Plaintiff v Defendant

Re ACM Gold Ltd (1992_)_ [1992] FCA 89; 107 ALR 359.

Re ACM Gold Ltd & Mt Lehshon Gold Mines Ltd [1992] FCA 89; (1992) 7 ACSR 231.

Re Advance Bank Australia Ltd (1997) 22 ACSR 503.

Re Advance Bank Australia Ltd [No 2] (1997) 136 FLR 281.

Re Alabama, New Orleans and Pacific Junction Railway Co [1891] 1 Ch 213.

Re Archaean Gold NL (1997) 23 ACSR 143.

Re Arnott's Ltd (1998) 16 ACLC 423.

Re BRL Hardy Ltd [2003] SASC 97; (2003) 45 ACSR 397.

Re Central Pacific Minerals NL [2002] FCA 239.

Re Equinox Resources Ltd [2004] WASC 143; (2004) 49 ACSR 692.

Re Foundation Healthcare Ltd [No 2] [2002] FCA 973; (2002) 43 ACSR 680.

Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252.

Re Hibernian Friendly Society (NSW) Ltd [2002] FCA 1139; (2002) 44 ACSR 206.

Re International Goldfields Ltd [2004] WASC 112.

Re MIM Holdings Ltd (2003) 45 ACSR 553.

Re MIM Holdings Ltd (2003) 45 ACSR 554.

Re Mincom Ltd [No 3] [2007] QSC 2007.

Re News Corporation Ltd [2004] FCA 1480; (2004) 51 ACSR 394.

Re United Energy Ltd [2003] VSC 266.

Re Westfield Holdings Ltd [2004] NSWSC 602; (2004) 49 ACSR 741.

Zenyth Therapeutics Ltd v Smith [2006] VSC 436; (2006) 60 ACSR 548.

For Wesfarmers Ltd and Wesfarmers Retail Holdings Ltd

1 On 9 November 2007, Coles Group Limited ("Coles") sought an order pursuant to para 411(4)(b) of the Corporations Act 2001 (Cth) ("the Act") approving a scheme of arrangement proposed to be made between it and its ordinary shareholders (other than Wesfarmers Ltd and related parties), and an order pursuant to sub-s 411(12) of the Act that Coles be exempted from compliance with sub-s 411(11) of the Act.

2 On 27 September 2007, Coles sought an order convening a meeting of relevant Coles members to consider the scheme. I made the order and indicated that if the scheme was sought to be approved, the court would be assisted by any submissions Coles and ASIC may wish to make on the relevance of sub-s 411(17) at the approval hearing.[1]

3 The proposed scheme is described in my reasons for ordering the convening of meetings to consider the scheme.[2] In substance, under the scheme Wesfarmers Ltd (by a subsidiary) would acquire all the shares it did not already own in Coles in consideration of $4 cash per Coles share and two categories of shares in Wesfarmers Ltd. There were other terms dealing with dividends and shareholders opting to take additional shares in lieu of cash. Importantly for current purposes, the scheme proposed was between the target of the takeover, Coles, and its shareholders. The obligation of the offeror Wesfarmers to pay for the shares was recorded in an agreement between Coles and Wesfarmers called the Scheme Implementation Deed and was given legal effect by a deed poll. Under the Scheme Implementation Deed, Coles agreed to put forward the scheme of arrangement with its members. By the scheme, Wesfarmers would acquire control over all the voting shares in a listed company, Coles.

4 On 9 November 2007, I approved the scheme, giving short reasons which I repeat here and also the substance of the submissions made to me which I accepted. I reserved my reasons dealing with the relevance of s 411(17) of the Act to the court's discretion to approve the scheme.

5 On 27 September 2007, the court made orders convening a meeting of scheme shareholders to consider the scheme and gave directions as to the manner in which the scheme meeting was to be conducted, the place at which it was to be held and as to the materials to be distributed to scheme shareholders in advance of the scheme meeting.

6 On 7 November 2007, Master Efthim made orders pursuant to r 16.6 of the Supreme Court (Corporations) Rules 2003 (Vic) that the scheme meeting was duly convened in accordance with those orders and that the resolution in favour of the scheme was duly approved. The scheme was approved by 97.83 per cent of scheme shareholders present and voting (either in person or by proxy) and by 99.25 per cent of the votes cast on the resolution.

Matters identified at the hearing before Master Efthim

7 The sole matter identified by Master Efthim to be brought to the court's attention at the approval hearing were minor differences between the explanatory statement approved by the Court and that which was ultimately sent to shareholders. In my view, these differences were immaterial.

