Arrow Energy Limited, in the matter of Arrow Energy Limited [2011] FCA 3 (6 January 2011)

Last Updated: 10 January 2011

FEDERAL COURT OF AUSTRALIA

Arrow Energy Limited, in the matter of Arrow Energy Limited

[2011] FCA 3

Citation:		Arrow Energy Limited, in the matter of Arrow Energy Limited [2011] FCA 3
Parties:		ARROW ENERGY LIMITED (ACN 078 521 936)
File number:		NSD 598 of 2010
Judge:		STONE J
Date of judgment:		6 January 2011
Legislation:		Corporations Act 2001 (Cth) ss 411, 412
Cases cited:	Arrow Energy Limited, in the matter of Arrow Energy Limited [2011] FCA 2
Date of hearing:	3 June 2010 and 29 July 2010
Place:	Sydney
Division:	GENERAL DIVISION
Category:	No catchwords
Number of paragraphs:	28
Counsel for the Plaintiff:	T F Bathurst QC
Solicitor for the Plaintiff:	Gilbert + Tobin
Counsel for CS CSG (Australia) Pty Limited:	I M Jackman SC
Solicitors for CS CSG (Australia) Pty Limited:	Allens Arthur Robinson and Blake Dawson

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 598 of 2010

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

BETWEEN:

ARROW ENERGY LIMITED (ACN 078 521 936) Plaintiff

JUDGE:	STONE J
DATE OF ORDER:	29 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.

Deputy District Registrar

Annexure “A”

Scheme of Arrangement

Pursuant to section 411 of the Corporations Act 2001 (Cth)

Between	Arrow Energy Limited (ACN 078 521 936) of Level 19, AM-60, 42-60 Albert Street, Brisbane, Queensland, Australia, 4000 (Target).
And
Recitals	The holders of fully paid ordinary shares in the capital of Target.
A	Target is a public company limited by shares incorporated in Australia, and has been admitted to the official list of ASX.
B	Bidder is a private company limited by shares incorporated in Queensland, Australia.
C	Target and Bidder have entered into the Implementation Agreement, pursuant to which, amongst other things, Target has agreed to propose the Share Scheme to Target Shareholders, and each of Target and Bidder have agreed to take certain steps to give effect to the Share Scheme.
D	If the Share Scheme becomes Effective, then: (a) all the Scheme Shares will be transferred to Bidder and the Scheme Consideration will be provided to the Scheme Shareholders in accordance with the terms of the Share Scheme; and (b) Target will enter the name and address of Bidder in the Target Register as the holder of the Scheme Shares.

1. Definitions and Interpretation

1.1 Definitions

In this document, unless the context requires otherwise:
ASIC means the Australian Securities and Investments Commission.
ASX means ASX Limited (ABN 98 008 624 691) or, as the context requires, the financial market known as the Australian Securities Exchange operated by it.
ASX Listing Rules means the official listing rules of ASX.
Bidder means CS CSG (Australia) Pty Ltd (ACN 141 385 293) of Level 31, Riverside Centre, 123 Eagle Street, Brisbane, QLD, 4000.
Bidder Deed Poll means the deed poll dated 2 June 2010 executed by Bidder, SEHAL and CNODCI in favour of the Scheme Shareholders.
Business Day means any day that is each of the following:

(a) a Business Day within the meaning given in the ASX Listing Rules; and

(b) a day that banks are open for business in Brisbane, Australia.

Cash Consideration means A$4.70 in cash for each Scheme Share held by a Scheme Shareholder on the Record Date.
CHESS means the Clearing House Electronic Subregister System for the electronic transfer of securities, operated by ASX Settlement and Transfer Corporation Pty Limited (ABN 49 008 504 532).
CNODCI means CNODC International Holding Ltd, a company incorporated in the British Virgin Islands of Trident Chambers, PO Box 146, Road Town, Tortola, British Virgin Islands, VG1110.
Conditions Precedent means the conditions precedent to the Share Scheme set out in clause 2.1.
Corporations Act means the Corporations Act 2001 (Cth) (as modified by ASIC).
Court means the Federal Court of Australia or such other court of competent jurisdiction as Bidder and Target may agree in writing.
Effective means, when used in relation to the Share Scheme, the coming into effect, pursuant to section 411(10) of the Corporations Act, of the orders of the Court under section 411(4)(b) (and, if applicable, section 411(6)) of the Corporations Act in relation to the Share Scheme.
Effective Date means the date on which the Share Scheme becomes Effective.
End Date means 30 September 2010, or such later date as Bidder and Target may agree in writing.
Implementation Agreement means the Scheme Implementation Agreement dated 19 March 2010 between Target and Bidder.
Implementation Date means the date that is ten Business Days after the Record Date, or such other date as:

(a) Target and Bidder may agree in writing;

(b) ordered by the Court; or

(c) may be required by ASX.

