Solicitors:
King & Wood Mallesons (Plaintiff)
File Number(s): 2017/220964
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Judgment
By my judgment ("Earlier Judgment") delivered on 31 August 2017 ([2017] NSWSC 1165), I gave reasons for making orders pursuant to s 415 of the Co-operatives National Law, being the appendix to the Co-operatives (Adoption of National Law) Act 2012 (NSW) ("Co-operatives National Law") that a meeting be convened of the holders of securities of Namoi Cotton Co-operative Ltd ("Namoi Cotton") to consider and vote upon a scheme of arrangement ("Stockholders' Scheme") proposed to be made between Namoi Cotton and holders of securities of Namoi Cotton known as "Namoi Capital Stock" ("Stockholders"). I did not make further orders for the convening of a meeting in respect of a members' scheme of arrangement under the Co-operatives National Law between Namoi Cotton and its "Grower Members" ("Members' Scheme"), since a members' scheme proceeds by a postal ballot under the Co-operatives National Law, although the Court then has a role in considering whether to approve a members' scheme at a second court hearing.
In the matter of Namoi Cotton Co-operative Ltd [2017] NSWSC 1436 | Case summary | Zoe
I set out the structure of the relevant schemes and associated transactions in the Earlier Judgment as follows (omitting evidentiary references):
"Namoi Cotton seeks to undertake the Restructure to strengthen its balance sheet, to facilitate growth in the core business of Namoi Cotton and to pursue other opportunities in the agricultural industry. That Restructure involves several steps. The first is a variation to the terms of issue of Namoi Capital Stock to include a conversion right to enable the conversion of Namoi Capital Stock into ordinary shares ("Ordinary Shares") in the capital of a public company limited by shares registered under the Corporations Act), to be known as Namoi Cotton Limited ("Company"). The second is the conversion of Namoi Cotton from a co-operative registered under the Co-operatives National Law to the Company ("Transfer of Incorporation"). The third and fourth steps are the variation of Grower Shares to become Ordinary Shares and the variation of Namoi Capital Stock to become "Residual Capital Stock", which would be an interest in the capital, but not the share capital, of the Company following the implementation of the Restructure, and would have the rights set out in the proposed constitution of the Company. The fifth step is the conversion of Residual Capital Stock to Ordinary Shares at Stockholders' election. Where Stockholders did not validly elect to have their Residual Capital Stock converted to Ordinary Shares, they would continue to hold Residual Capital Stock.
The result of implementation of the Restructure would be that each Grower Member entitled to shares would receive 158,504 Ordinary Shares in place of the 800 Grower Shares presently held by each such Grower Member. Stockholders which elect to convert their holding to Ordinary Shares will hold one Ordinary Share for every Namoi Capital Stock held as at the record date and Stockholders who do not elect to convert their holding to Ordinary Shares (or who are not entitled to do so by virtue of foreign securities laws) will retain their holding of Residual Capital Stock, which will equate to their holding of Namoi Capital Stock immediately before the Restructure.
Namoi Cotton has entered into an Implementation Deed (by deed poll) which sets out how it proposes to implement the Restructure, including by two schemes. The first, the Stockholders' Scheme would be a creditors' scheme of arrangement between the Stockholders and Namoi Cotton under Pt 4.4 of the Co-operatives National Law. The only matter presently before the Court is whether a meeting of Stockholders should be convened in respect of the Stockholders' Scheme, although the Court would also have to consider whether to approve that scheme at a second court hearing. … Voting on the Stockholders' Scheme will take place at a meeting of Stockholders ("Stockholders Meeting"), subject to the Court making orders to convene such a meeting.
The second scheme is a members' scheme of arrangement under the Co-operatives National Law between Namoi Cotton and Grower Members ("Members' Scheme"), where the Court's involvement, under the Co-operatives National Law, is limited to considering whether to approve that scheme at a second court hearing. …
…[S]everal approvals will be required by members and Stockholders to implement the Restructure. These include approval of the variation to the rights attaching to Namoi Capital Stock to create the right to convert to Ordinary Shares, by special resolution approved by the holders of at least 75% of the Namoi Capital Stock given at the Stockholders Meeting and by members' special resolution by postal ballot, with a 75% majority. A special resolution of members by special postal ballot with a 75% majority is also required to approve the Transfer of Incorporation and the Members' Scheme, and approval by a majority in number of Stockholders present and voting at the Stockholders Meeting whose debts or claims represent at least 75% of the debts or claims of Stockholders present and voting is required for the Stockholders' Scheme.
