Barondene Pty Ltd v Breakfree Ltd

CATCHWORDS : CORPORATIONS - takeovers - off-market bid - extension of offer period - failure to send notice to offerees before end of offer period - sent 80 minutes after end of period - steps necessary to effect extension - whether failure was "contravention" - whether "essentially of a procedural nature" - whether validation would cause "substantial injustice"

Companies (Acquisition of Shares) Act 1980, s.48 LEGISLATION CITED : Corporations Act 2001 (Cth), ss.606(1)(c), 606(4)(a) , 618A, 633(1), 648B, 648C, 650A, 650C, 650D, 1322 Corporations Law, ss.657, 743(1)

Barondene Pty Ltd v Breakfree Ltd (2003) 22 ACLC 910 Diamond Rose NL v Striker Resources NL (1998) 85 FCR 76 CASES CITED : NRMA Ltd v Gould (1995) 18 ACSR 290 Pinnacle VRB Ltd v Reliable Power Inc (2001) 163 FLR 215 Re Wm Haughton & Co Ltd (1977) 2 ACLR 320 Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001) 166 FLR 144

PARTIES : Centennial Coal Company Limited - Plaintiff

SOLICITORS : Blake Dawson Waldron - Plaintiff

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

6114/05 RE CENTENNIAL COAL COMPANY LIMITED JUDGMENT 1 Chapter 6 of the Corporations Act 2001 (Cth) provides for two types of takeover bid: a "market bid" and an "off-market bid". In March 2005, the plaintiff made an off-market bid in respect of all the issued ordinary shares in Austral Coal Limited ("Austral"). It did so by sending an offer to each holder of ordinary shares in Austral in conformity with s.633(1). Each offer was, in accordance with s.618(a), an offer to buy all the offeree's ordinary shares. The period for which each offer was expressed to be open for acceptance was the period ending at 7.30 pm Sydney time on 22 April 2005. 2 The plaintiff took action on no less than fifteen occasions to vary the offers by extending the offer period. The present application arises from the plaintiff's failure, on the thirteenth of those occasions, to proceed strictly in accordance with the statutory procedure. The following relief is sought under s.1322(4) of the Corporations Act: "1. An order pursuant to section 1322(4) of the Act that the period for the plaintiff to give the notice of extension of offer dated 10 October 2005 in relation to its takeover offer for Austral Coal Limited originally issued on 21 March 2005 ('the Offer') be extended until midnight on 11 October 2005; 2. An order pursuant to section 1322(4) declaring that the plaintiff's extension of the offer period in relation to the offer, which extension occurred on or about 10 October 2005, is valid for the purposes of section 650C of the Act; and 3. An order pursuant to section 1322(4) of the Act declaring that subsequent extensions of the offer period by the plaintiff in relation to the offer, which extensions occurred on 24 October 2005 and 7 November 2005, are valid for the purposes of section 650C of the Act." 3 Chapter 6 of the Corporations Act, like predecessor legislation going back to s.184 of the Uniform Companies Acts of 1961-2, proceeds on the footing that a person wishing to acquire all shares in a company may resort to the law of contract in an attempt to do, so provided that the contractual conduct is engaged in in a way that complies with statutory requirements intended to ensure investor protection and fair dealing. In the case of an off-market bid, extension of the "offer period" (that is, according to the definition in s.9, "the period for which offers under the bid remain open") is dealt with in the present ss.650A, 650C and 650D: " 650A General

(1) A bidder may only vary the offers under an off-market bid in accordance with section 650B, 650C or 650D. Note: ASIC may allow other variations under section 655A.

(2) If the bidder varies the offer under an off-market bid in accordance with section 650B, 650C or 650D, the bidder must vary all unaccepted offers under the bid in the same way. Note: Subsections 650B(2) and (3) deal with the effect of a variation on takeover contracts that have already resulted from acceptances of offers under the bid when the variation is made." " 650C Off-market bids - extension of offer period

(1) A bidder making an off-market bid may extend the offer period at any time before the end of the offer period.

