Australian Co-operative Foods Limited (Application of) [2001] NSWSC 382

In addition an aim of the restructure "is to provide the business and the Members with options in respect of industry rationalisation and other options as they arise."

4 ACF is a major co-operative supplying milk, processing it and marketing it. It is registered under the Co-operatives Act 1992 (NSW) ("the Act") as a "trading co-operative" governed by that Act. It has what are called "Active Members" and "Inactive Members", the latter forfeiting their shares after two years of inactive status and having no vote. That Inactive Members have no vote has posed these questions. Should any further safeguards of fairness be introduced into the Scheme process to ensure that the interests of Inactive Members are not neglected, given that only Active Members can vote on the Members' Scheme but all members suffer extinction? To what extent as mandated by s368 of the Act can analogies taken from the Corporations Law be applied harmoniously with co-operative principles, with the latter giving primacy to Active Members in determining the destiny of the co-operative? 5 The larger modern co-operative has become something of a hybrid. Starting off supplier or grower controlled, and facing competition in a globalised world, its existing sources of finance increasingly strain to accommodate expanding needs. To a degree, those needs can be accommodated by the existing statutory regime, using members' capital, internal creditors' capital units and banking finance. But there may, though not inevitably, come a point in that evolution where the need for capital can no longer be so satisfied, but requires access to external investors and capital markets. This may force the co-operative structure to be modified or even replaced. Hence that statutory regime has had to be flexible enough to allow for reconstruction by scheme of arrangement. This is to accommodate what is here a staged transition to conventional corporate status and possible listing. That it is staged is to preserve as much farmer influence as possible for as long as possible. Here it is hoped to do so even after introducing external investors and listing, using the new Supply Co-operative to that end. Such schemes of arrangement are instigated and implemented by analogous mechanisms to the Corporations Law, though with some important differences. 6 The two interlinked schemes have so far had one objector, Mr Emery, who comes from the Inactive Members. To what extent his views reflect those of other Inactive Members it is not at present possible to say. Nonetheless his opposition has led to enhanced disclosure and enabled various aspects of the Schemes to receive additional critical scrutiny, without pre-empting what may subsequently arise at the Court approval stage. The Registrar of Co-operatives has also been present at most of the pre-voting Court hearings. The Registrar can be expected to state to the Court by the final approval stage whether or not he has any objection to either arrangement (s353(1)(b) of the Act). The Registrar also plays an important supervisory role in approving the explanatory statement. Under s366 of the Act the Court can require a report as to the terms of the Scheme from the Registrar (or any other person). Finally, the Registrar is entitled to be heard by the Court pursuant to s369 of the Act. 7 There is always potential for differing views as between "active" voting milk supplier members and "inactive" non-voting members (typically former suppliers). Notwithstanding that they both now receive the same treatment under the Schemes, the Schemes have a different potential impact on them. The Inactive Members are those who no longer supply milk to the co-operative and lose their vote as a result, as well as being forfeited after two years. ACF's Rules provide for this regime, to be replicated in the Rules of the Supply Co-operative. Therefore, though both Active and Inactive Members may look to a restructure for its potential to "unlock" value, Inactive Members whose shares are forfeited at the end of two years have a greater interest in earlier unlocking of that value. This is so they benefit while still members, though the Scheme nonetheless provides some compensatory mechanisms; see 8 and 9 below. The earlier conversion to a company occurs the more Inactive Members will still have shares not yet forfeited and who can thereby benefit by selling those unforfeited shares into an associated float. The Scheme authorises the Board of ACF to convert to a company within three years. But there can be no guarantee that the Board will find the circumstances propitious to do so, or find them propitious earlier rather than later. 8 For current members who are currently inactive or intend to leave the industry in the short term, there are some compensatory benefits (mirroring sections 139-140 of the Act, as broadly summarised in the Booklet, Vol. 1 Chairman's letter page 2). The first of these below only applies for so long as the Inactive Member has not suffered forfeiture and applies for two years after ceasing to be Active. (It is possible to revert to being an Active Member again by resuming the necessary milk supply volume and frequency.) I quote from the summary in the Booklet (Vol. 1 - Chairman's letter, page 2 with the cross-reference to section 19 of the Booklet): " Retention of rights in respect of 25% of ACF equity held at the Implementation Date which will provide potential for access to liquidity at Market Value or provide a continuing interest in the future of the processing business, and

In relation to the remaining 75% of ACF equity, rights (by means of an investment in Special CCUs for up to 5 years after forfeiture of the Members' shares) to participate in any benefits from the partial or total sale of the Supply Co-operative's investment in the Processor. This provides a total period of opportunity to participate in the benefits of a further sale of ACF Shares by the Supply Co-operative for Inactive Members of 7 years after becoming inactive. See Section 19."

9 Moreover Inactive Members have their rights enhanced by the extension by one year of their right to retain their shareholding in restructured ACF (the 25% retained) prior to forfeiting. That is pointed out in the Independent Expert's Report where the following is concluded: "Inactive Members receive an equal entitlement to shares in Restructured ACF and the Supply Co-operative as Active Members. In addition, Inactive Members holding MCUs receive an equal entitlement to CCUs in Restructured ACF and Supply Co-operative as Active Members holding MCUs. The position of Inactive Members is however enhanced by the extension, following implementation of the Restructure, by one year, of their right to retain their shareholding in Restructured ACF prior to forfeiting. On forfeiture Inactive members will be entitled to reinvest the proceeds of forfeiture in Convertible CCUs in Restructured ACF."

10 For Former Members who have already ceased supply to ACF and have had their ACF shares forfeited within the 5 years prior to the date of the special resolution of members approving the Scheme there is also a compensatory mechanism which I quote from the same section of the Booklet:

" Rights during the period of three years after the Implementation Date (the Sunset Period) to receive shares in the public company into which Restructured ACF converts should that occur during that time at a price of $1.00 per share to a maximum of 25% of the former members' ACF Shares previously forfeited, by means of an investment in Ex-Member CCUs (ExMCUs) to be issued by ACF (See Section 17)."

