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Straits Resources Limited, in the matter of Straits Resources Limited [2010] FCA 1467

by Emma.Gleeson 31. January 2011 15:39

Facts

This judgment is to be read in conjunction with the judgment in Straits Resources Limited, in the matter of Straits Resources Limited [2010] FCA 1467. This was a first court hearing with respect to two schemes of arrangement under Part 5.1 of the Corporations Act. The second scheme, for the acquisition of the shares in Straits by a third company (PTT) in the event that the demerger occurs, is relevant to this judgment.

 

Outcome

Three issues were raised and considered in this judgment:

 

  • A number of employees held shares in Straits. They were not held to be a separate class of shareholders as they were to be valued under the scheme in exactly the same way as other shareholders: [17]-[19].

 

  • Deal protection provisions included an exclusivity period extending for a period of just under 8 months. The Court noted that these were framed such as to be subject to the overriding obligation not to breach directors’ fiduciary duties or otherwise be unlawful, referring to Santow J in Re Arthur Yates & Co Limited (2001) 36 ACSR 758 at [9], and the length of the period corresponded to comparable periods in other schemes: [21]-[22]). Likewise, the charging of a break fee was within the 1% guideline set out in Takeovers Panel Guidance Note 7 and evidence was before the Court that this was calculated as a result of “normal commercial negotiation” and that it was in the interests of shareholders (referring to Lindgren J in Re APN News Media Limited (2007) 62 ACSR 400 at [55]): [23]. Similar observations were made with respect to the “no due diligence” and “no talk” provisions within the scheme proposal.

 

  • The acquisition scheme is being considered by the ATO as to whether it is for the sole or dominant purpose of obtaining a tax benefit and adverse tax consequences for Straits may result. As a result Straits sought to have the meeting convened approximately two weeks after the ATO’s position is expected to be clarified to enable an announcement to be made to the ASX prior to shareholders voting on the scheme. This seemed to the Court to be appropriate, noting that the usual practice is to require ten days notice to shareholders. If the ATO’s position was not clarified in sufficient time, Straits could adjourn the meeting, make further disclosure to shareholders and a further application to the court might be required: [24]-[26].

 

Relevant paragraphs of Ford

[7.427], [19.140], [22.130], [24.071], [24.130], [24.160], [27.063], [27.065], [27,760]

 

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Ford's Principles of Corporations Law

The MAC Services Group Limited [2010] NSWSC 1474

by Emma.Gleeson 31. January 2011 10:10

Facts

MAC Services held a meeting pursuant to s 411(1) of the Corporations Act 2001 (Cth) to vote upon a resolution to effect a scheme of arrangement under Part 5.1 of the Act.

 

At the meeting, which was properly convened, a poll was called. Votes were cast but counted after the meeting was declared closed, the chairperson indicating that the result of the poll would be notified once votes were counted.

 

The overwhelming majority voted in favour of the scheme and the result was notified to the ASX later the same day.

 

The Court had to consider whether the resolution had been passed “at” the meeting.

 

Outcome

A poll properly called for need not be taken during the course of the meeting, and it was held that the poll is effectively a continuation of the meeting. The resolution was therefore passed “at” the meeting.

 

Relevant paragraphs of Ford

[7.427], [19.140], [22.130], [23.620], [24.071], [24.090], [24.130], [24.160]

 

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Ford's Principles of Corporations Law

Primary Securities Ltd (Receivers & Managers appointed) (in liquidation) v Saker [2010] FCA 1471

by Martha.Ware 28. January 2011 09:14

Facts

The applicant filed a notice of motion seeking an extension of time in which to file and serve a notice of appeal from a judgment delivered in proceedings to which it was not a party: [1].

 

The applicant subsequently amended the motion to seek leave to appeal the judgment, such leave being necessitated by the fact that it had no right of appeal given that it was not a party to the proceedings: [2] and [9].

 

To enliven the Court’s jurisdiction to hear and determine the appeal, the applicant had to show there existed a “justiciable controversy” or “matter” within the meaning of Chapter III of the Constitution (Cth) that could be the subject of appeal from the judgment: [13].

 

A justiciable controversy ends when the possibility of an appeal being commenced, either by a party to the proceeding or not, is exhausted or foregone: [27].