Record Date means 7pm Sydney time on the date that is five Business Days after the Effective Date, or such other date as may be agreed in writing between Bidder and Target, such agreement not to be unreasonably withheld or delayed, or as may be required by ASX.
Registered Address means, in relation to a Target Shareholder, the address of that Target Shareholder shown in the Target Register.
Scheme Consideration means the consideration to be provided to Scheme Shareholders under the terms of the Share Scheme for the transfer to Bidder of their Scheme Shares in accordance with clause 5.
Scheme Meeting means the meeting of Target Shareholders to be ordered by the Court to be convened under section 411(1) of the Corporations Act in relation to the Share Scheme, and includes any adjournment of that meeting.
Scheme Shareholder means each person who is registered in the Target Register as a holder of Scheme Shares as at the Record Date.
Scheme Shares means the Target Shares on issue as at the Record Date.
Scheme Transfer means, in relation to each Scheme Shareholder, a proper instrument of transfer of their Scheme Shares for the purpose of section 1071B of the Corporations Act, which may be a master transfer of all or part of all of the Scheme Shares.
Second Court Date means the first day of hearing of an application made to the Court by Target for orders pursuant to section 411(4)(b) of the Corporations Act approving the Share Scheme or, if the hearing of such application is adjourned for any reason, means the first day of the adjourned hearing.
Share Scheme means the scheme of arrangement under Part 5.1 of the Corporations Act between Target and Target Shareholders as set out in this document, subject to any alterations or conditions made or required by the Court and agreed to by Bidder and Target may agree in writing, such agreement not to be unreasonably withheld or delayed.
SEHAL means Shell Energy Holdings Australia Limited (ACN 054 260 776).
Target Register means the register of members of Target maintained by or on behalf of Target in accordance with section 168(1) of the Corporations Act.
Target Share means a fully paid ordinary share in the capital of Target.
Target Share Registry means Link Market Services Limited (ACN 083 214 537).
Target Shareholder means a person who is registered in the Target Register as a holder of Target Shares from time to time.

1.2 Interpretation

Headings are for convenience only and do not affect interpretation. The following rules apply unless the context requires otherwise.

(a) The singular includes the plural and the converse also applies.

(b) A gender includes all genders.

(c) If a word or phrase is defined, its other grammatical forms have a corresponding meaning.

(d) A reference to a person, corporation, trust, partnership, unincorporated body or other entity includes any of them.

(e) A reference to a clause, schedule or annexure is a reference to a clause of, or schedule or annexure to, this document.

(f) A reference to an agreement or document (including a reference to this document and its annexures and schedules) is to the agreement or document as amended, varied, supplemented, novated or replaced, except to the extent prohibited by this Agreement or that other agreement or document.

(g) A reference to writing includes any method of representing or reproducing words, figures, drawings or symbols in a visible and tangible form but excludes a communication by electronic mail (including attachments to electronic mail).

(h) A reference to a party to this document or another agreement or document includes the party's successors, permitted substitutes and permitted assigns (and, where applicable, the party's legal personal representatives).

(i) A reference to legislation or to a provision of legislation includes a modification or re enactment of it, a legislative provision substituted for it and a regulation or statutory instrument issued under it.

(j) A reference to conduct includes an omission, statement or undertaking, whether or not in writing.

(k) A reference to an agreement includes any undertaking, deed, agreement and legally enforceable arrangement, whether or not in writing, and a reference to a document includes an agreement (as so defined) in writing and any certificate, notice, instrument and document of any kind.

(l) A reference to dollars, Australian dollars, $ and A$ is to the lawful currency of Australia.

(m) A reference to an asset includes any real or personal, present or future, tangible or intangible property or asset (including intellectual property) and any right, interest, revenue or benefit in, under or derived from the property or asset.

(n) Words and phrases not specifically defined in this document have the same meanings (if any) given to them in the Corporations Act.

(o) All references to time are to Brisbane, Australia time unless expressly stated otherwise. If the day on which any act, matter or thing is to be done is a day other than a Business Day, such act, matter or thing must be done on the immediately succeeding Business Day.

(p) Mentioning anything after includes, including, for example, or similar expressions, does not limit what else might be included.

(q) A reference to a liability incurred by any person includes any liability of that person arising from or in connection with any obligation (including indemnities and all other obligations owed as principal or guarantor) whether liquidated or not, whether present, prospective or contingent and whether owed, incurred or imposed by or to or on account of or for the account of that person alone, severally or jointly or jointly and severally with any other person.

(r) A reference to a loss incurred by any person includes any loss, liability, damage, cost, charge or expense that the person pays, incurs or is liable for and any other diminution of value of any description that the person suffers, including all liabilities on account of taxes or duties, all interest, penalties, fines and other amounts payable to third parties and all reasonable legal expenses and other expenses in connection with investigating or defending any claim, action, demand or proceeding, whether or not resulting in any liability, and all amounts paid in settlement of any such claims.

(s) Nothing in this document is to be interpreted against a party solely on the ground that the party put forward this Agreement or a relevant part of it.

2. Conditions Precedent

2.1 Conditions Precedent to the Share Scheme

The Share Scheme is conditional upon, and will have no force or effect until, the satisfaction of each of the following conditions precedent:

(a) as at 8am on the Second Court Date each of the conditions precedent set out in clause 3.1 of the Implementation Agreement (other than the condition precedent relating to the approval of the Court set out in clause 3.1(d) of the Implementation Agreement) has been satisfied or waived in accordance with the Implementation Agreement;

(b) as at 8am on the Second Court Date, the Implementation Agreement has not been terminated;

(c) the Court makes orders approving the Share Scheme under section 411(4)(b) of the Corporations Act, including with such alterations made or required by the Court under section 411(6) of the Corporations Act as are acceptable to Bidder and Target;

(d) such other conditions made or required by the Court under section 411(6) of the Corporations Act in relation to the Share Scheme as are acceptable to Bidder and Target have been satisfied; and

(e) the orders of the Court made under section 411(4)(b) (and, if applicable, section 411(6)) of the Corporations Act approving the Share Scheme come into effect, pursuant to section 411(10) of the Corporations Act.

