FEDERAL COURT OF AUSTRALIA CORPORATIONS – power under s 730 of Corporations Law to modify operation of Chapter 6 – declaration permitting compulsory acquisition of shares issued after takeover period on exercise of options – whether declaration beyond power. Corporations Law, ss 701(2), 703(4)-(8) and 730. Brierley v Dextran Pty Ltd (1990) 3 ACSR 455considered. O.P.S.M. Industries Ltd v NCSC (1982) 1 ACLC 479 considered. Otter Gold Mines Ltd v ASC (1997) 25 ACSR 382 considered. Peninsula Gold Pty Ltd v ASC (1996) 21 ACSR 246 considered. TNT Ltd v NCSC (1986) 4 ACLC 624 considered. DB Management Pty Limited v Australian Securities Commission, Southcorp Wines Pty Limited, Batoka Pty Limited & Winpar Holdings Limited Ng 939 of 1997 whitlam j sydney 7 July 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 939 of 1997 BETWEEN: DB MANAGEMENT PTY LIMITED Applicant AND: aUSTRALIAN SECURITIES commission FIRST RESPONDENT SOUTHCORP WINES PTY LIMITED SECOND RESPONDENT BATOKA PTY LIMITED THIRD RESPONDENT WINPAR HOLDINGS LIMITED FOURTH Respondent JUDGE: WHITLAM J DATE OF ORDER: 7 july 1998 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal is dismissed. 2. The applicant and the third and fourth respondents pay the costs of the first and second respondents. 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 NG 939 of 1997 BETWEEN: DB MANAGEMENT PTY LIMITED Applicant AND: aUSTRALIAN SECURITIES commission FIRST RESPONDENT SOUTHCORP WINES PTY LIMITED SECOND RESPONDENT BATOKA PTY LIMITED THIRD RESPONDENT WINPAR HOLDINGS LIMITED FOURTH Respondent JUDGE: WHITLAM J DATE: 7 july 1998 PLACE: SYDNEY REASONS FOR JUDGMENT This is an appeal from a decision of the Administrative Appeals Tribunal ("the Tribunal") affirming a declaration made by the first respondent ("the ASC") under s 730(1) of the Corporations Law ("the Law"). On 24 May 1996 the second respondent ("Southcorp") made takeover offers for all the shares in Coldstream Australia Limited ("Coldstream"). At the same time Southcorp made offers to acquire all the options granted by Coldstream over unissued shares of the same class. There were three series of such options, which expired on 20 December 1996, 8 October 1998 and 3 May 1999 and the consideration for the exercise of which was respectively 50 cents, 72 cents and 82 cents per share. The first two series were quoted on the Australian Stock Exchange. The third series was held by employees. The takeover offers and the offers to the option holders were subject to a condition that acceptances were received from all the option holders. On 14 June 1996 the offers were declared to be free from that condition. The ASC also apparently granted relief under s 730 of the Law in the form set out in Pro Forma 49 discussed in the ASC's Policy Statement 57. (That decision was not the subject of review by the Tribunal.) The offer period closed on 30 July 1996, by which date Southcorp was entitled to over ninety-seven per cent of Coldstream's shares. On 31 July 1996 Southcorp gave notices under s 701(2) of the Law to the dissenting shareholders. By its solicitors' letter dated 22 August 1996, Southcorp applied to the ASC for a declaration under s 730 of the Law so as to permit the compulsory acquisition of shares issued by Coldstream on the exercise of outstanding options. Southcorp had received acceptances in respect of all the options held by employees. As at 22 August 1996, the remaining option holders were one person who held 300 of the 50 cents options and six persons who held 207,750 of the 72 cents options. This meant, according to the solicitors, that: ". . . there has been acceptance or exercise in respect of over 99% of the 50 cent options, by over 97% of the holders. There has also been acceptance or exercise of 88% of the 72 cent options by over 97% of the holders (excluding the three new holders)." The "three new holders" referred to are the applicant, the third respondent ("Batoka") and the fourth respondent ("Winpar"). On 29 July 1996 the applicant and Batoka had acquired 1,000 options and 2,000 options respectively. On 8 August 1996 Winpar had acquired 100 options. On 27 August 1996 Southcorp gave notice to the holders of the outstanding options in accordance with s 703(4) of the Law. The holder of 198,900 options straightaway gave notice under s 703(8) requiring Southcorp to acquire his holding. The applicant, Batoka and Winpar all made submissions to the ASC opposing the modification sought by Southcorp. On 1 October 1996 the ASC made a declaration under s 730(1) that Chapter 6 of the Law shall apply to Southcorp in the case of the compulsory acquisition of shares in Coldstream upon the exercise of the options as if s 701 were "modified or varied" in several respects by "adding", "deleting", "substituting" and "omitting" words. The effect of the modifications on s 701 may be shown by emphasizing the additions and by scoring through the omissions as follows: "701 (1) For the purposes of this section: (a) where takeover offers have been made under a full takeover scheme in respect of shares in a class of shares, the shares in respect of which the offers were made (other than shares to which the offeror was entitled when the first of the offers was made) are shares subject to acquisition; (b) where a takeover announcement has been made in respect of shares in a class of shares, the shares in that class (other than shares to which the offeror is entitled) are shares subject to acquisition; (c) a reference to outstanding shares is a reference to: (i) shares subject to acquisition by virtue of paragraph (a) in respect of which a takeover offer was made but has not been accepted, excluding shares acquired by the offeror otherwise than under the takeover scheme; or (ii) shares subject to acquisition by virtue of paragraph (b) in respect of which an offer made under a takeover announcement has not been accepted, excluding shares acquired by the offeror otherwise than by the acceptance of offers made under the takeover announcement; and (d) a reference to a dissenting offeree is a reference to: (i) in relation to shares in respect of which takeover offers have been made - a person who is the holder of shares that are outstanding shares by virtue of subparagraph (c)(i); and (ii) in relation to shares in respect of which a takeover announcement has been made - a person who is the holder of shares that are outstanding shares by virtue of subparagraph (c)(ii); and (e) a reference to a relevant shareholder is a reference to a person who has become the holder of shares in the target company after the end of the offer period. (2) Where: (a) takeover offers have been made under a full takeover scheme, or a takeover announcement has been made, in respect of a class of shares; (b) during the takeover period the number of shares in that class to which the offeror is entitled has become not less than 90% of the shares in that class (notwithstanding that that number of shares may subsequently become less than that percentage as a result of the issue of further shares in that class); and (c) if the shares subject to acquisition constitute less than 90% of the shares in that class: (i) three-quarters of the offerees have disposed of to the offeror (whether under the takeover scheme or by acceptance of offers made by the takeover announcement, as the case may be, or otherwise) the shares subject to acquisition that were held by them; or (ii) at least three-quarters of the persons who were registered as the holders of shares in that class immediately before the day on which the Part A statement was served on the target company or the takeover announcement was made are not so registered at the end of one month after the end of the offer period; the offeror may, before the end of 2 months after the end of the offer period, give notice, as prescribed, to a dissenting offeree to the effect that the offeror desires to acquire the outstanding shares held by the dissenting offeree within one month after the allotment of shares in the target company issued on the exercise of options for shares in the target company, give notice, in the prescribed form with such adaptations as are necessary, to the relevant shareholder to the effect that the offeror desires to acquire the shares held by the relevant shareholder. (2A) A notice under subsection (2) must: (a) set out the cash sum for which the offeror proposes to acquire the shares; and (b) be accompanied by a list of every person who presently holds shares or options to subscribe for shares in the target company, unless the only persons named in the list would be: (i) the offeror, its related bodies and their respective nominees; and (ii) other persons named in the list most recently sent to the relevant shareholder under this paragraph. (2B) A notice under subsection (2) must be accompanied by a copy of a report by an expert (other than an associate of the offeror or of the target company) made within 6 months before the date of the notice, setting out the particulars referred to in subsection 703(7), stating whether, in the expert's opinion, the terms on which the offeror proposes to acquire the shares are fair and reasonable and giving the reasons for forming that opinion. (2C) If the offeror has obtained 2 or more reports, each of which could be used for the purposes of complying with subsection (2B) at the date of the subsection (2) notice, the notice must be accompanied by a copy of each report. (2D) Despite subsections (2B) and (2C), a notice under subsection (2) need not be accompanied by a copy of a report, a copy of which has previously been provided to the relevant shareholder. (3) For the purposes of subparagraph (2)(c)(ii), 2 or more persons registered as holding shares jointly shall be deemed to be one person. (4) An offeror to whom subsection (2) applies in relation to a particular company shall, on the first day on which the offeror gives a notice under that subsection in relation to that company, lodge a copy of that notice or, if on that day the offeror gives 2 or more notices under that subsection in relation to that company, a copy of any one of those notices. (5) Where a notice is given under subsection (2), the offeror is entitled and bound, subject to this section, to acquire the shares to which the notice relates on the terms that were applicable in relation to the acquisition of shares under the takeover scheme or pursuant to the takeover announcement immediately before the end of the offer period set out in the notice. (6) Subsection (5) does not apply in relation to a dissenting offeree relevant shareholder where, on an application made by the dissenting offeree relevant shareholder: (a) before the end of one month after the day on which the notice was given under subsection (2); or (b) before the end of 14 days after the day on which the dissenting offeree was given a statement under subsection (9); whichever is the later, the Court orders that subsection (5) is not to apply in relation to the dissenting offeree relevant shareholder. (7) Where alternative terms were offered under a takeover offer to which this section applies, the dissenting offeree may, by notice given to the offeror: (a) before the end of one month after the day on which the notice was given under subsection (2); or (b) before the end of 14 days after the day on which the dissenting offeree was given a statement under subsection (9); whichever is the later, specify which of those terms the dissenting offeree prefers, and the terms so specified shall apply to the acquisition of the outstanding shares held by the dissenting offeree. (7A) A notice under subsection (7): (a) if it relates to shares that are entered on an SCH subregister - must be in an electronic form approved by the SCH business rules for the purposes of this Part; or (b) if it relates to shares that are not entered on an SCH subregister - must be in writing. (8) If a dissenting offeree fails to give a notice before the time applicable under subsection (7), the offeror may, unless the Court otherwise orders, determine which of the terms referred to in that subsection is to apply to the acquisition of the outstanding shares of the dissenting offeree. (9) A dissenting offeree may, by written notice given to the offeror before the end of one month after the day on which the notice under subsection (2) was given, ask for a written statement of the names and addresses of all other dissenting offerees and the offeror shall as soon as practicable give a written statement accordingly. (10) Unless the Court, on an application made under subsection (6), has ordered to the contrary, the offeror shall, before the end of 14 days after: (a) the end of one month after the day on which the notice under subsection (2) was given; (b) the end of 14 days after the last day on which a statement under subsection (9) was given; or (c) where