11 Active Members may be expected to want to retain their full stake as long as possible in the transforming entity till diluted by external investors. The Scheme contemplates just that. ACF's directors are empowered by the Members' Scheme to bring about conversion in the ensuing three years and foreshadow doing so, if satisfied conditions are right to float ACF. If that occurs, this should provide an opportunity for Active Members (and Inactive Members still with a stake) to sell their 25% retained in restructured ACF into the market. Post conversion, they would therefore still retain their interest in the Supply Co-operative. If in the meantime, a sufficiently attractive takeover or analogous scheme comes about, Active Members will still have, post the restructure, the opportunity to vote on whether to accept it. They can be expected to have to weigh up the value of the offer as against any loss of farmer control. The prospective buyer of ACF and the new Supply Co-operative will, as the Independent Expert explains, face some additional but by no means insuperable complications from the dual structure, but can still bid for both. A lawful proposal must go to Members of the Supply Co-operative and ACF to vote on by Special Resolution in a Postal Ballot. The new Rules preclude any Board veto. The Boards in each case will, as now, retain the capacity to recommend or otherwise the proposal put. 12 Insofar as the Supply Co-operative were to sell its shares in ACF, then access to the proceeds of sale would be distributed to its members, with the tax consequences explained in the Booklet. All of this means that future options to sell are not precluded by the restructure, should a sufficiently attractive offer find favour; see Booklet Vol. 1 Chairman's letter, pages 12-13 and sections 16.22 of Vol. 1 with the Rule changes there described. 13 The first of the two schemes is an arrangement proposed between ACF and its members. I shall refer to it as "the Members' Scheme". The second of the two schemes, a creditors' scheme, is an arrangement proposed between ACF and those who hold what are called member's co-operative capital units or "MCU's". There is some question as to whether their rights are tantamount to membership rights such that the MCU's form part of the capital of the company so as to be governed by the Members' Scheme provisions. However, I am content to adopt the view that, because the MCU holders have a right of redemption after five years, they are merely contingent creditors. They are thus creditors for the purposes of the Creditors' Scheme provisions: Re Midland Coal Coke & Iron Co [1895] 1 Ch 267 at 277 (CA) being "all persons have pecuniary claims against the company" or, in the words of Re Glendale Land Development Ltd (in Liq) [1982] 2 NSWLR 563 at 566, "all persons who would be entitled to prove if the company were wound up". As I explain later (54-55 below), the statutory regime treats them as quasi capital, being essentially debentures; see ss269 and 270 of the Act. I shall therefore refer to the MCU scheme as "the Creditors' Scheme". 14 These schemes are before me at a stage where they have yet to be submitted to those entitled to vote thereon. They have received detailed consideration over a number of hearings, latterly with the intervention of an objector. This reflects the complexity of the proposals and the sometimes divergent interests of Inactive versus Active Members. Applying the analogy of the Corporations Law, the two schemes are now at the pre-voting pre-Court approval stage. The Co-operatives Act only requires the Court to convene a meeting of the creditors not members, in order to vote upon the Creditors' Scheme. There is no corresponding statutory requirement to convene a meeting of members, as members do not meet at all. Nonetheless they can meet informally to discuss the scheme. Indeed a series of local meetings are proposed; see 17 and 89-92 below and the orders made as to the necessary safeguards laid down. Active Members do however vote formally at the end by "special resolution" passed by means of a "special postal ballot", doing so without a meeting. 15 Both the Members' Scheme and the Creditors' Scheme are interdependent and in the same document, though separated within it. So the Court's consideration of it has necessarily focussed on the terms of both schemes. Moreover, after each scheme is voted upon, they both return for the Court to consider whether or not to approve. Then "the Court may grant its approval …. subject to such alterations or conditions as it thinks just", (s344(3) of the Act). In harmony with Corporations Law principles the Court can be expected to give its approval if then satisfied on the following:

(a) that all the voting and other requirements of the Co-operatives Act have been satisfied and there is no unlawful conduct,

(b) there has been full disclosure and in a way that is not misleading or deceptive, of all matters material for members and creditors to be informed about in determining whether to support or oppose their respective schemes.

(c) the necessary majority of members and creditors have voted for their respective Schemes, acting in good faith and not in pursuit of some illegitimate purpose, and

(d) the proposal was "at least so far fair and reasonable, as that an intelligent and honest man who is a member of that class, and acting alone in respect of his interest as such member, might approve it"; Re Dorman Long & Co Ltd [1934] Ch 635 and generally I A Renard and J G Santamaria "Takeovers and Reconstructions in Australia" (Butterworths, Sydney 1990) (looseleaf) at [1523].

Disclosure - Scheme proponent, Advisers and Experts 16 Disclosure is primarily the responsibility of ACF as proponent of the Schemes. Its advisers also play an important role in their responsibility for a proper due diligence process to ensure full disclosure and lawfulness generally. The experts are responsible for what they say in their reports. They must ensure that their reports deal adequately with the kind of concerns that could reasonably be anticipated from those affected by the scheme, in reporting on whether the relevant scheme proposal is fair and reasonable from their viewpoint. In dealing with the matters that bear upon that conclusion, experts undertake such verification as is reasonable in the circumstances and as the law requires. Experts should make clear the extent and limits of their enquiries and of the scope of their reports. If for example they have made no valuation of the business but believe on proper grounds that they can still fulfil the purpose of their report in properly informing members on all material matters in relation to the proposals before them, then that should be said so no one expects more, and justified. That has been done here. ASIC's Policy Statement 75 for corporate schemes provides useful guidance. Where experts claim independence, they must be genuinely so. Here the independent expert needs to give an objective and disinterested opinion, with sufficient supporting information, as to fairness and reasonableness taking into account the interests of all Members affected, whether Active or Inactive. This is so those members can then make an informed decision with the benefit of a report that is as simple, clear and useful as possible. A plethora of peripheral information is more likely to distract than illuminate. 17 I emphasise these disclosure responsibilities, particularly that of ACF, having regard to what occurred in relation to the predecessor scheme and which is fairly recounted in the Scheme Booklet (Vol. 1 section I Schedule A). I have therefore especially emphasised (see 89 to 92 below) the need to avoid any partisan advocacy on this occasion, in particular at any ward, district, regional or supplier meetings that may be proposed. That does not prevent the directors correcting any mistaken or misstated criticism of the Scheme, provided this is done objectively, accurately and impartially. Likewise there is no objection to encouraging a high voting turn out but not partisan advocacy designed to favour one vote over another. It is essential that the Scheme Booklet be allowed to speak for itself and not be overshadowed by partisan advocacy or oversimplification. I have also emphasised the importance of ensuring that the Members' help-line is operated so as to give neutral and accurate information in response to questions asked. The independent expert is to investigate and report to the Court at the approval stage on these matters, aided by tape-recording to provide an audit trail of what has been said in any communications with members, formal or informal.

The statutory setting 18 The Co-operatives Act in s344 contains the central provision governing the requirements for a binding compromise or arrangement. It does so in a statutory context which grafts a modified version of the Scheme provisions of the Corporations Law adapted to co-operatives. It is in the following terms: " 344 Requirements for binding compromise or arrangement (1) A compromise or arrangement is binding if and only if it is approved by order of the Court and it is agreed to: (a) if the compromise or arrangement is between the co-operative and any of its creditors - at a court ordered meeting by a majority in number of the creditors concerned who are present and voting (in person or by proxy), being a majority whose debts or claims against the Co-operative amount to at least 75% of the total of the debts and claims of all those creditors who are present and voting (in person or by proxy), or (b) if the compromise or arrangement is between the co-operative and any of its members - by the members concerned, by special resolution passed by means of a special postal ballot. (2) The court ordered meeting referred to in subsection (1)(a) is a meeting convened in accordance with an order of the Court under this Part. (3) The Court may grant its approval to a compromise or arrangement subject to such alterations or conditions as it thinks just. (4) An order of the Court approving a compromise or arrangement does not have any effect until an office copy of the order is lodged with the Registrar. On the copy being lodged, the order takes effect from the date of lodgment or such earlier date as the Court specifies in the order."

