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[2011] FCA 1480
plaintiff. The Court ordered (1) approval of the scheme of arrangement between the plaintiff and its members pursuant to s 411(4)(b) of the Corporations Act, (2) exemption of the plaintiff from complying with...
The Federal Court (Gilmour J) approved a scheme of arrangement proposed by World Titanium Resources Ltd because the convening and notice requirements were satisfied, the members passed the required resolution at a properly convened meeting, ASIC had a reasonable opportunity to examine the explanatory statement and indicated no objection, there was no evidence the scheme was proposed for an improper purpose, disclosure met Chapter 6 standards, and shareholders voted unanimously; accordingly the Court exercised its supervisory discretion to approve the scheme and made ancillary orders.
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World Titanium Resources Ltd applied to the Federal Court under s 411 of the Corporations Act 2001 (Cth) for approval of a scheme of arrangement between the company and its members. The convening hearing had taken place earlier and the Court had made orders permitting the convening of the members' meeting. The Scheme Booklet (notice of meeting, explanatory statement and proxy form) was posted on 10 November 2011, and in accordance with the company's constitution the posting was treated as effective the next day. A members' meeting was held on 5 December 2011 at which the sole resolution required for the Scheme was passed unanimously (paras 14-18, 38).
ASIC was served with an office copy of the convening orders and had a reasonable opportunity to examine the explanatory statement; it notified the Court that it did not intend to appear at the approval hearing and, by written notice, did not object to the Scheme (paras 21-24). The Court was asked to consider (a) compliance with the statutory and convening-order conditions required by s 411 and s 412, (b) whether the Scheme was proposed in good faith and not for an improper purpose (notably a purpose of avoiding Chapter 6), and (c) whether the Scheme was fair and reasonable to the members. Justice Gilmour concluded that the statutory conditions were met, there was no evidence of an improper purpose, disclosure in the explanatory statement met Chapter 6 standards, shareholders had voted unanimously, and the Scheme should be approved (paras 6-7, 22-26, 35-39). The Court made orders approving the Scheme, exempting the plaintiff from complying with s 411(11) pursuant to s 411(12), and ordering lodgement of an office copy with ASIC.
Three interlocking considerations determined the outcome.
Statutory and procedural compliance. The Court's task is supervisory: to ensure the convening orders and statutory requirements have been complied with and the meeting was properly conducted. Gilmour J carefully canvassed the timing of posting (10 November), the operation of the constitution's clause deeming service to occur the next day, and s 105's rules on reckoning time, leading to the conclusion that 25 days elapsed before the meeting of 5 December. The Court found the meeting had the required quorum, the chair had presided in accordance with the convening orders and the requisite majority was obtained (paras 12-17, 18-21).
ASIC involvement and the effect of a s 411(17)(b) statement. Gilmour J treated ASIC's notification that it did not intend to appear and that it had no objection as significant. He accepted that ASIC had a reasonable opportunity to examine the explanatory statement and that its no-objection statement carried the consequence that ASIC would withhold a formal s 411(17)(b) statement until approval stage in practice. He balanced the statutory provision dealing with proscribed purpose (s 411(17)) against the practical operation of ASIC's statement: where ASIC provides the s 411(17)(b) statement, the proscribed purpose ceases to be jurisdictional but remains a relevant factor for the Court's residual discretion (paras 22-33). The Court relied on the regulatory context and prior authorities to treat ASIC's no-objection position as diminishing any adverse inference from the scheme being used instead of Chapter 6.
Good faith, proper purpose and fairness. The Court asked whether there was evidence of an illegitimate purpose. Gilmour J found none. He accepted evidence that the Scheme was proposed to secure 100% ownership for Bondi Mining Ltd without the delay, cost and uncertainty of a Chapter 6 takeover, and that this constituted a legitimate commercial interest (paras 34-36). On fairness, the unanimous shareholder vote was strong evidence: the Court applied the long-standing 'intelligent and honest man' test (from Re Alabama) and concluded the Scheme was at least so far fair and reasonable that a member might approve it (para 38).
