FEDERAL COURT OF AUSTRALIA Australia and New Zealand Banking Group Limited, in the matter of Australia and New Zealand Banking Group Limited [2010] FCA 945 Citation: Australia and New Zealand Banking Group Limited, in the matter of Australia and New Zealand Banking Group Limited [2010] FCA 945 Parties: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522), ING AUSTRALIA LIMITED (ACN 000 000 779), ING (NZ) HOLDINGS LIMITED (NZCN 1696108), ING LIFE LIMITED (ACN 009 657 176), ING (NZ) NOMINEEES LIMITED (NZCN 633618), ING FUNDS MANAGEMENT LIMITED (ACN 003 002 800), ING CUSTODIANS PTY LTD (ACN 008 508 496), OASIS FUND MANAGEMENT LIMITED (ACN 106 045 050), FSP FUNDS MANAGEMENT LIMITED (ACN 102 944 598) and FSP PORTFOLIO ADMINISTRATION LIMITED (ACN 093 403 608) File number: NSD 783 of 2010 Judge: EDMONDS J Date of judgment: 6 September 2010 Catchwords: CORPORATIONS – application under s 1322(4) of the Corporations Act 2001 (Cth) to validate certain transactions in shares that may otherwise be invalid by reason of the operation of s 259C(1) of the Corporations Act – policy underlying s 259C – whether rights of indemnification as trustee confers a beneficial interest in assets of a trust fund – jurisdiction under s 1322(4)(a) as confined by s 1322(6)(a) – the construction of s 1322(6)(a) – matters supporting exercise of discretion to validate. Legislation: Corporations Act 2001 (Cth) ss 259C, 1322 Cases cited: Arjon Pty Ltd v Commissioner of State Revenue (Vic) (2003) 8 VR 502 referred to Chief Commissioner of Stamp Duties (NSW) v ISPT Pty Ltd (1998) 45 NSWLR 639 referred MSP Nominees Pty Ltd v Commissioner of Stamps (SA) (1999) 198 CLR 494 referred Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 referred to Re Commonwealth Bank of Australia (2005) 57 ACSR 28 referred to Re Golden Gate Petroleum Limited (2010) 77 ACSR 17 referred to Re MLC Ltd [2006] FCA 1357 referred to Re Westpac Banking Corporation (2004) 53 ACSR 288 referred to Date of hearing: 12 August 2010 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 63 Counsel for the Plaintiffs: Mr TF Bathurst QC with Mr J Williams Solicitor for the Plaintiffs: Blake Dawson IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 783 of 2010 IN THE MATTER OF AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522) BETWEEN: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522) First Plaintiff ING AUSTRALIA LIMITED (ACN 000 000 779) Second Plaintiff ING (NZ) HOLDINGS LIMITED (NZCN 1696108) Third Plaintiff ING LIFE LIMITED (ACN 009 657 176) Fourth Plaintiff ING (NZ) NOMINEEES LIMITED (NZCN 633618) Fifth Plaintiff ING FUNDS MANAGEMENT LIMITED (ACN 003 002 800) Sixth Plaintiff ING CUSTODIANS PTY LTD (ACN 008 508 496) Seventh Plaintiff OASIS FUND MANAGEMENT LIMITED (ACN 106 045 050) Eighth Plaintiff FSP FUNDS MANAGEMENT LIMITED (ACN 102 944 598) Ninth Plaintiff FSP PORTFOLIO ADMINISTRATION LIMITED (ACN 093 403 608) Tenth Plaintiff JUDGE: EDMONDS J DATE OF ORDER: 12 AUGUST 2010 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to s 1322(4) of the Corporations Act 2001 (Cth), issues or transfers of shares or units of shares of the first plaintiff to, or in trust for: (a) Any managed investment scheme which has a controlled entity of the first plaintiff acting as responsible entity; (b) Any unit trust which has a controlled entity of the first plaintiff acting as trustee (by whatever name called); (c) Any investor directed portfolio service operated by the first plaintiff or any controlled entity of the first plaintiff; (d) Any statutory funds of the fourth plaintiff or any other controlled entity of the first plaintiff which carried on a life insurance business within the meaning of the Life Insurance Act 1995 (Cth); or (e) Any controlled entity of the first plaintiff where the shares or units of shares are acquired and held by a controlled entity of the first plaintiff to meet professional standards from time to time issued by the New Zealand Society of Actuaries (Inc) relating to prudential capital adequacy or solvency requirements for an entity carrying on a life insurance business in New Zealand (but excluding any issue or transfer of shares or units of shares of the first plaintiff to, or in trust for, any portion of a shareholder retained profits account of any of its statutory funds which is in excess of solvency requirements) which occurred from 30 November 2009 to 9 August 2010, were not invalid by reason of the operation of section 259C of the Corporations Act. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 783 of 2010 IN THE MATTER OF AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522) BETWEEN: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522) First Plaintiff ING AUSTRALIA LIMITED (ACN 000 000 779) Second Plaintiff ING (NZ) HOLDINGS LIMITED (NZCN 1696108) Third Plaintiff ING LIFE LIMITED (ACN 009 657 176) Fourth Plaintiff ING (NZ) NOMINEEES LIMITED (NZCN 633618) Fifth Plaintiff ING FUNDS MANAGEMENT LIMITED (ACN 003 002 800) Sixth Plaintiff ING CUSTODIANS PTY LTD (ACN 008 508 496) Seventh Plaintiff OASIS FUND MANAGEMENT LIMITED (ACN 106 045 050) Eighth Plaintiff FSP FUNDS MANAGEMENT LIMITED (ACN 102 944 598) Ninth Plaintiff FSP PORTFOLIO ADMINISTRATION LIMITED (ACN 093 403 608) Tenth Plaintiff JUDGE: EDMONDS J DATE: 6 SEPTEMBER 2010 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On Thursday, 12 August 2010, I heard an application by the first plaintiff ('ANZ') and nine of its wholly owned subsidiaries ('the ING subsidiaries') under s 1322(4) of the Corporations Act 2001 (Cth) ('the Corporations Act') to validate certain transactions in ANZ shares that may otherwise be invalid by reason of the operation of s 259C(1) of the Corporations Act. At the conclusion of the hearing, I made the following order: 'Pursuant to s 1322(4) of the Corporations Act 2001 (Cth), issues or transfers of shares or units of shares of the first plaintiff to, or in trust for: (a) Any managed investment scheme which has a controlled entity of the first plaintiff acting as responsible entity; (b) Any unit trust which has a controlled entity of the first plaintiff acting as trustee (by whatever name called); (c) Any investor directed portfolio service operated by the first plaintiff or any controlled entity of the first plaintiff; (d) Any statutory funds of the fourth plaintiff or any other controlled entity of the first plaintiff which carried on a life insurance business within the meaning of the Life Insurance Act 1995 (Cth); or (e) Any controlled entity of the first plaintiff where the shares or units of shares are acquired and held by a controlled entity of the first plaintiff to meet professional standards from time to time issued by the New Zealand Society of Actuaries (Inc) relating to prudential capital adequacy or solvency requirements for an entity carrying on a life insurance business in New Zealand (but excluding any issue or transfer of shares or units of shares of the first plaintiff to, or in trust for, any portion of a shareholder retained profits account of any of its statutory funds which is in excess of solvency requirements) which occurred from 30 November 2009 to 9 August 2010, were not invalid by reason of the operation of section 259C of the Corporations Act.' 2 At the time of making the order, I indicated that I would subsequently publish my reasons for making this order. Summary Introduction 3 Section 259C(1) of the Corporations Act renders void the issue or transfer of shares (or units of shares) of a company to an entity it controls, subject to certain exceptions. The Australian Securities and Investment Commission ('ASIC') may exempt a company from the operation of the section: s 259C(2). 4 On 30 November 2009, ANZ acquired the 51% of the ING Australian and New Zealand operations that it did not already own, making each of the ING subsidiaries controlled entities of ANZ from that date. 5 The ING subsidiaries acquire ANZ shares (or units of ANZ shares) in the ordinary course of their investment businesses. Without an ASIC exemption, the acquisition of ANZ shares by any of the ING subsidiaries after 30 November 2009 would contravene s 259C(1) unless it fell within one of the exceptions in s 259C(1)(a) – (d). 6 Recognising this potential non-compliance, ANZ sought and obtained an ASIC exemption from the operation of s 259C(1). That exemption was given on 30 November 2009 ('the First ASIC Exemption'). 7 The First ASIC Exemption permitted acquisitions of ANZ shares on specified conditions, including that ANZ report to the Australian Securities Exchange ('the ASX') every 14 days the aggregate percentage of ANZ voting shares (as a percentage of the total number of ANZ voting shares on issue) in respect of which ANZ controlled entities have the power to control voting or disposal, or an economic exposure arising from derivatives ('Condition 4'). 8 Although ANZ has reported to the ASX on these matters every fortnight, it discovered in early 2010 inaccuracies in the number of ANZ voting shares and units in ANZ voting shares included in these reports. ANZ has now addressed the cause of those inaccuracies. 