Reported Decision : 40 ACSR 221 (2002) 20 ACLC 265 New South Wales Court of Appeal CITATION : Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd [2001] NSWCA 427 FILE NUMBER(S) : CA 40626/00 HEARING DATE(S) : 13 September 2001 JUDGMENT DATE : 12 December 2001 PARTIES : Winpar Holdings Ltd - Appellant Goldfields Kalgoorlie Ltd - Respondent JUDGMENT OF : Beazley JA at 1; Giles JA at 2; Davies AJA at 119 LOWER COURT JURISDICTION : Supreme Court - Equity Division LOWER COURT ED 3125/00 FILE NUMBER(S) : LOWER COURT Santow J JUDICIAL OFFICER : N Cotman SC - Appellant COUNSEL : M Oakes SC - Respondent N Perram - Amicus curiae Stephen Blanks & Associates, Rozelle - Appellant SOLICITORS : Allens Arthur Robinson - Respondent ASIC - Amicus curiae CATCHWORDS : CORPORATIONS - selective capital reduction - whether separate meeting of minority shareholders was held - whether if not held the capital reduction was nonetheless valid by force of s 256D of the Law or could and should be validated by an order under s 1322(2) or (4) - whether scheme of arrangement required - whether Gambotto principles applied - whether failure to make proper disclosure to shareholders - whether capital reduction fair and reasonable - all challenges to validity of capital reduction failed. D. re Albert Street Properties Ltd (1997) 23 ACSR 318; re Allgas Energy Ltd (1998) 27 ACSR 729; Australian Hydrocarbons NL v Green (1985) 10 ACLR 72; Batoka Pty Ltd v Jackson (1998) 30 ACSR 67; re Broadway Motors Holdings Pty Ltd (in liq) (1986) 6 NSWLR 45; Carruth v Imperial Chemical Industries Ltd (1937) AC 707; Catto v Ampol Ltd (1989) 16 NSWLR 342; The Commonwealth v Milledge (1953) 90 CLR 157; re Compaction Systems Pty Ltd (1976) 2 NSWLR 477; re Deniliquin Corporation Ltd (1994) 12 ACSR 623; Deputy Commissioner of Taxation v ACN 001 330 203 Pty Ltd (in liq) (1999) NSWSC 798; Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 34 ACSR 391; Gambotto v WCP Ltd (1995) 182 CLR 439; re George Raymond Pty Ltd (2001) 36 ACSR 381; CASES CITED: Gordon v Allied Meridian Pty Ltd (1999) NSWSC 558; HCK China Investments Ltd v Solar Honest Ltd (1966) 165 ALR 680; Holmes v Life Funds of Australia Ltd (1971) 1 NSWLR 860; Mamouney v Soliman (1992) 9 ACSR 63; Melcann Ltd v Super John Pty Ltd (1995) 14 ACLC 92; National Australia Bank Ltd v Market Holdings Pty Ltd (2000) NSWSC 1009; Nicron Resources Ltd v Catto (1992) 8 ACSR 219; NRMA Ltd v Gould (1995) 18 ASCR 290; re Prime Group Holdings Ltd (1995) 1 VR 56; Ramsay Health Care Ltd v Elkington (1992) 8 ACSR 73; Roma Industries Ltd v Bliim (1983) 1 ACLC 1079; Thornett v Federal Commissioner of Taxation (1938) 59 CLR 787; re Tiger Investment Company Ltd (2000) 33 ACSR 437; re Vanfox Pty Ltd (1995) 2 Qd R 445; Wagner v International Health Promotions Pty Ltd (1994) 15 ACSR 419; Westchester Pty Ltd v Triton Resources Ltd (2001) WASC 57. DECISION : Appeal dismissed with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40626/00 ED 3125/00 BEAZLEY JA GILES JA DAVIES AJA Wednesday 12 December 2001 WINPAR HOLDINGS LTD v GOLDFIELDS KALGOORLIE LTD Judgment 1 BEAZLEY JA: I agree with Giles JA. 2 GILES JA: Winpar Holdings Ltd ("Winpar") held 12,373 ordinary shares in Goldfields Kalgoorlie Ltd ("GKL"). A total of 244,382,133 shares had been issued, and accordingly Winpar's holding was approximately 0.05 per cent of GKL's issued share capital. Other companies in the Goldfields Group, Goldfields Ltd and its subsidiary Renaissance Mining Pty Ltd ("the Goldfields shareholders"), held approximately 87.7 per cent of the issued share capital. Companies in the QBE Group held approximately 11.4 per cent of the issued share capital and the remaining approximately 0.895 per cent of the issued share capital was held by a few further share holders (together with Winpar, "the non-Goldfields shareholders"). 3 In early June 2000 GKL gave notice of an extraordinary general meeting to consider a selective reduction of capital. The capital reduction proposed involved the cancellation of the shares of the non-Goldfields shareholders in consideration of payment to them of 55 cents per share. 4 The meeting was held on 28 June 2000. Separate resolutions for the capital reduction were passed by the non-Goldfields shareholders and the Goldfields shareholders. Winpar voted against the former resolution. 5 Winpar brought proceedings challenging the validity of the capital reduction on a number of grounds. Santow J dismissed the proceedings. Winpar appealed from his Honour's decision. The applicable legislation 6 At the time of the capital reduction, and at the time of the proceedings before Santow J, the Corporations Law ("the Law") was in force The Corporations Act 2001 (C'th) came into force on 15 July 2001. It was common ground that by force of s 9 of the Corporations (Ancillary Provisions) Act 2001 (NSW) the Law continues to apply for the disposition of the appeal. 7 A selective reduction of capital, relevantly a capital reduction which did not apply to each shareholder in proportion to the number of shares held with the terms of the reduction the same for each shareholder, could be made pursuant to ss 256B and 256C of the Law in its Part 2J.1. 8 Section 256A stated the purpose of Part 2J.1 - " 256A Purpose This Part states the rules to be followed by a company for reductions in share capital and for share buy-backs. The rules are designed to protect the interests of shareholders and creditors by: (a) addressing the risk of these transactions leading to the company's insolvency (b) seeking to ensure fairness between the company's shareholders (c) requiring the company to disclose all material information." 9 So far as presently material, ss 256B and 256C then read - " 256B Company may make reduction not otherwise authorised (1) A company may reduce its share capital in a way that is not otherwise authorised by law if the reduction: (a) is fair and reasonable to the company's shareholders as a whole; and (b) does not materially prejudice the company's ability to pay its creditors; and (c) is approved by shareholders under section 256C. A cancellation of a share for no consideration is a reduction of share capital, but paragraph (b) does not apply to this kind of reduction. … (2) The reduction is either an equal reduction or a selective reduction. The reduction is an equal reduction if: (a) it relates only to ordinary shares; and (b) it applies to each holder of ordinary shares in proportion to the number of ordinary shares they hold; and (c) the terms of the reduction are the same for each holder of ordinary shares. Otherwise, the reduction is a selective reduction . (3) In applying subsection (2), ignore differences in the terms of the reduction that are: (a) attributable to the fact that shares have different accrued dividend entitlements; or (b) attributable to the fact that shares have different amounts unpaid on them; or (c) introduced solely to ensure that each shareholder is left with a whole number of shares. 256C Shareholder approval Ordinary resolution required for equal reduction (1) If the reduction is an equal reduction, it must be approved by a resolution passed at a general meeting of the company. Special shareholder approval for selective reduction (2) If the reduction is a selective reduction, it must be approved by either: (a) a special resolution passed at a general meeting of the company, with no votes being cast in favour of the resolution by any person who is to receive consideration as part of the reduction or whose liability to pay amounts unpaid on shares is to be reduced, or by their associates; or (b) a resolution agreed to, at a general meeting, by all ordinary shareholders. If the reduction involves the cancellation of shares, the reduction must also be approved by a special resolution passed at a meeting of the shareholders whose shares are to be cancelled. (3) The company must lodge with the ASC a copy of any resolution under subsection (2) within 14 days after it is passed. The company must not make the reduction until 14 days after lodgment. … Information to accompany the notice of meeting (4) The company must include with the notice of the meeting a statement setting out all information known to the company that is material to the decision on how to vote on the resolution. However, the company does not have to disclose information if it would be unreasonable to require the company to do so because the company had previously disclosed the information to its shareholders. … ". 10 Section 256D of the Law was concerned with failure to comply with s 256B - " 256D Consequences of failing to comply with section 256B (1) The company must not make the reduction unless it complies with subsection 256B(1). (2) If the company contravenes subsection (1): (a) the contravention does not affect the validity of the reduction or of any contract or transaction connected with it; and (b) the company is not guilty of an offence. (3) Any person who is involved in a company's contravention of subsection (1) contravenes this subsection." 11 GKL sought to meet some of Winpar's grounds of invalidity by reliance on s 1322 of the Law. So far as presently material, it read - " 1322 Irregularities (1) In this section, unless the contrary intention appears: (a) a reference to a proceeding under this Law is a reference to any proceeding whether a legal proceeding or not; and (b) a reference to a procedural irregularity includes a reference to: (i) the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation or at a joint meeting of creditors and members of a corporation; and (ii) a defect, irregularity or deficiency of notice or time. (2) A proceeding under this Law 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. … (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Law, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Law or in relation to a corporation is not invalid by reason of any contravention of a provision of this Law or a provision of the constitution of a corporation; … and may make such consequential or ancillary orders as the Court thinks fit. (5) An order may be made under paragraph 4)(a) … notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence. (6) The Court shall not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a): (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is in the public interest that the order be made; … (c) in every case – that no substantial injustice has been or is likely to be caused to any person." The calling of the meeting 12 The notice of meeting read - " NOTICE OF EXTRAORDINARY GENERAL MEETING Notice is hereby given that an Extraordinary General Meeting of Goldfields