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[2007] QSC 207
Supreme Court of Queensland
2007-08-22
Fryberg J
Original judgment source is linked above.
Corporations - Arrangements and reconstructions - Schemes of arrangement - Explanatory Statement - Failure to lodge on time - Warnings to holders of encumbered shares - Equality of treatment of encumbrances - Relevance of purpose of proposers where ASIC statement of non-objection provided - Nature of purpose - Proof of purpose - Onus of purpose - Dispensing with annexation of court order
Corporations Act 2001 s411, s412(6), s624, s1322,
Re ACM Gold Ltd (1992) 34 FCR 530, cited
Re Advanced Bank Australia Ltd (1997) 138 FLR 281, referred to
Re APN News and Media Ltd [2007] FCA 770, cited
Re Arnotts Ltd (1997) 16 ACLC 423, considered
Re Capel Finance Ltd [2005] NSWSC 522, followed
Re Crown Diamonds NL [2005] WASC 93, approved
Re CSR Ltd [2003] FCA 285, cited
Re Foundation Healthcare Ltd (No 2) [2002] FCA 973, followed
Re International Goldfields Ltd [2003] WASC 86, cited
Re International Goldfields Ltd [2004] WASC 112, cited
Re MIM Holdings Ltd (2003) 45 ACSR 554, considered
Re MIM Holdings Ltd [2003] QSC 181, cited
Re Mincom Ltd [2007] QSC 37, referred to
Re Mincom Ltd [No 2] [2007] QSC 58, referred to
Re NRMA Ltd; Re BRL Hardy Ltd [2003] SASC 97, cited
Re Permanent Trustee Co Ltd [2002] NSWSC 1177, cited
Re Ranger Minerals Ltd [2002] WASC 207, discussed
Re Stockbridge Ltd (1993) 9 ACSR 637, followed
Re WebCentral Group Ltd [2006] FCA 1203, referred to
SGIC Insurance Ltd v Insurance Australia Ltd [2004] FCA 1638, cited
Australian Securities and Investment Commission: Direct brief
[1] FRYBERG J: On 24 April this year I ordered (putting it shortly) that an arrangement between the applicant ("Mincom") and its shareholders be approved and that in relation to that order, Mincom be exempted from compliance with s 411(11) of the Corporations Act 2001 (Cth). I announced that I would deliver reasons at a later date. These are my reasons. They should be read in conjunction with reasons which I have delivered at earlier stages of the application.[1]
[2] On 9 February 2007 the Court ordered Mincom to convene meetings of members pursuant to s 411(1), approved an explanatory statement ("the first scheme booklet") for distribution to members and made various ancillary orders.[2] On 13 March it ordered that revised notices of the scheme meetings be sent to shareholders, approved a supplementary explanatory statement ("the supplementary scheme booklet") for distribution to them and made ancillary orders.[3] Both statements were distributed to shareholders in accordance with the orders. A separate offer to acquire all outstanding options before their imminent expiry was also made.
[3] Pursuant to the first order, meetings were commenced on 5 March 2007 when they were adjourned until 26 March. At the resumed meetings, the arrangement was approved by each class of shareholders. The sole B class shareholder and all four C class shareholders approved the arrangement at their respective meetings. At the meeting of A class shareholders, of whom there were 166, 15 were present in person and 127 were present by proxy. One hundred and forty voted in favour of the arrangement and two against. The former cast 98.1% of votes present at the meeting in person or by proxy. These votes constituted 95.0% of all A class shares issued.
[4] The effect of the arrangement is that all of the shares in Mincom are transferred to EAM Software Finance Pty Ltd ("EAM") and the former shareholders receive $8.77 in cash for each share held. That would not have been possible before 26 March, due to a number of restrictions on transferability of shares under Mincom's constitution. At special general meetings held on that date immediately after the scheme meetings, the constitution was amended to insert the following clause:
"6A Notwithstanding anything else in this Constitution, if the Scheme of Arrangement referred to in the Notice of adjourned Court ordered Scheme Meeting dated 13 March 2007 (the Scheme) becomes Effective, any transfer of Mincom Shares pursuant to the Scheme is permitted as of right under this Constitution (and, for the avoidance of doubt, none of the restrictions in clauses 7, 8, 9 or 10 of the Constitution will apply to such a transfer)."[4]
Consequently, upon the arrangement being approved by the Court, the constitution did not prevent its implementation.
[5] The second court hearing, having been duly advertised, commenced on 27 March 2007. Foreign Investment Review Board approval[5] had not been received by that date and such approval was a condition precedent for the implementation of the arrangement. The proceedings were therefore adjourned part heard. By the time they resumed on 24 April, Mincom had signed and exhibited a certificate that all conditions precedent had been satisfied or waived, in accordance with cl 2.2 of the scheme document. However the adjournment necessitated an oral application by Mincom for a minor amendment to the arrangement. The effect of the amendment was to expand until 24 April the time for Mincom to give the certificate under cl 2.2.
[6] A statement in writing by ASIC stating that it had no objection to the arrangement was produced to the court, thus satisfying the requirements of s 411(17)(b) of the Act.
[7] Apart from Mincom, the only appearances in the application were for EAM and ASIC. The former supported the application and the latter did not oppose it.
[8] Mincom did not lodge the first scheme booklet for registration by ASIC until Monday 12 February, and it was registered with effect from that date. That was because ASIC's offices were shut by the time the order approving the booklet was made at about 5 pm on Friday 9 February. Despite this, Mincom posted the booklet to shareholders at about 8 pm that day. The evidence does not address the circumstances which led to that action. I infer that it was the result of a calculated decision made in order to prevent any slippage in the timetable proposed for the implementation of the arrangement.
"(6) In the case of a compromise or arrangement that is not, or does not include, a compromise or arrangement between a Part 5.1 body and its creditors or any class of them, the body must not send out an explanatory statement pursuant to subsection (1) unless a copy of that statement has been registered by ASIC."
It is common ground that Mincom breached this provision.
[10] Mincom submitted that the breach did not have the effect of invalidating the dispatch of the booklet. It did so in reliance upon s 1322(2), which provides:
"(2) A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid."
The dispatch of the booklet is a proceeding under the Act.[6]
[11] For Mincom Mr Oakes SC submitted that the dispatch of the booklet before registration was a defect, irregularity or deficiency of time within the meaning of the inclusive definition of "procedural irregularity" in s 1322(1)(b) of the Act. That is how it appeared to Barrett J in Re Capel Finance Ltd,[7] although that was a decision on an ex parte application. In the absence of a contradictor, I too was prepared to assume the correctness of the submission. Mr Oakes drew my attention to the existence of different approaches taken by various judges in situations where the irregularity was deliberate. It is unnecessary to elaborate on these approaches. There was no suggestion in the present case that anyone has suffered any prejudice from the irregularity or that any moral turpitude attaches to it. Whether one approaches the matter under s 1322 or by ordinary principles of statutory construction, the non-compliance with s 412(6) did not invalidate the sending of the first scheme booklet.
[12] Neither s 411 nor s 412 of the Act contemplates a second or subsequent explanatory statement. However the utility of the supplementary scheme booklet in the present case was undeniable. On 13 March, upon Mincom's application being supported by EAM, I ordered that it be approved for distribution to the Mincom shareholders.[8] It was distributed on the following day, together with notice of the adjourned meeting. It seems to have been assumed by the parties (and was assumed by me) that the court had power to make that order under s 411(1) of the Act. The need for the supplementary scheme booklet arose not from events occurring after the first hearing, but from matters which had not been properly ventilated at that hearing. Some of these matters may have posed a substantial impediment to the approval of the arrangement had they not been disclosed to shareholders.