Because the conditions of s 411 were met, ASIC had no objection, the proposal was in good faith, and it was fair and reasonable, the Court exercised its supervisory discretion to approve the Scheme and made the consequential orders (paras 36-39).
Before this decision, the statutory and judicial framework governing schemes of arrangement was well-established. The Court's supervisory jurisdiction and the three-part test, (a) compliance with statutory conditions, (b) good faith and absence of improper purpose by the majority, and (c) that the proposal is fair and reasonable to members, are long-standing principles (paras 3-5). Authorities such as Re Dorman Long, Scottish Insurance, Re Alabama and Re Stockbridge provide the doctrinal underpinning for those tests (para 4-5).
Gilmour J's decision did not create novel law. Rather it applied and reinforced existing principles. The important clarifications and emphases are:
On s 411(17): where ASIC provides a formal no-objection statement under s 411(17)(b), the existence of a proscribed purpose (s 411(17)(a)) is not a jurisdictional bar; it becomes a factor in the exercise of the Court's discretion. That view follows other intermediate authority and recent practice (paras 29-33).
On Chapter choice: the Court reaffirmed that there is no legislative preference for conducting an acquisition under Chapter 6 rather than by a scheme under Chapter 5; the two are complementary. Choosing a scheme to effect a takeover will not, per se, be improper, provided disclosure and protections meet the same substantive objectives (paras 28, 31-36).
Thus the decision consolidates and applies prior case law rather than shifting the law. It confirms that careful compliance, adequate disclosure and ASIC's practical stance are determinative in routine scheme approvals.
"The principles which generally govern the Court's supervisory role in the two court related stages involving schemes of arrangement under s 411 of the Act are well established." (para 3)
"Fundamentally the jurisdiction is supervisory; the court must be satisfied that there has been an absence of oppression and that the compromise or arrangement is one which is capable of being accepted:" (para 4)
The three-part test from Re NRMA (para 5):
"Whilst the 'takeover' could have been implemented under Ch 6, the fact that it was proposed under Ch 5, does not imply that it was proposed for the purpose of avoiding the operation of Ch 6." (para 28)
"There is no reason for considering that the scheme is not at least so far as fair and reasonable as that an intelligent and honest man, who is a member of the class, might approve the scheme." (para 38)
This decision is directly engaged where:
In short, any approval-stage scheme application with issues about procedural compliance, ASIC involvement and the possible avoidance of Chapter 6 will be governed by the principles applied in this judgment.
This judgment primarily applies and synthesises earlier authorities rather than announcing new principle. It explicitly relies upon and aligns with prior decisions such as Re Dorman Long, Re Alabama, Re Stockbridge, Re NRMA and subsequent authorities on s 411(17) and ASIC practice (paras 4-5, 29-33, 34-36). The reasons record that ASIC's practical approach to s 411(17)(b) statements is significant in the Court's exercise of discretion (paras 29-33). The judgment does not record any later appellate treatment of these reasons within the text. To determine how courts after 2011 have treated Gilmour J's application of these principles requires a separate search of subsequent decisions and citations; the present reasons do not themselves catalogue later judicial responses.
Several questions remain matters of practical and doctrinal nuance where further authority would be useful:
The precise evidentiary threshold for treating a scheme as proposed for a 'proscribed purpose' absent ASIC's s 411(17)(b) statement. Gilmour J accepted that the existence of legitimate commercial reasons can justify use of a scheme (paras 34-36), but how much positive evidence is required where ASIC is silent or objects is unresolved here.
The weight to be given to ASIC's s 411(17)(b) statement in the exercise of the Court's residual discretion. Gilmour J treated it as carrying strong implication that members had adequate information and were not adversely affected (paras 31-33). Whether there are circumstances where ASIC's no-objection should be overridden remains an open practical question.
Limits to disclosure parity with Chapter 6. The Court accepted that disclosure meeting Chapter 6 standards can allay concerns where Chapter 5 is used (para 36). How strictly the Court will demand Chapter 6-level disclosure in more complex or contested cases is a matter for later cases.
Interaction between company constitutions and statutory time computation. This judgment relied on a constitution clause deeming postal service effective the day after posting and s 105. Disputes about the interplay of constitutions, electronic service and s 105 timing rules may require clarification in future facts.
