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[1992] FCA 89
Federal Court of Australia
1992-03-11
O'Loughlin J, Mr J
Original judgment source is linked above.
Corporations - Schemes of Arrangement - Sub-s.411(17) - proposed for the purpose of enabling any person to avoid the operations of the takeover provisions - meaning of "purpose" - consideration of the nature of the arrangement - combination of target company becoming a wholly owned subsidiary with contemporaneous return of capital by target company - effect of return of capital.
Counsel for the Applicant Companies: Mr J.G. Santamaria
Agents for: Sly and Weigall
Solicitors for Applicant
These matters were heard together on 19 and 20 February, 1992; in each of them, the applicant company sought from the Court orders pursuant to s.411 of the Corporations Law ("the Law") granting leave to convene meetings of its members to consider a proposed arrangement. In the case of ACM Gold Limited ("AGO"), that company also sought leave to convene a meeting of those persons who held options to acquire shares in its capital.
2. Having regard to the provisions of sub-s.411(17) of the Law, the Australian Securities Commission ("the Commission") presented argument against each application, claiming that the respective arrangements had been proposed for the purpose of enabling another company, Poseidon Gold Ltd, ("Posgold") to avoid the operation of certain of the provisions of Chapter 6 of the Law; Chapter 6 deals with acquisitions of shares, takeover schemes, takeover announcements and so on. Sub-section 411(17) provides:
"The Court shall not approve a compromise or arrangement
under this section unless:
(a) it is satisfied that the compromise or
arrangement has not been proposed for the
purpose of enabling any person to avoid the
operation of any of the provisions of Chapter 6;
or
(b) there is produced to the Court a statement in
writing by the Commission stating that the
Commission has no objection to the compromise or
arrangement;
but the Court need not approve a compromise or arrangement
merely because a statement by the Commission stating that
the Commission has no objection to the compromise or
arrangement has been produced to the Court as mentioned in
paragraph (b)."
At the conclusion of argument, I announced that I was satisfied that the applications should be granted; I now publish these reasons in support of the orders that I then made.
3. AGO was incorporated on 9 January 1981 pursuant to the provisions of the Companies Act 1961 (WA). Mt. Leyshon Gold Mines Limited ("MLG") was incorporated on 24 October 1983 under the Companies (Queensland) Code. The principle activities of both companies are, and have for some time past been, gold mining and exploration for gold. Both companies are presently part of a large group and ownership of a substantial portion of each companies' issued share capital is traceable back to Normandy Poseidon Limited ("Normandy Poseidon") which, through its wholly owned subsidiary Poseidon Ltd ("Poseidon"), also holds 76% of the issued capital of Posgold.
4. AGO and its subsidiaries have extensive interests in a number of gold development and exploration projects including a development project in Turkey; within the last 5 years it has carried on business throughout Australia and in several overseas countries including New Zealand, Turkey, Greece, the United States of America, the United Kingdom and the Netherlands. MLG has carried on business or conducted dealings in the States of Queensland and South Australia during the last five years; presently it is the owner and operator of the Mt. Leyshon Gold Mine which is south of Charter Towers in Queensland.
5. Both applicants are admitted to the official list of the Australian Stock Exchange Limited. AGO has an authorised share capital of $250M divided into 1,250 million shares of 20 cents each. Presently there are 351,565,086 fully paid ordinary shares on issue, and Australian Consolidated Minerals Limited ("ACM"), a wholly owned subsidiary of Resplendid Pty. Ltd., is the holder of 140,270,000 such shares; this represents a holding of about 40%. Poseidon and Western Mining Corporation Holdings Limited ("WMC") each currently hold 50% of Resplendid Pty. Limited. However, it is intended that Poseidon will in due course either acquire WMC's holding in Resplendid or ACM's assets (other than those connected with a specifically identified project). In either event it is sufficient, for present purposes, to regard AGO as beneficially owned, as to 40%, by Normandy Poseidon. AGO also has on issue -
(a) 1,682,500 options held by 34 option holders which are
exercisable at $1.87 each on or before 28 April 1994, and
(b) 140,000 options held by 4 option holders which are
exercisable at $1.98 each on or before 13 December 1994.
6. Neither group of options is quoted on any list of the Australian Stock Exchange Limited.
7. MLG has an authorised share capital of $50M divided into 200 million shares of 25 cents each. Presently there are 78,967,398 fully paid ordinary shares on issue; MLG has also issued to Pan Ocean Investments Pty. Ltd. 7,500,000 options. The exercise price for each option is $3.60 and the expiry date for the exercise is 8 August 1992. These options are not quoted on any list of the Australian Stock Exchange Limited.
