FEDERAL COURT OF AUSTRALIA CORPORATIONS - application to correct register of shareholders - compulsory acquisition of shares by takeover - whether large number of transfers should have been registered on day before Part A statement was served - Listing Rules of Stock Exchange - whether transfer by person not yet registered as shareholder was "in registrable form" - obligation of company under the Listing Rules to "give effect to [a] transfer within 5 business days" - obligation "not [to] prevent, delay or in any way interfere with the registration of a paper-based transfer in registrable form" - meaning of rules - effect of electronic CHESS registration not communicated to the company - discussion of proposition that a person is not a member till registered in the company's share register - power of ASC to vary the provisions of s 701 in a particular case - inutility of relief once ASC exercised that power. WORDS AND PHRASES - "delay". Corporations Law, ss 701, 730, 777 Stock Exchange Listing Rules, rules 3D(2), 3D(3B)(b), 3Y(6) Maddocks v D.J.E. Constructions Proprietary Limited (1982) 148 CLR 104, applied National WestminsterBank Plc v Inland Revenue Commissioners [1995] 1 AC 119, applied Premier Pacific Pharmaceutical Industries Ltd v Australian Stock Exchange Ltd (1995) 129 ALR 661, applied Leaney v Olmstead Pty Ltd (1994) 51 FCR 240, referred to Xu v Liu (Branson J, unreported, 31 July 1997), referred to Bermuda Cablevision Ltd v Colica Trust Co Ltd [1998] 2 WLR 82, applied Rands Development Pty Limited v Davis (1975) 133 CLR 26, applied I.A.C. (Finance) Pty Limited v Courtenay (1963) 110 CLR 550, applied Peninsula Gold Pty Ltd v ASC (1996) 14 ACLC 1435, referred to Otter Gold Mines Ltd v Australian Securities Commission (1997) 25 ACSR 382, referred to Ainsworth v Criminal Justice Commission (1992) 175 CLR 564, referred to Peninsula Gold Pty Ltd v Sunbeam Victa Holdings Ltd (1996) 14 ACLC 1089, referred to IN THE MATTER OF R G CAPITAL RADIO PTY LIMITED, FORMERLY SEA FM LIMITED; PENINSULA GOLD PTY LTD & ors v R G CAPITAL RADIO PTY LIMITED, FORMERLY SEA FM LIMITED NG 3484 of 1996 Burchett J Sydney 17 February 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY G3484 of 1996 IN THE MATTER OF R G CAPITAL RADIO PTY LIMITED, FORMERLY SEA FM LIMITED BETWEEN: PENINSULA GOLD PTY LTD, ROCKSPRINGS ENTERPRISES LIMITED, PEACHGROVE HOLDINGS LIMITED, RESTECH AUSTRALIA HOLDINGS PTY LIMITED, RESTECH AUSTRALIA PTY LIMITED, technomin australia pty limited, ORIANA GOLD PTY LIMITED, ROTOPACT TOOLS PTY LIMITED, LIRAS PTY LIMITED, VANUFO PTY LIMITED, DEXTEC METALLURGICAL PTY LTD, SANIDINE PTY LIMITED, DREM PTY LIMITED, TARABON EXPLORATION PTY LIMITED, VANOXI PTY LIMITED, THE WILDCATTERS PTY LTD, ELAJON PTY LTD, BELSOO PTY LTD, JOHN LESLIE THOMPSON Applicants AND: R G CAPITAL RADIO PTY LIMITED, FORMERLY SEA FM LIMITED Respondent JUDGE: BURCHETT J DATE OF ORDER: 17 february 1998 WHERE MADE: SYDNEY THE COURT ORDERS THAT: The application be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY G3484 of 1996 in the matter of R G CAPITAL RADIO PTY LIMITED, FORMERLY sea fm limited BETWEEN: PENINSULA GOLD PTY LTD, ROCKSPRINGS ENTERPRISES LIMITED, PEACHGROVE HOLDINGS LIMITED, RESTECH AUSTRALIA HOLDINGS PTY LIMITED, RESTECH AUSTRALIA PTY LIMITED, technomin australia pty limited, ORIANA GOLD PTY LIMITED, ROTOPACT TOOLS PTY LIMITED, LIRAS PTY LIMITED, VANUFO PTY LIMITED, DEXTEC METALLURGICAL PTY LTD, SANIDINE PTY LIMITED, DREM PTY LIMITED, TARABON EXPLORATION PTY LIMITED, VANOXI PTY LIMITED, THE WILDCATTERS PTY LTD, ELAJON PTY LTD, BELSOO PTY LTD, JOHN LESLIE THOMPSON Applicants AND: R G CAPITAL RADIO PTY LIMITED, FORMERLY sea fm limited Respondent JUDGE: BURCHETT J DATE: 17 february 1998 PLACE: SYDNEY REASONS FOR JUDGMENT BURCHETT J This case concerns the consequences of a break-down in the implementation of a series of extremely artificial transactions designed to thwart the operation of the takeover provisions of the Corporations Law. What is sought by the application is a declaration that the respondent company was obliged to register a large number of share transfers by a date not later than 8 May 1996, and an order directing it "to correct its register so as to show that the date of registration [of these transfers] was 8 May 1996". Registration no later than that day was essential to the success of the applicants' scheme. The relevant events began with a purchase on 24 April 1996 by the first applicant, Peninsula Gold Pty Ltd (which I shall call "Peninsula"), of four thousand shares in the then Sea FM Limited (which I shall call "Sea FM") - it has since changed its name to R G Capital Radio Pty Limited. Just two days later, on 26 April 1996, a company R G Capital Limited announced its intention to make a takeover offer for Sea FM. That announcement, which I infer had been anticipated by Peninsula, made the