an application has been made to the Court under subsection (6) - the day on which the application has been disposed of; whichever last happens, serve a copy of the notice under subsection (2) on the company that issued the shares, together with an instrument of transfer of the shares signed on behalf of the holder of the shares by a person appointed by the offeror and also signed by the offeror, and pay, allot or transfer to the target company the consideration for the transfer, and the target company shall thereupon register the offeror as the holder of those shares. (11) The target company shall hold the consideration so received in trust for the former holder of the shares and shall as soon as practicable give written notice to the former holder that the consideration has been received and is being held by that company pending instructions from the former holder as to how it is to be dealt with. (12) Where consideration held as provided by subsection (11) consists of or includes money, that money shall be paid into a bank account opened and maintained for that purpose only." The applicant applied to the Tribunal for review of the ASC's declaration. Southcorp, Batoka and Winpar were made parties to the proceeding before the Tribunal. On 16 October 1997 the Tribunal affirmed the ASC's decision. In the present proceeding, the orders sought by the applicant include an order setting aside the decision of the Tribunal and an order "remitting the matter to the Tribunal to be dealt with according to law". Since Batoka and Winpar would be affected by such orders, they were properly joined as respondents to the appeal. A director of each of those companies was given leave to appear for those parties. At the hearing Batoka and Winpar supported the applicant's appeal and generally adopted the submissions made on behalf of the applicant. The grounds relied upon by the applicant are variously stated in the notice of appeal. But the submissions by senior counsel for the applicant primarily challenged the power of the ASC to make the impugned declaration. He submits that the power under s 730 is affected by limitations to be derived from the context, scope and purpose of the Law. In particular, it may also be necessary to notice the provisions of s 731 of the Law. Sections 730 and 731 are in the following terms: "730 (1) The Commission may on application by the person or persons concerned or by a person or person included in the class or classes of persons concerned, declare, in writing, that this Chapter shall apply in relation to a specified person or persons, or a specified class or classes of persons, either generally or in a particular case or classes of cases, as if a specified provision or provisions of this Chapter were omitted or were modified or varied in a specified manner, and, when such a declaration is made, this Chapter applies accordingly. (2) The Commission shall cause a copy of an instrument by which a declaration was made under subsection (1) to be published in the Gazette. 731 In exercising any of its powers under section 728 or 730, the Commission shall take account of the desirability of ensuring that the acquisition of shares in companies takes place in an efficient, competitive and informed market and, without limiting the generality of the foregoing, shall have regard to the need to ensure: (a) that the shareholders and directors of a company know the identity of any person who proposes to acquire a substantial interest in the company; (b) that the shareholders and directors of a company have a reasonable time in which to consider any proposal under which a person would acquire a substantial interest in the company; (c) that the shareholders and directors of a company are supplied with sufficient information to enable them to assess the merits of any proposal under which a person would acquire a substantial interest in the company; (d) that, as far practicable, all shareholders of a company have reasonable and equal opportunities to participate in any benefits accruing to shareholders under any proposal under which a person would acquire a substantial interest in the company; but nothing in this section requires the Commission to exercise any of its powers in a particular way in a particular case." The Tribunal dealt with the suggested limits on the power under s 730 in the following section of its reasons: "Limits on Section 730 Power 15. It is clear that discretionary powers must be exercised in accordance with the scope and purpose of the statue conferring them (R v The Australian Broadcasting Tribunal & Ors; Ex parte 2HD Pty Ltd (1979) 144 CLR 45 at 50 and Minister for Aboriginal Affairs & Anor v Peko Wallsend Ltd & Others (1986) 162 CLR 24 at 40). It was the applicant's submission that the present modification was not in accord with the scope and purpose of section 701 for a number of reasons. 16. Firstly, it was submitted that the provisions of sections 701 and 703 constituted a code and said all that needed to be said concerning the rights of holders of options in a takeover situation. It was submitted that the interplay between these two sections demonstrated a policy of excluding option holders from the normal compulsory acquisition powers of section 701 and introduced merely a policy of shifting the initiative to the option holder to escape from a situation of being locked in, if the option holder so desired. It was not intended, it was submitted, that contrary to the wishes of any option holder either their options or the shares issued upon exercise of those options should be compulsorily acquired. Secondly, it was submitted that section 701 applied only to shares in existence either at the date of the takeover or allotted during the course of the offer. It was submitted that there was no legislative intent to extend the provisions of section 701 to shares coming into existence after the close of the takeover offer and that any modification which brought this about was therefore not in accordance with the scope and purpose of the section. 