Spark Infrastructure Holdings No 1 Ltd [2010] NSWSC 1497

2010/315728 SPARK INFRASTRUCTURE HOLDINGS NO 1 LIMITED & ORS JUDGMENT 1 On 17 December 2010, I made a number of orders in these and related proceedings to facilitate a complex restructure of Spark Infrastructure stapled securities. The orders in these proceedings were made under s 411(4)(b) of the Corporations Act 2001 (Cth). 2 I indicated that I would (as I now do) deliver reasons in relation to one issue that arose upon the hearing. It concerns aspects of the way in which the outcome of voting should be determined under s 411(4)(a). 3 Each Spark Infrastructure stapled security consisted of five components none of which was transferable or tradeable except in company with all the others. Among the five components were an unsecured note issued by Spark Infrastructure RE Ltd ("Spark RE"), an ordinary share in the capital of Spark Infrastructure Holdings No 1 Ltd ("Spark No 1") and an ordinary share in the capital of Spark Infrastructure Holdings No 2 Ltd ("Spark No 2"). 4 The restructure machinery included a compromise or arrangement between Spark RE and the class of its creditors consisting of holders of unsecured notes, a compromise or arrangement between Spark No 1 and the class of its members consisting of the holders of ordinary shares and a compromise or arrangement between Spark No 2 and the class of its members consisting of the holders of ordinary shares (each of the latter companies also had on issue one share of a different class). Of course, every person who held a particular number of relevant securities of one of the three companies also held a corresponding number of relevant securities of each of the other two companies as part of a holding of five-component stapled securities. 5 Meetings of the holders of the classes of securities (unsecured notes of Spark RE, ordinary shares in Spark No 1 and ordinary shares in Spark No 2) were held on 9 December 2010 in accordance with orders made by the court under s 411(1) of the Corporations Act. At each meeting, the compromise or arrangement was overwhelmingly approved by holders present in person or by proxy. More than 98% of votes (or value) were in favour and more than 95% of voters cast positive votes. That, coupled with evidence that all other relevant matters were in order, formed the basis for the making of orders under s 411(4)(b) in respect of all three schemes. 6 The matter to which I desire to make special reference concerns the computation of the requisite voting majorities (s 411(4)(a)(i) in the case of a creditors scheme and s 411(4)(a)(ii) in the case of a members scheme) where a creditor or member purports to exercise a "split" vote, that is, to vote in favour as to part of the investment and against as to another part. 7 Section 411(4) causes a compromise or arrangement to be binding in the way stated in its opening words if certain conditions are satisfied. The condition arising from s 411(4)(a) (as amended by the Company Law Review Act 1998 (Cth) and the Corporations Amendment (Insolvency) Act 2007 (Cth)) is: "at a meeting convened in accordance with an order of the Court under subsection (1) or (1A): (i) in the case of a compromise or arrangement between a body and its creditors or a class of creditors - the compromise or arrangement is agreed to by a majority in number of the creditors, or of the creditors included in that class of creditors, present and voting, either in person or by proxy, being a majority whose debts or claims against the company amount in the aggregate to at least 75% of the total amount of the debts and claims of the creditors present and voting in person or by proxy, or of the creditors included in that class present and voting in person or by proxy, as the case may be; and (ii) in the case of a compromise or arrangement between a body and its members or a class of members - a resolution in favour of the compromise or arrangement is: (A) unless the Court orders otherwise - passed by a majority in number of the members, or members in that class, present and voting (either in person or by proxy); and (B) if the body has a share capital - passed by 75% of the votes cast on the resolution." 8 In the present case, a very small number of persons who attended the meetings by proxy voted (or purported to vote) both for and against the motion for the approval of each scheme. Since more than 1,800 persons entitled to vote did so (either in person or by proxy) and the securities of the persons tendering "split" votes represented only a very small part of the total, the overwhelmingly positive voting outcome in respect of each scheme would not have been affected if, in the computations called for by s 411(4)(a)(i) and s 411(4)(a)(ii), the relevant persons and their securities had been treated in some different way. 9 Whether or not the treatment of those persons and their votes was correct was therefore not something that had to be decided upon the s 411(4)(b) application. But, as the matter was raised - and properly raised in the context of an ex parte application - it is desirable that it be dealt with. 10 I begin with the Spark RE scheme. The applicable provision is s 411(4)(a)(i) dealing with an a compromise or arrangement between a Part 5.1 body and a class of its creditors. One of the matters to which that section directs attention is the "total amount of the debts and claims of . . . the creditors included in that class present and voting in person or by proxy". A conclusion that the approval of creditors has been given in accordance with the section depends on its being found that the "majority in number of the . . . creditors included in that class or creditors" who agreed to the scheme was a majority "whose debts and claims against the company amount in the aggregate to at least 75% of" that total amount. 11 The underlying assumption is that each creditor will account for a single amount of debt or claim which, no doubt, may itself be an aggregate derived from several separate debts or claims. The "total amount" to which the section refers is arrived at by adding together the amounts of the debts or claims of all creditors in the class. 12 Attention is then directed to which creditors voted, whether in person or by proxy, on the question whether the scheme should be agreed to. The debts or claims of those who voted in a positive way are then compared with the debts and claims of those who voted in a negative way to determine whether the 75% requirement has been met. 13 Because only a single amount of debt or claim is attributed to a particular creditor, the creditor can, by voting, deploy only that single amount in favour of the scheme or against it. The creditor cannot apportion part to support and the remainder to opposition. Nor can the creditor vote part for or against and leave the balance uncommitted. 