[13] It seems to have been ASIC's view that the supplementary booklet could not be registered under s 412(6). If the assumption which prevailed when the order approving that booklet was made was correct, it is difficult to see why registration could not have been effected. ASIC took the view that the booklet should be on the public record, so Mincom lodged a copy on 14 March and it was registered by ASIC as a Disclosure Notice. It is not clear whether Mincom was a disclosing entity, but that does not matter for present purposes.[9]
[14] It is unnecessary to attempt an analysis of the Act or the booklet, or to determine whether it would have been within the power of the court to order that it be lodged with ASIC. The course taken by Mincom and ASIC was sufficient in the circumstances.
[15] All necessary meetings have been held and the statutory majorities obtained. Indeed the necessary resolutions were passed by overwhelming majorities.
[16] Barrett J has observed that there is no exhaustive statement of the matters as to which the court must be satisfied before granting approval and that the courts have been reluctant to attempt any comprehensive or compendious statement of relevant criteria.[10] It is however clear that it is necessary to assess the arrangement as a whole to determine whether it has been proposed for an improper purpose and whether the provisions in it are fair and reasonable.[11] Numerous other considerations have been suggested from time to time as relevant in particular circumstances.
Adequacy of offer and directors' efforts to obtain a better offer
[17] Mincom was an unlisted public company. Until 26 March its constitution imposed considerable restrictions on the transferability of its shares. I inferred that those restrictions caused the price at which shares could be sold to be much lower than it would have been had the shares been freely transferable. In the six months to August 2006 just under 780,000 shares were sold at average weighted prices ranging from $2.40 to $3.25 and in January 2007, 27,948 shares were sold at an average weighted price of $4.17. No other sales occurred in the 12 months up to the date of the booklet. Under the arrangement shareholders would receive $8.77 per share, a premium of 188% on the volume weighted average of sales in that 12 month period and 110% on the last sale. The arrangement was examined by an independent expert who concluded that it was in the best interests of shareholders and recommended that they vote in favour of it in the absence of a superior proposal. The six non-executive directors made the same recommendation (the one executive director made no recommendation due to a conflict of interest). Of those directors two held no shares in Mincom and four had holdings from 20,000 to 30,000 shares. The directors received no benefit from the arrangement apart from the consideration for their shares, if any.
[18] With the consent and in the absence of EAM, evidence was given in closed court (save for the presence of ASIC) of the history of attempts by the directors of Mincom to create a situation in which shareholders might realise the full value of their shares. That evidence revealed substantial and genuine attempts by the directors over a number of years to create a situation of liquidity. These all came to naught. A purpose of the arrangement was to create a mechanism by which shareholders could realise the full value of their shares.
[19] When properly informed shareholders vote to support a cash offer in such overwhelming numbers as the shareholders in Mincom have done, there is very little scope for a court to determine that the arrangement embodying the offer is fundamentally unfair. I was initially concerned in the present case that the proposal may have been flawed because the directors had made insufficient efforts to obtain alternatives.[12] That mattered particularly because the independent expert had expressed the opinion that an industry participant would be likely to be prepared to pay more for Mincom than EAM, due to the availability of synergy benefits to such a purchaser. Also, the favourable recommendations of both the directors and the independent expert were made subject to a qualification, "in the absence of a superior offer". It is not necessary for the court to be satisfied that no better arrangement could have been devised.[13] The evidence led in camera satisfied me that my concern was unfounded.
[20] The arrangement was embodied in a document entitled Scheme of Arrangement. Clause 6(d) of that document was as follows:
"(d) Each Scheme Shareholder is deemed to have warranted to Francisco that all such Scheme Shareholder's Scheme Shares transferred to Francisco under the Scheme will as at the date of the transfer be fully paid and free from all mortgages, charges, liens, encumbrances pledges, security interests and other interests of third parties of any kind, whether legal or otherwise, that will bind Francisco and that such Scheme Shareholder has full power and capacity to sell and to transfer such Scheme Shareholders' Scheme Shares to Francisco under the Scheme."
[21] After my initial consideration of the matter I expressed the preliminary view that this paragraph was "onerous, unreasonable and calculated to catapult unsuspecting shareholders who have not read the small print of the arrangement in the schedule to the explanatory statement into a state of breach of warranty".[14] In response, section 6 of the supplementary scheme booklet provided, under the heading "WARRANTY", "Mincom shareholders should be aware of clause 6(d) of the scheme, set out below." After quoting the clause section 6 continued, "The effect of this warranty is that all Mincom shareholders, including those that might vote against the scheme and those that do not vote, will be deemed to have warranted to EAM that their Mincom shares are not subject to any of the encumbrances specified in clause 6(d) of the scheme."
[22] Mincom submitted that cl 6(d) was simply a boilerplate clause included in all takeover arrangements; it was in exchange for EAM's paying the consideration to the shareholder rather than to any security holder. It submitted that there was no practical way chargees or other encumbranceees of shareholdings could be identified so that payment could be made direct to them if that were desired. There is commercial commonsense in that view. As EAM submitted, a buyer would naturally expect to be acquiring shares without encumbrances. It was not an unreasonable provision to protect the position of the purchaser.
[23] But it is also reasonable to look to the position of the shareholder. I was initially concerned that cl 6(d) imposed a new liability on shareholders who remained liable under a charge. Associated with that concern but poorly articulated was another: that the transfer of title in the shares brought about by the arrangement might trigger a breach of a shareholder's loan agreement with a financier, with potentially disastrous consequences for the shareholder. A borrower, whether commercial or consumer, with insufficient alternative or additional security could be faced not only with a demand from its lender for security over, or on-payment of, the consideration under the arrangement, but also with a demand for repayment of its full indebtedness under an acceleration clause. I had initially, but erroneously, conceived of that concern as related to cl 6(d).
[24] After considering counsel's submissions I came to the conclusion that there was no practical way to build into the arrangement any mechanism which would protect shareholders in the wide variety of circumstances which might govern their borrowings. I also concluded that the risk that my concerns would eventuate was fairly low. I decided that those concerns had to a substantial extent been dealt with by disclosure to shareholders in the supplementary scheme booklet, although it should have included a sentence to the effect, "If your shares remain subject to any security described in that clause, you will be in breach of this warranty." In practical terms cl 6(d) did not create an additional liability but rather it extended the range of persons who could claim in respect of an existing liability.
[25] I further concluded that the original scheme booklet should have contained a warning to shareholders to consider whether the transfer of the shares would put them in breach of any borrowing agreement to which they might be a party and should have specified that for anybody in that position, this might constitute a reason to vote against the arrangement. Nonetheless I decided that the risk that any shareholder had been disadvantaged by the omission of those matters was in the circumstances sufficiently remote for these omissions not to warrant withholding approval of the arrangement. That might well not be the position for other arrangements under different circumstances.
[26] Mr Oakes mentioned to me a decision of Lindgren J four days before the date of the second hearing in which his Honour approved a scheme booklet in respect of an arrangement which contained a clause not materially different from cl 6(d). His Honour has since delivered reasons for judgment in that matter. In the course of those reasons he wrote:
"61 Nor do I think it matters that the time for the clearing of the title by payment by the shareholder to the encumbrancee may not have yet arrived under the terms of the encumbrance and therefore may be being accelerated by the deemed warranty. Any disadvantage a shareholder who has borrowed on advantageous terms on the security of the shares, may suffer by being required to discharge the encumbrance early, is, in principle, no different from the disadvantage suffered by any shareholder who becomes bound by a scheme to which that shareholder did not agree."[15]
As I have tried to demonstrate in para [23], my concern is that a shareholder/borrower might be in a far worse position than other shareholders because for the former, the disadvantage from discharging the encumbrance on the shares early (or from letting them be transferred with the encumbrance undischarged) might be immediate liability for its full indebtedness under the loan agreement.
