In the matter of Victorian Grain Services Limited [2000] VSC 334 (22 August 2000)

5. The present application by VGS is for approval of a proposed scheme of arrangement under section 411(4)(b) of the Corporations Law. It is made by a substantial company the members of which are for the most part either grain growers holding ordinary shares, or directors and employees holding B class shares. The Victorian Farmers Federation is also a holder of B Class shares. Essentially, the scheme contemplates a merger.

8. On 23 June 2000 I heard an application by VGS for approval of the convening of a meeting of shareholders pursuant to s.411(1) of the Corporations Law. Upon considering affidavits in support of the application and a proposed explanatory statement I ordered that a meeting be convened of ordinary shareholders and B class shareholders. In addition, consequential orders were made with respect to advertising, notices and the manner of conduct of the shareholders' meeting. On 23 June 2000 I was satisfied that the Australian Securities and Investments Commission ("ASIC") had no objection.

11. The principal asset of VGS is its majority shareholding in Vicgrain Limited, a company whose principal business is bulk grain storage and handling.

14. The scheme of arrangement proposes an arrangement between VGS and its members whereby the shareholders in VGS will transfer their shares to a second presently unrelated company, called Graincorp, in return for (fully paid) shares in that company. As a result of the scheme Graincorp would become a holding company of VGS, and, in turn, of Vicgrain Limited.

17. At present Graincorp is a New South Wales company the principal member of which is a third company, Grain Growers Association Limited, formerly called Prime Wheat Australia Limited ("Grain Growers Association"). The members of Grain Growers Association are mostly grain growers. As part of the scheme in order to secure grower control over the combined bulk grain storage and handling businesses of Graincorp and Vicgrain, it is proposed that the ordinary members of VGS, that is, the grain grower members, will also become members of Grain Growers Association. As such members they will be entitled to participate as part of the majority grain grower members in Grain Growers Association and, as part of that majority group, to influence control of Graincorp and, in turn, Vicgrain Limited. As a consequence of the fact that Grain Growers Association is a company limited by guarantee without a shareholder, the grower members of the company will become guarantor members of Grain Growers Association and, in common with the other members of that company, will be liable to contribute in a winding up to the extent of $100 each.

20. The shareholders' meetings as ordered on 23 June 2000 proceeded.

23. Those meetings were duly convened to consider and vote on the scheme. The appropriate resolutions were passed on a poll by the requisite majorities as provided in section 411(4)(1)(a)(ii) of the Corporations Law.

26. On 16 August 2000 Master Evans made orders pursuant to Rule 16.6 that:

(a) (subject to dispensation from the requirement to give notice to creditors upon the hearing of the plaintiff's application for approval of the proposed Scheme of Arrangement) the meetings of the classes of members of Victorian Grain Services Limited convened pursuant to the orders made 23 June 2000 were duly convened and held; and

(b) the resolution passed under section 411(4) of the Corporations Law at each of the meetings was duly passed.

(a) That the scheme of arrangement be approved.

(b) VGS be dispensed from compliance with section 411(11) of the Corporations Law in relation to the scheme of arrangement.

(c) VGS be dispensed (nunc pro tunc) from the requirement (if any) to give notice to its creditors of the Court ordered meetings convened to consider, and if thought fit, to approve the scheme of arrangement pursuant to the Orders of the Court dated 23 June 2000.

38. The ultimate outcome of the scheme will be that the ongoing 'merged' entities will be controlled by the Grain Grower members of Grain Growers Association. Its main features are:

(a) The shareholders in VGS (both ordinary and B class shareholders) will transfer their shares in VGS to GrainCorp Limited ("GrainCorp"), a subsidiary of Grain Growers Association Limited ("Grain Growers Association") formerly called Prime Wheat Association Limited).

