affidavits, both of which were sworn on 26 May 2010, John Cyril Reynolds, the Chairman of Arrow, agreed to act as chairman of the Demerger Scheme Meeting and Ralph Howard Craven, Deputy Chairman of Arrow, agreed to substitute for Mr Reynolds if the latter was unable or unwilling to do so.
21. In the First Sanders Affidavit, Ms Sanders describes the process of informing Australian Securities and Investment Commission (ASIC) of the details of the proposed Demerger Scheme and the several drafts of the DSB which were provided. Exhibited to this affidavit is a letter from ASIC dated 2 June 2010 in which ASIC informed the solicitors for Arrow that it did not intend to appear to make submissions or intervene to oppose the Demerger Scheme at the first hearing.
22. The exception in relation to Ineligible Overseas Shareholders referred to in [4] above concerns shareholders whose address in the Arrow Share Register is in a jurisdiction other than Australia (including its external territories) and New Zealand (Ineligible Overseas Shareholders). These shareholders were not entitled to receive Dart Energy shares; instead the Scheme provided that the shares to which they would otherwise have been entitled would be transferred to a nominee for sale and the proceeds of sale remitted to the shareholders. This raises the question whether this treatment of the Ineligible Overseas Shareholders is such as to constitute them as a separate class of Arrow Shareholders for the purposes of s 411(1) of the Act. As Barrett J commented in Re Hills Motorway Management Ltd [2002] NSWSC 897; (2002) 43 ACSR 101 at 104:

The test is ... not one of identical treatment. It is one of community of interest. The court must ask itself whether the rights and entitlements of the different groups, viewed in the totality of the scheme’s context, are so dissimilar as to make it impossible for them to consult together with a view to their common interest. The focus is not on the fact of differentiation but on its effects. The extent and nature of the differentiation must be measured in terms of the effect on the ability to consult together in a common interest or, in other words, the ability to come together in a single meeting and to debate the question of what is good or bad for the constituency as a whole and where the common good lies. Only if the differentiation destroys that ability – the word used by Bowen LJ is “impossible” – does class distinction come to prevail.

23. In my view the treatment of the Ineligible Overseas Shareholders is not such as to destroy the community of interest to which his Honour referred and therefore I am satisfied that they do not constitute a separate class of shareholders for the purposes of s 411(1).
24. Exhibit MJS-H to the First Sanders Affidavit consists of a checklist of the information that is required to be disclosed by the Corporations Act and Regulations. It shows that, as at the date of the first court hearing, all of the statutory disclosure requirements had been met. On the basis of that information and the other evidence described above, it was appropriate that orders for the convening of the Demerger Scheme Meeting be made.

The second court hearing

25. The second court hearing was held on 16 July 2010. At that hearing, Mr Reynolds’ second affidavit sworn on 14 July 2010 was read. Mr Reynolds testified that the result of the poll on the Demerger Scheme Resolution was as follows:

(a) 3,677 Arrow Shareholders who were present at the Demerger Scheme Meeting, either in person or by proxy, voted in favour of the Demerger Scheme Resolution and 127 Arrow Shareholders who were present at the Demerger Scheme Meeting, either in person or by proxy, voted against the Demerger Scheme Resolution. The Arrow Shareholders voting in favour of the Demerger Scheme Resolution represented 96.66% by number of all Arrow Shareholders present and voting at the Demerger Scheme Meeting; and
(b) the 3,677 Arrow Shareholders who voted in favour of the Demerger Scheme Resolution cast an aggregate of 412,911,997 votes (representing 99.66% of the votes cast on the Demerger Scheme Resolution) in favour of the Demerger Scheme Resolution. 1,410,398 votes were cast at the Demerger Scheme Meeting against the Demerger Scheme Resolution (representing 0.34% of the votes cast on the Demerger Scheme Resolution).