Kalgoorlie Limited will be held at 2.00 pm on 28 June 2000 at Level 16, 1 Castlereagh Street, Sydney, New South Wales. Please refer to the Explanatory Memorandum, the Independent Expert's Report, the Technical Report, the Independent Tenement Standing Report and the Lawyer's Report on Material Joint Venture Agreements which accompany this Notice of Meeting for information on the resolution proposed. Two special resolutions are to be proposed at the Extraordinary General Meeting to approve the Capital Reduction. Shareholders of Goldfields Kalgoorlie Limited other than Goldfields Limited and its subsidiary (Non-Goldfields Shareholders) will be asked to consider Resolution 1 and the Goldfields Group will be asked to consider Resolution 2. RESOLUTIONS 1. Selective Reduction of Capital – Approval by Non-Goldfields Shareholders Non-Goldfields Shareholders are asked to consider, and if thought fit, pass the following resolution as a special resolution: THAT subject to: (a) the lodgement of this special resolution with the Australian Securities and Investments Commission; and (b) the resolution specified as item 2 in this Notice of Meeting being separately passed as a special resolution by Goldfields Kalgoorlie Limited shareholders not receiving any consideration as part of the Capital Reduction, the issued share capital be reduced, pursuant to section 256B of the Corporations Law, by cancelling all ordinary shares of the Company on issue held by Shareholders other than Goldfields Limited and its subsidiary, and in consideration for the cancellation of such ordinary shares the Company will pay an amount of $0.55 for each such ordinary share to the registered holders of such cancelled shares, with the total amount so paid being debited to the Share Capital Account of the Company. Explanatory Note Section 256C(2) of the Corporations Law provides that because the proposed Capital Reduction involves a cancellation of shares, namely the Shares held by all Shareholders other than Goldfields Limited and its subsidiary (referred to as Non-Goldfields Shareholders in this Notice and elsewhere in this document), the Capital Reduction must also be approved by a special resolution passed at a meeting of the Shareholders whose shares are to be cancelled. Therefore, as the holders of the Shares that are to be cancelled only the Non-Goldfields Shareholders may vote on this resolution. Voting restriction Any vote cast in relation to this resolution by Goldfields Limited and its subsidiaries will be disregarded. 2. Selective Reduction of Capital – approval by the Goldfields Group The Goldfields Group is asked to consider, and if thought fit, pass the following resolution as a special resolution: THAT subject to: (a) the lodgement of this special resolution with the Australian Securities and Investments Commission; and (b) the resolution specified as item 1 of this Notice of Meeting being separately passed as a special resolution by Goldfields Kalgoorlie Limited shareholders other than Goldfields Limited and its subsidiaries, the issued share capital be reduced, pursuant to section 256B of the Corporations Law, by cancelling all ordinary shares of the Company on issue and held by Shareholders other than Goldfields Limited and its subsidiaries [sic], and in consideration for the cancellation of such ordinary shares the Company will pay an amount of $0.55 for each such ordinary share to the registered holders of such cancelled shares, with the total amount so paid being debited to the Share Capital Account of the Company. Explanatory Note Section 256C(2)(a) of the Corporations Law provides that the proposed Capital Reduction (as a selective reduction) must be approved by a special resolution passed at a general meeting of the Company, with no votes being cast in favour of the resolution by any person who is to receive consideration as part of the Capital Reduction or whose liability to pay amounts unpaid on Shares is to be reduced, or by their associates. The effect of the Capital Reduction will be that all Non-Goldfields Shareholders will receive consideration. Therefore, only Goldfields Limited and its subsidiary may vote in favour of this special resolution. Voting restriction Any votes cast in favour of this resolution by any person other than Goldfields Limited and its subsidiary will be disregarded. NOTES Persons Entitled to Vote 1. Pursuant to section 1109N of the Corporations Law, the Directors have determined that the shareholding of each Shareholder for the purposes of ascertaining voting entitlements for the Extraordinary General Meeting will be as it appears in the Share Register at Midnight on 26 June 2000. Proxies 2. A proxy form accompanies this Notice of Meeting. 3. A member who is entitled to attend and to cast two or more votes at the meeting is entitled to appoint not more than two proxies. 4. Where two proxies are appointed, each proxy must be appointed to represent a specified proportion of the member's voting rights. 5. A proxy need not be a member of the Company. 6. The proxy form must be signed by the member or the member's attorney. Proxies given by a corporation must be executed in accordance with the Corporations Law and the constitution of that corporation. 7. An instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed must be lodged at the Company's Share Registry, ASX Perpetual Registrars Limited, Locked Bag A14, South Sydney, NSW 1232, or sent by facsimile to the attention of the Company Secretary on (02) 8223 2444 not less than 48 hours (or such lesser period as the Directors may permit) before the time set for the holding of the meeting or adjourned meeting." 13 The notice of meeting was accompanied by the documents to which it referred. Only some portions of the Independent Experts Report, a report by PricewaterhouseCoopers ("PWC") dated 15 May 2000 ("the PWC report"), need be further mentioned. 14 PWC stated its conclusions at the commencement of the PWC report. It said that in assessing whether the terms of the capital reduction at a price of 55 cents per share were fair to the non-Goldfields shareholders, the key assessment was whether the price was above the fair value of shares in GKL. It summarised the process of valuation of the shares and the reasoning leading to an estimated value for each ordinary share in the range 45.7 cents to 46.9 cents. After reference to other matters, including reasons for disregarding the prices at which shares in GKL had traded, it said - "14. Based on the assessed valuation range of 45.7 cents to 46.9 cents per GKL share derived by our valuation, we conclude that the proposed selective capital reduction at a price of 55 cents per share is fair and reasonable having regard to the interests of the non Goldfields shareholders of GKL." 15 In the valuation of the shares PWC first identified GKL's principal operations, being mining activities at Kundana and Paddington and exploration activities in various areas. It arrived a range of values for the mining and exploration interests and for some non-operating assets. It then set off against these a range of negative values for GKL's hedge book and a negative value for capitalised head office costs. The result was an aggregate valuation of GKL in the range $111,700,000 to $114,600,000, with a consequential estimated value for each ordinary share in the range 45.7 cents to 46.9 cents. 16 What was said about capitalised head office costs became material in the proceedings. It was - " Capitalised head office costs 103 In addition to costs incurred at the mine sites and in the exploration division, GKL incurs ongoing head office costs. The level of such costs incurred over the past three and a half years has been: $000 Year to 30 June 1997 3,870 Year to 30 June 1998 4,276 Year to 30 June 1999 2,826 Six months to 31 December 1999 1,040 104 In supporting the operations of Paddington and Kundana, GKL will continue to incur head office costs. For the purposes of valuing a 100% interest in GKL, we have estimated continuing head office costs by reference to: the fact that a material portion of expenses currently incurred result from the listed status of the company, and hence, would not be incurred following a selective capital reduction the current annualised level of head office expenses of $2 million the likely marginal reduction in such costs following the anticipated closure of Paddington in 2002 the application of a tax rate of 30% to the estimated continuing head office costs to reflect the tax deductibility of such costs. 105 Applying the above analysis, we have estimated ongoing head office post tax costs of $700,000 per annum. This amount will increase with inflation. We have calculated the negative value of such costs, assuming they continue up to 2009 and applying a real discount rate of 9.3% reflecting the normal rate of 12% applied to the operations adjusted for assumed inflation. 106 This calculation generates a negative value of $4.1 million for estimated ongoing head office costs." The general meeting 17 Present at the general meeting were four directors of Goldfields, including its chairman Mr RFE Warburton who held proxies for 28,278,296 shares; two shareholders in person, holding 6,356 shares; and four shareholders by proxies, holding 214,363,357 shares. The shareholders present by proxies included the Goldfields shareholders, the companies in the QBE Group and Winpar. 