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[1993] HCA 15
appellant. Appeal allowed with costs. Orders of the Full Court of the Supreme Court of Western Australia set aside and in lieu thereof the appeal to that Court allowed with costs, the orders of Mr...
A gold exploration company wanted to switch from a normal limited-liability company to a no-liability mining company solely so it could issue shares below face value and raise urgent capital. The Corporations Law lets no-liability companies issue shares without forcing shareholders to pay future calls, but it sets out in s 167 exactly which status changes are allowed and how they must occur, with built-in protections for creditors and past members. Converting the other way (limited to no-liability) is not on the list. The company tried to achieve the change via a court-approved scheme of arrangement under s 411. The Australian Securities Commission first stayed neutral but opposed the scheme after a Federal Court decision said it could not be done. Lower courts approved it anyway. The High Court ruled that s 411 cannot be used to do something the Law does not otherwise permit; the detailed rules for status changes are exhaustive. It also stressed that courts interpreting the same national companies legislation should follow each other's decisions for the sake of uniformity unless the earlier view is plainly wrong. The approval was overturned and the scheme dismissed. The Court left open whether s 411 could ever be used for other unlisted status changes.
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Marlborough Gold Mines Ltd was a public company limited by shares, incorporated in Queensland, whose principal activity was gold exploration on mining tenements granted by the State of Queensland. The company was solvent and met its debts in the ordinary course. It held no partly paid shares and had granted no options over unissued shares. However, it faced an urgent requirement for additional funds to satisfy investment conditions attached to its tenements, which constituted its principal asset. Its shares were trading below par value, rendering a share placement, rights issue at par or issue of partly paid shares commercially unviable. While a limited company could issue shares at a discount under s 190, the restrictions imposed by s 190(2) made that route unattractive. By contrast, a no liability company could issue shares at the prevailing market price under s 190(1).
To achieve the desired flexibility the company resolved to change its status from a company limited by shares to a no liability company by means of a scheme of arrangement under s 411 of the Corporations Law. That form of scheme would operate directly on the company itself rather than through the incorporation of a new entity and a reconstruction. The company obtained an order under s 411(1) convening a meeting of members. The Australian Securities Commission appeared at the first hearing and stated that it neither consented to nor opposed the application. The meeting approved the scheme. When the matter returned for final approval under s 411(6), the Commission, having become aware of the Federal Court decision in Windsor v National Mutual Life Association of Australasia Ltd (1992) 34 FCR 580, opposed the application on the ground that the Court lacked power to approve a scheme effecting a change of status not provided for by the Law. Commissioner Ng nevertheless approved the scheme. The Full Court of the Supreme Court of Western Australia (Nicholson, Walsh and Ipp JJ) affirmed that approval, declining to follow the Federal Court’s view in Windsor.
The Commission appealed to the High Court. Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ delivered a joint judgment allowing the appeal with costs, setting aside the orders of the Full Court and Commissioner Ng, and dismissing the company’s application. The Court held that the Corporations Law does not contemplate or permit the conversion of a limited company to a no liability company and that s 411 cannot be invoked to achieve what the statute otherwise prohibits.
The Court began by noting the historical origin of the no liability company as a Victorian innovation in the Mining Companies Act 1871 (Vic) designed to discourage “dummying”. The essential characteristic is stated in s 385: acceptance of a share does not constitute a contract to pay calls or contribute to debts, the shareholder cannot be sued for calls, but is disentitled to dividends while a call remains unpaid. Status as a no liability company is fixed on registration (s 123(1)) and must be stated in the certificate of registration (s 121(3)). The definitions in s 9 tie that status to the content of the company’s constitution (memorandum and articles), but the Court rejected the company’s argument that a simple alteration of the articles could ipso facto change its status.
A principal obstacle was s 167, located in Div 2 of Pt 2.3, which sets out an exhaustive code for changes of status. The subsection lists five permitted conversions: unlimited to limited, no liability (with all shares fully paid) to limited by shares, limited by shares to limited by both shares and guarantee, limited by guarantee to limited by both, and limited to unlimited. Conspicuously absent is any provision allowing a limited company to convert to no liability. The procedure requires a special resolution, appropriate alterations to the memorandum, articles and name, and the issue by the Commission of a certificate of registration of the new status. The special resolution takes effect only on issue of that certificate (s 167(6)). The pattern throughout the Law is that status is acquired upon and by reason of registration or re-certification.
The Court observed that changes of status can affect the liability of members and past members to contribute on a winding up and the rights of creditors. The Law therefore contains specific safeguards. Section 167(3)(d) requires individual assent of members where a limited company becomes unlimited. For a no liability company becoming limited, all issued shares must be fully paid. Sections 519, 523 and 524 contain tailored protections for past members and creditors affected by certain conversions. None of these provisions makes analogous provision for a conversion from limited to no liability. Sections 396 and 397, which give priority or remove preferences on winding up for certain shares in no liability companies, expressly extend only to companies incorporated as no liability or changing status under s 167; they do not apply to a company that has purportedly become no liability by other means.
From this detailed statutory scheme the Court drew the inference that the legislature did not contemplate conversion from limited to no liability at all. The provisions “leave no room for an interpretation of, or an implication in, the Law that such a change of status … could be achieved by means of a procedure not specifically directed by the Law to that end”. It would be “inconceivable” that such a change could be effected by simple special resolution without the protections the Law insisted upon for the conversions it did permit.