(2) If the bid is subject to a defeating condition, the bidder may extend the offer period after the publication of the notice under subsection 630(3) only if one of the following happens after the publication: (a) another person lodges with ASIC a bidder's statement for a takeover bid for securities in the bid class; (b) another person announces a takeover bid for securities in the bid class; (c) another person makes offers under a takeover bid for securities in the bid class; (d) the consideration for offers under another take over bid for securities in the bid class is improved. Note: Section 624 says how long the total offer period can be." " 650D Off-market bids - method of making variation Variation to be made by notice to the target and holders

(1) To vary offers under an off-market bid, the bidder must: (a) prepare a notice that: (i) sets out the terms of the proposed variation; and (ii) if the bid is subject to a defeating condition and the proposed variation postpones for more than 1 month the time by which the bidder must satisfy their obligations under the bid - informs people about the right to withdraw acceptances under section 650E; and (b) lodge the notice with ASIC; and (c) after the notice is lodged, give the notice to: (i) the target; and (ii) everyone to whom offers were made under the bid. Note: Sections 648B and 648C provide for the manner in which documents may be sent to holders .

(2) A person must be sent a copy of the notice under subparagraph (1)(c)(ii) even if they have already accepted the offer. However, they need not be sent a copy if: (a) the variation merely extends the offer period; and (b) the bid is not subject to a defeating condition at the time the notice is given to the target.

(3) A notice under subsection (1) must be signed by: (a) if the bidder is, or includes, an individual - the individual; and (b) if the bidder is, or includes, a body corporate with 2 or more directors - not fewer than 2 of the directors who are authorised to sign the notice by a resolution passed at a directors' meeting; and (c) if the bidder is, or includes, a body corporate that has only one director - that director. (4) A copy of a notice given to a person under subparagraph (1)(c)(ii) must include a statement that: (a) a copy of the notice was lodged with ASIC on a specified date; and (b) ASIC takes no responsibility for the contents of the notice."

4 The plaintiff failed to comply with these provisions in respect of the thirteenth purported extension. Before that purported extension and taking into account earlier extensions, the end of the offer period was fixed at 7 pm Sydney time on 10 October 2005. Having regard to s.650C(1), extension beyond that time was permitted only if made before that time. The plaintiff prepared a notice in the terms required by s.650D(1)(a) and lodged it with ASIC at about 4.45 pm on 10 October 2005 (see s.650D(1)(b)). That notice was served on Austral before 7 pm. But nothing that could have constituted compliance with s.650D(1)(c)(ii) was done by or on behalf of the plaintiff until after 7 pm. In the events that happened, envelopes containing copies of the notice and addressed to the persons made relevant by ss.650D(1)(c)(ii) and 650D(2) were deposited in the post at 8.20 pm Sydney time on 10 October 2005, that is, eighty minutes after the end of the offer period. This happened because the relevant officer of the plaintiff was busy on an unrelated matter and, through inadvertence, did not give timely instructions to the share registry handling despatch of documents. 5 The requirement that action to extend be taken before the end of the offer period has been recognised for a long time. In the context of a provision of the 1971 legislation allowing an offeror to "vary a take-over offer by extending the period during which it remains open", Brooking J said in Re Wm Haughton & Co Ltd (1977) 2 ACLR 320 at p.327: "A purported extension of time communicated to the offeree after the lapse of an offer is, in my view, a new offer." 6 If, in the present case, the actions the plaintiff took on 10 October 2005 were not effective to vary the offers under the off-market bid. The most it achieved was the making of new offers - being offers contravening s.606(4)(a) since the plaintiff was then entitled to less than 90% of the shares in the relevant class (see s.606(1)(c)). Its entitlement was to 85.67%. 7 Mr J.K. Kirk of counsel, who appeared for the plaintiff, accepted that failure to comply with s.650D(1)(c)(ii) meant that the then unaccepted offers had not been extended. He referred to the decision of Lee J in Diamond Rose NL v Striker Resources NL (1998) 85 FCR 76 which involved an earlier analogous provision (s.657 of the Corporations Law as it existed before commencement of the Corporate Law Economic Reform Program Act 1999 (Cth) on 13 March 2000) which set out procedural steps for variation after saying: "Variations of offers under a takeover scheme shall be made by …"

