97 Mr Monzu gave affidavit evidence generally consistent with that given by Mr Jooste. He was cross-examined by Mr Thomson but nothing affecting the outcome of the meeting appears to have turned on that cross-examination.
98 Mr Thomson gave evidence on affidavit about the conduct of the meeting on Christmas Island. He said he spoke to Mr Jooste about the 'late' disallowed proxies. Mr Jooste said he had no power to change their status. His role was to chair the meeting and prepare a report for the Court about the conduct of the proceedings and the outcome of any resolutions at the meeting. Mr Thomson said that all but two of the 19 replacement proxies which he had lodged were allocated to the chairman who voted for the resolution. I take it that this was intended as a reference to the proxies that would have been replaced but for the time at which their replacement proxies were lodged.
99 Mr Thomson also said that when he moved his adjournment motion the chairman did not allow it to be put to the vote. According to Mr Thomson, the chairman said that the Court order required him to conduct the meeting on 10 September 2005.
100 After the meeting was closed Mr Thomson approached the company secretary, Mr Torre, and those standing with him including Mr Monzu, Ms Wong and, nearby, Ms Futaesaku. He asked Mr Torre why he did not advise him of the disallowance of the proxies so that he could have attempted to secure the personal attendance of those shareholders whose proxies had been disallowed. Mr Torre said that he had no obligation to tell Mr Thomson that the proxies had been disallowed.
The Evidence - the CII Meeting
101 The CII meeting ordered by the Court on 8 August 2005 took place as directed on 10 September 2005 at Level 15, Woodside Plaza, 240 St George's Terrace, Perth at 10.30 am (WST). The meeting was chaired by Melvin Yeo, appointed as chairman by the Court order. Mr Mark Caruso, the appointed representative for CII arrived at the meeting before 10.30 am. He presented the notice of his appointment. The meeting was convened. Mr Caruso was given a ballot paper. The resolution was put and Mr Caruso voted in favour of the resolution. The meeting closed at 10.33 am.
The Evidence - PRL Articles of Association
102 The Articles of Association of PRL were exhibited to the affidavit of the Chairman of the Board, Lai Ah Hong. Article 12 deals with proceedings at general meetings. Article 12.14 gives the Chairperson responsibility for the general conduct of such meetings:
'12.14 General Conduct of Meetings
(a) The chairperson will be responsible for the general conduct of general meetings and for the procedures to be adopted at general meetings.
(b) The chairperson may make rulings, adjourn the meeting without putting the question (or any question) to the vote if such action is required to ensure the orderly conduct of the meeting.
(c) The chairperson may require the adoption of any procedures which are in the chairperson's opinion necessary or desirable for the proper and orderly casting or recording of votes at any general meeting of the Company, whether on a show of hands or on a poll.
(d) The chairperson may determine conclusively any dispute concerning the admission, validity or rejection of a vote.
…
(f) Nothing contained in this Article 12.14 will be taken to limit the powers conferred on the chairperson by law.'
103 The adjournment of general meetings is dealt with in Article 12.13 thus:
'12.13 Adjournment of general meetings
If so directed by the general meeting, the chairperson will adjourn the meeting from time to time and from place to place; but no business will be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.'
104 Article 13 deals with 'Votes at General Meetings' and provides, inter alia:
'13.1 Number of votes
Subject to any special rights or restrictions for the time being attaching to any class of shares in the capital of the Company and Article 13.8:
(a) on a show of hands at a general meeting every person present who is either an Eligible Member, a proxy, an attorney or a Representative of an Eligible Member has one vote; and
(b) on a poll at a general meeting every Eligible Member (not being a corporation) present in person or by proxy or attorney and every Eligible Member (being a corporation) present by a Representative or by proxy or attorney has one vote for each share that Eligible Member holds,
…
13.4 Chairperson to determine disputes relating to votes
In the case of any dispute as to the admission or rejection of a vote, the chairperson may determine the dispute and such determination made in good faith will be conclusive.
…
13.7 Proxy not to vote if Member present
If an Eligible Member is present at a meeting of the Company and a proxy or attorney for such Eligible Member is also present, the proxy or attorney is not in respect of shares to which the proxy or attorney relates entitled to vote on a show of hands or on a poll.'
