These proceedings are brought by Wollongong Coal Limited ("WCL"), by leave granted under s 471B of the Corporations Act 2001 (Cth), in relation to certain property of the Defendant, Bellpac Pty Ltd (recs and mgrs apptd) (in liq) ("Bellpac"), namely 2,472,063,680 shares in WCL ("Bellpac shares").
By its Originating Process filed on 3 February 2017, WCL initially sought an order under s 259A(c) of the Corporations Act that it "may purchase" the Bellpac shares from Bellpac. After notice of this application was given to the Australian Securities and Investments Commission ("ASIC") which identified concerns with the transaction, in correspondence which was brought to the Court's attention, WCL amended the orders it sought such that the first order now sought is an order under s 259A(c) of the Corporations Act that it "acquire and cancel" the Bellpac shares. WCL also sought an order under s 1322(4) of the Corporations Act, to the extent necessary, granting relief in respect of certain aspects of the transaction, although that matter had not been raised in the Originating Process. I will address that additional order below.
WCL was represented at the hearing by Mr D L Williams SC and Bellpac was represented by Mr N Cotman SC with Mr Wells. Those parties had a common interest in supporting the proposed orders and did so. ASIC, which had expressed concerns as to the transaction, did not appear at the hearing, but a letter which set out those concerns was drawn to the Court's attention and I will refer to that letter below.
I will first refer to the evidence led in respect of the application, then to issues of law that arise in respect of the matter, then to the question of the exercise of the Court's discretion in this case. I will finally deal with the further issue in respect of s 1322 of the Corporations Act in relation to the proposed transaction.
[3]
Background and evidence
WCL relies on an affidavit of its company secretary, Mr Sharma, dated 2 February 2017 which sets out the background to the application. WCL is a public company, shares in which are listed on Australian Securities Exchange Limited ("ASX"). WCL's annual report dated 31 March 2016 (Ex A2, p 194) indicates that it is involved in the coal mining business.
There have been previous disputes and litigation between WCL and Bellpac, and an earlier dispute was settled on the basis that WCL would issue convertible bonds to Bellpac. On 5 August 2008, WCL issued 200 convertible bonds with a nominal value of $50,000 each, totalling $10 million of convertible bonds, to Bellpac. The terms of those bonds provided that, on application to WCL, Bellpac was entitled to be issued a specified number of shares and, if WCL was unable to issue those shares within seven days from the end of the month in which the application was made, WCL was required to redeem the bonds for a dollar amount equal to their nominal principal value plus accrued interest.
Mr Sharma's evidence is that Bellpac retained 160 of the 200 convertible bonds as at January 2016 and, on 19 January 2016, issued notices of conversion in respect of the 160 convertible bonds. On 5 February 2016, WCL converted some, but not all of those convertible bonds, by issuing fully paid shares to Bellpac. WCL also announced to ASX that it would issue further ordinary shares to Bellpac following a general meeting to approve that issue, which was required to comply with s 611 item 7 of the Corporations Act. WCL subsequently convened that general meeting, its shareholders resolved to approve the issue of the further shares to Bellpac, and those shares were then issued or purportedly issued to Bellpac. In the meantime, Bellpac had brought proceedings against WCL seeking declarations that it was required to redeem the convertible bonds for their nominal value plus interest.
Those proceedings were subsequently settled by a binding Heads of Agreement which required WCL to pay Bellpac $6.3 million, and required Bellpac to return to WCL 2,472,063,680 ordinary shares issued to it, or otherwise consent to the cancellation of the shares on receipt of the settlement sum. Those transactions were to take place, relevantly, on satisfaction of specified conditions precedent to that agreement. It was a condition precedent to that agreement that Bellpac obtain approval under s 477(2A) of the Corporations Act to the entry into that agreement, which it did, and it was a condition precedent that WCL obtained all "necessary approvals" to buy-back or cancel the Bellpac shares. The conditions precedent were originally to be satisfied by 13 February 2017, although that date was subsequently extended.
[4]
Whether the Court has power to grant the relief sought
Mr Williams submitted that the Court has power to make an order under s 259A(c) of the Corporations Act and that order is appropriate to give effect to a settlement between the parties, and seeks to rely on the obligation to promote the just, quick and cheap resolution of disputes under s 56 of the Civil Procedure Act 2005 (NSW) in that respect. The former proposition finds support in the decision of U&D Coal Ltd v Australian Kunqian International Energy Co Pty Ltd [2014] VSC 386, to which I will refer below, but it does not seem to me that State legislation such as the Civil Procedure Act can expand the scope of the Court's powers under s 259A of the Corporations Act, which takes effect as Commonwealth legislation.
Section 259A of the Corporations Act relevantly provides that a company must not acquire shares or units of shares in itself except, first, by buying back those shares under s 257A of the Corporations Act. That section permits a company to buy-back its shares if the buy-back does not materially prejudice the company's ability to pay its creditors and the company follows the procedure under Pt 2J.1 of the Corporations Act. Those provisions permit a selective buy-back, of the kind that WCL seeks to undertake in respect of the Bellpac shares, subject to special shareholder approval in the manner specified in s 257D of the Corporations Act, and provides for cancellation of shares bought back under s 257H of the Corporations Act. Section 257D(4) allows ASIC to exempt a company from the requirements under s 257D applicable to selective buy-backs, a matter which was addressed in WCL's correspondence with ASIC to which I referred above.