9 As a result, it is arguable that Condition 4 has not been satisfied because the correct number of shares was not disclosed to the ASX and, therefore, that the First ASIC Exemption was not operative due to the inaccurate reporting. If that is right, the acquisition of ANZ shares during this period would have contravened s 259C(1) unless one of the exceptions applied (there is a real question as to whether most of the acquisitions would fall within the exception in s 259C(1)(d), which is discussed below). 10 On 9 August 2010, ASIC issued a further exemption under s 259C(2) ('the Second ASIC Exemption'). Unlike the First ASIC Exemption, the further exemption is not conditional. The matters previously covered by the conditions in the First ASIC Exemption are now obligations of ANZ under a deed poll in favour of ASIC executed by ANZ. As a result, unlike under the First ASIC Exemption, any future inaccuracies in the reporting to the ASX of the number of ANZ shares acquired will not render the exemption inoperative. Consequently, there is no issue as to the validity of any acquisitions of ANZ shares after 9 August 2010. 11 Nonetheless, the validity of acquisitions between 30 November 2009 and 9 August 2010 remains in doubt for the reasons set out above. ASIC takes the view, rightly, that it can only grant relief prospectively, and not for a past contravention of the Corporations Act. It is for this reason that the plaintiff companies seek an order under s 1322(4) of the Corporations Act validating those acquisitions. Background and Analysis Acquisition of 100% of ING Australia Limited and ING (NZ) Holdings Limited 12 On 25 September 2009, ANZ entered into a Share Sale Agreement with ING Insurance International BV ('INGBV') and ANZ National Bank Limited to purchase ING's 51% interests in the second plaintiff, ING Australia Limited ('INGA'), and the third plaintiff, ING (NZ) Holdings Limited ('INGNZ'). Those companies controlled various operating companies, including the fourth to tenth plaintiffs, which, in the course of carrying on various businesses, from time to time hold ANZ shares. ANZ already owned the remaining 49% of INGA and INGNZ. 13 Completion of this purchase occurred on 30 November 2009, at which time the ING subsidiaries became wholly-owned subsidiaries of ANZ. Prior to completion of these acquisitions, none of the ING subsidiaries was a controlled entity of ANZ. 14 The INGA and INGNZ groups carry on wealth management businesses and insurance businesses in Australia and New Zealand, respectively. In carrying on these businesses, the ING subsidiaries may come to hold ANZ shares or units of ANZ shares: (a) as responsible entity of a managed investment scheme; (b) as trustee of a unit trust; (c) as operator of an 'investor directed portfolio service' ('IDPS') as defined in ASIC class order 02/294; (d) in the case of ING Life Limited (an Australian life insurance company wholly owned by INGA), as investments of ING Life's statutory funds. Section 259C of the Corporations Act: Terms and Underlying Policy 15 Section 259C of the Corporations Act is a prohibition against indirect self-acquisition of shares (although in form it does not directly prohibit such acquisitions; it renders the acquisitions void). Under s 259C(1), subject to certain exceptions, the issue or transfer of ANZ shares, or units of ANZ shares, to an entity that ANZ controls is void. 'Control' is defined in s 259E. 16 'Unit' is defined in s 9 of the Corporations Act to mean, in relation to a share, a right or interest, whether legal or equitable, in the share (by whatever name called), and includes an option to acquire such a right or interest in the share. 17 One of the exceptions to s 259C(1) is where the issue or transfer is to an ANZ controlled entity as trustee and neither ANZ nor any entity it controls has a beneficial interest in the trust (other than a beneficial interest that satisfies certain conditions): s 259C(1)(b). There is an issue as to whether this exception applies to many of the acquisitions by the ING subsidiaries. 