number of persons holding shares in Sea FM a matter of statutory significance; indeed it could turn out to be critical to the success of the takeover offer when that came. For s 701(2) of the Corporations Law has the effect that, in order to achieve compulsory acquisition of the shares of an unwilling shareholder, the proponent of the takeover must secure, not only the statutory percentage of shares, but also the statutory proportion of assenting shareholders. Particularly, s 701(2)(c)(ii) makes compulsory acquisition dependent, in a case such as the present, upon "at least three-quarters of the persons who were registered as the holders of shares in [the relevant] class immediately before the day on which the Part A statement was served on the target company or the takeover announcement [this is a reference to s 674] was made [being] not so registered at the end of one month after the end of the offer period". It is not in dispute that the Part A statement was served on 9 May 1996, so that what was vitally important for the application of s 701(2)(c)(ii) was the state of the share register of Sea FM "immediately before [that] day", that is on 8 May 1996. To return to the actions of Peninsula, immediately upon its purchase of the four thousand shares purchased by it on 24 April 1996, it sold one hundred and ninety-nine parcels, each consisting of twenty of the shares, to purchasers being different individual applicants and different combinations of various of the applicants. The effect of these transactions, if successful, would be that, upon registration of share transfers pursuant to the sales, the number of shareholders in Sea FM would be increased by one hundred and ninety-nine. The one hundred and ninety-nine transfers required stamping, which seems to have taken some time. On the evidence that I accept, the transfers were uplifted after they had been stamped, and were delivered to the share registry of Sea FM, which was maintained by the accounting firm Douglas Heck & Burrell in Brisbane, late on 1 May 1996. That was a Wednesday. Mr S G Butler, who administered the registry, first saw the transfers on 2 May, when the morning's mail was circulated. With the transfers, was a letter explaining that Peninsula had purchased four thousand shares "on market" on 24 April, but Peninsula's purchase had not yet been reflected in any change of Sea FM's share register. This was because on market transactions did not involve the submission of paper transfers to the registry administered by Mr Butler, but were recorded electronically through the "CHESS" system to which I shall refer later in these reasons. In the normal course, Mr Butler would receive notice of the registration of Peninsula as a shareholder, assuming everything was regular, but that had not yet occurred. The evidence shows that it was not until Friday 3 May 1996 that Peninsula became registered under the CHESS system, and not until Monday 6 May that Mr Butler received notification of this registration. Although the one hundred and ninety-nine transfers had been executed by a transferor who was not yet registered as holder of the shares, Mr Butler did not simply wait for Peninsula's registration to be effected. He did on 2 May 1996 seek advice from the company, being in some doubt about the appropriateness of registering transfers of less than marketable parcels of shares. At the same time, he pointed out that the transfers had not yet been individually checked and that the transferor was not yet registered as a shareholder. On Tuesday 7 or Wednesday 8 May, after discussions, Mr Butler satisfied himself that transfers of less than marketable parcels of shares could be valid. Mr Butler, whose evidence I accept, indicated that either on the earlier or the later of those days Sea FM advised him to this effect. However, the multiplicity of individual transfers still had to be checked and processed, which would require several hours of work. Mr Butler, with a staff of sixteen, administered a number of share registries on behalf of companies, large and small, and a system of rotation was involved in the carrying out of the various tasks. It was not until 2-45pm on 9 May 1996 that the transfers were registered. This was a day earlier than the day by which Mr Butler understood the law required him to effect registration. The registration so effected came one day too late for the applicants' purposes. It is common ground that had all the applicants counted as "holders of shares" within the meaning of s 701(2)(c)(ii) one day sooner, on 8 May 1996, that provision would not have been satisfied so as to permit compulsory acquisition of the remaining shares pursuant to the takeover offer. The applicants founded their case on the listing rules of Australian Stock Exchange Limited (which I shall call "the Listing Rules"), to which statutory force is