(b) In return, on a date being the Implementation Date:

(i) the shareholders in VGS will receive fully paid shares in GrainCorp in the ratio of six VGS shares for one GrainCorp share (and proportionately for partly paid shares);

(ii) the ordinary members in VGS (the grower members): will become bound:

(aa) to transfer their VGS shares to GrainCorp;

(bb) to become members of Grain Growers Association;

(cc) to agree, as members of Grain Growers Association, to be bound by its constitution which requires that in a winding up a guarantor member should contribute up to $100 to the assets of Grain Growers Association if there is a deficiency; and

(dd) to agree to become members of GrainCorp for the purposes of section 231 of the Corporations Law;

For that purpose VGS is irrevocably invested with the authority of each shareholder to do and undertake as the agent of the shareholder to do everything necessary or desirable to procure:

(ee) the transfer of the relevant VGS shares to GrainCorp;

(ff) the agreement of the shareholder to become a member of Graincorp and the issue of A class GrainCorp shares to the shareholder at the relevant ratio;

(gg) the agreement of the shareholder to become a member of Grain Growers Association and the grant of membership in Grain Growers Association to the shareholder;

(hh) the issue to the shareholder by GrainCorp of A class shares in GrainCorp; and

(ii) the grant to the shareholder of membership in GrainGrowers Association.

(iii) the B class members in VGS (the non-grower members) will become bound:

(aa) to transfer their VGS shares to GrainCorp; and

(bb) to agree to become members of GrainCorp for the purposes of section 231 of the Corporations Law;

and for that purpose VGS is irrevocably invested with the authority of each B class shareholder to do and undertake as the agent of the shareholder to do everything necessary or desirable to procure:

(cc) the transfer of the relevant VGS shares to GrainCorp;

(dd) the agreement of the shareholder to become a member of Graincorp and the issue of A class GrainCorp shares to the .shareholder at the relevant ratio.

(c) VGS is bound as against each shareholder on the Implementation Date to require GrainCorp to issue the relevant GrainCorp shares to shareholders who are shareholders on the Implementation Date and to require that Grain Growers Association grants guarantor membership to the holder of VGS ordinary shares (viz., the grain grower members of VGS).

(d) By a separate deed, being the Implementation Deed, GrainCorp has agreed to issue the relevant GrainCorp shares to the shareholders in VGS in return for the transfer to it of their VGS shares. By the same deed Grain Growers Association has agreed to admit the grower members of VGS (holding ordinary shares) to membership of Grain Growers Association.

50. The ultimate outcome of the scheme will be therefore that the shareholders in VGS will in aggregate hold a substantial direct shareholding in GrainCorp. In addition, the grower members of VGS (holding ordinary shares) will be members of GrainCorp's holding company, Grain Growers Association.

55. The principle applied on an application for approval of a scheme to which no objection has been made is that the court has a discretion to approve the scheme. However, the jurisdiction is supervisory, hence, the court must be satisfied that there has been an absence of oppression and that the relevant scheme is one capable of being accepted by the shareholders: see, Re Sonodyne International Ltd (1995) 15 ACSR 494, Hayne J at 499 citing Re Alabama, New Orleans, Texas & Pacific Junction Railway Co [189111 Ch 213, Bowen CJ at 24Y; also, Re Amcor Ltd [2000] VSC 157; (2000) 34 ACSR 199,208.

58. No opposition has been made in this application for approval of the scheme. It has not been suggested that any shareholder will be oppressed by it. Hence, I am able to regard the shareholders as the best judges of whether the scheme is to their commercial advantage: see Re Hudson Conway Ltd [2000] VSC 21; (2000) 33 ACSR 657, Beach J at 662, 665, 667; Re Chevron (Sydney) Ltd [1963] VicRp 39; [1963] VR 249, Adam J at 255; Re Amcor Ltd [2000] VSC 157; (2000) 34 ACSR 199, 208.