Section 259A(c) of the Corporations Act provides an exemption to the prohibition for a company that acquires shares or units of shares in itself "under a court order". A corresponding exemption was found in s 129(8)(e) of the Companies Code 1981 and continued in s 205(8)(f) of the Corporations Law. Section 259A was introduced in its present form by the Company Law Review Act 1997 (Cth) and the Explanatory Memorandum to the Company Law Review Bill 1997 noted that that exemption was based on the exemption that then existed in s 205(8)(f) of the Corporations Law, but did not further elaborate on its purpose. Plainly, the exemption in s 259A(c) would at least apply if the Court had made an order, exercising a jurisdiction arising under another section of the Corporations Act or another statutory regime, for a company to purchase a member's shares. WCL seeks to give that exception a wider operation, such that it would apply, not only where the Court has made a merits order or a consent order that it was satisfied was appropriate in other proceedings that requires a company to purchase a member's shares, but also in a freestanding application for an order under that section.
[5]
Discretionary matters
Mr Williams draws attention to several matters that he submits support the exercise of the Court's discretion to make the order sought, which largely go to the proposition that the settlement with Bellpac is reasonable for WCL and for its shareholders, reflects the possibility of a buy-back order made against WCL in the proceedings brought by Bellpac against it and compromises those proceedings, thereby avoiding the risks of WCL incurring further legal costs. Mr Williams also submits that the effect of the buy-back would be to restore WCL to its position prior to the contentious application for conversion of the convertible bonds by Bellpac and to restore shareholders to their position before shares were issued under the convertible bonds to Bellpac, diluting their shareholdings. Mr Williams submits that the settlement caps the dollar liability to Bellpac at $6.3m, although the benefit of that course depends upon a matter that is not addressed by the evidence, namely Bellpac's substantive prospects of success in the proceedings. These matters may provide some support for the prudence of WCL's settlement with Bellpac, although they fall well short of being sufficient evidence to allow the Court to form its own view as to that matter. It seems to me that those matters do not go further, to provide support for making the order sought under s 259A(c) of the Corporations Act, rather than leaving WCL to adopt the alternative procedure of a selective buy-back undertaken in compliance with Pt 2J.1 of the Corporations Act which is also open to WCL and would also achieve the outcome that it perceives as desirable.
I am not persuaded that Mr Williams' submissions identify a sufficient basis for the making of an order under s 259A(c) of the Corporations Act. Even if the Court had power to make an order that would have the effect of permitting WCL to undertake a selective buy-back of the Bellpac shares, without complying with the requirements for a selective buy-back under Pt 2J.1 of the Corporations Act, it seems to me that it should not do so, and I would decline such an order as a matter of discretion.
First, it seems to me that WCL's case ultimately rose no higher than the proposition that it would prefer not to comply with the requirement to call a shareholders meeting under s 259D of the Corporations Act in respect of a selective buy-back. It was not suggested that it was impossible for it to do so, or that the costs of its doing so would be unreasonably large, or that the time pressures of settlement would not permit it to do so, and the latter could scarcely could have been put where it is now over two months since the Heads of Agreement was executed and a shareholders meeting could have been called in that period. It was also not suggested that a shareholders meeting could not now be called, albeit that Bellpac's cooperation in extending the date for satisfaction of the conditions precedent under the Heads of Agreement would be required. No suggestion was made by Bellpac in submissions that it would not provide such cooperation.
[6]
Orders under s 1322 of the Corporations Act
In the form of order which it proposed at the hearing, but not in its Originating Process, WCL sought further orders under s 1322(4) of the Corporations Act:
"[T]o the extent necessary:
(a) that any act, matter or thing purporting to have been done pursuant to the binding heads of agreement dated 21 November 2016 between [WCL] and [Bellpac] and order 2 above [for the acquisition of Bellpac's shares under s 259A(c)] is not invalid by reason of any contravention of a provision of the Corporations Act 2001;
(b) relieving all persons from any civil liability in respect of a contravention of Chapter 6 of the Corporations Act 2001 by reason of giving effect to or implementing the binding heads of agreement dated 21 November 2016 between [WCL] and [Bellpac] and order 2 above."
It appears that this order may have been sought in order to address ASIC's contention that, even if an order was made under s 259A(c) of the Corporations Act, it would not have avoided any liability of WCL arising in respect of a contravention of Ch 6 of the Corporations Act. It seems to me that the implementation of the proposed transaction, if a Court order was made under s 259A(c) of the Corporations Act, would have amounted to a transaction that was prohibited by s 606 of the Corporations Act, so far as it led WCL to acquire a relevant interest in more than 20% of its own voting shares, and so far as it increased JSPML's relevant interest in those voting shares from a starting point above 20% and below 90%. In making the latter observation, I recognise that an acquisition by WCL could lead it to contravene s 606 of the Corporations Act by reason of its effect on the relevant interest held by JSPML in WCL's voting shares, although it did not give rise to such a contravention on the part of JSPML where the latter was not party to the transaction.
Mr Williams relies on s 609(4) of the Corporations Act to seek to avoid the result that the proposed transaction would give rise to a contravention by WCL of s 606 of the Corporations Act. That subsection provides that:
"A person does not have a relevant interest in a company's shares if the relevant interest would arise merely because the company has entered into an agreement to buy back the shares."
That subsection would assist WCL, at the point of entry into the Heads of Agreement with Bellpac, so far as that agreement could be characterised as an agreement to buy-back shares. It does not seem to me to assist WCL as to the implementation of this transaction, if the order sought under s 259A(c) of the Corporations Act was made, since the steps taken by WCL to give effect to that order, including changes to its share register, would not arise "merely" on the entry into a buy-back agreement. The steps to implement a buy-back, as distinct from the buy-back agreement itself, would need to rely on the exemption in s 611 item 19 of the Corporations Act, which would not be available to WCL unless it followed the buy-back procedure in Pt 2J.1 of the Act.