given in respect of a listed company by s 777 of the Corporations Law. Rule 3Y(6) of the Listing Rules provides: "When a company receives a paper-based transfer in registrable form on or after the date advised by SCH as the date from which a class of securities of a company are CHESS approved securities, the company shall: ... (b) where the company maintains an issuer sponsored subregister and no certificated subregister, register the transfer as an uncertificated security holding and give effect to the transfer within 5 business days of lodgement of the transfer; (c) where the company maintains both an issuer sponsored subregister and a certificated subregister, register the transfer in accordance with Listing Rule 3D(2) or, if the transferee elects to hold the securities in uncertificated mode, register the transfer as an uncertificated security holding on the issuer sponsored subregister and give effect to the transfer within 5 business days of lodgement of the transfer." The applicants relied on paragraphs (b) and (c) in the alternative, maintaining that there was little difference in effect. As I understood the submission, it was that, although Listing Rule 3D(2) does not speak of the registration of transfers, but of the despatch of a certificate in respect of securities to a transferee, the obligation picked up by Listing Rule 3Y(6)(c) must be read as involving an obligation to register a transfer falling within the provision "within 5 business days after the day of lodgement of a registrable transfer of securities of the company" pursuant to Listing Rule 3D(2)(a)(i). But the applicants did not place their main reliance on the requirement to "give effect to the transfer within 5 business days", whether under paragraph (b) or under paragraph (c) of Listing Rule 3Y(6). The applicants' main reliance was placed on Listing Rule 3D(3B)(b)(i), by which it is provided: "Where the securities of a company are CHESS approved securities: ... (b) (i) the company shall not prevent, delay or in any way interfere with the registration of a paper-based transfer in registrable form of a security". It is time to explain the meaning of the acronym CHESS. This refers, as appears from the definitions with which the Listing Rules commence, to the Clearing House Electronic Subregister System established and operated by ASX Settlement and Transfer Corporation Pty Limited as approved under the Corporations Law for, inter alia, the transfer of securities and the registration of transfers. Accordingly, a CHESS subregister "means that part of a company's register for a class of the company's CHESS approved securities that is administered by SCH [ie ASX Settlement and Transfer Corporation Pty Limited] and that records uncertificated holdings of securities in that class". The evidence left it somewhat uncertain which of the Listing Rules applied to the registration of the transfers in question. Whether or not any of the various rules requiring effect to be given to transfers within five business days is applicable in terms, those rules certainly provide a context that assists in the construction of the rule on which the applicants principally relied, Rule 3D(3B)(b)(i). For a number of purposes, the Listing Rules make five business days the measure. Indeed, it is noteworthy that immediately following this provision which the applicants call in aid, Listing Rule 3D(3B)(b)(ii) and (iii) provide grounds on which a company "may" (in the case of (ii)) or "shall" (in the case of (iii)) "refuse to register a transfer in registrable form of a security", and then (iv) provides: "the company shall give to the lodging party written notice of the refusal to register a transfer and the precise reasons therefor within 5 business days after the date on which the transfer was lodged with the company if the company exercises its rights under paragraphs (ii) and (iii) above." In the present case, I am satisfied that there could not have been a breach of any requirement to register the transfers within five business days of their lodgment. That is because they were not in registrable form at the time when they were lodged, late on 1 May 1996. At that date, Peninsula had not been registered as the holder of any of the shares. The transfers were lodged prematurely. At the very earliest, they could not have been treated as registrable transfers until the Friday, 3 May 1996, when the company controlling the electronic registration process recorded Peninsula as the shareholder. That was already too late for the applicants' purposes. Five business days did not elapse thereafter before Sea FM acted on the further transfers made by Peninsula, Saturday and Sunday not being "business days" within the Listing Rules. But I should not be taken to accept even 3 May as the true starting point. It was not until the Monday, 6 May 1996, that the