8. Each proposed scheme of arrangement has been described as a merger between the applicant company and Posgold; but both arrangements, if successful, will result in each applicant company becoming a wholly owned subsidiary of Posgold.
9. The detail of the proposed arrangement involving AGO and its members and option holders can be summarised as follows; first, a small parcel of five shares will be allotted by AGO to Posgold; thereafter all other shares in the capital of AGO (including the holding of 40% or thereabouts of ACM) will be cancelled in return for Posgold issuing and allotting to the former members of AGO four (4) Posgold shares and two (2) Posgold options for every eleven (11) shares previously held in AGO. In addition, each former AGO member will receive from AGO, by way of a reduction of capital, the sum of ten (10) cents per share for each AGO share previously held. Finally, all the AGO options that are on issue will be cancelled and, in consideration of them agreeing to that cancellation, AGO will pay each option holder the sum of one (1) cent per option.
10. Thus upon the completion of the scheme of arrangement, the five shares that were allotted to Posgold will remain the only issued shares in the capital of AGO. For the purposes of bringing the intended arrangement before the Court for final approval, AGO has proposed that the Court order three separate meetings. The first of these will comprise only ACM - by virtue of it being presently the owner of approximately 40% of the issued capital in AGO. The second meeting will be for the benefit of all other share holders and the remaining meeting will be for the holders of the options.
11. The proposed merger between MLG and Posgold will proceed independently; in fact, neither scheme is dependent in any way on the outcome of the other. The two schemes are, in general terms, similar - but there are differences. The initial difference is brought about by the fact that Posgold, through its subsidiary companies ("the Posgold Group"), is already the beneficial owner of 44.6% of the issued capital in MLG. The first step in the proposed scheme is to make MLG a wholly owned subsidiary by cancelling all MLG's shares other than those owned by the Posgold Group. In return, Posgold will then issue and allot to the former members of MLG nine (9) Posgold shares and five (5) Posgold options for every five (5) shares previously held in MLG. In addition, each former MLG member will receive from MLG, by way of a reduction of capital, the sum of 30 cents per share for each MLG share previously held. For the purposes of bringing the intended arrangement before the Court for final approval, MLG has proposed that the Court order that separate meetings be convened of two classes of members of the company upon the basis that each class would be required, separately, to consider the scheme. The first class will comprise Sater Pty Ltd, Metal Traders Australasia Pty Ltd, Pan Ocean Investments Pty Ltd and Oremet Limited (they being the members of the PosGold Group). The second meeting will be for the benefit of all members of the Company other than the four companies who will constitute the first meeting.
12. Part 5.1 of Chapter 5 of the Law, comprising ss.410 to 415A, is entitled "Arrangements and Reconstructions". Sub-section 411(1) contains the Court's power to order meetings of creditors or members of a company (as the case may be) to consider any proposed arrangement. It provides:-
"Where a compromise or arrangement is proposed between a
Part 5.1 body and its creditors or any class of them or
between a Part 5.1 body and its members or any class of
them, the Court may, on the application in a summary way of
the body or of any creditor or member of the body, or, in
the case of a body being wound up, of the liquidator, order
a meeting or meetings of the creditors or class of creditors
or of the members of the body or class of members to be
convened in such manner, and to be held in such place or
places (in this jurisdiction or elsewhere), as the Court
directs and, where the Court makes such an order, the Court
may approve the explanatory statement required by paragraph
412(1)(a) to accompany notices of the meeting or meetings."
Sub-section (2) provides that the Court shall not make any such order unless the requisite notice has first been given to the Commission and the Commission has had the opportunity to examine the terms of the proposed arrangement; that sub-section also provides that the Court must be satisfied that the Commission has had a reasonable opportunity to make submissions in relation to the proposed arrangement and the draft explanatory statement. That statement is the one that is defined in sub-s.(3) and is the one that is referred to in detail in s.412; in short, where a company convenes a meeting under s.411 it must send out, with the notice convening the meeting, a statement that explains the effect of the arrangement; the statement must also contain the information and material that is referred to in the section. The Commission having duly appeared and having raised no objections, I am satisfied that the requirements of sub-s.411(2) have been complied with.