[7]
Order and costs
Accordingly, the Originating Process filed on 3 February 2017 should be dismissed. There may be no occasion for an order for costs, where WCL and Bellpac were in a common interest, but I will hear the parties in that respect.
[8]
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Decision last updated: 08 March 2017
Mr Sharma's evidence is that the top 20 shareholders in WCL hold over 99% of its shares, and that its largest shareholder, Jindal Steel and Power Mauritius Ltd ("JSPML") holds approximately 60.4% of its shares and Bellpac is the next largest shareholder with approximately 26.4% of WCL's shares. Mr Sharma's affidavit indicates that the effect of the proposed transaction would be to increase JSPML's percentage interest in shares in WCL from 60.4% to over 82% of the shares in WCL. Mr Williams puts that matter in context in submissions, by pointing out that that it reflects the reversal of the dilution of all shareholders that took place when shares were issued by WCL to Bellpac and that minority shareholders' percentage interest in WCL would similarly increase on the cancellation of Bellpac's shareholding.
Mr Sharma's evidence is that the effect of the orders sought would be to bring about the cancellation of the shares held by Bellpac in WCL, and the amended orders that Bellpac now seeks make that result express. Mr Sharma also refers to the terms of the settlement with Bellpac, which require WCL to obtain the necessary approvals to the buy-back or cancellation of Bellpac's shares and points out that, on settlement, WCL will be required to pay the specified amount to Bellpac and Bellpac will release WCL from its claim, which Mr Sharma quantifies as $9 million including interest. Mr Sharma then identifies, essentially by way of assertion, three benefits of the proposed completion of the settlement between WCL and Bellpac, namely that WCL will be released from Bellpac's claim and avoid the risk of having judgment entered for an amount which would exceed $9 million; WCL will avoid incurring legal costs in connection with the defence of the proceedings up to the date of judgment; and WCL will avoid having Bellpac as a creditor of WCL. I am content to assume that WCL, by its directors, has formed the view that the entry into and implementation of the Heads of Agreement is in WCL's interests, although, as I will note below, the evidence led is not sufficient to allow the Court to satisfy itself as to the correctness of that view. That matter is relevant to, but by no means determinative of, the result of this application.
WCL also relies on an affidavit of a director of JSPML, Mr Bhatia, dated 25 January 2017. Mr Bhatia's evidence is that he considers it is in WCL's interests to pay $6.3 million to secure a release from Bellpac's claim, as contemplated by the Heads of Agreement, and that it is in WCL's interests to fulfil the conditions to the settlement, including that it obtain the necessary approvals to cancel Bellpac's shares. He indicates that he (or, more precisely, JSPML) would vote in favour of a resolution put to shareholders in WCL to approve WCL's proposed acquisition and cancellation of Bellpac's shares. No such resolution has to date been put to shareholders, and this application is in substance brought by WCL in substitution for consideration of the issue by shareholders. However, Mr Williams accepted that there was no reason why, if the Court did not grant the orders sought, that matter could not be put to shareholders for approval, subject to a renegotiation of time limits between Bellpac and WCL.
WCL also relies on a second affidavit of Mr Sharma affirmed on the date of the hearing, 2 March 2017. Presumably by reason of the lateness of that affidavit, it was not served on ASIC despite the Court's request that WCL give notice to ASIC of this application. Mr Sharma refers to the clause of the Heads of Agreement which required the conditions precedent to be satisfied by 13 February 2017, but noted the parties' agreement to extend that date to 10 March 2017. The Court has delivered judgment in the matter within several days of the hearing to accommodate that timing. Mr Sharma also refers to announcements made by WCL to ASX and also posted on a website maintained by WCL, and it appears that WCL has made information about the proposed transaction available to shareholders by those announcements, although that information is less comprehensive than might be expected to be provided for a shareholders meeting. WCL placed some weight on the fact that no shareholder or creditor has appeared to oppose the application. I have regard to that matter, but I do not mistake the absence of active opposition by shareholders and creditors for assent to the transaction.
Mr Sharma in turn refers to correspondence between WCL's solicitors and ASIC in respect of the transaction, including ASIC's most recent letter which indicates its objections to the transaction. That letter, which was properly drawn to the Court's attention, indicates ASIC's position:
"[w]e advise that unless shareholder approval is sought for the Proposed Transaction under s 257D or item 7, s 611 of the Corporations Act, it is likely that the Proposed Transaction will occur in breach of s 606 of the Corporations Act … . This is because:
● the acquisition of the Shares will give WCL a relevant interest in more than 20% of its shares on issue;
● [JSPML], who currently has a relevant interest in 60% of WCL shares, will increase its relevant interest to 82% once the Shares are cancelled; and
● without shareholder approval under s 257D or item 7, s 611, WCL and JSPML will not be able to rely on any of the exceptions to s 606 set out in s 611 of the Corporations Act."
ASIC also referred to an alternate proposal raised by WCL, which appears to have involved a selective buy-back under Pt 2J.1 of the Corporations Act, which WCL was prepared to undertake if ASIC gave relief from the statutory requirement that a selective buy-back be approved by special resolution of WCL's shareholders, on the basis that JSPML's shareholding was sufficient to cause any such resolution to be passed in any event. ASIC responded that its preliminary view was that it would not be minded to grant such relief, on the basis that:
"Even though JSPML may be able to carry the vote, we nevertheless consider that a meeting is an important forum for a company's members to meet with those entrusted with the company's management and be provided with the opportunity to raise any questions or concern. The fact that the vote will carry anyway is not an appropriate reason to take away a member's right to vote at a meeting."