17. The applicant further submitted that the modification was directly contrary to the principles set out in section 731 and the purpose of Chapter 6 of the Law because of the manner in which it operates. The modification is designed to allow acquisition of the applicant's shares to take place without the operation of any market at all and without regard to the operation of any market. The applicant pointed out that acquisition may take place at a price different from the price applicable in the takeover scheme and at a time some years after the close of the takeover offer. However attractive some of these arguments are, the weight of judicial authority seems to be against them. Sections 728 and 730 are even wider in their scope than their predecessors. For example, they empower the respondent to make class orders. However, notwithstanding the comparative narrowness of comparable sections under the Code, there have been decisions which appear to endow them with the same breadth that one sees in the later section 730 cases. 18. There are two reported cases in which the exercise of similar powers by the respondent's predecessor under the Uniform Code was upheld. In Brierley & Anor v Dextran Pty Ltd & Ors (1990) 3 ACSR 455 the court held that the NCSC had power under section 58 of the Companies (Acquisition of Shares) (Victoria) Code to modify section 42 notwithstanding that the offers had expired. 19. At pages 464 and 465 Tadgell J said: 'In my opinion there is no indication in s 42 that it confers on a dissenting shareholder an immunity from the exercise by the NCSC under s 58 of its power in relation to s 42 after the close of the offer period. In particular, it does not appear to be correct to assume that the takeover scheme ceased to exist when the offers expired. A takeover scheme is a formal procedure consisting of a series of statutory regulated steps of which the dispatch of offers and their possible acceptance form part. That the takeover scheme may remain extant, and the statutory provisions continue to regulate it and its incidents after the close of offers, appears from a number of provisions of the Code. I refer, without setting them out, to s 13(3) and (4) and s 16(2), as well as s 42 and 43 especially s 42(6) and (7).' 20. In TNT Ltd v National Companies and Securities Commission (1986) 4 ACLC 624 the Victorian Supreme Court rejected an argument that the NCSC did not have power to make a modification to section 42 because section 58 did not empower a modification or variation which departed from the fundamentals of the Code. The width of section 58 of the Code (now reflected in section 730 of the Law) was emphasised by Gobbo J in these words at 627: 'In my opinion, though the considerations advanced by the Commission are very important on the issue of discretion, they are not determinant of the question of power. That falls to be decided by interpretation of the relevant statutory provisions. Section 58 is in very wide terms and its language offers no support for the limitations suggested. I note, too, in this regard the views expressed by Needham J. in O.P.S.M. Industries Ltd v NCSC & Ors (1982) 1 ACLC 479. The major difficulty with the submission is that it would be virtually impossible to delineate what were said to be fundamental matters and what were properly matters for modification. It would be productive of much uncertainty as to the question of jurisdiction. Moreover, all of the matters relied upon are capable of being adequately considered and, if thought appropriate, recognised in the course of a proper exercise of discretion. I therefore reject the argument that the order sought here is beyond power.' 21. In O.P.S.M. (1982) 1 ACLC 479 as Gobbo J pointed out, the tentative views expressed by Needham J (at 482) were to accept section 58 of the Code in its literal terms. He held that it was not a power to make by-laws but was a power to omit, modify or vary portions of the legislation. It was not necessary for his decision, however to pursue this concept to its conclusion. 22. The scope of section 701 itself has been held to be so wide as to justify an extension of its operation to shares issued after the takeover offer had expired. 23. In Elkington v Shell Australia Ltd (1993) 32 NSWLR 11 Kirby ACJ said at 16: 'Although a power to accept the resistance of a minority shareholder exists in s 701(6) of the Law, it appears, and must be construed, in the context of a section which is designed to facilitate the acquisition of the remaining shares in a company, the target of a take-over. The provision of the facility for such acquisitions is the more remarkable because it is a clear exception to the general rule stated above: see WCP Ltd v Gambotto (at 387-388) per Meagher JA. Section 701 should not be given a narrow construction but one which assists in the achievement of the objects of the legislature's imputed intention with respect to facilitating take-overs which have overwhelmingly succeeded in their object. The ultimate test is not whether acquisition is unfair to the particular shareholder, but to all of the shareholders of the target company. Fairness in this context has that dual aspect: see Cockle v Carlingford Nominees Ltd (1989) 4 NZCLC 65,120 at 65,125.' 24. In the same case Sheller JA said at 19: 'Section 701 enable an offeror, whether or not a company, which has become so nearly a total owner of a company as a 90 per cent or greater shareholding would represent to acquire the holding of a dissenting minority of less than 10 per cent. The legislature is concerned that the offeror should not be prevented by that minority from acquiring total ownership of the shares and, if a corporate offeror, from converting the company into a wholly owned subsidiary. Such was said of s 185 of the Companies Act 1961 by the Privy Council in Blue Metal Industries Ltd v Dilley (1969) 117 CLR 651 at 658-659; [1970] AC 827 at 848-849. The offeror, who may expend considerable sums of money in the expectation of acquiring total ownership of the shares in the target company, should not be prevented by a small minority of shareholders from obtaining commensurate and legitimate benefits financial, administrative and commercial such as those available from "grouping losses" pursuant to s 80G of the Income Tax Assessment Act 1936 (Cth).' 