ETRADE Australia Limited [1999] NSWSC 442

Reported Decision : (1999) 31 ACSR 31

New South Wales Supreme Court CITATION : ETRADE Australia Limited [1999] NSWSC 442 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 1355/99 HEARING DATE(S) : 10/05/1999 JUDGMENT DATE : 10 May 1999

PARTIES : ETRADE Australia Limited (ACN 003 042 082) (P) JUDGMENT OF : Santow J

COUNSEL : J C Campbell, QC (P) SOLICITORS : Gilbert & Tobin (P) CATCHWORDS : CORPORATIONS — Companies — Shareholder scheme of arrangement altered after shareholder approval but before Court approval — need to ascertain those subject to the scheme before shareholder meeting — Option-holder with contractual right to have shares allotted but allotment only completed after shareholder approval — Scheme approved with alteration. ACTS CITED : Corporations Law s411 Re Application of B and S Distributors Pty Ltd (1986) 5 NSWLR 492 CASES CITED : Re Gwalia Consolidated Ltd (1998) 27 ACSR 674 Re Matine Limited and Others (1998) 28 ACSR 268 Re Morgan & Banks Limited (Austin J NSWSC, 27 January 1999 unreported) DECISION : Scheme approved with alterations

ETRADE.10May99 — 12 May, 1999: In the application of ETRADE Australia Limited and the Corporations Law

4 REVISED — 12 May, 1999

IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY

SANTOW J

No. 1355/99 In the application of ETRADE AUSTRALIA LIMITED (ACN 003 042 082) and the Corporations Law s411 ETRADE AUSTRALIA LIMITED (ACN 003 042 082) Plaintiff