13. Sub-section 411(4) identifies the circumstances when a proposed arrangement will become binding; so far as it applies to these two applicants, it is sufficient to say that it will be necessary for each arrangement to be approved by a majority in number of the members present and voting, either in person or by proxy, at each meeting, being a majority whose shares have nominal values that amount, in the aggregate, to at least 75% of the total of the nominal values of all the shares of the members present and voting, in person or by proxy, at the meeting. In the case of the meeting for the AGO option holders, they will be treated as creditors and the resolution will require the support of a majority in number with 75% value of those present and voting in person or by proxy.
14. It has long been held that the word "arrangement" is to be given a wide meaning. The general proposition is that contained in the judgment of Lowe A.C.J. in Re International Harvester Co. of Australia Pty. Ltd. [1953] VicLawRp 90; (1953) VLR 669 at 672:
"... the word has been given a liberal meaning and,
generally speaking, unless the arrangement is ultra vires
the company (Re General Motor Cab Co Ltd., (1913) 1 Ch 377,
and the Guardian case (1917) 1 Ch 431 at p 450; Re Oceanic
Steam Navigation Co Ltd, (1939) Ch 41) or seeks to deal with
a matter for which a special procedure is laid down (Re
Cooper, Cooper and Johnson Ltd., (1902) WN 199; Re General
Motor Cab Co Ltd. (1913) 1 Ch 377) or to evade a restriction
imposed by the Act (e.g., sec 5(6) and sec 26(4) of the
Companies Act), almost any arrangement otherwise legal which
touches or concerns the rights and obligations of the
company or its members or creditors may be come to under sec
153."
15. It is not incumbent upon the Court, at this stage, to consider the business or commercial efficacy of the proposed arrangements. That, primarily, will the province of those to whom the arrangements are directed. However, when a scheme of arrangement is returned to the Court for the Court's approval pursuant to sub-s.411(6), the Court will then have a twofold duty as explained by Maugham J. in Re Dorman, Long and Company, Limited (1934) Ch 635 at 655-656. First, the Court will have to satisfy itself that the requisite resolutions were passed by the statutory majorities in number and value; but then the Court will have the greater duty of satisfying itself that the arrangement is one that warrants the approval of the Court. As to this latter duty, Maugham J. cited with approval the remarks of Bowen L.J. in Re Alabama, New Orleans, Texas and Pacific Junction Ry. Co. (1891) 1 Ch 213:-
"A reasonable compromise must be a compromise which can, by
reasonable people conversant with the subject, be regarded
as beneficial to those on both sides who are making it....
I have no doubt at all that it would be improper for the
Court to allow an arrangement to be forced on any class of
creditors, if the arrangement cannot reasonably be supposed
by sensible business people to be for the benefit of that
class as such ..."
16. Those remarks apply with equal force to arrangements between a company and its members. In re Scottish and Australian Chartered Bank (1893) 3 Ch 385 Lindley L.J. said at p 409:-
"If the creditors are acting on sufficient information and
with time to consider what they are about, and are acting
honestly, they are, I apprehend, much better judges of what
is to their commercial advantage than the Court can be...
While, therefore, I protest that we are not to register
their decisions, but to see that they have been properly
convened and have been properly consulted, and have
considered the matter from a proper point of view,... the
court ought to be slow to differ from them."
17. A more recent authority to which Mr Santamaria, counsel for the applicants, referred was that of Harman J. in Re M.B. Group plc (1989) BCLC 672 at 676 where his Lordship said:-
"Petitions for approval of schemes of arrangement, ... are
usually matters where the court can sanction the scheme
without more than a careful check that all the correct steps
have been taken. Although 'the court... must be satisfied
that the proposal was at least so fair and reasonable, as
that an intelligent and honest man, who is a member of that
class... might approve' (see Re Dorman Long and Co Ltd (1934)
Ch 635 at 656 per Maugham J.) yet the underlying commercial
purposes need not be investigated by the court since, if the
persons with whom the scheme is made have been accurately
and adequately informed by the explanatory statement and any
additional circulars, and the requisite majority has
approved the scheme, the court will not be concerned with
their commercial reasons for approval."
18. There are views on the function of the Court when considering an application under s.411 for the first time that are arguably different. For example, Wells J., who presided in the Full Court in In re the Bank of Adelaide (1979) 22 SASR 481 emphasised that the Court's "sole concern is one of jurisdiction". He explained:
"Our sole concern is one of jurisdiction. Given that the
Scheme is one that is fit for consideration by the proposed
meeting, our only function is to say whether the members
should be given the opportunity of considering it and either
approving or rejecting it. Nothing in our judgments should
be construed as going in any way to the merits of the
Scheme; those merits are exclusively the concern of the
members."