The Court's power to approve a scheme of arrangement

8 In Re Central Pacific Minerals NL, Emmett J of the Federal Court of Australia said that the court must satisfy itself that the arrangement is fair and equitable between different classes of security holders, and as between security holders and those who will benefit from it. He also said that the jurisdiction of the court in relation to an arrangement is supervisory, in the sense that the court is concerned to be satisfied that there has been an absence of oppression and that the arrangement is one that is capable of being accepted. He said the court will generally take the view that the shareholders are the best judges of whether an arrangement is to their commercial advantage and will be reluctant to make decisions contrary to the views of security holders expressed at meetings.[3]

9 These observations are consistent with a long line of authorities, including Re Alabama, New Orleans and Pacific Junction Railway Co where Fry LJ said that the court is bound to ascertain that all the conditions required by the statute have been complied with. It is also bound to be satisfied that the proposition was made in good faith; and, further, it must be satisfied that the proposal was at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such a member, might approve it. What other circumstances the court may take into consideration he did not attempt to forecast. [4] See also Zenyth Therapeutics Ltd v Smith.[5]

10 The scheme in this case has been approved by overwhelming majorities of scheme shareholders and votes. Full disclosure has been made, both as to the benefits and potential benefits of the proposal and as to its potential disadvantages. This included prominent disclosure of the independent expert's opinion (as at the date of its initial report) that the scheme did not deliver a full premium for control of Coles and that any decision with respect to the scheme would be finely balanced.

11 A letter from the independent expert dated 30 October 2007 and published that day on the company announcement platform of ASX Ltd, notes that since the preparation of the expert's initial report, the Wesfarmers share price has increased from levels around $39 to levels in the approximate range of $43 to $44. As a consequence of that increase, the independent expert has revised its assessment of the value of the base consideration offered under the scheme from $14.87 to $15.44 per Coles shares to $16.03 to 16.56 per Coles share (against a per share valuation of Coles in the range $16.21 - $18.23). The independent expert states that the increase in its assessed value of the base consideration reinforces its opinion that the scheme is in the best interests of scheme shareholders.

12 It was further submitted to me, and I accept, that there is no suggestion in the present case that the decision of scheme shareholders was vitiated by inadequate disclosure or any other factor. I was informed and accept that no person has notified Coles of an intention to contend to the contrary at the approval hearing. In light of those facts, and the independent expert's updated views as to the value of the base consideration offered under the scheme, Coles submitted that there is no reason for the court to question the wisdom of, or to interfere with, the commercial judgment of scheme shareholders as expressed at the scheme meeting.

13 The court has already determined that it was appropriate for scheme shareholders to consider the scheme after taking into account the opinion of the independent expert. Having regard to the majorities attained at the scheme meeting and the absence of any objection to the scheme, it was submitted to me that the scheme ought to be approved by the court pursuant to para 411(4)(b) of the Act.

14 Subject to my consideration of sub-s 411(17) and the effect, if any, that has on my discretion to approve the scheme under para 411(4)(b), I accept those submissions. Applying the tests laid down by Fry LJ in Re Alabama, New Orleans, Texas v. Pacific Junction Railway Company[6], I find that the conditions required by the statute have been complied with. Further, I am satisfied that the proposition put to the members was made in good faith. Further, I am satisfied that the proposal was, at least so far, fair and reasonable, as that an intelligent and honest person, who is a member of that class, and acting alone in respect of her or his interests as such a member, might approve it.

Sub-section 411(17) of the Corporations Act

"The Court must not approve a compromise or arrangement under this section unless:

(a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or

(b) there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement;

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

17 At the first hearing of this application, I raised some questions regarding the operation of sub-s 411(17) of the Act. At that stage I said there is an implication in sub-s 411(17) that an arrangement under s 411 should not be proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6 of the Act. In particular, I raised the question of the relevance, if any, of sub-s 411(17) to the exercise of the court's discretion to approve the scheme, where ASIC provides a written statement of the kind referred to in para 411(17)(b).

18 In response to these questions, Coles and ASIC made detailed submissions on the relevance of sub-s 411(17) to the exercise of my discretion. Before turning to those submissions I should set out some background matters relating to sub-s 411(17).[7]

19 Sub-section 411(17) was first introduced into Australian company law as sub-s 315(21) of the Companies Act 1981 ("the 1981 Act"), which came into operation on 1 July 1982. As originally enacted, it did not include para (b) or the closing words; these were added by an amendment passed before the 1981 Act came into force.[8]

20 The Explanatory Memorandum that accompanied the amending Bill stated:

The Court is not able to approve a compromise or arrangement if it considers that the compromise or arrangement has been proposed as a means of avoiding the Share Acquisition Code. (Principal Act s-sec. 315 (21)). This restriction will be eased so that the Court will be able to approve such a compromise or arrangement notwithstanding that the Court considers that it was proposed for this purpose if the NCSC has no objection to the compromise or arrangement. However, even if the NCSC has no objection to the scheme, the Court will still be able to reject the scheme (Amendments Bill cl.52).[9] (Emphasis added)

21 At all times since 1981, the structure of Chapter 6 of the Act and its legislative predecessors[10] has been that certain acquisitions of shares (being those which, broadly speaking, may result in a change in control) are prohibited, subject to a range of exceptions or exemptions specified in the legislation. In the Act, the prohibition is contained in s 606 and the exemptions in s 611. One of those exceptions is, and has always been, an acquisition as a result of a takeover bid of the kind provided for in Chapter 6; another is, and has always been, an acquisition pursuant to a scheme of arrangement approved by the Court under s 411.[11]

22 Many transactions which could be carried out under Chapter 6 are carried out by a scheme of arrangement under Chapter 5. The legislation provides a choice, and it is neutral as to the choice which is made. Thus, a corporation is entitled to choose a scheme of arrangement over Chapter 6 if it wishes.

