Batoka Pty Ltd v Jackson [1998] VSC 137

5. Jackson, Kershaw and Stobart are three of the eight directors of Austrim. Kershaw and Stobart have been directors of Austrim since 28 May 1998. The Austrim annual report for the year to 30 June 1998 indicates that Jackson is the chairman and chief executive officer of Austrim. Doubtless as a result of the success of the takeover offer the three became directors of NCL on 8 April 1998. Since 1 May 1998, following the resignation of two former directors, they have been the only directors of NCL. Similarly, Kershaw, who since July 1996 has been secretary of Austrim, became a secretary of NCL on 8 April 1998 and has been the sole secretary since 1 May. Waddington swore an affidavit in which she states that she holds the 400 shares in her name in trust for Austrim. I accept her evidence. She also stated her occupation as "Personal Assistant" but did not state who her employer was or the knowledge she may have or be in a position to acquire of matters concerning the business of NCL.

8. The authorised capital of NCL includes, in addition to ordinary shares, 100,000 5% fixed cumulative preference shares of $2 each. The financial reports and statements of NCL for the year ended 31 December 1997 and the records of ASIC as at 29 October 1998 state that at those times 50,000 preference shares were on issue and I infer that they were on issue between those dates. No issue was raised as to this being the correct number and I merely note that the ASIC records identify the number of holders of preference shares as 10 with holdings that aggregate 45,643. Of those holders the applicants, Batoka Pty Ltd and Super John Pty Ltd, hold 3,583 and 18,000 preference shares respectively. Robert John Charles Catto is a director of Batoka Pty Ltd and a secretary of Super John Pty Ltd. He swore an affidavit in support of the application. Austrim holds 5,217 preference shares. No point was made as to who holds the balance of 4,357 preference shares or as to the relationship if any between any of the preference shareholders.

11. Austrim is the chief entity of a number of companies which include controlled entities such as NCL. The controlled entities, and associated companies, are listed in the last annual report. Austrim is a listed company. Its business covers a wide range of industrial activity. The profit and loss account states that consolidated sales revenue in the 1997/1998 year was $412, 531,000, an increase from $139,621,000. There was a profit before and after tax. The balance sheet as at 30 June 1998, both for Austrim and on a consolidated basis reveals a substantial business. In summary, the position is:

15. NCL too was the chief entity of a number of controlled entities. It was a listed company but ceased to be as a result of Austrim acquiring all of the ordinary shares. According to the directors report for the year ended 31 December 1997 the principal activities of NCL and its controlled entities were: in building construction, the manufacture and distribution of nuts, screws, bolts, rivets, collated fasteners, roof truss design and nail plates, and in automotive and general engineering, the manufacture of radiators, seating components and ferrous castings. The operating revenue in that year was $352,026,000 consolidated and $18,941,000 for NCL. On a consolidated basis there was a loss of before tax $9,239,000 while NCL had a profit before tax of $9,233,000. The assets and liabilities were:

I have not included the prior year as that was an 18 month period, and because it is not necessary for present purposes.

20. Catto was in his office in Sydney on 14 September when he received a notice of a general meeting of NCL to be held in Melbourne at 9:00 am on that day. According to a letter he wrote that day to the solicitor for NCL the notice had been posted to him on the previous Friday, and I accept that as being the case. The notice was accompanied by an explanatory memorandum as to the purpose of the meeting which was to consider and if thought fit pass a special resolution specified in the notice. The resolution authorised NCL to give financial assistance in connection with the acquisition by Austrim of the ordinary shares in NCL.

23. The explanatory memorandum runs over three pages and I do not set it out in full. It commences by stating that Austrim financed the takeover of NCL with funds provided by Westpac Banking Corporation ("Westpac"), National Australia Bank Limited ("NAB") and the Australia and New Zealand Banking Group Limited ("ANZ") and which was described as the "Aquisition Indebtedness". It then stated that on 30 June 1998 Austrim had refinanced the total indebtedness of the Austrim Group including the existing secured indebtedness of NCL and its subsidiaries ("the NCL Group") and the Acquision Indebtedness pursuant to facilities (called "New Facilities") with Westpac, NAB and the ANZ. Those facilities were provided to Austrim on an unsecured basis. The facilities are: a multi option facility of up to $180M from NAB, a bill acceptance discount and/cash advance facility up to $140M from ANZ, and a discount and/or overdraft facility of up to $70M from Westpac, a total of $390M.