25. The modification under consideration relates to the same subject matter as the unmodified Law, namely acquiring total ownership of all shares in a target company. The serving of a valuation report is not substantially different from the report required by subsection 703(5) of the Law. The ability of the shareholder to apply to the court under the terms of the modification is not substantially different from the right of a dissenting offeree contained in section 701(6) of the Law. The modification, accordingly, does not involve a substantial departure from the Law or policy underlying the Law and, in my view, is consistent with the scope and purpose of the section. In a contributed article, written before Elkington and published in Company and Securities Law Journal, Volume 9, at 261, the authors concluded that the legislature and the judiciary "are paying greater credence to commercial efficiency and are imposing a lesser burden on the offeror". Their conclusion appears to be supported by the judgments in Elkington. Neither the courts nor Parliament now appear to shrink from the concept of compulsory acquisition of property rights in specified circumstances, where the general good of the company can thereby be enhanced. The modification presently under consideration deals only indirectly with exchange traded options. Restricted as it is to an active role only after options have been exercised, it appears to me to be consistent with all that has been said concerning the scope and purpose of section 701." Senior counsel for the applicant submits that the authorities cited in the above passage do not deal with the compulsory acquisition of "later issued shares", as they are called in the ASC's Policy Statement 126. He points out, correctly in my view, that Elkington v Shell Australia Ltd is not authority for the proposition stated in paragraph 22 of the Tribunal's reasons, and that that case did not involve a declaration under s 730(1) of the Law. However, the three other cases cited by the Tribunal were concerned with declarations under s 58 of the Companies (Acquisition of Shares) Code ("the Code"), which corresponds to s 730 of the Law. O.P.S.M. Industries Ltd involved takeover offers and a declaration made during the offer period. The text of the declaration actually made by the National Companies and Securities Commission ("NCSC") does not appear from the report. The declaration in question varied an interpretative provision in the Code that affected the meaning of the expression "ordinary course of trading" in relation to a stock market. It seems that it did so by inserting words in the interpretative provision. Needham J described (at 480) the variation of the Code as "in effect a permission" to the offeror's brokers to execute crossings of shares in the target company provided that the brokers informed the proposed seller that they were unable to give advice with respect to the proposed sale, and the brokers did not give any advice in respect of the transaction. His Honour said (at 481): ". . . in the ordinary case once a Part A statement has been served, and during the period in which the offer continues, the offeror may purchase on the exchange shares in the company the subject matter of the offer, but may not acquire those shares by virtue of a crossing. As a result of the declaration under sec. 58 that prohibition is removed, provided the information referred to in the declaration is given by the broker. In effect, therefore, the declaration has in respect of this take-over scheme removed, to all intents and purposes, sec. 8(9) from the Code." In that case the target company sought interlocutory orders (1) restraining the offeror from giving or facilitating the discharge of any instruction to its brokers pursuant to which, by crossing any parcel of shares in the target company, they might effect a sale of that parcel of shares to the offeree, and (2) restraining the brokers in effect from crossing the shares. The target company's case was based essentially upon the contention that s 58 of the Code did not authorize the type of declaration which the NCSC had made. Needham J refused to grant the interlocutory injunctions. After referring to the "apparently wide powers" of the NCSC under s 58 of the Code, his Honour said (at 482-483) that the interlocutory relief sought by the target company should not be given because, if the declaration were void, orders could be made at a final hearing under the provisions of the Code that correspond to ss 737 and 739 of the Law restoring the position to what it was prior to the transfer of shares by virtue of a crossing purporting to be justified by the NCSC's declaration. TNT Limited was an appeal to the Supreme Court of Victoria from the refusal of the NCSC to make a declaration. The circumstances of the case were described by Gobbo J (at 628) as "exceptional". Following takeover offers made some five and half years earlier, the offeror had become entitled to more than 90 percent of the shares in the target company. At the time the offeror did not, however, realize this fact. Takeover offers were subsequently made for the outstanding shares and, since the offeror could not satisfy the statutory pre-requisite for compulsory acquisition by becoming entitled during the offer period to not less than 90 per cent of the shares in the target company, it applied to the NCSC for modification of the Code's requirements. The NCSC submitted that there was no power under s 58 of the Code to make the type of declaration sought. Gobbo J said (at 627): "The principal argument advanced on behalf of the [NCSC] was that sec. 58 did not empower a modification or variation that departed from what was described as the fundamentals of the Companies (Acquisition of Shares) Code. In the present case, it was said, there was a breach of such fundamentals and there was no take-over offer and no situation of an offeror moving from less than 90% holding to over 90% acquisition as TNT already held over 90% of the Ansett shares when it made its latest take-over offer. In my opinion, though the considerations advanced by the [NCSC] are very important on the issue of discretion, they are not determinant of the question of power. That falls to be decided by interpretation of the relevant statutory provisions. Section 58 is in very wide terms and its language offers no support for the limitations suggested. I note, too, in this regard the views expressed by Needham J. in O.P.S.M. Industries Ltd. v. NCSC & Ors (1982) 1 ACLC 479. The major difficulty with the submission is that it would be virtually impossible to delineate what were said to be fundamental matters and what were properly matters for modification. It would be productive of much uncertainty as to the question of jurisdiction. Moreover, all of the matters relied upon are capable of being adequately considered and, if thought appropriate, recognised in the