REASONS FOR JUDGMENT
1 On 13 May 2013, I made orders convening a meeting of members of the plaintiff company, PR Finance Group Limited ACN 109 299 390 (PRF), for the purpose of considering a scheme of arrangement proposed between PRF and its members under which the whole of the issued capital of PRF is to be acquired by Keybridge Capital Limited (Keybridge) (Scheme): see PR Finance Group Limited, in the matter of PR Finance Group Limited [2013] FCA 504. For convenience, words which are defined in the booklets which are Exhibit 1 and Exhibit 3 in these proceedings (Scheme Booklet and Supplementary Scheme Booklet respectively) have the same meaning in these reasons unless otherwise indicated.
2 Shortly before the scheme meeting, the Australian Securities & Investments Commission (ASIC) wrote to PRF indicating that ASIC intended to withhold the usual "no objection" statement under s 411(17)(b) of the Corporations Act 2001 (Cth) (Corporations Act). ASIC considered that PRF had failed to disclose material information to members because the audited accounts for the 2012 financial year (FY 2012 Accounts) had not been provided to ASIC at least 10 days before the scheme meeting in accordance with Section 5.5 of the Scheme Booklet; the audited FY 2012 Accounts were not available to shareholders at the time of the scheme meeting. Notwithstanding this, the scheme meeting was held on 14 June 2013. Members who attended the scheme meeting were advised about ASIC's letter. The Scheme was approved by a substantial majority of members both by number of members and value of shares in respect of which votes were cast at the meeting (scheme approval resolution). PRF posted information about ASIC's letter on its website the night before the meeting and sent a letter or an email to shareholders about it after the meeting.
3 ASIC appeared at the second court hearing on 20 and 21 June 2013 to oppose the Court making orders approving the Scheme. No shareholder appeared at the hearing.
4 On 25 June 2013, Jacobson J declined to approve the Scheme at that stage and adjourned the application to a date to be fixed in August 2013: see PR Finance Group Limited, in the matter of PR Finance Group Limited (No 2) [2013] FCA 633. At [60], Jacobson J indicated that in the absence of any additional material facts which emerge prior to the adjourned date, he would be prepared to approve the Scheme provided that by that date:
a further meeting of shareholders is duly convened and held at which the scheme approval resolution is ratified (ratification meeting);
the ratification meeting is held at a time when the audited FY 2012 Accounts are available;
the audited FY 2012 Accounts have been lodged with ASIC not less than 10 days before the ratification meeting;
any material matters in the audited FY 2012 Accounts to which attention should be drawn should be provided by way of a supplementary scheme booklet;
the resolution ratifying the scheme approval resolution is passed by the majority stated in s 411(4)(a)(ii) of the Corporations Act (ratification resolution); and
the ratification meeting is held no later than 15 August 2013, or such later date as the Court may approve.
5 At [61], Jacobson J indicated that he would be prepared to consider exercising his power under s 411(10) to order that the Scheme take effect as from the record date specified in the Scheme Booklet (25 June 2013).
6 The audited FY 2012 Accounts were sent to PRF shareholders on 2 and 3 July 2013. The basis on which the auditor disclaimed providing an audit opinion was the significance to the accounts of the impairment of the value of PRF's motor vehicle division and PRF's ability to continue to operate as a going concern in relation to which the auditor could not obtain sufficient appropriate evidence to provide a basis for an audit opinion.