On implementation of the Restructure, Namoi Cotton also proposes to undertake a capital raising to raise up to $35 million in additional equity, and eligible holders of Ordinary Shares and Residual Capital Stock would be entitled to acquire further Ordinary Shares as part of that capital raising."
Namoi Cotton now seeks orders under s 414 of the Co-operatives National Law that each of the Stockholders' Scheme and the Members' Scheme be approved and an order, under s 421(2) of the Co-operatives National Law that Namoi Cotton be exempted from compliance with s 421(1) of the Co-operatives National Law. I made such orders on 3 October 2017 and this judgment sets out my reasons for doing so.
Namoi Cotton relied, at the second hearing, on several affidavits. By his affidavit dated 26 September 2017, Mr Stuart Boydell, the chairman and a non-executive director of Namoi Cotton, referred to the conduct of the Stockholders' Meeting on 26 September 2017, as well as the further meeting of holders of the Namoi Capital Stock and the special general meeting of Grower shares which were held concurrently with the Stockholders' Meeting.
The second affidavit dated 27 September 2017 of Mr Balhar Garcha, the General Counsel and company secretary of Namoi Cotton, dealt with the preparation and despatch of the restructure booklet in respect of the schemes; the provision of information to inactive Grower Members (to which I referred in the Earlier Judgment) and to Grower Members whose Grower shares were forfeited in the period between 26 September 2012 and 3 March 2014 (a matter to which I also referred in the Earlier Judgment); the despatch of the proposed constitution of Namoi Cotton to active Grower Members; the publication of notice of the relevant meetings in the Narrabri Courier, which circulates generally in the district where the registered office of Namoi Cotton is situated; and the result of the postal ballots contemplated by the Co-operatives National Law in respect of the Members' Scheme, which approved that scheme by an overwhelming majority of Grower Members.
Mr Garcha fairly draws attention, in his second affidavit, to the fact that, as a result of an oversight within Namoi Cotton, active Grower Members were not provided with a copy of Namoi Cotton's proposed constitution at the same time that they were provided with the explanatory statement in respect of the schemes, as the Registrar of Co-operatives had previously required in correspondence, and as contemplated by the evidence led by Namoi Cotton at the first court hearing. That oversight was identified and remedied by the despatch of copies of the constitution to active Grower Members on 21 September 2017, and a summary of the proposed constitution was also contained in the explanatory statement and copies of it were available throughout the relevant period on Australian Securities Exchange Limited, on Namoi Cotton's website, and by request to Namoi Cotton as set out in the Restructure Booklet (Garcha [16]; Restructure Booklet [7.6(a)]). That oversight was disclosed to the Registrar of Co-operatives which has registered the relevant resolutions and confirmed that it has no objection to the schemes. Mr Thomas, who appears for Namoi Cotton, submits, and I accept, that this matter provides no reason not to approve the scheme.
Mr Garcha's third affidavit dated 29 September 2017 dealt with voting at the Stockholders' Meeting, which also approved the Stockholders' Scheme by an overwhelming majority both in respect of Stockholders generally and in respect of those Stockholders who were not also active Grower Members.
Namoi Cotton also relied on the affidavit of Ms Roopa Paresh dated 29 September 2017, who is a Relationship Manager with ComputerShare Investor Services Pty Ltd, which provided services to Namoi Cotton in respect of the meetings of Grower Members and Stockholders. Ms Paresh outlined the process adopted for despatch of materials relating to the restructure and the relevant meetings and for the receipt and recording of proxy forms and ballot forms in respect of those meetings, and also outlined the process adopted to conduct the Stockholders' Meeting and special general meeting. Ms Paresh confirmed the outcome of the relevant meetings, and the passage of each of the resolutions in respect of the Members' Scheme and the Stockholders' Scheme in accordance with the statutory majorities required under s 414 of the Co-operatives National Law.
Namoi Cotton also relies on the fourth and fifth affidavits of its solicitor, Mr Gregory Golding, dated 28 September 2017 and 3 October 2017. Mr Golding's fourth affidavit outlines the lodgement of materials with the Australian Securities and Investments Commission and refers to correspondence with the Registrar of Co-operatives and publication of notice of this hearing in a national newspaper. Mr Golding's fifth affidavit confirmed the registration of the relevant special resolutions by the Registrar of Co-operatives.