2.2 Termination of Implementation Agreement

Without limiting any rights under the Implementation Agreement, in the event that the Implementation Agreement is terminated in accordance with its terms before 8am on the Second Court Date, each of Target and Bidder is released from:

(a) any further obligation to take steps to implement the Share Scheme; and

(b) any liability with respect to the Share Scheme.

3. Share Scheme Becoming Effective

3.1 Effective Date of the Share Scheme

Subject to clause 3.2, the Share Scheme will take effect on and from the Effective Date.

3.2 End Date

The Share Scheme will lapse and be of no further force or effect if the Effective Date has not occurred on or before the End Date.

4. Implementation of Share Scheme

4.1 Transfer of Scheme Shares

On the Implementation Date, subject to the provision of the Scheme Consideration in the manner contemplated by clauses 4.2, 5 and 6 and Bidder having provided Target with written confirmation of that having occurred, all of the Scheme Shares, together with all rights and entitlements attaching to the Scheme Shares as at the Implementation Date, will be transferred to Bidder, without the need for any further act by any Scheme Shareholder (other than acts performed by Target or any of its directors and officers as attorney and agent for Scheme Shareholders under the Share Scheme), by Target effecting a valid transfer or transfers of the Scheme Shares to Bidder under section 1074D of the Corporations Act or, if that procedure is not available for any reason, by:

(a) Target delivering to Bidder for execution duly completed and, if necessary, stamped Scheme Transfers to transfer all of the Scheme Shares to Bidder, duly executed by Target (or any of its directors and officers) as the attorney and agent of each Scheme Shareholder as transferor under clause 9.3;

(b) Bidder executing the Scheme Transfers as transferee and delivering them to Target for registration; and

(c) Target, immediately after receipt of the Scheme Transfers under clause 4.1(b), entering, or procuring the entry of, the name and address of Bidder in the Target Register as the holder of all of the Scheme Shares.

4.2 Provision of Scheme Consideration

On the Implementation Date, in consideration for, and prior to, the transfer to Bidder of the Scheme Shares, Bidder will pay to each Scheme Shareholder the total amount of cash to which that Scheme Shareholder is entitled under clause 5 as Cash Consideration, in accordance with clause 5(b).

5. Scheme Consideration

(a) The Scheme Consideration in respect of the Scheme Shares for which a Scheme Shareholder is registered in the Target Register as the holder as at the Record Date comprises, for each of those Scheme Shares, the Cash Consideration.

(b) The obligation of Bidder to pay the Scheme Consideration under clause 4.2 will be deemed to be satisfied if Bidder, before 12.00 noon on the Implementation Date, deposits in cleared funds the aggregate Scheme Consideration payable to all Scheme Shareholders into an account nominated by Target (the details of which must be notified by Target to Bidder at least five Business Days before the Implementation Date), such amount to be held on trust by Target for the Scheme Shareholders (except that any interest on the amount will be for the account of Bidder) and for the purpose of Target paying the Scheme Consideration to each Scheme Shareholder.

6. Payment of Scheme Consideration

6.1 Payment of cash amounts

Subject to clauses 5(b) and 6.2, Target will pay the Cash Consideration to each Scheme Shareholder on the Implementation Date by either (in the sole discretion of Target):

(a) despatching, or procuring the despatch, to that Scheme Shareholder of a pre printed cheque in the name of that Scheme Shareholder and for the relevant amount (denominated in A$), with such despatch to be made by pre-paid post to that Scheme Shareholder's Registered Address (as at the Record Date); or

(b) making, or procuring the making of, a deposit for the relevant amount (denominated in A$) in an account with any Australian ADI in Australia notified by that Scheme Shareholder to Target and recorded in or for the purposes of the Target Register as at the Record Date.

6.2 Joint holders

In the case of Scheme Shares held in joint names any cheque required to be paid to Scheme Shareholders will be payable to the joint holders and will be forwarded to the holder whose name appears first in the Target Register as at the Record Date.

6.3 Unclaimed Moneys

In the event that Target believes that a Scheme Shareholder is not known at the Scheme Shareholder's registered address, and no account has been notified for the purposes of clause 6.1(a) or a deposit into such an account is rejected or refunded, Target may credit the amount payable to the relevant Scheme Shareholder to a separate bank account of Target to be held on trust by Target for the Scheme Shareholder until the Scheme Shareholder claims the amount or the amount is dealt with in accordance with any applicable unclaimed money legislation (except that any interest accruing on the amount will be for the account of Bidder). An amount credited to the account is to be treated as having been paid to the Scheme Shareholder when credited to the account. Target must maintain records of the amounts paid, the people who are entitled to the amounts and any transfer of the amounts.