(pp 494-495)
Legoe J. was of the same opinion; he said at p 532 -
"Anything that I can say on the jurisdiction question is
totally divorced from any consideration that the members may
give to the question before them at the forthcoming meeting
to be held as a result of our order."
19. On the other hand, in F.T. Eastment and Sons Pty. Ltd. v Metal Roof Decking Supplies Pty. Ltd. (1977) 3 ACLR 69, Street C.J. with whom Hutley and Samuels J.J.A. agreed said:
"The approach taken upon a summons is that the court will
not ordinarily summon a meeting unless the scheme is of such
a nature and cast in such terms that, if it achieves the
statutory majority at the creditors' meeting the court would
be likely to approve it on the hearing of a petition which
is unopposed." (p 72)
(See also Re Linter Textiles Corporation Ltd [1991] VicRp 92; (1990) 8 ACLC 1089 at 1091 where Marks J. quoted and applied the remarks of Street C.J. in Eastment's case).
20. If by their language, Wells and Legoe JJ. meant that an obvious flaw in the scheme documents would be overlooked when the matter was first before the Court, I would respectfully disagree. But I am quite sure that is not what they meant. I understand them to be saying that the granting of leave to convene meetings does not mean that the Court is to be regarded as having given a commercial or juridical imprimatur to the scheme. With that qualification I believe that the views of the two Full Courts are compatible. Each arrangement appears to be one that is fit for the consideration of the intended meetings; they appear to be commercial propositions which, subject to the obtaining of the statutory majorities, would gain the Court's approval on an uncontested motion.
21. Thus, were it not for the spectre cast by Chapter 6 and sub-s.411(17) it is clear that it would be appropriate to make the necessary orders allowing each company to convene the requisite meetings.
22. The thrust of Chapter 6 is to be found in s.615; it is the equivalent of s.11 of the former Companies (Acquisition of Shares) Code; it is the section that contains the primary restriction on the acquisition of shares. Sub-s.(1) provides:
"615(1). Except as provided by this Chapter, a person shall
not acquire shares in a company if:
(a) any person who:
(i) is not entitled to any voting shares
in the company; or
(ii) is entitled to less than the
prescribed percentage of the voting
shares in the company;
would, immediately after the acquisition, be
entitled to more than the prescribed percentage
of the voting shares in the company; or
(b) any person who is entitled to not less than the
prescribed percentage, but less than 90%, of the
voting shares in the company would, immediately
after the acquisition, be entitled to a greater
percentage of the voting shares in the company
than immediately before the acquisition."
23. However, as is evidenced by the opening words of the sub-section - "Except as provided by this Chapter" - there are exceptions to that prohibition. The two best known exceptions are those contained in ss.616 and 617; they provide that s.615 does not apply in relation to an acquisition of shares as a result of the acceptance of an offer to acquire those shares that has been made under a takeover scheme (s.616): nor does it apply to an acquisition of shares in a listed company as a result of the acceptance of an offer to acquire those shares that has been made under a takeover announcement (s.617).
24. The next provision in Chapter 6 to which reference must be made is s.625. It complements the powers of the Commission that are contained in sub-s.411(17) by providing:-
"Section 615 does not apply in relation to an acquisition of
shares under a compromise or arrangement approved by the
Court under Part 5.1 or under a corresponding previous law."
25. Chapter 6 also empowers the Corporations and Securities Panel ("the Panel") to act where it appears to the Commission that "unacceptable circumstances" have, or may have occurred, either in relation to an acquisition of shares or, even more generally, as a result of:
"... conduct engaged in by a person in relation to shares
in, or the affairs of, a company...." (para.733(1)(b)).
26. In such circumstances, the Commission may apply to the Panel for an appropriate declaration. In turn, if the Panel is satisfied that unacceptable circumstances have occurred as a result of the relevant conduct and it is also satisfied of the other matters that are referred to in sub-s.733(3), it may declare the conduct to have been unacceptable conduct. Circumstances that amount to "unacceptable circumstances" are the four that are listed in s.732 ("the s.732 conditions"):
"For the purposes of this Part, unacceptable circumstances
shall be taken to have occurred if, and only if:
(a) the shareholders and directors of a company did
not know the identity of a person who proposed
to acquire a substantial interest in the
company; or
(b) the shareholders and directors of a company did
not have a reasonable time in which to consider
a proposal under which a person would acquire a
substantial interest in the company; or
(c) the shareholders and directors of a company were
not supplied with enough information for them to
assess the merits of a proposal under which a
person would acquire a substantial interest in
the company; or
(d) the shareholders of a company did not all have
reasonable and equal opportunities to
participate in any benefits, or to become
entitled to participate in any benefits,
accruing, whether directly or indirectly and
whether immediately or in the future, to any
shareholder or to any associate of a
shareholder, in connection with the acquisition,
or proposed acquisition, by any person of a
substantial interest in the company."