105 Article 14 deals with 'Proxies and Representatives' and provides, inter alia:
'14.1 Right to appoint proxy/attorney
(a) An Eligible Member is entitled to appoint not more than 2 other persons (whether Eligible Members or not) as the Eligible Member's proxy or proxies or attorney or attorneys, as the case may be to attend and vote instead of the Eligible Member at the meeting.
…
14.2 Proxy or attorney will be written
An instrument appointing a proxy or attorney:
(a) will be in writing under the hand of the appointer or of the appointer's attorney duly authorised in writing or, if the appointer is a corporation, under its common seal or the hand of its duly authorised attorney; and
(b) may contain directions as to the manner in which the proxy or attorney, as the case may be, is to vote in respect of any particular resolution or resolutions.
A facsimile of a written appointment of a proxy or a power of attorney is valid.
14.3 Directors or chairperson decide validity
The Directors' or chairperson's decision as to the validity of a proxy or power of attorney or a facsimile thereof will be final and binding.
…
14.5 Power of attorney and proxy form to be deposited before meeting
An instrument appointing an attorney or a proxy and, the power of attorney or other authority (if any) under which it is signed or a copy of that power or authority certified as a true copy by statutory declaration or a facsimile of any of the documents referred to in this Article, will be deposited at the Office not less than 48 hours before the time scheduled for commencement of the meeting (or any adjournment of that meeting) at which the person named in the instrument intends to vote.
…
14.7 Member may indicate whether proxy is to vote for or against resolution
(a) Any form of proxy sent out by the Company to Members in respect of a proposed general meeting of Members will make provision for the Member to indicate whether the Member wishes to vote for or against any resolution.
(b) The Eligible Member may but need not give an indication or direction as to the manner in which a proxy is to vote in respect of a particular resolution.
(c) Where an indication or direction is given, the proxy is not entitled to vote on the resolution on behalf of that Eligible Member except in accordance with that indication or direction.
…
14.10 Failure to name appointee
Any instrument of proxy in which the name of the appointee is not filled in will be deemed to be given in favour of the chairperson or such other person as is nominated by the Directors in the notice convening the relevant general meeting.'
106 The term 'office' used in the Articles is defined in Article 1.1 as '…the registered office for the time being of the Company'. The term 'Eligible Member' means:
'… in relation to a meeting of the Company (including a meeting of any class of Members), any person who is or was the registered holder of a share at the time prescribed for this purpose under Article 11.4 in the notice convening the meeting.'
Statutory Framework
107 The application for approval of a scheme of arrangement is made under Pt 5.1 of Chapter 5 of the Actheaded "EXTERNAL ADMINISTRATION". Part 5.1 is entitled 'ARRANGEMENTS AND RECONSTRUCTIONS'. Section 411(1) deals with the Court's power to order a meeting and approve the requisite explanatory statement. Subsections (1A) to (1C) concern group arrangements and are not relevant for present purposes. Subsection (2) provides for notice to the ASIC in relation to an application for an order for a meeting and for approval of the Explanatory Statement. Subsection (3) deals with the requirements of the draft Explanatory Statement. Subsection (4) and succeeding subsections which are relevant for present purposes provide:
'411(4) A compromise or arrangement is binding on the creditors, or on a class of creditors, or on the members, or on a class of members, as the case may be, of the body and on the body or, if the body is in the course of being wound up, on the liquidator and contributories of the body, if, and only if:
(a) at a meeting convened in accordance with an order of the Court under subsection (1) or (1A):
(i) in the case of a compromise or arrangement between a body and its creditors or a class of creditors - the compromise or arrangement is agreed to by a majority in number of the creditors, or of the creditors included in that class of creditors, present and voting, either in person or by proxy, being a majority whose debts or claims against the company amount in the aggregate to at least 75% of the total amount of the debts and claims of the creditors present and voting in person or by proxy, or of the creditors included in that class present and voting in person or by proxy, as the case may be; and
(ii) in the case of a compromise or arrangement between a body and its members or a class of members - a resolution in favour of the compromise or arrangement is:
(A) passed by a majority in number of the members, or members in that class, present and voting (either in person or by proxy); and
(B) if the body has a share capital - passed by 75% of the votes cast on the resolution; and
(b) it is approved by order of the Court.;
411(5) Where the Court orders 2 or more meetings of creditors or of a class of creditors, or 2 or more meetings of members or of a class of members, to be held in relation to the proposed compromise or arrangement:
…
(b) in the case of meetings of members - the meetings are, for the purposes of subsection (4), taken together to constitute a single meeting and the votes in favour of the proposed compromise or arrangement cast at each of the meetings is [sic] to be aggregated, and the votes against the proposed compromise or arrangement cast at each of the meetings is [sic] to be aggregated, accordingly.
