Re Transcomm Credit Co-Operative Limited [2016] VSC 835 (24 June 2016)

1 This proceeding was commenced by way of originating process on 8 April 2016, under the Supreme Court (Corporations) Rules 2013 (the Rules), seeking orders:

(a) that a scheme meeting of the shareholders of the plaintiff, Transcomm Credit Co-operative Ltd (Transcomm), be convened pursuant to s 411(1) of the Corporations Act 2001 (the Act) to consider a scheme of arrangement (the scheme);

(b) for approval of the scheme under ss 411(4)(b) and 411(6) of the Act, in the event that it was agreed to by the shareholders, and

(c) that Transcomm be exempt from compliance with the requirements of s 411(11) pursuant to s 412 of the Act.

2 Transcomm is a public company limited by shares. It is a Melbourne-based, member-owned credit union. It provides a range of financial services to members, including savings accounts, term deposits and personal loans. Transcomm's constitution provides that Transcomm can take deposits from customers or lend money to customers only where the customers are also Transcomm members.

3 The proposed scheme is part of a broad proposal involving the demutualisation of Transcomm and its merger with CSF Pty Ltd (CSF). The proposal involves the payment of a sum of $4,850,000 by CSF, which will be applied in consideration of the members of Transcomm surrendering all rights and entitlements they have as members of Transcomm. Transcomm members are also customers of the financial services provided by Transcomm. Their rights in this respect will not be affected by the proposed scheme or the demutualisation.

4 The demutualisation requires amendments to be made to Transcomm's constitution. Those amendments were to be voted on at a separate general meeting to immediately follow the scheme meeting. The approval of those amendments is a condition precedent to the scheme.

5 As a small credit union, Transcomm has been unable to operate profitably. It lacks scale, its membership base is in decline, and the costs of operations and compliance continue to rise.

6 The independent expert has concluded that if the scheme does not proceed, it is almost inevitable that Transcomm will be forced to merge with another credit union, but will not receive any financial consideration for doing so (as the merger will likely be involuntary under the auspices of the Australian Prudential Regulation Authority).

7 Accordingly, the scheme will not only allow Transcomm to continue operating and to grow the business, but will result in the payment of approximately $2,093 to each Transcomm member, who mostly purchased their shares for a total of $10. The independent expert has opined that this scheme is fair, reasonable and in the best interests of Transcomm members. In addition, all directors of Transcomm recommended that members vote to approve the scheme and the members to the Transcomm constitution, and all directors said that they intended to vote their shares in favour of the scheme and the amendments to the Transcomm constitution.

8 The scheme meeting was held on 14 June 2016, with members voting to approve the scheme. The scheme was approved by 99.71 per cent of the shareholders present and voting at the meeting, and by 99.71 per cent of votes cast. I was informed by counsel appearing for the applicant that approximately 50 per cent of the shareholders attended the meeting in person or via proxy.

9 Transcomm now seeks an order pursuant to s 411(4)(b) of the Act that the scheme be approved. Transcomm also seeks an order pursuant to s 412 that it be exempt from compliance with s 411(11). In addition, Transcomm also seeks orders in relation to two irregularities. Subject to irregularities, in my opinion, the Court's power to approve the scheme has been enlivened as the meetings have been properly called and convened and the statutory majorities for approval of the scheme have been met.

10 In exercising my discretion, I am required to ascertain whether the scheme is one that a reasonable member, having regard to their own interests, could regard as being in their best interests: see Lord Justice Fry in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co.[1] I am satisfied that this test has been passed in the current instance.

11 I am also satisfied that no issue arises which affects my discretion under s 411(17), which provides that the Court must not approve a compromise or arrangement in 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 provisions of Chapter 6 of the Act; or (b) there is produced to the Court a statement in writing by ASIC stating that it has no objection to the compromise or arrangement.

12 Exhibit RBC5 to the affidavit of Robert Bruce Carpenter, sworn 24 June 2016, is a letter from ASIC to the directors of Transcomm indicating that it has no objection to the scheme. In Re Coles Group Ltd (No 2),[2] I considered the implications and meaning of s 411(17), and in substance decided that subsections (a) and (b) were alternate, and that if (b) were satisfied, then the provision providing the Court must not approve the compromise was removed. I also, in substance, said that the Court could, in its discretion, nevertheless take the provision of this letter into account as a relevant factor in proving whether the scheme had been proposed to avoid the operation of Chapter 6. In my opinion, and in view of ASIC's letter, no such matter arises for me to consider in this instance.