[27] Mr Oakes drew my attention to another decision of Lindgren J, Re Web Central Group Ltd.[16] His Honour held in that case that a clause in the scheme document which provided that shares transferred under the scheme would be transferred to the purchaser free from all encumbrances should be deleted because it was unnecessary. He held that an unencumbered transfer would in any event result from s 1072E(10) of the Act and comparable clauses in the target's constitution. He reasoned that to include the clause might cause alarm by giving the impression that the interests of the holders of security over shares were being adversely affected. If that decision is correct (and I express no opinion on the point - it was not argued before me) the reasoning would seem to apply equally to cl 6(d). One could ask rhetorically, what need is there for a warranty of something which happens by operation of law.
[28] At no stage during the proceedings up until the second hearing was any serious attention given to the position of a security holder in respect of Mincom shares. No doubt that was because of a tacit recognition that security over a shareholding is a fairly fragile asset. As Mr O'Donnell QC pointed out on behalf of EAM, cl 11 of Mincom's constitution provided that the company did not recognise any trust or other interest in the shares except "the registered holder's absolute right of ownership", even if it had actual notice of the interest in question. I was therefore surprised to be presented at the second hearing with evidence that Mincom and EAM had entered into an agreement with one security holder for the release of its charges in return for payment by EAM of the chargors' indebtedness out of the consideration owed to them. The security holder in question was an associate of Mincom. The chargors were parties to the agreement. That raised the question why a similar agreement could not have been offered to other security holders. To the question why there should be preferential treatment for one chargee, Mr Oakes responded that on the evidence no other chargee was known to Mincom or EAM; and that there had been the usual advertisement of the second hearing.
[29] I accepted that submission, although with some hesitation. The advertisement was addressed to creditors and shareholders of Mincom, not to lenders with security interests in Mincom shares. It gave notice of the second hearing and invited notice of intention to attend. It did not invite such security holders to notify their interests, nor did it indicate EAM's willingness to enter into agreements to pay security holders direct. It may be assumed that lending institutions are astute to scrutinise such advertisements. However can it be assumed in the absence of an invitation to notify the applicant of any securities over Mincom shares that none exists? Can it be assumed that financial institutions would realise that Mincom and EAM were willing to make agreements with them similar to the agreement with Mincom's associate? Does the principle of equality of treatment extend beyond the owners of shares to those who have a security interest in them? I decided that the present was not a suitable case to investigate these questions, particularly as ASIC raised no objections on this score. It may be that in the future more detailed consideration might need to be given to the position of security holders.
Section 411(4)(b) - avoiding provisions of ch 6
[30] Section 411(17) of the Act prohibits approval of an arrangement unless one or other of two stated conditions is satisfied. Satisfaction of one of the conditions precludes the court from withholding approval under the other.[17] In the present case, a statement in writing by ASIC stating that it has no objection to the arrangement was produced to the court. Consequently s 411(17)(a) could not apply; in other words the court was not obliged to withhold approval even if satisfied that the arrangement had been proposed for the purpose of enabling someone to avoid the operation of one of the provisions of ch 6 of the Act ("the specified purpose").
[31] That left open the question whether the court could take that purpose into account in exercising its discretion under s 411(4)(b). The court would be precluded from taking that purpose into account if the purpose were irrelevant to the exercise of the discretion. ASIC submitted that whether the specified purpose existed was a factor of continuing relevance in the exercise of the court's discretion. EAM submitted that once ASIC provided a statement in writing under s 411(17)(b), the existence of such a purpose was irrelevant and not to be taken into account. Mincom avoided the issue, allowing that the existence of the specified purpose might be relevant to the exercise of the discretion but gently suggesting (with considerable justification) that in the present case the issue was academic.
[32] There are strong textual indications in s 411 that the existence of the specified purpose is relevant to whether approval should be granted under s 411(4)(b). In the absence of a statement from ASIC under s 411(17)(b), the court is obliged not to approve the arrangement if satisfied of the specified purpose. It is possible that the Parliament selected an irrelevant consideration as the criterion of a prohibition, but it is unlikely. It is much more probable that the existence of the specified purpose was seen as a factor of importance in determining whether approval should be given. The legislature could have required that in the absence of the ASIC statement, the court take the existence of the specified purpose into account in exercising its discretion. It did not do so. It went further. It made the existence (but not the non-existence) of that purpose the sole factor affecting the outcome; it made it the determinative factor; and it applied it to all cases where no statement from ASIC was produced. That is a strong indication that it regarded the existence of the specified purpose as a relevant factor to the grant of approval in all cases. Finally, the continued relevance of the specified purpose is confirmed by the last clause of s 411(17).
[33] Does the existence of the specified purpose cease to be relevant if a statement from ASIC is produced to the court? It is difficult to see how a combination of two decisions by ASIC, viz that it had no objection to the arrangement and that it would issue a statement in writing to that effect, could turn what would otherwise be relevant to the grant of approval into an irrelevance. That is particularly the case if ASIC does not consider whether the specified purpose exists in deciding whether to issue a statement. In support of his primary submission Mr Derrington SC for ASIC referred me to ASIC's policy in relation to the subsection:
"[PS 60.12] Under s411(17)(b) ASIC is required to decide whether it has no objection to the proposed scheme of arrangement. ASIC is not required to determine or prove the purpose of the scheme. It is the role of the court to determine this purpose. ... .
[PS 60.13] The basic question ASIC will consider is whether shareholders are adversely affected by the takeover being implemented by scheme of arrangement, compared to a takeover scheme. It is not whether the purpose of the scheme is to avoid making the acquisition under Ch 6 for reasons which do not adversely affect offerees. ASIC will not intervene, under s1330, to oppose an application before the court under s411 on grounds arising out of s411(17) unless it has concerns in respect of the disclosure requirements or the Eggleston principles. ... ."[18]
In short, as a matter of policy, ASIC's basic concern is with the effect of the arrangement, and not the purpose of its proposer.
[34] There is some force in that point, at least where the policy is applied. That does not seem to have been the position in the present case. In its letter of 23 April 2007, ASIC wrote:
"I advise that, under paragraph 411(17)(b) of the Corporations Act 2001 ("Act"), the Australian Securities and Investments Commission ("ASIC") has no objection to the scheme of arrangement between Mincom Ltd and its members, on the basis that it is satisfied that the scheme has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6 of the Act."[19]
[35] It is possible that in a particular case the weight to be attributed to the existence of the specified purpose would be insignificant, and in one sense it can be said that a factor of no weight is irrelevant. That is not the sense in which the word relevant is used in the context of statutory discretions. It is not the sense in which I am using the word here.
[36] On behalf of EAM, Mr O'Donnell QC relied upon the passage in the reasons for judgment of Santow J in Re Advance Bank Australia Ltd which I have already cited:
"However what the ASC's statement does do, is preclude the court from withholding approval to the scheme where the ground for doing so is under s411(17)(a) of the Corporations Law. This ground is that the scheme could have proceeded as a conventional takeover under ch 6 of the Corporations Law - if indeed that view were open when the scheme, though separately, embraces a selective reduction of capital."[20]
That statement (with which I respectfully agree) does not advance EAM's submission. There is here no question of withholding approval under s 411(17)(a). The only question is whether the existence of the specified purpose is a relevant factor under s 411(4)(b).