company was advised, through Mr Butler, of the electronic registration. The evidence of Mr Butler, which I accept, is that this information was not available to him until the receipt of notification through the CHESS system, the notification received on 6 May. It would not be a reasonable construction of the Listing Rules to regard a transfer as registrable within their meaning at a time when the purported transferor was not registered as a shareholder and the company had not been notified through the CHESS system of any electronic registration of any transfer to that transferor. It is settled law that, except in the case of a subscriber to the memorandum of association, a person cannot be a member or shareholder of a company in the absence of registration as such. The authorities establishing this proposition, which have stood for a very long time, were examined and followed by the High Court in Maddocks v D.J.E. Constructions Proprietary Limited (1982) 148 CLR 104. In that case, the joint judgment of the Court states (at 117): "The authorities are clear that ... a person who subsequently to incorporation applies for shares to be allotted to him, or purchases shares from an existing shareholder, does not become a member of the company until his name is entered in the share register." And their Honours repeated the point at 120: "For the reasons given above the argument that in the circumstances of this case the appellant can be a member or shareholder notwithstanding that his name was not on the register must be rejected." Similarly, in National Westminster Bank Plc v Inland Revenue Commissioners [1995] 1 AC 119 at 146-147, Lord Lloyd of Berwick said that "entry on the register ... is the step which completes the taxpayer's legal title to the shares. Until then he has no more than a right to be included on the register." In Premier Pacific Pharmaceutical Industries Ltd v Australian Stock Exchange Ltd (1995) 129 ALR 661 at 664, Gummow J cited both National Westminster Bank and Maddocks v D.J.E. Constructions, as well as an earlier case, for the proposition that "registration confers legal title and membership of the corporation" under the Corporations Law. See too Leaney v Olmstead Pty Ltd (1994) 51 FCR 240 and Xu v Liu (Branson J, unreported, 31 July 1997). National Westminster Bank has also been recently followed by Lord Steyn in Bermuda Cablevision Ltd v Colica Trust Co Ltd [1998] 2 WLR 82 at 94 where, speaking for the Privy Council, his Lordship said: "No person can be shareholder until he is registered". As I have made clear, I do not think a transfer of shares can be in registrable form within the meaning of the Listing Rules when it has been executed by a person who is not a shareholder. I do not think there can be any doubt about this proposition, but, in any case, it is supported by observations in the High Court concerning transfers of land. In Rands Developments Pty Limited v Davis (1975) 133 CLR 26, Gibbs J (with whom Stephen J agreed) said (at 29) that the more natural meaning of the expression "registrable transfer" was that it meant "a transfer in proper form executed by the registered proprietor". That was also the meaning which Taylor J gave to a corresponding expression in I.A.C. (Finance) Pty Limited v Courtenay (1963) 110 CLR 550 at 591. If it is plain that the applicants can get no assistance from any requirement, to be derived from the Listing Rules, which might have bound Sea FM to register the transfers within five business days, neither, I think, can it get any assistance from Listing Rule 3D(3B)(b)(i). The only part of this provision on which reliance is placed is the word "delay". It is said that the company delayed the registration of the transfers. But the obligation not to delay relates only to a "transfer in registrable form". The transfers having been submitted in a form that was not registrable, not being executed by a shareholder, the company could not be said to have delayed their registration, at least until Monday 6 May when it was first advised that the transferor was now registered through the electronic register. Within three days thereafter, the company completed the task of checking and processing the transfers. It could, I think, properly have taken some time for consideration before deciding that transfers executed on a date when the transferor was not a member of a company could nevertheless, as they bound the transferor immediately upon his becoming a member, be treated as in registrable form. However, Sea FM did not take this point. But it did give consideration to the peculiar character of such a large number of transfers of less than marketable parcels, and this caused some loss of time. The practical exigencies of carrying out the work which registration required on one hundred and ninety-nine transfers in an office which was also the registry