23 The availability of this choice is well established by authority: Nicron Resources Ltd v. Catto,[12] Re United Energy Ltd,[13] Re MIM Holdings Ltd[14] and Re International Goldfields Ltd.[15] Further, there is no provision in the Act which expressly says that a scheme of arrangement must not be proposed for the purpose of enabling any person to avoid the operation of any provision of Chapter 6.[16]

24 Chapter 6 itself is built upon a multitude of prescriptive and proscriptive requirements, all or any of which can be waived or modified by ASIC.[17] In exercising these powers, ASIC is required to have regard to the purposes of Chapter 6 as spelt out in s 602 of the Act. In adding para 411(17)(b), Parliament might be taken to have recognized that the strict rule expressed in sub-s 411(17) as originally enacted (then sub-s 315(21)) should be relaxed in circumstances where ASIC has no objection. In effect, it might be argued that the legislature vested ASIC with the function of deciding on a case by case basis whether the purposes for which a scheme had been proposed mattered or not.[18]

25 Coles submitted that it is no part of the court's function to undertake, of its own volition, an inquiry into the proponents' purposes in proposing the scheme. Coles submitted that only the proponents are in a position to prove their purposes. Coles submitted that sub-s 411(17) of the Act imposed a burden on the proponents, which is to be discharged, at the approval stage, by establishing one or other of the matters in paras 411(17)(a) and (b) ("a no objection statement").

26 Relying upon Mincom Ltd v. EAM Software Finance Pty Ltd[19], Coles submitted that the two limbs of sub-s 411(17) are true alternatives. It argued that the proponents have the option to rely on a written statement from ASIC under para 411(17)(b). It submitted that where ASIC provides such a statement, the proponents are relieved of the burden imposed by para 411(17)(a) and the court may, but not must, approve the scheme. Coles submitted that, failing that, the court may not approve the scheme. It submitted that in the absence of a written statement from ASIC under para 411(17)(b), it is for the proponents to establish to the court's satisfaction the absence of the purposes proscribed by para 411(17)(a).

27 Coles submitted that this was not to say, however, that the matters the subject of para 411(17)(a) may not be taken into account by the court, in the appropriate case, in the exercise of the discretion conferred by sub-s 411(4) of the Act. Coles said that so much is apparent from the closing words of sub-s 411(17) and the line of authorities that I referred to previously concerning the breadth of that discretion. Coles said that the closing words of sub-s 411(17) serve to clarify that the court's discretion to approve the scheme is not affected by the provision of a written statement by ASIC under para 411(17)(b).[20]

28 Coles submitted that those closing words do not, however, require the court independently to investigate such matters as a pre-condition to the exercise of that discretion, relying upon the observation of Barrett J in Re Permanent Trustee Co Ltd[21] where he said that as the application is ex parte, the applicant carries the responsibility of bringing to the court's attention all matters that could be considered relevant to the exercise of its discretion.

29 Coles submitted, therefore, that once it is accepted that matters the subject of para 411(17)(a) may bear upon the exercise of the court's discretion under sub-s.411(4) of the Act, it follows that the proponent of the scheme is obliged to put before the court all material relevant to the exercise of discretion.

30 Coles therefore submitted that if an avoidance purpose were present, it would fall to the applicant to disclose that purpose to the court at the hearing of its application for orders approving the scheme.

31 ASIC submitted its position was in accordance with the submissions of Mr Bathurst on behalf of Coles, which I have set out above. ASIC submitted that once there was a letter from ASIC in accordance with para 411(17)(b), then the requirements of para 411(17)(b) are satisfied and the question of the court's discretion is again at large. Further, ASIC submitted that, in effect, one returns to the position one finds oneself in under para 411(4)(b) and the court is free to exercise the discretion and proceed to approve the scheme or not as the court sees fit.

32 Further, ASIC said that in the circumstances where ASIC has issued a certificate under para (b), the court is not required to look at the question of whether or not the scheme has been proposed for the purpose of enabling any person to avoid the operation of the provisions of Chapter 6, but is not precluded from doing so, and that is because paras (a) and (b) of sub-s 411(17) are true alternatives and that, once a certificate is given, the impediment to the court approving the scheme or proceeding to exercise its discretion to approve the scheme is removed.

33 It might be useful, therefore, to summarise the essence of the Coles submission, which was agreed to by ASIC:

(1) Sub-section 411(17) of the Act imposes a burden on the proponent of a scheme, which is to be discharged, at the approval stage, by establishing one or other of the matters in paras 411(17)(a) and (b).

(2) Failing that, the court must not approve the scheme.