7 At a hearing on 11 July 2013, PRF sought directions under s 1319 of the Corporations Act in relation to convening a ratification meeting of its shareholders and the conduct of that meeting to implement the regime indicated by Jacobson J. In support of the application, PRF tendered a draft Supplementary Scheme Booklet, an updated Independent Expert's Report, evidence of verification of the Supplementary Scheme Booklet, consents to act as chairperson of the ratification meeting, and a copy of a letter from ASIC indicating that it did not intend to appear at the hearing. The Supplementary Scheme Booklet which PRF proposes to dispatch to members contains a substantial amount of changed information including:
the fact that Jacobson J refused to make orders approving the Scheme, notwithstanding that the scheme approval resolution had been passed. It also advises of the preconditions stated by Jacobson J to his exercise of the power to make an order approving the Scheme;
a notice of the ratification meeting to be held on 12 August 2013;
advice that the audited FY 2012 Accounts were lodged with ASIC on 2 July 2013 and dispatched to PRF shareholders on 2 and 3 July 2013; a summary of the material differences between the draft FY 2012 Accounts and the audited FY 2012 Accounts; and a statement that the basis of the disclaimer of opinion by the auditor is in relation to the impairment of the motor vehicle division and in respect of PRF's ability to continue to operate as a going concern;
an updated post-Scheme Keybridge Group consolidated balance sheet;
advice that negotiations between PRF, Marubeni and Keybridge had resulted in a sale agreement for the Motor Finance Wizard and Affordable Car Centre businesses but that that sale would not become effective and complete until after the Scheme was implemented; Keybridge has advised PRF that it will not release securities over the subsidiaries which own those businesses unless the Scheme is completed; the support of the Commonwealth Bank of Australia (CBA) is conditional on PRF entering into and completing the Marubeni sale;
having regard to the sale price under the Marubeni sale, advice that PRF shareholders will not receive the Subsequent Control Transaction Amount because the Target Consideration Amount would not be met due to working capital adjustments to the sale price. The Independent Expert had previously indicated that he attributed no value to this part of the Scheme Consideration because there was no assurance that a transaction of the required value would occur within 12 months of the Effective Date of the Scheme, but now that is certain;
CBA does not consent to the Marubeni transaction and it does not intend to consent to the Scheme;
Messrs Llewellyn and James, directors of PRF who together control more than 60% of the shares in PRF, will be employed by Marubeni if the Marubeni sale completes; PRF will be relieved of the consultancy arrangements which had been set out in the Scheme Booklet (but not the obligation to pay modified outstanding entitlements);
as a result of a decrease in PRF's loan assets and therefore the value of PRF shares, the Independent Expert revised its opinion in relation to the Scheme and now considers it fair and reasonable and in the best interests of members of PRF;
mechanical amendments to the Scheme, the Deed Poll and the Scheme Implementation Agreement reflecting the change in timetable and the likelihood that the Scheme's Effective Date would be 25 June 2013. PRF and Keybridge propose to extend the Quit Date for the merger to 31 August 2013 prior to a proposed further court hearing on 14 August 2013.
8 An initial issue was whether the power conferred on the Court under s 1319 extends to enabling the Court to give directions in circumstances where the scheme meeting convened under s 411(1) has already occurred and the scheme approval resolution had been passed. Section 1319 provides:
Where, under this Act, the Court orders a meeting to be convened, the Court may, subject to this Act, give such directions with respect to the convening, holding or conduct of the meeting, and such ancillary or consequential directions in relation to the meeting, as it thinks fit.
9 In support of the proposition that the Court has power to make directions in relation to convening and conduct of the ratification meeting, Mr Oakes SC, for PRF, referred to the remarks of Burchett J in CMPS&F Pty Limited v Crooks Mitchell Ltd (1997) 76 FCR 366 at 367:
I do not think that an order revoking the convening of a meeting could properly be described as "ancillary", but I do think, in circumstances where the usefulness of the meeting has been destroyed or very greatly compromised, the word "consequential" is entirely apt.
10 The effect of the decision of Jacobson J is that the scheme approval resolution may be defective because material information was not available to shareholders at the time that it was passed. Mr Oakes submitted that making directions with respect to a ratification meeting, where passing the ratification resolution proposed for that meeting is regarded by the Court as necessary for the efficacy of the scheme approval resolution, can properly be regarded as consequential and possibly ancillary to that meeting because it is necessary to carry forward the purpose for which the scheme meeting was convened. Further, while it would be possible for PRF to convene a ratification meeting, it is desirable that the ratification meeting falls under the supervision of the Court, because s 411(1) envisages that the Court will grant its approval under s 411(4)(b) pursuant to a court convened meeting of members.
11 CMPS&F dealt with the question of whether the Court could vacate an order made under s 411(1) convening a meeting when its utility had been compromised by the company's entry into another transaction. The remarks of Burchett J to which Mr Oaks drew attention are the opening sentence of a paragraph which concludes:
It seems to me that, in the special circumstances of such a case, a direction having the effect of revoking the convening of the meeting would be consequential on their having been convened in the first place. In this case, it would be an appropriate consequential order to make, not raising the objections going to the exercise of the discretion which concerned Debelle J in Re North Flinders Mines Ltd (1996) 66 SASR 437.