course of a proper exercise of discretion. I therefore reject the argument that the order sought here is beyond power." His Honour then went on to consider the question of discretion. Having found a case for the exercise of discretion, he indicated that he proposed to make an order enabling the modification requested by the offeror. However, the parties were given an opportunity to agree upon the precise form of that order. Brierley v Dextran Pty Ltd involved a takeover scheme and four declarations made by the NCSC. Two of the declarations were made after service of the Part A statement. Their purported effect was to extend the period after such service within which the offers were to be dispatched from twenty-eight days to thirty-six days. The validity of the first two declarations was not challenged. After the offers had expired, the NCSC made a third declaration which purported (inter alia) to extend the time within which the offeror was entitled to give notices under s 42 of the Code from one month to three months after the last day on which the offers remained open. (Section 42 corresponds to s 701 of the Law). That declaration was not "seriously challenged". The fourth declaration was, of course, also made after the offers had expired. This declaration provided that the Code should apply in relation to the takeover scheme as if s 42(2) were modified or varied by inserting in par (a) words which effectively extended the period there set out beyond that "during which the offers remain open". The modification had been sought on the assumption that the so-called "75 per cent of offerees" test imposed by par (b) of s 42(2) had to be satisfied within the period referred to in par (a). Two of the offerees to whom notices were given under s 42 sought declarations that the offeror was not entitled to acquire their outstanding shares by virtue of s 42. Tadgell J held that the time limit referred to in par (a) did not apply to par (b). It followed that the offeror did not need the fourth declaration since it had satisfied pars (a) and (b) of s 42(2) well ahead of the date by which the third declaration authorized notices under s 42(2) to be given. His Honour then said (at 464-466): "In case, however, I am wrong in, my interpretation of the section, and if para (b) as drawn does need to be satisfied by the end of the offer period, I should state summarily my opinion that the declaration of 8 June 1990 [the fourth declaration] had the effect of extending the time for compliance until 31 July 1990. If, as a matter of interpretation of the subsection, para (b) shares the time limit expressed in para (a) it must follow that an enlargement of that expressed in para (a) correspondingly affects the operation of para (b). I consider that the declaration of 8 June had that effect, although unnecessarily in this case. Counsel for the plaintiffs argued that s 58 of the Code conferred no power upon the NCSC to achieve that result by declaration. The submission was essentially that s 58 could not be used to enlarge the time limit imposed by s 42 because, once the offers made by Dextran had expired without its meeting the requirement of s 42(2)(a) and (b), dissenting offerees had acquired a right not to have their shares compulsorily acquired pursuant to s 42. . . . Counsel argued that, by the time the declaration of 8 June was made, the potential operation of s 42, to enable the compulsory acquisition of the shares of dissenting shareholders, had been exhausted because no takeover scheme to which the section could apply remained on foot. As counsel put it, the game was over when the offers expired, and the dissenting shareholders had won, having acquired an immunity from compulsory acquisition of their shares; and it was not open to the NCSC thereafter to change the rules so dissenting shareholders were again put in jeopardy. In my opinion there is no indication in s 42 that it confers on a dissenting shareholder an immunity from the exercise by the NCSC under s 58 of its power in relation to s 42 after the close of the offer period. In particular, it does not appear to be correct to assume that the takeover scheme ceased to exist when the offer expired. A takeover scheme is a formal procedure consisting of a series of statutorily regulated steps of which the dispatch of offers and their possible acceptance form part. That the takeover scheme may remain extant, and the statutory provisions continue to regulate it and its incidents after the close of offers, appears from a number of provisions of the Code. I refer, without setting them out, to s 13(3) and (4) and s 16(2), as well as s 42 and 43 especially s 42(6) and (7). The power conferred by s 58 is in my opinion exercisable so as to impinge on a takeover scheme as much after the close of offers as before offers are dispatched. Two declarations were made under s 58 in relation to the takeover scheme now under consideration before offers were dispatched on 20 December, and the validity of these declarations is not now challenged. The power of the NCSC to make the declaration of 12 April 1990 [the third declaration] (after the close of offers) was not seriously challenged before me but the declaration of 8 June is said to have been made without power because by then "the game was over". The decision of Gobbo J in TNT Ltd v National Companies and Securities Commission (1986) 11 ACLR 59; 4 ACLC 624 appears to have assumed, although not adverting specifically to the point, that a declaration may be made under s 58 after the close of offers. Section 58 does not confer power on the NCSC to modify or vary the Code. What it does is to confer a power of an unusual kind to declare that the Code is to have effect to particular circumstances as if its provisions said something other than what they say in fact. It is unquestionably a wide ranging power and, in exercising it, the [NCSC] is directed by s 59 to take into account among other things "the desirability of ensuring that the acquisition of shares in companies takes place in an efficient, competitive and informed market . . .". I see no indication that the power conferred by s 58 is confined so that it cannot be effectively exercised in relation to s 42, and that would be the practical result of my acceptance of the plaintiff's argument. Section 42 (and also s 43) are concerned with "the acquisition of shares in companies" (cf s 59) after the close of takeover offers, and