The "may only" specification in the present s.650A must, in my view, be accepted as having a corresponding meaning. Lee J proceeded on the basis that the taking of the prescribed steps in the way the relevant section specified represented the only effective method of varying the unaccepted offers. Since the variation concept is wholly statutory, I agree with that conclusion. 8 Because the plaintiff took no action to satisfy s.650D(1)(c)(ii) until after the end of the offer period and in order to assess the quality of that non-compliance, it is necessary to determine what should have been done by 7 pm on 10 October 2005 in order to conform with that provision. The requirement is that the bidder "give" the notice to "everyone to whom offers were made under the bid" - or, in a case such as this where s.650D(2) applies, to such of those persons as have not already accepted the offer. In Pinnacle VRB Ltd v Reliable Power Inc (2001) 163 FLR 215, Mandie J held that "give", in this context, means "send". His Honour said (at [11] to [13]: "[11] In my opinion, contrary to Pinnacle's submission, there is no non-compliance with ss 650C and 650D(1)(c) if the notices are served or received, as opposed to dispatched or sent, after the end of the offer period. In that regard I would adopt what was said by Lee J in Diamond Rose NL v Striker Resources NL (1998) 85 FCR 76 at 79-80. In my opinion the construction urged by Pinnacle is impractical and commercially unrealistic and would make variation of offers potentially unmanageable. Despite the slight change in terminology in the current provision, these consequences could not have been intended by the legislature. [12] I also accept the submission of the Australian Securities and Investments Commission, which appeared by its legal representative to argue this point only, that the construction to be preferred is that which promotes one purpose or object underlying these provisions in the Act, which is that of commercial certainty for participants in financial markets. In addition, on a textual basis, I note that while the word "give" is used in s 650D(1)(c), the word "sent" is used in relation to the same notices to offerees by s 650D(2). It would seem that the verbs "give" and "send" are being used interchangeably. [13] I conclude therefore that the failure by Reliable was the failure before the expiry of the offer period to send all of the notices in the manner required by ss 648B and 648C of the Act (dealing with sending by prepaid post-airmail for overseas, ordinary in Australia -- or by courier): see the note to s 650D(1)." 9 I respectfully adopt that analysis. Section 650D(1)(c)(ii) requires no more than sending by post in conformity with ss.648B and 648C. 10 Despatch by post to the relevant shareholders of Austral was thus sufficient to comply with s.650D(1)(c)(ii). That despatch occurred at 8.20 pm. The situation was accordingly one in which one step necessary to the efficacy of the extension of the offer period was taken eighty minutes after the latest time allowed by the Act for the taking of that step. 11 Earlier versions of the takeovers provisions (including Chapter 6 of the Corporations Law as it existed before 20 March 2000) contained their own regime for court orders excusing and validating contravention: see, for example, s.743(1) of the previous Corporations Law and s.48 of the Companies (Acquisition of Shares) Act 1980. Under the Corporations Act as it now stands, however, there are no corresponding provisions confined in their operation to takeovers. A case in which relief of that kind is sought must be found to be within the generally applicable provisions in s.1322(4) upon which the plaintiff relies: "Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; (b) an order directing the rectification of any register kept by ASIC under this Act; (c) 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 to in paragraph (a); (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit." 12 The court's power to make such an order is constrained by s.1322(6): "The Court must not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a): (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is just and equitable that the order be made; and (b) in the case of an order referred to in paragraph (4)(c) - that the person subject to the civil liability concerned acted honestly; and (c) in every case - that no substantial injustice has been or is likely to be caused to any person." 13 The sending of the notice of extension to relevant shareholders of Austral, by means of lodgment in the post at 8.20 pm on 10 October 2005, was, clearly enough something "purporting to have been done … under" s.650D(1)(c)(ii). The plaintiff would not have sent the notice to those persons had it not been for a desire and intention to comply with that provision. The matter is accordingly of a kind with which s.1322(4)(a) is concerned. In addition, the plaintiff, being the offeror, is obviously an "interested person" as referred to in the opening words of s.1322(4). 14 The next question is whether the failure to observe the time limit imposed by s.650C(1) is properly to be regarded as "a contravention of a provision of this Act" as referred to in s.1322(4)(a). The word "contravention" is often used to describe a failure to obey a statutory command, for example by failing to do something that a statute requires to be done or by doing something that a statute says must not be done. Here, of course, there was neither statutory compulsion nor statutory prohibition. The plaintiff was not compelled to extend the offer period. It was entirely up to the plaintiff to decide what, if any, action it should take with a view to extending the offers, with the plaintiff carrying the risk that its actions might be found insufficient to produce the relevant statutory effect. 