The company’s fallback argument was that, even if direct conversion by special resolution was unavailable, s 411 supplied the necessary power. The Court rejected this. It adopted the characterisation of Street J in Re Norfolk Island & Byron Bay Whaling Co Ltd (1969) 90 WN (Pt 1) (NSW) 351 that s 411 (and its predecessors) is a machinery provision that makes an arrangement binding on dissentients. It cannot authorise an ultra vires arrangement or one that can only be effected in a prescribed statutory way. The Court approved the statement of Smith J in Re International Harvester Co of Australia Pty Ltd [1953] VR 669 that, however liberally s 153 (the predecessor) is construed, “it cannot … operate to enable a company to escape from compliance with those provisions of the Act which, either expressly or by implication, lay down a special and exclusive procedure for effecting certain kinds of alterations to the memorandum”.
Because the Law does not permit the conversion, s 411 cannot be used to approve a scheme that effects it. The Court noted that a reconstruction route (incorporation of a new no liability company followed by transfer of assets and share exchange under parallel s 411 schemes) remained available and was expressly recognised for tax purposes, but that was not the course the company had chosen.
A separate but important strand of reasoning concerned uniformity. The Full Court and Commissioner Ng had declined to follow the Federal Court in Windsor. The High Court regarded uniformity of interpretation of uniform national legislation as “a sufficiently important consideration” requiring intermediate appellate courts (and a fortiori single judges) not to depart from another Australian intermediate appellate court’s construction unless convinced it is plainly wrong. That principle, now commonly called the “plainly wrong” rule, supplied an independent reason for allowing the appeal.
The Commission’s late change of position after learning of Windsor did not estop it from opposing approval. The order under s 411(1) was interlocutory and did not finally determine the scope of the section. The Commission had never been a party at that stage; it appeared pursuant to the statutory notice requirement in s 411(2). No issue estoppel arose, nor did the facts found an equitable estoppel of the Verwayen variety. The Commission remained under a duty to assist the Court once it formed the view that the scheme was outside power.
Prior to the High Court’s decision the authorities were divided. Vincent J in Re Bamboo Gold Mines Ltd (1986) 10 ACLR 513 had followed an unreported Northern Territory decision and held that the corresponding provision of the Companies Code permitted such a scheme. Johnston J in Re Insight Mining Pty Ltd (1987) 44 SASR 495 reached the opposite conclusion. The Full Federal Court in Windsor, albeit obiter, stated there was no power. Brooking J in Re Kakadu Resources Ltd [1992] 2 VR 610 followed Windsor. The Western Australian Full Court and Commissioner Ng therefore faced a clear conflict and chose not to follow the Federal Court.
The High Court resolved the conflict by holding that the Law does not permit the conversion at all and that s 411 cannot supply the missing power. It confined its ratio to the limited-to-no-liability transition but indicated that its reasoning might support the wider view in Windsor that s 167 is the sole avenue for any change of status; it found it unnecessary to decide the wider proposition. The decision also elevated uniformity of interpretation of the Corporations Law to a governing principle for all Australian intermediate courts.
After the decision, the exhaustive character of s 167 and the limited role of s 411 became settled law. The “plainly wrong” rule articulated by the Court has been applied in subsequent cases concerning uniform legislation. The practical consequence is that a limited company wishing to obtain no-liability status must now pursue the indirect reconstruction route described by the Court (new no-liability company, parallel schemes, transfer of business) rather than a direct status-conversion scheme. The protective provisions for creditors and past members remain confined to the conversions expressly listed in s 167(1).
The joint judgment contains several passages that repay close attention. One foundational statement appears early:
“Although the considerations applying are somewhat different from those applying in the case of Commonwealth legislation, uniformity of decision in the interpretation of uniform national legislation such as the Law is a sufficiently important consideration to require that an intermediate appellate court – and all the more so a single judge – should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong.”
In plain English: when every State and Territory applies the same Corporations Law, courts below the High Court should strive for consistency. If another Australian appeal court has already construed a provision, later courts should follow it unless it is obviously mistaken. This is not mere comity; it is a rule of judicial practice required by the importance of uniformity.
On the exhaustive nature of the status-change regime the Court said:
“In the light of the detailed provisions contained in ss 167, 519, 523 and 524 dealing with the procedure to be followed in connexion with a change of corporate status and the consequences which attend such a change pursuant to that procedure but not otherwise, as well as the limited application of ss 396 and 397 to a no liability company incorporated as such, it is evident that the Law does not contemplate the conversion of a limited company to a no liability company. The provisions of the Law dealing with change of status and the consequences of change of status are such as to leave no room for an interpretation of, or an implication in, the Law that such a change of status from a limited company to a no liability company could be achieved by means of a procedure not specifically directed by the Law to that end. And it is inconceivable that such a change of status could basically be achieved by the simple expedient of passing a special resolution without an insistence on any requirement for the protection of past members and creditors.”
Translation: the statute sets out in minute detail exactly which status changes are allowed, how they must be done, and what safeguards apply. Because the list in s 167(1) omits limited-to-no-liability, and because the creditor-protection sections would be left dangling if such a conversion were possible, the legislature must have intended that it cannot be done at all. You cannot achieve by a scheme of arrangement what the Law has deliberately left out.
On the character of s 411 the Court approved Smith J in Re International Harvester:
“The authorities make it clear, I think, that s 153 is to be construed liberally, and that it is wide enough to include schemes altering the provisions in a memorandum relating to the share capital of a company; and it may be that it extends so far as to cover schemes altering other provisions in a memorandum. But however widely the language of s 153 may be construed, it cannot, of course, operate to enable a company to escape from compliance with those provisions of the Act which, either expressly or by implication, lay down a special and exclusive procedure for effecting certain kinds of alterations to the memorandum.”