I should pause to note that the alternative proposal raised by WCL, which would not have necessitated the Court order that is sought under s 259A(c) of the Corporations Act, and the pursuit of this application when ASIC indicated it was not inclined to grant relief from the requirement for a shareholders meeting, reflect a common theme that WCL does not wish to be required to call a general meeting of its shareholders to seek approval for the transaction.
I should also refer briefly to the evidence as to WCL's financial position, since the impact of the transaction on creditors may be relevant to the exercise of the Court's discretion whether to make an order under s 259A(c) of the Corporations Act, if it has power to make that order. WCL's annual report for the year ended 31 March 2016 indicates that WCL incurred a loss for that financial year of $182 million and then had negative total equity of $8.85 million (Ex A2, pp 219-220). The directors there recorded that they considered the consolidated entity, consisting of WCL and its controlled entities, was a going concern on the basis of, inter alia, support from JSPML, which had provided a letter of support stating that it would continue to support the consolidated entity for at least 12 months from the date on which the annual report was signed. There is no basis on the evidence to me to form any view as to whether that support will or will not extend beyond that period, which expires on or about 29 June 2017.
WCL led further evidence as to its financial position in Mr Sharma's second affidavit, which refers to a Facility Agreement (Cash Advances) between WCL and JSPML and states that the facility has a limit of $200 million, of which WCL has currently drawn down approximately $177.63 million. Mr Sharma's evidence is that it is his intention that WCL will draw upon that facility to make the payment required to Bellpac under the Heads of Agreement, of $6.3 million, which would reduce the undrawn balance available under the facility to approximately $16 million. WCL's annual report for the year ended 31 March 2016 identified that that facility had a renewed expiry date of 31 March 2017, and there is no evidence to indicate that the expiry date of that facility has subsequently been extended.
Mr Sharma's second affidavit also provided further information as to WCL's creditors. Mr Sharma's evidence is that WCL has total creditors at 28 February 2017 of in excess of $6.5 million, reduced from total creditors of over $26.3 million at 30 September 2016. Mr Sharma also discloses that the Australian Taxation Office has recently issued a position paper that foreshadows potential withholding tax liabilities of WCL of approximately $10.4 million, including penalties and interest, and that WCL has disputed those amounts on grounds that Mr Sharma does not identify. Mr Williams points out that no formal assessment has been yet been issued by the Australian Taxation Office in that respect. That evidence does not address any effect of the payment of monies to Bellpac on WCL's liquidity, as distinct from its debt level. I will return to that matter below.
In further submissions by leave, after judgment was reserved, Mr Williams sought leave to reopen WCL's case to tender exhibit "AW-1" to the affidavit of Mr Anthony Warner, the liquidator of Bellpac, to which reference had been made in Mr Sharma's affidavits and in submissions, but which had not been tendered at the hearing before me. It seems to me that it is consistent with the just, quick and cheap resolution of the real issues in dispute in these proceedings to grant leave to WCL to reopen and tender that exhibit, which I mark Exhibit "A5" in the proceedings. I have had regard to those parts of that exhibit to which reference is made in Mr Sharma's affidavits and in submissions, including copies of the convertible bonds that were in issue in the proceedings between Bellpac and WCL (Ex A5, pp 102-421); the notices of conversion given by Bellpac to WCL (Ex A5, pp 422-739); and the correspondence from WCL's solicitors to Bellpac's solicitors concerning the subsequent issue of fully paid shares in WCL to Bellpac (Ex A5, pp 752-756).
The substantive effect of the approach for which WCL contends is that, in addition to any power of ASIC to relieve from requirements of the buy-back procedure under Pt 2J.1 of the Corporations Act, for example under s 257D(4) of the Act, the Court could exercise a wider power to dispense with those provisions, but arising under Pt 2J.2 of the Act, and conferred without any legislative guidance as to the criteria to be applied in granting such a dispensation. So, on WCL's argument, if a company considered that it was inconvenient to call a shareholders meeting to approve a selective buy-back, and ASIC foreshadowed (as here) that it would not dispense with that requirement, then that company could simply apply to the Court under s 259A of the Corporations Act seeking a Court order for the acquisition of the relevant shares, which, if made, would allow that acquisition to take place without compliance with the buy-back procedure specified in Pt 2J.1 of the Act.
The approach for which WCL contends was adopted in a first instance decision of the Supreme Court of Victoria in Australian Kunqian International Energy Co Pty Ltd above, where Sifris J granted approval under s 259A(c) of the Corporations Act to a company's acquisition of shares in itself, so as to implement a compromise. His Honour observed (at [9]-[10]) that:
"Section 259A(c) of the Act permits a company to acquire shares in itself 'under a court order'. There are other exceptions to the rule prohibiting a company from directly acquiring its own shares. The most obvious exception is a share buy-back under s 257A of the Act. That section sets out a buy-back procedure. The parties do not invoke or rely on this procedure.
Although s 259A(c) may have greater application in a scheme of arrangement or oppression proceeding where a buy-back is appropriate, there is in my view no reason why it should not apply in this case. The power to make such an order resides in s 259A(c) itself and there is no need to resort to another section, such as s 233(1)(e)." [citation omitted]
His Honour also there expressed the view that it was appropriate to give such approval because it gave effect to the parties' settlement and compared the result with that which would have arisen from a contested hearing in that case, and observed (at [11]) that "[u]nless there is a compelling reason the Court shall give effect to the compromise". Although his Honour there identified a concern raised by ASIC in that case as to the position of minority shareholders, he was satisfied that that matter and the position of creditors had been addressed on the facts of that case.