26. The explanatory memorandum went on to state that as part of the refinancing Austrim and certain other Australian and New Zealand subsidiaries of NCL (called the "NCL Guarantors") became parties to guarantee and negative pledge agreements in favour of Westpac, NAB and the ANZ under which they guaranteed repayment of monies owing by Austrim under the New Facilities and gave certain undertakings relating to the future conduct of their business. However, these guarantees and negative pledges expressly excepted any part of the New Facilities which went to the refinancing of the Aquisition Indebtedness (called the "Aquisition Refinancing Indebtedness"). That was because s.260A of the Corporations Law prohibits a company from providing financial assistance to acquire shares in itself except in certain permitted circumstances one of which was stated as being when the shareholders have approved the giving of the assistance under s.260B.

29. It is obvious that it was desired that NCL's guarantee extend to include the Acquisition Refinancing Indebtedness. As, according to the explanatory memorandum, the giving by NCL of such a guarantee in relation to the obligations of Austrim under the New Facilities may constitute the giving of financial assistance, the general meeting was convened for the purpose of obtaining the consent of shareholders to NCL providing the guarantees and negative pledges. I interpolate that in argument before me it was accepted that the giving of the guarantee and negative pledge would constitute the provision of financial assistance which was subject to the provisions of s.260A.

32. The explanatory memorandum stated that the directors of NCL unanimously recommended that members vote in favour of the resolution.

"`That, for the purposes of and pursuant to section 260B of the Corporations Law, the Company give financial assistance in connection with the completed acquisition of ordinary shares in the Company by Austrim . . . by entering into and continuing to be a party to: 1. an unconditional guarantee and indemnity and negative pledge in favour of [NAB] in respect of the obligations of Austrim pursuant to a multi option facility of an aggregate principal amount of up to $180 million; 2. an unconditional guarantee and indemnity and negative pledge in favour of [ANZ] in respect of the obligations of Austrim pursuant to a bill acceptance discount and/or cash advance facility of an aggregate principal amount of up to $140 million; and 3. an unconditional guarantee and indemnity and negative pledge in favour of [Westpac] in respect of the obligations of Austrim pursuant to a bill acceptance and discount and/or overdraft facility of an aggregate principal amount of up to $70 million.' PERSONS PRECLUDED FROM VOTING No shareholder is precluded from voting in respect of the above special resolution. By Order of the Board dated this 10th day of September 1998. ...................................... Phillip John Kershaw Company Secretary"

39. In view of the attack upon the sufficiency of the information contained in the explanatory memorandum it is appropriate to set out the balance of it following the statement of the directors recommendation. It proceeds in the following terms:

On 30 June 1998, the Company and the other NCL Guarantors become parties to 3 guarantees and negative pledges in favour of, respectively, Westpac, ANZ and NAB (the "Guarantees"). The Guarantees are in substantially similar form.

Under the terms of the Accession Agreements pursuant to which the NCL Guarantors became parties to the Guarantees, the NCL Guarantors were not, prior to the `Effective Date', required to guarantee any obligations of Austrim in respect of the Acquisition Refinancing Indebtedness. The `Effective Date' for the purposes of the Guarantees in favour of ANZ and NAB is the date on which the procedure under the Corporations Law for approving the giving of Financial Assistance by the NCL Guarantors has been completed. The `Effective Date' for the purposes of the Guarantee in favour of Westpac is the earlier of 30 November 1998 and the date on which the procedure under the Corporations Law for approving the giving of Financial Assistance by the NCL Guarantors has been completed.

If the giving of Financial Assistance by the NCL Guarantors has not been approved by 30 November 1998, Westpac, NAB and ANZ will become entitled to demand repayment of all amounts owing by Austrim under the New Facilities, including amounts (other than the Acquisition Refinancing Indebtedness) guaranteed by the Company and the other NCL Guarantors.

If the giving of the Financial Assistance is approved by the members of the Company, its obligations under each Guarantee will be as follows:

(a) the Company will unconditionally guarantee to the relevant bank the due and punctual payment of all guaranteed monies under the relevant facility (such guarantee to be a continuing guarantee and payable on demand if Austrim does not pay the guaranteed monies when due);

(b) an irrevocable and unconditional covenant as principal obligor, separate and distinct from the guarantee, to indemnity the relevant bank and at all times to keep the relevant bank indemnified on demand against any loss or damage suffered by the relevant bank arising out of:

(i) any failure by Austrim to pay the guaranteed money duly and punctually; or

(ii) the relevant facility being wholly or party void, voidable or unenforceable against Austrim for any reason; and

(c) the Company will undertake, in the form of a negative pledge to the relevant bank to, amongst other things:

(i) not to encumber any asset nor dispose of any asset in excess of a specified limit nor to acquire any asset in excess of a specified limit without the written consent of the relevant bank;

(ii) to maintain certain financial ratios including ratios relating to interest cover, tangible net worth and gearing; and

(iii) to maintain the Company's existing operations and its core business activity without substantial variation (other than expansion of its business) without the written consent of the relevant bank.

