FEDERAL COURT OF AUSTRALIA Gaylard v Carr, in the matter of Telezon Limited (ACN 009 151 277) [2004] FCA 237 CORPORATIONS – interlocutory application to adjourn company meeting – notice of meeting and explanatory statement sent to creditors – whether explanatory statement is misleading – validity of notice of meeting given to directors and auditor – resolution to remove directors – whether directors appointed pursuant to s 203D(1) of the Corporations Act 2001 (Cth). Corporations Act 2001 (Cth): s 1322 IN THE MATTER OF TELEZON LIMITED (ACN 009 151 277) MICHAELROBERTGAYLARD,RICHARDFLORYandTALENTTIN LUN LEUNG v FRANK CARR, BLACKMORT NOMINEES PTY LTD (ACN 009 159 540) and JAMEL INVESTMENTS PTY LTD (ACN 059 378 460) V 184 of 2004 GOLDBERG J 26 FEBRUARY 2004 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 184 of 2004 IN THE MATTER OF TELEZON LIMITED (ACN 009 151 277) BETWEEN: MICHAEL ROBERT GAYLARD RICHARD FLORY TALENT TIN LUN LEUNG Plaintiffs AND: FRANK CARR, BLACKMORT NOMINEES PTY LTD (ACN 009 159 540) JAMEL INVESTMENTS PTY LTD (ACN 059 378 460) Defendants JUDGE: GOLDBERG J DATE OF ORDER: 26 FEBRUARY 2004 WHERE MADE: MELBOURNE UPON THE PLAINTIFFS BY THEIR COUNSEL UNDERTAKING TO THE COURT: (a) to submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of the interlocutory order or undertaking or any continuation (with or without variation) thereof; and (b) to pay the compensation referred to in (a) to the person there referred to. THE COURT ORDERS THAT: 1. The interlocutory application for the adjournment of the company meeting to be held on 27 February 2004 be dismissed. 2. In the event that a resolution to remove the plaintiffs is passed by the company, the defendants be restrained from excluding, or procuring the exclusion of, the plaintiffs from any meetings of the board of directors until the trial of the proceeding or further order. 3. The proceeding be adjourned to a directions hearing on 2 March 2004. 4. Costs be reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 184 of 2004 IN THE MATTER OF TELEZON LIMITED (ACN 009 151 277) BETWEEN: MICHAEL ROBERT GAYLARD RICHARD FLORY TALENT TIN LUN LEUNG Plaintiffs AND: FRANK CARR, BLACKMORT NOMINEES PTY LTD (ACN 009 159 540) JAMEL INVESTMENTS PTY LTD (ACN 059 378 460) Defendants JUDGE: GOLDBERG J DATE: 26 FEBRUARY 2004 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 On 24 February 2004 an application was filed in relation to Telezon Ltd ("Telezon"), a public company which has been listed on the Australian Stock Exchange. As I understand it, trading in Telezon's shares is presently suspended. The plaintiffs in the proceeding are currently directors of Telezon. A notice of meeting of shareholders has been called for tomorrow, Friday 27 February 2004, by a shareholder of the company. 2 Declarations are sought in the proceeding that the plaintiffs were appointed as directors to represent the interests of Friedman Capital Pty Ltd, the assignee of a debenture holder, JPC International Pty Ltd ("JPC"). They seek a declaration in terms which mirror the provisions of s 203D(1) of the Corporations Act 2001 (Cth) ("the Act"), which provides that where there is a resolution to remove a director, a public company may by resolution remove a director from office, but that: "If the director was appointed to represent the interests of particular shareholders or debenture holders, the resolution to remove the director does not take effect until a replacement to represent their interests has been appointed." 3 Declarations are also sought that the meeting convened to be held tomorrow is not a proper meeting of the company due to a failure to comply with a number of the notice provisions of the Act. A declaration is sought that the explanatory statement accompanying the notice of meeting has been, or is likely to be, misleading to members. Certain consequential relief has been sought, including an order restraining the defendants, who are the persons promoting or convening the meeting, from proceeding with the meeting, other than to adjourn it to 29 March 2004. 4 Interlocutory relief is sought, which is before me today, that the meeting simply be adjourned. The application for interlocutory relief is put on two bases: first, the misleading and deceptive, or potentially misleading and deceptive, nature of two statements in the explanatory statement accompanying the notice of meeting; and, secondly, the reliance on s 203D(1) of the Act in relation to the representative nature of the directorships held by the plaintiffs. 5 The plaintiffs' interlocutory application is also put on the basis that there was short service of the notice of intention to call a meeting of the company, and no service of the notice of the meeting on the directors and auditor, each of whom faces a resolution for their removal. There is also an issue in relation to the notice calling the meeting, where it is said that one of the two directors signing the notice on behalf of the company was not a director at the time the seal was affixed. 6 It is not necessary for present purposes to go into any significant detail in relation to the history of Telezon, other than to note, as set out in the explanatory statement, that on 29 September 2001 the directors resolved that the company was insolvent or was about to become insolvent and that as a result there was a resolution by the directors to appoint voluntary administrators under Pt 5.3A of the Act. A deed of company arrangement was entered into by Telezon with its creditors on 31 December 2001. That deed was subsequently varied and the company emerged from administration on 18 December 2003. 7 There are the two statements upon which the plaintiffs rely in support of their submission that the explanatory statement is misleading: first, that JPC retains no further interest in the company; and, secondly, that the creditors have resolved that a proposal submitted by Noble Pacific Ltd should proceed. These statements should be placed in the context in which they appear in the explanatory statement. The relevant paragraphs are as follows: "The administrators had received indications of two proposals approved by the creditors of Telezon; that of JPC International Pty Ltd, ('the JPC proposal') and that of Noble Pacific Limited ('the Noble Pacific proposal'). Both proposals required the approval of the shareholders of Telezon. No finite information was received from JPC as to its intentions regarding its proposal and, according to the directors of the Company, JPC International Pty Ltd retains no further interest in the Company. In the circumstances of the failure of JPC to effect or bring forward any proposal for shareholder approval the creditors resolved that the proposal of Noble Pacific Limited should proceed." There was evidence that on 6 August 2003 JPC had assigned its interest in the debenture to Friedman Capital Pty Ltd. Mr Gaylard, one of the plaintiffs, says in relation to the statement regarding JPC's interest: "In one sense, this is true as JPC International Pty Ltd has assigned its interests to Friedman Capital Pty Ltd. However, the Explanatory Statement fails to refer to Friedman Capital Pty Ltd's rights under the debenture charge and this could be misleading to members." 