Practical practitioners should treat this decision as a clear statement that careful procedural compliance, adequate disclosure, and ASIC engagement are decisive at the approval stage, and that legitimate commercial reasons for using a scheme rather than a takeover will ordinarily be sufficient, particularly where ASIC has indicated no objection. For contested or borderline cases, however, further authoritative guidance may be required and will be found only in subsequent reported decisions addressing those factual permutations.
REASONS FOR JUDGMENT 1 The plaintiff seeks orders pursuant to s 411 of the Corporations Act 2001 (Cth) (the Act) that the proposed scheme of arrangement between it and its members (Scheme) be approved. 2 The application is supported by the following affidavits: • an affidavit sworn by Peter James Woods on 5 December 2011; • an affidavit sworn by Rhys Waldon on 12 December 2011 and a further two sworn by him on 14 December 2011; • an affidavit sworn by Natasha Lee Forde on 12 December 2011. 3 The principles which generally govern the Court's supervisory role in the two court related stages involving schemes of arrangement under s 411 of the Act are well established. 4 Fundamentally the jurisdiction is supervisory; the court must be satisfied that there has been an absence of oppression and that the compromise or arrangement is one which is capable of being accepted: see Re Dorman Long and Co Ltd [1934] 1 Ch 635; Scottish Insurance Corporation Limited v Wilsons and Clyde Coal Company Limited [1949] AC 462 at 486 (see also Murray J in Re Stockbridge Ltd (1993) 9 ACSR 637 at 646-8). 5 In Re NRMA Ltd [No. 1] (2000) 156 FLR 349 at 361 Santow J speaking of the second (approval) stage referred to a passage from the works of authors I A Renard and J G Santamaria: Takeovers and Reconstructions in Australia, where the authors state the court's role is to determine: (a) whether all the conditions required by s 411 have been complied with; (b) whether the majority of members or creditors, though acting regularly, have acted in good faith and not in pursuit of some illegitimate purpose; and (c) whether 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 of it (per Fry LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 247). [footnote abbreviated])". I deal with each of these in turn below.
CONDITIONS OF SECTION 411 6 The majority of the requirements of s 411 were dealt with on the application for an order allowing the plaintiff to convene the meeting of its members. 7 The remaining requirements of which the Court must be satisfied before it can make an order approving the Scheme under s 411(4)(b) are that: (a) the meeting convened by the plaintiff was convened and held in accordance with the orders made by this Court at the "convening" hearing on 7 November 2011 (Orders); (b) the resolution required to be passed was passed at the meeting by the majorities required by s 411(4)(a); (c) the plaintiff otherwise complied with the Orders; and (d) Australian Securities and Investments Commissions (ASIC) has had a reasonable opportunity to examine the explanatory statement and to make submissions to the Court in relation thereto: s 412(7).
Convening of meeting of members 8 The plaintiff is an unlisted public company. Section 249H of the Act requires at least 21 days notice to be given of a meeting of a listed company's members. 9 Section 249J(1) of the Act requires each member to be given written notice of a meeting. 10 Section 249J(3)(d) of the Act allows notice of a meeting to be given by any means that the company's constitution (if any) permits. 11 The plaintiff's constitution (Constitution) includes the following provisions: (a) Clause 25.1(b) which allows service of notices on shareholders by post to the address shown in the register of shareholders; (b) Clause 25.2(b) which provides notice of a general meeting properly addressed and posted is taken to have been effected on the date after the date it is posted; (c) Clause 11.5 by which the non-receipt of a notice to a member does not invalidate any resolution passed at a meeting; and (d) Clause 12.1 by which a quorum for a meeting is 2 or more members present at the meeting and entitled to vote. 12 When one reckons time under the Act, the date upon which the meeting was held is counted, but the date upon which notice of the meeting was given, or is deemed to have been given, is excluded: s 105. 13 Section 412(1) requires an explanatory statement to be sent with every notice convening a meeting under s 411. 14 The notice convening the meeting, together with the explanatory statement and proxy form (Scheme Booklet) were posted on 10 November 2011. 15 The notice of meeting and explanatory statement were in the same terms as those approved by the Orders. 16 Because cl 25.2(b) of the Constitution deems service by post to be effected on the date after the date of its posting, that is on 11 November 2011, having regard to the effect of s 105, 25 days passed from that date until the meeting took place on 5 December 2011. 17 I am satisfied on the evidence that a meeting of the members of the plaintiff was held on 5 December 2011 and that: (a) Peter James Woods acted as chairperson of that meeting as required by the Orders; (b) sufficient members attended to obtain a quorum; and (c) the meeting was otherwise conducted in accordance with the Orders.
