N4126

PAPUA NEW GUINEA
IN THE NATIONAL COURT OF JUSTICE

MP 302 OF 2010

IN THE MATTER OF THE COMPANIES ACT 1997

AND:

IN THE MATTER OF LIHIR GOLD LIMITED

Waigani: Hartshorn, J.
2010: 26th August

COMPANIES ACT 1997 - Application for approval of Scheme of Arrangement – s. 250 (1) Companies Act 1997

Facts:

This is an application by Lihir Gold Limited seeking orders pursuant to s. 250 (1) Companies Act 1997 that the proposed scheme of arrangement between Lihir Gold and its ordinary shareholders to effect a merger between Lihir Gold and Newcrest Mining Ltd, be binding on Lihir Gold and its shareholders. '

Held:

1. The Companies Act 1997 is silent as to the matters which the court should consider in determining whether to approve a scheme of arrangement at the second court hearing. Section 250 (1) Companies Act 1997 gives an unfettered discretion to this court by providing that it may make an order on such terms and conditions as it thinks fit.

2. Adopting similar principles to those applied in New Zealand, Australia and England, matters that are required to be satisfied as to schemes of arrangement are:

a) does the scheme comply with the law?

b) was the scheme approved by shareholders on the basis of adequate information?

c) is the scheme otherwise fair and reasonable in the circumstances?;

3. The scheme of arrangement proposed is one that can be authorised by this court under s. 250 (1) Companies Act 1997.

4. The information provided to shareholders is comprehensive and includes an explanation as to why the scheme has been proposed, details of the risks associated with the proposed merged company, an investigating accountant's report, an independent expert's report and a technical expert's report. This information is more than adequate for an informed decision to be made.

5. The test adopted for analysing the fairness in New Zealand, Australia and England is whether the scheme is one which might reasonably be approved by an intelligent and honest business person. The required majority of shareholders have approved the scheme at a court convened meeting after considering material concerning the scheme. 

6. The scheme appears commercially reasonable and is fair and equitable given the independent experts' conclusions. The scheme of arrangement is one which might reasonably be approved by an intelligent and honest business person. The orders sought are granted.

Cases cited:

Papua New Guinea cases

Nil

Overseas cases

Re Alabama, New Orleans, Texas and Pacific Junction Railway [1891] 1 Ch 215
Re English Scottish and Australian Chartered Bank [1893] 3 Ch 385
Re Dorman, Long and Company Ltd [1934] Ch 635
Re CM Banks Ltd [1944] NZLR 248 
Weatherstone v. Waltus Property Investments Ltd [2001] 2 NZLR 103 
Re Central Pacific Minerals NL [2002] FCA 239 
Dominion Income Property Fund Ltd and Ors v. Takeovers Panel [2006] NZCA 229/06

Counsel:

Mr. I. R. Molloy and Mr. D. L. Wood, for the Applicant 
Mr. G. M. Egan and Mr. A. Mana, for Newcrest Mining Ltd
Mr. A. Tongayu, for the Securities Commission of Papua New Guinea

26th August, 2010

1. HARTSHORN, J: Lihir Gold Limited (Lihir Gold) seeks orders pursuant to s. 250 (1) Companies Act 1997 that the proposed scheme of arrangement between Lihir Gold and its ordinary shareholders (shareholders) to effect a merger between Lihir Gold and Newcrest Mining Ltd (Newcrest Mining), be binding on Lihir Gold and its shareholders.

2. On 22nd July 2010, I made orders pursuant to s.250 (2) Companies Act 1997 convening a meeting of shareholders to consider and, if thought fit, to approve the entry into the scheme of arrangement. Those orders included that of the shareholder votes cast at the meeting, 75% or more must be in favour of the resolution that was proposed to approve the scheme.

3. The first consideration then is to determine whether the requisite meeting was held and the resolution passed in accordance with this court's orders of 22nd July 2010.

4. The second consideration is to determine whether this court should exercise its discretion to approve the scheme of arrangement.

Preliminary

5. Counsel for Lihir Gold informed the court that other than a notice of appearance filed on behalf of Newcrest Mining, no notice of intention to appear or any notice of motion from any party intending to appear on this application had been received.

6. The Securities Commission of Papua New Guinea appeared by counsel and made submissions supporting the application. Newcrest Mining appeared by counsel but did not make submissions.

7. Counsel for Lihir Gold informed the court that a shareholder of Lihir Gold, MRL Capital Ltd, had given notice of its claim to further shares in Lihir Gold. Counsel submitted that this claim is not new, and if the scheme proceeded, the claim of MRL Capital could still be pursued. The proposed scheme has not been questioned by MRL Capital. As there is no appearance on behalf of MRL Capital and given the submissions of counsel that the claim can be pursued if the scheme proceeds, I will not consider the matter further. 

Shareholder approval

8. As to the first consideration, after perusing the evidence of Christopher Nicholas Buttery and Michael Gerald Sullivan, I am satisfied as to the required dispatch of the necessary material to shareholders, the meeting of shareholders and the passing of the resolution by the required majority. In this regard, I also note that the Registrar of the National Court has given his certificate pursuant to section 50 (5) Companies Rules as is required by section 50 (6) Companies Rules.

9. I also note the satisfaction of all conditions precedent or their waiver in accordance with the Merger Implementation Agreement, by Lihir Gold and Newcrest Mining.