19 Section 345 of the Act provides in relation only to creditors' schemes that court may, "on application by an appropriate person" order a meeting of the creditors concerned. 20 The remaining provisions specifically applicable to arrangements and re-constructions are set out in the ensuing Part 13 of the Co-operatives Act and include counterpart provisions to those in the Corporations Law, concerning requirements for an explanatory statement (sections 354-5) as is here provided via the Scheme Booklet. Importantly section 346 places the Registrar of Co-operatives in a somewhat similar role to ASIC. It requires that the Registrar be given reasonable opportunity to make submissions in relation to the proposed compromise or arrangement and the explanatory statement relating to it. 21 In the present case, the Registrar has appeared through Counsel and has been in a position to assist the Court at the relevant hearings. 22 Section 353 of the Co-operatives Act is the counterpart provision to s411(17) of the Corporations Law though containing some significant differences. Thus s353 provides: " 353 Court need not approve compromise or arrangement takeovers (1) the Court need not approve a compromise or arrangement unless: (a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Division 2 of Part 11 (Restrictions on certain share offers), and (b) there is produced to the Court a statement in writing by the Registrar stating that the Registrar has no objection to the compromise or arrangement. (2) The Court need not approve a compromise or arrangement merely because a statement by the Registrar stating that the Registrar has no objection to the compromise or arrangement has been produced to the Court."

23 Section 411(17) of the Corporations Law uses the disjunctive "or" between the two conditions corresponding to (a) and (b) above. The opening reference in section 353 states that "the court need not approve a compromise or arrangement …" unless both conditions are satisfied. Whereas s411(17) of the Corporations Law states mandatorily that, "the court shall not approve a compromise or arrangement", unless one or other of the conditions in (a) or (b) is satisfied. 24 Therefore to produce a letter from the Registrar stating that the Registrar has no objection to the compromise or arrangement is essential to satisfy (b) above. But it still requires the Court to examine condition (a), in contrast to a Corporations Law scheme. Here however I am satisfied that the Creditors' Scheme, being necessarily interdependent with the Members' Scheme, does mean that it could not be said that the Members' Scheme was proposed to avoid the equivalent of the takeover provisions in the Co-operative legislation. Indeed the Rule changes and the Schemes go to some trouble to replicate those provisions where appropriate. 25 Section 368 of the Co-operatives Act contains an important directive to the Court in how it should exercise its discretions: " 368 Jurisdiction to be exercised in harmony with Corporations Law jurisdiction The jurisdiction of the Court under this Part is intended to complement the Court's jurisdiction under the Corporations Law and should be exercised in harmony with that jurisdiction."

26 When, however, it comes to the Court exercising its jurisdiction relevantly to convene the Creditors' Scheme meeting and to approve both Schemes, there are some important differences between a Corporations Law members' scheme and a co-operative members' scheme. These stem from the way in which members vote, doing so outside of any meeting in the case of a co-operative members' scheme. 27 Section 344(1)(b) provides that the method of member voting is "by special resolution passed by means of a special postal ballot". 28 The meaning of those expressions is to be found in the earlier provisions of Part 8 of the Co-operates Act. Thus s190(2) provides that, "a resolution is passed by a particular majority in a postal ballot if that majority of the members of the Co-operative who, being entitled to do so, cast formal votes in the postal ballot vote in favour of resolution". 29 A special resolution is defined by s189 as "a resolution of a Co-operative which is passed: … (c) by a three-quarters majority in a special ballot of members."

30 Section 189(3) says, "a resolution is not to be considered to have been passed as a special resolution unless not less than twenty-one day's notice has been given to the members of the Co-operative specifying: (a) the intention to propose the special resolution, and (b) the reasons for the making of the special resolution, and (c) the effect of the special resolution being passed."

31 Importantly, the earlier provisions of s181 of the Co-operatives Act provides that "a member is not entitled to vote if the member is not an active member of the Co-operative". 32 Section 175 of the Co-operatives Act makes clear that Part 8 applies "to all voting, whether at meetings, in ballots (including special ballots) or by circulated resolution". 33 Importantly though, s181 makes clear that the disentitlement of a member to vote does not affect "any other right, entitlement, obligation or duty of the member as a member". 34 Finally, s186 provides that "any vote cast by or on behalf of the member of a Co-operative when not entitled to vote is to be disregarded". 35 I should emphasise in that context that the prohibition on voting could not apply to preclude a separate plebiscite of non-voting members, if ordered by the Court or otherwise proffered. That is a vote separate from the votes of Active Members in their special postal ballot. The purpose of s186 is rather to ensure that, if in a vote of Active Members someone disentitled to vote also purported to do so, that vote is to be disregarded. However the Court is not thereby required to disregard the result of a separate plebiscite of Inactive Members, in appraising fairness of the scheme overall. Its weight in the Court's deliberations depends upon all the circumstances at the time, with primary consideration being given to the vote of the Active Members. 36 In relation to Inactive Members, s127 of the Co-operatives Act requires the membership of an Inactive Member to be cancelled if "the member is not presently an active member of the Co-operative and has not been an active member of the Co-operative at any time during the required period immediately before that time". 37 The required period is in turn defined in s127(6), in conjunction with the Rules of ACF, as two years; see Rule 15(2) of ACF (PX3). 38 Finally, regulations to the Co-operatives Act provide for the mechanics of voting even to the nature of the ballot paper and the manner of counting votes. Importantly in this context, regulation 7(3)(f) of Schedule 2 to the Co-operatives Regulation 1997 requires that the extraction of the ballot papers be done "in such a way that no envelope could subsequently be identified with any particular voter". This mandates anonymity of voting. 39 It was however held by Austin J in the context of earlier schemes sought to be propounded by ACF that no objection could be seen "to using a different colour for replacement ballot papers and envelopes"; see Cleary & Anor v Australia Co-operative Foods Limited & Ors (Nos 2 and 3) (1999) 32 ACSR 701 at 713-4. I would agree with that conclusion. 40 Insofar as any other statutory provisions may bear upon the schemes, I will deal with these as they arise.