18 Mr Warburton delivered an address. Its form in evidence, no doubt a copy of the document from which he spoke, read - "This meeting has been convened to enable shareholders to approve a selective reduction in capital in Goldfields Kalgoorlie Limited. The background to this proposal dates back to 1995, when Goldfields Limited made a takeover bid for Pancontinental Mining Limited (now GKL) and became entitled to 87.7% of the shares in the Company. Since then, GKL has disposed of its non-gold assets and distributed the proceeds to shareholders. As a result, GKL is a pure gold company and, as 87.7% of the capital is owned by Goldfields Limited it is difficult to justify a separate listing for GKL. The current ownership structure of GKL means that there is not a liquid market in shares and such liquidity is not likely to develop. As such, it is difficult for shareholders to monetise their shares through on-market transactions and the proposed capital reduction enables non-Goldfields shareholders to do so. There is also a significant number of non-Goldfields shareholders who hold less than a marketable parcel of shares. While shareholders may now sell "unmarketable parcels", the costs of doing so constitute a relatively high proportion of the sale proceeds, and therefore they are unable to monetise their shareholding in a commercially sensible manner. A feature of the capital reduction is that there will be no costs, either brokerage or stamp duty, payable by shareholders to GKL once the proposal is passed and the cash payment of 55 cents per share is paid. It is noted that Goldfields Limited who owns 87.7 % of GKL will also benefit from the proposal by the elimination of cost duplication in maintaining two separate public listed companies and will also benefit from a simpler corporate structure. The GKL Directors have considered a number of alternatives to rationalise the shareholdings in GKL and have concluded that a selective capital reduction is the fairest and most equitable. The capital reduction is subject to approval by shareholders today at this Extraordinary General Meeting. Under the Corporations Law, shareholders of GKL other than those controlled by Goldfields Limited are being asked to pass a special resolution approving the capital reduction. The Goldfields Group will also be asked to pass a separate special resolution approving the capital reduction. The capital reduction will involve all those shares held by non-Goldfields shareholders being cancelled in consideration for the payment by the Company of 55 cents in respect of each share held. The GKL Directors have commissioned an Independent Expert's report from PricewaterhouseCoopers Securities, a Technical Report from Gilfillan Associates Pty Limited, an Independent Tenements Standing Report from tenement Administration Services and A Lawyer's Report on material joint venture agreements from Allen Allen & Hemsley. These various reports are contained in the documentation which was provided with the Notice of Meeting. The PricewaterhouseCoopers Securities' report addresses the fairness and reasonableness of the capital reduction as regards the non-Goldfields shareholders and the other reports address the technical assumptions underlying the valuation of the Company's assets. The PricewaterhouseCoopers Report concludes that the capital reduction is fair and reasonable to non-Goldfields' shareholders. All Directors of GKL voted in favour of proposing the capital reduction when it was approved at the Board Meeting on 15 May 2000. In addition Mr J B Studdy a Director of GKL, recommends that you support the proposed selective capital reduction." 19 The minutes of the meeting read - " APPROVAL FOR SELECTIVE CAPITAL REDUCTION : The Chairman noted that the PricewaterhouseCoopers Report which accompanied the notice of meeting concluded that the capital reduction is fair and reasonable to non-Goldfields shareholders. All directors of GKL had voted in favour of proposing the capital reduction when it was approved at the Board Meeting on 15 May 2000. In addition, Mr J B Studdy a director of GKL recommends that shareholders support the proposed selective capital reduction. It was noted by the Chairman that there was no objection to the holders of the proxies for Goldfields Limited and Renaissance Mining Pty Limited being present during the vote on Item 1. Item 1 – Selective Capital Reduction – Approval by Non-Goldfields Limited Shareholders The Chairman noted that the proposed selective reduction of capital involved the cancellation of shares and that the Corporations Law requires that the selective reduction of capital be approved by a special resolution at a meeting of shareholders whose shares are to be cancelled with all shareholders other than Goldfields Limited and its subsidiaries voting on the resolution. The Chairman then asked a shareholder to move that, subject to (a) the lodgment of this special resolution with the Australian Securities and Investments commission; and (b) the resolution specified as item 2 in the Notice of Meeting being separately passed as a special resolution by Goldfields Kalgoorlie Limited shareholders not receiving any consideration as part of the selective capital reduction, the issued share capital be reduced, pursuant to section 256B of the Corporations Law, by cancelling all ordinary shares of the Company on issue held by Shareholders other than Goldfields Limited and its subsidiary, and in consideration for the cancellation of such ordinary shares the Company will pay an amount of $0.55 for each such ordinary share to the registered holders of such cancelled shares, with the total amount so paid being debited to the Share Capital Account of the Company. A shareholder duly proposed the motion. During the discussion which followed a number of shareholders confirmed their opposition to the proposed selective capital reduction. At the end of the discussion the matter was put to a vote on a show of hands. After the vote the Chairman declared that the motion was lost on a show of hands and called for a poll on the motion. It was suggested by the scrutineer that the poll could most conveniently be taken at the same time as any poll on the second special resolution and the Chairman so ruled. No objections were made to this course of action. Item 2 – Selective Reduction of Capital – Approval by Goldfields Shareholders The Chairman noted that the Corporations Law provides that the proposed selective reduction of capital must be approved by special resolution passed at a general meeting of the Company with no votes being cast in favour of the resolution by any person who is to receive consideration as part of the selective reduction of capital. Therefore, only Goldfields Limited and its subsidiary may vote in favour of special resolution 2. The Chairman then asked a shareholder to move that, subject to (a) the lodgment of this special resolution with the Australian Securities and Investments Commission; and (b) the resolution specified as item 1 of the Notice of Motion being separately passed as a special resolution by Goldfields Kalgoorlie Limited shareholders other than Goldfields Limited and its subsidiaries, the issued share capital be reduced, pursuant to section 256B of the Corporations Law, by cancelling all ordinary shares of the Company on issue and held by Shareholders other than Goldfields Limited and its subsidiaries, and in consideration for the cancellation of such ordinary shares the Company will pay an amount of $0.55 for each such ordinary share to the registered holders of such cancelled shares, with the total amount so paid being debited to the Share Capital Account of the Company. A shareholder duly proposed the motion. The Chairman called for a poll on the motion prior to any vote on a show of hands. DECLARATION OF RESULTS OF POLLS: Following receipt of a report from the poll the scrutineer, Mr Will Mrongovius of ASX Perpetual Registrars Limited the Chairman declared that the first special resolution has been passed by more than the requisite majority and the second special resolution has been passed by more than the requisite majority. CLOSE OF MEETING: There being no further business the Chairman thanked the Members of the Company for their attendance and declared the meeting closed." 20 According to the information appended to the minutes of the meeting, of the proxy votes 28,057,750 were cast in favour of the first resolution and 243,275 against and 214,346,984 were cast in favour of the second resolution and 243,275 against. The proceedings before Santow J 21 Winpar filed a summons in which it claimed a declaration that the proposed capital reduction contravened the Law, and an injunction restraining the implementation of the capital reduction or if it had already been implemented an order directing GKL to restore the shareholding of Winpar to its register. GKL was the sole defendant in the prodeeedings. 22 One of Winpar's grounds for contravention of the Law was that s 256C(2) required that the two resolutions be passed at separately convened meetings, and GKL filed a protective cross-claim in which it claimed an order pursuant to s 1322(4) of the Law declaring that the resolutions were not invalid by reason of any contravention of s 256C. 23 The Australian Securities and Investment Commission ("ASIC") appeared as amicus curiae. 24 Santow J decided six questions in the proceedings, saying that the parties had proceeded on the basis that they sufficiently identified the legal issues. The questions can conveniently be set out, as they provide the setting in which the appeal proceeded. I will refer to Santow J's reasons as necessary when considering the issues in the appeal. 25 The questions as stated at the commencement of his Honour's reasons were - " Question 1 - Whether, in the case of a selective reduction of capital involving the cancellation of shares, s256C of the Corporations Law requires the convening of a general meeting of the company and a separate meeting of the shareholders whose shares are to be cancelled, at which only those shareholders whose shares are to be cancelled are present? If so, whether the convening of a single extraordinary general meeting of GKL was a "procedural" irregularity cured by s.1322(2), or an irregularity in respect of which the Court should make an order under s.1324(a) [sic: 1322(4)(a)], pursuant to the Defendant's cross-claim? Question 2 - Whether this takeover sought to be effected by a selective capital reduction pursuant to Pt 2J.1 of the Corporations Law , but not associated with a full scheme of arrangement, falls foul of the decision in Gambotto ? In particular: (a) can such an acquisition, made for cash, be effected without a scheme of arrangement under s411 of the Corporations Law and, if so (b) does such an acquisition not only have to satisfy the requirements of Pt 2J.1, including that it be within s256B(1)(a) "fair and reasonable to the company's shareholders as a whole" but also fair, within the ambit of the Gambotto principles, and if so (c) whether the present procedures and their substantive outcome would not satisfy the Gambotto principles of procedural and substantive fairness? Question 3 - Whether this selective capital reduction has not been shown by GKL to be "fair and reasonable to shareholders as a whole", by reason of (a) the consideration received by the shareholders whose shares are being cancelled being (according to the Plaintiff) less than the value received by the continuing shareholder, or (b) by reason of the 'special benefits" to be received by Goldfields Limited in question 4 below being shared pro rata between GKL and the minority, rather than allocated wholly to the minority? Question 4 - Whether the value of the special benefits to be received by Goldfields Limited (parent of GKL) as a result of the implementation of the selective