18 Under s 259C(2), ASIC may exempt a company from the operation of s 259C. 19 Although not directly relevant to this application, s 259D(1) provides that, subject to certain exceptions, if a company obtains control of an entity that holds shares (or units of shares) in the company or the company's control over an entity that holds such shares or units increases, then within 12 months after it occurs either: (a) the entity must cease to hold the shares (or units); or (b) the company must cease to control the entity. ASIC has power to extend the period of 12 months if application is made for the extension before the end of the period. No issue of possible contravention of s 259D(1) arises on the present application. ANZ has until 30 November 2010 to divest ANZ shares acquired by any ING entities prior to 30 November 2009, subject to any relief granted by ASIC. 20 According to ASIC Policy Proposal: Indirect Self Acquisition by Investment Funds, October 1998, the rationale behind s 259C is that indirect acquisitions by a company of its own shares may result in: · improper attempts to secure or consolidate corporate control; · increased possibility of corporate failure; · possible discrimination between shareholders as when a controlled entity buys the shares of a greenmailer in the controlling entity at an over-valuation; · insider trading; · market manipulation; and · price opacity caused by the difficulty in valuing a consolidated group of companies where assets of the group include shares in the controlling company. 21 According to this AS1C Policy Proposal, ASIC's view is that: '5. In [the] absence of relief, we consider that the following acquisitions would contravene s259C(1): (a) Acquisitions in a company's shares by a statutory fund of a controlled entity which is an insurance company. (b) Where a trustee of a unit trust is a controlled entity, the trustee will not be able to rely on the exception in s259C(1)(b) if the company or any of its controlled entities hold units in the trust (as they would have a beneficial interest in the trust). In that case any acquisition by the trust in the company's shares would contravene s259C(1). 6. In the absence of relief, we consider that there is some doubt as to whether or not the following acquisitions would be acquisitions of units of shares and so contravene s259C(1): (a) The acquisition by a controlled entity of units in a managed investment scheme (or a prescribed interest scheme) which invests in the company's shares. (b) The acquisition by a controlled entity of warrants over the company's shares.' 22 ASIC goes on to say in the ASIC Policy Proposal that: '11. In considering who we should give relief to we noted that paragraph 12.67 of the Explanatory Memorandum to the Company Law Review Bill 1997 states that: "It is envisaged that [ASIC] would exercise this discretion to exempt investments by the statutory fund of a life insurance company in its holding company on conditions designed to provide appropriate safeguards including ensuring that the holding company is not able to inappropriately exercise control over its own shares." 12. We do not consider that we are bound to give relief only in these circumstances. To date, however, the companies expressing an interest in this relief have been predominantly financial institutions. 13. At this stage we do not envisage giving s259C(2) relief to a company in relation to one of its controlled entities investing the entity's own funds in the company's shares (rather than investors' funds)…' First ASIC Exemption 23 In anticipation of completion of the Share Sale Agreement, and in the light of s 259C and s 259D of the Corporations Act, by letter dated 28 October 2009, ANZ applied for an exemption from s 259C under s 259C(2), and an extension of the period during which the INGA and INGNZ groups could continue to hold ANZ shares. 24 On 30 November 2009, ASIC granted the First ASIC Exemption under s 259C(2) upon ANZ's application. This instrument has the effect of exempting, for so long as certain specified conditions are met, the issue or transfer of ANZ shares (or 'units' of ANZ shares) to or in trust for certain funds/entities specified in Schedule B of the instrument ('Schedule B entities'). These Schedule B entities are as follows: (a) any managed investment scheme which has a controlled entity of ANZ acting as responsible entity; (b) any unit trust which has a controlled entity of ANZ acting as trustee (by whatever name called); (c) any IDPS; (d) any statutory funds of a controlled entity of ANZ which carries on the life insurance business within the meaning of the Life Insurance Act (e.g., ING Life Limited); (e) any controlled entity of ANZ where the shares or units are acquired and held as 'NZ Life Funds', that is, as assets held by a controlled entity of ANZ to meet professional standards from time to time issued by the New Zealand Society of Actuaries (Inc) relating to prudential capital adequacy or solvency requirements for an entity carrying on a life insurance business in New Zealand. 25 However, the exemption expressly provides that it does not exempt from s 259C any issue or transfer to, or in trust for, any portion of a shareholder retained profits account of any of its statutory funds which is in excess of solvency requirements. This qualification applies only to ING Life Limited being the only life insurer with 'statutory funds'. 