The proposed schemes 41 I have earlier described the Schemes in general terms. Both the Members' Scheme and the MCU Scheme involve cancellation of securities and the substitution of others. The Members' Scheme applies equally to Active and Inactive Members. Each receive precisely the same consideration following precisely the same cancellation. In the case of the Members' Scheme, the last 75% of each member's shares are cancelled. In the case of the Creditors' Scheme 100% of the MCU's (members' co-operative capital units) are cancelled. The Members' Scheme substitutes for the 75% of the shares in ACF which are cancelled, shares in a new Supply Co-operative equal to the number of ACF shares cancelled, which Supply Co-operative in turn acquires approximately 75% of ACF by issue of new shares. Those new shares are paid up out of an amount equal to the nominal value of the shares issued in the Supply Co-operative to the former members of ACF on cancellation of their shares. 42 Thus all members of ACF, whether Active or Inactive, retain 25% of their shares in ACF and receive the same consideration in terms of shares in the new Supply Co-operative. However, Inactive Members, or those who anticipate becoming so, have drawn to their attention the impact of the now revised Rules for ceasing to be Active Members and the Rules applicable to the new Supply Co-operative. They have a different impact, depending on whether a member wishes to become Inactive or stay Active. In summary, these Rules are to provide as follows: "At the expiration of seven days from and including the Implementation Date under the scheme, members not supplying milk produce in the volumes and within the time frame specified in the Rules will cease to be active and thereafter as Inactive Members will have no voting rights. In the case of these members, the period of inactivity in ACF will be taken into account in calculating the period of two years' inactivity as specified in the Supply Co-operative Rules, required to elapse prior to cancellation of membership and forfeiture of shares.

It can be seen from the foregoing that Inactive Members so far as their retained 25% in ACF and their Supply Co-operative shares substituting for their ACF shares, are placed in an equivalent position to the position they now have as Inactive Members of ACF. 43 Turning to the Creditors' Scheme, I have said that 100% of the MCU's in ACF will be cancelled. The whole of those MCU's, no matter what their owner's membership classification, will receive what are called Convertible CCU's in the restructured ACF as to 25% of their holding (rounded up in the case of fractions) and Scheme CCU's in the Supply Co-operative as to 75% of their holding (rounded down in the case of fractions). 44 The end result of the restructuring of ACF is that members of ACF continue to hold their uncancelled 25% of ACF in ACF, whilst swapping for their cancelled 75% an indirect interest in the remaining 75% of ACF. It is held via the new Supply Co-operative which in turn owns that 75% of ACF. 45 Given that voting for so long as ACF and Supply Co-operative remain co-operatives is one vote per membership and not one vote per share (see s176 of the Co-operatives Act), this means that the Supply Co-operative has only one vote in respect of its 75% holding in ACF until ACF is converted into a company. Hence Active Members in respect of their retained 25% holding have one vote per member giving a preponderance of votes directly to those Active Members for so long as ACF remains a co-operative. Thereafter the control of ACF when converted to a company is directly in the Supply Co-operative (unless it dilutes below a controlling interest in converted ACF). Indirectly it is in Active Members of the Supply Co-operative. 46 Importantly, and fundamental to the Members' Scheme and to the overall restructure, the resolution approving the scheme also authorises the board of the restructured ACF to convert from a Co-operative to a conventional company at any time within three years of the common Implementation Date for the two schemes. While it is made clear that there can be no guarantee that the board of the restructured ACF will decide to convert ACF to a company within that three year period, or indeed at all, or that such a restructured ACF will be listed on the Australian Stock Exchange, it is clear from the explanatory memorandum that the directors contemplate that course when they consider the circumstances are right; see paragraphs 36 to 40 of the affidavit of Mr L W Robinson, General Manager, Finance and Administration of ACF dated 4 April 2001, now reproduced in the Scheme Booklet (Vol. 1 Section 1 pages 16-18). This indicates that the directors' view is that it would be in the best interests of ACF in going to the market to go with a substantial capital raising. ACF "will look for the best available source of external equity, considering all of the needs of its business and its members, when the need for external equity arises". 47 Furthermore, "if listing the company on the Stock Exchange in order to raise the external capital is determined to be the most appropriate means, the directors will look for the best time to approach the market". They will take into account a number of factors elaborated in that material. 48 Turning to the Creditors' Scheme, its overall effect, in broad terms, is that for each four scheme MCU's cancelled there is substituted one convertible CCU and three Supply Co-operative CCU's. The convertible CCU is a CCU convertible into shares only in the event that ACF itself converts to a company, being able to do so pursuant to that authority given the directors over the ensuing three year period. 49 The three Supply Co-operative CCU's represent a Co-operative Capital Unit issued on terms set out in more detail in the scheme booklet (section 19). 50 Finally, on the two schemes generally the following should be noted:

(b) they share a common Implementation Date being the date on which each scheme becomes effective;

(c) they are subject to a number of conditions precedent including the approvals required under the Co-operatives Act , the holding of a plebiscite of Inactive Members, and the giving of various approvals and exemptions, including those required by statute;

(d) various Rule amendments are required to be made including to the Active Membership Rule;

(e) amendments are made to an equity structure proposal;

(f) the terms of issue of what are called exMCU's for former members of ACF who have had their ACF shares forfeited within five years, are approved together with the terms of issue of convertible CCU's; and

(g) authorisation is given to the execution of a milk supply agreement for exclusive supply to the new Supply Co-operative together with approval of the terms of a deed of warranty and indemnity and loan agreement; that exclusivity agreement relies upon an exemption in s45(8) of the Trade Practices Act for related company arrangements. 51 The Explanatory Memorandum presages what is called stage 2 which involves the conversion and likely capital fund-raising and float. The impact of stage 2 is set out in the introduction to the Scheme Booklet at pages 2 and following.

Introduction 52 At this pre-voting stage, it is only necessary that I should deal with those matters that have so far arisen in relation to the Scheme that are novel, go to lawfulness or are otherwise relevant at this stage in submitting the Schemes to members and MCU holders respectively. The matters raised do not purport to be exhaustive. Nor do they pre-empt what may be raised at the Court approval stage of each scheme. In the nature of things unforeseen matters can arise requiring later consideration.

Is this a reduction of capital? 53 It is first necessary to identify what constitutes capital in ACF, in its character as a co-operative and the nature of that capital. ACF presently has shares and Co-operative Capital Units (CCU's) on issue. Section 269(1) of the Co-operatives Act describes CCU's as "… an interest issued by a co-operative conferring an interest in the capital (but not the share capital) of the co-operative". 54 However s270 makes clear that whatever their "capital" status be under s269, they are "to be considered to be a debenture" and the issuing of CCU's "is to be considered to be the obtaining of financial accommodation". 55 Historically these provisions reflect their character as a special type of capital which could be held by members and non-members alike, whilst still retaining control of the co-operative in its Active Members. However, it can be taken that, though having some of the characteristics of capital, they are a species of debt constituted as a debenture with particular attributes. Thus any question of reduction of capital would not apply to the MCU's. 56 However, the interest of members in ACF as a co-operative clearly constitutes equity. But it does not follow that the doctrine of maintenance of capital has any part to play. For the essential feature of the capital of a co-operative is that it is fluid, untrammelled by any doctrine of maintenance of capital; see Re Namoi Cotton Co-operative Limited (1997-98) 26 ACSR 694. That case recognised that the whole scheme of the Co-operatives Act is against the notion of there being a definite share capital of a co-operative that should be continued or that should not be reduced below a particular minimum.