For the purposes of each of the Guarantees, guaranteed money will mean all money in which Austrim (whether alone or with another person) is or at any time may become actually or contingently liable to pay or deliver to or for the account of the relevant bank (whether alone or with another person) for any reason whatever under or in connection with the relevant New Facility. Guaranteed moneys will include, without limitation, any money by way of principal, interest, fees, costs, guarantee, indemnity, charges, duties or expenses or payment of liquidated or unliquidated damages under or in connection with the relevant New Facility, or as a result of a breach of or in default under or in connection with the relevant New Facility.

Upon the approval of the giving of Financial Assistance, the Company will have a contingent liability equal to the full amount drawn down by Austrim under the New Facilities. The Directors do not believe that the giving of Financial Assistance will have any impact on the solvency of the Company or on its ability to continue to trade. Nor do the directors believe that the giving of Financial Assistance will have any material adverse effect on the interests of creditors to the Company. Indeed, the refinancing of the indebtedness of the NCL Group by the new Facilities has allowed the Company and the NCL Group as a whole to have access to funding on more favourable terms."

58. Having read these materials Catto telephoned Kershaw who advised him that the resolution had been passed on the votes of five persons comprising Austrim and its nominees. Catto also wrote that day to NCL's solicitor and complained of the lack of notice of the meeting, questioned the validity of the resolution, requested it not be acted upon and said he would engage Melbourne solicitors to bring "these acts of inappropriate behaviour by the directors ... before the court system" and requested that if NCL decides to act on the resolution the banks be "advised that the guarantees they received may be ineffective".

61. Catto did instruct solicitors who on 18 September wrote to NCL's solicitor. The letter contended that the resolution was invalid and that the directors of NCL had acted in breach of their duty under s.232(2) of the Corporations Law. They requested confirmation by 5:00pm on 21 September that the transaction will not proceed, failing which appropriate relief would be sought from the courts.

64. On 21 September NCL's solicitors wrote refuting the claims and stated that the transaction will proceed. The confirmation sought was refused. On 25 September Catto's solicitors wrote in response, pressing arguments of invalidity and breach of duty, and stating that they were instructed to commence proceedings to restrain NCL from giving the financial assistance and, to the extent that such assistance may have been given, to have the transaction set aside and appropriate relief sought from the directors of NCL. They anticipated serving proceedings in the week commencing 5 October.

67. As it turned out, the notice of motion by which this proceeding was commenced was not filed until 21 October returnable before the judge in the Corporations List on Friday 23 October. On that day orders were made by Gillard J for the filing of affidavits and the proceeding was fixed for hearing on 29 October on which day it came on before me. The parties filed several affidavits. No deponent was cross examined.

70. The respondents to the notice of motion are Jackson, Kershaw and Stobart as the directors of NCL, and NCL itself. When the proceeding was commenced it sought two injunctions under s.1324 of the Corporations Law. The first was to restrain the directors of NCL from taking any further steps to implement the special resolution passed at the meeting of ordinary members of NCL held on 14 September. The second was to restrain NCL from taking any further steps to implement the giving of financial assistance referred to in the resolution. At the outset of the hearing on 29 October counsel for the applicants sought leave to amend the notice of motion to include a claim for a mandatory injunction pursuant to s.1324(1) requiring the respondents to take all necessary steps to terminate the securities granted by NCL insofar as such security related to the Aquisition Refinancing Indebtedness. The amendment was sought on the basis that NCL had granted the security. More particularly, it was explained to me, as per the explanatory memorandum, that the financing arrangements entered into on 30 June 1998 made the guarantees and negative pledges insofar as they extended to the Aquisition Refinancing Indebtedness subject to a condition as to approval of the giving of financial assistance by the NCL Guarantors by 30 November 1998, and that as that condition had been satisfied the securities had become operative in relation to that Indebtedness. All this appears in the explanatory memorandum and what one may deduce therefrom. The actual instruments of guarantee and negative pledge were not put in evidence and nor were the Accession Agreements referred to in the explanatory memorandum.

73. Thus, the initial injunctions were no longer apt as what they sought to restrain had occurred. I granted leave to amend. I also granted leave to amend the original injunction sought by adding words that made it clear that the restraint was to apply only insofar as the securities related to the Acquisition Refinancing Indebtedness.

76. In the course of argument counsel for the applicants sought only the mandatory injunction added by amendment. He abandoned the claims for the original injunction sought. He did that for the reasons mentioned and for the further reason that NCL had lodged with ASIC the documents it was required to lodge by the Corporations Law in relation to the meeting and the resolution passed.

79. On the day following the filing of the notice of motion Austrim held its annual general meeting. Notice of this meeting had been given by a notice dated 22 September 1998. The business of the meeting included a special resolution that, for the purposes of and pursuant to s.206B, Austrim approves the giving of financial assistance by NCL and subsidiaries in connection with the completed acquisition of ordinary shares in NCL by Austrim by entering into and continuing to be parties to the guarantees and negative pledges mentioned above. The resolution was passed at the meeting.