12 The cases on s 1319 appear to relate to orders anterior to a resolution being passed (see the cases cited at [9.1319] of Austin & Black Annotations to the Corporations Act (LexisNexis)) and to support the approach taken by Burchett J in CMPS&F.
13 In Northwest Capital Management v Westate Capital Ltd [2012] WASC 121, a general meeting convened by the directors had been held but it was in such disarray that the Supreme Court of Western Australia found that none of the resolutions had been passed effectively. Edelman J ordered a new meeting under s 249G of the Corporations Act (it was impractical for the directors to convene a new meeting because of disagreement between them) and s 1319.
14 In Re Anzon Energy Ltd (2008) 66 ACSR 355, Lindgren J made orders dissolving a meeting which had been convened pursuant to s 411(1), held and adjourned before the scheme approval resolution was considered because Lindgren J considered that it would be wasteful to require an adjourned meeting to be held in circumstances where issues which has arisen about the results of drilling programs conducted by Anzon subsidiaries were not capable of resolution leading to the termination of the Merger Implementation Deed. Justice Lindgren followed the reasoning of Emmett J in Re Australian Gas Light Co (2006) 57 ACSR 67.
15 Courts have relied on s 1319 to authorise the making of orders adjourning a meeting convened under s 411(1) on the basis that the adjournment order is both "consequential" and falls directly within the earlier part of s 1319 which deals with "holding" a meeting: see Re Lend Lease Primelife Ltd; Re Lend Lease Village Responsible Entity Ltd (2009) NSWSC 1340 per Austin J at [16] and Re Cellestis Limited (No 2) [2011] VSC 329.
16 In Centro Retail Limited and Centro MCS Manager Limited in its capacity as Responsible Entity of Centro Retail Trust [2011] NSWSC 1321, Barrett J reviewed the decisions dealing with the despatch of supplementary material to members after orders had been made under s 411(1). At [10]-[11], Barrett J noted with approval the comments of Emmett J in Re Coates Hire Ltd (No 2) [2007] FCA 2105 at [6]: the only appropriate method for supplementary information to be despatched after orders had been made under s 411(1) was with the supervision of the Court; the Court approved "message" embodied in the explanatory statement should not be "interfered with" by unilateral supplementation by the company. Justice Barrett also reviewed the reasons in Anzon, Re BlueFreeway Ltd (No 2) [2009] FCA 708 and Re Citect Corporation Ltd (2006) 56 ACSR 663 and commented that Court approval of the despatch of supplementary information due to changed circumstances, was just such a case for which s 1319 had been designed, and that s 1319 had "wide operation": see [14]-[16].
17 In this case it is not impractical for the directors of PRF to convene a meeting to ratify the scheme approval resolution so there is no basis to make orders under s 249G, as in Northwest Capital Management. It was necessary in Northwest Capital Management because the original meeting had been convened by the directors. However, I do not consider that is necessary for me to make new orders under s 411(1) to convene a meeting to found the power under s 1319: it would serve no useful purpose to require PRF, a company in perilous financial circumstances, to go through the whole process again.
18 In my view, making the orders for which PRF applies would be ancillary and consequential to my orders made on 13 May 2013 convening the scheme meeting and to the meeting held on 14 June 2013 because the ratification meeting is necessary to the efficacy of the scheme approval resolution and to carry its purpose through to making of orders under s 411(4)(b). I consider that this exercise of the power is akin to the exercise of the power in cases relating to adjournment of scheme meetings. I do not think the power is exhausted because the scheme approval resolution was passed on 14 June 2013. The efficacy of that resolution is suspect because the meeting was inadequately informed of PRF's financial position due to the failure to lodge with ASIC and make available to shareholders the audited FY 2012 Accounts as envisaged in the Scheme Booklet.
19 I accept Mr Oakes' submission that it is desirable, in the context of the regime which applies to members schemes under the Corporations Act, for the Court to have supervision of the member approval process rather than the meeting being convened by PRF. The reasoning of Emmett J in Re Coates Hire Ltd (No 2) and Barrett J in Centro Retail Limited and Centro MCS Manager Limited applies equally here.
20 For all of these reasons, I will make the orders sought by PRF.
I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.