I proceed on the basis that I should follow the decision in Australian Kunqian International Energy Co Pty Ltd above unless I am satisfied that that decision is plainly not correct. I should take that course because that decision, although not at an appellate level, deals with uniform national corporations legislation in which the state courts and the Federal Court of Australia exercise coordinate jurisdiction and there is a real benefit in consistency in decision-making: Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 492; Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [135]; see also M Leeming, "Farah and its Progeny: Comity among Intermediate Appellate Courts" (2015) 12 TJR 165 at 177.
The key step in the reasoning in Australian Kunqian International Energy Co Pty Ltd above is Sifris J's observation that there is "no reason" why s 259A(c) of the Corporations Act "should not apply" to allow an order of the kind there made. His Honour does not there identify any reasons which might have had that result, before concluding that they did not. I differ from his Honour since it seems to me that several reasons, which his Honour did not address, lead to the result that that section should not and does not apply in that manner. With regret, those reasons lead me to the view that the decision in Australian Kunqian International Energy Co Pty Ltd above is plainly incorrect and that I should not follow it.
I now turn to the reasons which lead me to that result. First, a narrower reading of s 259A(c) of the Corporations Act allows it a sensible application to permit an acquisition of shares by a company where it takes place under an order made by the Court, made otherwise than under that section. For example, that exception would apply where an order was made for a company's acquisition of its shares under a scheme of arrangement or in oppression proceedings under s 233(1)(e) of the Corporations Act and its predecessors, with a consequential reduction in the company's share capital. An order for a company to purchase a member's shares, and for the company's capital to be reduced accordingly, was proposed, but possibly not made, in Re M Dalley & Co Pty Ltd (1968) 1 ACLR 489, on appeal M Dalley & Co Pty Ltd v Sims (1968) 120 CLR 603 at 613. The Court made a similar order in oppression proceedings in Quinlan v Fiboze Pty Ltd (1998) 14 ACLR 312; 6 ACLC 993, by consent and having been satisfied as to the appropriateness of that order. Young J there noted that s 320(2)(f) of the Companies Code permitted the Court to make an order for the purchase of the shares of any member by the company and for the reduction of the company's capital.
Second, it seems to me unlikely that the legislature would have intended to create a wide exemption to the detailed buy-back procedure specified in Pt 2J.1 of the Corporations Act, and authorise the Court to disapply the detailed procedural protections in respect of a selective buy-back under Pt 2J.1 of the Act and exclude the provisions directed to shareholder and creditor protection, disclosure and the opportunity for shareholders to express their view at general meeting, by the indirect approach of creating an exemption in the form of s 259A(c) of the Corporations Act. There is no apparent legislative policy to be served by allowing any party that preferred not to make disclosure in respect of or obtain shareholder approval for a selective buy-back simply to apply to the Court for a court order permitting or requiring it to acquire an interest in its own shares under that section. It also seems to me also unlikely that the legislature would have introduced such an exception by a sidewind, in a section contained in Pt 2J.2 of the Corporations Act, and without identifying any criteria for the exercise of the Court's discretion in that respect.
Third, while I accept that, as Sifris J noted in Australian Kunqian International Energy Co Pty Ltd above, the Court should generally seek to give effect to proper corporate transactions, a principle of that generality does not seem to me to provide substantial assistance in determining the scope of specific statutory exceptions to prohibitions in the Corporations Act.
The view that I have formed as to the scope of s 259A(c) of the Corporations Act is consistent with the view expressed by Martin CJ in Re Summit Resources (Aust) Pty Ltd [2012] WASC 125; (2012) 42 WAR 401; 261 FLR 365; 88 ACSR 60 in respect of a similar issue arising under Ch 2E of the Corporations Act. It appears that the decision was not drawn to Sifris J's attention in Australian Kunqian International Energy Co Pty Ltd above, and it was also not referred to in Counsels' submissions in this application. Chapter 2E of the Corporations Act prohibits certain related party transactions, subject to an exception that is available where the transaction is approved by disinterested shareholders, after appropriate information has been provided to them and lodged with ASIC. A further exception is available to that prohibition, and shareholder approval is not required, to give a financial benefit "under an order of the Court" under s 216 of the Corporations Act.
In a fully-reasoned decision in Re Summit Resources (Aust) Pty Ltd above at [43]-[48], Martin CJ held that the exception for transactions under a court order in s 216 of the Corporations Act does not confer a general jurisdiction on the Court to make orders excluding the operation of the prohibition on related party transactions in s 208 of the Corporations Act. His Honour observed that:
"The terms of the originating process, and of some of the written submissions filed on behalf of SRA, can be read as suggesting that s 216 of the Act confers a general jurisdiction on the court to make orders that would have the effect of excluding the operation of s 208. However, in the course of oral argument, senior counsel for SRA disavowed any submission to that effect. Nor did counsel for Revelation contend that s 216 conferred jurisdiction on the court.
The position adopted by both counsel is plainly correct. There are many sections of the Act which confer upon a court the power to make orders modifying what would otherwise be the effect of the Act. An obvious example is s 1322, which expressly confers upon the court a power to make a variety of orders which would have the effect of modifying rights or obligations otherwise created by the Act. Such provisions confer upon the court a jurisdiction which it would not otherwise possess. Other obvious examples of provisions which confer upon the court a jurisdiction which would not otherwise exist include s 1323 and s 1324, which confer upon the court jurisdiction to make orders prohibiting or restraining persons from doing acts or things which would involve a contravention of the Act, or in certain circumstances, such as a pending investigation, prosecution or civil proceeding. Another obvious example is the jurisdiction conferred upon the court by s 233, to which I have already referred, which jurisdiction is enlivened by what may be loosely described as oppressive conduct. Each of these sections, and many others in the Act, confer upon the court a jurisdiction which the court would not otherwise possess.