61. As observed previously the ordinary members holding ordinary share (the grower members) will become members of Grain Growers Association, which is a company limited by guarantee. They may become liable to contribute to the assets in a winding up of that company to the extent of $100. There is authority that a shareholder should not be compelled to become a member of a company where the shares to be taken up are only partly paid and to do so would expose the member to additional liability: Bisgood v Henderson's Transvaal Estate [1908] 1 Ch 743. In that case the court was concerned with a reconstruction undertaken for the improper purposes of defeating dissenting shareholders and compelling members in one company to immediately provide additional capital through the device of having them take up partly paid shares in a new company. It was not a case such as the present where the membership in Grain Growers Association is conceived of as an additional valuable benefit to the members that incidentally carries with it (because of the nature of the company concerned as one limited by guarantee) a contingent liability in a winding up to meet a call under the member's guarantee membership.

64. It has been held in relation to an equivalent provision (and thus in section 411(1)) the word "scheme" is to be given a wide meaning: Re International Harvester Co. ofAustralia Pty Ltd [1953] VicLawRp 90; [1953] VLR 669 at 672 per Lowe CJ, referred to in Re NRMA Ltd; Re NRMA Insurance Ltd (200) 33 ASCR 595 at 603. As is usual in these types of arrangements there will be an Implementation Deed. The Deed has been produced to the court. As a result of the company agreeing to procure the observance by GrainCorp and Grain Growers Association of the Implementation Deed there is an element of "some sort of contract or approximation to a contract as between the company and its members ... or any class of them": Re A. & C Construction Pty Ltd [1970] SASR 565, 570. Furthermore, it is to be observed that there is also that element of "give and take" described by Hayne J. in Re Sonodye International (1994) 15 ACSR 494, 497.

67. The mechanics of implementing the further steps in the scheme, whereby the members of the company will become members of Graincorp and, where applicable, of Grain Growers Association, will be accomplished through the obligations undertaken to the company in the Implementation Deed and the through the appointment of the company as the agent of each member to implement the scheme pursuant to section 411. The company agrees that it will procure the observance of the Implementation Deed by Graincorp and by Grain Growers Association. The agency in favour of the company from each member will be irrevocable. It follows that if the scheme is approved by the Court, the transfer of shares by the members, and their admission to membership in Graincorp and in Grain Growers Association, will be effected without further participation being required from the individual members. The position of any dissenting members is a matter to be considered by the Court when considering whether or not to approve the scheme as fair following the members' consideration of the scheme at the members' meetings: see Gambotto v WCP Ltd [1995] HCA 12; (1995) 182 CLR 432,446; Re NRMA Ltd; Re NRMA Insurance Ltd [2000] NSWSC 82; (2000) 33 ACSR 595, 613 per Santow J. There has been no objection made in this proceeding to these mechanics.

70. Each member's agreement to become a member of Graincorp and of Grain Growers Association will arise by operation of the scheme and of the agency to which it gives rise. Of itself that might raise questions under section 231 of the Law and whether by a scheme of arrangement a shareholder in a scheme company may be compelled to become a member of another company, but the more recent authority supports that result where there is a scheme of arrangement the Court must consider the fairness of the scheme: see in Re NRMA Ltd; Re NRMA Insurance Ltd, supra at 610; Re Advance Bank Australia Limited (1997) 22 ASCR 513. In Re Hunter Resources [1992] FCA 133; (1992) 34 FCR 418, Lockhart J held that if a company wished to achieve the objective (of providing that a shareholder should become a member of another company) "it should invoke the provisions of the Corporations Law concerning schemes of arrangement or takeover schemes which have special procedures designed for cases such as the present and which protect the interests of minority shareholders".