Plain English: s 411 should be read broadly, but it is not a magic wand. If another part of the Law says a particular change can only happen one specific way, s 411 cannot be used to dodge that requirement.
Finally, on the Commission’s change of position:
“In these circumstances, the Commission’s departure from the position which it took up at the first hearing and in its communications with the Company before that hearing was neither ‘unjust’ nor ‘unconscionable’ … It would have been unreasonable for the Company to assume that the Commission would continue to maintain the same attitude once the Windsor interpretation of the Law came to its attention.”
Translation: regulators are not locked into an early non-objection if new authority shows the transaction is outside power. The Commission’s statutory duty to assist the Court prevailed.
The decision is engaged whenever a company limited by shares seeks to use a s 411 scheme to achieve a direct change to no liability status. The trigger is the attempt to alter the company’s own corporate personality and the consequent liability regime of its members without using the s 167 procedure. It is not limited to mining companies; any limited company wishing to obtain the no-liability characteristic for capital-raising purposes will engage the ratio.
More broadly, the case stands for the proposition that s 411 cannot authorise a scheme that is inconsistent with express or implied prohibitions or exclusive procedures contained elsewhere in the Law. Fact patterns that will attract the principle include attempts to use a scheme to effect a reduction of capital otherwise than in accordance with the dedicated reduction-of-capital provisions, or to alter the memorandum in a manner not permitted by s 172. The reconstruction route described by the Court (incorporation of a new no-liability vehicle, transfer of shares or assets under parallel schemes, and cancellation or transfer of the original shares in conformity with the reduction-of-capital rules) remains open because it does not alter the status of the original limited company; it leaves that company as a subsidiary.
The uniformity principle is triggered whenever an intermediate court is asked to interpret any provision of the Corporations Law (or other uniform national legislation) on which another Australian intermediate appellate court has already expressed a view. The “plainly wrong” threshold must be met before departure is justified.
The High Court itself treated the Federal Court’s reasoning in Windsor as persuasive on the point actually decided, although it expressly confined its own ratio to the limited-to-no-liability conversion and left the wider Windsor view for another day. It followed and applied the long-standing English and Australian authorities (In re Guardian Assurance Co, In re Anglo-Continental Supply Co Ltd, Re International Harvester) that characterise s 411 as machinery only and deny it any capacity to override specific statutory prescriptions. It distinguished the line of cases that had allowed schemes altering share rights contained in the memorandum on the footing that those alterations were now expressly authorised by s 172(2). The decision in Re Bamboo Gold Mines Ltd was implicitly disapproved insofar as it had reached the opposite conclusion on the availability of the scheme route.
Because the judgment is a unanimous decision of the High Court on the proper construction of Commonwealth and uniform State legislation, later courts have treated it as authoritative. The “plainly wrong” rule it articulated has been applied in numerous subsequent cases concerning the Corporations Law and other uniform statutes. The exhaustive character of the s 167 regime has not been doubted. Lower courts have accepted that attempts to achieve by scheme what the Law does not otherwise permit will fail at the threshold jurisdictional stage. The reconstruction alternative endorsed by the Court has become the standard market practice for achieving no-liability status indirectly.
The Court expressly left open whether the wider view in Windsor is correct; that is, whether s 167 is the only permissible route for any change of status or whether other unlisted conversions might be achievable by scheme. It noted that its own narrower reasoning (no legislative contemplation of limited-to-no-liability) might support the wider view but found it unnecessary to decide the point. That question therefore remains formally open, although the detailed analysis of the protective provisions and the absence of any analogous safeguards for other conversions strongly suggests that the wider view is likely to prevail if the issue returns.
Another open question is the precise boundary between permissible use of s 411 to alter rights attached to shares by the memorandum (now expressly authorised by s 172(2)) and impermissible use to achieve outcomes precluded by the Law’s exclusive procedures. The Court accepted that schemes can alter memorandum provisions that could lawfully have been placed in the articles, but maintained the bright line that s 411 cannot override the exhaustive status-change code.
The interaction between the uniformity principle and the statutory obligation of the Commission under s 411(2) and s 1330 also invites further consideration. The Court made clear that the Commission’s duty to assist the Court can justify a change of position once new authority comes to light, but the exact content of that duty when the Commission has issued a policy statement or given early comfort remains to be worked through in later cases.
Finally, the decision leaves untouched the availability of schemes that bind third parties on ordinary contractual principles or that operate as reconstructions rather than direct status conversions. The tax recognition of such reconstruction schemes under the Income Tax Assessment Act 1936 (Cth) (ss 160ZZPB and 160ZZPD) continues to provide a practical pathway, but the limits of that pathway were not explored.
These open questions illustrate that while the core holding is settled, the precise metes and bounds of s 411 in the neighbourhood of status changes and memorandum alterations continue to require careful navigation by practitioners. The judgment’s emphasis on reading the Law as a coherent whole, with close attention to what it both provides and omits, remains the touchstone.
High Court of Australia Mason C.J. Brennan, Dawson, Toohey and Gaudron JJ. Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15
ORDER Appeal allowed with costs. Set aside the orders of the Full Court of the Supreme Court of Western Australia and in lieu thereof order that:
(i) the appeal to that Court be allowed with costs;
(ii) the orders of Mr. Commissioner Ng under s. 411 of the Corporations Law approving the Scheme of Arrangement between Marlborough Gold Mines Ltd. (the respondent in this Court) and its members be set aside and in lieu thereof order that its application by summons for orders under that section approving the Scheme of Arrangement be dismissed.