However, s 216 is not a provision of this character. It does not purport to confer jurisdiction on the court which it does not otherwise possess. Rather, the section provides that if a financial benefit is given under an order of a court, member approval is not required. The jurisdiction of the court to make an order which has the effect of giving a benefit that would otherwise fall within s 208 of the Act must be found elsewhere."
His Honour further observed that:
"Two conclusions follow from this consideration of the nature and effect of s 216 of the Act. First, while the section does not confer upon the court a jurisdiction which it does not otherwise possess to make orders which have the effect of taking matters that would otherwise involve a contravention of s 208 beyond the scope of that section, the fact that an order of the court made in the exercise of its general jurisdiction would have that effect may be very relevant to the court's decision to make such an order. Chapter 2E of the Act manifests a legislative intention to protect the interests of shareholders when financial benefits are conferred upon related parties by public companies. The fact that an order of the court might have the effect of depriving shareholders of the protections provided by the Act may be relevant to the exercise of any discretion which the court may have as to whether orders should be made, or as to the terms in which orders should be made."
As I noted above, Counsel in this matter had not referred to Re Summit Resources (Aust) Pty Ltd above in the course of submissions, and I therefore afforded the parties an opportunity to make further submissions in respect of that decision after I reserved my judgment. Mr Williams submits, first, that Australian Kunqian International Energy Co Pty Limited above is a case directly on point which the Court is bound to follow unless of the view that it is plainly wrong. I have proceeded on that basis above. Mr Williams also submits that the decision in Re Summit Resources (Aust) Pty Ltd above concerns a different section of the Corporations Act which uses different language, and that the remarks of Martin CJ were obiter in respect of s 216 of the Corporations Act and did not address s 259A(c) of the Corporations Act. I recognise, of course, that a decision concerning the related party provisions of the Corporations Act is only relevant by way of analogy, so far as the self-acquisition and buy-back provisions of the Corporations Act are concerned. There are, however, significant similarities between the related party regime in Ch 2E of the Corporations Act and the buy-back regime in Pt 2J.1 of the Corporations Act, including that each provides a detailed regime for disclosure and shareholder approval, and that each of ss 216 and 259A(c) of the Corporations Act then allow an exception for a transaction which was entered into under or pursuant to a Court order.
Mr Williams submits that there are several provisions in the Corporations Act that do not expressly confer jurisdiction on courts but have been treated as creating such jurisdiction. He refers to s 437D(2)(c) of the Corporations Act, which allows an exception to the avoidance of a transaction by a company under administration where it was entered into under an order of the Court, and refers to Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [1998] HCA 30; (1998) 195 CLR 7, where Gaudron J arguably assumed that an order validating such a transaction or dealing could be made under that section. Mr Williams also refers to ss 419A(7) and 443B(8) of the Corporations Act, which provide for the Court, by order, to excuse a controller or administrator from liability, and to several other sections of the Act which use the language "unless the court otherwise orders". I do not doubt that a section of the Corporations Act may confer on the Court a power to make an order that would, for example, validate a transaction or relieve a person from liability in respect of the transaction. It does not follow that each section of the Corporations Act that refers to an order of the Court has that operation. A common feature of ss 216 and 259A(c) of the Corporations Act, so far as the latter applies to a transaction that is in substance a buy-back of a company's shares, is that each functions as an exception to an otherwise detailed statutory regime for disclosure and shareholder approval of a particular class of transaction. That is not the case in respect of the other sections to which Mr Williams refers.
Mr Williams submits, uncontroversially, that ss 216 and 259A(c) of the Corporations Act are in different terms, although it should be noted that the former refers to a benefit given "under an order of a Court" and the latter refers to an acquisition of shares or units of shares in the company "under a Court order". Mr Williams also submits that the former section is one of several exceptions to the requirement for member approval for a related party benefit and the latter section is an exception to a prohibited transaction, although I would add that the latter section operates in parallel to the exception that is available under s 259A(a) for a buy-back of shares under s 257A of the Corporations Act.
Next, Mr Williams submits that the issue as to s 216 of the Corporations Act was raised by the Court in Re Summit Resources (Aust) Pty Ltd above and submits that the reasoning of Martin CJ in that respect is obiter dicta. Assuming, without deciding, that that is a correct reading of the decision, it does not seem to me that that matter reduces the force of Martin CJ's reasoning as to the scope of that section. Mr Williams also submits that the Court should be reluctant to find that Australian Kunqian International Energy Co Pty Ltd above is plainly wrong when the only authority suggesting that is a single instance decision on another section of the Corporations Act. I have not formed the view that the decision in Australian Kunqian International Energy Co Pty Ltd above is plainly incorrect on such a basis, and that view is based on the matters to which I have referred in paragraphs 27-30 above. The reasoning in Re Summit Resources (Aust) Pty Ltd above, in respect of a similar issue, is consistent with that view, not authority for it.
For these reasons, I consider that I should not follow the decision in Australian Kunqian International Energy Co Pty Ltd above and that s 259A(c) of the Corporations Act does not confer a freestanding discretionary jurisdiction on the Court to make orders exempting a company from the prohibition on its acquisition of an interest in its own shares or from compliance with the statutory regime for buy-backs under Pt 2J.1 of the Corporations Act.