 

Outcome

Because no appeal had been brought within the appeal period, there did not exist any “justiciable controversy”, or “matter” within the meaning of Chapter III of the Constitution (Cth), which could be the subject of an appeal from the judgment: [32].

 

Accordingly, the Court has no power to grant the applicant leave to appeal: [28] and [35].

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Ford's Principles of Corporations Law

Straits Resources Limited, in the matter of Straits Resources Limited [2010] FCA 1466

by Martha.Ware 28. January 2011 09:12

Facts

This was a first court hearing with respect to two schemes of arrangement under Part 5.1 of the Corporations Act 2001 (Cth).

 

The first was for the demerger of Straits’ coal and metal businesses, the latter to be owned by a subsidiary company of Straits. Under the demerger scheme, shareholders would receive shares in both companies corresponding to their shareholding in Straits.

 

The second scheme was for the acquisition of the shares in Straits by a third company (PTT) in the event that the demerger occurs.

 

Straits sought the convening of a single meeting of shareholders to consider the two schemes.

 

Outcome

A small number of ineligible foreign investors, representing 0.29% of shareholders in Straits, were held not to constitute a separate class of shareholders: [27]-[29].

 

The two-step demerger structure was not a selective reduction of capital even though the ineligible foreign investors would receive a cash amount rather than shares in the demerged entity: [29].

 

Standard Chartered Private Equity Limited holds a significant amount of convertible notes. It entered into a conversion agreement with Straits such that its convertible notes would be converted into shares to enable those shares to be voted. The Court did not consider this to create separate classes of shares: [38]. However, it was regarded by the Court as appropriate for that company’s votes to be separately tagged to enable the second court hearing to consider the question of fairness: [42].

 

 

Relevant paragraphs of Ford

[7.427], [19.140], [22.130], [24.071], [24.130], [24.160]

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Ford's Principles of Corporations Law

Golden Plantation Pty Ltd v TQM Design and Construct Pty Ltd; KCL Developments Pty Ltd v TQM Design and Construct Pty Ltd [2010] NSWSC 1453

by Martha.Ware 27. January 2011 11:16

Facts

Main question: whether TQM Design and Construct Pty Ltd (TQM) had the benefit of presumptions of insolvency against each of Golden Plantation Pty Ltd (GP) and KCL Developments Pty Ltd (KCL) under s 459(2)(a) of the Corporations Act 2001 (Cth).

 

TQM had served two separate statutory demands on each of GP and KCL.

 

GP and KCL, as co-plaintiffs, filed an originating process purporting to be an application under s 459G of the Corporations Act seeking to set aside the statutory demands. On 4 November 2010, Barrett J found that the originating process did not constitute a valid application under s 459G of the Corporations Act and consequently dismissed the proceedings: at [6].

 

GP and KCL then each commenced proceedings (the proceedings at hand) against TQM seeking orders restraining TQM from relying on the statutory demands.

 

The question was whether the presumption of insolvency in relation to each of GP and KCL arose 21 days after service of the statutory demands or seven days after the dismissal of the proceedings on 4

November 2010: at [8].

 

The answer to this question determined whether TQM could rely on the statutory demands it had served as a basis for winding up applications under s 459P of the Corporations Act, by way of construction of s 459F of the Corporations Act: at [12].

 

Outcome

Barrett J reviewed the authorities and held that, in order for the period of compliance with a statutory demand to be extended under s 459F(2)(a) of the Corporations Act, the company the subject of the statutory demand must make a valid application under s 459G of the

Corporations Act: at [28].

 

The period for compliance with each statutory demand was therefore that provided by s 459(2)(b) of the Corporations Act, being 21 days after service: at [28].

 

The orders sought by GP and KCL were thereby granted, as the time within which the applications under s 459P of the Corporations Act had expired: at [33].

 

 

Relevant paragraphs of Ford

[27.060], [27.062], [27.066], [27.090]

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Ford's Principles of Corporations Law

In the matter of One.Tel Ltd (in liq) - SingTel Optus Pty Ltd v Weston [2010] NSWSC 1491

by Martha.Ware 27. January 2011 11:13

Facts

The substantive proceedings consisted of claims for an order that Paul Gerard Weston be removed as special purpose liquidator of One.Tel Ltd (pursuant to s 503 of the Corporations Act) and for an order for an inquiry into his conduct as special purpose liquidator (pursuant to s 536 of the Corporations Act).