26 The exemption was expressed to remain effective for a period of 24 months from its date of execution (i.e., until 30 November 2011). 27 The conditions specified in the First ASIC Exemption included a condition to the effect that ANZ must announce to the ASX every 14 days the aggregated percentage total of the following: (a) ANZ voting shares in respect of which ANZ controlled entities have the power to control voting or disposal; and (b) ANZ voting shares in respect of which ANZ or any of its controlled entities have, to their knowledge, an economic exposure arising from derivatives which any of them hold, as a percentage of the total number of ANZ voting shares (Condition 4). 28 In addition, if there is a change of 1% or more in the aggregated percentage total, disclosure must be made before the end of one business day after the day on which ANZ became aware of the change (Condition 5). 29 The First ASIC Exemption required ANZ, in making disclosure in accordance with Conditions 4 and 5, to comply with subs 671B(3) of the Corporations Act as though the announcement were a change in substantial holding (Condition 6). 30 Other conditions of the exemption included that: (a) ANZ and its controlled entities must not exercise voting rights attached to ANZ shares (excepting shares acquired under an IDPS where the votes are cast in accordance with directions of the IDPS client) (Condition 1(a)); (b) the aggregated percentage of voting shares in respect of which ANZ controlled entities have the power to control voting or disposal does not exceed 5% of ANZ's voting shares (Condition 2); (c) in relation to the statutory funds and NZ Life Funds, the portion of the shareholder retained profits account which is required or maintained for solvency can only invest no more than 3% of its funds in ANZ shares (Condition 10). Non-compliance with Condition 4 31 The circumstances giving rise to the inaccurate reporting are described in para 30 of Ex 3. In summary, prior to the acquisition by ANZ, INGA had internal reporting systems to enable the collection of information about holdings of listed securities. Following the acquisition, these systems were used to compile the data for inclusion in the reports to the ASX under Condition 4. In early 2010, concerns were raised within INGA as to the adequacy of these systems to capture the data needed for these reports because some of the reporting was based on the identity of the manager of the fund rather than the responsible entity of the fund. That is, ANZ shares held by a fund with an INGA entity as responsible entity but an external manager may not have been picked up in the reporting. A review of the internal reporting processes was undertaken and confirmed the problem. The reporting systems were upgraded in April this year so that shares held by an INGA entity (irrespective of the identity of the fund manager) were included in the reports to the ASX under Condition 4. 32 As a consequence of these inaccuracies in the reporting of the number of ANZ shares acquired by the ING entities, the total number of ANZ shares over which ANZ controlled entities had power to control voting or disposal was understated in notices given to the ASX from 30 November 2009. The notices lodged with the ASX between 30 November 2009 and April 2010 disclosed a total holding of ANZ shares in the order of 0.81% to 0.84% of the total number of ANZ shares on issue. Following identification and correction of the inaccurate reporting, notices lodged with the ASX disclosed a total holding in the order of 1.05% to 1.10% of the total number of ANZ shares on issue. 33 This inaccurate reporting has arguably resulted in Condition 4 of the exemption not being complied with. Because the terms of the First AS1C Exemption provided that ANZ was exempted 'for so long as' the conditions were met, the exemption arguably ceased to be operative once the conditions were no longer fully met. If that is right, the First ASIC Exemption was never operative because the first notice given under Condition 4 which understated the number of ANZ shares was given on 30 November 2009. 34 But for this failure to comply fully with Condition 4, the First ASIC Exemption would have been operative; that is to say, there are no known issues with respect to the under-reporting of ANZ shares other than in relation to INGA referred to above or any other instance of non-compliance with the balance of the conditions of the First ASIC Exemption. 