JUDGMENT — ex tempore 10 May 1999

1 I am asked to approve a scheme of arrangement between ETRADE Australia Limited ("the Company") and its shareholders. The relevant formal matters about which the Court is required to be satisfied are dealt with in affidavits noted in the transcript. 2 The only matter of substance concerns the issue of 10,000 additional shares pursuant to exercise of 10,000 listed options by a Mr Ooi which occurred after the scheme meeting approving the scheme by over 99% on 29 April 1999 and thus was excluded from the benefit of the scheme. Those shares have subsequently been traded on the ASX, that is to say, in the ordinary course of anonymous trading. 3 The scheme, were it not amended, would fail to cover these shares so issued. ASIC appears as amicus curiae. It does not oppose the course proposed by the Company to deal with this matter; that the Court, as contemplated by cl 5.2 of the scheme, should approve the scheme subject to an alteration or condition which I will describe in more detail below. 4 Essentially what is proposed is that the Company will adopt a scheme altered to provide that one of its directors, Kerry Roxburgh give up the benefit of the scheme for 10,000 of his shares whilst the option-holder in question, Mr Ooi is to be allowed to participate in the scheme. This is to be so, notwithstanding that the relevant shares issued pursuant to his exercise of option were allotted after the scheme meeting, namely on 30 April, 1999, the day after. 5 By two separate Deed Polls, the first from the Company and the second from Mr Roxburgh, binding effect is given to the substitution of Mr Ooi's 10,000 shares as beneficiary of the scheme for Mr Roxburgh's 10,000 shares. 6 Counsel for the Company, Mr Campbell, QC, informed the Court that (to be confirmed by affidavit) a cheque, which apparently failed to identify the relevant option-older, was received by the Company on 29 March 1999. There is some uncertainty as to whether the Company also received on 17 March 1999 or thereabouts, a separate notice of exercise, though the relevant option-holder claims it was sent. Completion of the actual allotment of shares pursuant to these steps took place, as I have said, on 30 April 1999, with the mechanical steps being effected by Miss Pearson as Company secretary, pursuant to delegated authority in that behalf from the Company. 7 In those circumstances, I am satisfied that there was a binding contract as at 31 March 1999, being the last date under the scheme for exercising options in order to participate. Such contract was one which entitled Mr Ooi to have allotted to him shares the subject of his options. In those circumstances, it could not be said that the scheme, if now altered as proposed, would come within the stricture of McLelland J in Re Application of B and S Distributors Pty Ltd (1986) 5 NSWLR 492 where he said: "It is my opinion that on the true construction of s315, the Court is not empowered to approve a scheme purporting to bind a future class of creditors, i.e. a class, members of which might not be in existence or ascertainable as at the date of the meeting at which the scheme is agreed to. However, as a matter of practice I would think it undesirable that the Court should convene a meeting of a class of creditors unless all members of that class are in existence at the date of the Court order because if the class were defined in such a way as to include creditors who might come into existence after the date of the Court order albeit before the date of the meeting, there is a very serious risk that such creditors would not have proper notice of the meeting. It may be that in special circumstances I would be proper to permit the class to be defined in such a way as to include creditors not in existence at the date of the order but in existence at the date of the meeting, but in the ordinary case, of which I think this is one, such a course should not receive any encouragement from the Court." 8 In other words, Mr Ooi was an option-holder in existence and ascertainable as at the date of the relevant meeting, who had exercised his option and was contractually entitled to have the relevant shares allotted to him. Thus there would be nothing contrary to the proper construction of s411 of the Corporations Law, which would preclude my approving the alterations contemplated or would make it undesirable that I give such approval. In Re Gwalia Consolidated Ltd (1998) 27 ACSR 674 at 675-6 I discussed the relevant authorities insofar as they may affect the efficacy of a scheme which purports to bind option-holders prospectively in relation both to their options and the shares they receive on exercising the options and concluded that such a scheme could be approved. What I said there is consistent with the approach that I consider should be taken here. I note also in Re Matine Limited and Others (1998) 28 ACSR 268 at 285-6 I dealt with the power of the court to consent to alterations comparable to those here contemplated, concluding that there was no impediment to do so. In this case, as in Matine, but unlike Kempe, the scheme is to be altered before it is approved by the Court. Though it is to be altered after shareholder approval, shareholders approved the scheme knowing it could be altered. I set out below, for convenience, the relevant passage from that judgment. "I should finally deal with two other matters. If one leaves aside the express power of extending the time contained in clause 3.2, the Plaintiffs contend that there is a further means by which a court can extend the time stipulation under a scheme of arrangement. It is said that if the court has already approved the scheme and it has become effective, the court can subsequently vary a time stipulation under the power contained in Pt 2 rr3(1) and (2) Supreme Court Rules to extend any time fixed by an order of the court. This is on the basis that the terms of a scheme of arrangement form part of an order of the court for the purposes of this rule: Caratti v Hillman [1974] WAR 92 at 94 and 95; Bond Corporation Holdings Ltd v State of Western Australia (No. 2) (1992) 7 WAR 61 at 68. While the decision of the Privy Council in Kempe v Ambassador Insurance Co (in liquidation) [1998] 1 WLR 271 appears inconsistent with that approach, the Plaintiffs contend that it is firstly not binding on this Court, secondly, is incorrect and thirdly, should not be followed as a matter of comity between Australian courts administering the Corporations Law . The Plaintiffs also contend that Kempe is not applicable in the present case because, unlike the scheme in Kempe , the schemes have not yet been approved by the Court. Further, s99 of the Bermuda Companies Act , which the Privy Council had to consider, contains no mechanism such as s411(6) of the Corporations Law , whereby the court could sanction a scheme with variations which had not been explicitly approved by the shareholders' (or creditors') meeting considering the Scheme. It is not necessary for me to consider this further means of extending a time stipulation, given the alternative bases for that result. However, as I presently see matters, I would for the reasons earlier put follow the Australian cases, were it necessary." 9 Finally, I should note that Austin J in Morgan & Banks Limited (Austin J NSWSC, 27 January 1999, unreported) approved a scheme of arrangement with alterations of similar scope. 10 Where, as here, the additional shares were allotted after the scheme closed but would have been allotted before, had notice of exercise been connected to the cheque, the option-holder being contractually entitled in that behalf, and given that shareholders are not affected in any adverse respect by the alteration and finally where tracing the relevant shares acquired by Mr Ooi via CHESS offers no certainty that this is feasible, I am satisfied that the scheme should be approved with the alterations submitted. I note in that regard that ASIC concurs in this course. I approve the Scheme accordingly.