14 It follows that a creditor's vote, for the purpose of determining whether a "majority in number" has approved the scheme, cannot be split. Just as the creditor's single debt amount cannot be broken into two, so the creditor, as a person, cannot be within both the "for" camp and the "against" camp. 15 In relation to the Spark Re scheme, therefore, the conclusion must be that a creditor who purported to vote in favour of approval as to part of the creditor's debt and against as to the remainder (or another part) did not vote in the way the statute contemplates and allows, with the result that the proper course, in determining the result of voting, was to ignore the purported positive vote and the purported negative vote of that creditor. 16 The same conclusion would apply to a creditor who purported to vote for or against in respect of part only of the creditor's single amount of debt or claim. Because the section works on the basis that a creditor is to be taken into account for the whole of the creditor's amount, someone who purports to abstain for part of their debt does not vote in the way for which the law makes provision. 17 In short, s 411(4)(a)(i) does not recognise or accommodate any concept of split voting by a single creditor. It does not allow a creditor either to vote (whether "for" or "against") in respect of part only of the creditor's amount or to vote "for" in respect of one part and "against" in respect of the remainder (or another part). Any vote purportedly cast in such a way must be disregarded. 18 I turn now to the Spark No 1 and Spark No 2 schemes and the construction of s 411(4)(a)(ii) applying to a compromise or arrangement between a Part 5.1 body and a class of its members. The requirement under that provision is that a resolution in favour of the compromise or arrangement be "passed by" a majority in number of the members in the class present and voting at the meeting and, in addition, passed by 75% of "the votes cast on the resolution". 19 Where, as here, the particular Part 5.1 body is a "company" for the purposes of the Corporations Act, a meeting of its members convened in accordance with a s 411(1) order is a meeting to which s 250H applies. That section says: "On a poll a person voting who is entitled to 2 or more votes: (a) need not cast all their votes; and (b) may cast their votes in different ways." 20 The resolutions in relation to the Spark No 1 and Spark No 2 members schemes were determined by poll. According to s 250H, therefore, it was open to a member to cast some of the member's votes in favour and the remainder against. It was also open to a member to leave some of the member's votes unexercised, whether the votes that were exercised were all positive, all negative or in part positive and in part negative. 21 In relation to a member who acted in one of those ways, it was appropriate - indeed, necessary, having regard to s 250H - for any positive votes and any negative votes cast by the member to be taken into account under s 411(4)(a)(ii)(B) in deciding whether at least 75% of the votes cast on the resolution were positive votes. The difficulty is to know how to treat the member for the purposes of s 411(4)(a)(ii)(A). 22 Under s 411(4)(a)(ii)(A), regard is to be had, in the first instance, to the total number of members in the relevant class who were present and voted, whether in person or by proxy (obviously included in this group is a member who acted in one of the ways just mentioned). It is then necessary to decide whether the resolution was "passed by" a majority in number of the members in the group. 23 The section proceeds on the footing that every member voting will, by the member's votes, be seen to be or not to be one of the members by whom the resolution is "passed". An immediate reaction is to think that every person who recorded positive votes contributed to the passing of the resolution (which was thereby "passed" by the person) and that it makes no difference that the person also recorded negative votes. 24 On reflection, I am not persuaded that this is the correct construction. Positive and negative votes cast by a particular member are relevant to the operation of s 411(4)(a)(ii)(B); and the positive votes the member casts will contribute to the passing of the resolution. Under s 411(4)(a)(ii)(A), however, it is necessary to say of every member voting that the member either is or is not one of those by whom the resolution was "passed"; and that judgment is to be made according to how the member's votes were cast. The resolution cannot be said to have been partly "passed" and partly not "passed" by a particular member (nor, where the resolution was passed, can a particular member be one who both "passed" it and did not "pass" it). 25 Where all of a member's votes were cast against it, the resolution was obviously not "passed by" that member. Likewise, in my view, the resolution was not "passed by" a member some of whose votes were cast against it, even though others were cast in favour. 26 The concept of "passing", when used in a context where every person who votes must be classified as one who "passes" or one who does not "pass", seems to me to imply unequivocal support. A person "passes" the resolution (or joins in its "passing") only if the person accepts unreservedly the measure it embodies. Someone who says, "Yes, I support; but I also oppose" does not, as a person, express unequivocal support or unreserved acceptance. The manifestation of opposition or non-acceptance means that the person cannot be counted among those persons by whom the resolution is "passed". 27 The impact of s 250H is therefore blunted in the s 411(4)(a)(ii) context. Several distinct cases (confined, however, to Part 5.1 bodies which are "companies" to which s 250H applies) may be noted: 1. If a member exercises only some of the member's votes and, in so doing, casts all of the exercised votes in favour, those votes will be taken into account when computing total votes exercised and the total of the positive votes. In addition, the member will be (a) taken into account when determining the total of the members who voted; (b) included among those by whom the resolution was "passed"; and (c) therefore not included among those by whom the resolution was not "passed".

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