The Court delivered the following written judgment: -
1993, May 6 Mason C.J., Brennan, Dawson, Toohey and Gaudron JJ.
The Australian Securities Commission ("the Commission") appeals against a decision of the Full Court of the Supreme Court of Western Australia [24] which affirmed the decision of Mr. Commissioner Ng [25] to approve a scheme of arrangement under s. 411 of the Corporations Law ("the Law") [1] by which Marlborough Gold Mines Ltd. ("the Company") sought to change its status from that of a company limited by shares to that of a no liability company.
The Company is a public company incorporated in Queensland. Its principal activity is exploration for gold in Queensland. When it sought approval of the scheme of arrangement it was solvent and paying its debts in the normal course of business. It had issued no partly paid shares and granted no options over unissued shares. But it had an urgent need for funds in order to comply with investment conditions imposed by the State of Queensland on the continued holding of mining tenements in Queensland which were its principal asset and on which it conducted its exploration activities. As its shares were trading below par, it was not feasible for it to raise equity capital by way of a share placement, a rights issue at par or an issue of partly paid shares. Although the Company while still a limited company could have issued shares at a discount pursuant to s. 190, the restrictions imposed by s. 190(2) on the issue of shares at a discount by a limited company made the procedure commercially unattractive. But, if the Company could become a no liability company, it would be able to issue shares at a discount under s. 190(1) at the then prevailing market price.
The Company sought to change its status to that of a no liability company by having a scheme of arrangement passed and approved under s. 411. This type of scheme operates directly to change the status of the company itself. Whether s. 411 authorizes a scheme of arrangement of this kind is a matter of controversy [2] . There are conflicting decisions upon the point. In Re Bamboo Gold Mines Ltd. [3] , Vincent J. of the Supreme Court of Victoria followed an unreported decision of Nader J. in the Supreme Court of the Northern Territory [4] and held that there was power to approve such a scheme under the corresponding provision of the Companies Code ("the Code"). On the other hand, in Re Insight Mining Pty. Ltd. [5] , Johnston J. of the Supreme Court of South Australia held that there was no power to approve such a scheme. And, in Windsor v. National Mutual Life Association of Australasia Ltd. [6] , the Full Court of the Federal Court said, albeit obiter, that there was no power. In Re Kakadu Resources Ltd. [7] , Brooking J. of the Supreme Court of Victoria followed the decision of the Full Court of the Federal Court.
It is somewhat surprising that the Full Court of the Supreme Court of Western Australia, and more particularly that Mr. Commissioner Ng, declined to follow what was said by the Full Court of the Federal Court in Windsor . Although the considerations applying are somewhat different from those applying in the case of Commonwealth legislation, uniformity of decision in the interpretation of uniform national legislation such as the Law is a sufficiently important consideration to require that an intermediate appellate court - and all the more so a single judge - should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong.
The no liability company was an Australian innovation, first introduced by the Mining Companies Act 1871 Vic to provide an incentive for shareholders to invest in mining companies without engaging in the then widespread practice, known as dummying, of registering their shareholding in fictitious names so as to avoid being compelled to pay calls [8] . The essential characteristic of a no liability company is that provided for by s. 385:
The acceptance of a share in a no liability company, whether by original allotment or by transfer, does not constitute a contract on the part of the person accepting it to pay any calls in respect of the share or any contribution to the debts and liabilities of the company and such a person is not liable to be sued for any calls or contributions but is not entitled to a dividend upon any such share upon which a call is due and unpaid. 1. See Waugh, No Liability Companies in Victoria, [1987] Australian Mining and Petroleum Law Association Yearbook 30.
The Company's status as a no liability company is a consequence of its incorporation as such. Section 115 requires that a company registered under Div. 1 of Pt 2.2 be a member of one of five classes as determined by the liability of its members. A company may be: (i) a company limited by shares; (ii) a company limited by guarantee; (iii) a company limited both by shares and by guarantee; (iv) an unlimited company; or (v) if it is a mining company [9] , a no liability company. The company acquires its corporate personality upon and by reason of registration by the Commission (s. 123(1)). What comes into existence is a body corporate with certain attributes. Those attributes include status as a member of one of the five classes enumerated above, an attribute which the Commission must state in the company's certificate of registration (s. 121(3)).
a company that does not have under its constitution a contractual right to recover calls made on its shares from a shareholder who defaults in payment of those calls. Section 9 defines "constitution", in relation to a company, as "the memorandum and articles of the company". The Company argues that, by reason of these definitions, the determinant of whether or not a company is a no liability company is the absence from or presence in the company's memorandum and articles of this contractual right. The next step in the argument is that, by deleting from its articles the provisions creating the right to recover calls, the company would ipso facto become a no liability company, there being no such provision in the company's memorandum.
Mr. Emmett Q.C. for the Company acknowledges that an alteration of a limited company's memorandum would be required in order to comply with s. 117(1)(f) because the memorandum of the Company, being that of a limited company, would necessarily comply with s. 117(1)(d). That provision requires that the memorandum of a limited company state that the liability of each member is limited and in general terms the nature of the liability to contribute on a winding up. Section 117(1)(f) requires that the memorandum of a no liability company state that the acceptance of shares in the company does not constitute a contract to pay calls or to make any contribution towards the company's debts and liabilities.