7. Dealings in Target Shares

7.1 Dealings in Target Shares by Scheme Shareholders

For the purpose of establishing the persons who are Scheme Shareholders, dealings in Target Shares will be recognised by Target provided that:

(a) in the case of dealings of the type to be effected using CHESS, the transferee is registered in the Target Register as the holder of the relevant Target Shares by the Record Date; and

(b) in all other cases, registrable transfers or transmission applications in respect of those dealings are received at the place where the Target Register is maintained by 5pm on the day which is the Record Date (in which case Target must register such transfers or transmission applications before 7pm on that day),

and Target will not accept for registration, nor recognise for the purpose of establishing the persons who are Scheme Shareholders, any transfer or transmission application in respect of Target Shares received after such times, or received prior to such times but not in registrable form.

7.2 Target Register

Target will, until the Scheme Consideration has been provided and the name and address of Bidder has been entered in the Target Register as the holder of all of the Scheme Shares, maintain, or procure the maintenance of, the Target Register in accordance with this clause 7, and the Target Register in this form and the terms of the Share Scheme will solely determine entitlements to the Scheme Consideration. As from the Record Date (and other than for Bidder following the Implementation Date), each entry in the Target Register as at the Record Date relating to Scheme Shares will cease to have any effect other than as evidence of the entitlements of Scheme Shareholders to the Scheme Consideration in respect of those Scheme Shares.

7.3 Effect of share certificates and holding statements

As from the Record Date (and other than for Bidder following the Implementation Date), all share certificates and holding statements for Scheme Shares will cease to have effect as documents of title in respect of those Scheme Shares.

7.4 Information to be given to Bidder

Target must procure that, as soon as practicable after the Record Date and in any event at least three Business Days before the Implementation Date, details of the names, Registered Addresses and holdings of Target Shares of every Scheme Shareholder as shown in the Target Register as at the Record Date are given to Bidder (or as it directs) in such form as Bidder may reasonably require.

7.5 No disposals after Record Date

If the Scheme becomes Effective, each Scheme Shareholder, and any person claiming through that Scheme Shareholder, must not dispose of or purport or agree to dispose of any Scheme Shares or any interest in them after the Record Date.

8. Suspension and Termination of Quotation of Target Shares

(a) Target must apply to ASX for suspension of trading of the Target Shares on ASX with effect from the close of business on the Effective Date, or from such earlier time as may be reasonably appropriate to ensure that all trades made prior to suspension may be completed, and the Target Register amended accordingly, prior to the Record Date.

(b) Target must apply to ASX for termination of official quotation of the Target Shares on ASX and the removal of Target from the official list of ASX with effect from the Business Day immediately following the Implementation Date, or from such later date as may be determined by Bidder.

9. General Provisions

9.1 Further assurances

(a) Each Scheme Shareholder and Target will do all things and execute all deeds, instruments, transfers or other documents as may be necessary or desirable to give full effect to the terms of the Share Scheme and the transactions contemplated by it.

(b) Without limiting Target's other powers under the Scheme, Target has power to do all things that it considers necessary or desirable to give effect to the Share Scheme and the Implementation Agreement.

9.2 Scheme Shareholders' agreements and consents

Each Scheme Shareholder:

(a) irrevocably agrees to the transfer of their Scheme Shares, together with all rights and entitlements attaching to those Scheme Shares, to Bidder in accordance with the terms of the Share Scheme; and

(b) irrevocably consents to Target and Bidder doing all things and executing all deeds, instruments, transfers or other documents as may be necessary or desirable to give full effect to the terms of the Share Scheme and the transactions contemplated by it,

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

9.3 Appointment of Target as attorney for implementation of Share Scheme

Each Scheme Shareholder, without the need for any further act by that Scheme Shareholder, irrevocably appoints Target as that Scheme Shareholder's agent and attorney for the purpose of:

(a) doing all things and executing all deeds, instruments, transfers or other documents as may be necessary or desirable to give full effect to the terms of the Share Scheme and the transactions contemplated by it, including the effecting of a valid transfer or transfers (or the execution and delivery of any Scheme Transfers) under clause 4.1(a); and

(b) enforcing the Bidder Deed Poll against Bidder, SEHAL or CNODCI,

and Target accepts such appointment. Target, as agent and attorney of each Scheme Shareholder, may sub delegate its functions, authorities or powers under this clause 9.3 to all or any of its directors and officers (jointly, severally, or jointly and severally).

9.4 Warranty by Scheme Shareholders

Each Scheme Shareholder is deemed to have warranted to Bidder and, to the extent enforceable, to have appointed and authorised Target as that Scheme Shareholder's agent and attorney to warrant to Bidder, that all of their Scheme Shares (including any rights and entitlements attaching to those Scheme Shares) will, at the time of the transfer of them to Bidder pursuant to the Share Scheme, be fully paid and free from all mortgages, charges, liens, encumbrances, pledges, security interests and other interests of third parties of any kind, whether legal or otherwise, and restrictions on transfer of any kind, and that they have full power and capacity to sell and to transfer their Scheme Shares (together with any rights and entitlements attaching to those Scheme Shares) to Bidder pursuant to the Share Scheme. Target undertakes in favour of each Scheme Shareholder that it will provide such warranty, to the extent enforceable, to Bidder on behalf of that Scheme Shareholder.

9.5 Title to Scheme Shares

Bidder will be beneficially entitled to the Scheme Shares transferred to it under the Scheme pending registration by Target of the name and address of Bidder in the Target Register as the holder of the Scheme Shares.