35 ASIC granted a further exemption for acquisitions after 9 August 2010, but is unable retrospectively to exempt acquisitions prior to that date. Acquisitions between 30 November 2009 and 9 August 2010 36 The affidavits filed by the plaintiffs explain the circumstances in which acquisitions of ANZ shares, or units in ANZ shares, have or may have occurred since 30 November 2009. In each of these circumstances, had the First ASIC Exemption operated, no question of the acquisitions being void would arise. Managed Investment Schemes 37 First, the sixth plaintiff (ING Funds Management Limited ('INGFM')) and the ninth plaintiff (FSP Funds Management Limited ('FSPFM')) act as the responsible entity of managed investment schemes. Each of INGFM and FSPFM is a wholly-owned subsidiary of INGA and thus ANZ. Some of those schemes invest from time to time in Australian equities, including ANZ shares. 38 Of the approximately $32.5 billion in assets which INGFM holds as responsible entity of schemes, ANZ shares account for 0.84%. 39 Exhibit 3 identifies approximately 130 funds in respect of which INGFM is the responsible entity. INGFM in that capacity may acquire ANZ shares or units of ANZ shares. It may also invest in other schemes which in turn invest in ANZ shares, both schemes of which INGFM is responsible entity and funds in respect of which entities other than ANZ controlled corporations are responsible entities. 40 Where INGFM acquired ANZ shares or units of ANZ shares as a responsible entity, and no INGFM scheme or other ANZ controlled entity invests in the scheme, then, in the plaintiffs' submission, any such acquisition was by INGFM 'as trustee and neither the company nor any entity it controls has a beneficial interest in the trust'. In those circumstances, s 259C(1)(b) applies and, accordingly, any acquisition will not be void. 41 However, this position is not clear. A potential issue arises as to whether rights of indemnification which INGFM has as trustee, and which are secured by a lien or charge arising by operation of law, give rise to a proprietary interest in the assets of the fund, and thus a beneficial interest for the purposes of s 259C(1)(b) (see Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 369 and Re Westpac Banking Corporation (2004) 53 ACSR 288 ('the Westpac case') at [13], [19]). 42 In the plaintiffs' submission, the better view is that the term 'beneficial interest' as used in s 259C(1)(b) is not intended to encompass a trustee's lien over trust assets resulting from its right of indemnification. This is also ASIC's view. Ultimately, the meaning of 'beneficial interest' in s 259C(1)(b) is a question of statutory construction. The expression can have different meanings depending on its context. It is an expression which is apt to mislead at times: see MSP Nominees Pty Ltd v Commissioner of Stamps (SA) (1999) 198 CLR 494 at 509; Arjon Pty Ltd v Commissioner of State Revenue (Vic) (2003) 8 VR 502 ('Arjon') at [58] per Phillips JA. For example, the existence of a trustee's lien supporting its right of indemnity does not mean that a sole beneficiary under the trust is not the 'full beneficial owner' of the trust property: Arjon; Chief Commissioner of Stamp Duties (NSW) v ISPT Pty Ltd (1998) 45 NSWLR 639. If it were the case that s 259C(1)(b) encompassed a trustee's lien supporting its right to indemnity, then the only circumstance in which the exclusion would operate is where there was an express exclusion of the right of a trustee to indemnification from the trust fund. 43 If the plaintiffs' submission is right and a trustee's right to indemnity does not, of itself, constitute a beneficial interest for the purpose of s 259C(1)(b), then the First ASIC Exemption was not required to ensure that acquisitions as responsible entity were not avoided. The plaintiffs nonetheless seek orders so as to overcome any contention that acquisitions by responsible entities are not covered by s 259C(1)(b). 44 Where INGFM as responsible entity invests in another scheme which in turn holds ANZ shares (or units of ANZ shares), it will not be in any different position, as it still holds the asset as responsible entity. 45 FSPFM acts as responsible entity of two managed investment schemes. To the extent it acquires ANZ shares or units of such shares in its capacity as responsible entity of these schemes it is in the same position as INGFM described above. 