27. A declaration by the Panel that there has been an unacceptable acquisition or unacceptable conduct empowers the Panel to make a series of orders; these orders extend to interfering with voting and dividend rights, prohibiting the acquisition or disposal of shares, directing the disposal of shares and so on. They are couched in terms that, although not identical, are similar in effect to the remedial orders that a Court might make when, for example, there has been a contravention of a provision of Chapter 6 in the formulation of a takeover scheme or the making of a takeover announcement: (see ss.613 and 739).
28. It was suggested by Mr Santamaria that I should note and weigh in the balance the fact that the Commission did not see fit to refer either of these matters to the Panel for declarations of unacceptable conduct. I decline to do so. Rights, powers, duties and obligations are reposed in the Commission throughout the Law. Its decision not to act through one avenue does not constitute some form of estoppel that would prevent or impede it acting through another; to so hold would create manifest difficulties and would render otiose those provisions in s.411 which require the Court to be satisfied that the Commission has had a reasonable opportunity to make submissions in relation to the proposed arrangement.
29. The next provision in Chapter 6 to which reference should be made is s.728. This section gives to the Commission a general power to exempt a particular person, either conditionally or unconditionally, from compliance with Chapter 6 or a specified provision of the Chapter. However s.731 requires the Commission to exercise this power by taking into account "the desirability of ensuring that the acquisition of shares in companies takes place in an efficient, competitive and informed market..."; the section continues that the Commission is to have regard to the need to ensure the presence of all the s.732 conditions. The absence of any one of those four sets of circumstances would constitute unacceptable circumstances under the section. It has been necessary to make this brief excursion into the provisions of Chapter 6 of the Law because of the submission that was made by the Commission to the effect that the provisions of Chapter 5 should be read as being subordinate to those contained in Chapter 6.
30. It is now necessary to consider in detail the substance and effect of sub-s.411(17). The structure of the two paragraphs in the sub-section is, in my opinion, of some significance. First, there is an onus on the applicant to satisfy the Court that no impugned purpose is present; whether such a 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; however, it is not necessary that the arrangement evolved with the intention of avoiding certain of the provisions of Chapter 6. In re South African Supply and Cold Storage Company (1904) 2 Ch 268 was a case that dealt with a resolution to wind-up a company "for the purpose of reconstruction or amalgamation". Buckley J. explained that it was not enough to read the resolutions: it was necessary to "go further and ascertain whether, as a matter of substance and of fact, the winding-up was arrived at for one of those purposes" (p 282). Nor does the purpose of avoidance have to be the exclusive purpose for the arrangement; it will be sufficient to attract the sub-section if the subject of avoidance is a significant or substantial purpose. Sufficient material must therefore be placed before the Court by the applicant to engender the requisite degree of satisfaction. Secondly, even though the applicant may fail in this first task, it is competent for the Commission to produce to the Court a statement that it has no objection to the proposed arrangement; thus, it may be openly conceded by the applicant and recognised by the Commission that the arrangement has been proposed for the purpose of enabling some person to avoid the operation of the provisions of Chapter 6. Yet it would be within the power of the Commission, in an appropriate case, to produce the relevant statement. Thirdly, even though the Commission may produce such a statement, the Court is not compelled to give its approval to the arrangement. A residual discretionary power is reposed in the Court at this stage entitling the Court to withhold its approval. The fourth and final point is this: where as here, the Commission has not produced the requisite statement, the mandatory nature of the introductory words of the sub-section - "The Court shall not approve..." - means that, if the applicant fails to satisfy the Court that there is no impugned purpose, the Court will not have jurisdiction to approve the scheme; there is no residual discretionary power reposed in the Court to approve the arrangement if the applicant has failed the test with respect to purpose.