(3) The two limbs of sub-s 411(17) are true alternatives.

(4) The proponents have the option to rely on a written statement from ASIC under para 411(17)(b) or satisfying the court that the arrangement has not been proposed for the proscribed purpose.

(5) Where ASIC provides such a statement, the proponents are relieved of the burden imposed by para 411(17)(a) and the court may, but not must, approve the scheme.

(6) In the absence of a written statement from ASIC under para 411(17)(b), it is for the proponents of the scheme to establish to the court's satisfaction the absence of the purposes proscribed by para 411(17)(a).

(7) The matters the subject of para 411(17)(a) may (but need not) be taken into account by the court, in an appropriate case, in the exercise of the discretion conferred by sub-s 411(4) of the Act.

(8) The closing words of sub-s 411(17) serve to clarify that the court's discretion to approve the scheme is not affected by the provision of a written statement by ASIC under para 411(17)(b).

(9) The closing words do not, however, require the court independently to investigate such matters as a pre-condition to the exercise of that discretion.

34 ASIC did not comment upon Coles' submission that once it is accepted that the matters the subject of para 411(17)(a) may bear upon the exercise of the court's discretion under sub-s 411(4) of the Act, it follows that the proponent of the scheme is obliged to put before the court all material relevant to the exercise of the discretion. ASIC did not make any submissions one way or the other about that proposition.

35 As to proposition one, I agree the onus of the proponents is to establish one or other of paras (a) and (b): see Mincom Ltd v. EAM Software Finance Pty Ltd.[22]

36 It is useful to refer to ASIC's policy in relation to its role under para 411(17)(b). Policy Statement 60 "Schemes of Arrangement - s.411(17)" bears reading in its entirety. The policy gives guidance on -

(a) the circumstances when ASIC may issue a statement under para 411(17)(b) of the Law (now the Act);

(b) the information standard needed for documents under takeover type schemes; and

(c) ASIC's view on transactions that might be conducted as either a scheme of arrangement or a Chapter 6 takeover.

37 Under the heading of "Underlying Principles", the policy provides:

"6. The Law sets out the underlying principles of fairness and information for acquisitions of shares in s.732, i.e. the Eggleston principles. They relate to sufficient time for shareholders to make a decision, sufficient information to make a decision and reasonable and equal opportunities to share in any benefits that flow from a person acquiring a substantial interest in their company. ASIC will apply those principles equally to its role in schemes of arrangement as it does to other types of acquisitions.

7. ASIC's policy is that shareholders should receive equivalent (although not necessarily identical) treatment and protection whether an acquisition is made under a scheme of arrangement or by any other type of acquisition (including cancellations etc). If those protections are equivalent, ASIC has no policy to favour one legal method over another."

12. Under s.411(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. It should be noted, however, that the court cannot approve a scheme of arrangement unless it positively decides that the scheme has not been proposed in order to avoid compliance with Ch 6, or unless ASIC has issued a statement under s.411(17)(b) (Re ACM Gold).

13. The basic question ASIC will consider is whether shareholders are adversely affected by the takeover being implemented by a 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 s.1330, to oppose an application before the court under s.411 on grounds arising out of s.411(17) unless it has concerns in respect of the disclosure requirements or the Eggleston principle. However, ASIC may still make submissions as amicus curiae if there are issues to be brought to the attention of the court where ASIC does not oppose the Scheme proposal."

39 It can be seen, therefore, that under PS60 that ASIC is looking at the effect of the takeover being implemented by a scheme of arrangement compared to a takeover scheme. ASIC say it is not required to determine or prove the purpose of the scheme.

40 In policy statement PS142, ASIC have stated as follows:

"SECTION 411(17)(b) - avoidance of takeover provisions

18. Sub-section 411(17) is intended to prevent the proponents of schemes using them to avoid the takeover provisions in Chapter 6 of the Law. The court may not approve a scheme unless either it is satisfied that the scheme is not a takeover avoidance device, or ASIC provides a statement in writing that it has no objection to the scheme.

19. Policy Statement 60 sets out ASIC's policy basis for considering an application for a statement under s.411(17)(b). ASIC is concerned to ensure that takeovers that operate by way of schemes of arrangement operate, and are regulated, in a manner which is harmonious with the provisions of Chapter 6. This requires that members receive all material information that they need for their decision, members receive reasonable and equal opportunity to share in the benefits provided under the Scheme, and the meetings are properly conducted. ASIC will not provide a statement under s.411(17)(b) unless the scheme and its explanatory statement meet these conditions."

41 Again, this policy statement asserts that ASIC does not investigate whether or not the scheme has been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6 ("the proscribed purpose"). Rather, ASIC says that it will not provide a statement under para 411(17)(b) unless the scheme and its explanatory statement meet certain conditions which essentially go to the provision of information to members, members being offered equal opportunities to share in the benefits provided under the scheme, and the meetings are properly conducted.

42 These policy statements should be compared to the letter provided by ASIC to Coles where ASIC says it had no objection to the scheme of arrangement between Coles and its members "on the basis that it is satisfied that it is not being proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6 of the Act".