46 Any issue or transfer of shares to INGFM or FSPFM as responsible entity which may have attracted the operation of s 259C for the reasons outlined above, would have been exempted by the First ASIC Exemption if the conditions, in particular Condition 4, had been fully complied with. The effect of paragraph (a) of Order 1 sought in the Originating Process is to ensure the acquisition of ANZ shares by INGFM and FSPFM is not avoided, in circumstances where the First ASIC Exemption would have validated them had there been full compliance with Condition 4. Unit Trusts 47 Secondly, there are circumstances in which an ING subsidiary, acting as trustee of a unit trust, may have acquired ANZ shares or units of ANZ shares. 48 No Australian ING subsidiary is trustee of a unit trust. The fifth plaintiff, ING (NZ) Nominees Limited ('INGNZN'), acts as nominee in respect of shares and other securities held on behalf of a range of wholesale clients. 49 As with ANZ shares acquired in the capacity as responsible entity of a managed investment scheme, unless the existence of INGNZN's right of indemnification gives rise to a beneficial interest in the ANZ shares it holds as nominee for its clients, the First ASIC Exemption was not necessary to validate these acquisitions. 50 The effect of paragraph (b) of Order 1 sought in the Originating Process is to ensure the acquisition of ANZ shares by INGNZN is not avoided, in circumstances where the First ASIC Exemption would have validated them, had there been full compliance with Condition 4. Investor Directed Portfolio Services 51 Investor directed portfolio services through which ANZ shares may be held are operated by three Australian ING subsidiaries, being the seventh plaintiff (ING Custodians Pty Limited), the eighth plaintiff (Oasis Funds Management Limited) and the tenth plaintiff (FSP Portfolio Administration Limited). 52 Under ASIC Class Order 02/294, an investor directed portfolio service includes the feature that the client has sole discretion to decide what (but not necessarily when) assets will be acquired or disposed of, except where the client has given a prior direction which the client cannot vary or the operator can give directions for the purpose of receiving or securing payments of money (see paragraph (a) of the definition of IDPS in the class order). The effect is that, save in the last mentioned circumstance, the operator of the IDPS does not have any discretion as to the acquisition of ANZ shares or other assets. 53 To the extent that an ING Subsidiary may have a beneficial interest in any ANZ shares (and it is not obvious any do) as an operator of an investor directed portfolio service, it did not have any discretion as to whether or not to acquire ANZ shares or units in ANZ shares. 54 The effect of paragraph (c) of Order 1 sought in the Originating Process is to ensure the acquisition of ANZ shares by the seventh, eighth and tenth plaintiffs is not avoided, in circumstances where the First ASIC Exemption would have validated them had there been full compliance with Condition 4. Life Insurance Companies 55 ING Life carries on an insurance business, in the course of which it holds five statutory funds subject to the Life Insurance Act. The aggregated value of the statutory funds held by ING Life at 30 June 2010 was approximately $30.25 billion. 56 As at 30 June 2010, ING Life held 476,179 ANZ shares or units of ANZ shares in the statutory funds with a market value of approximately $10.3 million. Between 1 December 2009 and 30 June 2010, ING Life acquired approximately 116,700 ANZ shares in the statutory funds for a total consideration of approximately $2.8 million. These shares are held beneficially by ING Life, subject to the provisions of the Life Insurance Act. 57 ING Life is required by prudential standards to maintain assets representing a portion of each fund so as to meet regulatory solvency requirements. Further, each statutory fund contains a shareholder retained profits account, which may, depending on the composition of the fund and the level of assets required to meet the regulatory solvency requirements, be partly or wholly in excess of regulatory solvency requirements. The First ASIC Exemption operated to limit the ANZ shares which may be held by ING Life in any statutory fund in two ways: (a) under Condition 10 of the First ASIC Exemption, the portion of the shareholder retained profits account required or maintained for solvency can only invest up to 3% of its funds in ANZ shares. This condition has been met; and (b) the First ASIC Exemption did not operate in respect of any issue or transfer of shares to, or in trust for, any portion of a shareholder retained profits account of any of the statutory funds which is in excess of solvency requirements. The orders sought by the plaintiffs contain the same limitation and would not therefore operate to validate any acquisition which would not have been valid and effective had there been strict compliance with the conditions of the First ASIC Exemption. 