411(6) The Court may grant its approval to a compromise or arrangement subject to such alterations or conditions as it thinks just.
…
411(10) An order of the Court made for the purposes of paragraph (4)(b) does not have any effect until an office copy of the order is lodged with ASIC, and upon being so lodged, the order takes effect, or is taken to have effect, on and from the date of lodgment or such earlier date as the Court determines and specifies in the order.
411(11) Subject to subsection (12), a copy of every order of the Court made for the purposes of paragraph (4)(b) must be annexed to every copy of the constitution of the body issued after the order has been made.
411(12) The Court may, by order, exempt a body from compliance with subsection (11) or determine the period during which the body must comply with that subsection.
…
411(17) The Court must not approve a compromise or arrangement under this section unless:
(a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or
(b) there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement;
but the Court need not approve a compromise or arrangement merely because a statement by ASIC stating that ASIC has no objection to the compromise or arrangement has been produced to the Court as mentioned in paragraph (b).'
108 Also invoked in the present case are ss 249L and 250B of the Act. Section 249L in the relevant parts provides:
'(1) A notice of a meeting of a company's members must:
(a) set out the place, date and time for the meeting (and, if the meeting is to be held in 2 or more places, the technology that will be used to facilitate this); and
(b) state the general nature of the meeting's business; and
(c) if a special resolution is to be proposed at the meeting - set out an intention to propose the special resolution and state the resolution; and
(d) if a member is entitled to appoint a proxy - contain a statement setting out the following information:
(i) that the member has a right to appoint a proxy;
(ii) whether or not the proxy needs to be a member of the company;
(iii) that a member who is entitled to case 2 or more votes may appoint 2 proxies and may specify the proportion or number of votes each proxy is appointed to exercise.
…
(3) The information included in the notice of meeting must be worded and presented in a clear, concise and effective manner.'
109 Section 250B, which relates to proxy documents provides:
'(1) Documents to be received by company before meeting. For an appointment of a proxy for a meeting of a company's members to be effective, the following documents must be received by the company at least 48 hours before the meeting:
(a) the proxy's appointment;
(b) if the appointment is signed, or otherwise authenticated in a manner prescribed by regulations made for the purposes of subsection 250A(1), by the appointor's attorney - the authority under which the appointment was signed or authenticated or a certified copy of the authority.
(2) Documents received following adjournment of meeting. If a meeting of a company's members has been adjourned, an appointment and any authority received by the company at least 48 hours before the resumption of the meeting are effective for the resumed part of the meeting.
(3) Receipt of documents. A company receives a document referred to in subsection (1):
(a) when the document is received at any of the following:
(i) the company's registered office;
(ii) a fax number at the company's registered office;
(iii) a place, fax number or electronic address specified for the purpose in the notice of meeting; and
(b) if the notice of meeting specifies other electronic means by which a member may give the document - when the document given by those means is received by the company as prescribed by the regulations.
(5) Constitution or notice of meeting may provide for different notification period. The company's constitution (if any) or the notice of meeting may reduce the period of 48 hours referred to in subsection (1) or (2).'
110 Regulation 5.6.36 of the Corporations Regulations also deals with the time for lodging proxies thus:
'A person named in a notice convening a meeting as the person who is to receive:
(a) an instrument appointing a proxy; or
(b) any other document relating to the validity of the appointment of a proxy;
must not require that instrument or document to be received more than 48 hours before the meeting.'
Compliance with the Court Order and Statutory Requirements
111 Subject to the issues raised by the objectors, I am satisfied that PRL has complied with the requirements of the Court's order of 8 August 2005 and the statute. Meetings were convened on Christmas Island and at Perth on 10 September 2005 as directed.