Passing of resolutions: Members Meeting 18 The sole resolution to be put to the members was passed at the meeting of the members by the majorities required by s 411(4)(a).
Compliance with balance of Orders 19 Order 6 of the Orders required advertising of the specified notice of the Shareholders Meeting on or before 12 November 2011. There has been compliance with this Order. 20 There has also been compliance with Order 8 of the Orders which required advertising of the specified notice of this hearing before this Court at least five days before the date allocated for the hearing. 21 An office copy of the Orders was served upon the ASIC on 10 November 2011.
Notice to ASIC of application for approval 22 ASIC has advised that it did not wish to attend the "convening application". 23 In all the circumstances of the case, ASIC has had a reasonable time to examine the terms of the proposed scheme and make submissions to the Court. Accordingly, the requirements of s 411(2) are satisfied: Re NRMA Ltd at 357. 24 ASIC has provided written notice that it does not intend to appear at the hearing and that it has no objection to the Scheme.
GOOD FAITH AND PROPER PURPOSE 25 There is no evidence to suggest that the Scheme has been proposed other than in good faith and for a proper purpose. 26 There is nothing in the Constitution which is contrary to any term of the Scheme. 27 Irrespective of the view of ASIC toward the scheme, the purpose for which the scheme has been proposed is relevant to the exercise of the Court's overriding discretion to approve, or not to approve, the scheme: Re Stockbridge Ltd at 648. For example, the Court cannot approve a scheme containing a provision which is inconsistent with an express or implied provision of the Act: Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 502. 28 Whilst the "takeover" could have been implemented under Ch 6, the fact that it was proposed under Ch 5, does not imply that it was proposed for the purpose of avoiding the operation of Ch 6. There is no legislative preference for implementing a "takeover" under Ch 6 as opposed to Ch 5. The two chapters are complementary: Section 411(17); Re ACM Gold Ltd (1992) 7 ACSR 231 at 243-4; Re Stockbridge Ltd at 652-3. 29 In Mincom Ltd v EAM Software Finance Pty Ltd (No 3) (2007) 64 ACSR 387 at [50]-[51] Fryberg J appeared to accept the submission that as a matter of practice the question of whether the specified purpose exists is normally dealt with at the approval hearing, as s 411(17) is tied to the question of the Court's approval of the arrangement. This accords with ASIC's practice, which is to withhold deciding whether to issue a s 411(17)(b) statement (that it has no objection to the scheme) until the second approval hearing. 30 In relation to s 411(17), ASIC has provided the statement contemplated by that sub-section. Accordingly the issue of whether the Scheme is proposed for the proscribed purpose ceases to be jurisdictional (requiring the Court to withhold approval of the scheme), but it may remain a factor that the Court may take into account in the exercise of its residual discretion Mincom (No 3) at [40]. 31 In relation to the issue of the Court exercising its discretion when such a statement has been provided, in Re Coles Group Ltd (No 2) (2007) 65 ACSR 494 Robson J observed (at [21] - [22]) that: (a) an acquisition pursuant to a scheme of arrangement is an exception to the prohibition contained in s 606 (which is the primary prohibition contained in Ch 6); (b) many transactions which could be carried out under Ch 6 are carried out by a scheme of arrangement; (c) the legislation provides a choice, and it is neutral as to the choice which is to be made; (d) a corporation is free to choose a scheme of arrangement over Ch 6 if it chooses. 32 In Coles Group (No 2), Robson J also discussed the significance of ASIC's policy statements and stated: (a) (at [46]) ASIC's policy statements PS 60 and PS 142 [now Regulatory Guide 60] "help reconcile the various parts of s 411(17) and provide the section with a rational and reasonable function which is also of relevance in considering the work, if any, the section does when the court is exercising its discretion whether or not to approve the scheme"; (b) (at [47]) a s 411(17)(b) statement establishes that ASIC has no objection to the scheme "as in ASIC's view members are not being adversely affected by the takeover being implemented by a scheme of arrangement rather than a takeover scheme"; (c) (at [66]) that there was a divergence of views as to whether the "proscribed intent" remains of relevance or even particular significance in relation to the Court's exercise of discretion under s 411(4). 