58 The New Zealand life company which is an ING subsidiary, ING Life (NZ) Limited, has not had any ANZ shares issued or transferred to it since it became a controlled entity of ANZ on 30 November 2009. It is not named as a plaintiff. Paragraph (e) of the Order has been included for abundance of caution so that if it is somehow discovered that there has been a transfer of an ANZ share to that company, which would have been valid and effective if the conditions to the First ASIC Exemption had been fully complied with, that transfer will be valid. Jurisdiction under Section 1322 of the Corporations Act to Validate Acquisitions 59 Under s 1322(4)(a), the Court may make an order declaring that any act, matter or thing purporting to have been done, in relation to a corporation, is not invalid by reason of any contravention of a provision of the Corporations Act. Section 1322(6)(a) relevantly provides that the Court must not make an order under s 1322(4)(a) unless it is satisfied: (a) that the relevant act, matter or thing, or the proceeding is essentially of a procedural nature; (b) that the person or persons concerned in or party to the contravention or failure acted honestly; or (c) and that no substantial injustice has been, or is likely to be caused to any person. 60 The Court has exercised that power to validate acquisitions of shares which may otherwise have been void under s 259C in the Westpac case, Re Commonwealth Bank of Australia (2005) 57 ACSR 28 ('the CBA case') and Re MLC Limited [2006] FCA 1357. The principles applicable to the power under s 1322(4)(a) are discussed in Re Golden Gate Petroleum Limited (2010) 77 ACSR 17. 61 In the Westpac case at [27], Emmett J considered that 'the syntax of s 1322(6)(a) is quite clear in contemplating that only one of the three paragraphs of s 1322(6)(a) needs to be satisfied in order to authorise the making of an order'. The same view was taken by Gyles J in Re MLC Limited at [10]. Matters Supporting Exercise of Discretion to Validate 62 The plaintiffs submitted that the following factors support a favourable exercise of the Court's discretion to grant relief under s 1322(4)(a) in the present case: (a) the inaccurate reporting to ASX of ANZ shares acquired by the ING subsidiaries was not deliberate, but was an honest and inadvertent failure to comply fully with the reporting requirements of Condition 4 identified in early 2010; (b) validation of the acquisitions would not defeat the policy behind the prohibition on indirect self-acquisition of shares under s 259C: (i) ASIC has agreed to grant relief from s 259C in respect of such acquisitions, as evidenced by the First ASIC Exemption and the Second ASIC Exemption. The need for an order under s 1322 arises only because of the failure fully to comply with the reporting requirements of Condition 4 and ASIC's inability to grant retrospective relief; (ii) the number of ANZ shares is not significant (in the order of 1.1 % of the total ANZ shares on issue) and could not in any practical sense give rise to the concerns which lie behind the prohibition; (iii) the shares are held by the ING subsidiaries in the ordinary course of their life insurance and investment management businesses, thereby enabling policy holders and investors an exposure to the full range of Australian equities, including ANZ shares; (c) no prejudice would be suffered by any party if the relief sought were granted. To the contrary, there would be significant prejudice to third parties if the transactions by which the ING subsidiaries acquired the ANZ shares were held to be void. The sellers in those transactions have no doubt conducted their affairs on the basis of the validity of the sales. Extraordinary inconvenience would be occasioned to unidentifiable numbers of members of the public who have been parties to transactions which would be almost impossible to undo if the acquisitions were void (the CBA case, [22]); (d) ASIC and Australian Prudential Regulation Authority have been informed of the application and do not object to it. 63 For these reasons, the plaintiffs submit this is an appropriate case for the exercise of the Court's discretion under s 1322(4)(a). I totally agree with these submissions and for that reason made the order I did on Thursday, 12 August 2010. I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds. A/g Associate: Dated: 2 September 2010