capital reduction, have been appropriately identified, disclosed and taken into account, being: (a) the elimination of cost duplication arising from the existence of two listed companies; and (b) economic upside potential which may arise from an increase in the gold price in the future and rationalisation of operations through acquisitions which have arisen and are expected to arise from time to time? In particular, does the expert valuation report contained in the explanatory memorandum accompanying the proposal fail to satisfy the statutory requirements for disclosure and the avoidance of misleading or deceptive conduct, by reason of the following: (c) the way the value of the special benefit arising from the elimination of cost duplication has been dealt with; (d) the way the possibility of higher production resulting from a higher gold price has been taken into account; (e) the appropriateness or otherwise of the method of valuation used in respect of the hedge book (to the extent it has the effect of making the valuation insensitive to variations in the gold price) for valuing the potential benefit which may arise from an increase in the gold price in the future? Question 5 - Whether shareholders have been provided with a statement satisfying the statutory requirements for disclosure and the avoidance of misleading or deceptive conduct, in particular in relation to: (a) the value attributed to the possibility of the company's gold mine and milling facility at Paddington continuing in operation beyond 2002; (b) the potential acquisition of an interest in a gold deposit known as White Foil, which was announced after the date of the expert's report but before the date of the shareholders' meeting; (c) the variable factors which influence the valuation; (d) the valuation method used in relation to the company's gold mines at Kundana and Paddington being such as to enable another expert to replicate the procedure? Question 6 - Whether the Court can conclude that the selective capital reduction is "fair and reasonable to shareholders as a whole" where: (a) in a case where a single shareholder (QBE) can determine the outcome of the vote on the selective capital reduction, that shareholder's decision is formed as a result of, or influenced by, a general corporate strategy to reduce its exposure to the Australian market; (b) the consideration for the reduction is at a substantial discount to the long term average weighted stock market price for the shares being cancelled?" 26 Santow J answered each of the questions favourably to GKL. Although holding that s 256C(2) of the Law did not require that the two resolutions be passed at separately convened meetings, he said that for more abundant caution he would be prepared to make orders under s 1322(4) and was satisfied that the condition for doing so were made out. He ordered that Winpar's summons be dismissed, and also declared pursuant to s 1322(4) of the Law that each of the resolutions was not invalid by reasons of any contravention of s 256C. The appeal - overview 27 Winpar's grounds of appeal as initially filed were - "1. His Honour erred in not finding that the proposed selective reduction of capital was not a proper purpose of Goldfields Kalgoorlie Limited. 2. His Honour erred In not finding that the proposed selective reduction of capital was undertaken for the purposes of Goldfields Limited. 3. His Honour erred in not finding that the proposed reconstruction of the company's capital required a scheme of arrangement. 4. His Honour erred in not finding that section 256C(2) of the Corporations Law ('the Law') requires that a resolution approving a reduction of capital be passed at an entirely separate meeting of shareholders whose shares are being cancelled, chaired by a member of that group and/or without the presence of other persons. 5. His Honour erred in finding that the proposed reduction of capital was fair and reasonable to the company's shareholders as a whole, notwithstanding that the terms of the reduction involved an appropriation of value from the minority shareholders to the majority shareholder. In particular, his Honour erred in finding that to the extent the minority shareholders in the company received value for 'synergy benefits' to Goldfields Limited allocated on a pro rata basis, that was a fair and reasonable allocation of the benefit. 6. His Honour erred in not finding that the principles of propriety and fairness set out in Gambotto v WCP Ltd (1995) 182 CLR 432 applied to a selective reduction of capital. 7. His Honour erred in not finding that there had been a material non-disclosure by the defendant or that the defendant had engaged in conduct which was misleading or deceptive in relation to: (a) the failure to value on the basis of actual events; and (b) the conduct of the valuation on an hypothesis that was unsupported." 28 As can be seen, not all issues identified in the six questions were maintained on appeal. 29 ASIC appeared on the appeal as amicus curiae, by leave, limiting its participation to some only of the issues. 30 The substantive relief claimed on appeal was a declaration "that the proposed reduction of capital is not fair and reasonable and that it offends section 256B of the Corporations Law" and rectification of GKL's share register to restore Winpar's shareholding. The capital reduction had not been made at the time of the proceedings before Santow J. An undertaking not to make it came to an end when his Honour gave judgment. We were informed that the capital reduction was then made, and that prior to the hearing of the appeal Winpar's shares had been cancelled. The relief claimed on appeal in part reflected that this had occurred. 31 Winpar appealed purportedly as of right. At the commencement of the hearing the Court questioned whether there was an appeal as of right. Assuming a value of 55 cents per share, Winpar's shareholding had a value of $6,805.15. Winpar submitted that the appeal indirectly involved a question respecting property of a value greater than $100,000, within s 101(2)(r)(ii) of the Supreme Court Act 1970, because the non-Goldfield shareholders together held 30,035,149 shares with a value (again assuming 55 cents per share) of $16,519,331; it said that that was the property in question, and that the result in the appeal would apply to all the shares. The Court indicated a preliminary view that, when no non-Goldfields shareholder other than Winpar was a party to the proceedings, the only property in question was Winpar's shareholding, so that leave to appeal was required. Winpar applied for leave to appeal and any necessary extension of time within which to apply. The application was not opposed, and in view of the general importance of at least some of the issues in the appeal the Court granted leave. 32 The grounds of appeal did not challenge Santow J's order pursuant to s 1322(4) of the Law. Winpar's submissions included that his Honour could not and should not have made the order. GKL did not object to Winpar challenging the making of the order, but for its part wished to submit that, quite apart from an order under s 1322(4), s 1322(2) meant that what occurred at the meeting was not invalidated. As appears from question 1 as identified by Santow J, the effect of s 1322(2) had been raised before his Honour, although he did not deal with it in his reasons. GKL also submitted on appeal, for the first time, that s 256D(2) protected the capital reduction from Winpar's challenge. Neither party's submissions on s 1322 at the hearing of the appeal were as full as they could have been, and neither party was in a position to put submissions on the effect of s 256D(2). 33 Winpar was given leave to add an additional ground of appeal - "His Honour erred in finding that had the respondent contravened section 256C by failing to call a separate meeting of the shareholders whose shares were to be cancelled: (a) that such a contravention was essentially of a procedural nature which could be cured by the making of an order under section 1322(4)(a) of the Corporations Law; (b) that such a contravention did not cause substantial injustice to the appellant." 34 GKL's reliance on s 1322(2) would seem to have called for a notice of contention, although that was not raised at the hearing of the appeal. Whether GKL's reliance on s 256D(2) called for a notice of contention was raised. In its written submissions next mentioned GKL said that a notice of contention was not necessary, because it was not contending that Santow J's decision should be affirmed on another ground but was contending that Winpar was not entitled to the relief of rectification of the register "in the circumstances" claimed on appeal. Apparently it meant that the order restoring Winpar's shareholding to the register claimed in the summons was not in fact in question before Santow J, because the shares had not then been cancelled. Winpar did not submit that a notice of contention was necessary or object to GKL relying on s 1332(2) and s 256D(2). I will not pursue the procedural question. 35 Further written submissions were received from Winpar and GKL after the hearing of the appeal, dealing at some length with s 1322 and s 256D(2). A meeting of shareholders whose shares were to be cancelled? 36 The first issue, part of question 1 as identified by Santow J and the subject of ground of appeal 4, is whether the capital reduction was not approved by shareholders under s 256C of the Law, as required by s 256B(1)(c), because it involved the cancellation of shares and was not approved by a special resolution "passed at a meeting of the shareholders whose shares are to be cancelled" within the meaning of s 256C(2). 37 Under s 256C(2) there must be two resolutions. There must either be a special resolution passed at a general meeting without any support from shareholders who will receive payment or have their liability lessened, or a resolution agreed to at a general meeting by all ordinary shareholders. And there must be a special resolution "passed at a meeting of the shareholders whose shares are to be cancelled". 38 Santow J held that there had been a meeting answering the description of a meeting of the shareholders whose shares were to be cancelled. His Honour said that the purpose of s 256C(2), the protection of minority shareholders, was not enhanced by or dependent on the resolution of the shareholders whose shares were to be cancelled being passed at an entirely separate meeting of those shareholders without the presence of any other persons. He said - " … This is so long as those other extraneous persons do not themselves vote (save as proxy holders) or attempt improperly to influence the outcome of the meeting. The real protection is achieved by ensuring a separate relevant resolution is considered and voted upon by minority shareholders, following receipt of the notice and information statement required by s 256C(4). The presence of 'non-voting' others is really an irrelevancy in the present circumstances. 