Real Energy Corporation Limited, in the matter of Real Energy Corporation Limited (No 2) [2021] FCA 422

Federal Court of Australia

Real Energy Corporation Limited, in the matter of Real Energy Corporation Limited (No 2) [2021] FCA 422 File number(s): NSD 1107 of 2020

Judgment of: YATES J

Date of judgment: 5 March 2021

Date of publication of reasons: 30 April 2021

Catchwords: CORPORATIONS – scheme of arrangement – second court hearing – order sought under s 411(4) of the Corporations Act (Cth) to approve scheme of arrangement – exemption under s 411(11) of the Corporations Act (Cth)

Legislation: Corporations Act 2001 (Cth) ss 411(1), 411(4)(a)(ii), 411(4)(b), 411(11), 411(12), s 411(17)(b) Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Cth) s 5

Cases cited: Diversa Limited, in the matter of Diversa Limited (No 3) [2016] FCA 1284 Real Energy Corporation Limited, in the matter of Real Energy Corporation Limited [2020] FCA 1634 Re Matine (1998) 28 ACSR 268 Re Seven Network Limited, in the matter of Seven Network Limited (No 3) [2010] FCA 400; 267 ALR 583

Division: General Division

Registry: New South Wales

National Practice Area: Commercial and Corporations

Sub-area: Corporations and Corporate Insolvency

Number of paragraphs: 23

Date of hearing: 25 February 2021, 26 February 2021, 5 March 2021

Counsel for the Plaintiff: Mr S Bell

ORDERS NSD 1107 of 2020 IN THE MATTER OF REAL ENERGY CORPORATION LIMITED ACN 139 592 420 REAL ENERGY CORPORATION LIMITED ACN 139 592 420 Plaintiff

order made by: YATES J DATE OF ORDER: 5 March 2021

THE COURT ORDERS THAT:

1. Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (the Act) the scheme of arrangement (scheme) made between the plaintiff and the holders of the ordinary shares in the plaintiff, the terms of which scheme are set out in Annexure B of the Scheme Booklet, as defined in the orders made on 5 November 2020, be approved. 2. Pursuant to s 411(12) of the Act, the plaintiff be exempted from compliance with s 411(11) of the Act in relation to the scheme. 3. The plaintiff lodge with the Australian Securities and Investments Commission a copy of the approved scheme at the time of lodging a copy of these orders. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