it is presumably equally important for the purposes of the Code that such acquisitions, as well as those resulting from the acceptance of takeover offers, should occur in an "efficient, competitive and informed market". That is to say, there is reason to conclude that the Code is designed to enable declarations to be made under s 58 in relation [sic] s 42 (and s 43) after the offers have run their course and the degree of success of the offeror is known. If there [scil. that] is so a dissenting shareholder is not entitled to assume that he is immune from the application to him of s 42, after the close of the offer which he has refused, simply because the offeror did not satisfy s 42(2) at the time of the closing of the offer made to him. . . . [A] dissenting shareholder, whatever his rights under s 42, cannot treat them as immune from the possible operation of a declaration made under s 58. It is to be noted that a dissenting shareholder affected by a notice given under s 42(2) may apply to the court under s 42(7) for an order that subs (6) is not to have effect in relation to him. The availability of that right (assuming, of course, that it has not been removed in a particular case by a declaration made under s 58) tends to lend support to the conclusion that the operation of s 42(2) may be modified by declaration under s 58 in the way that the NCSC has done here. . . . [The] plaintiffs have not shown that Dextran is not entitled to acquire their remaining shares by virtue of s 42. I therefore refuse the declarations sought by para C and D of the claim for relief." It may be seen, therefore, that only two of the cases cited by the Tribunal - TNT Limited and Brierley v Dextran Ltd - were concerned with modifications of the predecessor to s 701. Furthermore, the modifications foreshadowed or made in those two cases only permitted the compulsory acquisition of what were referred to in s 42 of the Code (and are referred to in s 701) as "outstanding shares". Those cases did not involve a modification of the Code's compulsory acquisition provisions so as to bring within their reach shares issued on the exercise of options after the end of the offer period. Accordingly, none of them is authority for such a use of power under s 730 of the Law. The main thrust of the attack on the validity of the ASC's declaration in the present case turns on a suggested interference with the rights of the option holders. There are, however, two preliminary grounds of challenge. First, it is submitted that, since a declaration under s 730 is to apply Chapter 6 of the Law as if a specified provision "were omitted or were modified or varied in a specified manner", such a declaration may not "add" or "substitute" words in the specified provision in the way that was done in the present case. This submission must be rejected because it overlooks the definition of "modifications" in s 9 of the Law, which includes additions, omissions or substitutions. Secondly, it is submitted that a declaration may not be made in respect of s 701 later than "the end of 2 months after the end of the offer period", being the period specified in subs (2) of s 701 for the giving of notices to dissenting shareholders. In the present case that period expired on 30 September 1996 and the declaration was made on 1 October 1996. I am quite unable to discern any intention to quarantine that period in s 701(2) from the exercise of the power under s 730. Such a temporal limitation would not be conducive to the just and fair operation of the Law. For example, in the present case, if the ASC had refused Southcorp's application made on 22 August 1996 and Southcorp had sought a review of that decision, it is unlikely that the Tribunal could have completed by 30 September 1996 its review under Part 9.4A of the Law. It was also contended that where, as in the present case, notices were given on 31 July 1996 pursuant to s 701(2) in its unmodified form, a declaration may not be made so as to permit s 701(2) to be utilized in a modified form. However, in my view, this begs the whole question of the power to make a declaration affecting the later issued shares. After all, any subsequent notices under the modified s 701(2) will not be given to a "dissenting offeree", but to a "relevant shareholder". Notices will not be given twice in respect of the same shares. I turn now to what, in my view, is the central question in this appeal. May a declaration under s 730 apply Chapter 6 in relation to an offeror in the case of the compulsory acquisition of shares in a target company, where the shares are in the same class as that to which the takeover offers related but are issued after the end of the offer period upon the exercise of options? Chapter 6 is, as its heading explains, concerned with the acquisition of shares. Yet it contains specific provisions relating to options. The interpretation provisions in Part 6.1 include a definition of "renounceable option" in s 603. The 50 cents and 72 cents options in Coldstream fall within that definition. Under s 750 a Part A statement must set out the terms or proposed terms of any offers or invitations by an offeror relating to the acquisition of renounceable options granted by a target company (clause 8) and also any proposed terms for the acquisition of renounceable options where an offeror intends, if required under s 703(4) to give notice to the holders of any renounceable options granted by the target company, to propose such terms (clause 9). Broadly speaking, s 620 permits an offeror to buy shares in the ordinary course of trading on the stock exchange between the time a Part A statement is served and the expiry of the offer period. Section 627 extends that exemption to shares allotted on the exercise of renounceable options provided that, at the time an offeror acquired any such options, it was permitted under s 620 to buy shares in the same manner. An offeror is, as the requirements for the Part A statement that I have just mentioned contemplate, also obliged to give notice under s 703(4) to the holders of any renounceable options where, during the takeover period, it becomes entitled to not less than ninety per cent of the voting shares of a target company. Such holders, along with the holders of non-voting shares and convertible notes, may then require the offeror to acquire their securities. The Law does not provide a procedure whereby an offeror can compulsorily