9.6 Appointment of Bidder as attorney for Scheme Shares

(a) From the Effective Date until Bidder is registered in the Target Register as the holder of all Scheme Shares, each Target Shareholder:

(i) without the need for any further act by that Target Shareholder, irrevocably appoints Bidder as its proxy to (and irrevocably appoints Bidder as its agent and attorney for the purpose of appointing any director or officer of Bidder as that Target Shareholder's proxy and, where appropriate, its corporate representative to):

(A) attend shareholders' meetings of Target;

(B) exercise the votes attaching to the Target Shares registered in the name of the Target Shareholder; and

(C) sign any Target Shareholders' resolution; and

(ii) must take all other action in the capacity of a Target Shareholder as Bidder reasonably directs.

(b) From the Effective Date until Bidder is registered in the Target Register as the holder of all Scheme Shares, no Target Shareholder may attend or vote at any meetings of Target Shareholders or sign any Target Shareholders' resolution (whether in person, by proxy or by corporate representative) other than under this clause 9.6.

9.7 Alterations and conditions to Share Scheme

If the Court proposes to approve the Share Scheme subject to any alterations or conditions, Target may, by its counsel or solicitors, and with the prior consent of Bidder, consent on behalf of all persons concerned, including each Target Shareholder, to those alterations or conditions.

9.8 Binding effect of Share Scheme

The Share Scheme binds Target and all of the Target Shareholders from time to time (including those who did not attend the Scheme Meeting, did not vote at that meeting or voted against the Share Scheme) and, to the extent of any inconsistency, overrides the constitution of Target.

9.9 Enforcement of Bidder Deed Poll

Target undertakes in favour of each Scheme Shareholder that it will enforce the Bidder Deed Poll against Bidder, SEHAL or CNODCI on behalf of and as agent and attorney for the Scheme Shareholders.

9.10 Notices

Where a notice, transfer, transmission application, direction or other communication referred to in the Share Scheme is sent by post to Target, it will not be deemed to be received in the ordinary course of post or on a date other than the date (if any) on which it is actually received at Target's registered office or by the Target Share Registry, as the case may be.

9.11 Costs and stamp duty

(a) Subject to clause 9.11(b), each of Bidder and Target will pay their share of the costs of the Scheme in accordance with the Implementation Agreement.

(b) Bidder will pay all stamp duty (including related fines, penalties and interest) payable on or in connection with the transfer by Scheme Shareholders of the Scheme Shares to Bidder pursuant to the Share Scheme.

9.12 Governing law and jurisdiction

This Share Scheme is governed by the laws of Queensland. Each party submits to the non-exclusive jurisdiction of courts exercising jurisdiction there in connection with matters concerning the Share 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 Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 598 of 2010

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

BETWEEN:

ARROW ENERGY LIMITED (ACN 078 521 936) Plaintiff

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

REASONS FOR JUDGMENT

1. The application in this proceeding (Acquisition Proceeding) was brought pursuant to s 411(1) of the Corporations Act 2001 (Cth). It concerns a scheme of arrangement (Acquisition Scheme) between the plaintiff, Arrow Energy Limited (Arrow) and certain of its shareholders.
2. At the first court hearing on 3 June 2010 Arrow sought an order that it convene a meeting of its shareholders to consider the Acquisition Scheme as well as an order that the explanatory statement required by s 412(1)(a) of the Act to accompany the notice convening the meeting be approved. At the conclusion of the hearing on 3 June 2010 I made the orders requested by the plaintiff. Those orders are set out in Schedule 1 to these reasons. The proceeding came before the Court for the second court hearing on 29 July 2010 at which time the plaintiff sought and obtained the Court’s approval of the Acquisition Scheme. These are my reasons for the orders made on 3 June 2010 and on 29 July 2010. The implementation of the Acquisition Scheme was contingent on the implementation of a separate scheme of arrangement (Demerger Scheme) between Arrow and certain of its shareholders. These reasons should be read in conjunction with my reasons for approving the Demerger Scheme (Demerger Scheme Reasons): [2011] FCA 2.
3. Arrow, which is a public company having over 732 million shares quoted on the Australian Securities Exchange (ASX), has entered into a scheme implementation agreement dated 19 March 2010 with CS CSG (Australia) Pty Limited (ACN 141 385 293) (CS CSG). CS CSG is jointly owned by Forever Glowing International Pte Ltd, indirectly, a wholly owned subsidiary of PetroChina Company Limited (PetroChina), and Shell Energy Holdings Australia Limited (SEHAL), indirectly, a wholly owned subsidiary of Royal Dutch Shell Plc (Shell). CS CSG proposes to purchase all the shares in Arrow held by the holders of fully paid ordinary shares in Arrow (Acquisition Shareholders) as at 7.00 pm on the fifth business day following the date on which the Acquisition Scheme becomes effective. The Acquisition Shareholders will receive $4.70 for each Arrow Share.
4. As noted above, the implementation of the Acquisition Scheme will follow, and is conditional upon the implementation of the Demerger Scheme by which Arrow will demerge certain of its assets into a newly created company, Dart Energy Limited (ACN 122 588 505) (Dart). Accordingly, while the first court hearing in relation to both the Demerger Scheme and the Acquisition Scheme was on 3 June 2010, the application for Court approval of the Acquisition Scheme was heard after the implementation of the Demerger Scheme on 29 July 2010.
5. The Acquisition Scheme was also conditional upon its approval by Arrow Shareholders in accordance with the Corporations Act and its approval by the Court. Other preconditions to the Acquisition Scheme were designed to ensure that there were no legal or financial obstacles to its implementation including that all regulatory approvals from governmental agencies of the Peoples’ Republic of China were obtained and were still extant at the date scheduled for the Court approval hearing. It was also a condition that there has been no material adverse change as at that date.
6. Arrow proposed to hold the Acquisition Scheme Meeting on 14 July 2010. The location and time of the meeting were clearly disclosed in the Notice of Acquisition Scheme Meeting in Attachment A of the Acquisition Scheme Booklet (ASB) exhibited to the affidavit of Melinda Jane Sanders affirmed on 2 June 2010. In their respective affidavits of 26 May 2010, the Chairman of Arrow, John Cyril Reynolds and the Deputy Chairman of Arrow, Ralph Howard Craven, stated that they agreed to chair the Acquisition Scheme Meeting, in Mr Craven’s case only if Mr Reynolds was unable or unwilling to do so.