112 As required by s 412 of the Act Notice of the Meetings together with an Explanatory Statement explaining the effect of the Scheme and setting out prescribed information and other information material to the making of decisions by shareholders was sent. As deposed to in the affidavit of Mari Futaesaku sworn 30 September 2005, the Explanatory Statement was registered with ASIC in accordance with s 412(6).
113 On the count accepted by Mr Jooste at the Christmas Island meeting 114 members voted in favour of the scheme and 87 against. On a poll, that represented 1,203,870 votes in favour and 726,650 against. At the meeting of CII, the one member present, namely CII represented by Mr Caruso, voted in favour. On a poll, that represented 1,327,180 votes in favour of the scheme.
114 Pursuant to s 411(5)(b) the results of the two meetings were to be taken together as though occurring at a single meeting and the votes for and against the proposed arrangement aggregated. On the aggregated results there were 150 shareholders in favour of the Scheme and 87 against, representing 56.9% and 43.1% of shareholders present and voting respectively. These represented in turn 2,531,050 votes in favour and 726,650 against. The votes in favour of the Scheme were 77.69% of those cast. The votes against were 22.31%.
115 The Act requires that for a scheme to be approved there must be a majority in numbers of members present and voting in favour and 75% or more of the votes cast on the resolution in favour - s 411(4)(a)(ii)(A) and (B). The number of shareholders in favour being 56.7% and the number of votes in favour being 77.69%, on the chairman's count as audited by Mr Monzu, the requisite majorities were achieved (subject to the dispute as to disallowed proxies).
116 Rule 3.4 of the Corporations Rules required that PRL publish a notice of the hearing of the application under s 411(4) for approval of the Scheme. Advertisements of the hearing were published in accordance with that Rule as deposed to by Ms Lehman in her affidavit sworn 10 October 2005.
117 Absent the procedural objections relating to the time specified in the Court's order, the associated question of the disallowance of the proxies and the refusal to adjourn the Christmas Island meeting, I would be satisfied that the requirements of the Court's order, the Act and the Rules have been complied with. It is necessary to have regard to the procedural objections and the more substantive objections before considering the general question whether, in the light of those objections, the Scheme should be approved.
The Disallowance of Proxies
118 Mr Thomson submitted that Mr Jooste wrongly disallowed proxies for lateness because he misinterpreted the Court's order made on 8 August 2005. The order made no reference to Western Standard Time in fixing the time for the commencement of the PRL shareholders' meeting on Christmas Island.
119 PRL relied upon the provisions of s 250B of the Act and Article 14.5 of the PRL Articles for the proposition that proxies were to be lodged '… not less than 48 hours before the time scheduled for the meeting'. It also relied upon Article 14.3 which provides:
'The Directors' or chairperson's decision as to the validity of a proxy or power of attorney or a facsimile thereof will be final and binding.'
As to the latter Article it may be said immediately that the responsibility of the Court in determining whether to approve a scheme of arrangement is not to be confined by the finality of the chairperson's rulings on the validity of proxies. If the chairperson's ruling were based upon a misinterpretation of the Court's order then a real question might arise whether a vote in favour of the resolution represented the will of the shareholders expressed according to the statutory majorities required by the Act.
120 At the time that the order of 8 August 2005 was made the Court had before it a draft Scheme Booklet exhibited to the affidavit of Lia Ah Hong, sworn on 22 July 2005. That draft Scheme Booklet did not specify any time for the meeting. The covering letter comprising the first document in the draft stated:
'On [] 2005 the Court granted an order for the Company to convene the Scheme Meetings, to be held as follows:
. a meeting for PRL Shareholders (other than CII), to be held on [] 2005 at [] am/pm (WST) at [], Christmas Island, Western Australia; and …'
The last paragraph of the draft letter which related to the date by which proxies should be returned specified '…by no later than [] am/pm (WST) on [] 2005'. Corresponding times were left blank in other parts of the draft Scheme Booklet. The Booklet cannot, in my opinion, be relied upon to construe the order in relation to the times that it specifies for the conduct of the meetings.