The evidence indicates that 97.75% of Stockholders who were present and voting (in person or by proxy), representing 99.59% of Namoi Capital Stock, voted in favour of the Stockholders' Scheme and 97.46% of Grower Members who cast formal votes in the postal ballot voted in favour of the Members' Scheme (Garcha 27.9.17 [29]-[30]). Associated resolutions in respect of the alteration of the rules of Namoi Cotton, a transfer of its incorporation and variation of rights were also passed by overwhelming majorities at the relevant meeting (Boydell 26.9.17 [16]-[17], Annexure E; Garcha 27.9.17 [25]-[28], Annexure H).
Mr Thomas draws attention to the matters to which the Court will have regard in determining whether to approve the schemes under the Co-operatives National Law, by analogy with schemes under Pt 5.1 of the Corporations Act 2001 (Cth), namely whether the requirements of the Co-operatives National Law have been complied with; whether the majority of Stockholders and Grower Members have acted in good faith in voting to approve the schemes; whether the proposals reflected in the schemes are fair and reasonable such that they are capable of being accepted by intelligent and honest Stockholders and Grower Members, as applicable, looking to their own commercial advantage; whether the Court's orders made at the first court hearing, including as to disclosure, were complied with; and whether the Plaintiffs have brought all matters relevant to the exercise of the Court's discretion to approve the schemes to the Court's attention.
Mr Thomas submits, and I accept, that the evidence establishes that both schemes have been approved by the requisite statutory majorities under s 414(1) of the Co-operatives National Law. That approval was obtained in respect of the Stockholders' Scheme by substantial majorities both in number of the Stockholders present and voting in person or by proxy and in value of Stockholders whose debts or claims against Namoi Cotton amounted to substantially more than 75% of the total of the debts and claims of all creditors present and voting in person or by proxy; and by special resolution passed by special postal ballot in respect of the Members' Scheme. Mr Thomas also submits, and I accept, that the statutory pre-conditions for approval contained in s 424 of the Co-operatives National Law are satisfied, since there is nothing to suggest that either scheme was proposed to avoid the operation of any provision in Pt 3.5 Div 2 of the Co-operatives National Law, which broadly corresponds to takeover provisions under the Corporations Act; and the Registrar of Co-operatives has provided a written statement that the Registrar has no objection to the schemes. Both of those matters must be satisfied in order to approve a scheme under the Co-operatives National Law: Re Australian Co-operatives Foods Ltd [2001] NSWSC 382; (2001) 186 ALR 21; 38 ACSR 71.
Nothing in the structure of the schemes or the evidence suggests that Stockholders or Grower Members did not approve the schemes in good faith, and the structure and commercial purposes of the schemes are such that the Court can be satisfied that they are fair and reasonable and were capable of being approved by intelligent and honest Stockholders and Grower Members acting in their respective interests. No Stockholder or Grower Member notified Namoi Cotton's solicitors of any intention to oppose the application for approval of the schemes or appeared at this hearing to do so. The evidence to which I have referred above indicates that the Court's orders made at the first court hearing, including as to disclosure, have been complied with.
Mr Thomas fairly drew the Court's attention to the fact that, as I had noted in the Earlier Judgment, approximately 60% of Namoi Capital Stock was held by Grower Members. As contemplated by the Earlier Judgment, Stockholders' votes were tagged to enable the Court to take that matter into account when determining whether to approve the schemes. The Stockholders' Scheme was approved by substantial majorities both of those Stockholders who were not also active Grower Members, and of those Stockholders who were active Grower Members, and I accept Mr Thomas' submission that this provides no reason for the Court to decline to approve the Stockholders' Scheme.
In these circumstances, I made orders in accordance with the Short Minutes of Order that were initialled by me and placed in the Court file at the second court hearing on 3 October 2017, approving each of the Stockholders' Scheme and the Members' Scheme under s 414 of the Co-operatives National Law. I also made an order, in a form commonly made in respect of schemes relating to companies and co-operatives, exempting Namoi Cotton from the requirement under s 421(1) of the Co-operatives National Law that a copy of the Court's order approving a compromise or arrangement be attached to each copy of the rules of the co-operative after the order was made. It seems to me that no useful purpose would have been served by that occurring in the relevant circumstances.
[3]
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Decision last updated: 27 October 2017