The Acquisition Scheme Booklet

7. A copy of the ASB, being the explanatory statement required by s 412(1)(a) of the Corporations Act to accompany the notice convening the Acquisition Scheme Meeting, was provided at the first court hearing as an exhibit to the affidavit of Melinda Jane Sanders affirmed on 2 June 2010. The ASB included information on the proposed scheme and the participants, frequently asked questions and answers and the Investigating Accountant’s report. There were five attachments to the Booklet, namely:

Attachment A – Notice of Acquisition Scheme Meeting;
Attachment B – Scheme of Arrangement made under section 411 of the Corporations Act 2001 (Cth);
Attachment C – Deed Poll
Attachment D – Summary of Scheme Implementation Agreement
Attachment E – Independent Expert’s Report
Attachment F – Proxy Form

8. The Acquisition Scheme is broadly explained in the letter of the Chairman of Arrow, Mr John Reynolds contained in the ASB. The letter states that “[t]he CS CSG offer of $4.70 per Arrow Share realises a significant cash premium for the value of your Arrow shares”. Mr Reynolds also states that the Arrow Directors unanimously recommend that the Acquisition Scheme be approved by the shareholders “in the absence of a Superior Proposal” and that, in the circumstances, all the Arrow Directors intend to vote in favour of it. The letter adds:

The transaction is an important milestone for Arrow Shareholders. Since listing on the ASX in 2000, Arrow’s business has grown dramatically and it has achieved a significant number of milestones including:

• large scale reserves certification;
• enhancement of Arrow’s upstream position through the transaction with Shell in June 2008; and
• enhancement of Arrow’s domestic downstream business through the development and acquisition of significant power station assets.

The next stage of Arrow’s domestic growth poses significant risks and will require a significant expansion of Arrow’s capital base and technical skills base. The Arrow Directors believe that Arrow Shareholders will receive a superior outcome if the Acquisition Scheme is implemented rather than Arrow taking on the risks associated with the next phase of its domestic growth.

9. The Chairman also referred to the Independent Expert Report on the Acquisition Scheme provided by Deloitte Corporate Finance Pty Limited (Deloitte). On the basis of its review of the Acquisition Scheme as set out in that report the Independent Expert concluded that “the Acquisition Scheme is fair and reasonable. It is therefore in the best interests of Arrow Shareholders, in the absence of a superior proposal”. Accompanying the Independent Expert Report was a letter dated 31 May 2010 from Deloitte summarising the Report. It stated that in reaching its conclusion, it had regard to the following factors:
   1. the consideration offered by CS CSG was above Deloitte’s estimate of the fair market value of an Arrow share;
   2. the shareholders were receiving the premium to the share price for Arrow shares prior to the announcement of the non-binding conditional proposal; and
   3. the price allowed the shareholders to realise their investment in Arrow shares immediately.
10. The Independent Expert Report also summarised the likely disadvantage to the shareholders if the Acquisition Scheme were to be approved. They included that the shareholders:

(a) would have no participation in the future growth of Arrow’s business; and

(b) they would not have the opportunity to invest directly in a CSG company at a similar stage of development.

11. Deloitte’s analysis of the advantages and disadvantages was clearly explained in the Independent Expert Report. The Report was clearly expressed and would be reasonably accessible to shareholders seeking to inform themselves as to the advantages and disadvantages of the Acquisition Scheme.
12. The ASB listed the advantages and disadvantages of the Scheme in terms not materially different from those identified in the Independent Expert Report. The ASB also set out clearly the key dates for approval and implementation of the Acquisition Scheme including clear instructions as to the place and date of the Acquisition Scheme Meeting and the steps to be taken should a shareholder wish to attend that Meeting by proxy. A section of the ASB was devoted to frequently asked questions. The questions and answers were clear and comprehensive and included information as to what would happen if the Acquisition Scheme did not go ahead.
13. Clause 9.13 of the ASB draws attention to clause 9.4 of the Acquisition Scheme whereby Acquisition Scheme Shareholders are deemed to warrant that their Arrow Shares are not subject to any of the encumbrances referred to in clause 9.4. Clause 9.4 is set out in Attachment B to the ASB.

