Arguable case
In support of the application, ASIC relies on an affidavit from Mr Reading, a partner of Pricewaterhouse Coopers, who practises in the Financial Advisory Services Division. He has prepared a report of 31 March 1999 commenting upon the Report furnished by KPMG. He was not called to give any oral evidence, nor was he cross examined. No doubt this was because of the urgency of the matter. The thrust of his evidence is that the rights issue and the placement were closely interrelated in a number of important respects and that the rights issue would significantly impact upon the assessment of the placement made by KPMG. He considered that the indicative value for Solution 6 shares adopted by KPMG in its 5 March Report would be significantly varied by a one for two rights issue at $2 per share. The share value could increase from $1.05 to a figure in the order of $1.37. This latter figure was 38% above the discounted issue price to Thorney referred to in the KPMG Report. He considered that this aspect of rights issue should have been considered by KPMG and drawn to the shareholders' attention. He also pointed out that the placements would occur at amounts less than the net assets per share of the Company if the rights issue is taken into account. He considered that the funds raised by the rights issue would affect the ability of Solution 6 to complete its contracts without a placement. Several other matters were adverted to by Mr Reading including his opinion that the amount of the rights issue would have a significant impact on a full and proper consideration of the placement.
36 Clearly the Independent Expert Report of KPMG is, and was intended to be, of central importance to the consideration by shareholders of the proposed placement. Emphasis is naturally placed on it in the Chairman's letter to shareholders set out in the Notice and Memorandum of 10 March 1999. It is also pointed out there that the KPMG report has advised that the placement is fair and reasonable. The Directors' Recommendation makes reference to and emphasises the conclusions of KPMG.
37 The objective of the report is, of course, to fully and fairly inform the recipients of the merits or demerits of the placement so that they can exercise a properly informed judgment on the proposed Resolutions. Where circumstances change, in significant and material respects, between the date of the report and the date of the meeting, it is, in my view, reasonably arguable that it is misleading conduct to allow the report to remain unamended and a fortiori to refuse to amend it. The consequence of such a course of conduct is that shareholders might be led to make decisions on an understanding which is no longer accurate or comprehensive. As the case law referred to earlier indicates, statements and opinions which may not be misleading when made, if unamended, or not supplemented by reference to later events, may become misleading.
38 In circumstances where an announcement is made only two days after the Notice and Statement are sent out, to the effect that there will be a rights issue to shareholders at a price of $2 raising $47.3 million, such a statement appears prima facie to be both material and important to a decision whether to approve the placement.
39 It is not sufficient for the shareholders to simply be informed subsequently of the fact of the rights issue and, perhaps, to be aware of the current market behaviour of share prices in Solution 6. In order to prevent a misleading view being formed it is important, in my view, that the shareholders be informed of the views of the directors and KPMG as to the impact of the rights issue on the desirability of the placement and that these views be accurate at the time when the decision is proposed to be made; namely on 9 April 1999.
40 In approaching the above questions, it is important to bear in mind that the underlying policy of the Law is to ensure that the acquisition, issue, or allotment of securities takes place in an accurately informed market where shareholders are supplied with sufficient information to enable them to properly assess the merits of any proposal related to the acquisition of shares. This policy is reflected, for example, in s 731(c) of the Law.
41 I do not accept that the Thorney placements and the one for two rights issue can be regarded as separate and independent transactions with no inter-relationship calling for consideration of their interaction and co-existence. They are arguably inter-related in a number of material respects as evidenced by the Pricewaterhouse Coopers' Report.
42 It was also submitted by Counsel for Solution 6 that the present circumstances only demonstrate a difference of opinion between two professional accounting groups in relation to what ought to be done and that this is not, of itself, indicative that there is any contravention of the Act or does not support in any way a submission that there is an arguable case. In my view, in the circumstances of the present case, the views of Mr Reading in relation to the adequacy of the KPMG Report are important considerations to be taken into account. They represent not simply opinions on hypothetical questions but go directly to the importance of the inter-relationship between the two fund raising proposals represented by the placement and the rights issue.
43 I am persuaded, on the present state of the evidence, that there is an important temporal and financial inter-relationship which arguably requires further comment in order to prevent the statements made in the KPMG Report from being misleading by omission. In this respect I think that the refusal to deal with the rights issue in relation to the placement arguably does amount to misleading and deceptive conduct. Such a failure is, therefore, arguably in contravention of s 995. I am also satisfied that, subject to any arguments as to the balance of convenience, in the present case it is appropriate to grant an interlocutory injunction to restrain further distribution of material and to restrain the consideration of proposed Resolutions 2 and 3.