 

This judgment concerns separate applications by opposing parties seeking to set aside notices to produce.

 

Ward J summarised the factual matrix at [13]–[20]. Of particular relevance to the applications before her Honour were [19]–[20].

 

At [19], her Honour referred to key aspects in the Points of Claim. These largely related to disputes about remuneration claimed by and expenses incurred by Mr Weston, and to the question of whether he had carried out work beyond his court ordered powers.

 

At [20], her Honour referred to key aspects in the Points of Defence, in which Mr Weston denied the matters noted above.

 

 

Outcome

Authorities on test in relation to setting aside a notice to produce were considered at [21]–[31]. It was held that the "on the cards" test "has not been broadly embraced" in civil proceedings: [30]. "A careful consideration is required of the issues in the proceedings to which the subpoenaed documents are or may be of relevance in order to assess whether there is a legitimate forensic purpose served by the subpoena": [31].

 

"Whether a party has cause to believe that particular documents exist is thus a relevant factor … in determining whether the subpoena (or notice to produce) is oppressive and/or constitutes 'fishing'": [36].

 

Ward J noted the requirement that a subpoena or a notice to produce "must identify with 'reasonable particularity' the documents sought": [40].

 

"It is necessary that a person receiving a notice to produce, just as it is for a person served with a subpoena, be in a position to form a view having regard to the terms of the notice as to what documents are required to be produced in order to comply with the order for production. If subjective judgment is required to be applied, or there is ambiguity in that regard, then the subpoena/notice to produce should be set aside": [45] (see also [121]).

 

Her Honour proceeded to consider the challenged paragraphs of the notices to produce.

 

Fee or retainer agreements may be relevant to a question of potential and/or actual conflict of interest: [73]. The same cannot be said for memoranda of fees (at [74]) or communications about a proposed retainer (at [79]).

 

"Communications in relation to the drafting of affidavits (just as draft affidavits themselves) are not likely to be relevant to the ultimate issue (unless they suggest some form of concealment of evidence)": [94].

 

It is "oppressive to require what is in effect a discovery process (by means of a list of privileged documents) in the context of the notice to produce procedure provided under the rules": [101] (see also [113]).

 

Where an issue is central to proceedings, and the number of documents required is relatively limited, it is not oppressive to require the production of those documents: [109].

 

That a point of pleading or point of claim is broadly framed does not mean that it has been made without a genuine belief that it is sustainable and has only been pleaded in order to sustain a notice to produce, and that the notice to produce is therefore an abuse of process: [137]–[138].

 

Where documents are sought in relation to an issue that has already been determined, the notice to produce will be oppressive: [168].

 

A distinction may be drawn between a fact and the consideration which led to that fact. For example, in the case at hand, "the fact of nondisclosure in the circumstances" was relevant, but "not the consideration of what was or was not disclosed". This affected Ward J's assessment of the notices to produce: [184] (see also [143]–[147]).

 

 

Relevant paragraphs of Ford

[27.180], [27.183], [27.184]

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Ford's Principles of Corporations Law

Australian Securities and Investments Commission v Letten (No 8) [2010] FCA 1458

by Emma.Gleeson 25. January 2011 09:42

Facts

On 25 February 2010, orders were made appointing the Receivers as receivers and managers of the property of the Reef House Resort Scheme.

 

On 4 June 2010, this order was varied so that the Receivers had the power to sell the Reef House Properties subject to various conditions, including obtaining the Court’s approval of the sale.

 

On 16 November 2010, the Receivers entered into sale agreements.

 

On 30 November 2010, the Receivers filed an interlocutory process seeking the Court’s approval for the Receivers to enter into the sale agreements.

 

Outcome

On 17 December 2010, orders were made that the Receivers were justified in settling the sale agreements for the following reasons:

 

(a) The Reef House Properties are not exclusively property of the Reef House Resort Scheme.

 

(b) The interests of all creditors and other stakeholders were relevant to the exercise of the power of sale and had to be given due and proper regard.

