Solicitors:
Banki Haddock Fiora (plaintiff)
ERA Legal (first defendant)
File Number(s): 2015/129742
[2]
Judgment (ex tempore)
HIS HONOUR: On 19 February 2015 the plaintiff Peter Michael Kenneth Koadlow, as executor of the estate of the late Elsie Koadlow ("the estate"), and the defendant company Chapmans Limited entered into a compromise and release deed which recited inter alia that Chapmans was indebted to the estate on account of principal, interest and other amounts in the sum of $2,500,000 which was due for repayment on 24 February 2014 and that, including in consideration for a forbearance to sue, Chapmans and the estate wished to compromise conditionally the debts, as contemplated by the deed.
By cl 2.1, and subject to Chapmans' compliance with the deed, the estate conditionally agreed to compromise the debts by releasing Chapmans from its obligations to pay and repay the debts.
The compromise and release was, under cl 2.2, subject to the fulfilment or waiver of a number of conditions precedent and subsequent, for the benefit of the estate alone, including (f) the unanimous recommendation by Chapmans' directors that shareholders at the 2015 AGM (which the definition stated was required to be held by no later than 31 May 2015) vote in favour of resolutions approving, including under ASX Listing Rules, r 7.1, and (Cth) Corporations Act 2001, s 611 item 7, the issue of a convertible note and the issue of all shares on conversion of such note as referred to later in the deed; (g) the Chapman directors causing all votes attaching to all shares that they or their associates control to be voted in favour of those resolutions at the 2015 AGM; (h) unless otherwise agreed by the estate, the 2015 AGM being held by no later than 31 May 2015 and not being postponed; (j) the shareholder approval resolutions being passed by the requisite majorities at the 2015 AGM; and (k) the issue of "the note" - to which I shall refer below - to the estate strictly in accordance with the deed.
By cl 2.3, it was provided that Chapmans must take all steps and do all such things as to satisfy the conditions precedent and subsequent by their stated dates, if any, and that unless waived by the estate, should any of them not be so satisfied, the estate may inter alia terminate the deed with immediate effect.
Provision for the issue of the note referred to in clause 2.2(k) was made by cl 5.1, earlier provisions having dealt with two components of the total debts totalling $1.3 million. Clause 5.1 provided that, by way of compromise of the remaining $1.2 million, the borrower agrees to issue to the lender a convertible note no later than the earlier of two business days after the 2015 AGM and 31 May 2015 unless extended by the estate, and that the terms and conditions on which the note was to be issued were as set out in the schedule. It is unnecessary to go to those terms and conditions in any detail, but in practical terms it provided for the issue of a convertible note the result of which would be that, if exercised, the estate's shareholding in the company would increase from about 10 per cent to about 80 per cent.
On 17 April 2015, solicitors acting for the company raised with solicitors advising the estate some concerns as to whether the ASX would give its approval to the relevant resolution in the form proposed, having regard to Chapmans' trading history. Correspondence about that ensued, as did some correspondence concerning a further compromise generally, but that appears to have been resolved by the ASX approving the proposed AGM notice containing the proposal for issue of the note in the form proposed, such approval having been given no later than the morning of 24 April 2015.
On the afternoon of Friday 24 April 2015, solicitors acting for the company requested that the estate urgently provide the information referred to in ASIC Regulatory Guide, 74.25(e), (f) and (g), in order to enable compliance with Corporations Act, s 611 item 7. Further correspondence ensued on that topic. Saturday 25 April was a public holiday; 26 April was a Sunday. On 27 April, the estate provided a pro forma setting out the categories of information that it proposed to provide. I have not been able to find any evidence that any issue was taken with the adequacy of what was proposed in that respect.
On 28 April, the pro forma, completed in draft, was provided at 9.04pm, and in slightly amended form again at 10.02pm. That, however, was in the context that the solicitors for the company had initially, on 28 April at 10.41 am, requested provision of "the RG 74 content" by 11.30 that day (there having been an earlier request for that information sent on 27 April at 9.48am with a deadline of 11am on 27 April).
On 29 April, not later than 11.54am, the company issued a notice of annual general meeting, explanatory memorandum and proxy form for the 2015 AGM to be held at 10am on Friday 29 May 2015. It did not include the resolutions referred to in condition 2.2(f) to which I have referred, although it did include proposals for the issue of shares to other persons, being the directors of the defendant.
By originating process filed by leave on 1 May 2015 and returnable today, the estate seeks an order by way of interlocutory injunction, with a view ultimately to final relief in the same form, that the company forthwith give members notice of resolutions in the terms contemplated by condition 2.2(f), together with the requisite material referred to in s 611 item 7. Further, by an amended originating process, leave to file which is sought today, the estate also seeks, if necessary, an order under Corporations Act, s 1322(4)(d), abridging the period for the company to notify its members that the business of the AGM will include those resolutions.
Corporations Act, s 249L, relevantly provides that a notice of a company's meeting must state the general nature of the meeting's business but, save in respect of a special resolution which is not relevant here, does not require that the particular resolution be specified, nor that any explanatory memorandum or additional information accompany it.
Section 611 contains exceptions to the prohibition on the acquisition of relevant interests in voting shares contained in s 606. One of those exceptions is under item 7: if the acquisition has been previously approved by a resolution passed at a general meeting of the target company. In connection with that exemption, one of the conditions - under paragraph (b) - is that the members of the company were given all information known to the person proposing to make the acquisition, or their associates, or known to the company, that was material to the decision on how to vote on the resolution. The paragraph goes on to specify some of that information.