Funding

14. The offer for the purchase of Arrow shares is a cash offer. It is dependent on the money coming into Arrow’s control prior to purchase. In evidence at the hearing was a Deed Poll made by CS CSG, Shell Energy Holdings Australia Limited (SEHAL) and CNODC International Holding Ltd (CNODCI). The Deed Poll is an attachment to the Scheme Booklet. Clause 4 of the Deed Poll states that SEHAL and CNODCI covenant in favour of each Scheme Shareholder that if CS CSG fails to pay the Scheme Consideration each of them will pay one-half of the amount unpaid. While the arrangement that each should pay half is, prima facie, less than ideal, the impact was mitigated by the fact that the transfer of the shares is conditional on the money first coming into Arrow’s control.
15. The ASB disclosed that arrangements for the provision of the Acquisition Scheme consideration require SEHAL and Forever Glowing International Pte Ltd (the owners of CS CSG) to provide the funds conditional only on the Acquisition Scheme becoming effective. The equity contribution to be provided by Forever Glowing International Pte Ltd is described as coming from “a prominent Chinese bank” but which is not otherwise identified. There was no explanation of the reason for such secrecy although it appears that the Arrow directors were aware of the Chinese bank’s identity. Were it not for the fact that the purchase was dependent on Arrow actually having the cash in hand this may have raised a difficulty. In the circumstances, however, it did not seem to be a material objection. Apparently this was also ASIC’s view as, having been fully informed of the details of the Scheme, it stated in a letter to the Directors of Arrow dated 2 June 2010 that it did not intend to appear at the first hearing either to intervene or oppose the Acquisition Scheme.
16. The Scheme Implementation Agreement (SIA) between Arrow and CS CSG contains a number of terms which should be mentioned. As is common in schemes such as this the agreement provides for payment of a break fee equal to 1% of the Scheme Consideration in certain circumstances where the proposed scheme is not implemented. The obligation to pay the break fee extends to both parties subject to the terms of the SIA. The quantum of the fee follows the Takeovers Panel’s guidance in Guidance Note 7: Lock-up devices.
17. The SIA also imposes exclusivity provisions, often referred to as “no shop” and “no talk” clauses, on Arrow. These provisions are designed to ensure that the company does not solicit superior offers which might lead to it withdrawing from the arrangement with CS CSG. During a specified exclusivity period Arrow undertook not to invite or in any way encourage a competing proposal or enter into (or continue) negotiations that might lead to a competing proposal. There is the usual fiduciary exception which allows Arrow, acting in good faith, to take such steps as it reasonably considers to be required by its fiduciary or statutory duties.
18. In his affidavit sworn on 1 June 2010, Stephen Grant Bizzell, an executive director of Arrow, stated that he had attended and participated in all negotiations with CS CSG in relation to the SIA and had attended all Arrow Board meetings at which the Demerger Scheme and the Acquisition Scheme were discussed. In relation to the Break Fee and the Exclusivity Provisions, Mr Bizzell stated:

The inclusion of the Arrow Break Fee and the CS CSG Break Fee, and in particular the circumstances and conditions triggering the payment of the Break Fee, in the SIA was robustly negotiated and was one of the final issues to be agreed to between the parties.
...
The Board of Arrow agreed to [the exclusivity provisions] following extensive arm’s [sic] length commercial negotiations between Arrow and CS CSG, conducted over a period of 2 weeks, throughout which both parties were separately advised and represented by external legal advisers and by external financial advisers with extensive experience of transactions such as the Acquisition Proposal and Demerger Proposal.

19. Mr Bizzell also stated that, in his view, Arrow would not have entered into the SIA had the CS CSG Break Fee not been agreed and CS CSG would not have entered into the SIA without provision for an Arrow break fee and the exclusivity provisions. Mr Bizzell also commented that

the Arrow Board considered that the only likely circumstances in which Arrow would have to pay the Arrow Break Fee would be in the event of a decision to take up a superior proposal, in which event the Arrow Break Fee would be effectively funded by the proponent of the superior proposal.

20. The break fee and exclusivity provisions are properly disclosed in the ASB and were considered by the Independent Expert in reaching its conclusion that the Acquisition Scheme is fair and reasonable and in the best interests of Arrow shareholders. In those circumstances the provisions did not lead me to regard them as an obstacle to making the orders sought by the plaintiff.
21. On the basis of the evidence outlined above and other evidence adduced at the first Court hearing, including evidence as to the due diligence and verification of information contained in the ASB, I was satisfied on 3 June 2010 that I should make the orders sought by Arrow.