121 In my opinion, absent the designation of a specific time zone, the time designated in the Court's order of 8 August 2005 must be taken as referring to the local times at the places at which the meetings were to be convened. This accords with the natural meaning of the words and figures used in the order. The order, it may be noted, was made in accordance with a minute submitted by PRL. That does not of course entitle PRL to the construction which it now advances. There was no requirement nor any particular advantage in a requirement that the Perth and Christmas Island meetings be held simultaneously. It is true that the draft Booklet referred at all times to Western Standard Time. That does not mean that the relevant times had to be the same.
122 The first advertisement of the Christmas Island meeting in The Islander newspaper accorded with the order so construed, albeit it was regarded subsequently as mistaken and a later advertisement was put in on the day before the meeting advising of a start time of 9.30 am, ie 10.30 am (WST). In the event, because of the mix-up over the advertisement, the chairman, Mr Jooste, quite properly adjourned the substantive part of the meeting to 10.30 am Christmas Island time.
123 It is true of course that the message in the Scheme Booklet sent to shareholders was clear. The meeting was to start at 10.30 am (WST) and proxies were to be received by 10.30 am (WST) on 8 September 2005. Section 1 of the Booklet specified the place to which the proxy forms were to be sent, albeit it made no reference to sending them by facsimile. However the instructions accompanying the proxy forms in the Scheme Booklet did indicate that they could be delivered by facsimile to PRL's registered office at South Perth.
124 The Court's order did not form part of the Scheme Booklet. There is no evidence that any shareholder acted in reliance upon the Court's order or upon the first advertised time in The Islander newspaper in deciding when to lodge a proxy or replacement proxy. Mr Thomson seems to have left his run with the proxy forms rather late because he assumed he could just deliver them to the Christmas Island office of PRL in accordance with the practice which had been followed for the 2003 and 2004 Annual General Meetings. None of the preceding is material however, for the key question here is whether persons who intended to record a vote against the Scheme were wrongly deprived of the opportunity to do so.
125 It might be argued that, notwithstanding the Court order, the notice of meeting was valid under the PRL Constitution and the proxy lodgment requirements governed by s 250B of the Act and by the Articles on the basis of the meeting time as specified in the notice. It is not necessary to determine that matter here. It is sufficient to say that had the Court's order, properly construed, been followed the latest time for lodgment of proxies would have been 11.30 am (WST) on 8 September 2005 and not the time actually applied.
126 Mr Monzu's affidavit of 29 September 2005 exhibited his handwritten notes relating to proxies received after 10.30 am (WST) in Perth. There were, according to his notes, 33 proxy forms representing 207,950 votes against the resolution and one undirected form representing 3,500 votes. His analysis of the 'invalid' proxies showed that if they were treated as valid there would have been 113 members voting against the resolution, representing 52.8% of the 'head count' and 857,900 votes, representing 25.81% of the voted shares. The number of members voting for the resolution would therefore have represented 47.2% of those voting. The statutory majority required by s 411(4) would not have been achieved. The percentage of shares voted in favour of the resolution would have been 74.19%, which would have been just short of the required majority of 75%.
127 In my opinion the disallowance of the proxies in question had its origins in the misconstruction of the Court order. It is at least a probable result that a significant number of shareholders were deprived of the right to exercise their vote at the meeting on Christmas Island and it appears, on the balance of probabilities at least, that their vote would have resulted in the resolution being defeated.
The Refusal of an Adjournment
128 The chairman of the meeting on Christmas Island refused to entertain a motion for an adjournment. It appears from Mr Thomson's evidence, read with the chairman's evidence, that he did so at least in part on the basis that the Court order precluded him from adjourning the meeting from one day to the next. I have no doubt that the chairman acted in good faith in the decision he made. There was however nothing in the Court order to prevent the members from directing the chairman to adjourn the meeting pursuant to Article 12.13 of the PRL Articles of Association. It may be questionable whether Mr Thomson could have mustered the necessary majority to secure an adjournment. But had he done so shareholders on the Island whose proxies had been disallowed could have attended in person at the adjourned meeting and voted at it. There was therefore, in my opinion, a doubt attending the basis upon which the chairman made his decision to refuse an adjournment. If my conclusion in relation to the disallowance of the proxies is correct, then the complaint by the objector shareholders relating to the refusal to entertain an adjournment of the meeting may be academic. It does, however raise, at least as a fallback position, another question about the integrity of the meeting process and the extent to which it can be relied upon as a proper reflection of the wishes of a relevant majority of the shareholders.