In WCL's further submissions as to Re Summit Resources (Aust) Pty Ltd above, Mr Williams also submitted, likely going beyond the leave that had been granted for further submissions, that the Court has power to make the order sought by WCL in its inherent jurisdiction. I will, with hesitation, address that further submission, notwithstanding the general principle that the Court should not accept submissions made without leave: Carr v Finance Corp of Australia Ltd (No 1) [1981] HCA 20; (1981) 147 CLR 246 at 257-258. It does not seem to me that, absent statutory authority, the Court's inherent jurisdiction can extend to permitting a selective buy-back by WCL of Bellpac's shares in WCL other than in compliance with the applicable statutory requirements under Pt 2J.1 of the Corporations Act for such a buy-back. Even if the Court had such an inherent jurisdiction, I would not exercise it to make such an order, for the reasons that I set out below.
Second, WCL submits that it should not be required to call a shareholders meeting where JSPML has sufficient votes to dictate the outcome of that meeting. I am not persuaded by that submission, which seems to me to be inconsistent with the extension of provisions for shareholder approval throughout the Corporations Act to companies that have controlling shareholders. It seems to me that ASIC is correct in its contention, in its correspondence with WCL's solicitors to which I referred above, that a shareholders meeting is not deprived of utility, as a proper mechanism of corporate governance, merely because a substantial shareholder of the company will, on a vote, be able to determine its outcome.
Third, Pt 2J.1 of the Corporations Act includes other procedural protections for shareholders and creditors in respect of buy-backs, including a specific statutory requirement that the buy-back must not materially prejudice the company's ability to pay its creditors under s 257A(a) of the Corporations Act, which would not directly apply to a buy-back which proceeded pursuant to an order made under s 259A(c) of the Corporations Act. If the Court had power to make the order sought, it seems to me that it would have been necessary to have regard to whether the transaction would materially prejudice WCL's ability to pay its creditors, by analogy with the relevance of that matter to a buy-back under s 257A(a) of the Corporations Act. Mr Williams and Mr Cotman submit that the effect of the proposed transaction will be to replace an existing debtor of WCL, Bellpac, with an increased debt owed to JSPML under the Facility Agreement. However, the evidence led as to WCL's financial position leaves open whether the proposed transaction would or could adversely affect WCL's liquidity, as distinct from its overall debt level. Mr Williams also submits that there is an advantage to WCL in the overall settlement, so far as the amount payable by it under the settlement is less than the face amount of Bellpac's claim, although whether that is the case would depend on an assessment of the prospects of Bellpac's success at a trial, which was not the subject of evidence that would allow the Court to from an independent view in this hearing.
Fourth, as ASIC has pointed out and for the reasons noted below, the order sought by WCL under s 259A(c) of the Corporations Act would not avoid a contravention of Ch 6 of the Corporations Act arising in respect of the proposed transaction where it would be implemented without shareholder approval. I am not persuaded, for the reasons also noted below, that the Court should grant relief under s 1322 of the Corporations Act in respect of such a contravention. The order sought would not properly be made where the implementation of the transaction would contravene Ch 6 of the Corporations Act.
Fifth, I would also decline relief, in the form sought by WCL in its revised order, on the narrower basis that it would be artificial and inappropriate for the Court to make an apparently mandatory order that WCL "acquire and cancel" the Bellpac shares, where WCL already intends to take that course and Bellpac already assents to it. The form of order sought by WCL seems to me to create an appearance of compulsion in respect of an essentially voluntary transaction, possibly to allow WCL to avail itself of s 259A(c) of the Corporations Act and possibly to avoid the difficulties with the transaction under Ch 6 of the Corporations Act to which ASIC has referred. I am not satisfied that a Court should make an order in a form that does not reflect the substance of, and the voluntary character of, the transaction that is proposed to be undertaken.
I should also note, without expressing any final view about, the possibility that such a mandatory order could have implications that were not addressed by WCL in submissions. One obvious possibility, which I again note without expressing any final view, is that such an order could limit any rights of WCL's shareholders and creditors and any liabilities of WCL and its directors and officers in respect of the transaction, since WCL, its directors and officers could potentially defend any later claim in respect of the transaction by responding that they cannot be exposed to liability for merely complying with a mandatory order that the Court had made. I do not determine the matter on that basis, where that issue was not addressed by the parties in submissions.
In WCL's further submissions as to Re Summit Resources (Aust) Pty Ltd above, Mr Williams also submitted, again possibly going beyond the leave that had been granted for further submissions, that the question whether two tranches of shares had been validly issued by WCL to Bellpac was in issue in the proceedings between those entities and that, if WCL was required to pay the face value of the bonds, it would have been necessary and appropriate for orders to be made to reverse the share issue. I will assume, without deciding, that the exception under s 259A(c) of the Corporations Act would have been available if Bellpac had established its case on the merits in the substantive proceedings, had also established that an order setting aside the share issue to it was an appropriate order on the merits, and a court had made such an order. I will also assume, without deciding, that that exception would have been available had the parties proposed orders by consent in the substantive proceedings, and satisfied a court on the merits that the making of those orders was a proper exercise of its discretion. In each case, that would have resulted from a merits determination of a court that would have a sufficient evidentiary basis and would likely have had regard to matters such as the effect of such an order on third parties, including WCL's other shareholders and creditors.
There has been no such merits determination in the substantive proceedings between Bellpac and WCL, and no determination by a court that consent orders of the kind agreed between Bellpac and WCL would properly be made by a court in those proceedings. At the least, it seems to me that such a determination would require an assessment of the substantive merit of Bellpac's claim which could not be undertaken on the basis of the evidence led by WCL in this application. While I accept that the evidence led by WCL in this application establishes that WCL and its controlling shareholder, JPSML, have each formed the view that the settlement of Bellpac's claim is in WCL's interests, that evidence does not extend, for example, to an opinion of Senior Counsel as to the prospects of the substantive proceedings or any other analysis of the evidence in and prospects of the substantive proceedings, that would allow the Court to reach any informed assessment as to the correctness of the view that WCL and JSPML hold.