31. Nevertheless, the fact that the legislature has seen fit, in sub-s.411(1), to grant yet another power of exemption to the Commission (c.f. s.728), suggests that Chapter 6 does not, as Mr Silbert, counsel for the Commission argued, dominate and take automatic precedence over the provisions of Chapter 5 and, in particular, s.411. The practical effect of this statement is to deny Mr Silbert's broadly based proposition that this and any other arrangement must be struck down if it or any part of it, could have been implemented as a takeover scheme or by means of a takeover announcement. Such a proposition is far too rigid. The mixture of strong control in Chapter 6 on the one hand (including the power in the Panel to make a declaration of unacceptable conduct) coupled with the legislature's willingness to make exceptions and grant exemptions from the provisions of Chapter 6 call for a liberal and practical interpretation of sub-s.411(17). Expressed in another way, there is a need to consider Chapters 5 and 6 in harmony; as Kirby P. said in Catto v Ampol Ltd. (1989) 7 ACLC 717 at p 720, when speaking of the former Companies Code and Companies (Acquisition of Shares) Code:
"Nevertheless, in construing that provision I regard it as
legitimate and appropriate for a court to keep in mind the
provisions of the Acquisition of Shares Code. The two Codes
should be read together. They are addressed, substantially,
to the same actors. Often they operate upon the same
events. Their operation is of great importance to the
corporations of this country which are, in turn, of vital
significance for our economic well-being. So far as the
language and apparent purposes of the Codes permit, a court
should endeavour to provide an interpretation of them which
affords a harmonious, practical and mutually supportive
operation to each. I consider that this is the approach
sanctioned by the Court in a number of cases where meaning
had to be given to statutory provisions which had an obvious
relationship to other legislation."
32. As the proposed arrangements that are the subject of these applications have their genesis - in Australia at least - in the Bank of Adelaide (supra), it is as well to make an examination of that decision. The Full Court of the Supreme Court of South Australia had to consider whether a transaction whereby the Bank of Adelaide merged with the Australian and New Zealand Banking Group Limited ("the ANZ Bank") was an arrangement made pursuant to s.181 of the Companies Act (1962) (SA) or whether it amounted to an acquisition of shares in the Bank of Adelaide by the ANZ Bank such as to invoke the takeover provisions of Part VIB of that Act. The 1962 legislation did not contain a provision in terms similar to sub-s.411(17); such a provision appeared for the first time in the uniform Companies Code of 1981 as sub-s.315(21). Initially, that sub-section was limited in its operation to requiring the Court to be satisfied that there was no unacceptable purpose; the provision allowing for the Commission to produce a written statement that it had no objection to the arrangement did not appear until a few months later. Thereafter, the former sub-s.315(21), notwithstanding some grammatical differences, had much the same effect as sub-s.411(17) of the present Law. The decision in the Bank of Adelaide must therefore be evaluated in the knowledge that no similar restriction was present in the legislation of that day.
33. The transaction, stripped of essentials, called for the Bank of Adelaide to cancel and extinguish the whole of its issued share capital save for a small parcel which was held by nominees of the ANZ Bank; upon that reduction taking effect, the issued capital of the Bank was thereafter increased to its former level and the new shares thereby created were then allotted to the ANZ Bank pursuant to the terms contained in an agreement between the two Banks. Under that agreement, the ANZ Bank was contractually committed to allot to the former shareholders in the Bank of Adelaide 15 ANZ shares for every 44 shares previously held by them in the Bank of Adelaide. The end result was that the ANZ Bank owned the whole of the issued capital in the Bank of Adelaide and the former Bank of Adelaide shareholders became shareholders of the ANZ Bank.
34. Zelling J. said at first instance that, unassisted by authority, he would have thought that the scheme was not one which came within s.181 because it was not merely an arrangement between a Company and its creditors or a Company and its members; it was, as he called it, "a three sided arrangement" between the Bank of Adelaide, the ANZ Bank and the shareholders of the Bank of Adelaide. However he acknowledged that the decision of the Full Court of the Supreme Court of South Australia in In re A. and C. Constructions Pty. Ltd. 1970 SASR 565 was authority for the proposition that the presence of a person who was outside the categories of the Company, a member or a creditor did not affect the jurisdiction of the Court under s.181 of the Companies Act. There is nothing in the Law that would call for a contrary conclusion and I am content to follow the decision in In re A. and C. Constructions Pty. Ltd.