of a number of other companies additionally impeded the task. Having heard Mr Butler cross-examined, I have no hesitation in finding that the time required to register the transfers was not deliberately lengthened. The work was done in the normal course, making allowance for some diversion of Mr Butler's energies to solving what he perceived as a problem raised by the small parcels involved. Indeed, it was not positively shown (the onus being on the applicants) that registration would have been effected any more quickly had Mr Butler entertained no doubts of the kind he expressed. I simply do not know when, in the normal rotation of work in respect of the different companies the share registers of which Mr Butler administered, these transfers, involving the extra work they inevitably did, would have been reached. That view of the facts raises the question whether the language of the rule, "the company shall not prevent, delay or in any way interfere with the registration of a paper-based transfer in registrable form of a security", was sufficient to impose on Sea FM any duty to effect the matter with greater speed. It seems to me that, provided at any rate the company maintained a reasonably efficient share registry, as on the evidence I conclude it did, the suggested period of delay and its suggested causes are simply not obnoxious to the rule. The word "delay" is there associated with the words "prevent" and "interfere with". In this context, and perhaps particularly as the immediately following provision is concerned with refusal, I think "delay" refers to some positive action or decision designed to impede timely registration. The word "delay" is not the noun, which has a very broad meaning; it is a part of a composite transitive verb - "shall ... delay ... the registration". When the word is used in this way, the appropriate meaning is that given in The New Shorter Oxford English Dictionary (1993) as "[i]mpede the progress of, make late, hinder." These expressions all refer to action taken by the subject of the verb. I am not satisfied that the company delayed registration of the transfers in the sense intended by the rule. Furthermore, even if the word "delay" has in isolation a looser meaning, I think the repeated references in the Listing Rules to periods of five business days for the taking of comparable actions would make it impossible to hold that the company had here been guilty of delay in any sense which the Listing Rules could reasonably bear. They do not suggest an imperative of vigilance to ensure immediate registration just because that would suit the interests of a particular transferor or transferee. They do require that only a quite short time should be taken, and, in the case of Listing Rule 3D(3B)(b)(i), that the regularity of the company's procedure should not suffer the deliberate intervention which the rule forbids. It follows that the application must fail. However, I should briefly indicate that it would in any case have faced insuperable obstacles. By s 730 of the Corporations Law, the Australian Securities Commission is given a discretionary power to modify or vary, inter alia, the provisions of s 701. That power was exercised in the present instance so as to annihilate any effect which, on the applicants' case, the one hundred and ninety-nine transfers would have had in relation to the takeover of Sea FM. The power of the Australian Securities Commission to do this in such a case was considered and upheld by McLelland CJ in Eq. in Peninsula Gold Pty Ltd v ASC (1996) 14 ACLC 1435. An appeal against that decision was lodged, but seems not to have been pursued, or not with any vigour, since after the lapse of a year and a half it has not yet been heard. In the meantime, a full court of the Federal Court of Australia has referred to Peninsula Gold v ASC with approval: Otter Gold Mines Ltd v Australian Securities Commission (1997) 25 ACSR 382 at 387-388, per Merkel J (with whom Beaumont and Sundberg JJ agreed). Accordingly, I entertain no doubt that the modification or variation of the effect of s 701 made in the present case was validly made. In that situation, the relief which the applicants seek could be of no utility: cf Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-582, 595-597; Peninsula Gold Pty Ltd v Sunbeam Victa Holdings Ltd (1996) 14 ACLC 1089 at 1094, per Bryson J. It is unnecessary to pursue this point further. The order of the court will be that the application be dismissed with costs. I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Burchett Associate: Dated: 17 February 1998 Counsel for the Applicants: Mr S J Archer Solicitor for the Applicants: Smits Leslie Counsel for the Respondent: Mr S D Rares, SC with Mr N Perram Solicitor for the Respondent: Corrs Chambers Westgarth Date of Hearing: 2 June 1997 Date of Judgment: 17 February 1998