40. That leads me to the question whether s 256C2) in its reference to the expression 'a meeting of the shareholders whose shares are to be cancelled' nonetheless requires as a matter of literal construction or necessary intendment, two separate meetings, with the second having present only those members whose shares are to be cancelled. In my view that construction is not the correct one and finds no basis in any purposive construction or supposed lacuna nor is it compelled by the language used. Thus there is ample scope for the Court to intervene under s 256B(1)(a) where appropriate proceedings are brought, should the presence of others render the reduction one which ceased to be 'fair and reasonable to the company's shareholders as a whole'. Likewise if the shareholders whose shares were being cancelled did not genuinely approve the resolution because the outcome was manipulated by the presence of outsiders. Neither of those grounds came near to being made out here. It is common place to have separate meetings of classes of shareholders without it ever being suggested that the presence of non-voting others rendered the meeting not as a meeting of that class. It could be otherwise if they, not being entitled to do, [sic] purported to vote, though that is a question for another day." 39 On appeal, GKL supported his Honour's reasoning. Winpar submitted that there had to be a meeting of the shareholders whose shares were to be cancelled separate from the meeting of all shareholders and that if the meeting was not separate it was invalid, citing re Allgas Energy Ltd (1998) 27 ACSR 729. In fact that case is not authority for the submission. It does refer to Carruth v Imperial Chemical Industries Ltd (1937) AC 707, but the references to possible invalidity in that case (at 761, 766-7) must be read against the requirement in the articles of association that there be a separate class meeting. ASIC addressed the same question of a separate meeting, and submitted that the Law was ambiguous and there was no particular reason why there had to be a separate meeting. 40 There is a risk of conflating two separate matters. One is having separate meetings. The other is having a meeting at which persons not shareholders entitled to vote at the meeting are present. The matters are related, but are not the same. A meeting called as a general meeting of the company is not a meeting of the shareholders whose shares are to be cancelled, even if those shareholders whose shares are to be cancelled are present. Conversely, a meeting of the shareholders whose shares are to be cancelled will remain such a meeting if shareholders present of that description agree to the presence of other shareholders or of strangers. Having a separate meeting of the shareholders whose shares are to be cancelled, however, is material to the protection of minority shareholders from the influence of other shareholders or strangers. It is not to the point, it seems to me, to say that the presence of non-voting others is an irrelevancy, or that the presence of non-voting others may mean that the capital reduction is not fair and reasonable to the company's shareholders as a whole (and I respectfully question whether it may mean that). 41 By its terms s 256C(2) required a class meeting, a meeting of the shareholders whose shares were to be cancelled, distinct from the general meeting at which the special resolution was passed or resolution agreed to. A class meeting would generally be called on notice with a proposed resolution and accompanying information. From that it could initially be seen whether there was a meeting of the class of shareholders. That there were present at the purported class meeting other shareholders or strangers would not necessarily prevent it from being a meeting of the class of shareholders, although possibly it would do so (Carruth v Imperial Chemical Industries Ltd), but if the purported class meeting was not conducted as such but as a general meeting of all present it may be that there was not in the result a meeting of the class of shareholders. 42 Was there in the present case a meeting of the shareholders whose shares were to be cancelled? 43 The notice of meeting was of one meeting only, to be held at 2pm on 28 June 2000. The meeting was called an extraordinary general meeting, and referred to as such in the body of the document. Two resolutions were to be proposed at the meeting, one for the consideration of the non-Goldfield shareholders and the other for the consideration of the Goldfields shareholders. But it was still one meeting, with the explanatory notes distinguishing between voting entitlements according to classes of shareholders and not between meetings. The voting restriction notes spoke of disregarding votes of shareholders not part of the relevant class, and did not distinguish between meetings. The one proxy form was provided, referring to voting "at the meeting". In my opinion one meeting was called, a meeting of shareholders, although two resolutions according to classes of shareholders were proposed. The meeting called was not of the shareholders whose shares were to be cancelled. 44 The meeting as held was opened as one meeting, and Mr Warburton chaired the one meeting: there was no question of the non-Goldfields shareholders electing their own chairman. In Mr Warburton's address shareholders were urged to support the capital reduction without distinction between the classes of shareholders. There were votes on the two resolutions, but the noting that there was no objection to the proxies for the Goldfields shareholders being present during the vote on the resolution proposed for the non-Goldfield shareholders continued to treat the meeting as one meeting, albeit distinguishing between voting entitlements according to the class of shareholders. In the end, the two polls were taken concurrently. What was closed was "the meeting". 45 In my view neither as called nor as held was there a meeting of the shareholders whose shares were to be cancelled. There was a meeting of all shareholders, at which a resolution was proposed for the consideration of the shareholders whose shares were to be cancelled and was passed by those shareholders. That was not compliance with s 256C(2). There was no suggestion of impropriety in the present case, but in other cases a distinct class meeting could be important to the protection of minority shareholders (see Carruth v Imperial Chemical Industries Ltd, above). The interpretation and application of s 256C(2) should accommodate the other cases. 46 In my opinion, therefore, there was not the approval by shareholders required by s 256B(1)(c). Protection under s 256D(2)? 47 The second issue, not raised before Santow J, is whether Winpar's challenge to the capital reduction nonetheless fails because, although GKL did not comply with s 256B(1) of the Law in that the capital reduction was not approved by shareholders under 256C, pursuant to s 256D(2) the validity of the capital reduction is not affected. 48 The law has long closely regulated reductions of capital by limited companies. With special exceptions (eg some share redemptions, buy-backs and cancellations), until 1998 court confirmation of a capital reduction was required. The immediate predecessor to s 256B of the Law as in force at the time of GKL's capital reduction, the earlier s 256A, called for agreement to a capital reduction by a special resolution and confirmation by the court under the earlier s 256B. The earlier provisions ended with a s 256F, in materially the same terms as s 256D save that it referred to compliance with the earlier s 256A where s 256D referred to compliance with s 256B. There had not been a like provision, specifically prohibiting a non-complying capital reduction and stating consequences of contravention, associated with earlier regulations of reductions of capital. 49 Similar provisions in relation to other corporate transactions appeared throughout the Law, in the form that contravention of the statutory requirements for the transaction did not affect the transaction's validity and the company was not guilty of an offence but any person involved in the company's contravention contravened the provision: see for example s 209 (giving financial benefit to a related party); s 243H (a public company giving financial benefit to a related party); s 254L (redemption of redeemable preference shares); s 259F (acquiring or taking security over the company's shares); s 260D (giving financial assistance to acquire the company's shares). Other provisions stated more simply that failure to comply with statutory requirements did not affect the validity of an act or transaction (eg s 191(4); s 192(7); s 195(5); s 607; s 615(6); s 655B(3)), or only by reason of the failure affect its validity (s 103(2)). As at June 2000, and for some time before, the concept of a contravention of the requirements of the Law not bringing invalidity to a transaction was well in place. 50 Counsel's researches disclosed few decisions on these provisions. 51 In Batoka Pty Ltd v Jackson (1998) 30 ACSR 67, in which it was alleged that the company had provided financial assistance in contravention of s 260A in that the shareholder approval had not been by a valid resolution, Hansen J said (at 80) that by s 260D the financial assistance was to "stand unaffected", and as to the injunction claimed - "That relief is against the dictate of s 260D. In other words, the applicants ask the court to produce a state of affairs which Parliament has said is not to occur. The policy inherent in s 260D is plain: the financial assistance and any contract or transaction with it are to stand, thus providing certainty and protection of the interests of third parties; see para 12.86 of the explanatory memorandum to the Company Law Review Bill 1997. Further, s 260D(2) specifies that relief of a personal nature may be obtained against a person involved in a contravention." 