82. It remains to mention at this point that two days before the hearing the respondents filed a summons in which they sought pursuant to s.1322(4) of the Corporations Law, in the event it was found that there had been a contravention of the Law or the constitution of NCL, a declaration that the calling and/or conduct of the meeting was not invalid by reason of such contravention.

85. Counsel for the applicants relied upon a number of points in seeking to establish the case for relief. It is convenient to deal with them in turn, commencing with the submissions that attacked the convening of the meeting, the validity of the votes taken on the resolution and compliance with applicable statutory provisions.

"A company may financially assist a person to acquire shares ... in the company or a holding company of the company only if:

(a) giving the assistance does not materially prejudice:

(i) the interests of the company or its shareholders; or

(ii) the company's ability to pay its creditors; or

(b) the assistance is approved by shareholders under s.260B ...; or

97. In this case NCL opted to seek approval under sub-s. (1) (b). The matter of shareholder approval is deal with by s.260B which provides in sub-s.(1) that:

"Shareholder approval for financial assistance by a company must be given by:

(a) a special resolution passed at a general meeting of the company, with no votes being cast in favour of the resolution by the person acquiring the shares ... or by their associates; or

(b) a resolution agreed to, at a general meeting, by all ordinary shareholders."

103. In the circumstances there is no need to set out or otherwise refer to sub-s.(2) and (3). However, sub-s.(4) is important. It provides:

"(4) A company or other body that calls a meeting for the purpose of subsection (1), (2) or (3) must include with the notice of the meeting a statement setting out all the information known to the company or body that is material to the decision on how to vote on the resolution. However, the company or body does not have to disclose information if it would be unreasonable to require the company or body to do so because the company or body had previously disclosed the information to its members."

The explanatory memorandum was provided to members of NCL pursuant to that provision. There is an issue whether it satisfies the requirements of the sub-section.

108. Subsections (5), (6) and (7) specify certain steps that must be taken. First,

sub-s.(5) requires that before the notice of a meeting for the purpose of sub-s. (1) is sent to members of a company, the company must lodge with the ASC (now ASIC) a copy of the notice of the meeting and any document relating to the financial assistance that will accompany the notice. NCL complied with this requirement by lodging with ASIC a copy of the notice of meeting and the explanatory memorandum on 11 September. That is the day on which Catto said that the notice and statement had been posted to him. There is no evidence that the notice and statement were sent to members before being lodged with ASIC. In my view the probability is the other way, that the subsection was complied with. NCL was acting by solicitors who in fact lodged the documents with ASIC and who, it is reasonable to infer, were aware of the requirements of the subsection. There is every reason to suppose regularity in the matter and none not to. I should say that counsel for the applicant rather conceded that there had been compliance but the issue was mentioned and it seems best to deal with it.

111. Secondly, sub-s.(6) requires that the company lodge with ASIC, at least 14 days before giving the financial assistance a notice stating that the assistance has been approved under s.260B. According to the written submission of counsel for the respondents this notice was lodged on 23 October, although the ASIC records state that it was received by ASIC on 22 October, was processed by ASIC on 28 October and that the "effective date" was 6 November being 14 days after lodgement of the notice. Counsel for the applicants did not submit that sub-s.(6) was not complied with. I find that it was.

114. Thirdly, sub-s.(7) requires that a special resolution passed for the purpose of sub-s.(1) or (2) must be lodged with ASIC within 14 days after it was passed. Counsel for the applicant questioned whether it was so lodged because the notice lodged by NCL's solicitors in purported compliance is dated 30 September which is outside the 14 day period. However the records of ASIC (including in evidence put in by the applicants) show that in fact the notice was lodged with ASIC on 25 September. I accept that the notice was lodged on that date in compliance with sub-s.(7).

117. With that overview of the situation I return to the applicant's submissions concerning the convening and holding of the meeting and the validity of the votes cast.

120. At the outset it is necessary to appreciate that the preference shareholders had a right to receive notice of all general meetings of NCL and to attend thereat but had no right to vote at any such meeting except on certain matters or in certain circumstances none of which was applicable in this case; see art. 4 and the definition of "voting share" in s.9 of the Corporations Law. Thus, the only persons who could vote on the resolution were the holders of the ordinary shares, which effectively meant Austrim.

123. NCL's articles contain provisions regulating the convening of general meetings and giving notice to members. As to the former, art. 63 provides that subject to the provisions of the Companies Code relating to special resolutions and agreements for shorter notice, 14 days notice at least be given to persons entitled to receive notices from the company. As to the latter, the articles permit notice to be given by post (art.144) and deem service to take place on the day following posting (art. 147) but s.249J(4) provides that a notice of meeting sent by post is taken to be given three days after it is posted. The subject notice was received three days after it was posted.