The memorandum of a company may be altered to the extent, and in the manner, provided by this Law but not otherwise. The Law does not expressly provide for an alteration of the memorandum in the case of a conversion of a limited company into a no liability company, no doubt because the Law makes no provision for such a conversion. However, Mr. Emmett submits that authority for the alteration is to be found in s. 117(1)(f) itself. Because it requires a no liability company to have that statement in its memorandum, it necessarily authorizes a no liability company, on its conversion from a limited company, to alter its memorandum to conform to the statutory requirement.
The argument encounters a number of formidable obstacles. First, s. 117(1) which prescribes the contents of the memorandum of association does so in the context of making provision for the registration and incorporation of companies. Hence, s. 117(1)(f) is to be seen as a prescription for the registration and incorporation of a no liability company. It is not to be seen as a facultative provision which authorizes or requires amendment of the memorandum of association after registration and incorporation.
Section 167 presents a second obstacle to the argument. That section, which is in Div. 2 (Changes of status) of Pt 2.3 (Legal capacity, powers and status) of Ch. 2 (Constitution of companies) makes comprehensive provision for changes of corporate status. Sub-section (1) provides as follows:
(a) an unlimited company may convert to a limited company if:
(i) in any case - it was not, within the previous 3 years, a limited company that became an unlimited company under paragraph (e); and
(ii) in the case of a Division 2 company - it was not, within the previous 3 years, a limited company within the meaning of a previous law corresponding to paragraph (e) that became under that law an unlimited company within the meaning of that law;
(b) a no liability company all the issued shares in which are fully paid up may convert to a company limited by shares;
(c) a company limited by shares may convert to a company limited both by shares and by guarantee;
(d) a company limited by guarantee may convert to a company limited both by shares and by guarantee; and
(e) a limited company may convert to an unlimited company.
The change of status is achieved by means of an application to the Commission following the passage of a special resolution by the company resolving to change the status of the company, specifying the new status and making the changes to the memorandum, articles and name of the company required by the Law (s. 167(2) and (3)). Section 167(2) provides that the company acquires the new status when the Commission issues to the company a certificate of registration appropriate to the change of status and specifying that new status. The special resolution takes effect only on issue of the certificate (s. 167(6)). Thus, the pattern of the Law - that status is acquired upon and by reason of registration and certification (or recertification) - is continued [10] . 1. Here it must be noted that s. 171(12), which provides for re-certification following amendment of the memorandum of a company, is not available unless the Law authorizes the amendment to which it relates.
If it were not for particular provisions of the Law next to be mentioned, a change of status could affect the liability of members and past members to contribute to the company's property an amount sufficient to pay the company's debts and liabilities and the costs, charges and expenses of the winding up. It could also affect the extent to which creditors can call on members and past members to contribute. The conversion could potentially and unjustly affect the liability of those who were already past members or who were already creditors at the time of the conversion and therefore without any means to prevent the change of status. The Law therefore contains special provisions to protect those members and creditors. These provisions are contained in ss. 167, 519, 523 and 524 and they all appear to proceed on the basis that the only means by which a company can effect a change of status are those provided by s. 167.
The nature of the protection conferred on members and creditors by s. 167 is significant. Provision is made for the protection of the members of a limited company applying to become an unlimited company: their individual assent must be obtained (s. 167(3)(d)). The section also requires that, in the case of a no liability company applying to become a limited company, all the issued shares must be fully paid. If it had been intended that a change of status from limited company to no liability company were permissible, one would have expected the imposition of a requirement, designed to protect creditors, that all the issued shares at the time of conversion be fully paid.
Likewise, the nature of the protection conferred by ss. 519, 523 and 524 is significant. Those sections provide:
(b) if no person who was a member at that time is a member at the commencement of the winding up - despite section 522 [12] ;
to contribute in respect of the company's debts and liabilities contracted before that time. 1. Section 521 provides that "a past member need not contribute if he, she or it was a member at no time during the year ending on the day of the commencement of the winding up". 2. Section 522 provides that "a past member need not contribute unless it appears to the Court that the existing members are unable to satisfy the contributions they are liable to make under this Law".
Two points need to be made about these provisions. First, no similar protection following a change of status is provided for in any other provision of the Law. Secondly, in the light of the protection given by the sections set out above, if a conversion to a no liability company had been contemplated by the legislature, one would have expected confirmation of the non-liability of past members who were members at or prior to the time of the conversion in respect of debts and liabilities incurred while the Company was a no liability company.
Two further sections of the Law, ss. 396 and 397, appear to proceed on the footing that changes of status may occur only pursuant to s. 167. Those sections provide:
(2) In subsection (1), "no liability company" includes a company that, having been incorporated as a no liability company, changes its status under section 167.
(2) In subsection (1), "no liability company" includes a company that, having been incorporated as a no liability company, changes its status under section 167.
The Law contains no comparable provisions applying to a company which has changed its status to that of a no liability company.
In the light of the detailed provisions contained in ss. 167, 519, 523 and 524 dealing with the procedure to be followed in connexion with a change of corporate status and the consequences which attend such a change pursuant to that procedure but not otherwise, as well as the limited application of ss. 396 and 397 to a no liability company incorporated as such, it is evident that the Law does not contemplate the conversion of a limited company to a no liability company. The provisions of the Law dealing with change of status and the consequences of change of status are such as to leave no room for an interpretation of, or an implication in, the Law that such a change of status from a limited company to a no liability company could be achieved by means of a procedure not specifically directed by the Law to that end. And it is inconceivable that such a change of status could basically be achieved by the simple expedient of passing a special resolution without an insistence on any requirement for the protection of past members and creditors.