43 ASIC's statement that it is satisfied that the scheme is not being proposed for the proscribed purpose and that is the basis for its non objection to the scheme is difficult to reconcile with Policy Statements 60 and 142. I assume, however, that in order to give the no objection statement ASIC has still satisfied itself as set out in the policy statements that Coles' shareholders are not being adversely affected by the takeover being implemented by a scheme of arrangement compared to a takeover scheme. That assumption is given weight by the letter ASIC sent to Coles of 27 September 2007 advising it did not intend to intervene to oppose the scheme at the first hearing as ASIC expressly referred Coles to PS 60 and PS 142 for a further explanation of ASIC's policy in relation to schemes of arrangement.

44 At the hearing on 9 November 2007, I did not take the opportunity to ask ASIC to explain why it qualified its no objection letter under para 411(17)(b) with the words "on the basis that it is satisfied that it is not being proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6 of the Act." Paragraph 411(11)(b) does not require such a qualification to be made. ASIC's explanation for making that qualification in the light of para 411(17)(b) and PS 60 will have to await another occasion.

45 On the application for meetings, Coles tendered evidence establishing it had disclosed the information that would require to be disclosed under a Ch 6 takeover.

46 The Policy Statements do help reconcile the various parts of sub-s 411(17) and provide the section with a rational and reasonable function which is also of relevance in considering the work, if any, the section does when the court is exercising its discretion whether or not to approve the scheme.

47 Sub-section 411(17) only has relevance to a scheme that involves a takeover. The court must not approve such a scheme unless para (a) or (b) is satisfied. A no objection statement under para (b) establishes that ASIC has no objection to the scheme as in ASIC's view members are not being adversely affected by the takeover being implemented by a scheme of arrangement rather than a takeover scheme. That is, even if the proscribed purpose exists, members are not, according to ASIC, being adversely affected. In other words, any adverse consequence to the members that may have flowed from the proscribed purpose existing are found by ASIC not to be present.

The authorities on the effect of a no objection statement

48 I turn to consider those cases which have considered the consequences for the approval of a Scheme of Arrangement of ASIC providing a statement that it has no objection to the arrangement under para 411(17)(b).

49 In Re Advance Bank Australia Ltd[23], Santow J of the Supreme Court of New South Wales had before him for approval a scheme of arrangement which would achieve substantially the same arrangement as a takeover scheme. The proponent tendered a no objection statement. That letter did not contain the qualifying words that appear in the letter provided to Coles, i.e. "on the basis that it is satisfied that it is not being proposed for the purposes of enabling any person to avoid the operation of any of the provisions of Chapter 6 of the Act". Santow J said that what the letter does is to "preclude the court from withholding approval to the scheme where the ground for so doing is under para 411(17)(a) of the Corporations Law".[24]

50 In Re Mincom Ltd [No.3][25], Fryberg J of the Supreme Court of Queensland considered the question of the relevance of the existence of the prohibited purpose for the purposes of the court exercising its discretion under para 411(4)(b) and said that he agreed with the statement of Santow J but construed the observation to be limited to dealing with the question of whether approval should be withheld under para 411(17)(a). He said that Santow J was making the obvious point that if a statement was provided by ASIC, then no question arose of withholding approval by reason of the express bar raised by para 411(17)(a). I am not so sure that Santow J was limiting his observations to the circumstances where the court must not give its approval.[26]

51 In Re Archaean Gold NL[27], Santow J considered an application for approval of a scheme that involved a takeover. Santow J said, in dealing with the court's discretion to approve the scheme, that the court "has to be vigilant to ensure proper safeguards and disclosure operate, where appropriate adopting analogous safeguards to those applicable to conventional takeovers, though necessarily adapted to the particular situation."[28] I assume that the appropriate analogous safeguards that Santow J refers to are the tests that ASIC says in its policy statements it applies in issuing a no objection statement.

52 In Re Arnott's Ltd[29], Bryson J of the Supreme Court of New South Wales approved a scheme of arrangement that involved a takeover where ASIC had provided a no objection statement. Bryson J said the no objection statement "removed from consideration the possibility of withholding approval of the scheme on the grounds of intended avoidance" but that it did 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 a scheme." He said he "did not see the observations of Santow J in Re Advance Bank Australia Ltd[(No.2][30] as expressing any view inconsistent" with his.

53 In Re Mincom Ltd [No.3][31], Fryberg J said Bryson J intended to express the same view as was expressed by Santow J in Re Advance Bank Australia Ltd.[32] I believe that the construction Fryberg J puts on Bryson J's observation is not correct. Bryson J said: "It does not remove from consideration the appropriateness of any other ground [and here he is referring to a ground other than the existence of the proscribed purpose] of withholding approval with the contemplated outcome that there would be a takeover instead of the scheme". In my view, Bryson J's observation does not add support for the view that the existence of the proscribed purpose is a relevant matter to take into account in approving the scheme.