Conclusion 57 I conclude as I did in Re Namoi Cotton Co-operative Limited that though there be no provision in the Co-operatives Act for a reduction of capital, the scheme presently under consideration does not require such specific statutory provision, being capable of being carried out as part of a scheme of arrangement, empowered by that Act. Moreover there is nothing to suggest that the viability of ACF is in any way affected by either scheme, since no money flows out of ACF. It thus follows that a scheme of arrangement is capable of effecting the cancellation of shares in a co-operative (as well as the cancellation of the MCU's) and their compulsory replacement by new shares and/or securities.

Separation of two schemes 58 The scheme documentation now provides for a clear separation of the Members' Scheme from the Creditors' Scheme. It follows from the debt character of the MCU's that they are appropriately to be dealt with only in a Creditors' Scheme. However, the same document may contain, as this one does, provisions common to both schemes and separately the provisions applicable only to the Members' Scheme and the provisions applicable only to the Creditors' Scheme. 59 The fact that the two schemes are in the one document with the one Explanatory Memorandum applicable to both has meant that both the Members' Scheme and the Creditors' Scheme have received the same Court review, though it is only the Creditors' Scheme in respect of which the Court is required to order a meeting.

Voting on the Members' Scheme - interest of Inactive Members 60 The peculiar characteristic of an Inactive Member's position under the Rules is that an Inactive Member has no right to vote and has his or her share automatically forfeited, though only after two years of inactive status. However, it does not follow from the absence of any voting power that the Court should not require that it be informed as to the Inactive Members level of support or opposition to the scheme, insofar as it operates to compel the cancellation of 75% of the Inactive Members' shares and this before the two year forfeiture period, though substituting other securities identical with those going to Active Members. It is open for the Court to be informed, as the scheme now provides, by a plebiscite of Inactive Members. There is to be a separate but contemporaneous plebiscite of the Inactive Members voting outside the special postal ballot applicable to the Active Members, but utilising a similar mechanism. The Court could have imposed this as a condition of granting its approval to the relevant arrangement; see s344(3) of the Co-operatives Act. However, in the events that happened, no such condition was required, as ACF agreed to provide for such a plebiscite, whilst reserving its position as to whether such a plebiscite was legally necessary or appropriate. 61 I consider such a plebiscite is appropriate, for reasons I now elaborate. The starting point is the Court's jurisdiction with respect to schemes between co-operatives and their members as well as schemes between co-operatives and their creditors. The Court is required to exercise that jurisdiction in harmony with the Corporations Law jurisdiction for schemes. That follows from s368 of the Co-operatives Act. The directive in s368 operates in a context of general correspondence between the two sets of statutory provisions though with some significant differences to be accommodated. That invites an analogical application of Corporations Law principles adapted to the particular nature of the co-operative. 62 As was pointed out on behalf of the Registrar of Co-operatives, the whole thrust of the statutory scheme is that Inactive Members should not be in a position to determine decisions about the future direction of the co-operative. The Ministerial Statements and Parliamentary Debates reinforce that statutory intent; see the second reading speeches in the Legislative Council Hansard 7 April 1987, 12 May 1987 and 14 December 1988. This is because the fundamental nature of the co-operative is that members who want and are able to utilise the services it provides should control its management and its destiny; see letter from Kerri Grant, Legal Manager for the Director General, Department of Fair Trading dated 21 April 2001 (PX8). However, consistent with the foregoing, where decisions about the future direction of the co-operative also involve the compulsory "taking away" (to use a neutral word) of the membership rights of an Inactive Member, doing so not by a forfeiture within the Rules, then statutory due process must be followed, with any attendant requirements of fairness. 63 In reaching that conclusion, the Department's letter points to a number of provisions of the Co-operatives Act including Section 6. This states under "co-operative principles" that "co-operatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions"; emphasis added. Other provisions include the forfeiture of shares and re-purchase of shares; see ss127 and 172 respectively. These provide statutory context for appraising fairness and due process. 64 One may grant that the control of the co-operative resides with the Active Members. But here one is dealing not so much with that overall control, but with the compulsory cancellation of all members' shares up to 75% including those of Inactive Members. In their case it is at a time earlier than the mandated "required period" of two years, with securities substituted which broadly replicate that period (counting the ACF period of Inactive Membership towards the two years). 65 The Co-operatives Act itself recognises that "a provision of this Act which disentitles a member of the co-operative to vote … does not affect any other right, entitlement, obligation or duty of the member as a member."; see s185. 66 Moreover, though only in an analogous context, s301 of the Co-operatives Act provides that an offer to purchase shares in a co-operative "must not be made at all if it operates or would operate to discriminate between members who are Active Members and members who are not Active Members". (This is not an offer of purchase, but has a similar economic effect.) 67 Thus taking the entitlement of an Inactive Member, it includes the entitlement to remain a member subject only to such forfeiture or re-purchase rights as obtain under the statute and Rules. It is an open question whether the Rules could be altered retrospectively to shorten the two year period, without infringing Gambotto principles of fairness; much may turn on the commercial terms including what is substituted. That I do not have to decide. That entitlement to remain a member is however capable of extinction by what may be worked by a scheme of arrangement that complies with the relevant statutory provisions and receives the necessary approvals. 68 Applying by analogy the approach that would be taken to a conventional members' scheme under the Corporations Law is not straightforward if one is to achieve a harmonious outcome with the co-operative legislation. That is when one takes into account the absence of members' meetings and in particular class meetings for voting purposes in a co-operative; contrast the Corporations Law notion of classes of member voting together. In a conventional members' scheme under the Corporations Law, non-voting members whose shares were to be acquired would, prima facie, be a different class from voting members, and also have a vote, being "concerned in" the scheme of arrangement; compare CMPS & F Pty Limited v Crooks Mitchell (1997) 24 ACSR 367 and subsequently in (1997) 24 ACSR 728. However, where, as here, the scheme gives non-voting members precisely the same consideration as voting members, but so as to have a different impact as between the interests of Active and Inactive Members, were this a Corporations Law context, there would then be a question as to whether voting and non-voting members were separate classes. That is, did they have rights "so dissimilar as to make it impossible for them to consult together with a view to their common interest" so as to make them vote as a separate class in relation to the scheme in question? Compare Bowen LJ in Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583. 69 However, that analogy breaks down, because member voting is not in meeting, and thus not by classes. Nonetheless fairness issues may engender concern, as for example if the votes of the Active Members operated oppressively on a disparate group. 70 This prompts a closer Corporations Law scheme analogy though still imperfect. It is that applicable where members of a relevant class, though not so differentiated as to make it impossible for them to consult together as a single class with a view to their common interest, yet have divergent commercial interests extrinsic to their share membership. Adams J in Re Chevron (Sydney) Ltd [1963] VR 249 emphasised that that was a reality which the court approving a creditors' scheme should take into account in looking more stringently at the size and composition of the approving majority over and above the 75%. Voter turn out may also be a relevant factor here and not just the size and make-up of the majority in favour. 71 But here the two statutory schemes diverge. Inactive Members could not vote together with Active Members in a class since the Co-operatives Act denies them such a vote and voting is not by meeting. 72 Finally, there are the principles of Gambotto v WCP Ltd (1995) 182 CLR 432. These have recently been exhaustively analysed by the New South Wales Court of Appeal in Heydon v NRMA Limited & Ors (2001) 36 ACSR 462. Suppose it could be said that the compulsory cancellation of 75% of each members shareholding worked an "expropriation" of their shares, though they received in their stead all the shares in an interposed new majority holder, without further consideration. Then it may follow that if this were an expropriation worked by special resolution, it would depend for its efficacy on whether the mechanisms afforded by the scheme of arrangements provisions of the Co-operatives legislation represented a sufficient safeguard in terms of procedural and substantive fairness. Corporations Law schemes of arrangement have their own regimes of fairness safeguards which appear to leave no room for independent operation of the Gambotto principles. In Gambotto at 446 the High Court stated that: "It [expropriation by special resolution] would open the way to circumventing the protection which the Corporations Law gives to minorities who resist compromises, amalgamations and reconstructions, schemes of arrangement and takeover offers."