35. When he came to consider the terms of the proposed arrangement, Zelling J. refused to order the convening of the requisite meetings, describing the transaction as an "elaborate facade, which has been erected I have no doubt in good faith" (p 490). His Honour was of the opinion that the ANZ Bank was "in truth acquiring all the shares in the Bank of Adelaide" (p 490); he viewed the transaction as one wherein the Bank of Adelaide, as an agent, despatched an offer for and on behalf of the ANZ Bank for that bank to acquire, indirectly, the shares in the capital of the Bank of Adelaide from its shareholders. His Honour acknowledged that under a Part VIB takeover, the ANZ Bank had to be the instigator; even so, he considered that the fact that the proposed arrangement had been instigated by the Bank of Adelaide was no more than "a distinction without a difference" (p 490). That being so, his Honour concluded that the transaction fell to be considered under Part VIB; he held that s.181 and its application to schemes of arrangement was inapplicable. He said:
"As is said by Street J. in Re Tillers Pty. Ltd. and the
Companies Act 1961 (1970) 3 NSWR 202, s.181 should not fill
the place of proceedings for which specific provision is
made elsewhere in the Companies Act." (p 491)
36. This was a strongly held view of Street J. (as he then was). A year earlier he had expressed himself in these terms in Re Norfolk Island and Byron Bay Whaling Co. Ltd. (1969) 90 WN (Pt.1) (NSW) 351 at 353:
"It has been strongly urged upon me that the proposed
reconstruction of the company is commercially desirable, and
that it has no features which should disincline the court to
lend its aid to its implementation. I assent to this
proposition. But the section is not available simply as a
means of enabling the court to achieve a result which may
seem to the court and to those promoting the scheme to be
commercially desirable. The section is couched in terms
that in my view preclude my giving effect to the application
which is now made."
37. On appeal in the Bank of Adelaide the Full Court, by a majority, held that Zelling J. had been wrong and granted leave to the Bank of Adelaide to convene the necessary meeting. White J., in his dissenting judgment, said that he may have reached his conclusion by a slightly different route from that followed by Zelling J. but that he nevertheless agreed with the substance of his conclusion. Legoe J. agreed with the reasons of Wells J. in concluding that leave should be granted.
38. Bearing in mind the current provisions of the Law, two aspects of the judgment of Wells J. must be highlighted. First, he noted that there were no cross references or interconnections in the 1962 Act between s.181 (dealing with schemes of arrangement) and Part VIB (dealing with takeovers) and, secondly, that nowhere in Part VIB was there a direction to the Court:
"... to look at the end result of an act, a transaction, or
conduct, in order to determine whether it is prohibited"
(p 499)
39. As has already been pointed out there is an inter-relationship between Chapters 5 and 6 of the Law and the reference to "purpose" in sub-section s.411(17) can involve looking at the end result of the transaction in the course of making an objective assessment of the transaction.
40. With those two observations in mind, I have nevertheless concluded that the reasoning of Wells J. remains highly pertinent and applicable to these two proposed arrangements. For example, he rejected the proposition that it was the ANZ Bank that was advancing or instigating the scheme of arrangement, saying:
"... but what is proposed to the members through the draft
Scheme is, it seems to me, proposed by the Bank, and not by
ANZ...." (p 509)
"The Bank is thereby proposing to the members what is
intended to be done, but it is for the members to say
whether they will confer the power on the Bank to do what is
there foreshadowed." (p 509)
These observations led Wells J. to this conclusion:
"There is, to my mind, nothing in the Scheme so presented
that constitutes an offer or invitation within the meaning
of Part VIB.
The Bank is applying to the Court to obtain leave to put the
draft Scheme to a meeting of members. In my judgment, the
proposals embodied in the Scheme are presented as emanating
from the Bank, and ANZ's expected co-operation is made
conditional upon the approval by the members of those
proposals, and upon the Bank's having duly played its
prescribed part. In other words, the proposals are not to
be placed before the members as ANZ's proposals. In my
view, the distinction is both wide and clear between putting
a person's own proposals (in the form of an offer or
invitation) to a third person through an agent, and a
person's agreeing to abide by certain proposals that issue
from, and are the responsibility of, another person if and
when they are put to and accepted as binding by a third
party. There is, in short, nothing in the Scheme - and I
emphasize the last three words - that carries on its
forehead the stamp of an intrusion by ANZ, ex mero motu,
into the affairs of the Bank and its members.
(p 510)
"The shares that are to be yielded up by the members if they
approve this Scheme are not the shares that will be acquired
by ANZ." (p 510)
41. The decision in the Bank of Adelaide identified the Bank of Adelaide - not the ANZ Bank - as the moving party; to use the words of Wells J., "the proposals embodied in the scheme are presented as emanating from the Bank (of Adelaide)... In other words, the proposals are not to be placed before the members as ANZ's proposals". As a takeover offer could only have emanated from the ANZ Bank, it could not be said that the scheme of arrangement that had been proposed by the Bank of Adelaide had been proposed for the purpose of enabling the Bank of Adelaide to avoid the operation of any of the takeover provisions of the legislation then in force. By parity of the reasoning, the same must be said of AGO and MLG.