126. In this case, however, the meeting on 14 September was convened by a notice dated 10 September which was posted to members, or at least to the applicants, on 11 September. In giving such short notice NCL acted under s.249H of the Corporations Law. Section 249H(1) provides that subject to sub-s.(2), at least 21 days notice must be given of a meeting of members. Subsection.(2)(b) permits a company to call on shorter notice a general meeting (other than an annual general meeting) "if members with at least 95 % of the votes that may be cast at the meeting agree beforehand". In this case those members were the holders of the ordinary shares in NCL.

129. I find that on 14 September prior to the commencement of the meeting of NCL that morning, a consent to the holding of the meeting at the time, date and place specified in the notice of meeting notwithstanding that less than 21 days written notice of the meeting had been given was signed by and on behalf of the holders of all of the ordinary shares in NCL. It was signed by Jackson, Kershaw, Stobart, Waddington and one Shirley Burnell as corporate representative of Austrim. It was not submitted by counsel for the applicant that s.249H(2)(b) required that the agreement of members to short notice of a meeting be given prior to sending the notice of meeting to members. In other words, it was not submitted that the word "beforehand" operated in that way, as distinct from meaning prior to the casting of votes at the meeting. In the circumstances the consent to short notice satisfied the requirements of s.249H(2)(b).

132. The next step is that the meeting was held at the stipulated time and place. Minutes of the meeting, which I accept as being a true and correct record, disclose that the persons present were those who had signed the consent to short notice and that the consent was tabled. No other person is recorded as having been present at the meeting. At one point in the argument before me it was conceded by counsel for the applicants that the persons present were in fact the holders of the ordinary shares or their representative. It is clear that that is the case. The minutes then record that the resolution set out in the notice of meeting was passed as a special resolution, and that the meeting was then closed.

135. Thus far, and combined with the lodgement of documents pursuant to s.260B one would seem to have a validly constituted meeting and a valid resolution. What, then, apart from anything I have already dealt with, are the points of attack relied on by the applicants?

138. At the outset was a submission that the resolution was ineffective because it was not passed in accordance with s.260B(1)(a). The submission fixed on the fact that the resolution was proposed and passed as a special resolution. This meant that NCL had proceeded under sub-s.(1)(a) and that the resolution was either valid under that provision or it was not. On this basis, sub-s.(1)(b) was irrelevant; that sub-s refers to "a resolution" which is defined by s.9 to mean "a resolution other than a special resolution". It was submitted that the resolution was invalid because sub-s.(1)(a) prohibited a vote being cast in favour by Austrim or its associates. That included all those present at the meeting and meant that none of them had been entitled to cast a vote in favour of the resolution.

141. Counsel for the respondents submitted that the resolution was valid. He submitted that the fact that the resolution had been proposed and passed as a special resolution did not mean that for all purposes NCL was confined to sub-s.(1)(a) in seeking to establish validity. It was submitted that the resolution was a resolution of the members and could, and should, be regarded as a resolution within the meaning of sub-s.(1)(b). It should be said of para. (b) that it was included in the section to cover a case such as the present "to avoid the situation where all the shareholders are prohibited from voting in favour of the resolution to approve the financial assistance"; see the Explanatory Memorandum to the Company Law Review Bill 1997 para. 12.79. There is no dispute as to that but the question remains whether the resolution passed at the meeting was a resolution within the meaning of that expression in para.(b). In my view the definition of "resolution" means that it was not. What the meeting voted on was a special resolution, not a "resolution" as that expression is defined. As none of the persons present was entitled to vote on the special resolution the resolution was invalid, and it is not saved by para.(b). I deal below with the question whether, notwitstanding this conclusion, the respondents are entitled to the injunction they seek. I conclude, for reasons discussed below, that they are not so entitled.

144. The next submission of the applicants was that the notice of meeting was defective in two respects, namely in not stating that preference shareholders were precluded from voting and in not stating that Austrim and its associates were precluded from voting because the resolution was proposed as a special resolution and the provisions of s.260B(1)(a) precluded them from voting. Even if be assumed that each point is correct and that either point affected the validity of the resolution passed at the meeting, for the reasons discussed below the injunction sought would be refused. For that reason it is not necessary to discuss this submission further.

147. At one point in their argument the applicants mentioned s.243H(1) of the Corporations Law which provides that a public company must not give financial assistance to a related party except as permitted by Part 2E.4 or 2E.5. As I followed it, counsel did not submit that the financial assistance here was rendered invalid by s.243H(1). Rather, counsel pointed to that provision, as a relevant provision, but he also drew attention to s.243M which is in Part 2E.4. That section provides that a closely-held subsidiary of a body corporate may give a financial benefit to the body. NCL is a closely-held subsidiary of Austrim as defined in s.243M(3). It is accepted that the preference shares held by the applicants are not voting shares within the meaning of s.243M(4). For these reasons the prohibition in s.243H(1) was not applicable, which counsel for the applicant recognized.