ASIC Regulatory Guide 74 expands on that, and in particular in 74.25 provides that to ensure full and proper disclosure of all material information, members should be given the following information in the notice of meeting or accompanying explanatory material:
(e) a statement of the acquirer's intentions regarding the future of the target
entity if members approve the acquisition…
(f) any intention of the acquirer to significantly change the financial or
dividend distribution policies of the entity;
(g) the interests that any director has in the acquisition or any relevant
agreement disclosed under RG 74.25(d); …
Although the regulatory guide plainly suggests that that information should be in the notice of meeting or accompanying explanatory memorandum, there does not appear to be any statutory requirement that the material be in the notice of meeting or accompanying it. In other words s 611 item 7 could be complied with by providing the material after the notice of meeting and separately from it, at least so long as members are afforded an adequate opportunity to digest and consider it.
Clause 2.3 of the compromise deed plainly placed on Chapmans the obligation to take all steps and do all such things necessary to satisfy the conditions precedent and subsequent by their stated dates. That must include giving the appropriate notices of meeting, convening meetings and including in the notices the requisite information. By cl 12.7, Chapmans was entitled to expect and insist on cooperation in that respect from the estate, which was obliged to do all things that Chapmans reasonably requested it to do to effect, perfect or complete the deed. But the primary obligation of validly convening an effective meeting to pass the resolutions was, in my view, plainly cast upon Chapmans. If it were going to require information from the estate in order to enable it to do that, it ought not have left it till effectively two clear business days before it was going to issue the notice to do so. Or, it might have deferred issuing the notice by another day while the material was provided, as it was on the evening of 28 April.
The parties agreed, by cl 12.8 of the compromise deed, that Chapmans' obligations under the deed and in respect of its subject matter, particularly inter alia as to the issue of the note and the consequent issue of shares in exercise of any conversion rights attaching to the note, were specifically enforceable, including by injunctive relief, and that damages were an inadequate remedy.
Given the specific repeated references to the 2015 AGM in the conditions of compromise and release - although it is arguable that that might be regarded, in terms that were once favoured but have fallen into disuse, procedural rather than mandatory - there is little reason to risk that issue when, as it seems to me, the matter can be addressed at the 2015 AGM. It can be addressed at least on the basis that, even if the present notice of meeting is insufficient to "state the general nature of the meeting's business", the particular resolution to be put is closely analogous to the business already stated in the notice, and in any event, there will be ample time for shareholders to consider its content, even if less than the requisite 28 days in the context of a listed company.
There may be, in that sense, a deficiency of notice within s 1322(1)(b)(ii), but absent an order to the contrary under s 1322(2), that would not invalidate the meeting or a resolution in that respect. If a member is prejudiced, then the member can apply under s 1322(2) for such an order to the contrary.
However, as has been pointed out, it is less than satisfactory to leave this issue in the air to be resolved on a subsequent application. Under s 1322(4)(d) the court can make an order extending the period for doing any act, including an order extending a period where it ended before the application for the order was made. That would permit the court to make an order extending the time for the giving of the notice of the resolutions to be considered at the 2015 AGM and would put the matter beyond doubt, and it seems to me that it is preferable to make such an order now, rather than to leave that question in the air.
The significant risk of not granting relief to the effect of that sought at this stage is that there is at least a potential for the benefit of the deed to be lost to the estate. The detriment or hardship imposed by the proposed orders seems very slight.
I propose to adjourn the proceedings to a date before the annual general meeting is held so that if, per chance, the views I have reached on an interlocutory basis can be shown to be inappropriate, and if a real question of prejudice is raised, that matter can still be addressed before the annual general meeting. Accordingly, the disadvantages of interlocutory relief seem to me practically nil.
The Court therefore orders that, upon the plaintiff by its counsel giving to the Court the usual undertaking as to damages:
1. The defendant forthwith, and by no later than 6 May 2015, give its members a notice which states that the business of the annual general meeting of the members of Chapmans Limited, to be held at 10am on 29 May 2015, would include considering and, if thought fit, passing an ordinary resolution ("the resolution"):
1. which provides that for the purposes of ASX Listing Rules, r 7.1, Corporations Act, s 611 item 7, and for all other purposes, approval is given for the company to issue a convertible note to Peter Koadlow as executor of the estate of the late Elsie Koadlow on the terms and conditions set out in the explanatory memorandum, and to issue shares in accordance with the terms of that convertible note in the event that the note-holder exercises the option to convert the note into shares;
2. which contains information relating to the members' right to vote by proxy and attaches a proxy form that includes provision for an appointment of a proxy to specify the way the proxy is to vote on the resolution; and
3. attaches an explanatory memorandum that contains information material to the decision on how to vote on the resolution, including the information set out in Corporations Act, s 611 item 7(b)(i) and (b)(v), the information referred to in ASX Listing Rules, r 7.3, and a copy of the terms and conditions of the convertible note.
1. Pursuant to Corporations Act, s 1322(4)(d), the period for the first defendant to notify its members that the business of the annual general meeting convened to be held at 10am on 29 May 2015 will include and, if thought fit, pass any resolution be abridged to the period between 6 May 2015 and 10am on 29 May 2015.
2. Peter James Dykes and Anthony John Dunlop be joined as second and third defendants.
3. The plaintiff have leave to amend the originating process by filing an amended originating process in the form initialled by me, dated this day and placed with the papers.
4. The proceedings be adjourned to Monday 11 May 2015 at 10am for further directions.
5. The proceedings be provisionally fixed for final hearing on 19 May 2015 at 10am.
6. Costs of the interlocutory hearing be the plaintiff's costs in the proceedings.
7. These orders are to be entered forthwith.
[3]
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Decision last updated: 08 September 2015