Mr Williams also submits that, if the Court does not have power to make the order sought in these proceedings, it should do so in the substantive proceedings. I am not persuaded that such an order should be made in the substantive proceedings, where there has been no merits determination of those proceedings; the evidence led in this application establishes that WCL and JSPML hold the view that a settlement is in WCL's interests, but does not allow the Court any basis to form its own view as to that matter; such an order is not necessary to give effect to the parties' settlement, where they can implement that settlement by a selective buy-back undertaken with shareholder approval under Pt 2J.1 of the Corporations Act; and, as I will note below, such an order and reliance on the exception in s 259A(c) of the Corporations Act would in any event not avoid a contravention of Ch 6 of the Corporations Act arising from the proposed transaction.
Mr Williams also submits that WCL's acquisition and cancellation of the Bellpac shares pursuant to a Court order would not amount to its acquiring an interest in its shares "through a transaction" with Bellpac for the purposes of s 606 of the Corporations Act, but through a Court order. It seems to me that that submission depends on a false dichotomy, and that WCL would in fact acquire a relevant interest in its shares by a transaction that it seeks to have the Court permit or require it to undertake. The definition of "transaction" in s 64 of the Corporations Act is inclusive rather than exhaustive, and an order made by the Court would not itself bring about any change in Bellpac's shareholding in WCL, without further steps taken by WCL to record a change of registered owner in the company's share register.
It also seems to me that ASIC was correct that neither the exceptions in item 7 of s 611, relating to an acquisition with shareholder approval, nor item 19 of s 611 relating to an acquisition that results from a buy-back authorised by s 257A of the Corporations Act would be available to WCL, if the transaction proceeded pursuant to a Court order made under s 259A(c) of the Corporations Act. Although item 15 of s 611 allows an exception for an acquisition by operation of law, it seems to me that that exception would also not apply, where the effect of the Court order would not itself bring about such an acquisition.
I therefore approach WCL's application for relief under s 1322(4) of the Corporations Act on the basis that, absent such relief, the proposed transaction would contravene s 606 of the Corporations Act, even if the Court had power to, or would, make an order of the kind sought by WCL under s 259A(c) of the Corporations Act. Section 1322(4)(a) of the Corporations Act allows the Court to declare that an act, matter or thing purporting to have been done, or any proceedings purporting to have been instituted or taken, under the Corporations Act or in relation to a corporation is not invalid by reason of a contravention of a provision of the Act or a provision of the corporation's constitution. Section 1322(4)(c) in turn allows the Court to make an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred in s 1322(4)(a). These powers may be exercised where, relevantly, the contravention is essentially procedural, or the persons concerned had acted honestly, or it is just and equitable that an order be made, and provided that no substantial injustice has been or is likely to be caused to any person: s 1322(6). The conditions specified in s 1322(6) are in the alternative, so that only one of them need be satisfied in order to allow an order to be made under s 1322(4) of the Corporations Act.
I accept that, as Mr Williams points out, s 1322(4) of the Corporations Act is a remedial provision to be applied with liberality: Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd [2001] NSWCA 427; (2001) 166 FLR 144; 40 ACSR 221. I recognise that s 1322(4) of the Corporations Act reflects a broad legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements, where such non-compliance is the product of honesty or inadvertence and where the Court can avoid its effects without prejudice to third parties or the public interest in compliance with the law, and that the Court will have regard to the purposes of the Corporations Act, the interests of all affected parties and the public interest in exercising its powers under the section: Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418. The width of the Court's power under s 1322(4) of the Corporations Act was emphasised by the High Court of Australia in Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396; 93 ACSR 231.
However, it seems to me that Ch 6 of the Corporations Act implements the fundamental principles specified in s 602 of the Corporations Act. The first of these principles in s 602(a) is directed to the acquisition of control of voting shares in, inter alia, a listed company within the scope of Ch 6 in an "efficient, competitive and informed market". The importance of the prohibition in s 606 of the Corporations Act in implementing those principles was recognised, for example, in Re Taipan Resources NL (No 9) [2001] ATP 4; (2001) 38 ACSR 111 where the Takeovers Panel observed (at [38]) that:
"It is critical that this prohibition [in s 606] is complied with in order for the acquisition of control over a listed company to take place in an efficient, competitive and informed market in accordance with the other provisions of Ch 6. A contravention of s 606 will therefore, by its very nature, generally be contrary to the principles set out in s 602".
It seems to me that the relief in respect of future contraventions of the Corporations Act sought by WCL under s 1322 of the Act would undermine those fundamental purposes of ss 602 and 606 of the Act, and that WCL's preference not to be required to call a shareholders meeting to approve the buy-back of WCL's shares, or the benefits that WCL perceives in the proposed settlement, are not sufficient to warrant that relief. The settlement may be implemented by other means that do not undermine those principles or contravene s 606 of the Corporations Act, including by WCL now proceeding with a buy-back authorised by s 257A of the Corporations Act, after having obtained shareholder approval for it, and relying on the exception from the prohibition in s 606 of the Corporations Act that would then be available under s 611 item 19 of the Corporations Act. It also seems to me that no basis has been established by WCL to support the grant of relief for past conduct by WCL or the unidentified third parties referred to in the order it seeks, where the evidence led before me provided no detailed explanation of that conduct, or the advice which had been obtained by WCL in respect of it, or of the role of individuals in respect of it, which would ordinarily be required to support such relief.