33 Robson J then discussed (at [66] - [67]) the divergence of views that appeared to exist in relation to whether the Court was in fact left with the abovementioned residual discretion. His Honour then stated: (a) (at [68]) the existence of the proscribed purpose is a relevant factor when a s 411(17)(b) statement is provided; (b) (at [73]) the objectives of Ch 6 are relevant to the issue of the court's discretion; (c) (at [75]-[77]) ASIC's statement normally carries with it the implication that ASIC is satisfied that: (i) members have received all material information that they need for their decision; (ii) members have received reasonable and equal opportunity to share in the benefits under the scheme; (iii) members are not being adversely affected by the takeover proceeding by a scheme of arrangement; (d) if the court accepted the abovementioned implication, then the s 411(17)(b) statement "may well effectively counter any adverse inference that might have been drawn from the existence of the proscribed purpose"; (e) (at [78]) the existence of a proscribed purpose is not necessarily an adverse factor against approval. See also Robson J in Lonsdale Finance Group Ltd [2007] VSC 525 at [21] - the existence of the proscribed purpose "may be relevant but will normally be of no particular significance in the light of ASIC's no objection statement". 34 In Re International Goldfields Ltd [2004] WASC 112, Barker J held at [32] that it is sufficient for a scheme of arrangement under Ch 5 to be used where there is positive evidence that the scheme was proposed as a means of guaranteeing the bidder full ownership of the applicant without the delay, cost, expense or uncertainty associated with a takeover under Ch 6 and there is a legitimate commercial interest in the entire ownership of the applicant being resolved in favour of the bidder, or not, at the one time. 35 In this case there is positive evidence that the Scheme was proposed as a means of guaranteeing Bondi Mining Ltd 100% ownership of the plaintiff without the delay, cost, expense and uncertainty associated with a takeover under Ch 6. There is a legitimate commercial interest in the entire ownership of the plaintiff to be resolved at one time: Re Stockbridge Ltd at 653. 36 In any event, the level of disclosure given by the plaintiff in the explanatory statement meets what is required under the provisions of Ch 6. Accordingly, whilst the form of Ch 6 will be avoided by the implementation of the scheme, the substance, and the mischief to which Ch 6 is directed, will not.
CONDITIONS PRECEDENT 37 The conditions precedent in the Implementation Deed which is contained within the Scheme Booklet, save for that requiring approval of the Court to the Scheme, have been satisfied or waived.
FAIRNESS AND REASONABLENESS 38 The shareholders at the meeting held on 5 December 2011 voted unanimously in favour of the Scheme. There is no reason for considering that the scheme is not at least so far as fair and reasonable as that an intelligent and honest man, who is a member of the class, might approve the scheme: Re Alabama, New Orleans, Texas and Pacific Junction Railway Company at 247. 39 I am satisfied that the requirement of s 411 have been met and that the Scheme ought be approved in terms of the Minute filed by the plaintiff dated 14 December 2011. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.
Australian Securities Commission
Marlborough Gold Mines Limited
[2007] VSC 525
[2004] WASC 112
(1993) 177 CLR 485
(2000) 156 FLR 349
The Court ordered (1) approval of the scheme of arrangement between the plaintiff and its members pursuant to s 411(4)(b) of the Corporations Act, (2) exemption of the plaintiff from complying with s 411(11) pursuant to s 411(12), and (3) that the plaintiff lodge an office copy of the orders with ASIC as soon as practicable (Orders set out at head of reasons; paras 1-3, reasons generally).