73 The High Court was however not dealing here with Co-operatives Act legislation. That legislation contemplates that a member who is an Inactive Member may suffer compulsory acquisition of his or her shares, but have no vote on the scheme that brings this about, so removing a fairness safeguard applicable to Corporations Law schemes. Nonetheless, the Court still plays a role in judging the fairness of the scheme in deciding whether to approve it. The Court gives primary weight to the vote of Active Members, but not so as to disregard the interests of Inactive Members. 74 The Court of Appeal in Heydon (supra) diverged in their view as to whether a special resolution amending the articles, as was originally contemplated in NRMA Limited (1999-2000) 33 ACSR 595, would have constituted expropriation in the sense used by the High Court. Thus Malcolm AJA (at 530) and Ormiston AJA (at 657) concluded that expropriation necessarily involved destroying the minority shareholding so as to place those rights in the hands of majority shareholders. In contrast, MacPherson AJA did not draw such a distinction. He considered that though "the majority in Gambotto speak of an "aggrandisement" of a "majority" the reasoning is in terms applicable to an expropriatory amendment as such, whether or not the specific target is a minority of members" (at 574). 75 Here, it could be said that the end point of the restructure of ACF is that there will be a new interposed majority holder being the Supply Co-operative. But the reality is that that Supply Co-operative is simply in turn to be owned by the former members of ACF in equivalent proportion. That said, the Inactive Members, as they do at present in relation to ACF, stand to have their substituted shares forfeited and cancelled at the end of the two year period (taking into account that part of it when they were ACF members rather than Supply Co-operative members). That of course replicates the position they now face in ACF. 76 One may question whether the Gambotto principles apply to what is not a takeover by another name, but simply a restructure, with no aggrandisement of anyone. But in any event it is incumbent upon the Court in harmony with Corporations Law principles to ensure that the process used to compulsorily cancel is fair, within the statutory parameters laid down by the Co-operative legislation. Fairness however does not in the scheme context have the stringent narrowness of the non-statutory Gambotto test of only permitting a scheme which avoids detriment to the company; Gambotto (supra) at 445. This is more especially where there is no discrimination between the different groups or classes of member in what they receive, though the scheme has a differential impact. That impact is affected by the different choices made by Active and Inactive Members to continue milk supply and the effect of the Rules accordingly. The Rules themselves are essentially replicated and adapted to the scheme's restructure, being if anything slightly ameliorated for the benefit of Inactive Members. 77 I do not therefore need to go so far as to conclude that the Gambotto principles would otherwise apply were there no mechanism for determining the support or opposition by Inactive Members to the Members' Scheme to the cancellation scheme. All that I need conclude is that I would not be satisfied as to the fairness of the process as regards Inactive Members unless the Court were informed of their views by the plebiscite mechanism. That mechanism does not contravene the prohibition upon voting under the relevant statutory scheme and Rules. The capacity it confers on the Court to assess the plebiscite's outcome, along with the other scheme safeguards, places the members' scheme outside the Gambotto principles which then have no room to operate. 78 There remains the question what weight should ultimately be given by the Court to the result of such a plebiscite in making that assessment. Clearly such weight as is given needs to recognise the fundamental character of a co-operative and the exclusive control over its management and destiny conferred upon Active Members. That is why the Scheme Booklet states as follows: "The Court has stated that it wishes to have some expression by separate plebiscite of the views of Inactive Members at the approval stage though they have no power to vote. The Court has stated that this is so that the Court is in a position to be informed of such views, though giving primary consideration to the result of the Special Postal Ballot of Active Members, who alone are entitled to vote in the Members' Scheme. This is in determining whether the Court should approve the Members' Scheme in all the circumstances once each scheme's pre-conditions are satisfied.";

see Scheme Booklet, Vol. 1 Chairman's letter page 5(1). 79 There is an analogy here with the "splitting" or "fractioning" of classes into smaller groups in the context of Corporations Law schemes were Inactive Members to have a simple veto, irrespective of the nature and overall fairness of the scheme. There have been a number of judicial pronouncement that this should be avoided if it would undermine the object of obtaining decisions by a large majority, by giving the fractioned group an effective veto over the wishes of that majority; see, for example, Nordic Bank PLC v International Harvester (Aust) Ltd (sub nom Re International Harvester (Aust) Ltd) (1983) 7 ACLR 796 at 799 where Lush J (Murphy and Fullaghar JJ concurring) said: "To break creditors into classes, however, will give each class an opportunity to veto the scheme, a process which undermines the basic approach of decision by a large majority, and one which should only be permitted if there are dissimilar interests related to the company in its scheme to be protected. The fact that two views may be expressed at a meeting because one group may for extraneous reasons prefer one course, while another group prefers another, is not a reason for calling two separate meetings."

80 In Re Bond Corp Holdings Ltd (1991) 5 ACSR 304 at 317 Owen J said that: "In determining classes of creditors, the court must balance the danger of a compromise being forced on dissenting creditors by a majority, against the danger of a minority of creditors having the power to veto the scheme."