54 In Re Foundation Healthcare Ltd[33], French J of the Federal Court of Australia considered an application for meetings to consider a scheme affecting a takeover and considered the relevance of sub-s 411(17). He said that "if it were already apparent that the proposed arrangement would serve the purpose of enabling a person to avoid the operation of the provisions of Chapter 6, then approval for the meeting would not be ordered."[34] He did not discuss why this would be the case particularly if a no objection statement was issued. I do not necessarily agree with his view but it is unnecessary for me to form a concluded view.

55 His Honour made clear his view that the existence of the proscribed purpose is relevant to the exercise of the court's discretion when he subsequently came to approve the scheme in Re Foundation Healthcare Ltd [No.2][35]. He said that the production of the no objection statement did not mean that the court was "precluded from considering, notwithstanding the views of ASIC, whether the arrangement has been proposed" for the proscribed purpose when exercising its discretion to approve the scheme.[36] In Re Mincom Ltd [No.3][37], Fryberg J expressly agreed with French J in holding that the Court is not precluded from considering whether the agreement has been proposed for the proscribed purpose in exercising the Court's discretion under para 411(4)(b).[38]

56 In Re Hibernian Friendly Society (NSW) Ltd[39], Conti J of the Federal Court of Australia, in approving a scheme to effect the demutualisation of the applicant Hibernian, said that the production of the no objection statement "removed the necessity" for him to express the court's satisfaction pursuant to para 411(17)(a) of the Act. [40] He relied on the dictum of Santow J in Re Advance Bank Australia Ltd [No.2][41].

57 Although Conti J went on to consider the effect of the approval power under para 411(4)(b), he did not address the issue of whether the existence of the proscribed purpose could or should be taken into account by the court in exercising its discretion under para 411(4)(b).

58 In Re BRL Hardy Ltd[42], Perry J of the Supreme Court of South Australia, in approving a scheme affecting a takeover, said of sub-s 411(17) that were it not for the no objection letter, he would have "been obliged to address the question whether or not the schemes of arrangement had been proposed" for the proscribed purpose. He said that it was, however, "unnecessary to address that question," as the no objection letter confirmed that ASIC has no objection to the scheme of arrangement.[43] His Honour did not expressly address the question of the relevance of the existence of the proscribed purpose to the court's discretion.

59 In Re United Energy Ltd[44] Gillard J of the Supreme Court of Victoria approved a scheme of arrangement affecting a takeover and considered sub-s 411(17), saying that the mere fact that ASIC had no objection would not stand in the way of the court deciding not to approve the arrangement if the court decided that was the appropriate decision.[45] His Honour, however, made no reference to the relevance of the proscribed purpose to the court exercising its discretion.

60 In Re MIM Holdings Ltd,[46] White J of the Supreme Court of Queensland ordered the convening of meetings to consider a scheme of arrangement involving a takeover of MIM Holdings Ltd and said that if a no objection statement was provided, then "Chapter 6 matters would not be considered," although the court may, in the exercise of its discretion, still not approve the scheme for "other reasons", implying that the proscribed purpose was irrelevant to the court's discretion to approve.

61 In Re Equinox Resources Ltd[47], Heenan J of the Supreme Court of Western Australia approved a scheme of arrangement affecting a takeover and, in doing so, said that the issue of the no objection statement made the existence of the proscribed purpose irrelevant at the discretion to approve stage.[48]

62 In Re Westfield Holdings Ltd[49], Barrett J of the Supreme Court of New South Wales approved a scheme of arrangement affecting a merger and, in doing so, Barrett J briefly referred to the effect of a letter from ASIC under para (b), saying the no objection letter "relieved the court of the task of addressing the question" whether the scheme had the proscribed purpose.[50] It is not clear whether his Honour was addressing whether that relieved the court of the task of addressing the issue raised in para 411(17)(a) or that he was addressing the general discretion the court had under para 411(4)(b).

63 In Re News Corporation Ltd[51], Hely J of the Federal Court of Australia approved a scheme of arrangement affecting an exchange of shares and options and, in doing so, noted that ASIC issued a no objection statement and he went on to make the orders sought. He gave no consideration to the question of whether, if the proscribed purpose existed, it had any relevance to the court's discretion[52].

64 As mentioned above, in Re Mincom Ltd [No.3][53], Fryberg J, of the Supreme Court of Queensland, canvassed the authorities of Re Advance Bank Australia Ltd, Re Arnott's Ltd, Re MIM Holdings Ltd and Re Foundation Healthcare Ltd [No.2] and came to the conclusion that where ASIC issues a no objection statement, 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 Chapter 6 and, if the proscribed purpose exists, it is a factor which may be taken into account in the exercise of the court's discretion under para 411(4)(b) whether or not to approve the scheme.[54]

65 In Schemes, Takeovers and Himalayan Peaks the learned authors say that the court cannot decline to approve a scheme on takeover avoidance grounds if a no objection statement has been issued.[55] The authors rely on Re Advance Bank[56] and Re Arnott's Limited[57] amongst the other cases I have referred to without any discussion of the issue.