52 The explanatory memorandum to which his Honour referred said in para 12.86 - "In order to promote certainty and protect the interests of third parties, the fact that financial assistance is provided in contravention of s 260A will not affect the validity of the assistance, or of any contract or transaction connected with it (Bill s 260D(1)). While the company will not be guilty of an offence, any person who is involved in the contravention will contravene the Law (Bill s 260D(2), and may be subject to civil penalty orders and criminal consequences (Bill Schedule 2 Item 238)." 53 The same explanatory memorandum said of s 256D in para 12.30 - "The bill will set out the consequences of a company making a capital reduction that does not comply with Bill Schedule 5 Item 18 subsection 256B(1) (Bill Schedule 5 Item 18 s 156D). In order to promote commercial certainty, the Law currently denies a right to challenge a capital reduction once the ASC has issued a compliance certificate (current s 195(6) –(8)). The Bill will ensure that this certainty is achieved more directly, providing that the validity of a capital reduction is not affected by the fact that it is undertaken in contravention of the capital reduction procedures (Bill s 256F(2)(a), Schedule 5 Item 18 s 254D(2)(a). Further, a company that makes a reduction of capital that does not comply with Bill section 256A(1) or Schedule 5 Item 18 section 256B(1) will not be guilty of an offence (Bill 256F(2)(b), schedule 5 Item 18 s 256D(2)(b)). However, any person who is involved in the contravention will contravene the Law, and may be subject to civil penalty orders and criminal consequences under current Pt 9.4B (Bill s 256F(3), Schedule 5D(3) and Item 27." 54 In HCK China Investments Ltd v Solar Honest Ltd (1966) 165 ALR 680 it was alleged that a takeover agreement contravened ss 615, 260A and 243H of the Law, was illegal, and could not be relied on to claim payment of money. After discussing illegality and noting that where legislation expressly provided for the consequences of illegality it was decisive, Hely J said (at 708) - "There is now contained in the Corporations Law a comparatively sophisticated set of provisions as to the imposition of civil and criminal penalties upon persons involved in contraventions of the Law. The provisions of the Law to which I earlier referred are such that it would be inconsistent with the legislative scheme to treat the takeover agreement which I have found, to be illegal and void. The essential planks of the agreement are expressly preserved by ss 615 (6), 260D and 103 (2): cf Batoka Pty Ltd v Jackson (1998) 30 ACSR 67; at 80. For these reasons the Eutopia Agreement was neither void, nor unenforceable. It follows that the Solar Honest documents are not rendered unenforceable on the ground of illegality." ' 55 In re George Raymond Pty Ltd (2001) 36 ACSR 381 it was noted (at 390) that by s 259F of the Law an acquisition of a company's own shares contrary to s 259A "does not affect the validity of the acquisition". 56 Westchester Pty Ltd v Triton Resources Ltd (2001) WASC 57 was a strike-out decision in which Master Bredmeyer said it was arguable that s 103(2) of the Law meant that an agreement in contravention of s 243H "is not automatically invalid because of the contravention but may be if the court so decides". 57 GKL submitted that the effect of s 256D was the same as the effect attributed in the first three of these cases to s 260D and like provisions. True it is that s 256B(1)(c) required shareholder approval under s 256C. But by s 256C(3) a copy of any resolution had to be lodged with (now) ASIC, and the capital reduction could not be made for a further 14 days. There was a period during which application could be made pursuant to s 1324(1) of the Law for an injunction to restrain the making of the capital reduction in contravention of the Law. If making the capital reduction was not restrained, and it was made, in the interests of certainty and of third parties whose rights could be affected, the capital reduction stood although made in contravention of the Law. This, it was said, was consistent with para 12.30 of the explanatory memorandum. 58 Winpar responded that it would be remarkable if a fundamental transaction for which the Law stated requirements was valid even if those requirements were not met. It submitted that s 256D gave a capital reduction no more than provisional or prima facie effect, subject to the intervention of the court where it was in fact defective, referring to what was said by Master Bredmeyer in Westchester Pty Ltd v Triton Resources Ltd. And it said that if contravention of s 256B(1) was of sufficient moment to give rise to an offence by any person involved in the contravention, it would be even more remarkable if the shareholders affected were left without remedy. 59 ASCI did not put submissions on this issue. 60 The force of Winpar's last point is greatly diminished by the express statement that the company was not guilty of an offence. I do not think that s 256D(2) can be cut down to only provisional or prima facie validity. Until it was made, a proposed capital reduction could be restrained if s 256B(1) of the Law was or would be contravened. Once it was made, although in contravention of s 256B(1), it was valid. The sanction for the contravention was imposed on those involved in the contravention, no doubt the directors of the company, by way of a civil penalty. No sanction was imposed on the company itself, nor was the capital reduction itself struck down by way of sanction. The legislation gave those affected an opportunity to restrain the making of a contravening capital reduction, but once it was made preferred certainty over invalidity. 61 In my opinion, therefore, Winpar's challenge to the capital reduction fails by force of s 256D(2). Protection under s 1322? 62 It is not necessary to deal with this third issue. In case I am incorrect in my view of s 256D(2), I will nonetheless briefly address it. ASIC did not put submissions on the issue, save that it said that it "would not object to the making of orders under s 1322(4)". (a) Section 1322(2) 63 This sub-issue was raised before Santow J but not dealt with by him, presumably reflecting the practice to which Bowen CJ in Eq referred in re Compaction Systems Pty Ltd (1976) 2 NSWLR 477 of applying for an order under s 1322(4) rather than relying on "the contingent validation afforded by [now s 1322(2)]" (at 491). 64 There had to be a "proceeding under this Law", and there had to be a "procedural irregularity" potentially invalidating it. 65 Winpar submitted that there was no proceeding under the Law, because the meeting required by s 256C(2) was not called at all as distinct from being called irregularly. In my opinion this gives too narrow a scope to the concept of a proceeding under the Law. The requirement of approval by a special resolution passed at a meeting of the shareholders whose shares were to be cancelled was a proceeding under the Law, and it is wrong to focus on the meeting alone and say that there was no proceeding because there was no meeting. In re Broadway Motors Holdings Pty Ltd (in liquidation) (1986) 6 NSWLR 45 at 56 it was said that a procedure was to be regarded as a proceeding under the then Act if it was required to be taken by the company or was one which the Act required if the company or its members wished successfully to achieve particular legal consequences. That encompasses the procedure under s 256C(2) required pursuant to s 256B(1)(c), and there is no reason to take a narrower view. 66 Winpar then submitted that there was not a procedural irregularity, because "a separate meeting" was mandatory and of such significance to a selective capital reduction involving the cancellation of shares that it could not be regarded as procedural. It referred to Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 34 ACSR 391, in which it was conceded that a failure validly to convene and hold meetings of shareholders could not be regarded as procedural, and to Wagner v International Health Promotions Pty Ltd (1994) 15 ACSR 419, in which Santow J held that s 1322 could not cure the absence of a resolution for appointment of an administrator because the absence of a resolution - " … went to the very underlying statutory basis for the appointment of an administrator. In that sense, what is sought to be cured by s 1322 of the Corporations Law is not an irregularity concerning the calling of a meeting or its procedures. Rather it is to fill a gap in what actually occurred at the meeting, namely failure to pass a resolution and this s 1322 cannot do." (at 422) This decision was followed in Gordon v Allied Meridian Pty Ltd (1999) NSWSC 558 and Deputy Commissioner of Taxation v ACN 001 330 203 Pty Ltd (in liquidation) (1999) NSWSC 798 . 67 A concession is not authoritative, and while entire absence of a resolution may not be a procedural irregularity the passing of a resolution otherwise than at a duly convened meeting may be a procedural irregularity. (Winpar's submission did not state the matter entirely correctly, as the question was not one of a separate meeting but one of a meeting of the shareholders whose shares were to be cancelled.) There was a meeting, of which notice was given to, amongst others, the shareholders whose shares were to be cancelled, and for which a resolution on which those shareholders were to vote was proposed. The defect was that the meeting was not called or conducted as a meeting of the shareholders whose shares were to be cancelled. Failure to give notice of a meeting to some shareholders can be a procedural irregularity (Holmes v Life Funds of Australia Ltd (1971) 1 NSWLR 860), so may failure to give any notice at all (re Broadway Motors Holdings Pty Ltd (in liquidation); Roma Industries Ltd v Bliim (1983) 1 ACLC 1079). Failure to call a meeting as the particular meeting required is a lesser irregularity. In my opinion what occurred in the present case was a procedural irregularity. 68 It was then necessary for Winpar to establish that the irregularity caused or might have caused substantial injustice that could not be remedied by any order of the court, and to obtain an order declaring the proceedings to be invalid: Australian Hydrocarbons NL v Green (1985) 10 ACLR 72. 69 Winpar did not in terms claim an invalidating order. It submitted that such an order should be made because the resolution of the shareholders whose shares were to be cancelled was "of the greatest possible significance" and went to "the continuance of the shareholders' membership of the company". It referred to the observation of Hodgson J in Mamouney v Soliman (1992) 9 ACSR 63 at 72 that - " … the more significant the resolutions passed at the meeting, and the greater the procedural defects, the more ready the court will be to say that they have caused or may cause substantial injustice." And it referred to National Australia Bank Ltd v Market Holdings Pty Ltd (2000) NSWSC 1009, in which notices of creditors' meetings were not sent to the plaintiffs and it was said (at [68]) that the loss of the rights to attend, ask questions and address the meetings constituted substantial injustice. 