13 I now turn to the irregularities that were brought to my attention. First, paragraph 4 of the convening orders required an alteration to be made to the notice which was required to be included in the explanatory memorandum by r 3.3(4) of the Rules. The required alteration of the notice was the deletion of the words, "and has approved the explanatory statement required to accompany the notices of meeting", and their replacement by the words, "and has directed that the explanatory memorandum accompanying the notice of scheme meeting". By oversight, this amendment was not made such that the notice which appeared in the scheme booklet sent to the shareholders contained the text as set out in r 3.3(4) of the Rules. On the basis of the matters set out below, Transcomm seeks an order exempting it from compliance with paragraph 4 of the convening orders.

14 In particular, Transcomm seeks an order that the plaintiff is exempted from compliance with paragraph 4 of the convening orders nunc pro tunc. As I just mentioned, r 3.3(4) of the Rules provides that an order under s 411(1) of the Act shall require that the explanatory statement or a document accompanying the explanatory statement promptly display a notice in the following form or to the following effect:

IMPORTANT NOTICE ASSOCIATED WITH COURT ORDER UNDER SECTION 411(1) OF THE CORPORATIONS ACT 2001

The fact that under section 411(1) of the Corporations Act 2001 the Court has ordered that a meeting be convened and has approved the explanatory statement required to accompany the notices of the meeting does not mean that the Court:

(a) has formed any view as to the merits of the proposed scheme or as to how members/creditors should vote (on this matter members/creditors must reach their own decision); or

(b) has prepared, or is responsible for, the content of the explanatory statement.

15 In the orders that I made on 6 May 2016, it was ordered that each of the explanatory memorandum which were sent to convene the scheme meeting display a notice in the form to the effect of the notice in r 3.3(4) of the Rules, which I have just read, save that the words, "and has approved the explanatory statement required to accompany the notices of the meeting be admitted", be replaced by the words, "and has directed that an explanatory statement accompanying the notice of meeting".

16 Under s 411(1) of the Act, which gives the Court power to convene a meeting of members of a company to consider a proposed scheme, it is provided as follows:

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 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.

17 As can be observed, the Court has a discretion whether or not to approve the explanatory statement. The plaintiff in this case submits that there is no prejudice suffered in the members being informed contrary to convening orders as the notice that was in fact included made it clear that the Court was not in any sense recommending the scheme or responsible for the scheme booklet. Further, the explanatory statement must be approved by ASIC, and in this case was. Relevantly, s 412(6) of the Act provides:

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 [under sub-s.(8) of s.412].

18 It is also provided that where a copy of an explanatory statement is lodged with ASIC for registration under sub-s (6), ASIC must not register the copy of the statement unless the statement appears to comply with this Act and that ASIC is of the opinion that the statement does not contain any matter that is false in a material particular or materially misleading in the form or context in which it appears.

19 The plaintiff also referred me to several cases in which the power of the Court to approve the explanatory statement was considered. In particular, Mincom Ltd v EAM Software Finance Pty Ltd,[3] where Justice Fryberg said as follows:

The concluding words of s 411(1) empower the court to 'approve the explanatory statement required by para[graph] 412(1)(a)' where it makes an order convening a meeting. The condition for the exercise of that power having been fulfilled, I approved the explanatory statement placed before the court.

I was not referred to any authority on what considerations ought to be taken into account in granting the approval. It seems obvious that one question is whether the statement satisfies the requirements of s 412. However, I doubt that this is the only question. One would expect that the court should review the statement to ensure that it makes a full and true disclosure of all material matters and is not substantially misleading or deceptive in any material sense. The power to approve is puzzling. In a legal sense nothing seems to turn upon whether approval is given or not. There is no need to pursue this issue in the present case.

20 In Re Symbion Health Limited (No 1), (No 2), (No 3) & (No 4),[4] I said:

It had been proposed that I approve the explanatory statement. As the statement is to be registered with ASIC under s 412 of the Corporations Act 2001, it is appropriate in my view, that I leave to ASIC the duty of satisfying itself that the explanatory statement complies with the requirements of the Act.

21 I should add that it has been my custom in this jurisdiction not to approve explanatory statements for the reason that the Act imposes that obligation on ASIC, and in my experience ASIC carries out that task very efficiently.

22 The issue in this case here is whether I should correct the irregularity, as the shareholders have been wrongly led to believe that the Court has approved the explanatory statement. The submission has been made, which I accept, that it is made quite clear in the notice included in the scheme booklet that the approval does not mean the Court has formed any view as to the merits of the proposed scheme, or as to how members creditors should vote. Thus, the person reading the notice in this case would have understood that the approval referred to was not approval relating to the merits of the scheme, but only that the information provided in the explanatory statement complied with the rules, and was otherwise not misleading to the members.