acquire renounceable options or convertible notes. Holders of those securities can, however, require an offeror to acquire such holdings in the circumstances described. Further, in ANZ Executors and Trustees Ltd v Humes Ltd [1990] VR 615 Brooking J said (at 638) that the NCSC did not have power under s 58 of the Code to modify s 42 in respect of a takeover bid so as to authorise the compulsory acquisition of convertible notes. Senior counsel for the applicant submits that the "policy" of the law is to protect from compulsory acquisition shares that are issued after the end of the offer period on the exercise of options. He is critical of the first sentence in paragraph 25 of the Tribunal's reasons. He submits that the declaration deals with shares for which s 701 of the Law makes no provision and that it is inconsistent with "the protection of the rights of option holders" provided for in s 703(4)-(8) of the Law. The width of the power under s 730 has been commented on in more recent cases, notably Peninsula Gold Pty Ltd v ASC (1996) 21 ACSR 246 and Otter Gold Mines Ltd v ASC (1997) 25 ACSR 382. The proposed declaration in the first of those cases left untouched references to "shares subject to acquisition" in s 701(2)(c), and the variation in the second case related only to an "acquisition of shares" referred to in s 615 of the Code. Neither case is authority for the use of the power under s 730 in the present circumstances. However, in Peninsula Gold Pty Ltd McLelland J said (at 250) that the ambit of the power under s 730 is not limited to the promotion of the objectives specified in s 731. I respectfully agree. In BTR plc v Westinghouse Brake and Signal Company (Australia) Ltd (1992) 34 FCR 246 Lockhart and Hill JJ pointed out (at 257), when speaking of the discretion under s 728, that the matters referred to in s 731 are to be taken into account "where appropriate". Section 731 does not, in my view, impose a time limit upon when the power under s 730 may be exercised. The contrary submission on behalf of the applicant is rejected. When dealing with the merits of the ASC's declaration in the present case, the Tribunal returned to the position of the option holders and said: "33. . . . The modification does not affect the option holders' rights. It operates only if an option holder chooses to exercise some or all of the options. Once having exercised such an option, an option holder is in the same position as a person who was a shareholder during the currency of the offer. . . ." Put that way, this statement usefully elaborates the Tribunal's statement in the first sentence of paragraph 25 of its reasons for decision. Moreover, in my opinion, it reveals why the power under s 730 extends to the later issued shares. The compulsory acquisition provisions in ss 701 - 703 are an important ingredient of Chapter 6. It is not submitted that they are immune from the exercise of power under s 730 of the Law. As my slightly fuller excerpt from TNT Limited shows, Gobbo J did not embrace the description of any of the Code's provisions as "fundamentals". However that may be, in my opinion, s 701 may not be modified so as to permit the giving of a notice under subs (2) by a person other than an "offeror" as defined. This means that there must be a takeover scheme or a takeover announcement upon which the modification fastens. I respectfully agree with the opinion of Brooking J that s 701 may not be modified to authorise the compulsory acquisition of securities that cannot be the subject of a takeover bid. But shares included in the class of shares for which offers were, in fact, made stand in a different position. The plain purpose of s 701 is, subject to the safeguards in subs (6), to permit an overwhelmingly successful offeror to acquire all the shares in the relevant class. The "issue of further shares" in that class is expressly contemplated by s 701(2)(b). The object of s 701 may well defeated unless "later issued" shares in that class can also be made the subject of compulsory acquisition. It is simply not to the point that options over unissued shares may not be compulsorily acquired under the Law. Further, once it is accepted that s 701 may be modified so that notices can be given to persons to whom offers could not have been made, the terms of acquisition of their shares need not be identical as if s 636 of the Law were in some way applicable. Nor does the fact that, in the present case, the notice to be given under the modified s 701(2) has obviously been adapted from s 703(4), require that the holder of later issued shares be given the same rights as an option holder under s 703(8). To the extent that it was submitted on behalf of the applicant that such considerations limited the availability of power under s 730 of the Law, the submissions are rejected. It follows that, in my opinion, the declaration in the present case was not beyond power under s 730 of the Law. Senior counsel for the applicant also relied on grounds of appeal that he advanced under the rubric of "manifest unreasonableness". That kind of error of law is explained in Minister for Aboriginal Affairs v Peko Wallsend Ltd (1986) 162 CLR 24 per Mason J at 41. Two matters were lightly developed on behalf of the applicant: the Tribunal's consideration of the question whether the holders of shares issued on the exercise of the options in Coldstream should be entitled to a control premium, and the weight attached by the Tribunal to the level of acceptances Southcorp received in respect of its offers for the options. I need only say that I do not think that it is seriously arguable that the Tribunal erred in law in either of the respects suggested. The appeal will be dismissed. The applicant, Batoka and Winpar must pay the costs of the ASC and of Southcorp. I certify that this and the preceding twenty (20) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam Associate: Dated: 7 July 1998 Counsel for the applicant: P R Graham QC Solicitors for the applicant: Stephen Blanks & Associates Counsel for the first respondent: R S McColl SC and Casandra Francas Solicitor for the first respondent V Malinaric Counsel for the second respondent: S D Rares SC and Nye Perram Solicitors for the second respondent: Allen Allen & Hemsley For the third respondent: Mr R J C Catto (by leave) For the fourth respondent: Dr G B Elkington (by leave) Date of hearing: 26 March 1998 Date of judgment: 7 July 1998