66 The authorities referred to above indicate that Fryberg J and French J in Re Mincom Ltd [No.3][58] and Re Foundation Health Care Ltd [No.2][59] respectively are of the view that the existence of the proscribed intent remains of relevance or even particular significance in relation to the court's exercise of discretion under sub-s 411(4). On the other hand, at least Bryson J in Re Arnott's Ltd[60], White J in Re MIM Holdings Ltd[61], Heenan J in Re Equinox Resources Ltd[62] and possibly Santow J in Re Advance Bank Australia Ltd[63] were of the view that the existence of the proscribed intent is irrelevant to the court's exercise of its discretion under para 411(4)(b) if a no objection statement has been given.

67 We thus have no clear authority on the issue and I feel free in those circumstances to consider the issue afresh.

68 In my opinion, the prohibition on the court approving a compromise arrangement under sub-s 411(17) is removed by the satisfaction of either para (a) or (b). I agree that no inference can be drawn from the section or the Act as a whole that one is preferable to the other. The effect of satisfying either is the same, that is, the bar to approval is removed.

69 Whether or not the scheme should be approved is a different matter and is to be determined in accordance with the usual considerations, which are encapsulated in the judgment of Fry LJ in Re Alabama, New Orleans, Texas Pacific Junction Railway Company[64]. Although there is no express provision in the Act which says that a scheme of arrangement must not be proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6, there is in my opinion, an implication in para 411(17)(a) that the existence of the proscribed purpose is be a relevant factor to consider in approving a scheme.

70 On the other hand, the discretion in para 411(4)(b) has been left at large. The legislation does not expressly specify any factors that must be taken into account. In Re Mincom Ltd [No.3], however, Fryberg J gave the existence of the proscribed intention a particular relevance in relation to the court's exercise of the discretion under s 411(4).[65]

71 In my opinion, a finding of the proscribed intention could only be relevant to the exercise of the court's discretion if a statement of no objection had been made by ASIC. If such a statement had not been made, then the finding of the proscribed intention would mean that per force of s 411(17) the court must not approve the scheme and the issue of discretion under 411(4)(b) would not arise.

72 Thus, if a no objection statement under para (b) is given by ASIC, the issue is not so much what relevance would the existence of the proscribed purpose have to the court's discretion whether to approve the scheme or not. Rather, the issue would be what relevance the existence of the proscribed purpose would have in the light of ASIC having no objection to the scheme where, according to ASIC, members are not being adversely affected by the takeover proceeding by a scheme of arrangement rather than by a takeover scheme under Chapter 6.

73 In my opinion, the objectives of Chapter 6 are relevant to the issue of the court exercising its discretion to approve a scheme of arrangement affecting a takeover. They indicate a legislative intent to protect members subject to a takeover.

74 The purpose of Chapter 6 is set out in s 602 as follows:

(i) the voting shares of a listed company, or an unlisted company with more than 50 members; or

(iii) the voting interests in a listed management investment scheme;

takes place in an efficient, competitive and informed market; and

(b) the holders or the shares or interest, and the directors of the company or body or the responsible entity for the scheme:

(i) know the identity of any person who proposes to acquire a substantial interest in the company, body or scheme;

(ii) have a reasonable time to consider the proposal; and

(iii) are given enough information to enable them to assess the merits of the proposal; and

(c) as far as practicable, the holders of the relevant class of voting shares or interests all have a reasonable and equal opportunity to participate in any benefits accruing to the holders through any proposal under which a person would acquire a substantial interest in the company, body or scheme; and

(d) an appropriate procedure is followed as a preliminary to compulsory acquisition of voting shares or interests or any other kind of securities under Part 6A."

75 In my view, in normal circumstances the existence of the no objection statement would carry with it the implication that ASIC is of the view that members have received all material information that they need for their decision, members have received reasonable and equal opportunity to share in the benefits provided under the scheme and that members are not being adversely affected by the takeover proceeding by a scheme of arrangement rather than by a takeover under Chapter 6. If the court accepted that was the case then the no objection statement may well effectively counter any adverse inference that might have been drawn from the existence of the proscribed purpose.

76 If, on the other hand, the court found that members had been disadvantageously affected by the takeover proceeding under a scheme rather than under Chapter six, then different considerations may apply.

77 Accordingly, I agree with Fryberg J and French J to the extent that the existence of the proscribed purpose may be a factor to be taken into account in the court exercising its discretion to approve a scheme under para 411(4)(b), but would add that the existence of the no objection statement which allows the scheme to be considered for approval likewise may be a factor of equal or similar weight and would tend to establish that the existence of the proscribed intention is not of particular significance in relation to the court's exercise of the discretion under sub-s 411(4).

78 I accept, however, that the court's discretion is left at large. I would not accept any inference in Mincom Ltd (No 3), if such an inference is open, that the existence of the proscribed purpose would necessarily be an adverse factor against approval of the scheme or be of particular significance in relation to the court 's exercise of the discretion under sub-s 411(4) for the reasons I have given.