150. Then it was submitted that the explanatory memorandum sent to members with the notice of meeting did not satisfy the requirements of sub-s.(4) of s.260B. That requirement is that the statement set out "all the information known to the company that is material to the decision on how to vote on the resolution". "However", the subsection further states, "the company ... does not have to disclose information if it would be unreasonable to require [it] to do so because [it] had previously disclosed the information to its members".

153. It was submitted that the explanatory memorandum was deficient in a number of respects, and I now mention them. Generally, the relative advantages and disadvantages of the proposal and the nature and quantum of the benefit or otherwise to NCL and the members were not set out, it was submitted. Nor was the amount of the Acquisition Refinancing Indebtedness stated or the limit or ratios referred to in para. 4(c) of the memorandum. It was submitted that para. 5 of the memorandum is insufficient in asserting the opinions but in not giving detail of or the reasons for the opinions. Thus, it was submitted, the mere statement of the directors opinions was insufficient without the factual basis of those opinions being set out. What was stated was that the maximum liability being undertaken by NCL was $390M subject of course to the actual terms of the guarantees and negative pledges (which were not provided) except to the extent to which they were stated in summary in the memorandum. The expression "guaranteed moneys" had a somewhat extended meaning and although it was referred to in a summary way it was not an uncommon meaning.

156. This amount of the contingent liability was compared to the asset and liability position of NCL as at 31 December 1997 which I mentioned earlier and to the fact that at that time the borrowing (current and non-current) component of liabilities was $118,485,000 on a consolidated basis and $80,754,000 for NCL. It was further pointed out by counsel for the applicants that note 18 to NCL's accounts for that period established that the only secured debt of NCL was the bank overdrafts of controlled entities which were stated to be secured by guarantees from NCL and by registered first mortgages over certain of the NCL Group assets. The significance is that the total facility available by way of overdraft was $28,149,000 on a consolidated basis and $25M for NCL at that time. There are two points to be made about this: first, that the submission overlooked the earlier part of the note which stated that NCL and certain controlled entities (called "the NCL Group") had entered into a deed of cross-guarantee and deeds of charge with the bank to secure payment to the bank. The deeds of charge were stated to be of a fixed and floating nature over NCL's assets to secure the payment of all moneys for which NCL or the NCL Group may be liable to its banker on any account whatsoever. The total facilities available, including the overdraft amounts stated above, at the relevant time, was $134,470,000 on a consolidated basis and $105M for NCL. Thus there was security for a greater potential liability than counsel's submission indicated.

159. Secondly, counsel was relying in these submissions on the position at 31 December 1997. But, of what relevance is that? Since that date the NCL Group has been acquired by Austrim which has made changes to NCL as is made clear by statements in Austrim's annual report for the year ended 30 June 1998 and the chairman's address to shareholders at the annual general meeting of Austrim held on 22 October 1998. Just looking at the latter, it is stated that following the acquisition of NCL, Austrim "conducted a comprehensive review of all NCL's operations" and that the directors adopted a restructuring programme which was well under way with significant progress achieved. That sounds inherently likely. Further, there is the fact that Austrim had arranged refinancing of the indebtedness of the Austrim Group including the existing secured indebtedness of NCL and its subsidiary. That, too, points to reorganisation. To point to the situation at 31 December is not to point to, let alone establish, the position at 30 June 1998 when the refinancing was effected or at any material time subsequent thereto.

162. The fact is that once NCL and its controlled entities came under the ownership of Austrim, NCL's position changed. Of course one considers the matter from the point of view of NCL, but the fact is that it became one part of a wider group. It was no longer the chief entity but a controlled entity. One thing that is common in a group is for there to be a measure of common acceptance of liability for the debts of another entity in the group, such as by a guarantee or cross deed of covenant or charge. Indeed the evidence discloses that such undertakings existed in the NCL Group prior to the takeover and in the Austrim Group. It is apposite in this connection to refer to a passage in the judgement of Brennan J in Northside Developments Pty Ltd v. Registrar-General [1990] HCA 32; 170 CLR 146 at 183 where he observed that:

"... it may be for the benefit of solvent companies within a group to guarantee the liabilities of a holding company in order to benefit the guarantor companies as well as other members of the group."

The explanatory memorandum states that that is the case here. There is no suggestion that any company in the Austrim Group is insolvent, or of any likelihood of NCL's guarantee being called.

