Winpar Holdings Ltd v National Consolidated Ltd

REASONS FOR INTERLOCUTORY ORDERS 1 I have before me a matter begun by way of originating process on 2 November 2001 on which date the matter came before me on an urgent basis for short service. The matter was returnable on Tuesday 6 November 2001. On 6 November I adjourned the matter until today, making certain directions for the filing of a properly particularised statement of claim and for the filing of evidence concerning the issues that appeared to separate the parties at that point. 2 It is necessary to only very briefly outline the nature of the matter. National Consolidated Limited, to which I will refer as the defendant, is a subsidiary of Austrim Nylex Limited, which is a public company with other subsidiaries. In circumstances which it is unnecessary to investigate or consider, the Austrim Nylex group has in recent months reached an accommodation with its financiers, referred to in documentation before me as the "Standstill Agreement", which flows out of the fact that it may be the case that the group or some company in the group is in breach of relevant covenants under financing documentation. The group, as part of the Standstill Agreement, is to be required to provide security to its financiers. As I understand the matter it is perceived that that will require the defendant to provide security to the financiers. (The precise inter-relationship of debtor and creditor relationships between the financiers and the companies in the group has not been explained to me, but I take it from the material before me that the defendant already has liabilities to some or all of the financiers arising out of guarantees, indemnities and the like.) 3 What is proposed then is that the defendant, amongst other companies in the group, provide security to the financiers. It is accepted for the purposes of present debate that for the defendant to grant security to the group's financiers would be for it to provide a financial benefit to Austrim Nylex, that company being the holding company of the defendant, for the purposes of Part 2E.1 of the Corporations Act. 4 Recently, at the end of October, the defendant (and Austrim Nylex, I infer, but relevantly the defendant) proposed to call a meeting of its members in order that a vote be taken upon a proposal to change its status from a public company to a private company. There is an explanation of the reason for this in the Explanatory Memorandum which is in the materials before me. Shortly, and perhaps overly simply, it is sought to obviate the need to comply with the requirements, set out under Part 2E.1 of the Corporations Act,which must be undertaken and complied with by a public company where there is a related party benefit as defined for that Part. 5 I am assuming for the purposes of today that there is a related party benefit. The plaintiffs hold preference shares in the defendant. The ordinary shares in the defendant are wholly owned by Austrim Nylex. Austrim Nylex also owns approximately 12 per cent of the preference shares. The first and second plaintiffs do not own the totality of the balance of the preference shares but only some; that limitation on their ownership rights is of no present consequence. 6 The plaintiffs filed an originating process seeking orders in a form as follows: 1. An order to restrain the defendant from holding the general meeting on 16 November 2001 for which a notice dated 24 October 2001 was given. 2. In the alternative to the relief sought in paragraph 1 above, a declaration that Austrim Nylex Limited is not entitled to vote at such general meeting. 3. Further in the alternative to the relief sought in paragraph 1 above, a declaration that the holders of the cumulative non-redeemable preference shares in the defendant are entitled to vote at such meeting. 7 Today, without objection, amendment was sought and granted to insert para 3A in that originating process. The plaintiffs, it can be seen, seek to restrain the meeting that is to be held next Friday (16 November 2001), as well as seeking, in the alternative, various declarations. I take order 3A to be, in a sense, a prayer for a declaration, as opposed to an order. The amended ground 3A provides: A declaration to the effect that the meeting of the Defendant proposed to be convened on 16 November 2001 ought to be conducted pursuant to the provisions of sections 217 to 227 of the Corporations Act. 8 Returning to the procedural history of the matter, when this matter came before me on Friday 2 November, it was made clear that interlocutory relief was not sought. To that end I ensured in the making orders for short service that the defendant was apprised of that matter for the return date of 6 November. When the matter came before me on 6 November, Mr Moore appeared for the defendant and because of the national significance of the day, had been unable to obtain clear and comprehensive instructions, the defendant having been closed, as is a custom amongst some commercial houses in Melbourne on the Monday before the first Tuesday in November. I indicated to the parties on Tuesday 6 November that I would adjourn the matter to Friday (that is, today). I required a statement of claim from the plaintiffs, which was filed by mid-day on Thursday (yesterday). I also required affidavit evidence as to two matters. From the defendant I required evidence in support of an application to transfer the matter to the Victorian Supreme Court under relevant cross-vesting legislation or other legislation, and I required evidence from the defendant concerning the question as to whether the defendant could be ready for a final hearing at some time in the week commencing 12 November. I also ordered the plaintiffs to file an affidavit concerning, if I may use the expression, the cross-vesting issue. Those affidavits were filed. 