YATES J: 1 On 5 November 2020, I made orders providing for the convening of a meeting of the members of the plaintiff pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act) to consider and, if thought fit, approve a scheme of arrangement (the scheme) to effect a merger of the plaintiff with Strata-X Energy Limited (Strata): Real Energy Corporation Limited, in the matter of Real Energy Corporation Limited [2020] FCA 1634 (Reasons 1). 2 The scheme meeting was held on 11 December 2020, and the resolution put to the meeting was passed by the requisite majorities: see s 411(4)(a)(ii) of the Act. Specifically, 95% of the members present and voting (including by proxy), and 98% of the votes cast, were in favour of the scheme. 3 It could be said that these are overwhelming majorities. However, voter turnout was poor. Approximately 2.4% of the members voted (40 members), representing approximately 19.15% of the plaintiff's shareholding. Such a low turnout warrants explanation. An explanation has been given. 4 I make the following observations against the background of my satisfaction that the plaintiff has complied with Order 7 made on 5 November 2020 for the convening of the scheme meeting. Notices of meeting and personalised proxy forms were sent to 1,780 members by email (698 members) or by pre-paid post (1,082 members). There were only three "bounce backs" in respect of the email delivery. In the case of the postal delivery, 50 packages were returned as undelivered. 5 The evidence shows that for the general meetings of the plaintiff's members (including annual general meetings) in the period 2015 to 2020, the members attending in person were between 2 to 7 members, and by proxy between 35 to 63 members. The percentage of shares voted was between 18% to 49%. In the last two years, the percentage of shares voted was between 18% to 21%. 6 Thus, the turnout for the scheme meeting on 11 December 2020 was consistent with voter turnout and voting patterns over the last five years and, in particular, the last two years. 7 The apathetic shareholder who chooses not to vote should not be presumed to be antagonistic to the scheme; nor does such a shareholder warrant paternalistic protection: Re Matine (1998) 28 ACSR 268 at 295; Re Seven Network Limited, in the matter of Seven Network Limited (No 3) [2010] FCA 400; 267 ALR 583 at [61]; Diversa Limited, in the matter of Diversa Limited (No 3) [2016] FCA 1284 at [25] – [26]. The plaintiff does not seem to be a company whose members wish to engage actively in its affairs. As such, I am persuaded that the low voter turnout for the scheme meeting does not stand as a reason for the Court not to approve the scheme, especially when those who do appear to be actively engaged in its affairs have voted so favourably for the scheme. 8 I am satisfied that the scheme meeting was held in accordance with the Court's orders. I note, in particular, that Order 3 made on 5 November 2020 provided that the scheme meeting could be held in person and as a virtual meeting using audio or audio-visual technology in accordance with s 5 of the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020. The notice of meeting included a statement that a conferencing facility would be available for those who wished to participate in the meeting remotely. Only one member indicated a desire to do so. The plaintiff set up a Zoom conference facility for the meeting. However, as events transpired, the facility was not used by any member, including the member who made the initial enquiry (who did not, in any event, attend the meeting). 9 There are two further matters to which I should draw particular attention. The first is that, at the first court hearing on 5 November 2020, the plaintiff gave an undertaking to the Court that a Deed of Variation, effecting an amendment to clause 9.5 of the Scheme Implementation Agreement, would be executed within seven days of the order providing for the convening of the scheme meeting, and served on the members in the same manner as the Scheme Booklet. The circumstances attending the giving of that undertaking are referred to in [22] to [25] of Reasons 1. The evidence before me is that the Deed of Variation was executed late and was not served on the members, although it was displayed on the plaintiff's website from 4 December 2020. 10 The plaintiff's failure to adhere to its undertaking is a serious matter. The only explanation given by the plaintiff is that its obligation to serve the Deed of Variation was "overlooked", possibly due to the pressure of work affecting the plaintiff's company secretary, who had the responsibility for undertaking this task. Although an apology has been given to the Court, this explanation is not satisfactory, especially when the need to amend clause 9.5 of the Scheme Implementation Agreement was a matter of specific engagement between the plaintiff and the Australian Securities and Investments Commission (ASIC), and the giving of the undertaking to the Court was a step taken by the plaintiff to assuage ASIC's concerns concerning clause 9.5 in its unamended form. In short, this was not an unimportant matter. 11 Clause 9.5 of the Scheme Implementation Agreement concerns the manner in which the plaintiff's directors were to discharge their fiduciary duties in relation to the receipt of a Superior Proposal (as defined). As matters transpired, clause 9.5 was not engaged because a Superior Proposal was never received. Thus, although the plaintiff's failure to comply with its undertaking is, of itself, a serious matter, it has not resulted in any actual prejudice to the members. I am persuaded that it does not stand as a sufficient reason for the Court not to approve the scheme. 