Final Court approval

As to whether this court should approve the scheme of arrangement

10. The Companies Act 1997 is silent as to the matters which the court should consider in determining whether to approve a scheme of arrangement at the second court hearing. Section 250 (1) Companies Act 1997 gives an unfettered discretion to this court by providing that it may make an order on such terms and conditions as it thinks fit.

11. The Companies Act 1997 is similar to the Companies Act of New Zealand 1993. Both Parts of these Acts dealing with court approval of arrangements, amalgamations and compromises are derived from earlier English, Australian and New Zealand Companies Acts.

12. Given the lack of detail as to procedure and matters to be considered in the legislation of Papua New Guinea, the similarity in the legislation in the mentioned jurisdictions and in my view, the desirability of there being a common approach by the courts in those jurisdictions and Papua New Guinea, to company law matters, this court should have regard to the practice in the other jurisdictions and their relevant case authorities, which are of persuasive value in this jurisdiction: Schedule 2.12 Constitution.

13. I note that this court has previously granted orders under s. 250 (1) Companies Act 1997 in respect of two (2) other proposed mergers. It was submitted that this court had regard to the practice in Australia, New Zealand and England then, though there are no published reasons.

14. The matters upon which the courts in New Zealand, Australia and England require to be satisfied as to schemes of arrangement are:

a) does the scheme comply with the law?

b) was the scheme approved by shareholders on the basis of adequate information?

c) is the scheme otherwise fair and reasonable in the circumstances?;

Re CM Banks Ltd [1944] NZLR 248, Re Central Pacific Minerals NL [2002] FCA 239 and Re Alabama, New Orleans, Texas and Pacific Junction Railway [1891] 1 Ch 215

Compliance with the law

15. It is clear that the scheme of arrangement proposed is one that can be authorised by this court under s. 250 (1) Companies Act 1997 and Lihir Gold is entitled to make the application as a company.

Adequate information

16. The required information to be provided to shareholders for the approval of a scheme of arrangement in Australia is specified in the Australian Corporations Act 2001 (Cth) and Corporations Regulations 2001 (Cth). It is required that there be an explanatory statement provided together with any material concerning directors interests, descriptions of securities offered, recent trading history and other information that is material to the making of a decision whether to vote in favour of a resolution approving the scheme, being information that is within the directors knowledge that has not been previously disclosed. On occasion an independent expert's report is also required.

17. In this instance, the information provided to shareholders is comprehensive and includes an explanation as to why the scheme has been proposed, details of the risks associated with the proposed merged company, an investigating accountant's report, an independent expert's report and a technical expert's report.

18. I am satisfied that the information supplied to shareholders was more than adequate for them to make an informed decision and was provided to them in sufficient time to allow the shareholders to properly consider the scheme.

Fair and reasonable

19. As to whether the proposed scheme of arrangement is fair and reasonable, the test adopted for analysing the fairness in New Zealand, Australia and England when determining whether to give final approval to a scheme of arrangement, is whether the scheme is one which might reasonably be approved by an intelligent honest business person: Weatherstone v. Waltus Property Investments Ltd [2001] 2 NZLR 103, Dominion Income Property Fund Ltd and Ors v. Takeovers Panel [2006] NZCA 229/06, Re Central Pacific Minerals NL [2002] FCA 239, Re Alabama, New Orleans, Texas and Pacific Junction Railway [1891] 1 Ch 215, Re Dorman, Long and Company Ltd [1934] Ch 635

20. In Weatherstone's case (supra), the New Zealand Court of Appeal referred to the test of the intelligent and honest business person derived from English authority, the test of commercial reasonableness suggested previously by the New Zealand Court of Appeal, and Canadian authority which added a consideration of whether the arrangement was fair and equitable, to the business person test. The New Zealand Court of Appeal concluded that a culmination of both tests was apt where competing interests are involved which must be balanced in deciding whether, and if so, on what basis a proposal should be approved.

21. Here the required majority of shareholders have approved the scheme at a court convened meeting after considering material concerning the scheme that I have already determined is more than adequate to make an informed decision.

22. It was held in Weatherstone's case (supra), that in such circumstances, the court will seldom overrule the wishes of the shareholders of a company as the court will generally take the view that the shareholders are the best judges as to whether an arrangement is to their commercial advantage and will be reluctant to make decisions contrary to the views of shareholders expressed at meetings. Courts are reluctant to make their own commercial Judgments: Re English Scottish and Australian Chartered Bank [1893] 3 Ch 385

23. The main reasons in favour of the Scheme of Arrangement are that:

a) the consideration to be received by shareholders represents a substantial premium over historical trading prices for shares in Lihir Gold.

b) shareholders will be able to participate in the benefits of the merged group by being able to receive Newcrest shares as consideration under the Scheme.

c) the independent expert concluded that in the absence of a superior proposal, of which there is none, this scheme is in the best interests of shareholders and if it did not proceed, the Lihir Gold share price is likely to fall, potentially significantly.

24. I am satisfied that the scheme appears commercially reasonable and is fair and equitable given the independent experts' conclusions. I am further satisfied, after considering the evidence, that the scheme of arrangement is one which might reasonably be approved by an intelligent honest business person.

25. Accordingly the orders sought in paragraphs 1, 2 and 4 of the Summons dated and filed 14th July 2010, are granted.

Blake Dawson: Lawyers for the Applicant 
Allens Arthur Robinson: Lawyers for Newcrest Mining Ltd 
Securities Commission of PNG: Lawyers for Securities Commission of Papua New Guinea