9 I also indicated on 6 November that I would deal with any cross-vesting application today together with directions as to the proper conduct of this matter. Upon the matter being called on for hearing of the directions and the cross-vesting application this morning, I indicated to the parties that I first wanted to hear them in relation to the question of what could be heard, if anything, next week. Mr Santamaria QC appeared with Mr Moore for the defendant and Mr Cotman SC appeared for the plaintiffs. I indicated to Mr Cotman that subject to hearing from him, I could not see how the parties, in particular the defendant, could reasonably be expected to be in a position to argue order 1 on a final basis. I said this having examined the contents of the statement of claim and the various allegations in it, including those of oppression and breach of duty, using those expressions in a broad sense. 10 I then invited the parties to debate before me the question as to whether orders 2 and 3 in the originating process could not be dealt with next week. Order 3A is of a kind that falls into the category of orders 2 and 3. Those matters deal with the entitlement of parties to vote at the coming meeting and associated issues concerning the characterisation of the meeting. I have been assisted by helpful submissions from both sides, for which I am grateful. 11 Mr Cotman, if I may summarise without doing any injustice to his submissions, says that orders 2, 3 and 3A raise essentially bare legal issues which can be analysed, debated and disposed of in the context of the form of the orders sought, the constitution of the company, the terms of the issue of preference shares and the contents of the Explanatory Memorandum. 12 Mr Santamaria, on behalf of the defendant, contests that basic proposition. In particular, he points to the necessity, as he submits, for the plaintiffs to characterise the meeting as something other than that which the notice of meeting would have the reader understand. The notice of meeting as explained in the Explanatory Memorandum is simply to change the status of a company. There is no contest that if that is done steps will be taken without impediment under Part 2E.1. Mr Santamaria says that meeting is a meeting to change the status of the company. At that meeting, if it is simply so analysed, while the shareholder Austrim Nylex is interested, it has obviously an entitlement to vote, interest being no bar to shareholders voting in the usual course, that being the reason they vote. 13 Mr Santamaria says that what Mr Cotman has to do, in effect, is transmogrify the meeting into another type of meeting to which Chapter 2E (in particular, Part 2E.1) applies, either by force of law or by some process of characterisation and thereafter by the application of the Part. Mr Santamaria then says that if that be right, then before one can begin to answer these questions about the transmogrified or re-characterised meeting, the defendant should be entitled to bring forward material which would make clear its entitlement to vote in such a meeting thus far necessarily hypothesised, those matters being that the Australian Securities and Investment Commission (ASIC) necessarily, if not acting unlawfully, in the administrative law sense, would have to be satisfied that the declaration would not cause unfair prejudice to the interests of any member of the public company for the purposes of s 224, in particular subs (4). 14 Mr Santamaria says that this process of re-characterisation will bring in factual material about the commercial wisdom of the matter in the interests of all shareholders of the defendant which would form the foundation of a submission to ASIC. Mr Cotman's submissions, as I understand them in relation to that matter, are that the proper disposition of these questions does not in fact involve that process and that the Court should not look to those background matters in the disposition of the debate about orders 2 and 3 and, in particular, 3A. 15 For my part, I am not sure who is right, but it seems to me that it is clear that those considerations are matters for the hearing. I am not satisfied that the matters put by Mr Santamaria are untenable or fanciful. By putting the matter that way, I intend absolutely no disrespect to Mr Santamaria or his submissions, but it seems to me that if I am to order the defendants to prepare for and deal with a final hearing of their rights in circumstances where interlocutory relief is not sought, I should be satisfied that there is no realistic possibility of prejudice being wrought on the defendant by the urgent disposition - on a final basis - of its rights. 16 I take into account in relation to this, of course, the rights of the plaintiffs. On the assumption that I do not set this matter down for urgent final hearing next week before a duty judge of this Court, the meeting may well take place next Friday. Assuming it does and assuming that Austrim Nylex votes in favour of the resolutions proposed, there will be what I may neutrally call a purported change of status. If Austrim Nylex votes in favour of the resolution, there will have been a purported meeting, using that term in a neutral sense, to change the status of the company, which vote, resolution or change will either have effect in law or not. If in fact Austrim Nylex has voted in favour of the change of status and if in law it was not entitled to vote, as the plaintiffs say, the plaintiff's position is ultimately not prejudiced. There is no reason why the final resolution of that question, that is the validity of what occurred at the meeting, could not be dealt with at the appropriate time. If it be the case that Austrim Nylex was