Second Court Hearing

22. At the second Court hearing on 29 July 2010, the second affidavit of Mr Reynolds sworn on 14 July 2010 in this proceeding was read. Mr Reynolds gave evidence as to the conduct of the Acquisition Scheme Meeting which he chaired and the voting by Arrow shareholders at that meeting. A poll was conducted by written ballot in relation to the Acquisition Scheme Resolution which was set out in the Notice of Acquisition Scheme Meeting as follows:

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

23. Mr Reynolds appointed Rob Hubbard of PriceWaterhouseCoopers (PWC) as scrutineer for the poll and Matthew Foster of Link Market Services Limited (Link) as the returning officer. Mr Reynolds stated that the result of the poll was that the resolution was passed by 94.89% by number of Arrow Shareholders present and voting at the meeting and by 99.64% of the votes cast on the resolution. Mr Reynolds also referred to the Demerger Scheme Meeting and the general meeting of Arrow and to the resolutions passed at those meetings, the details of which are to be found in the Demerger Scheme Reasons at [25]. Mr Reynolds’ account of the outcome of the poll taken at the Acquisition Scheme Meeting was confirmed by a copy of the declaration of poll signed by Mr Foster and countersigned by Mr Hubbard which was exhibited to his affidavit.
24. In her affidavit affirmed on 28 July 2010, Melinda Jane Sanders deposed as to conversations she had with ASIC representatives and with consequential, and for present purposes, immaterial amendments that were made to the ASB prior to its registration with ASIC on 7 June 2010. She referred to the advertisement that was published in The Australian newspaper on 20 July 2010. That advertisement conformed with the requirements of order 2(d) made on 3 June 2010. Ms Sanders testified that “at the time of affirming this affidavit” the solicitors for Arrow had not received any notification of appearance or proposed appearance in response to that advertisement.
25. Ms Sanders referred to a statement provided to the solicitors for Arrow pursuant to s 411(17)(b) of the Act, to the effect that ASIC had no objection to the Acquisition Scheme. That statement was contained in a letter from ASIC dated 28 July 2010, a copy of which was exhibited to Ms Sanders’ affidavit. Also exhibited to Ms Sanders’ affidavit were announcements made by Arrow to the ASX. Those announcements were made on 7, 11 and 16 June 2010 and 5, 12 and 14 July 2010. They provided information as to the Acquisition Scheme and the Demerger Scheme, identified typographical errors in the ASB and the DSB and made corrections to the Independent Expert’s Report on the Acquisition Scheme. The amendments and corrections were not material and, in relation to the Independent Expert’s Report, Arrow stated that the Independent Expert had confirmed that the correction did not change its opinion on value or its conclusion regarding the proposal.
26. Further evidence was given by Lisa Clare Donohoe, an employee of Text Pacific Pty Limited (Text). Her affidavit affirmed on 14 July 2010 stated that Text had been engaged by Arrow to coordinate and manage the despatch of the ASB (and the DSB) to Arrow shareholders. Mr Foster of Link had provided Ms Donohoe with “an electronic file containing the current name, address and Shareholder Register Number/Holder Identification Number of each Arrow shareholder”. Ms Donohoe’s evidence satisfied me that the ASB had been despatched to shareholders by 11 June 2010.
27. Finally, evidence was provided sufficient to satisfy the Court that all conditions precedent to the implementation of the Acquisition Scheme had been satisfied or waived, other than the Court’s approval and the lodging of an office copy of the Court’s order with ASIC. The evidence included a certificate issued by CS CSG pursuant to clause 3.8 of the SIA, dated 29 July 2010 at 8.00am; a certificate from Arrow dated 29 July 2010 issued pursuant to clause 3.8 of the SIA; and a certificate authorised by CS CSG as to the satisfaction of conditions precedent under the Loan Facility Agreement (other than the Acquisitions Scheme becoming effective).
28. I was satisfied by the above evidence that the Acquisition Scheme should be approved by the Court and made the orders sought by the plaintiff.
    

I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.

Associate:
Dated: 6 January 2011

Schedule 1
Orders in Proceeding NSD 598/2010

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

THE COURT ORDERS THAT:

1. Pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act):

(a) Arrow Energy Limited (Arrow) (ACN 078 521 936) convene a meeting of all holders of shares in Arrow (Acquisition Scheme Meeting) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement (the Acquisition Scheme), being the Acquisition Scheme substantially in the form of the draft document, a copy of which is at Attachment B of Exhibit MJS-7 to the affidavit of Melinda Jane Sanders affirmed 2 June 2010;

(b) The Acquisition Scheme Meeting be held at 11am (or as soon thereafter as the meeting of all holders of shares in Arrow, convened for the purposes of considering and if thought fit approving a separate scheme of arrangement, has concluded or has been adjourned) on 14 July 2010 at the M4 Room, Brisbane Convention & Exhibition Centre, corner of Merivale and Glenelg Street, South Bank, Queensland; and

(c) The explanatory statement for the Acquisition Scheme, in a form substantially equivalent to the form that is Exhibit MSJ-7, is approved.

2. Pursuant to s 1319 of the Corporations Act 2001 (Cth):

(a) Arrow may determine that, for the purposes of the Acquisition 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);

(b) Arrow may determine that only the proxy forms in relation to the Acquisition Scheme Meeting received by Arrow or Link by no later than 11am on 12 July 2010 are valid;

(c) The Chairman of the Acquisition Scheme Meeting be John Cyril Reynolds or, in his absence, Ralph Howard Craven;

(d) Arrow place an advertisement in The Australian newspaper, in a form substantially equivalent to the form of advertisement that appears at Exhibit MJS-12 not later than 5 days prior to the date fixed for the hearing of any application to approve the Acquisition Scheme.

3. The proceedings be stood over to 4.15pm on 29 July 2010 for the hearing of any application to approve the Acquisition Scheme.