73. Section 411(11) requires, subject to section 411(12), a copy of the court's order approving the scheme to be annexed to every copy of VGS's constitution issued after the order is made. Section 411(12) allows the court to exempt a body from compliance with this provision or to determine the period during which it shall comply. The exemption from compliance with s 411(11) is appropriate where the scheme concerned does not affect the constitution of the company or the rights of its members as such members. Further, there has been extensive advertising in relation to the Scheme meetings and the Scheme, including publication of notices in newspapers as required and also in the Commonwealth Gazette. I am able to conclude, therefore, that shareholders and potential shareholders have been amply informed of the scheme through the extensive advertisements that have been placed in relation to the scheme. See also in Re Hudson Conway Ltd, supra.

76. Ultimately, the authorities are to the effect that the Court must be satisfied as to three matters. First, whether the orders made by the court on 23 June 2000 have been complied with. Second, whether the court considers that the resolutions have attained majorities as stipulated in the Corporations Law. Third, whether the proposed scheme is capable of being approved by the members. If the Court is satisfied of each of these three matters then there is no basis for the Court not exercising the discretion under the section. The affidavit material, together with the orders of the Master, show that the members attending the meetings have passed the resolution approving the scheme by the majorities specified in s 411(4)(a)(ii) of the Corporations Law.

79. ASIC has not appeared on the present application but informed VGS in writing that it does not object to the Scheme. A copy of a letter from ASIC dated 4 August 2000 to that effect is exhibited to the affidavit of Peter John Mitchem sworn 18 August 2000. ASIC had earlier indicated in a letter dated 23 June 2000 that it would not attend the hearing of applications in relation to the scheme. That letter was produced to the court on 23 June 200 and is on the court file.

82. The remaining matter is whether or not the court is satisfied under s 411(17) of the Corporations Law. The section provides:

"[Takeovers legislation] The Court shall 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 the Commission stating that the Commission has no objection to the compromise or arrangement;

but the Court need not approve a compromise or arrangement merely because a statement by the Commission stating that the Commission has no objection to the compromise or arrangement has been produced to the Court as mentioned in paragraph (b)."

90. The purpose and objectives to be achieved by pursuing a scheme of arrangement were addressed on 23 June 2000. They appear in the Explanatory Statement sent to shareholders where the options considered by the directors are reported and where the benefits and disadvantages of the scheme are outlined. Further, it was said in the Explanatory Statement and in the independent expert's report that a higher price might have been achieved for VGS shares by a takeover offer should a willing offeror emerge. None has emerged. Further ASIC has advised that pursuant to section 411(17) it has no objection to the scheme. In those circumstances the requirements of section 411(17) can be taken to have been satisfied.

93. On 23 June 2000 no order was made (or requested) dispensing with the requirement, if any, to give notice to creditors of the proposed scheme. The plaintiff submitted that no notice was required because VGS is a substantial company with net assets of some $17 million. VGS has no secured creditors and there is one special creditor that was owed $1.6 million, and that the balance of unsecured creditors (trade creditors and the like) amounted to $66,000. It was intended to notify the special (main) creditor of the scheme proposal, but not the other creditors (who will not be affected by the scheme) and that notice to the special creditor has been given. The relevant Regulation (Reg. 5.6.12) on its proper construction does not apply in respect of a members' meeting where the scheme concerned does not affect the company's creditors (consistently with Regulation 5.6.11 which contemplates a modified application of the Regulations will be necessary for members' schemes). In any event the applicant seeks the Court's dispensation pursuant to Rule 2.04 from the requirement to give such notice. I am satisfied on the evidence that there is no prejudice to the creditors if the dispensation is granted. The amount involved is modest and no return of capital to the shareholders under the scheme is proposed (see also the former section 195 reductions of capital, previously section 64 of the Uniform Companies Acts Wallace and Young page 244 and Re Meux's Brewery Co Ltd (1919) 1 Ch 28).

96. It follows from the consideration of these matters that I am satisfied it is appropriate to approve the scheme of arrangement. Orders will be made accordingly.

I certify that this and the 9 preceding pages are a true copy of the reasons for judgment of Warren J of the Supreme Court of Victoria delivered on 22 August 2000.