15 In the present context, however, "contravention" must be accepted as having a wider meaning. Section 1322(4)(a) is a remedial provision and the word "contravention" must therefore "be read in a very wide sense": NRMA Ltd v Gould (1995) 18 ACSR 290 at p.293 per Young J. The Court of Appeal held in Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001) 166 FLR 144 that failure to take the appropriate steps to call a separate meeting of certain shareholders made necessary by a provision of the Corporations Law to the efficacy of a particular type of reduction of capital was a "contravention" of that provision. There, as here, the company was under no obligation to embark upon the reduction of capital. But, having done so, it was required to proceed in the prescribed way and failure to take any of the prescribed steps was a "contravention". In this case, the plaintiff, having embarked on the offer extension process, was required to comply with s.650D(1)(c)(ii) and its failure to do so was a "contravention" of the Act. 16 Because, on this basis, the s.1322(4)(a) jurisdiction is available in the present case, I must address the matters raised by relevant provisions of s.1322(6). The first of them is the question whether the particular act, matter or procedure - that is the sending of notices in accordance with s.650D(1)(c)(ii) - is "essentially of a procedural nature". In the present case, I need not pause to consider in any detail the meaning of that expression. All the necessary steps were taken. There was, in all substantive respects, compliance with the statutory procedure. The default went only to timing in that a step that should have been taken before the end of the offer period at 7 pm was taken at 8.20 pm. That step was "essentially of a procedural nature". 17 The final matter to be addressed arises under s.1322(6)(c). The question there is whether "substantial injustice has been or is likely to be caused to any person". In the present context, the only persons who might be (or have been) the victims of "substantial injustice" are the plaintiff, Austral, the shareholders of Austral who had already accepted the offer and the shareholders of Austral who had not already accepted the offer (being the persons to whom the notice was to be sent, having regard to ss.650D(1)(c)(ii) and 650D(2)). But the impact upon all of them is to be judged in the light of the way matters appeared to them to be at the relevant time, coupled with subsequent events. 18 As well as taking, on 10 October 2005, the steps prescribed by s.650D(1) (one of which was taken eighty minutes late), the plaintiff lodged a copy of the extending notice with Australian Stock Exchange Limited ("ASX"). There does not seem to be any positive requirement in Chapter 6 as to such lodgment, so far as concerns a notice of that kind (there is such a positive requirement with respect to various other documents involved in the off-market bid process involving securities quoted on a securities exchange). The plaintiff presumably effected lodgment with ASX because it considered the lodgment to be required by the exchange's listing rules, if only because this would be consistent with the maintenance of an informed market. At all events, the extension of the offer period was disseminated by means of the exchange's systems at about 7.16 pm on 10 October 2005. From that point, therefore, the market must be taken to have been operating on the footing that there had been an extension of the offer period and that the extension was a valid and effective extension, there being nothing available to anyone resorting to the market to suggest otherwise. At the time of all relevant events on 10 October 2005, the stock market was in recess for the night. Trading did not resume until the morning of the next trading day, 11 October 2001. Austral shares were not traded on any overseas stock market operating in a different time zone. 19 The announcement to ASX, coupled with the fact that persons receiving the notice posted at 8.20 pm obviously did not know that it had been posted after the permitted deadline, means that (except as discussed in paragraph [22] below) all relevant persons proceeded, from and after 11 October 2005, on the basis that the offer period had been extended. Furthermore, the plaintiff itself acted on that footing when it subsequently effected the fourteenth extension. 20 In these circumstances, there can be no conceivable injustice - "substantial" or otherwise - to any relevant person if the court, by curative order, removes or negates whatever may have been the effect of failure to post the notices until 80 minutes after the deadline for posting. 21 Mr Kirk referred to the decision of Mullins J in Barondene Pty Ltd v Breakfree Ltd (2003) 22 ACLC 910. The facts there were similar to those before me, save that the delay in sending notices under s.650D(1)(c)(ii) was some seven days. In those circumstances, it may have happened that target company shareholders had sold their shares after the purported extension but in ignorance thereof. Her Honour saw fit to accept from the bidder, upon the making of a s.1322(4) order, an undertaking to compensate any such persons. 22 There is no need for any such precaution here. As the Pinnacle VRB Ltd case (above) and ss.648B and 648C show, the legislature has accepted that target company shareholders will not know of an extension of the offer period, at least by direct notification, for some time after the extension is made. The relevant interval is that involved in the ordinary course of post. In this case, I am prepared to find, having regard to common knowledge about the postal system, that notices posted at 8.20 pm would have arrived at the same time as notices posted immediately before 7 pm or, at the very worst, one day later. That is not something that could conceivably be a source of injustice to anyone. 23 I should add, in conclusion, that both Austral and ASIC were made aware of this application and that each indicated that it did not wish to participate. Austral itself thus does not claim to have been the victim of injustice. The attitude of ASIC may be taken as an indication that it does not have concerns on the "substantial injustice" question. 24 The appropriate outcome in this case is that the court should make Orders 2 and 3 in the originating process, so that both the purported thirteenth extension and the fourteenth and fifteenth extensions are declared valid in exercise of the jurisdiction created by s.1322(4)(a).

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