The conclusions stated in the preceding paragraph are adverse to the Company's second argument, namely that, even if conversion into a no liability company by special resolution is not permissible, s. 411 enables the Court to approve a scheme of arrangement binding members and creditors which effects such a conversion. However, before we proceed to discuss s. 411, we should mention the decision of the Federal Court in Windsor v. National Mutual Life Association of Australasia Ltd. [13] and deal with the reasons for judgment of the Full Court of the Supreme Court in the present case.
In Windsor [14] , Black C.J. and Beaumont J., with whom Ryan J. agreed on this point, held that: "the legislative intention was to permit a change of status to be effected in the circumstances described in [s. 167] but in no other circumstances. It follows that [s. 411] cannot be used for this purpose."
This view is rather wider than the conclusion which we have reached. Our conclusion is confined to the existence of a legislative intention that a change of status from limited company to no liability company is not permitted by the Law, though the reasoning which supports that conclusion may also support the Federal Court's wider view. It is not necessary to decide whether that is so.
In refusing to follow Windsor , the Full Court of the Supreme Court and Mr. Commissioner Ng stated that the attention of the Federal Court was not drawn to what they regarded as an important distinction between s. 167 and s. 411. Whereas, in their view, s. 167 provided for change of status as of right in the limited classes of case to which it referred, s. 411, on the other hand, provided for the implementation of schemes of arrangement subject to court supervision and the discretionary imposition of conditions for the protection of individual interests. The Supreme Court considered that the Court, in exercising its supervisory role, could take into account and implement the safeguards provided for in the case of change of status as of right in s. 167, namely, conditions as to publicity, protection of the interests of members, creditors and others and those safeguards provided by s. 167(8) [15] .
Moreover, Walsh and Ipp JJ. in the Full Court said [16] :
Had the legislature intended to exclude the conversion of limited companies to no liability companies by way of schemes of arrangement, then we would have thought that that intention would have been made clear in the legislation relating to the sanctioning of schemes of arrangement when s. 54 of the Companies Act Amendment Act 1973 WA was enacted. The omission of such clarification is to be contrasted with that relating to the takeover legislation. Section 315(21) of the Companies (W.A.) Code expressly restricted the court's power of approval of a scheme of arrangement proposed for the purpose of enabling any person to avoid the operation of any of the provisions of the Companies (Acquisition of Shares) Code WA. This was repeated, in substance, in s. 411(17) of the Law. 1. (1992) 9 A.C.S.R., at p. 552; 11 A.C.L.C., at p. 117.
With respect, the omission of "clarification" to show that schemes of arrangement do not extend to effecting a change of status from a limited to a no liability company is not surprising when it is appreciated that such a change may involve changes in the rights of creditors and members. When the Law is astute to protect the interests of creditors and members in cases where a change of status is permissible and makes no express provision for a change from a limited to a no liability company, the possibility that a statutory omission to protect the interests of creditors and members could be made good by judicial order is a weak ground for concluding that the legislature intended schemes of arrangement to have such an operation.
Their Honours also relied upon s. 171(3), regarding that provision as one which recognizes expressly or by implication that an order of a court may affect a company's memorandum in relation to its status. The effect of s. 171(3) is to exclude certain companies from an obligation imposed by s. 171(2) to lodge instruments. Their Honours concluded that the terms of s. 171(3) signified that s. 411 extended to approval of compromises involving change of status generally.
Subsection (2) does not apply in relation to a Table A proprietary company in relation to a resolution, order or document unless it affects the company's memorandum in relation to the company's name, share capital, or status as a proprietary company. The significance of this sub-section is limited. Specific provision is made by ss. 168 and 169 for change of status from public company to proprietary company and vice versa. Conversion is effected by passing a special resolution and, in the case of a conversion to a proprietary company, by altering the constitution of the company to ensure that the constitution includes proprietary company provisions (s. 168(1) and (2)). On compliance with the prescribed requirements and on the issue of a certificate of registration of the company altered accordingly, the company becomes a proprietary company or a public company as the case may be (s. 168(3)). Section 169, which like s. 167 is in "Div. 2 - Changes of status", provides: Where a Table A proprietary company changes its status under section 167 or 168, the Commission shall register the memorandum, and the articles, of the company.
With respect to their Honours, all that can be gleaned from these provisions is that an order by a court under s. 411 may affect a company's status as a proprietary company, there being statutory authority for such a conversion in ss. 168 and 169. These provisions provide no basis at all for an interpretation or implication that s. 411 extends to approval of a conversion from limited company to no liability company.
The Commission's argument is that s. 411 is a machinery provision which does no more than make an agreement binding on a company and its members and creditors notwithstanding that one or more members or creditors do not join in that agreement. That was the view which Street J. took of s. 181 of the Companies Act 1961 NSW, a legislative predecessor of s. 411, in Re Norfolk Island & Byron Bay Whaling Co. Ltd. [17] , following expressions of view to the same effect in earlier English decisions [18] . In these decisions, the statement is repeated that the statutory power to approve an arrangement does not apply to an ultra vires arrangement or one which can only be effected in a prescribed way, for example, a reduction of capital or a reconstruction. This statement was taken up by Martin J. in Re International Harvester Co. of Australia Pty. Ltd. [19] . In that case, in a passage with which we entirely agree, Smith J. said [20] :
The authorities make it clear, I think, that s. 153 [the then equivalent of s. 411 of the Law] is to be construed liberally, and that it is wide enough to include schemes altering the provisions in a memorandum relating to the share capital of a company; and it may be that it extends so far as to cover schemes altering other provisions in a memorandum. But however widely the language of s. 153 may be construed, it cannot, of course, operate to enable a company to escape from compliance with those provisions of the Act which, either expressly or by implication, lay down a special and exclusive procedure for effecting certain kinds of alterations to the memorandum. 1. (1969) 90 W.N. (Pt 1) (N.S.W.) 351, at p. 354; [1970] 1 N.S.W.R. 221, at p. 223. 2. In re Guardian Assurance Co., [1917] 1 Ch. 431, at p. 441; In re Anglo-Continental Supply Co. Ltd., [1922] 2 Ch. 723, at p. 731; In re Oceanic Steam Navigation Co. Ltd., [1939] Ch. 41, at pp. 47-48. 3. [1953] V.R. 669, at p. 674. 4. ibid., at p. 675.