12 The second matter is that the resolution put to the members at the scheme meeting was not, in terms, the resolution that was set out in the notice of meeting, although its substance was the same. The resolution in the notice of scheme meeting was: That, pursuant to and in accordance with, section 411 of the Corporations Act, the Scheme, the terms of which are contained in and more particularly described in the Scheme Booklet (of which this Notice of Scheme Meeting forms part) is approved (with or without modifications approved by the Court). 13 The resolution as put to the scheme meeting and passed was: RESOLVED THAT pursuant to and in accordance with Sections of 411(1) and 1319 of the Corporations Act, the Scheme contained in the Scheme Booklet as approved by the Federal Court of Australia and as amended by Deed of Variation dated 30 November 2020 between Real Energy Corporation Limited and Strata-X Energy Limited be approved. 14 The reference to the Deed of Variation in that resolution is curious. There is nothing in the Deed of Variation that amends the terms of the scheme as set out in the Scheme Booklet. As I have noted, the Deed of Variation effected an amendment to the Scheme Implementation Agreement. The chairman of the meeting, Mr Wardman, has deposed that he addressed the scheme meeting by stating: This Scheme Resolution is being put to the meeting pursuant to Orders of the Federal Court of Australia made on 5 November, 2020. On that date the Court also ordered a Deed of Variation amending words in the Scheme Implementation Agreement be executed and served upon each shareholder in the same manner as the Scheme Booklet. I now put the resolution to shareholders: "That pursuant to and in accordance with Sections 411(1) and 1319 of the Corporations Act, the Scheme contained in the Scheme Booklet as approved by the Federal Court of Australia and as amended by Deed of Variation dated 30 November 2020 between Real Energy Corporation Limited and Strata-X Energy Limited be approved". 15 Despite the fact that the resolution put to the scheme meeting was not in the same terms as the resolution set out in the notice of meeting, and despite its infelicitous wording, it is clear that the substance of the resolution, as put, was that the scheme contained in the Scheme Booklet be approved. The members present in person or by proxy approved the scheme by the majorities which I have noted. The reference to the Deed of Variation in the resolution, as put and passed, is an immaterial distraction which does not detract from the approval of the scheme that was clearly given by the members. 16 I now turn to other matters. 17 On the evidence before me, the conditions precedent to the scheme have been satisfied. 18 There is evidence that the deed poll referred to in [18] of Reasons 1 has been duly authorised, executed, and delivered, by Strata. 19 Further, at an extraordinary general meeting of the members of Strata held on 5 February 2021, a resolution was passed approving the issue of shares in Strata as the scheme consideration referred to in [7] of Reasons 1. 20 ASIC has advised that, under s 411(17)(b) of the Corporations Act 2001 (Cth), it has no objection to the scheme. The requirement of s 411(17) has therefore been satisfied. 21 The second court hearing was advertised in accordance with Order 14 made on 5 November 2020. No person has come forward to oppose the scheme being approved by the Court. No other matter has been brought to the Court's attention that would stand as a reason for not approving the scheme. 22 Therefore, taking into account: (a) the provisional view I expressed in Reasons 1, which has not changed; (b) the recommendation of the directors; (c) the opinion of the independent expert; (d) the views of the members, expressed through their voting at the scheme meeting; (e) the lack of expressed opposition to the scheme; and (f) the plaintiff's compliance with the Court's orders made on 5 November 2020 for convening and holding the scheme meeting, I am satisfied that the scheme should be approved by the Court pursuant to s 411(4)(b) of the Act. 23 I record that the following affidavits were read at the second court hearing and the documents referred to as exhibits in those affidavits were admitted into evidence: (a) Affidavit of Glyn Yates and Andrew Clifford sworn 11 November 2020; (b) Affidavit of Shauna Hartman sworn 11 December 2020 at 9:07:13 AM AEDT; (c) Affidavit of Shauna Hartman sworn 11 December 2020 at 9:10:14 AM AEDT; (d) Affidavit of John Wardman sworn 11 December 2020; (e) Ronald Ernest Hollands sworn 11 December 2020; (f) Ronald Ernest Hollands sworn 14 December 2020; (g) Affidavit of Andrew Martin sworn 14 December 2020; (h) Affidavit of John Wardman sworn 19 January 2021; (i) Affidavit of Duncan Patrick Cornish affirmed 9 February 2021 ; (j) Affidavit of John Wardman sworn 9 February 2021; (k) Affidavit of Ronald Ernest Hollands sworn 9 February 2021; (l) Affidavit of Ronald Ernest Hollands sworn 19 January 2021; (m) Affidavit of Ian Burnham Mitchell sworn 23 February 2021; (n) Affidavit of Ronald Ernest Hollands sworn 26 February 2021; (o) Affidavit of John Wardman sworn 26 February 2021; (p) Affidavit of Ying Ou sworn 26 February 2021; (q) Affidavit of Siyuan Liu sworn 4 March 2021; (r) Affidavit of Ying Ou sworn 4 March 2021; (s) Affidavit of Ying Ou sworn 5 March 2021; and (t) Affidavit of Joel Stoffberg sworn 5 March 2021. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates.

Associate: Dated: 30 April 2021