[37] Next, Mr O'Donnell relied upon a dictum of Bryson J in Re Arnotts Ltd:
"The commission's statement of [non-objection to the scheme] removes from consideration the possibility of the court's withholding approval on the ground of intended avoidance [of ch 6 of the law]."
"It remains open to the court to give consideration to whether it would have been appropriate to proceed in accordance with the provisions relating to takeovers when considering whether to approve the scheme of arrangement. The commission's statement removes from consideration the possibility of withholding approval on the ground of intended avoidance. It does not remove from consideration the appropriateness on any other ground of withholding approval with the contemplated outcome that there would be a takeover instead of the scheme. I do not see the observations of Santow J in Re Advance Bank Australia Ltd (No 2) (1997) 15 ACLC 248 at 252 to 255; (1997) 22 ACSR Reports 513 at 518 to 521 as expressing any view inconsistent with this."[21]
As the context indicates, the second sentence of that passage is intended to express the same view as was expressed by Santow J in Re Advance Bank Australia Ltd. Bryson J expressed the view that it was open to the court to take into account whether it would have been appropriate to proceed in accordance with the provisions relating to takeovers.[22] He did not comment on whether the existence of the specified purpose could be taken into account; but it is no great leap from what he said to hold that it can.
[38] Finally Mr O'Donnell relied on the decision of White J in Re MIM Holdings Ltd, where her Honour said:
"There is no doubt, as French J observed pithily in Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 at 265, that at the first court hearing a scheme may appear on its face "so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further". Otherwise, as Santow J said in Re NRMA Insurance Ltd [2000] NSWSC 82; (2000) 156 FLR 349; 33 ACSR 595 the court will not usually go very far into the question of the whether the arrangement is one which warrants the approval of the court but merely see that it is one which the court would be likely to approve if the shareholders vote for it in the requisite majority.
The reason for this is textual in the first place. Section 411(17) dictates that a consideration of Ch 6 avoidance is to be made at the approval stage. That is, the second court hearing. If ASIC produces a statement to the court on that occasion stating that it had no objection to the arrangement, then Ch 6 matters would not be considered. See Re Arnotts Ltd (1997) 16 ACLC 423 although, the court may, in the exercise of its discretion, still not approve the arrangement for other reasons."[23]
Her Honour was giving ex tempore reasons on the first court hearing. She was not expressing with intended precision what should happen at the second hearing. She was saying no more than had been said by Santow J and Bryson J.
[39] On the other hand, Mr Derrington referred me to the decision of French J in Re Foundation Healthcare Ltd (No 2). ASIC provided a statement in that case. His Honour referred to the consequences of the proviso to s 411(17):
"The proviso that the court need not approve a compromise or arrangement merely because of the production of a statement by ASIC under s 411(17)(b) has two consequences. The first is that the production of the ASIC statement does not mandate approval generally. Nor does it mean that the court is precluded from considering, notwithstanding the views of ASIC, whether the arrangement has been proposed for the purpose of enabling avoidance of the operation of any of the provisions of Ch 6."[24]
[40] I agree with his Honour that the court is not precluded from considering whether the arrangement has been proposed for the purpose of enabling a person to avoid the operation of any of the provisions of ch 6. The existence of the specified purpose is a factor which may be taken into account in the exercise of the discretion under s 411(4)(b).
[41] None of that answers the question, whose purpose does the section refer to. It seems clear enough that the purpose must be that of the proposer or proposers of the arrangement. One would ordinarily expect that the applicant would be or be among the proposers. In Re Stockbridge Ltd, Murray J said,
"[O]ne is looking to the state of mind of the proposers of the scheme, or of those who have been associated with its proposing and have an interest in the implementation of the scheme. ... I see no reason within the wording of s 411(17) why one should not have regard to who truly are the sponsors of the scheme as it comes before the court in factual terms."[25]
I respectfully agree. In the present case, that requires that one look at the purpose not only of Mincom but also of EAM. The latter is indistinguishable from the purpose of Francisco partners, which is behind EAM. It is sufficient if any one of those proposing the arrangement or those associated with its proposing has the specified purpose.
[42] Any one of those persons may have proposed the arrangement for a multiplicity of purposes. There is no requirement that the specified purpose be the exclusive or dominant purpose: "Nor does the purpose of avoidance have to be the exclusive purpose for the arrangement; it will be sufficient to attract the subsection if the subject of avoidance is a significant or substantial purpose."[26]
[43] The specified purpose involves enabling "any person" to avoid the operation of ch 6. No party challenged ASIC's submission that the section is not limited to a purpose which enables only those propounding the arrangement to avoid the relevant operation. There is no apparent reason why the words "any person" should not be given their full force and effect.
[44] No party directed any submissions to the word "operation", so it is not appropriate that I should express an opinion about its construction. I shall proceed on the assumption that the only provisions in ch 6 to which one may have regard are those which are capable of having an "operation"; that is to say, those which may actually do something or have some effect.
[45] It should also be noted that the specified purpose is enabling any person to avoid the operation of "any of the provisions of" ch 6. That terminology focuses attention on individual provisions of the chapter. It requires the identification of at least one provision as the object of avoidance. It is not accurate, and it may be misleading, to speak of avoiding the operation of ch 6. That chapter and part 5.1 of the Act are, in cases where a takeover could be achieved under either, true alternatives (to use a phrase of White J[27]); and as Murray J observed, citing Kirby P, "[T]he two chapters should be read in harmony."[28]
[46] Whether the specified purpose exists is a question of fact in each case. As Murray J observed:
"Clearly the question of purpose requires some reference to the mental state of some one or more persons. Such a person might include a corporate entity. But if that was the case, in accordance with ordinary legal principle, one would be searching for the purpose in relation to the formulation of the scheme of arrangement possessed by that individual or those individuals who constitute the guiding mind and will of the Corporation. So one is looking to the state of mind of the proposers of the scheme, or of those who have been associated with its proposing and have an interest in the implementation scheme ... ."[29]
[47] It is equally clear that a, perhaps the, most important source of evidence of a person's purpose is evidence from that person. Other evidence may also bear upon the question - documents and prior statements and conduct for example. Inferences of purpose may be drawn from known facts. In a given case, if there were evidence that a person was enabled to avoid the operation of a provision of ch 6, that evidence might tend to support an inference of purpose. Whether the inference was to be drawn would depend upon the facts of the particular case. The mere fact that the effect of an arrangement was to enable a person to avoid the operation of a provision of ch 6 would not by itself prove the existence of the specified purpose. Conversely, direct evidence from the proposer of an arrangement might satisfy the court that the specified purpose existed, even if the purpose failed to achieve its objective, or if that objective were impossible of achievement.[30] Whether the specified purpose exists must be determined in the same manner as any other question of fact.