26. Mr Reynolds also testified that at a general meeting of Arrow held on the same date as the Demerger Scheme Meeting, the Capital Reduction Resolution was passed by a majority of 99.66% of the votes cast on that resolution. The passage of the Capital Reduction Resolution was, among others, a precondition to the Demerger Scheme. The conditions precedent were set out in clause 3.1 of the Demerger Scheme as follows:

(a) Arrow Shareholders pass by the requisite majority vote, the Capital Reduction Resolution at the General Meeting;
(b) Arrow Shareholders approve the Demerger Scheme in accordance with Section 411(4)(a)(ii) of the Corporations Act at the Scheme Meeting;
(c) ASIC alters the details of Dart Energy’s registration under section 164 of the Corporations Act to reflect the company’s change in type from a proprietary company to a public company and under section 157(3) of the Corporations Act to reflect the company’s change of name from “Arrow Energy International Pty Limited” to “Dart Energy Limited”;
(d) before 8.00am on the Second Court Date, ASX approves the admission of Dart Energy to the official list of ASX, and grants permission for official quotation of Dart Energy Shares on ASX, subject only to the Demerger Scheme becoming Effective, the provision of information required by ASX and other customary prequotation conditions;
(e) no temporary restraining order, preliminary or permanent injunction or other order is issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the Demerger is in effect at 8.00am on the Second Court Date;
(f) as at 8:00am on the Second Court Date each holder of Arrow Options has entered into an agreement with Arrow to have the Arrow Options held by that person cancelled by no later than 6.00pm on the Second Court Date; and
(g) the Court approves the Demerger Scheme in accordance with s 411(4)(b) of the Corporations Act and an office copy of the order of the Court is lodged with ASIC.

27. In accordance with cl 3.3 of the Demerger Scheme, at the second Court hearing Arrow provided the Court with a certificate confirming that all the conditions precedent had been satisfied except for the condition contained in cl 3.1(g).
28. Evidence at the second Court hearing included a further affidavit of Melinda Jane Sanders affirmed on 15 July 2010 (Second Sanders Affidavit). Ms Sanders deposed that the DSB had been amended to correct minor typographical errors and a copy had then been lodged with ASIC and, after review by ASIC, was registered on 7 June 2010.
29. The advertisement containing details of the date and time of the second Court hearing was published in accordance with the orders made on 3 June 2010. No notice of any appearance or indeed any response to that advertisement was received by the solicitors for Arrow. Similarly, there was no appearance in response to the advertisement at the hearing.
30. Exhibited to the Second Sanders Affidavit was a copy of correspondence from ASIC dated 15 July 2010 to the solicitors for Arrow stating, pursuant to s 411(17)(b) of the Corporations Act that ASIC had no objection to the Demerger Scheme.
31. On the basis of the evidence adduced by Arrow it was appropriate for the Court on 16 July 2010 to make the orders requested approving the Demerger Scheme.
    

I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.

Associate:

Dated: 6 January 2010

Schedule 1
Orders in Proceeding NSD 596/2010

JUDGE:	Justice Stone
DATE OF ORDER:	3 June 2010
WHERE MADE:	Sydney

THE COURT ORDERS THAT:

1. Pursuant to section 411(1) Corporations Act 2001 (Cth) (the Act):
   1. Arrow Energy Limited (Arrow) (ACN 078 521 936) convene a meeting of all holders of shares in Arrow (Demerger Scheme Meeting) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement (the Demerger Scheme), being the Demerger Scheme substantially in the form of the draft document, a copy of which is at Attachment C of Exhibit MJS-F to the affidavit of Melinda Jane Sanders affirmed 2 June 2010;
   2. The Demerger Scheme Meeting be held at 10am on 14 July 2010 at the M4 Room, Brisbane Convention & Exhibition Centre, corner of Merivale and Glenelg Street, South Bank, Queensland; and
   100. The explanatory statement for the Demerger Scheme, in a form substantially equivalent to the form that is Exhibit MSJ-F, is approved.
2. Pursuant to section 1319 of the Act:
   1. Arrow may determine that, for the purposes of the Demerger Scheme Meeting, all the shares in Arrow be taken to be held by the person, persons or bodies corporate who held them as at 7pm on 12 July 2010, in accordance with the register held and maintained by Link Market Services Limited (ACN 083 214 537) (Link);
   2. Arrow may determine that only the proxy forms in relation to the Demerger Scheme Meeting received by Arrow or Link by no later than 10am on 12 July 2010 are valid;
   100. The Chairman of the Demerger Scheme Meeting be John Cyril Reynolds or, in his absence, Ralph Howard Craven;
   4. Arrow place an advertisement in The Australian newspaper, in a form substantially equivalent to the form of advertisement that appears at Exhibit MSK-K no later than 5 days prior to the date fixed for the hearing of any applicaton to approve the Demerger Scheme.
3. The proceedings be stood over to 10:15am on 16 July 2010 for the hearing of any application to approve the Demerger Scheme.