Solicitors:
M Clark (Plaintiff)
File Number(s): 2017/229060
[2]
Judgment - ex tempore
By Originating Process filed on 27 July 2017, the Plaintiff, Viscopy Limited ("Viscopy") applies, under ss 411 and 413 of the Corporations Act 2001 (Cth), initially to convene a meeting of its members in respect of a proposed scheme of arrangement between Viscopy and those members, which would provide, in effect, for the amalgamation of Viscopy with another entity, Copyright Agency Ltd ("Copyright Agency"). Orders are also to be sought, after that meeting, under s 413 of the Corporations Act, for the transfer of assets and liabilities of Viscopy to Copyright Agency, the continuance of any legal proceedings pending by or against Viscopy as proceedings by or against Copyright Agency, the transfer of personal information held by Viscopy to Copyright Agency and the deregistration of Viscopy by the Australian Securities & Investments Commission ("ASIC") without a winding up.
First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWSC 1516 | Case summary | Zoe
The orders sought in the Originating Process have been elaborated in short minutes of order provided to the Court, which provide, inter alia, for the form of a scheme booklet to be sent by Viscopy to its members, for the manner in which that and other documents would be despatched to members, and for the giving of notice of the second court hearing by advertisement, against the contingency that there may be other creditors of Viscopy beyond three identified categories of creditors, namely copyright owners who are Viscopy's members, its auditors and Copyright Agency.
The application is supported by three affidavits. An affidavit of Mr Matthew Clark, affirmed 4 October 2017, deals with much of the background to the application. Mr Clark is an experienced solicitor and also a non-executive director and company secretary of Viscopy. He leads evidence of the background to the scheme, which would complete a process that had been begun, some time ago, with an arrangement by which Copyright Agency had assumed the day-to-day operations of Viscopy's business. Mr Clark refers to the terms of the proposed scheme, including the steps which would be implemented by way of transfer of liabilities and assets from Viscopy to Copyright Agency under s 413 of the Corporations Act. Mr Clark refers to the due diligence and verification process which has been adopted in respect of the information concerning Viscopy, of which he has had primary carriage. A similar process in respect of Copyright Agency is addressed by a further affidavit of Ms Johnston affirmed 4 October 2017. Mr Clark also refers to correspondence between Viscopy and ASIC, which has resulted in ASIC providing confirmations to which I will refer below. Mr Clark also consents to act as chairman of the meeting if Mr Timothy Denny, who is the primary nominee for chair of the scheme meeting, is unable to act in that capacity.
Mr Clark also refers to the orders which are sought for providing the scheme booklet to Viscopy's members, primarily by email, a course which seems to me to be reasonably adopted where Viscopy has a very large number of members, some 13,448 members, the substantial majority of which have notified email addresses for dealings with them. To the extent that members have not notified such email addresses, then the orders that are sought contemplate alternative means of notification to such members.
Mr Clark's affidavit also annexes the then draft of the scheme booklet, which has since been updated (Ex A3) to correct a number of misprints, and to reflect the form of relief given by ASIC in respect of financial disclosure to which I will refer below. The scheme booklet is in conventional form, including a letter from Viscopy's chairman, Mr Denny, outlining the nature of the scheme and referring to directors' recommendations in respect of the schemes, a summary of key considerations, including reasons why members may wish to vote in favour of the proposed merger of Viscopy and Copyright Agency and why they may wish to vote against it; and also includes financial information concerning Copyright Agency. That information is of some significance so far as it demonstrates that Copyright Agency appears to have a substantial surplus of revenue over expenses (prior to distribution to its members since it is a non-profit organisation) and substantial reserves, which suggests that it would be capable of assuming the obligations which it is proposed that it would assume under s 413 of the Corporations Act. That is ultimately, however, a matter to be addressed by evidence, to the extent necessary, at the second meeting of creditors.
The scheme booklet also includes a copy of a deed poll by which Copyright Agency has assumed obligations in respect of the scheme. Mr Clark's affidavit also includes a draft proxy form, correspondence with ASIC seeking relief which has subsequently been granted by ASIC, and a copy of Viscopy's financial report for the financial year ended 30 June 2017, which, in turn, provides some indication of the liabilities which are proposed to be assumed by Copyright Agency under s 413 of the Corporations Act.
An affidavit of Mr Denny confirms his willingness to act as chair of the proposed meeting and an affidavit of Ms Johnston, affirmed 4 October 2017, to which I have referred above, refers to the verification process which has been adopted in respect of information concerning Copyright Agency contained in the scheme booklet.
