Corporations Act, in the matter of KAZ Group Limited [2004] FCA 738

Judgment (10 paragraphs)

[1]

THE COURT ORDERS THAT: Orders be made in accordance with the short minutes of order:

There be convened by the Plaintiff: (a) a meeting of the holders of fully paid ordinary shares in the Plaintiff (KAZ Shareholders) to consider, and if thought fit, approve a scheme of arrangement (Ordinary Scheme) between the Plaintiff and the KAZ Shareholders (the Ordinary Scheme Meeting); and (b) a meeting of the holders of options to acquire shares in the Plaintiff (KAZ Optionholders) to consider, and if thought fit, approve a scheme of arrangement (Option Scheme) between the Plaintiff and the KAZ Optionholders (the Option Scheme Meeting) (together the Meetings).
The Ordinary Scheme Meeting be held on 6 July 2004 at the Avillion Hotel, 389 Pitt Street, Sydney. The meeting shall commence at 10.00 am.
The Option Scheme Meeting be held on 6 July 2004 at the Avillion Hotel, 389 Pitt Street, Sydney. The meeting shall commence at 10.15 am or immediately following the close of the Ordinary Scheme Meeting.
Peter John Housden, or Peter Kazacos in his place should Peter John Housden be unable to attend for any reason, is to chair the Meetings and any adjournment of the Meetings.
The Meetings can resolve to be adjourned.
Five members present in person or by proxy, corporate representative or attorney under power, shall constitute a quorum for Ordinary Scheme Meeting, and five optionholders present in person or by proxy, corporate representative or attorney under power, shall constitute a quorum for Option Scheme Meeting.
The Plaintiff be dispensed from compliance with r 2.15 of the Federal Court (Corporations) Rulesexcept insofar as that rule applies reg 5.6.13 of the Corporations Regulations to the meetings.
The Meetings be advertised once in each of The Australian and the Sydney Morning Herald newspapers, in the form or to the effect of the annexure hereto marked 'A', such advertisement to be published not less than 14 days before the date appointed for the Meetings.

KAZ GROUP LIMITED ACN 002 124 405 MEETINGS TO CONSIDER SCHEMES OF ARRANGEMENT Notice is given that the Federal Court has ordered that meetings of shareholders and optionholders of KAZ Group Limited (the company) be held at the Avillion Hotel, 389 Pitt Street, Sydney. The meeting of shareholders will be held on 6 July 2004 at 10:00 am, and the meeting of optionholders will be held on the same date at 10:15 am, or immediately following the close of the meeting of shareholders. The purpose of each meeting is to consider and, if thought fit, agree (with or without modification) to the schemes of arrangement proposed between the company and its shareholders and optionholders. Shareholders and optionholders may obtain copies of the Information Memorandum by collecting the same personally at the registered office of the company at Level 10, 59-61 Goulburn Street, Sydney NSW 2000 between the hours of 9:00 am and 5:00 pm on each week day excluding public holidays until and including the date of the meetings. Notice is also given that if the schemes of arrangement are approved by shareholders and optionholders a Notice of Motion to approve the schemes will be returnable before the Federal Court, Queens Square, Sydney on Friday 9 July 2004 at 10:15 am. If the proposed scheme between the company and its shareholders (the Ordinary Scheme) is approved at the meeting of shareholders, but the proposed scheme between the company and its optionholders (the Option Scheme) is not approved at the meeting of optionholders, the company gives notice that it will apply to the Court at 10:15 am on 9 July 2004 for an order approving the Ordinary Scheme. Any person proposing to be heard on such motion should give prior notice to the company's solicitors, Allens Arthur Robinson, 2 Chifley Square, Sydney (02) 9230 4000, ref SWMS 20‑530‑8819. By order of the Board Company Secretary KAZ Group Limited

REASONS FOR JUDGMENT 1 In this matter counsel has taken me through the steps which are necessary to be established in order to make the orders sought. The principles to be applied are well understood and I do not need to refer to authority or to the particular sections in question. 2 I do need to mention two things. The first is that these proposals include a creditors' scheme to deal with option holders. That has become a common feature of these schemes and has been considered in a number of cases. I myself have considered it previously and have chosen to follow the predominant line of authority. Counsel for the plaintiff drew my attention to the decision of Lee J in Re Niagara Mining (2002) 47 ACSR 364; 202 ALR 56 in which his Honour, whilst noting that line of authority, elected to give consideration himself to the question as to whether an option holder is a creditor or a member and came down in favour of the view that an option holder is a member. 3 In my opinion, at this stage of this application, it is appropriate I follow what might be called the main stream of authority which dates, at least in New South Wales, from Re Asia Oil and Minerals Limited (1986) 5 NSWLR 42 and which has been followed (apart from Lee J's decision) fairly universally since then. I do not mean to suggest that the question is not a controversial one but it seems appropriate to follow, as I have said, the main stream. 4 The second matter that I should mention is this. The implementation of the scheme, which I need not track in detail, leads to a position whereby on the appropriate day Telstra Corporation Ltd (Telstra) obtains registration as a member by virtue of acts done by the plaintiff as attorney for the individual shareholders and option holders. At that time, Telstra incurs the liability to make the appropriate payment. There is, however, nothing more than a covenant to pay and thus the individual shareholder would only have a right of action under the deed poll. 5 That does not seem to me to be entirely adequate. Where there is liquidity, as in a case like the present, I see no particular reason why the individual should run any risk of delay. Counsel for Telstra is, I think, correct in saying that in the present circumstances I can be assured that there is no question of solvency or liquidity or lack of will that would intervene. Nonetheless I do not see why the individual should bear the risks. That does not, however, affect the basic substance of the scheme and would not, I think, be a matter crucial or influential in relation to the vote of any particular person. 6 Counsel for Telstra has suggested that upon the confirmation of the scheme, if the members and option holders vote in favour, consideration can be given at that stage to evidence from Telstra as to mechanisms which might meet the case. 7 I should also say that, whilst I have read the independent expert's report, in my view this is one of those cases where the merits of the schemes from a financial point of view are best judged by the persons voting with their own economic interests at stake. There does seem to be appropriate disclosure of the relevant material that would enable that to be done. The Court is limited in the respects in which it can comprehend all of that material. The assessment is better done by those with close knowledge of the affairs of the group, including shareholders who would have had the opportunity over time of observing the affairs of the company. If any difficulty in disclosure should become apparent to those with an interest in the matter, it can of course be raised at the stage of confirmation. 8 I should perhaps also note that Counsel for the plaintiff took some trouble to refer me to the evidence relating to the fixing of the consideration for the options, which is no doubt a difficult and perhaps even controversial aspect of these schemes. 9 In this matter I make orders in accordance with the short minutes of order. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

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