81 Recently the English Court of Appeal criticised the standard approach taken by courts when sanctioning schemes of arrangement in Re Hawk Insurance Co Ltd [2001] CA civ 241 (23 February 2001, unreported). It was pointed out that it is accepted law that when considering whether separate class meetings are required to sanction a scheme those whose rights are so dissimilar that they could not consult together, should be treated as distinct classes. The court held however that it was also necessary to recognise the converse. That is to say, to ensure that persons whose rights were sufficiently similar to allow them to consult together, should be allowed to do so. I would agree that the question of whether separate class meetings are required depends not only upon the distinct features of one group of members as against another, but upon an analysis of the effect of those differences upon:

(ii) the new rights given by the scheme to those whose rights were to be varied. 82 Here there are clearly differences between the rights of the Active Members and Inactive Members. But when it comes to analysing the effect of the scheme upon these two groups, there is no relevant difference in their treatment in the sense that they both suffer extinction and both receive essentially the same substitute securities or sets of rights. It is simply that the impact of the scheme varies as between the two groups of members because of their different intentions and interests in supplying or not supplying milk. 83 In the present circumstances, the Inactive Members do not participate with Active Members in class votes at separate meetings. Rather they operate under a postal voting statutory scheme and Rules. Under that statutory scheme they are subordinate in their role in ACF in a manner I have described. Given that their rights in comparison to Active Members are thus subordinated, the fairness required in assessing the quid pro quo for their extinction may properly take that subordination into account, though not to the point of disregarding their rights altogether. They are moreover a relatively small minority. On the figures provided as to present membership of ACF Active Members represent 85.35% of the total membership and Inactive Members 14.65%; see affidavit of L W Robinson of 4 April 2001, para 5. While their views as expressed in the plebiscite will be taken into account by the Court, it should not be thought that a negative vote by the Inactive Members would automatically mean that the scheme failed. This is so, even if as a separate group or notionally consolidated they would bring the combined percentage below 75%. The Court would however weigh up that circumstance with all other relevant circumstances in determining the overall fairness of the scheme from the point of view of all members, Active or Inactive, giving primary consideration to the result of the Special Postal Ballot of Active Members. Beyond that nothing more can or should be said at this point.

Power to amend scheme and lapsing 84 I have earlier referred to the statutory power prior to the scheme being approved by the Court, for the Court to grant its approval "subject to such alterations or conditions as it thinks just"; see s344(3) of the Co-operatives Act. In the present scheme, it is also provided for additional flexibility that ACF may subsequently vary the scheme so long as such variation is:

(a) in a manner not materially prejudicial to [members] [MCU holders];

(b) so confirmed by senior counsel of not less than three years standing;

(d) lodged with the Registrar. 85 The recent decision in Re AGL Gas Networks Limited (Santow J [2000] NSWSC 165, 20 March 2000, unreported) illustrates the circumstances in which a post-scheme approval amendment may need to be made which is no way prejudicial to members; in that case through an inadvertent non-fulfilment of a condition precedent, though fulfilled in substance. I would readily agree that s411(6) of the Corporations Law and its counterpart s344(3) of the Co-operatives Act are not available to permit the Court to amend the scheme after its approval; Re BTS Barings & Transmission Supplies Pty Limited (1983) 8 ACLR 287 per Needham J and more recently Re Gasweld Pty Limited (1986) 5 NSWLR 494 per McLelland J. However, here this is not an amendment in any way reliant upon those statutory provisions. Nor is it instigated or approved by the Court, should those statutory provisions cover such a field. Here, rather, the scheme approved itself contemplates that very flexibility outside of further Court discretion. It does so in a manner which could not be said to be inimical to the interests of members, given the safeguards that attend any post-approval variation and the fact that this is to be made clear in the Scheme Booklet. In saying that, I do not need to re-visit the reasoning in Re AGL Gas Networks Limited (supra) and the particular features that attended that case. 86 The scheme lapses by the later of 31 December 2001 or seven days after the expiry of any time for appealing any judgment given at any stage of the application to approve the Members' scheme, or such later date as ACF and the Supply Co-operative may agree, which date is approved by the Registrar. The latter scope for extension recognises the supervisory role of the Registrar of Co-operatives; it ensures that an extension cannot be imposed unilaterally on members.

No prescribed occurrences 87 The Explanatory Memorandum contains in the Booklet a provision intended to provide an equivalent safeguard to that which would be applicable to a conventional takeover offer. While recognising Division 2B of Pt 6.10 of Chapter 6 of the Corporations Law does not apply nor have any counterpart under the Co-operatives Act, it was agreed that it was appropriate to include a statement to the following effect: "Directors of Australian Co-operatives Food Limited are not aware of any matter which could, in their opinion, give rise to a declaration of unacceptable circumstances in relation to the Scheme pursuant to Division 2B of Pt 6.10 of Ch 6 of the Corporations Law , if Australian Co-operative Foods Limited was a company and not a co-operative and subject to the foregoing provisions."

88 Indeed were the scheme governed by the Corporations Law, the very presence of such a provision helps to reinforce that the compromise or arrangement has not been proposed for the purpose of enabling the avoidance of the operation of any of the provisions of Ch 6 (as would apply in a conventional takeover). Schemes of arrangement, whether of a company or a co-operative, which achieve the functionally equivalent outcome to a takeover should leave members equivalently protected, albeit that the protection is adapted to the different statutory regime and different steps applicable.

Publicity, meetings and the help-line 89 The board of ACF have long been accustomed to direct communication with their members. That reflects the philosophy of a co-operative accessible at the highest level to its members. Nonetheless, where a scheme requires full and accurate disclosure in a way that is not misleading or deceptive and contains both the case for and against, as this one does, it is of paramount importance that any other communication not detract from the impact of that scheme information or in any way qualify its impact or be partisan. What I said in Re NRMA Limited (supra) at 599 is directly applicable here. "The boards of NRMA Group and senior management have a special responsibility, with a complex proposal such as this directed to such an enormous and widespread membership, to let the documents speak for themselves. They must therefore avoid undue partisanship or oversimplification. Phone queries from members should be handled with strict neutrality. Individual directors too have a special responsibility to avoid saying anything which could mislead or deceive, though subject to that, they are not precluded from participating in public debate. Otherwise, there is a danger that the care that has gone into the meticulous preparation of the information memorandum with its yes and no case, directors' recommendation (by majority in the case of Association), experts' reports and the statement "the future is in your hands" will count for little. I should add in relation both to the board and to individual directors, that these strictures apply equally to any paid or inspired publicity."

90 To give practical effect to this, it has been agreed that the various regional meetings will be tape-recorded and that any presentation will be neutral and fairly represent the substance of the Scheme Booklet and the scheme itself including a proper fair disclosure again of the advantages for and against. 91 The help-line will likewise be tape-recorded and must give neutral advice, based on a script of standard questions and answers and with a protocol for questions that fall outside those parameters. 92 Finally, the independent expert will monitor these communications including by reference to the tape-recorded materials and any other scripts and will report to the Court at the Court approval stage as to whether there has been any departure from the principles and safeguards earlier stated. In so doing, the co-operative is to some extent anticipating the effect of s648J of the recently introduced Financial Services Regulation Bill into the Commonwealth Parliament. That provision requires a bidder or target to make a clear sound recording of all conversation made during a bid period to holders of securities in the relevant bid class. While it may be said that that statutory provision would go further than what is here laid down, those minimal safeguards are designed to ensure that the anticipated widespread communication conforms to the principles and safeguards earlier stated.