167. While this discussion points up the limited usefulness of the facts to which the applicants counsel referred, it should be said, to be fair to him, that he was pointing to information concerning accounts of NCL that was available to him, or to put it another way to the members of NCL when the meeting was held on 14 September, and comparing to that the relatively high potential liability of $390M and asking how could the undertaking of such a liability be in the best interests of NCL, and have been so determined by its directors? Further, he submitted, the directors should have put before members up-to-date information including the present asset and liability position of NCL, and any other material matters, to show why it was in the best interest of NCL to give the financial assistance. In the absence of such evidence, he asked ,how, for instance, would one know what NCL's assets are worth?

170. There are many cases in which the courts have considered the sufficiency of information provided by directors to shareholders concerning proposals on which they are asked to vote. They arise in the context of the duties of directors, statutory and at law, to inform the shareholders. See, for instance, the cases referred to in the discussion in Ford's Principles of Corporations Law, para.7.460.

173. Counsel for the applicants referred to Milburn v. Pivot Ltd. (1997) 25 ACSR 237 at 275-276 as stating the approach which they submitted should be taken in determining whether a statement satisfies the requirements of sub-s.(4). In that case the court was concerned with s.205 of the Corporations Law and whether a notice satisfied sub-s.(10) of that section. In approaching that issue Goldberg J adopted the approach which Young J had stated in Devereaux Holdings Pty. Ltd. v. Pelsart Resources NL (No. 2) (1985) 9 ACLR 956. In Devereaux Young J had to consider the sufficiency of a circular accompanying a notice of meeting to authorize an allotment of shares. In his judgment Young J stated how a notice could be attacked at common law or in equity. In equity there was a fiduciary duty of directors not to mislead the corporators who were to consider a resolution by providing them with material which was not substantially full and true especially where the directors could benefit from the resolution. In considering this rule, Young J said (at 958) in a passage adopted by Goldberg J:

"... one asks what effect will the information provided have on the ordinary shareholder who scans or reads the document quickly, not as a lawyer, but as an ordinary man or woman in commerce or as an ordinary investor. One asks, viewed in such a way, will the information fully and fairly inform and instruct the shareholder about the matter upon which he or she will have to vote?"

177. It was submitted by counsel for the respondents that the terms and language of s.205 (10) differ significantly from s.260B(4) and that I should regard the statement of Young J as not stating the correct approach to the latter provision. It is true that the sections are different and that recent changes to the Corporations Law have adopted language and approaches that to a greater or lesser extent differ from those used in the past. While it is important to bear this in mind when applying a new provision such as s.260B, I consider that the present case is not an appropriate one in which to rule on the point raised by this submission. That is because on any view of the case, for the reasons I mention below, the applicants are not entitled to an injunction. For the same reason it is not necessary to consider further the issue of the sufficiency of the statement and I will not do so.

180. Underlying the applicants case was a sense of grievance at the lack of notice of the meeting. Let it be stated: the preference shareholders had an entitlement to receive the notice of meeting and to attend the meeting. The actions of NCL effectively negated those rights. Although NCL's use of the short notice provision in s.249H was strictly in accordance with the section the period of notice was so short that combined with the fact of the date and time of the meeting and that notice of the meeting was given by post the preference shareholders or at least the applicants were denied any foreknowledge of the meeting. That seems a less than desirable way for directors to proceed and the reason for so acting was not explained.

183. It was submitted that the directors had acted in breach of their duty under s.232(2) and also in breach of their fiduciary duty. In that respect I was referred to Charterbridge Corp v. Lloyds Bank [1970] 1 Ch 62 at 74, and Linter Group v. Goldberg 7 ACSR 580 at 622 for the test whether a director has acted in breach of his fiduciary duty. See too my judgement in Farrow Finance Company Limited (in liq.) v. Farrow Properties Pty Ltd.(F4211, 11 December 1997, at pages 55 - 57, unreported).

186. It was submitted that the meeting was called in the way that it was so as to preclude preference shareholders from enjoying their rights. The submission of breach of duty by the directors extended further to the failure, as it was submitted, to provide a statement complying with s.260B(4).

189. As sympathetic as I may be to the position of the applicants I am of the view that the effective preclusion of their rights does not lead to injunctive relief in this case for several reasons. First, the preclusion of those rights did no more than deny them the opportunity of considering the notice of meeting and the explanatory memorandum prior to the meeting and of attending the meeting. They had no right to vote. I infer, indeed it seems overwhelmingly obvious, that whatever any preference shareholder might have said before or at the meeting, the resolution would have been passed. It is perhaps an obvious point to make, but none of those entitled to vote have suggested that the explanatory memorandum was insufficient or misleading or that they lacked knowledge or have otherwise sought to question the efficacy of the vote. Secondly, the applicants have not suffered any prejudice or detriment as a result of the directors actions and the passing of the resolution; see Mesenberg v. Cord Industrial (1996) 19 ACSR 483 at 488 - 489, Allen v. Atalay (1993) 11 ACSR 753 at 757, as to whether in such circumstances a member of a company may obtain injunctive relief under s.1324 on the basis of a breach of s.232. Nor, I might add, is it established that NCL has been caused to suffer prejudice or detriment.