8 I am not satisfied that there is a serious case to be tried that the statement regarding the interest retained by JPC is misleading. I consider there are two constructions which can be placed on the words, "JPC International Pty Ltd retains no further interest in the company." The first construction is that JPC is no longer interested in becoming involved with the company and putting forward a proposal. In my view, this is the preferred construction. The earlier paragraph demonstrates that the administrators had received two proposals approved by the creditors of Telezon, that is the JPC proposal and the Noble Pacific proposal. It then goes on to say: "No finite information was received from JPC as to its intentions regarding its proposal" Those words demonstrate, in my view, that JPC retained no further interest in the company, that is to say, no further desire to put forward a proposal in relation to the company. On that basis it does not bear any potential misleading character at all. 9 An alternative construction, which was the one advanced by the defendants, was that it retained no further security interest in the company, because it had assigned the debenture. That is, in one sense, a true statement, and is acknowledged as such by Mr Gaylard, although the matter of construction remains a matter for the Court. The assignment of the interest means that JPC retains no further interest by way of a debenture in the company. There may be consequences that flow from that, but I do not consider that the second construction is one which leads to a serious question to be tried in relation to the misleading nature of a statement made. 10 So far as the issue of the notice provisions is concerned, there was material filed on behalf of the plaintiffs which seemed to suggest, although the matters were deposed to in general terms, that the various notice provisions in the Act had not been complied with. Material was filed in answer by Mr Ian Ross Gillan, which was supported by documentary evidence showing receipt of documents sent and facsimile reporting sheets. These documents satisfy me that the notice provisions regarding service on the company, directors and the auditor were substantially complied with. 11 In any event, even if there was some irregularity in the service of the notice, I am of the opinion that by virtue of the provisions of s 1322 of the Act, no consequence flows from this. In s 1322(1)(b)(ii) a reference to a procedural irregularity includes a defect, irregularity or deficiency of notice or time. Under s 1322(2), a proceeding under the Act (and it was accepted that a "proceeding" included the giving of notice): "… is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid." 12 There was no substantive material put before me that suggested that there was any substantial injustice caused by any delay, short service, or lack of specific service of the documents, the notices of the meeting, or the notices of the resolution on the company, the directors or the auditor. It was apparent from the material before me that they were given substantial notice in any event, and my primary finding is that they were given such notice as is required by the Act. 13 That finding leads to the issue of the second substantive ground, that the directors who were the subject of the resolution for removal represent the interests of a particular debenture holder. That matter has been deposed to by Mr Gaylard and I am satisfied that there is a serious question to be tried that the plaintiffs were appointed to represent the interests of the debenture holder, JPC. The interesting question which arises, and which I am unable to determine on this interlocutory application, is whether the provisions of s 203D(1) apply in circumstances where the interest of the debenture holder has been discharged by way of satisfaction of the debenture or assignment, or by some other termination of it. 14 In any event, the finding of a serious question to be tried on that issue does not lead to a conclusion that there should be an injunction restraining the holding of the meeting. If the meeting goes ahead, as it is scheduled to do tomorrow, and if the resolution is put and passed, s 203D(1) maintains the position of the plaintiffs as directors until a replacement has been appointed or until the issue is determined that they were not appointed to represent the interests of a particular debenture holder. 15 It seems to me that, having made a finding that there is a serious question to be tried on that issue, it would be appropriate, subject to the usual undertaking as to damages being proffered, and in the absence of any undertaking having been proffered on behalf of the persons who are proposed to be new directors of the company, that an order be made. That order is that in the event that a resolution to remove the plaintiffs is passed, the defendants be restrained from excluding, or procuring the exclusion of, the plaintiffs from any meetings of the board of directors until the trial of the action or further order. 16 In those circumstances, subject to making that order on the basis of the proffering of the usual undertaking as to damages, the appropriate order would be that the application that the meeting tomorrow be adjourned or otherwise interfered with be dismissed and, subject to any further order or submission that may be made, that costs be reserved. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg. Associate: Dated: 15 March 2004 Counsel for the Applicant: Mr P Bravender-Coyle Solicitor for the Applicant: Tolhurst Druce & Emmerson Counsel for the Respondent: Mr M Wise Solicitor for the Respondent: Middletons Date of Hearing: 26 February 2004 Date of Judgment: 26 February 2004