EXPERT'S REPORT AND other disclosure matters 93 I record here that the Independent Expert's report and related parts of the Scheme Booklet have received detailed scrutiny both before and after the intervention of the objector Mr Emery. Mr Westphal, the author of the Report, attended Court on several occasions to answer questions, which were put informally with ACF's and the objector's consent. Helpful additions have been made to the Report including a statement of the pro forma accounts for ACF after conversion to a company. The Report now makes clear that regardless of the importance of "farmer control" (explained), its opinion is that the restructure is fair and reasonable. "Farmer control" is stated to be an added benefit of the restructure for so long as members desire to preserve it, the restructure affording the potential to access external equity (Independent Expert's Report pages 6-7). Other additions specifically relate to the consequences of certain Rule changes in relation to the Supply Co-operative now to be made. These were designed to achieve, as the Independent Expert's report states (at 2.1) "• flexibility to consider and approve an alternative proposal through the New Rules of the Supply Co-operative which ensure Members will have an opportunity to vote to direct the Board of the Supply Co-operative how to respond to any offer or proposal the effect of which is to acquire any of the shares held by the Supply Co-operative in ACF and/or a proposal the effect of which is to acquire 20% or more of the issued shares of the Supply Co-operative." 94 At 9.5 and 9.6 of that report the following is said: "Ernst & Young Corporate Finance considers however, that the Restructure does not significantly inhibit the capacity for Restructured ACF and the Supply Co-operative to entertain future proposals of the sort that have arisen in the past and further considers that the new Supply Co-operative Rules (detailed in Section 16.22 of Volume One of the Restructure Booklet) ensure that certain future bona fide/ arms length proposals or offers will go to Members for their consideration. Ernst & Young Corporate Finance believes that the New Rules 65(6) and 65(7) of the Supply Co-operative (detailed in Section 16.22 of Volume One of the Restructure Booklet) ensure that Members will have an opportunity to vote to direct the Board of the Supply Co-operative how to respond to any bona fide /arm's length offer or proposal the effect of which is to acquire any of the shares held by the Supply Co-operative in ACF and/or a proposal the effect of which is to acquire more than 20% of the issued shares of the Supply Co-operative and therefore provide the necessary safeguards to prevent the board of the Supply Co-operative from providing a negative response, or a failure to respond to such offers or proposals without member approval. Ernst & Young Corporate Finance has however considered that the distribution of the net proceeds of the sale of Processor Shares, received by the Supply Co-operative and not the Members, may result in some individual Members and MCU Holders paying more tax in respect of the 75% of Restructured ACF held by the Supply Co-operative than if the proceeds were received directly by the Member or MCU Holder although additional tax would not necessarily be payable in respect of shares and CCU's held for 12 months or more if the offeror wished to acquire both ACF and the Supply Co-operative (refer to Section 3 of Volume One of the Restructure Booklet. Implementation of an alternative proposal by Restructured ACF/DFL and the Supply Co-operative following execution of the Restructure may involve additional steps and requirements than those that currently apply to ACF as a single co-operative entity. Such alternative proposal, which although not currently available to Members, may be better than the Restructure. The extent, if any, of these additional steps and requirements will depend on the form of the proposal and the stage of the Restructure."

95 It will therefore be seen that post restructure there is comparable, though not wholly equivalent, flexibility to entertain alternative proposals, without veto by the Supply Co-operative board. It could not be wholly equivalent. This is because post restructure there is added complexity which the Rule changes mitigate but cannot wholly remove, in any future takeover. Thus such a takeover would no longer be of ACF alone but must cover the Supply Co-operative as well - and ACF post conversion. But it should not be overlooked that even pre-restructure the protections presently afforded by s299 and s300 of the Act requiring offers to purchase being referred to members do not apply to schemes of arrangement cancelling shares, or where there is no "offer" but merely an invitation. Post restructure, any acquisition howsoever effected will be covered. Moreover it will cover ACF, ACF converted to a listed company and the new Supply Co-operative. 96 To sum up. The Rule changes cater for future takeover howsoever effected. Concededly they do so at the price of some but by no means insuperable complexity. There is also a potentially different tax result for distribution of ACF share sale proceeds out of the Supply Co-operative. Those Rule changes are designed to ensure no directorial veto preventing a lawful acquisition proposal of ACF, pre and post conversion and the new Supply Co-operative reaching members, whether in the form of a scheme or a bid. 97 That result in turn obviates the need for a comparison to be made between the benefits of the restructure and potential alternative proposals. Such a comparison would only be necessary as also an associated valuation of the business, if such alternative proposals were, by the restructure, either precluded altogether or made substantially more difficult. That appears no longer the case. That point specifically arose before Austin J in Cleary (supra) at 725-728 in relation to the earlier scheme. The present proposed Rule change is directed to obviating that concern. 98 The conclusions I have reached on disclosure and the Independent Expert's Report necessarily proceed on the information presently before me and are open to review in the event of further information or events warranting this. 99 Nothing before me has led me to conclude that the relevant expert is other than independent. I say this, in light of the questioning on that score from the objector. 100 I should record my finding on the affidavit evidence before me that I would not be persuaded to the conclusion suggested by the objector that ACF's Board, in negotiating the National Foods proposal earlier before it, did so in a way whereby it forewent the opportunity of obtaining an offer substantially higher, that is to say not merely $10 million to $15 million higher, but of the order of a further 10% to 15%; see affidavit of William Jephcott 4 May 2001, paras 14-15 and Scheme Booklet Vol. 1 section 5, page 15. In saying that, I do not doubt that loss of farmer control was one of the reasons leading to its non-recommendation. I should also record my finding that on the evidence so far before me, allegations questioning the solvency of ACF have not been made out, nor any difficulty under ACF's borrowing arrangements. However, there is disclosure that on unaudited management accounts, ACF's profit has substantially declined in the last six months to December 2000 and in the 3 months following, with some explanation why; Scheme Booklet Vol. 1 Chairman's letter, pages 15-16. 101 It can be assumed that the lessons have been learnt from what occurred when subsequent events affected the predecessor scheme propounded by ACF. In particular it will be readily appreciated that should some new material circumstance subsequently arise, it should be brought to the attention of the Court promptly. This is so its implications for the two Schemes and ACF's continuing disclosure obligations can be properly assessed. Should any subsequent communication require to be made to members, it must be scrupulously accurate and fair. 102 Finally, the Scheme Booklet makes reference to a copy of this judgment being available on the Supreme Court website for any interested persons [www.lawlink.nsw.gov.au/sc].

OVERALL CONCLUSION 103 So far as the Creditors' Scheme is concerned I am presently satisfied that it, with the accompanying materials relating to the Members' Scheme, may on the information presently before me, be submitted to creditors. So far as the Members' Scheme is concerned, with the inclusion now of the plebiscite there is nothing so far before the Court as would indicate that the Court should take any action open to it in relation to the relevant materials or in anticipation of what may come before it at the Court approval stage. It will be for members now to vote on that scheme. I express my appreciation to ACF and its advisers along with the independent expert, as well as to the objector, for the constructive hard work that has refined these proposals and their level of presentation. 104 I therefore am making orders which would permit the Creditors' Meeting of MCU holders to be convened and which otherwise place no obstacle at this point in the way of the Special Postal Ballot by members in relation to the Members' Scheme.

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