70 Because he was satisfied that the conditions for making an order under s 1322(4) were made out, Santow J must have been satisfied that substantial injustice had not been and was not likely to be caused to any person (see s 1322(6)(c)). His Honour did not go into detail, saying only - " This is not an instance where the legislation is so emphatic in its mandatory requirements that such a remedial order could not be made; compare s459G of the Corporations Law and the analysis in David Grant & Co Pty Ltd v Westpac Banking Corporation (HC) (1995) 13 ACLC 1572, 18 ACSR 225." 71 I do not think the irregularity caused or might have caused substantial injustice. Although there was not a meeting called or conducted as a meeting of the shareholders whose shares were to be cancelled, those shareholders received notice of the meeting, and no one can have been in doubt that the non-Goldfields shareholders were being brought together to consider and if thought fit pass their special resolution. They did so. The shareholders enjoyed the rights of which the creditors in National Australia Bank Ltd v Market Holdings Pty Ltd were deprived. Winpar and the holder or holders of a small number of shares were comprehensively outvoted. The resolution was significant to the shareholders voting against it in that it founded cancellation of their shares, but the procedural irregularity had no bearing on the result. Indeed, in substance all the non-Goldfields shareholders, including Winpar, recognised that they were not prejudiced when they did not object to the holders of proxies for the Goldfields shareholders being present during the vote on their resolution and did not object to the concurrent polls. 72 In my opinion, therefore, protection under s 1322(2) was made out. (b) Section 1322(4) 73 This sub-issue was dealt with by Santow J. I have already indicated what his Honour said. It was the subject of the additional ground of appeal. 74 Section 1322(4)(a) empowered an order "declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Law or in relation to a corporation is not invalid by reason of any contravention of a provision of this Law". The parties' submissions took as the act matter, thing or proceeding the calling of a separate meeting of the shareholders whose shares were to be cancelled, as I have earlier said perhaps more correctly the failure to have a meeting of those shareholders. Other analyses would be possible, but I proceed as the parties did. On that basis, the contravention of the Law was the failure to take the appropriate steps to call that meeting, and if invalidity was not to flow from the contravention either the calling of the meeting had to be "essentially of a procedural nature"; or the persons concerned in the failure to take the appropriate steps to call the meeting must have acted honestly; or it must have been in the public interest that the order be made; and as well no substantial injustice must have been likely to be caused to any person. The approach to the application of s 1322(4) should be that it was a remedial provision to be applied with liberality, see NRMA Ltd v Gould (1995) 18 ASCR 290. 75 What I have said in relation to s 1322(2) can be taken up. The defect in the calling of the meeting, that is, the failure to call or conduct a meeting as a meeting of the shareholders whose shares were to be cancelled, was essentially of a procedural nature: see re Vanfox Pty Ltd (1995) 2 Qd R 445, in which failure properly to convene and hold a meeting at which a scheme of arrangement was approved was held to be of a procedural nature. There was and was not likely to be substantial injustice to any person. That is enough for the making of an order. 76 As well, there was evidence explaining why the meeting of 28 June 2000 was called as it was, and Winpar did not suggest failure to act honestly. Going beyond its additional ground of appeal, it submitted that it was not in the public interest that an order be made because it was in the public interest "that the procedure set down by the legislature regarding the expropriation of property be complied with strictly". It should be firmly borne in mind that cancellation of the shares of the non-Goldfields shareholders was at stake, but the power conferred by s 1322(4) meant that strict compliance was not an over-arching constituent of the public interest; further, the public interest was to be assessed in the particular circumstances of a holder of 12,373 (or possibly the holders of 243,275) shares opposed to the wishes of the holders of 28,057,750 shares. In my opinion, in the circumstances of this case it was in the public interest that an order be made, because it was not in the public interest that the dissenting non-Goldfields shareholders, having concurred in the holding of the meeting as it was held, should then upset the capital reduction on what was in this case a technicality. On those further two bases the making of an order was warranted. 77 In my opinion, therefore, protection under s 1322(4)(a) was made out several times over. 78 Winpar finally submitted that the order made by Santow J "on its own cannot have any useful effect, in the absence of further orders (which were not made) dispensing with the requirement for a separate meeting of shareholders whose shares were to be cancelled". 79 In my opinion the order His Honour made was in adequate terms. It stated that the resolutions passed on 28 June 2000 were "not invalid by reason of any contravention of s 256C of the Corporations Law". This encompassed the underlying failure to take appropriate steps to call the meeting of the shareholders whose shares were to be cancelled. A scheme of arrangement? 80 The next issue, part of question 2 as identified by Santow J and the subject of ground of appeal 3, is whether the capital reduction could have been made otherwise than by a scheme of arrangement under s 411 of the Law. Both before Santow J and on appeal this issue was associated, if not at time confused, with the further issue of whether the capital reduction had to satisfy what were said to be principles found in or derived from the decision of the High Court in Gambotto v WCP Ltd (1995) 182 CLR 432 ("the Gambotto principles"). That is a different issue, concerned not with the existence of a power but with its exercise. 81 At the heart of Winpar's submissions on appeal on the mingled issues was its characterisation of the capital reduction as a "takeover by cancellation". His Honour appears to have accepted that it fell within what he described as "that species of takeover which is effected by a selective reduction of capital whether directed at a minority or a majority", although also saying that with Pt 2J.1 of the Law in 1998 the species of takeover was expressly recognised and provided for in detail. His Honour said - "The technique has long been used without such explicit recognition. The intended ultimate holding company retains a handful of shares after all other shares are cancelled, so inheriting the earth as the sole remaining shareholder in the intended target. Where such a selective reduction is effected by giving those whose shares are to be cancelled, not cash emanating from the reducing company but shares in another company (typically the new holding company), it is well accepted that such a process requires a scheme of arrangement. This is in order to compel the assent of all shareholders to their receiving shares. No one can be so compelled in the absence of express assent which may be deemed to have been given if the articles clearly enough anticipate that possibility or if there be a binding scheme of arrangement; see the discussion in Re Advance Bank Australia Ltd (1996-97) 22 ACSR 513 at 529 and the authorities I there cite. Here however, the acquisition involves no such compulsion on a shareholder to take shares. Rather the shareholder is compensated for the cancellation of shares by cash emanating from the company whose capital is reduced utilising an available specific statutory regime - selective reduction of capital - for the purpose.. That cannot also require a scheme of arrangement to be effective when there is no compulsion to take new shares in substitution. Indeed that answers the first sub-question posed; no scheme is necessary." 82 Winpar's submissions on appeal on this issue relevantly amounted to saying that, because the capital reduction had to satisfy the Gambotto principles, a selective capital reduction was not available. The issue confined the alternative procedure to a scheme of arrangement, and Winpar expressly did not submit that a takeover procedure was mandated because the non-Goldfields shareholders would thereby have obtained a higher price for their shares reflecting the prices at which shares had traded . GKL's submissions were relevantly to the effect that Pt 2J.1 of the Law stood on its own, and ASIC's submissions amounted to the same. 83 In my view, the present issue is determined simply by regard to Pt 2J.1 of the Law. Descriptions of takeover by cancellation and species of takeover are really not to the point. Nor is whether the capital reduction could have been made by a scheme of arrangement. To adopt the words of Bryson J in Nicron Resources Ltd v Catto (1992) 8 ACSR 219 at 235, a scheme of arrangement procedure "is not to be followed merely because it is there; it is not Mount Everest", and a selective capital reduction is not excluded because the same outcome could have been achieved by a scheme of arrangement. The true question is whether Pt 2J.1 authorised a capital reduction in which the shareholding of the Goldfields shareholders remained but the shareholdings of the non-Goldfields shareholders were cancelled. In my opinion the answer to the question, subject to whether more was needed under the Gambotto principles, is that it did provided the requirements in s 256B(1) of the Law were satisfied. 84 If the requirements in s 256B(1) could not be satisfied, or more was needed under the Gambotto principles and those principles could not be satisfied, as a practical matter it may have been that a capital reduction amounting to a takeover by cancellation could only have been made by a scheme of arrangement. That would not have been by dictate of law. Gambotto principles? 