[48] In Re ACM Gold Ltd, O'Loughlin J said that whether the specified purpose
"does or does not exist is a matter of objective assessment. What the proposer of the arrangement might have had in mind will always be important and in some cases it may be decisive ... ."[31]
That statement should not be taken to mean that the purpose referred to by the Act is anything other than the subjective purpose of the proposers. The effect of the statement was accurately described by Murray J:
"In the absence of direct evidence as to what the intention or purpose of the proposers of the scheme was, it was necessary to make an objective assessment of it and draw an inference from such circumstantial evidence. But in the end the court would be concerned to see what was the actual purpose of the scheme, at least I think, in the sense that a substantial purpose of the formulation of the scheme in the way that has occurred was the avoidance of the operation of ch 6."[32]
[49] Mr Oakes submitted that one way of proving the absence of the specified purpose was to demonstrate that the arrangement involved features which could not be implemented under ch 6. That was the approach adopted in the two cases to which I have referred most frequently, Re ACM Gold Ltd and Re Stockbridge Ltd. Although I would not question the outcome of those cases on their facts, there are difficulties in this approach. First, it does not take into account the possibility that the proposer of the arrangement has multiple purposes. The fact that one can infer that one purpose of selecting the procedure under part 5.1 was to achieve an outcome which at least in part could not be achieved under ch 6 does not demonstrate that the specified purpose did not exist concurrently. Second, with the increasing complexity of the Corporations Act and the arrangements proposed under part 5.1, a judge can easily overlook alternative explanations for the existence of a feature of a proposed arrangement, particularly in the absence of contradictor. An inference drawn from the structure or wording of an arrangement is a weak finding compared to one based upon evidence given by the "individuals who constitute the guiding mind and will of the corporation", to use the words of Murray J.[33] In a contested matter one would hesitate to find that the specified purpose was absent without such evidence.
[50] In respect of the onus of proof, Mr Oakes submitted that as a matter of practice the question of the existence of the specified purpose has come to be dealt with at the second hearing. That practice would seem to conform to the requirements of the Act. As Mr Oakes submitted, s 411(17) is tied to the question of the court's approval of the arrangement. This can only occur at the second hearing. If ASIC does not provide a statement under that subsection, it is clear that there is an onus on the applicant to satisfy the court under para (a).
[51] Where ASIC has provided such a statement, it is not in my judgment helpful to talk in terms of onus of proof. The court has a discretion whether to approve the arrangement. The only onus upon the applicant is to satisfy the court that the discretion should be exercised in its favour. The existence or otherwise of the specified purpose is a factor which is relevant to the exercise of that discretion. However there is no requirement as a matter of law for the applicant to prove the absence of that factor on the balance of probabilities; that is not an element of its "cause of action". It is a matter for the applicant to decide whether and to what extent it should go into evidence on the question. In so doing it would no doubt weigh up the strengths and weaknesses of its case apart from this factor and the impact if any which an adverse finding in respect of it might have. It would take into account whether it expects the application to be opposed or unopposed. It would take into account the attitude adopted by ASIC to the proposal. Doubtless there are other matters also to be considered.
[52] The onus of proof at the first hearing was dealt with in my earlier reasons for judgment.[34]
[53] Mincom was an unusual company. It had only about 170 shareholders, many of whom were also employees. Many employees also held options. The relationship between the board and the shareholders was, I infer, rather more personal than would ordinarily be the case in a public company. For a number of years many shareholders had felt that they were unable to realise the full value of their shares, due to complex pre-emptive rights in the constitution. They wanted, as Mr Heading, Mincom's solicitor, described it, "a liquidity event". (Mr Heading gave oral evidence which I completely accept.) Previous moves designed to facilitate an initial public offering had failed. There were divergent views between shareholders of different classes, and at various times there had been hostility between them. When Mr Heading was retained in August 2006, Francisco Partners (EAM's parent) had expressed interest in a private equity buyout. However it demanded 100% of the shareholding. Mr Heading was retained to negotiate the mechanism by which this could be achieved with EAM's solicitors.
[54] During these negotiations Mr Heading considered the possibility of using a ch 6 takeover. He decided that a ch 5 arrangement was preferable. He testified that there were a number of reasons for this decision. First, EAM had a very strong preference for that mechanism. Second, the mechanism involved voting at the meetings. Given the history of Mincom and the unusual relationship between directors and shareholders, it was evidently felt that there was a better chance of persuading shareholders to accept the arrangement if the meeting were to be held. Third, a scheme provided a set timetable for the takeover. Under ch 6, the process could be dragged out, with the bidder repeatedly extending the offer period. That was undesirable in the Mincom situation because "in a situation where so many employees are option holders, the real risk of these things is people take their eye off the ball whilst the takeover of the company is in play." Finally, under ch 6 the documentation for the takeover would have been more complex, with separate interdependent offers for each class of shares.
[55] EAM had been incorporated by Francisco Partners LP, an American limited liability partnership, as the vehicle to take over Mincom. An affidavit affirmed by one Ashutosh Agrawal was filed on its behalf at a time when it was not known whether ASIC would provide a s 411(17)(b) statement. Mr Agrawal deposed that the "principal reasons for proceeding by way of a scheme included the following", and a list followed. He did not indicate his role if any in the negotiations or how he came to be aware of the matters deposed to. Neither he nor anyone from EAM's Australian solicitors gave oral evidence. That was unfortunate, as it meant there was no opportunity to ask Mr Agrawal the basis of his knowledge and the reason for the use of the word "included". Nonetheless I decided to proceed on the basis that his list was comprehensive. I had no reason to doubt the truthfulness or accuracy of his evidence as far as it went.
[56] Mr Agrawal's first two reasons for favouring an arrangement over a ch 6 takeover were that an arrangement provided a comparatively certain and slightly shorter timetable. That comparative certainty made it easier to negotiate with financiers. His third reason was that an arrangement was an agreed transaction put to the shareholders by the company, not the acquirer as in a takeover. His fourth reason was that Francisco acquired 100% of the shares or no shares. Fifth, he referred to the increased complexity of three separate but inter-conditional takeover bids which would be required under ch 6. He said the reason was that the voting threshold for a scheme required only a majority of shareholders present and voting representing 75% or more of the votes cast which, depending on the number of shares voted on the resolution, may have been easier to achieve than the 90% acceptance level required in each class of shares for the success of a takeover bid. Finally there was the fact that a general meeting was required to amend Mincom's constitution in any event, and it was seen as more convenient for shareholders if the entire transaction could be voted on at that time.
[57] Both Mincom and EAM favoured a ch 5 arrangement over a ch 6 takeover because it provided greater certainty of timing. That certainty derived from the fact that under an arrangement shareholders would decide by a vote on a certain day. Both companies were aware that under a takeover, while an offer period could be set anywhere between one month and 12 months,[35] that period could be extended by EAM under s 650C of ch 6 of the Act. When I suggested, perhaps a little teasingly, that certainty could be achieved by announcing at the outset that the offer period would not be extended, counsel looked at me oddly, and rightly so. That suggestion is commercially unreal. The object of a takeover offer is to achieve a takeover. While there remains some prospect of achieving that object, of course an offer period will be extended. That is what happens in reality, almost invariably. Practically speaking, the certainty of timing which can be achieved in relation to an arrangement cannot be achieved under a takeover because of the operation of s 650C. On the face of things, a purpose of both companies in selecting an arrangement rather than a takeover was to avoid the operation of that section.
[58] Such an approach to the evaluation of purpose was vigorously opposed in the submissions on behalf of EAM. Mr O'Donnell submitted:
"The fact that the proponent of the scheme considered the scheme to have advantages of cost and time efficiency, and/or certainty of outcome, are sound reasons for proceeding to acquire shares by way of a scheme of arrangement rather than a takeover. A preference for a scheme of arrangement for reasons such as these does not entail a purpose of avoiding the operation of any provision of Chapter 6."