192. There are further difficulties in the applicants path. Again, let it be assumed that NCL has provided financial assistance in contravention of s.260A, such as by an invalid resolution. The applicants are immediately confronted with two hurdles. The first is s.260D which provides that:

"(1) If a company provides financial assistance in contravention of s.260A:

(a) the contravention does not affect the validity of the financial assistance or of any contract or transaction connected with it; and

(2) any person who is involved in a company's contravention of s.260A contravenes this subsection."

199. In other words the financial assistance is to stand unaffected. Yet the mandatory injunction sought by the applicants requires the respondents "to take all steps to terminate" the guarantees and negative pledges insofar as they relate to the Acquisition Refinancing Indebtedness. That relief is against the dictate of s.260D. In other words, the applicants ask the court to produce a state of affairs which Parliament has said is not to occur. The policy inherent in s.260D is plain: the financial assistance and any contract or transaction with it are to stand, thus providing certainty and protection of the interests of third parties; see para 12.86 of the Explanatory Memorandum to the Company Law Review Bill 1997. Further, s.260D(2) specifies that relief of a personal nature may be obtained against a person involved in a contravention.

202. The second hurdle is s.1322 which the respondents submit would overcome an irregularity in failing to give sufficient notice of the meeting; see s.1322(1)(b)(ii)and (2). If it be assumed that the failure to give preference shareholders greater notice of the meeting was an irregularity, the meeting and resolution are not rendered invalid unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and the Court makes a declaration of invalidity. In my view no such injustice has been occasioned and I would not make such a declaration. In any event counsel for the applicants did not seek an order under s.1322. He said that s.1322 did not assist as they needed a mandatory injunction against the directors to undo the transaction.

205. Faced with these difficulties, but particularly that presented by s.260D, the applicants sought the mandatory injunction under s.1324. Their counsel submitted that s.1324 overrode s.260D. Counsel offered no authority in support of the submission and the issue of construction involved. He submitted that it was only by an order under s.1324 that the directors could be controlled. He had of course pointed to the duties of directors and submitted that there had been breaches of duty. He further pointed to s.260E which provides that a director is not relieved from any duty under the Law (including s.232) or a fiduciary duty in connection with a transaction merely because the transaction is authorised by a provision in Chapter 2 J (which includes s.260A) or is approved by a resolution of members under a provision in that Chapter. I do not find in this provision any more than a clarifying statement as to the continuing existence of directors duties. I find nothing in it that qualifies the express provision in s.260D. Indeed, if anything, there may be a consistency between s.260(D) (2) and 260E but it is unnecessary to consider that. Further, s.1324 does not state that the powers it confers may be used to negate the clear policy directive in s.260D(1). In my view the general injunction making powers in s.1324 may not be so used.

208. It is important to remember what s.260D covers. It applies where the company has provided financial assistance in contravention of s.260A. That has happened here. Doubtless the powers under s.1324 may be invoked at the time when a wrong is threatened but if the relevant act is the provision of financial assistance and it has been provided, as it has been in this case, the injunction making power in s.1324 is not available, in my opinion.

211. In the present case the applicants delayed in coming to court to seek their injunction and by the time they did come before a judge all steps had been taken, as I understand it, to complete the provision of the financial assistance. The applicants could have applied earlier but they did not do so. I am not now concerned with whether an injunction would have been granted if a timely application had been made. The present discussion is concerned with the availability of the injunction power under s.1324(1) in the circumstance that the financial assistance has been provided.

214. Further, there are a number of factors which would militate against the grant of an injunction in any event. Without repeating matters I have previously mentioned there are the following: the present refinancing appears to be part of an ordinary commercial transaction in a group of companies; there is no prejudice or detriment to the applicants; there is no issue of solvency of NCL or Austrim and its group of companies; there has been delay in seeking relief; there seems no purpose to be achieved by an injunction; there would be inconvenience and costs occasioned to NCL which could well go through the meeting process again with the same result; the banks have acquired rights but they are not respondents to the application and have not been heard. Further, the applicants would seem not to be without other remedy as by an oppression proceeding although I give no indication by that reference of any prospect of success in that or any other type of proceeding. All I do at present is state that if the applicants had otherwise established their case the circumstances are such that I would not have granted the injunction sought.

217. For these reasons the application is refused and no question arises under the respondents summons.

220. The order is that the amended notice of motion be dismissed with costs including reserved costs. The respondents summons will be dismissed.