Corporate 5 Minute Fix 02: court approval for schemes of arrangements, meeting venues, estimates of mineralisation, greenwashing

Scheme hearings get a makeover: Federal Court introduces streamlined process for cheaper and more efficient approvals

Positive developments continue to emerge for companies seeking court approval for schemes of arrangements! The Federal Court has recently signalled a more streamlined and efficient process for applicants seeking approval of a scheme of arrangement at the first and second court hearings. The recent decision of Justice Jackman In the Matter of Vita Group Limited [2023] FCA 400 has laid down simplified evidentiary requirements for scheme hearings, citing the overarching purpose of civil practice and procedure to facilitate the just resolution of disputes according to law, as quickly, inexpensively and efficiently as possible.

In a significant move, Justice Jackman criticised the extensive volume of evidence and other material required to be prepared and delivered to Court ahead of the first and second court hearings in a scheme. This is a result of practice and procedure that has emerged over the years rather than actual legislative requirements. To address this, His Honour took the unusual step of conducting a case management hearing shortly after the application was filed, outlining the manner in which the first and second court hearings might be approached.

Following His Honour's directions, relevant changes made by the parties regarding the evidentiary requirements for the first hearing of this scheme are expected to improve efficiency and costs associated with the process for companies seeking the Court's approval of schemes. These include:

• dispensing with the practice of providing a solicitor's affidavit containing all the correspondence between the plaintiff's solicitors and ASIC concerning the draft explanatory statement;
• departing from the usual practice of providing a separate affidavit from the independent expert which verifies the expert report;
• providing a short formal affidavit with a recent ASIC search is sufficient for the originating process; there is no need to provide additional facts;
• dispensing with the need for an additional affidavit from the alternate chairperson, only an affidavit from the proposed chairperson is sufficient;
• dispensing with rule 3.4 of the Corporations Rules to publish a notice of the hearing of application by way of Form 6 (usually in a newspaper), to instead provide for the details of the second court hearing and relevant processes by way of an ASX Announcement;
• the plaintiff's main affidavit only needs to include a single sentence about the break fee payable, as it is usually conventional and not heavily negotiated;
• the scheme company need not seek court approval for communications with shareholders unless a supplementary explanatory statement is required; and
• dispensing of the requirement to give evidence of the plan for dispatching the explanatory statement and the proposed manner of conducting the scheme meeting.

Justice Jackman's approach to ex-parte hearings is undoubtedly a game-changer, but it is not set in stone. While he has outlined a streamlined process for target plaintiffs, he also recognises that there may be unique circumstances that require additional evidence to be presented to the Federal Court. However, His Honour also suggested that this evidence can often be presented simply through written or oral submissions. So, while there may be some deviations from the standard process, the overall goal of achieving efficient and effective ex-parte hearings remains the same.

In His Honour's opinion, the simplified evidence was sufficient for the Court to convene the scheme meeting and approve the dispatch of the explanatory statement. The proposed reforms are generally supported by the Justices of the Federal Court as a whole, and a Federal Court Practice Note is currently in the works to reflect these changes. As such, it appears that this efficient approach to scheme hearings is here to stay, and companies should be aware of these reforms when commencing schemes of arrangements in the future.

Ultimately, this is excellent news for companies seeking court approval for schemes of arrangements. The proposed reforms are expected to improve efficiency and costs associated with the process while still ensuring that all necessary matters are brought to the Court's attention that are material to the exercise of discretion. Companies should take note of these reforms when considering a scheme of arrangement, as they are expected to become a standard practice moving forward.

Mining explorers, listen up!

Mining explorers often report on their visual estimates of mineralisation, which can provide valuable information to investors and other stakeholders. However, the Australian Securities Exchange (ASX) has cautioned against relying solely on visual estimates. The process of mineral exploration is not as straightforward as it may seem, with various regulations in place to ensure that reporting is accurate and not misleading.

One such regulation that mining explorers need to be aware of is the ASX's guidance on reporting visual estimates of mineralisation. ASX's guidance note states that it would generally be inappropriate for an entity to comment on the grade or quality of mineralisation in the absence of an assay. Visual estimates based solely on a core sample before it has been assayed and analysed can give a misleading impression of the extent of mineralisation.

However, if an entity forms the view that it must disclose an estimate of mineralisation based on visual observations only, the announcement must meet all Listing Rule and JORC code requirements. The announcement must be accurate, complete, and not misleading, and must contain specific information, including the nature of mineral occurrence, identification of minerals observed, estimated abundances of any minerals observed, and the anticipated timing for the release of assay results.

In addition, ASX expects the announcement to contain a proximate cautionary statement to any reported visual estimates: "Visual estimates of mineral abundance should never be considered a proxy or substitute for laboratory analyses, where concentrations or grades are the factor of principal economic interest. Visual estimates also potentially provide no information regarding impurities or deleterious physical properties relevant to valuations".

It is important for mining explorers to comply with these regulations, as ASX will not hesitate to take action if it considers that an announcement does not comply with the Listing Rules. The action that ASX may take includes rejecting the announcement or requiring a retraction or correction. ASX may also suspend trading in the entity's securities until appropriate corrective action is taken.

While the process of mining exploration can be challenging, it is crucial for mining explorers to adhere to regulations set forth by governing bodies such as ASX. By doing so, they can maintain transparency and ensure that their reporting is accurate and not misleading.

For further information, see ASX Guidance Note 8 – Example D.

Greenwashing alert: ASIC issues infringement notice to Future Super

The Australian Securities and Investments Commission (ASIC) has issued an infringement notice to Future Super Investment Services Pty Ltd, the promoter of the Future Super Fund, for alleged greenwashing. The notice was issued after ASIC found that a Facebook post by Future Super could be false or misleading, overstating the positive environmental impact of the Fund. The post claimed that the Fund had moved nearly $400 million out of fossil fuels.

However, at the time of the post, Future Super had approximately $400 million in total funds under management, and there was no basis to represent that the entirety of those funds had been invested in fossil fuels prior to being invested in the Fund. ASIC Deputy Chair Sarah Court noted that the post was misleading to investors and potential investors and overstated the positive environmental impact of the Fund.

The infringement notice is part of ASIC's continued focus on greenwashing in the financial services industry. The regulator has issued over $150,000 in infringement notices regarding greenwashing since October 2022 and has also commenced civil proceedings in the Federal Court against Mercer Super for similar claims.

Ms Court emphasised that ASIC expects the industry to be able to back up sustainability statements with evidence and that social media posts promoting green claims are not immune from ASIC action. The regulator is committed to holding companies accountable for greenwashing in their statements to the market, disclosure documents, marketing material, and social media.

Future Super paid the $13,320 infringement notice on 27 April 2023, but the payment does not constitute an admission of guilt or liability. The Facebook post was published on 29 May 2019 and remained on the Future Super's Facebook page until October 2022.

This infringement notice serves as another warning to the financial services industry that ASIC is taking a proactive approach to greenwashing. Companies that promote themselves as environmentally friendly must be able to substantiate their claims with evidence. With consumers increasingly concerned about the environment and sustainability, companies must be careful not to overstate their environmental credentials or mislead investors. The industry as a whole must take action to improve disclosure practices and ensure that environmental claims are accurate and verifiable.

There are ways to navigate the ethics of your sustainability agenda and avoid falling into the greenwashing trap. Check out Clayton Utz's latest article on how to approach your ESG-related claims and ensure that you're not misleading your stakeholders.