He submitted that the fact that in practice bidders ended up extending again and again should be regarded as a consequence of the practical needs of real life, not as a consequence of the operation of any part of ch 6. He submitted that this result formed part of the ratio of three decided cases. Second, he submitted that the reference to the provisions of ch 6 in s 411(17) was limited to provisions which imposed an obligation on a person, and did not include those which, like s 650C, conferred a power.
[59] I deal with those submissions in reverse order. I discern nothing in the text of s 411(17) to support the second submission. The subsection concerns itself not with the nature of the relevant ch 6 provision but with its operation. If there is no provision whose operation is within the object of a proposer's purpose, the specified purpose does not exist. If there is a such a provision, it is irrelevant whether the operation is mandatory or optional. No authority was cited to support this submission. I rejected it.
[60] It will be observed that EAM's primary submission was very broadly expressed. The first sentence is innocuous. If the second sentence included the word "necessarily" between "not" and "entail", it too could not be criticised. But that was far from the thrust of the submission, the thrust of which was that a preference for an arrangement for reasons such as those stated never entailed the specified purpose. In my judgment such a broad proposition could not be accepted.
[61] The major difficulty with the submission was its lack of focus on the words of s 411(17). That provision does not concern itself with questions of cost and time, efficiency or certainty of outcome. It deals with the existence of the specified purpose. In determining that question it is not conclusive that fulfilment of the purpose will confer on someone some benefit of the type described in the submission. No sensible person except perhaps a lawyer would form a purpose of avoiding the operation of a statutory provision purely for the pleasure of observing the provision remaining unengaged. People avoid the operation of a statutory provision in order to achieve some object which would be hindered were the provision to operate. The construction proposed by EAM would render s 411(17) redundant.
[62] I turn to the cases cited in support of the submission. In Re MIM Holdings Ltd White J said:
"There are no features of the Xstrata proposal which Platinum has submitted to demonstrate that Ch 5 has been preferred for the purpose of avoiding the operation of any of the provisions of Ch 6 which would immediately cause the court to stop the whole procedure "in its tracks". The letter of 29 April 2003 from Xstrata to MIM explains that a scheme of arrangement is the only way in which Xstrata can fund the $4.9b necessary to complete the transaction because its lenders require a high level of certainty as to the outcome and as to the timing. That is not, in my view, avoiding the provisions of Ch 6 of the Corporations Act in the way contemplated by s 411(17)(a)."[36]
Although the last sentence in that paragraph lends some support to the submission, it must be remembered that that passage comes immediately after the passage quoted above.[37] Her Honour was not considering whether to exercise her discretion under s 411(4)(b); she was considering only whether there were features of the arrangement which ought to "cause the court to stop the whole procedure 'in its tracks'." At that stage it was not known whether ASIC would produce a statement under s 411(17)(b).[38] It was unnecessary for her Honour to identify precisely what constituted the specified purpose and there is nothing in her reasons for judgment, delivered ex tempore, to suggest that she had the benefit of submissions on that question. It is highly improbable that she would have had the benefit of submissions as careful and extensive as those provided to me. Her Honour's words were not in my judgment intended to represent a considered statement of the law on that question.
[63] The second authority cited on behalf of EAM, Re International Goldfields Ltd, was also a "first hearing" case. After referring to Re ACM Gold Ltd and Re Stockbridge Ltd, Barker J said:
"[28] In relation to this case, it is contended by the applicant that the plurality of members means that, if Hamill Resources were to make a takeover bid under s6 of the Corporations Act, it could not be guaranteed 100 per cent ownership of the applicant, or a sufficient number of acceptances of the bid by the members to allow Hamill Resources to acquire the remaining shares through the compulsory acquisition provisions of Ch 6A of the Act. The proposed scheme provides a greater level of certainty in reaching 100 per cent ownership of the applicant. It is said that Hamill Resources would not agree to its obligations associated with the proposed merger if it could not be guaranteed of acquiring a 100 per cent interest in the applicant within a reasonable time-frame. I accept that these are rational reasons for the proposed scheme and that, looking at the proposal objectively, there is no reason to conclude that the arrangement has been proposed "for the purpose of" enabling Hamill Resources or the applicant to avoid the operation of ch 6 of the Act."[39]
[64] His Honour adhered to that view at the second hearing:
"[27] In these circumstances, it is appropriate for the court to find that the scheme has not been proposed for the purpose of avoiding the operation of the provisions of Ch 6 of the Act: see s 411(17)(a); Re Stockbridge Ltd (above) at 652 and Re International Goldfields Ltd (above) at [20] -- [28].
[28] In my view, there is evidence of a legitimate commercial reason for preferring a "takeover" under Ch 5, rather than Ch 6. In these circumstances, the court may express the requisite degree of satisfaction which obviates a further consideration of s 411(17): see, to similar effect, Re ACM Gold Ltd (1992) 7 ACSR 231 at 234."[40]
[65] It was no doubt true in that case (as doubtless it was in this) that there were rational reasons for the applicant to choose to proceed by way of arrangement rather than by way of takeover under ch 6. However to focus on whether the applicant's purpose was to avoid the use of ch 6, rather than on whether it was to avoid the operation of a specific provision of ch 6, can lead to error. As noted above, the Act does not prefer one chapter over the other.[41] A question so focused may not produce a relevant answer. Nor is it to the point that the reasons for the existence of the specified purpose be rational. The existence of the specified purpose is not affected by its rationality. The court is not entitled to ignore the existence of a consideration made relevant by the legislature simply because it thinks it would be rational to do so. (Of course where the court has a discretion, it may choose to give little or no weight to that consideration.)
[66] Re International Goldfields Ltd proceeded ex parte at both hearings. Barker J's dictum appears to have been based upon something said from the bar table, not upon evidence of purpose given in the case. No particular provision of ch 6 was identified as one which might be the object of the specified purpose. Certainly it is not clear from the report of the case that any person had the specified purpose in relation to s 650C. I do not find it persuasive as support for EAM's submission.
[67] The third authority cited by EAM was the decision of Commissioner McKerracher QC in Re Crown Diamonds NL. Again that was a first hearing case where the application was not opposed. Reasons were delivered orally on the day following the hearing. The Commissioner observed that the purpose of the scheme was something which required consideration "in a limited fashion". The Commissioner resolved it by following
"what was said by O'Loughlin J in Re ACM Gold Ltd ... stating of s 411(17) that if there are two ways of achieving the same object and one of them entails the use of chapter 6, the adoption of the second does not mean, without more, that the second was proposed for the purpose of enabling some person to avoid the operation of any of the provisions of chapter 6."[42]
That is no doubt correct. It does not assist in determining the correct approach when there is more evidence. In the case before the Commissioner, there was an affidavit in which the solicitor for the applicant deposed that there were no impediments under s 411(17); so the result is hardly surprising. It does not support EAM's submission.