Whether the Directors Should Have Voted as a Separate Class
129 It was submitted that the directors of PRL, being also shareholders in CII, should have voted as a separate class. As counsel for PRL pointed out however, the directors were ordinary shareholders in the same class as any other ordinary shareholder. Their shareholdings were disclosed in the Scheme Booklet. Neither the Act nor the Court order required that they vote in a separate class. This contention does not raise any basis for refusing approval to the Scheme.
The Consideration offered under the Scheme
130 It was contended by Mr Pauley that the Consideration offered for shares in PRL under the Scheme was inadequate. PRL on the other hand, argued that the shareholders are the best judges of whether a scheme is in their commercial interests and that the Court will be reluctant to make a decision contrary to the views expressed at the meeting - Central Pacific Minerals NL [2002] FCA 239 at [13]-[14] Emmett J. See also Application of NRMA Limited (2000) 18 ACLC 533 at 541; In the Matter of Foundation Healthcare Limited (No 2) [2002] FCA 973 at [31]. It is not for the Court to go behind a commercial judgment which it was reasonably open for shareholders properly informed to make.
131 In this case however there are, as I have already indicated, some significant questions about the basis upon which the conclusions of the independent expert were advanced.
This is particularly so in relation to the variability of the underlying cash figures on which the valuation of PRL shares was based. Absent clear advice to the shareholders about that variability, it seems to me that there is a real question whether the Independent Expert Report may have been materially incomplete. In so saying, I do not express any view that the proposed merger is not in the best interests of the shareholders. It may well be so when proper account is taken of the range of advantages that it offers. Indeed, subject to the sufficiency of the Consideration, it would be open to a meeting of shareholders properly informed to conclude that PRL would be a lot better off allied with a listed company that has opportunities for fund raising and expansion that are not available to PRL by itself. In my opinion, however, the questions about certain aspects of the Independent Expert's Report do leave a doubt about whether shareholders who read and relied upon the Report were fully and properly informed.
Whether the Scheme should be Approved
132 The Court has a discretion to refuse to approve a scheme of arrangement. Generally speaking, in deciding whether to approve a proposed scheme, it is necessary that the Court be satisfied that:
- the requirements of s 411 have been met;
2. the majority of shareholders voting in favour of the scheme acted in good faith and not in pursuit of some illegitimate purpose;
3. the proposal is sufficiently fair and reasonable that an intelligent and honest shareholder acting alone might approve it - see Application of NRMA Limited.
Generally speaking, where a scheme has been approved by properly informed shareholders at duly convened meetings and is fair and reasonable, the Court will be reluctant to go behind the commercial judgment so exercised. In this case however there are, in my opinion, significant questions affecting the integrity of the process by which the shareholders of PRL were brought to the point of their resolution. The factors affecting the integrity of the process in my opinion are:
- the misconstruction of the Court's order as to the time of the Christmas Island meeting which had the result that a significant number of shareholder proxies which would have been instrumental in effecting a rejection of the Scheme were wrongly disallowed;
- the refusal to entertain a vote on a motion for adjournment of the Christmas Island meeting which would have allowed an opportunity for shareholders who had lodged disallowed proxies to vote in person;
- the existence of inadequacies in the Independent Expert's Report particularly as to the variability of figures upon which the valuation of PRL shares was based.
133 In my opinion, and having regard to these factors, I do not consider that I can have real confidence that the meeting was conducted in such a way as to fairly allow all shareholders an opportunity to record their votes. Nor am I satisfied that the shareholders who did vote at the meeting did so on a fully informed basis. For these reasons I decline to approve the proposed Scheme of Arrangement.
Application to Extend Time for the Lodgment of Annual Financial Report and Associated Orders
134 On 25 October 2005 PRL lodged an application pursuant to s 1322 of the Act. It sought orders:
(a) extending the period within which to lodge its annual financial report under s 319 of the Act to 31 December 2005 - this order was sought under s 1322(4)(d) of the Act;
(b) pursuant to s 1322(4)(c) of the Act, an order relieving:
(i) the company from any civil liability for contravening the requirement to lodge an annual financial report by 30 September 2005 under s 319(1) of the Act; and
(ii) the directors and officers from any civil liability under s 344(1) of the Act.