By letter dated 5 October 2017, ASIC has provided a confirmation that it does not currently propose to appear to make submissions, or intervene to oppose the scheme, at the first hearing today. In accordance with its usual practice, ASIC also reserved the question whether it will provide a statement under s 411(17)(b) of the Corporations Act until the second court hearing. By a second letter also dated 5 October 2017 (Ex A2), ASIC granted relief under reg 5.1.01(1) of the Corporations Regulations 2001 (Cth) to permit Viscopy to send an explanatory statement which does not comply with the requirement of paragraph 8302(h) of Part 3 of Schedule 8 to the Regulations. In the particular circumstances, that relief was necessary to avoid the surprising consequence, which would have otherwise arisen under that paragraph, that Viscopy could only provide its financial report for the year ended 30 June 2016 in the explanatory statement and to facilitate Viscopy providing its financial report for the year ended 30 June 2017 in that explanatory statement. That course is plainly desirable, so far as it permits more current information to be provided to members in respect of the scheme, and has been permitted on conditions which will require the explanatory statement to disclose material changes to Viscopy's financial position occurring since 30 June 2017 and requiring further disclosure, on Viscopy's website, of any material changes to its financial position occurring after the lodgment of the explanatory statement.
Mr Conde, who appears for Viscopy, draws attention to the principles which apply under s 411(1) of the Corporations Act in respect of convening the scheme meeting. Two aspects of the scheme require particular comment. The first is that each of Viscopy and Copyright Agency are not for profit organisations and are companies incorporated by guarantee. Schemes of arrangement in respect of companies limited by guarantee are not common, but are certainly not unknown. The circumstances in which the Court may make an order approving a scheme of arrangement in respect of companies limited by guarantee, and associated orders under s 413 of the Corporations Act in respect of the transfer of assets and liabilities, were addressed by Finkelstein J in Re United Medical Protection Ltd [2007] FCA 631 and again by Lindgren J in Re Professional Golfers Association of Australia Ltd [2007] FCA 1571. This application does not raise any matters of novelty, beyond those which were considered in those cases.
The only other issue of significance which arises in this application, which ASIC has requested be drawn to the Court's attention, and which Mr Conde has drawn to my attention, is a question whether it is necessary that members vote by classes at the scheme meeting, comprising one class of members comprising persons who are only members of Viscopy and a second class of members comprising members of Viscopy who are also presently members of Copyright Agency. The possibility of such classes arises from the fact that Viscopy members grant a licence to Viscopy in respect of all of their works, other than works that are specifically excluded by a member, and members of Copyright Agency grant a licence only for specified works, and some members of Viscopy are also members of Copyright Agency. Mr Conde recognises, in submissions, that there is a particular incentive for those members of Viscopy who are not also members of Copyright Agency to support the scheme, since it may bring about a reduction in the level of commission which they presently pay under their arrangements with Viscopy, so far as they are presently administered by Copyright Agency.
Mr Conde refers, in this context, to the case law considering the circumstances in which separate classes of members are required, which was classically stated in the decision of Bowen LJ in Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583 and which has recently been considered, in some detail, in my judgment at first instance in Re Boart Longyear Ltd [2017] NSWSC 567 and in the Court of Appeal's judgment (on appeal) in First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 320 FLR 78; 121 ACSR 136. Recent Australian case law recognises that a key question in determining whether separate classes are required is whether members have different rights against the company, such that they would lack any common interest that would permit consultation together in a single class. The most common case where that will arise is where members have fundamentally different legal rights.
There is no suggestion in this case that there exist any relevant differences of legal rights, as distinct from the possibility that an economic incentive exists in respect of persons who are members of Viscopy but not Copyright Agency, which may favour a vote in favour of approval of the scheme. That situation is one that would ordinarily not require separate class meetings, and the Court will not order separate class meetings unless it is necessary to do so, since any separate class has an opportunity to veto the scheme. Differences of that kind, amounting to differences in economic interests rather than legal rights, may properly be addressed by a tagging of votes, so that the Court will be made aware at the second hearing if a particular group of members, with a particular incentive, vote in a way that is quite different from those members who do not have that incentive. In this case, Viscopy has indicated that it will tag the votes at the members' meeting, allowing the Court to consider whether any matter arising from the votes of those who are members of Viscopy alone, as distinct from those who are members of both Viscopy and Copyright Agency, impacts upon the exercise of its discretion whether to approve the scheme, for fairness or other reasons, at the second court hearing.
For these reasons, I am satisfied that the Court may properly make orders convening the meeting of the members of Viscopy in respect of the scheme, and approving the material that is to be sent to members of Viscopy, and the manner in which it will be sent to members of Viscopy in the form proposed and with the amendments which have been discussed in the course of submissions. I accordingly make orders in accordance with the short minutes of order initialled by me and placed in the file.
[3]
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Decision last updated: 10 November 2017