[68] I have also had regard to another case which might be thought to support that submission. I should at this point acknowledge the assistance which I have gained from reading Schemes, Takeovers and Himalayan Peaks, a monograph published under the auspices of the Ross Parsons Centre of Commercial, Corporate and Taxation law in the University of Sydney.[43] It is a helpful, if somewhat polemical, publication. Re Ranger Minerals Ltd was identified from it.[44]
[69] That was another first hearing case. The application was opposed by ASIC but not by any shareholder. ASIC's opposition was based not on s 411(17) but on inequality of treatment of smaller shareholders. Its arguments focused on the effect of the arrangement, not on the purpose of the proposers. Nonetheless Parker J considered the subsection
"on the basis that at this first 'convening' hearing, the court will not ordinarily order the convening of a shareholders' meeting unless the scheme of arrangement is of such a nature and cast in such terms that, if it achieves the required majority at the shareholders meeting, the court would be likely to approve it at the second court hearing, if it were then unopposed."[45]
On the evidence in that case the purchaser sought a 100% merger in order to have unrestricted access to the target's cash reserves. That was its reason for selecting an arrangement rather than a takeover bid. Certainty of timing was important to the purchaser because it had postponed and reduced other planned capital raisings and had limited its options for raising capital in a timely and effective manner should the merger not proceed. The target favoured an arrangement rather than a takeover because under an arrangement there was certainty that full capital gains tax rollover relief would be available to its shareholders (this was a scrip-for-scrip offer); the same certainty was not felt in relation to a takeover.
[70] Parker J held that on the evidence there were apparently sound reasons for each company to prefer a merger by a scheme of arrangement rather than a takeover. Apparently on this basis he concluded that there was no reason on the evidence to consider that s 411(17)(a) would preclude approval of the scheme should it subsequently be sought.
[71] I have already explained why in my judgment the mere fact that there were sound reasons for preferring an arrangement to a takeover cannot resolve the question whether the specified purpose exists.[46] The argument in Ranger does not seem to have focused upon the question of certainty of timing in the context of achieving 100% control. Most concern revolved around a collateral transaction by which the purchaser had acquired over 19% of the target's shares from a company controlled by the former chairman of the target's directors for what ASIC contended was a higher price than was offered to other shareholders. There were apparently no submissions based on specific provisions of ch 6 and none was relevantly referred to in the reasons for judgment. The point presently before me did not form part of the ratio decedendi of the decision.
[72] I regret to say that I found ASIC's submissions on evaluation of purpose unhelpful. I was critical of them during oral argument and I remain so. I set them out at some length, although not in full:
"[42] The prohibition inherent in s.411(17)(a) on the misuse of Part 5.1 is no mere whim. Its obvious purpose is to ensure that if the scheme process is pursued the members and creditors receive equivalent protections as they would were the takeover to proceed by way of Chapter 6. It follows that if the avoidance of Chapter 6 results in no adverse treatment or loss of the protections of members or creditors of the target company there is no reason why s.411(17((a) should inhibit the further pursuit of the takeover by the most effective and efficient means.
[43] For the above reasons a reasonable, pragmatic and purposive construction of s.411(17) is to be preferred to a literal interpretation which might result in absurd results.
[44] A literal interpretation of s.411(17) would be extremely wide and render the use of Part 5.1 to effect a takeover almost otiose:
(a) Firstly, it seems accepted on any interpretation that the subsection refers to enabling 'any person' to avoid the operation of Chapter 6. The section is not limited to a purpose which enables those propounding the scheme only to avoid the relevant operation.
(b) Second, however, the section refers to the avoidance of 'the operation of any of the provisions of Chapter 6'. That is wide phraseology and, taken literally, the section would impose the prohibition if a party intended to avoid a technical provision of Chapter 6 even though the consequence of avoiding that provision had no adverse impact on any member or creditor. Such a literal construction would be unreasonable and not promote the obvious purpose of the section. For that reason it seems, the authorities have not embraced this literal interpretation. In this context is relevant that the various authorities do not include reasons for judgment which seek to analyse each and every one of the provisions of Chapter 6 in order to ascertain whether the parties proposing the scheme has shown the Court that the use of Part 5.1 was not intended to avoid each and every one of those Chapter 6 provisions.
(c) Third, the literal interpretation of the section would mean that even if the Court could not be satisfied that it was not a purpose of the use of Chapter 5.1 to avoid an inconsequential aspect of a provision of Chapter 6, it would refuse to give its approval. In such circumstances the cheapest and most efficient mode of effecting the takeover may be prevented. That is not an interpretation which seems to have been intended."
[73] I rejected those submissions. Strictly speaking it is not necessary for me to express a view on the function of s 411(17)(a). However ASIC's submissions on the evaluation of purpose are set in that context. I rejected para [42] because it focused on the effect of the arrangement and not the purpose of its proposers. I rejected para [43] because a submission is not advanced by phrasing it fulsomely, nor is its contradiction diminished by panning it with pejoratives. I rejected para [44] because it was wrong.
[74] It may be accepted that the effect of the operation of an arrangement is a material consideration in the exercise of the discretion under s 411(4)(b).[47] However that is not because any person held the specified purpose. I cannot agree that the obvious purpose of s 411(17)(a) is to ensure a particular result, whether it be that "members and creditors receive equivalent protections as they would were the takeover to proceed by way of chapter 6", or anything else. The provision is concerned not with the effect of an arrangement but with the purpose of the proposers. Nothing in the parliamentary history of the provision suggests otherwise.[48] I protest at the implication that to give the words of the section their natural meaning is somehow to indulge in sterile literalism. Paragraph [42] of ASIC's submission carried result-oriented statutory construction too far.
[75] I turn to the three limbs of para [44]. To take the third point first, it is not the function of s 411(17) to assure the approval of the cheapest and most efficient mode of effecting a takeover. As already noted, if ASIC produces the statement there is no scope for s 411(17)(a) to operate.[49] An interpretation which gives the words their natural meaning should not be regarded as unintended, nor would it render the use of part 5.1 to effect a takeover almost otiose.
[76] The second limb of this paragraph was premised on the same incorrect assumption as to the purpose of the section as was made in para [42] of the submission. It is true that in none of the authorities is there analysis of "each and every one of the provisions of ch 6 in order to ascertain whether the parties proposing the scheme have shown the court that the use of part 5.1 was not intended to avoid each and every one of those chapter 6 provisions"[50]. One would not expect such an analysis. The need for the applicant to prove a negative under s 411(17)(a) does not require such an approach. The prosecution in a criminal trial must exclude any number of defences beyond reasonable doubt, but it need not address any particular defence unless that defence is fairly raised on the evidence. In the absence of some evidence fairly raising the possibility of the existence of the specified purpose in relation to a particular provision of ch 6, one would not expect that provision to be addressed. That is particularly so when most of the authorities consist of uncontested applications, often decided in the more relaxed circumstances of the first hearing.
[77] Finally, I was quite unable to see why the width of the reference to "any person" in s 411(17)(a) would render the use of part 5.1 to effect a takeover almost otiose.
[78] Mincom did not address this question at any length. It submitted that harmony between ch 6 and ch 5 was achieved by ensuring that the purposes of ch 6 be fulfilled in a scheme context. Those purposes, it submitted, were set out in s 602.[51] There can, of course, be no objection to that; indeed, it seems to be called for in the exercise of the discretion under s 411(4)(b). However that is not the function of s 411(17).
[79] In my judgment the prima facie purpose referred to above[52] was established. It was a substantial purpose and it amounted to a specified purpose in the sense in which I have used that term.
[80] I have exposed my approach to the evaluation of purpose in relation to only one of the purposes of Mincom and EAM. Were the existence of the specified purpose a critical factor in the exercise of the discretion under s 411(4)(b), it would have been necessary to apply this approach in evaluating each of the purposes disclosed by the evidence.[53] However in the end I came to the conclusion that even if all of the purposes which both Mincom and EAM sought to achieve were specified purposes, it would not alter the manner of exercise of my discretion. It is therefore unnecessary now to evaluate any other of the purposes.