in law not entitled to vote at the meeting, the consequences of that will necessarily be played out in the fullness of time. 17 For the moment, for my part, there is the question as to whether I should force, by order, the defendant to have that matter agitated and resolved finally within a matter of days. 18 I do not propose to make that order. I am not satisfied, balancing the interests of the plaintiffs and the interests of the defendants, that it is appropriate to risk prejudice to the interests of the defendant in having that matter disposed of next week on a final basis, where real and substantial arguments of prejudice by reason of an inability to prepare adequately have been, if I may say so respectfully, responsibly mounted before me. 19 For those reasons I do not propose to make directions in this matter for the urgent final hearing next week of any part of the originating process. 20 That leaves the question of cross-vesting, if I may use that expression. Subject to hearing the parties in a moment, what I propose to do is to adjourn the transfer application for the reasons which follow below. 21 The fact that I have refused to have the matter heard finally in this Court urgently next week does not detract from the fact, which I think both parties would agree, that the matter has a certain urgency. A statement of claim has been filed. As I have said, what I propose to order, subject to hearing the parties, is the following: · that the defendant file and serve a defence to the statement of claim on or before 4:00 pm next Wednesday (14 November). (I would expect particulars to be sought and provided in a way conformable with commercial list or commercial division practice and so not necessarily need to be the subject of orders. If there is a difficulty about particulars, the matter can be relisted and for my own part I will take the traditional commercial list view of the provision of particulars in a matter that is that they should be provided even if strictly speaking what is sought is not particularised. However, I do not encourage oppressive particulars being sought. They should be sought if they are needed and not otherwise, and, if they are asked for they should generally be provided. I will not make any orders about particulars.); · any reply to the defence is to be filed and served by 4:00 pm next Thursday (15 November); and · on or before 20 November the parties are to file and serve, (that is exchange, in whatever order they like but they are to be filed and served by 20 November), submissions in summary form but of sufficient detail to fulfil the purposes that I am about to identify. The first purpose is to outline and identify the evidence which will be necessary to be led in chief either in propounding any issue or in defence of issues propounded by the other side, by reference, if at all possible, to the issues thrown up by the pleading; and secondly, the extent to which such evidence is to be led or is likely to be led before her Honour Justice Warren in the proceedings in the Supreme Court of Victoria which are said to be related to the present proceedings. 22 Now, as to the proceedings before her Honour on 29 November - it may or may not give time to catch up - but I would not be necessarily minded or moved to cross-vest this matter without understanding more about what it is about and what it involves in the way I have identified. If it be the case that I am satisfied at that point, having looked at the material, that there is a real overlap of the evidence, then it may or may not be able to be dealt with by her Honour on 29 November but it would be then a matter for her Honour as to how the matter should be programmed because if there is an overlap it is not so much a matter of necessarily having it heard on the same day but of it being heard by the same judge and her Honour may then have a view as to what ought to be heard first. [There was discussion with Counsel.] 23 The orders of the Court are: (1) the defendant is to file and serve in Sydney a particularised defence by 4.00pm Wednesday 14 November 2001; (2) the plaintiff is to file and serve any reply to that defence on or before 4.00pm Friday 16 November 2001; (3) On or before 4.00pm on Tuesday 20 November 2001 the parties are to file and serve submissions as follows: (a) identifying in sufficient detail to enable the balance of these orders otherwise to be complied with, the nature of the evidence which it or she seeks to lead in support of its or her own case in these proceedings and in defence of any issue propounded by the other side in these proceedings; (b) identifying the extent, if at all, that that evidence will be led before Warren J, in what has been referred to in the present proceedings as the Victorian proceedings and for what purpose that evidence will be led; (c) identifying common factual or legal issues in the Victorian proceedings and these proceedings; and (d) setting out any further submissions it or she wishes to place before the Court in relation to the question of transfer or not of the proceedings to Victoria. (4) On or before 12:00 noon on Thursday 22 November 2001 the parties are to file and serve in Sydney any submissions strictly in reply to those filed by the other side pursuant to order 3 above. (5) The proceedings be stood over for directions generally and the motion for transfer be stood over to 4.30pm on Thursday 22 November by video link between Sydney and Melbourne or at such other time or in such other manner as the parties are notified by the associate, for any further submissions which in the light of the submissions identified in 3 and 4 above the parties wish to make. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Interlocutory Orders herein of the Honourable Justice Allsop.