42. That then leaves for consideration the role of Posgold (no other party has been suggested as one whose activities might attract the provisions of sub-s.411(17)). Could Posgold come within the meaning of the words "any person" appearing in paragraph 411(17)(a)? Could it be said of Posgold that one or other or both of the arrangements was proposed for the purpose of enabling Posgold to avoid the operation of any of the provisions of Chapter 6?
43. Mr Silbert argued that I should have regard to the "end result", claiming that by this means, the true purpose for the proposals will be identified as attempts to avoid the operation of the provisions of Chapter 6. If by reference to the "end result", one limits one's assessment of the transactions to a recognition that AGO and MLG will become wholly owned subsidiaries of Posgold, then one would be able to say that Posgold could have - and perhaps should have - operated under Chapter 6. Whilst the simplicity of this proposition has an initial appeal, to so describe or assess the transactions is to do them less than justice; it is an inadequate description of quite complex commercial transactions. Each of them also involves the return of capital by the AGO and MLG to its former shareholders. Mr Silbert attempted to avoid that problem by submitting that Posgold could have added a cash element to its shares and options offer. However, that submission confuses cash resources that might be available to Posgold with payments of cash (by way of reductions of capital) by different corporate entities.
44. I am prepared to infer that Posgold was a party to an agreement with AGO and separately with MLG and that each agreement now finds its expression in the particular scheme of arrangement. It is true that, in an appropriate case, evidence might be called that would satisfy a Court that the objectionable purpose that is referred to in sub-s.411(17) was not part of such an agreement; that did not happen in this case. Therefore, the issue is to be decided upon a correct classification of the relevant transaction - and that classification will come from the contents of the documents that are before the Court and from the proper inferences that are to be drawn from those documents.
45. In my opinion there is present in each of these applications a factor which is of material importance and which by its nature, shows that Chapter 6 could never have been used to implement these proposed arrangements. This overriding factor - which was not present in the Bank of Adelaide - is the reduction of capital; in each proposed arrangement, that is an essential element; what is more it is an element that can only originate from the target company: i.e. AGO and MLG. It is not possible for one company (Posgold) to advance a proposal to the shareholders of another company (AGO or MLG) that the second company will reduce its capital; such a proposal can only come from or through the second company. It is not possible to take these proposed arrangements - or either of them - and reconstruct them in such a way that they could, in their entirety (or even substantially) be implemented through the provisions of Chapter 6.
46. Finally, it might be said that each of the proposed arrangements could have been implemented by a two-pronged exercise; AGO and MLG could have implemented their respective reductions of capital and, then by prior arrangement, Posgold could have made its takeover offers pursuant to the provisions of Chapter 6. After all, each reduction of capital will still need the separate confirmation of the Court under s.195 of the Law irrespective of whether the reduction is part of a proposed scheme of arrangement or an independent exercise. However, I have come to the conclusion that sub-s.411(17) should not be given such a wide interpretation. The sub-section requires the Court to have regard to that which has been proposed - not to that which might have been proposed. 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. In short, Posgold and the two target companies were entitled to meet, negotiate and agree in principle upon a particular transaction. If that transaction carries the hallmarks of a commercial enterprise - if there is no issue present that points to a contrivance or to an element that is unreal or unnecessary - one is entitled to assess the transaction at face value. If upon doing that, it is found that the nature of the enterprise is such that it cannot be implemented (wholly or even substantially) through Chapter 6 but that it could operate under the umbrella of s.411, then the Court would be entitled to have the degree of satisfaction which obviates a further consideration of sub-s.411(17). In each of these two cases, the return of capital is an essential element in the scheme; there is no contrivance nor is there any artificiality; those returns of capital can not be implemented by Posgold through a Chapter 6 operation. I am therefore satisfied that neither arrangement has been proposed for the purpose of enabling Posgold to avoid the operation of any of the provisions of Chapter 6.
47. It was suggested that the proposal to cancel the AGO options was also another reason why a scheme of arrangement was the only avenue available to implement that company's proposals. It was said that the takeover provisions of s.627 of the Law applied only to renounceable options whereas the subject options were non-renounceable. This argument was not advanced in sufficient detail and I prefer to express no opinion on it.
# Re Acm Gold Limited
Mt Leyshon Gold Mines Limited \[1992\] FCA 89;
(1979) 22 SASR 481
(1992) 107 ALR 359
(1992) 34 FCR 530