Section 411(4)(b) - other matters
[81] The circumstances which led to the proposal have been described above. The truth of the contents of the scheme booklets was verified and their dispatch to shareholders and lodgment with ASIC proved. The independent expert's report was verified and unchallenged. There was no suggestion that the arrangement had been proposed for any improper purpose. There was no evidence of any other ground for "withholding approval with the contemplated outcome that there would be a takeover instead of the scheme"[54].
Section 411(6) - alteration to arrangement
[82] The second hearing commenced on 27 March 2007. On that day, contrary to Mincom's expectations, no notice in writing had been issued by on behalf of the Commonwealth Treasurer stating that the Government did not object to the implementation of the scheme or the options offer. The issue of such a notice or waiver of it by both Mincom and EAM was a condition precedent of the arrangement. The hearing dealt with a number of issues and was then adjourned to await the issue of the notice. It resumed on 24 April, by which time the condition had been satisfied.
[83] Clause 2.2 of the scheme document required Mincom to give the court a certificate confirming the satisfaction or waiver of conditions precedent at the "Second Court Date". That term was defined to mean the first day on which an application was made to the court for an order under s 411(4)(b); in other words the first day of the second hearing. To overcome Mincom's inability to do this, it sought to amend that definition to mean "the day on which the order is made under s 411(4)(b) of the Corporations Act approving the scheme with or without modification".
[84] That alteration had no practical effect on any other part of the arrangement and did not in any way detrimentally affect the position of shareholders. It was entirely procedural and was not opposed by ASIC.
Section 411(4)(b) and (6) - conclusion
[85] All necessary procedural steps had been taken and any procedural deficiencies were trivial. The nature and circumstances of the arrangement had, for the most part, been substantially disclosed to shareholders, and while there were some deficiencies, they did not in my judgment warrant withholding approval of the arrangement. The arrangement made commercial sense; it was fair and reasonable as between classes of shareholders; and it had the shareholders' overwhelming support. The risk that it would have serious adverse consequences to any shareholder or third party was low. ASIC had produced a statement that it had no objection to it. It was untainted by any suggestion of improper purpose. Even if one were to assume that Mincom and EAM had proposed it to enable EAM to avoid the operation of one or more of the provisions of ch 6, any public interest in discouraging such conduct was far outweighed by the matters which supported the application. The amendments sought were sensible and practical. In these circumstances I approved the arrangement with the alterations sought.
Sections 411(11) and (12)
"(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.
(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."
Mr Oakes submitted that the order for exemption is always made. He described s 411(11) as "vestigial" and referred me to Re Equinox Resources Ltd, where Heenan J said:
"22 I am satisfied that the purpose of that provision is to ensure that any modification of the rights of shareholders of the company which is the subject of the scheme or any other provision in the scheme which may affect the interests of persons dealing with the company, such as prospective creditors or purchasers of shares, will be sure to have the opportunity of seeing what the exact rights of shareholders in the company or of its creditors are, as modified, if at all, by the scheme which has been approved."[55]
[87] I need not decide whether that represents a comprehensive statement of the purpose of these provisions. In the circumstances of the present case I could not imagine any useful purpose which could be served by permitting sub-s (11) to operate, and counsel were unable to suggest any. ASIC did not oppose an order under sub-s (12).
[89] The affidavits and their exhibits in this case occupied seven arch lever binders. At least six sets of these binders must have been produced. Many of the exhibits were identical. Many of them were beyond argument uncontroversial: the share register, voting cards, proxies and so on. With some encouragement from the bench some such exhibits were tendered on CD. More could have been dealt with in this way. Other exhibits were repeated in numerous affidavits: the first scheme booklet and other documentation for example. In many cases it ought to have been possible for the deponent simply to refer to to the exhibit to another person's affidavit. Multiple copies were unnecessary.
[90] Reducing the physical bulk of the material is not simply a matter of saving forests. It makes the material much easier for a judge to handle and simplifies the process of finding a particular document. That is particularly true of material produced electronically if it can be tendered in searchable form. Applicants for arrangements may be expected ordinarily to engage solicitors who will have the capacity to produce material in electronic form. I commend the solicitors for the applicant in this case for their efforts and urge others to give serious thought to how the physical bulk of documentary evidence may be reduced.
[4] Capitalisation in accordance with the original.
[6] SGIC Insurance Ltd v Insurance Australia Ltd [2004] FCA 1638; (2004) 51 ACSR 593 at [15].
[8] See Re Mincom Ltd (No 2) [2007] QSC 58.
[10] Re Permanent Trustee Co Ltd [2002] NSWSC 1177.
[11] Re NRMA Limited; Re BRL Hardy Ltd [2003] SASC 97; (2003) 45 ACSR 397 at p 399.
[12] Mincom did not accept that its directors owed a fiduciary duty to shareholders to obtain the best price reasonably available.
[14] Re Mincom Ltd [2007] QSC 37 at [39].
[15] Re APN News and Media Limited [2007] FCA 770.
[17] Re Advance Bank Australia Ltd (1997) 138 FLR 281; (1997) 22 ACSR 513 at p 519.
[18] Basic Policy Statement 60 (exhibit 2).
[19] A letter in similar terms was provided to the court in Re CSR Ltd [2003] FCA 285; (2003) 45 ACSR 107.
[21] (1997) 16 ACLC 423 at p 425.
[22] A course which would be open if the effect of the arrangement were to avoid the operation of a provision of ch 6, to the detriment of shareholders or in breach of the Eggleston principles set out in s 602(a) - (c) of the Act: see Re Ranger Minerals Ltd (2002) 42 ACSR 582; [2002] WASC 207.
[23] (2003) 45 ACSR 554 at p 556-557.
[25] (1993) 9 ACSR 637 at p 652.
[26] Re ACM Gold Ltd (1992) 107 ALR 359 at 367 per O'Loughlin JA.
[27] Re MIM Holdings Ltd (2003) 45 ACSR 554 at p 557; see also Nicron Resources Ltd v Catto (1992) 8 ACSR 219 at pp 234-5 per Bryson J.
[28] Re Stockbridge Ltd (1993) 9 ACSR 637 at p 653, citing Catto v Ampol Ltd (1989) 15 ACLR 307 at p 310; 7 ACLC 717 at p 720.
[29] Re Stockbridge Ltd (1993) 9 ACSR 637 at p 652.
[31] (1992) 34 FCR 530 at pp 537-8.
[32] (1993) 9 ACSR 637 at p 654.
[34] [2007] QSC 37 at [26] ff.
[36] (2003) 45 ACSR 554 at p 557.
[38] It subsequently did so; see Re MIM Holdings Ltd [2003] QSC 181; (2003) 45 ACSR 559 at p 561 per Ambrose J.
[39] [2003] WASC 86; (2003) 21 ACLC 1199 at pp 1202-3.
[42] [2005] WASC 93; (2005) 54 ACSR 46 at p 53.
[43] Damian, Tony and Rich, Andrew, "Schemes, Takeovers and Himalayan Peaks", University of Sydney, Sydney, 2004.
[45] [2002] WASC 207 at [21]; [2002] WASC 207; (2002) 42 ACSR 582 at p 587.
[48] Damian and Rich: op cit, pp 22-35.
[51] The submission referred to the "four Eggleston principles" restated in that section. Whether s 602(d) restates an Eggleston principle might be debated and some interesting arguments could be constructed in relation to any application of that paragraph to ch 5. It is unnecessary to develop this point; it was not central to the thrust of the submission.
[55] [2004] WASC 143 at [22].
(1992) 34 FCR 530
(1997) 138 FLR 281
(2000) 156 FLR 349
(1992) 107 ALR 359