 

(c) Even though the sale price was below the estimated market value of the Reef House Properties, pursuant to s 420A of the Corporations Act the Receivers took all reasonable care in their sale because:

·         The sale process adopted was in accordance with the Orders made by the Court on 4 June 2010. This involved the Receivers engaging experienced real estate agents to conduct the sale process and, after consultation with relevant stakeholders, accepting the agent’s advice as to how to best market and sell the Reef House Properties. The Reef House Properties were advertised for sale on the open market resulting in arm’s length dealings between the Receivers and potential purchasers.

 

·         There were difficulties with the Reef House Properties. They are located in a tourism area that suffered as a result of the global financial crisis, and were in need of significant and extensive building works to be carried out immediately.

 

Relevant paragraphs of Ford

[25.121], [25.125]

 

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Ford's Principles of Corporations Law

Verge v Devere Holdings Pty Ltd (No 5) [2010] FCA 1452

by Emma.Gleeson 24. January 2011 16:14

Facts

This judgment deals with the final relief to be granted as a result of the findings in Verge v Devere Holdings Pty Ltd (No 4) [2010] FCA 653. Much of the judgment deals with the issue of costs and is not relevant to the Corporations Act 2001 (Cth) or company law.

 

One of the orders sought and granted was for adjustment of a company share register pursuant to section 175 of the Corporations Act.

 

Outcome

The respondents had not filed an appeal and to enable them to have time to do so and to apply for a stay, the Court tailored the relief to order that the adjustment not take place before the expiry of 28 days: [33]-[34].

 

 

Relevant paragraphs of Ford

[21.050], [21.061], [21.371], [24.506]

 

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Vero Insurance Ltd v Kassem [2010] NSWSC 1481

by Emma.Gleeson 24. January 2011 09:34

 Facts

The first defendants were the administrators of Ungal Properties and their conduct was called into question in these proceedings.

 

The first defendants prepared and served affidavits dealing with the conduct matters raised by the plaintiff. They did not, however, participate in the proceedings beyond the affidavits, leaving the second defendant to run the proceedings.

 

The second defendants were successful in the proceedings and were awarded costs. The first defendants sought their costs of preparing the affidavits, to which the judgment dealt solely.

 

Outcome

It was held that the administrators had reasonably incurred the costs [12] and that by serving the affidavits they were made available for use by the other parties (although ultimately they were not read in the proceedings). The Court noted that they could recoup their costs from the second defendant (over which the first defendants had become deed administrators), however, that would deplete the deed fund and penalise the second defendant who had been successful in the proceedings: [9].

 

Costs were therefore awarded against the plaintiff in favour of the second defendant.

 

 

Relevant paragraphs of Ford

[11.265], [25.111], [25.125], [25.160], [26.090], [26.200], [26.240], [26.270], [26.300], [26.330], [26.350], [26.371], [26.380], [26.390], [27.126], [27.130], [27.180], [27.183], [27.410], [27.441] [27.865]

 

 

 

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Spark Infrastructure Holdings No 1 Ltd [2010] NSWSC 1497

by Martha.Ware 19. January 2011 12:11

Facts

At a meeting to vote upon a scheme of arrangement pursuant to Part 5.1 of the Corporations Act, a small number of persons attending the meeting by proxy purported to vote both for and against the scheme by splitting their votes.

 

While the numbers involved did not affect the overall outcome, the Court was asked to determine how such votes should be treated.


Outcome

Creditors: Section 411(4)(a)(i) of the Act provides, inter alia, that for the resolution to be passed a “majority in number” is required. The underlying assumption is, therefore, that a person voting cannot vote both for and against a resolution: [9]-[14]. A person cannot split their vote as this is not contemplated by the section and is to be regarded as not having voted: [17].

 

Members: With regard to ss 250H and 411(4)(a)(ii)(A) and (B), a split vote may be made but the resolution cannot be held to be both “passed” and “not passed” by a particular member who split their vote: [21]-[25]. Rather they would be counted as having voted, but as being a person who has not “passed” the resolution.

 

Note the criticism of the headcount test in the Law Counsel of Australia submission to CASAC discussed briefly at [29] with regard to investors who have invested through nominees or depository arrangements.

 

Relevant paragraphs of Ford

[7.530], [23.620], [24.071], [24.090]

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Ford's Principles of Corporations Law



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