135 The relevant facts which derive from an affidavit sworn by Peter Torre, the company secretary, on 25 October 2005, were conveniently set out in PRL's written submissions in support of this application. They are as follows:
- In February 2005 PRL and CII agreed to implement the proposed Scheme.
2. Since that time PRL focussed much of its resources on the implementation of the Scheme.
3. PRL has a small accounting department of five. The cost of preparing the annual financial report for the year ending 30 June 2005 would have been in the vicinity of $200,000.
4. On 8 August 2005 the Court ordered that meetings of PRL's shareholders be held on 10 September 2005. The orders also provided for the application for the Court's approval of the Scheme to be heard on or before 26 September 2005.
5. A Scheme Booklet was dispatched to PRL's shareholders in mid August 2005.
6. PRL anticipated that the Scheme would be implemented before 30 September 2005 which would have enabled it:
(a) to synchronise its financial year with CII whose financial year begins on 1 January and ends on 31 December each year; and
(b) to lodge its annual financial report as part of the Merged Group within three months from 31 December 2005.
7. Two matters occurred outside PRL's control, namely:
(a) the opposition from some PRL shareholders to the Scheme;
(b) the postponement of the second Court hearing from before 26 September 2005 to 4 November 2005 to allow, with the support of PRL (which put forward programming directions), those shareholders to be heard.
8. The implementation of the Scheme therefore did not occur before 30 September 2005.
9. PRL caused an application to be made to ASIC for extension of the period within which to lodge the annual financial report and to hold an annual general meeting.
10. ASIC has granted an extension of time within which to hold an annual general meeting to 31 January 2006 but declined to grant an extension of the period in which to lodge the annual financial report. PRL has instructed its auditors, Ernst & Young, to start preparing the report and its solicitors to take steps to seek remedial orders from the Court.
11. The audit will require approximately four staff to travel to Christmas Island. Given their present workload and schedule they will not be able to complete the audit process until early December 2005.
136 Section 1322(4) of the Act provides:
'Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:
(a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation;
…
(c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);
(d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;
and may make such consequential or ancillary orders as the Court thinks fit.'
137 Section 1322(6) provides:
'The Court must not make an order under this section unless it is satisfied:
(a) in the case of an order referred to in paragraph (4)(a):
(i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;
(ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii) that it is just and equitable that the order be made; and
(b) in the case of an order referred to in paragraph (4)(c) - that the person subject to the civil liability concerned acted honestly; and
(c) in every case - that no substantial injustice has been or is likely to be caused to any person.'
138 In so far as the late preparation of financial reports may have impacted upon the Scheme approval process, no substantial injustice has been or is likely to be caused having regard to the Court's refusal to approve the Scheme for unrelated reasons. It is said that a refusal to grant an extension would inflict unnecessary liability or inconvenience. PRL's primary focus has been on ensuring that shareholders are provided with all relevant information, both financial and non-financial. The time and resources directed to the Scheme approval process meant that the time for preparation and lodgment of audited annual reports proceeded on the basis of an assumption that was not realised. It is submitted for PRL that this honest inadvertence in circumstances where PRL was doing its best to give all relevant information to shareholders for the Scheme meetings is not one which warrants punishment.
139 There is no reason to doubt the honesty of those who were responsible for the preparation of the financial report and failed to act in relation to its preparation in a timely fashion. The assumption upon which they acted was, however, a risky one. It depended upon the absence of any opposition at the meeting and moreover assumed that the Court would give its approval to the Scheme. It was, of course, open to PRL to apply to the Court for an extension before the period had ended. The failure to do so speaks of a rather casual approach to the obligations imposed by the Act.
140 In my opinion, however, the circumstances which have given rise to the failure to comply with the requirements of the Act were unique in the history of PRL. They reflect distraction, carelessness and wrong assumptions, rather than any dishonesty or reckless disregard of statutory requirements. In the circumstances, I am prepared to make the orders sought.
I certify that the preceding one hundred and forty (140) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.