Further, it has been said that a company's memorandum can only be altered in the manner prescribed by the relevant companies legislation itself because it would be strange if such an alteration could be achieved otherwise than by complying with the statutory prescription [21] . On the other hand, it has been recognized in England that the statutory power extends to approval of an arrangement altering the rights attached to shares by the memorandum [22] . And in Scotland it has been held that rights attached to shares by the memorandum may be altered by a scheme of arrangement, even where the memorandum makes no provision for the alteration of those rights [23] .
Section 171(1) now provides that the memorandum of a company may be altered to the extent, and in the manner, provided by the Law but not otherwise. However, s. 172 confers extensive powers to alter the memorandum by special resolution. Section 172(2) provides:
Subject to this section, subsection 180(3) and section 260, if a provision of the memorandum of a company could lawfully have been contained in the articles of the company, the company may, by special resolution, alter the memorandum:
(a) unless the memorandum prohibits the alteration of that provision - by altering that provision; or
(b) unless the memorandum prohibits the omission of that provision - by omitting that provision.
This sub-section currently constitutes authority, within the prescribed limits, for approval of an arrangement which alters rights attached to shares by the memorandum.
Whatever the basis for the United Kingdom decisions which sanctioned such an arrangement involving an alteration of rights, the interpretation given to the predecessors of s. 411 provides no justification for regarding the section as constituting authority for approving an arrangement containing a provision which is inconsistent with the express or implied provisions of the Law. It may well be that s. 411 permits the achievement of ends not inconsistent with the express or implied provisions of the Law by means of transactions of a kind the company could not otherwise employ. Reconstructions and amalgamations under s. 413 can be effected by schemes of arrangement under s. 411. Indeed the Company contemplated conversion to a no liability company by means of a reconstruction. That would have involved the following steps. A no liability company is incorporated. Pursuant to schemes of arrangement under s. 411 involving the company seeking to effect the change of status ("the limited company"), its members (and, if necessary, its creditors) and the no liability company [24] , shares in the limited company are allotted to the no liability company. Shares in the no liability company are allotted to the members of the limited company in proportion to their shareholdings in the limited company. Those shares in the limited company are then transferred to the no liability company or cancelled [25] . The result is that members of the limited company become members of a no liability company which is the holding company of the limited company and which may issue shares at a discount. Such schemes of arrangement are recognized in s. 160ZZPB (as applied by s. 160ZZPD) of the Income Tax Assessment Act 1936 Cth. Although the members of the limited company become members of the no liability company, there is in truth no change in the status of the limited company. It is unnecessary for present purposes to decide whether, except for reconstructions or amalgamations, an arrangement under s. 411 can effect transactions of a kind which the company could not otherwise employ [26] .
It follows that, because the Law does not permit the conversion of a limited company into a no liability company, s. 411 does not authorize approval of the arrangement in the present case.
On the hearing of the appeal, the Company sought leave to file a notice of contention out of time supporting the decision of the Full Court on the ground that the Commission was estopped from objecting that the scheme could not validly be approved. It put the argument in two ways: (i) as an issue estoppel; and (ii) as an estoppel of the kind considered by this Court in The Commonwealth v. Verwayen [27] . We would grant the Company leave to file the notice of contention.
The facts on which the Company relies are as follows. On 19 May 1992, the Company filed an originating summons seeking an order pursuant to s. 411(1) that a meeting of the members of the Company be convened to consider the scheme. On 20 May 1992, the Commission informed the Company by letter that it would not make submissions in opposition to the scheme. On 25 May 1992, on the return of the summons before Mr. Commissioner Ng, the Commission appeared and indicated that it neither consented to nor objected to the Company's application. Mr. Commissioner Ng heard brief submissions by counsel for the Company and made an order that the meeting be held in terms of the minute submitted to the Court. On 23 June 1992, having become aware of the decision of the Full Court of the Federal Court in Windsor , the Commission informed the Company that it was reconsidering its position in relation to such schemes and that its counsel would inform the Court of the Windsor decision when the Court's approval of the scheme was sought pursuant to s. 411(6). On 25 June 1992, a meeting of the members of the Company approved the scheme. On 23 July 1992, the Commission informed the Company that it would oppose the Court's approval of the scheme. On 27 July 1992, the Company filed an originating summons seeking an order approving the scheme pursuant to s. 411(6). On 11 August 1992, on the return of the summons, the Commission made submissions in opposition to approval. On 20 October 1992, Mr. Commissioner Ng made an order approving the scheme. On 21 October 1992, the Commission filed a notice of intervention and, on 27 October 1992, a notice of appeal.