23 Thus, what had been wrongly conveyed to the members in this case was that the Court had satisfied itself that the Rules were being complied with, whereas in fact ASIC had satisfied itself that the Rules had been complied with, and therefore it was submitted that no prejudice has been suffered by the members. I agree with that submission.

24 It is also submitted that I have the power to amend the order under the power that I had to make the order in the first place, in s 411(1), which provided that the Court could order the meeting be convened in such manner, and be held in such place or places as the Court directs. It was submitted, and I accept, that the manner of calling the meeting would also include what notice and information should be given to the members.

25 Further, it was pointed out to me that the Rules do provide, in r 1.7, that:

It is sufficient compliance with these Rules in relation to a document that is required to be in accordance with a form in Schedule 1 if the document is substantially in accordance with the form required or has only such variations as the nature of the case requires.

26 In this case, the notice to be given is not found in Schedule 1; however, the notice to be given is in r 3.3(4), which I have read previously. Nevertheless, I am satisfied that the Court does have power to amend the order in the form proposed, which is that the plaintiff is exempted from compliance with paragraph 4 of the convening order nunc pro tunc. As I have said, in my view no prejudice has been suffered by any of the members, and it is therefore appropriate that this non-compliance be corrected.

27 The second matter of irregularity refers to the failure of the plaintiff to give five days' notice of the second hearing, which are these proceedings, and only gave two days' notice of the hearing. I have been referred to two decisions on this matter, the first is Re People Telecom Limited. In the matter of Re People Telecom Limited,[5] Jacobson J gave leave to the plaintiff to truncate the notice required by r 3.4(3)(b) of the Federal Court (Corporations) Rules 2000, which is similar to r 3.4(3)(b) of our rules requiring five days' notice, however no reasons were given for this allowance.

28 In the matter of Re HWW Ltd, a decision of Lindgren J of the Federal Court of Australia, his Honour said:

I note that it is proposed that there be a slight shortening of the time for publication of the advertisement giving notice of the second court hearing, required by rule 3.4 of the Federal Court (Corporations) Rules 2000. The Scheme Booklet itself discloses on page 5 the proposed second court hearing date, so interested shareholders will be on notice of that date from the time they receive the Scheme Booklet. The advertisement of the date of the second court hearing will therefore be published in advance of the meeting.[6]

29 At page 12 of the explanatory memorandum, notice was given of the date of the second court hearing, which is a relevant matter for me to consider in exercising my discretion to abridge time. I was directed to s 1322 of the Act. In particular, under s 1322(4), the Court may (on one construction) make an order for extending the period for doing any act, matter or thing under the Act or in relation to a corporation, or abridge the period for doing such an act, matter or thing. I accept that gives me power to abridge time as sought by the plaintiff.

Unless the Corporations Act, the ASIC Act, or these Rules otherwise provide, the rules of this Court that provide for the extension or abridgment of a period of time fixed for the doing of any act or thing in relation to a proceeding apply to a proceeding to which these Rules apply.

31 Under the Supreme Court (General Civil Procedure) Rules 2005, r 3.02(1) provides that:

The Court may extend or abridge any time fixed by these Rules or by any order fixing, extending or abridging time.

32 I am satisfied that the Rules mentioned above give me power to make the orders sought in this case, that is, to abridge the notice period from five days to two.

33 Therefore, I am prepared to make the orders sought in relation to the two irregularities, namely, exemption of compliance with paragraph 4 of the convening orders nunc pro tunc and abridgement of time provided for in r 3.4(3)(b) of the Rules, pursuant to s 1322(4)(d) of the Act. I also grant exemption from s 411(11), as the scheme will not alter the constitution of Transcomm or the rights of shareholders, creditors or other persons dealing with the company.[7] Finally, I am prepared to make orders approving the scheme pursuant to s 411(4) of the Act for the reasons given above and set out in the plaintiff's submissions.

[1] [1891] 1 Ch 213.

[2] [2007] VSC 523; (2007) 65 ACSR 494, [19]-[24].

[3] [2007] QSC 37; 61 ACSR 266, [41]-[42].

[4] [2007] VSC 571, [12].

[5] [2009] FCA 180.

[6] [2006] FCA 161, [17].

[7] See Re Lion Selection Limited [2009] VSC 456, [24].