79 As it is, Coles has satisfied me that the proscribed intention did not exist. But even if it had, the existence of the no objection statement, in the absence of any evidence to suggest that shareholders have been disadvantaged by the takeover proceeding under the scheme rather than Chapter 6 meets, in my view, any adverse inference that might otherwise have been drawn from the existence of the proscribed intention.

80 Subject to this explanation I agree, therefore, with propositions one, two, three, four, five, six, seven and eight as set out in para 33 of this judgment.

Should the Court independently investigate prohibited purpose?

81 Both Coles and ASIC submitted that there was no obligation on the court to independently investigate whether the proscribed purpose existed as a pre-condition to the exercise of its discretion. That may well be right. But it is unnecessary for me to decide that issue.

82 Coles submitted that once it is accepted that matters the subject of para 411(17)(a) may bear upon the exercise of the court's discretion under sub-s 411(4) of the Act, it followed that the proponent of the scheme was obliged to put before the court all material relevant to the exercise of that discretion. That also may well be right, but it is unnecessary for me to decide that issue.

[1] Re Coles Group Ltd [2007] VSC 389 at 15 [56].

[2] Re Coles Group Ltd [2007] VSC 389.

[3] [2002] FCA 239 at [12] - [14].

[4] [1891] 1 Ch 213 at 257.

[5] [2006] VSC 436; (2006) 60 ACSR 548.

[6] [1891] 1 CH 213 at 247.

[7] For this and the following four paras I have gratefully relied and accepted the submissions of J. G Santamaria QC and RD Strong of counsel in the matter of Lonsdale Financial Group Limited which was also argued on 9 November 2007.

[8] Companies and Securities (Miscellaneous Amendments) Act 1981, s 52.

[9] Explanatory Memorandum to the Companies and Securities Legislation (Miscellaneous Amendments) Bill 1981 at [131] (emphasis added).

[10] The Companies (Acquisition of Shares) Act 1980

[11] Items 1 and 17 in the Table in s 411.

[13] [2003] VSC 266 at [35].

[14] (2003) 45 ACSR 553 at 557.

[15] [2004] WASC 112 at [31].

[17] Act, s 655A. These powers have been part of takeover law since the Companies (Acquisition of Shares) Act 1980

[18] See the relevant observations of O'Loughlin J in Re ACM Gold Ltd [1992] FCA 89; (1992) 107 ALR 359.

[19] [2007] QSC 37; (2007) 61 ACSR 266, per Fryberg J at 276 [28].

[20] Re Advance Bank Australia Ltd [No.2] (1997) 136 FLR 281, per Santow J at 286; Re Arnott's Ltd (1998) 16 ACLC 423, per Bryson J at 425; Re MIM Holdings Ltd (2003) 45 ACSR 554, per White J at 556-7; Re Foundation Health Care Ltd [No.2] [2002] FCA 973; (2002) 43 ACSR 680 at [29]; Re ACM Gold Ltd and Mt Leyshon Gold Mines Ltd [1992] FCA 89; (1992) 7 ACSR 231, per O'Loughlin J at 239-40.

[21] [2002] NSWSC 1177; (2002) 43 ACSR 601 at 603 [7].

[22] [2007] QSC 37; (2007) 61 ACSR 266, 267 at [28].

[23] (1997) 136 FLR 281.

[25] [2007] QSC 2007.

[27] (1997) 22 ACSR 503.

[29] (1998) 16 ACLC 423.

[30] (1997) 15 ACLC 248 at 252-255; (1997) 22 ACSR Reports 513 at 518-521.

[31] [2007] QSC 207 at [36]- [37].

[33] [2002] FCA 742; (2002) 42 ACSR 252.

[35] [2002] FCA 973; (2002) 43 ACSR 680.

[37] [2007] QSC 207.

[39] [2002] FCA 1139; (2002) 44 ACSR 206.

[41] (1997) 22 ACSR 513 at 519.

[42] [2003] SASC 97; (2003) 45 ACSR 397.

[44] [2003] VSC 266.

[46] (2003) 45 ACSR 554 at 557.

[47] [2004] WASC 143; (2004) 49 ACSR 692.

[49] [2004] NSWSC 602; (2004) 49 ACSR 741.

[51] [2004] FCA 1480; (2004) 51 ACSR 394.

[53] [2007] QSC 207.

[55] Tony Damian and Andrew Rich_, Schemes Takeovers and Himalayan Peaks: The use of schemes of arrangement to effect change of control transactions_, Sydney: University of Sydney, 2004, 38.

[57] (1996) 16 ACLC 423 at 425.

[58] [2007] QSC 207.

[59] [2002] FCA 973; (2002) 43 ACSR 680.

[60] (1998) 16 ACLC 423.

[61] (2002) 45 ACSR 554 at 577.

[62] [2004] WASC 143; (2004) 49 ACSR 692.

[63] (1997) 22 ACSR 503.

[64] [1891] 1 CH 213 at 247.

[65] [2007] QSC 207 at [32].