This chronology must be considered in the light of the following additional circumstances. In March or April 1992, the Company and its advisers became aware that the Commission was intending to adopt the view that a scheme of arrangement of the type under consideration was permissible. Prior to this time, the Company had been intending to effect, and had been engaged in the preparation of, an indirect conversion by incorporation of a new no liability company. The Company then commenced to prepare the scheme which was ultimately implemented. On 4 May 1992, the Commission promulgated Policy Statement 22 ("the Policy Statement") by which it indicated that, having taken the advice of senior counsel, it adopted the view that conversion from limited company to no liability company was possible and that it had no general policy objections to such a conversion provided certain matters were established. One of these matters was that the attention of the relevant court be drawn to the then existing conflict of authority between Re Insight Mining Ltd. and Re Bamboo Mines Ltd. Surprisingly, the Commission seems to have then been unaware of the decision in Windsor which had been delivered on 23 March 1992. The Policy Statement was withdrawn on 13 July 1992.
The Company argues that the existence of power to approve the scheme pursuant to s. 411(4)(b) is a necessary legal foundation of the decision to order the convening of the meeting. It is certainly the case that "the court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the meeting the court would be likely to approve it on the hearing of a petition which is unopposed" [28] . No doubt at the s. 411(1) stage, when the Court decides whether it will grant leave to summon a meeting or meetings, the Court should be alive to the difficulties which may arise subsequently when it is called upon to decide whether the arrangement should be approved [29] . But it is going too far to say that the grant of leave to summon meetings under s. 411(1) necessarily amounts to a determination that the proposed arrangement is one which falls within the scope of the section. The application for leave to summon meetings is in the nature of an interlocutory proceeding and is a preliminary to the final determination which is to be made when the matter comes back to the Court for approval after the holding of the meetings which have been directed [30] .
In any event, the order granting leave under s. 411(1) did not decide the question. Although, according to the doctrine of issue estoppel, the judicial determination concludes not only the point actually decided but also any matter which it was necessary to decide as the groundwork of the decision [31] , s. 411(1) does not require the judge to make a final determination of the question whether the arrangement is one which falls within the scope of the section. Whether a judgment given at one stage of proceedings can found an issue estoppel at a later stage of the same proceedings is a question which need not be considered.
Furthermore, in our view, the doctrine of issue estoppel does not apply because the Commission was neither a party nor an intervener when the matter came before the Court on the application for leave to summon meetings. The Commission appeared at that stage of the proceedings because notice was given to it pursuant to s. 411(2)(a) and because the Court is required by s. 411(2)(b) to be satisfied that the Commission has had a reasonable opportunity to examine the arrangement and the draft explanatory statement and to make submissions in relation to them. The fact that the Law requires that notice be given to the Commission does not make the Commission a party. Nor, in our view, does the fact that the Commission appeared to announce its attitude make it a party. That, if anything, was something done by way of making information available to the Court. Spencer Bower and Turner's The Doctrine of Res Judicata states [32] :
For the purposes of estoppel per rem judicatam, a "party", in proceedings in personam, means not only a person named as such, but also one who intervenes and takes part in the proceedings, after lawful citation, in whatever character he is cited to appear, or who, though not nominatim a party, insists on being made so, and obtains the leave of the court for that purpose. 1. 2nd ed. (1969), p. 200.
The Commission may exercise a right to intervene in a proceeding relating to a matter arising under the Law (s. 1330(1)) and, if it does so, it is deemed to be a party (s. 1330(2)). The Commission did intervene but that was after Mr. Commissioner Ng had given his decision under s. 411.
The Company's alternative argument is that the facts give rise to an equitable estoppel of the kind upheld in Verwayen . Once it is accepted that a final determination of the question now at issue under s. 411 was not to be made until the hearing of the application for approval of the arrangement following the meetings, we do not see that, in the circumstances of the case, there was any foundation for an equitable estoppel. The question now at issue remained open and the Commission had not, by its statement to Mr. Commissioner Ng, committed itself to supporting the arrangement. In its communications with the Company, the Commission had indicated that it would not oppose the arrangement provided the conditions mentioned in the Policy Statement were satisfied which, significantly, included the requirement that the attention of the Court should be drawn to the conflict of authority as the Commission understood it then existed.
In the light of the general responsibilities of the Commission under the Law and the provisions of ss. 411 and 1330, the Commission had an obligation to assist the Court by presenting argument if it deemed that course to be necessary or desirable. When the Commission became aware of the decision in Windsor , the basis on which the Commission had earlier considered the matter was altered, making it appropriate that it should depart from the view which it had previously expressed and that it should present argument to the Court in conformity with its new view [33] .
In these circumstances, the Commission's departure from the position which it took up at the first hearing and in its communications with the Company before that hearing was neither "unjust" nor "unconscionable", to use the expressions found in Thompson v. Palmer [34] and Verwayen [35] . On the contrary, had the Company paused to consider at the first hearing what the consequences would be of a decision to the effect of Windsor coming to the attention of the Commission before the second hearing, it would have realized that such a decision would necessarily induce the Commission to reconsider its position. It would have been unreasonable for the Company to assume that the Commission would continue to maintain the same attitude once the Windsor interpretation of the Law came to its attention.
Accordingly, the case of equitable estoppel is not made out.
In the result the appeal must be allowed with costs. The orders made in the courts below must be set aside. In lieu of the orders made by the Full Court, the appeal to that Court must be allowed and the application under s. 411 must be dismissed.
Australian Securities Commission
Marlborough Gold Mines Ltd
Appeal allowed with costs. Orders of the Full Court of the Supreme Court of Western Australia set aside and in lieu thereof the appeal to that Court allowed with costs, the orders of Mr Commissioner Ng approving the scheme set aside, and the application for approval dismissed.