85 The next issue, again part of question 2 as identified by Santow J and the subject of ground of appeal 6, is whether the capital reduction had to satisfy the Gambotto principles as well as the requirements in s 256B(1) of the Law. 86 In Gambotto v WCP Ltd a special resolution passed at a general meeting of the company amended the articles of association to enable a shareholder with 90 per cent or more of the issued shares to acquire compulsorily for a stated price per share the shares of minority shareholders. The stated price was a fair price. It was held that the amendment was invalid. 87 The principal judgment was the joint judgment of Mason CJ and Brennan, Deane and Dawson JJ. 88 Their Honours relevantly identified as the issue whether the amendment was oppressive and thus beyond the scope and purpose of the power of alteration of the articles (at 438). They refined the issue to whether the taking of a power by majority shareholders by amendment to the articles to acquire compulsorily the shares of the minority shareholders will be held to be invalid on the basis that it is oppressive (at 439). They disapproved, in the context of a special resolution altering the articles and giving rise to a conflict of interests and advantages, the "bona fide for the benefit of the company as a whole" test of oppression (at 444). They said that in such a case not involving an actual or effective expropriation of shares or of valuable proprietary rights attaching to shares, an alteration of the articles by special resolution regularly passed would be valid "unless it is ultra vires, beyond any purpose contemplated by the articles or oppressive as that expression is understood in the law relating to corporations". (The possible circularity need not be investigated in the present case.) 89 Their Honours continued (at 444-7) - "Somewhat different considerations apply, however, in a case such as the present where what is involved is an alteration of the articles to allow an expropriation by the majority of the shares, or of valuable proprietary rights attaching to the shares, of a minority. In such a case, the immediate purpose of the resolution is to confer upon the majority shareholder or shareholders power to acquire compulsorily the property of the minority shareholder or shareholders. Of itself, the conferral of such a power does not lie within the "contemplated objects of the power" to amend the articles [cf (1939) 61 CLR, at p 511]. The exercise of a power conferred by a company's constitution enabling the majority shareholders to expropriate the minority's shareholding for the purpose of aggrandizing the majority is valid if and only to the extent that the relevant provisions of the company's constitution so provide. The inclusion of such a power in a company's constitution at its incorporation is one thing. But it is another thing when a company's constitution is sought to be amended by an alteration of articles of association so as to confer upon the majority power to expropriate the shares of a minority. Such a power could not be taken or exercised simply for the purpose of aggrandizing the majority [In re Bugle Press Ltd, [1961] Ch, at pp 286-287, 287-28]. In our view, such a power can be taken only if (i) it is exercisable for a proper purpose and (ii) its exercise will not operate oppressively in relation to minority shareholders. In other words, an expropriation may be justified where it is reasonably apprehended that the continued shareholding of the minority is detrimental to the company, its undertaking or the conduct of its affairs - resulting in detriment to the interests of the existing shareholders generally - and expropriation is a reasonable means of eliminating or mitigating that detriment. Accordingly, if it appears that the substantial purpose of the alteration is to secure the company from significant detriment or harm, the alteration would be valid if it is not oppressive to the minority shareholders. So, expropriation would be justified in the case of a shareholder who is competing with the company, as was the case in Sidebottom v Kershaw, Leese & Co [[1920] 1 Ch 154], so long as the terms of expropriation are not oppressive. Again, expropriation of a minority shareholder could be justified if it were necessary in order to ensure that the company could continue to comply with a regulatory regime governing the principal business which it carries on. To take a hypothetical example: if the conduct of a television station were the undertaking of a company and a renewal of a television licence under a statute depended upon the licensee's entire share capital being held by Australian residents, the expropriation of foreign shareholders who are unwilling to sell their shares to Australian residents might be justified assuming it is fair in all the circumstances. But that is not to say that the majority can expropriate the minority merely in order to secure for themselves the benefit of a corporate structure that can derive some new commercial advantage by virtue of the expropriation. Notwithstanding that a shareholder's membership of a company is subject to alterations of the articles which may affect the rights attaching to the shareholder's shares and the value of those shares, we do not consider that, in the case of an alteration to the articles authorizing the expropriation of shares, it is a sufficient justification of an expropriation that the expropriation, being fair, will advance the interests of the company as a legal and commercial entity or those of the majority, albeit the great majority, of corporators. This approach does not attach sufficient weight to the proprietary nature of a share and, to the extent that English authority might appear to support such an approach, we do not agree with it. It is only right that exceptional circumstances should be required to justify an amendment to the articles authorizing the compulsory expropriation by the majority of the minority's interests in a company. To allow expropriation where it would advance the interests of the company as a legal and commercial entity or those of the general body of corporators would, in our view, be tantamount to permitting expropriation by the majority for the purpose of some personal gain and thus be made for an improper purpose [Brown v British Abrasive Wheel Co, [1919] 1 Ch, at pp 295-296]. It would open the way to circumventing the protection which the Corporations Law gives to minorities who resist compromises, amalgamations and reconstructions, schemes of arrangement and takeover offers . As noted in the preceding paragraphs, an alteration to the company's articles permitting the expropriation of shares will not be valid simply because it was made for a proper purpose; it must also be fair in the circumstances. Fairness in this context has both procedural and substantive elements. The first element, that the process used to expropriate must be fair, requires the majority shareholders to disclose all relevant information leading up to the alteration [Re John Labatt Ltd (1959), 20 DLR (2d) 159, at p 163] and it presumably requires the shares to be valued by an independent expert. Whether it also requires the majority shareholders to refrain from voting on the proposed amendment is a question that is best left open at this stage. The second element, that the terms of the expropriation itself must be fair, is largely concerned with the price offered for the shares. Thus, an expropriation at less than market value is prima facie unfair [Nova Scotia Trust Co v Rudderham (1969), 1 NSR (2d) 379, at p 398, but cf Phillips v Manufacturers' Securities Ltd (1917), 116 LT 290], and it would be unusual for a court to be satisfied that a price substantially above market value was not a fair value [Re Sheldon; Re Whitcoulls Group Ltd (1987), 3 NZCLC 100,058, at p 100,060]. That said, it is important to emphasize that a shareholder's interest cannot be valued solely by the current market value of the shares [Weinberger v UOP Inc . (1983), 457 A 2d 701]. Whether the price offered is fair depends on a variety of factors, including assets, market value, dividends, and the nature of the corporation and its likely future [ibid, at p 711]." (Emphasis added) 90 From this passage came the Gambotto principles. In the view I take, it is not necessary to seek to state precisely and comprehensively what they might be. 91 Selective capital reduction had been accepted in the High Court (Thornett v Federal Commissioner of Taxation (1938) 59 CLR 787), but protection to minorities who resisted selective capital reduction was not included in the catalogue emphasised in the passage set out above. Selective capital reduction in which minority shareholdings are cancelled on payment of fair prices has frequently been recognised by the courts, and in many cases confirmed (eg Catto v Ampol Ltd (1989) 16 NSWLR 342; Ramsay Health Care Ltd v Elkington (1992) 8 ACSR 73; Nicron Resources Ltd v Catto; re Deniliquin Corporation Ltd (1994) 12 ACSR 623; Melcann Ltd v Super John Pty Ltd (1995) 14 ACLC 92; re Prime Group Holdings Ltd (1995) 1 VR 56). 92 In re Albert Street Properties Ltd (1997) 23 ACSR 318, a case of capital reduction under the court confirmation regime, Hansen J considered whether Gambotto v WCP Ltd should be seen as "heralding a more stringent approach to the expropriation of minority shareholdings and that mere benefit for the majority or the company as a commercial entity may be insufficient" (at 322). His Honour said (also at 322) - "However, Gambotto did not state disapproval of the selective reduction cases and there is the overriding importance of the requirement (directed by the High Court) of consistency in decision making which means that I should follow Nicron (and the other cases) unless I am persuaded that the decision is clearly wrong. As to that I say two things. In both Deniliquin and Prime the decision in Nicron has been followed by Hayne J in this court. Second, I am not persuaded that Nicron is wrong. Finally, the relevant article (cl 52) on its ordinary and natural meaning contains no restriction that would exclude from its exercise a selective reduction of capital. Nor in light of the case law upon the point can I see any reason why it should be supposed that, contrary to its terms, the article truly intended to carry the limitation suggested." 93 In re Tiger Investment Company Ltd (2000) 33 ACSR 437, decided after Pt 2J.1 was introduced, Santow J posed as a question for another day whether "a cash takeover masquerading as a selective reduction of capital, but not associated with a scheme, [would] fall foul of the decision in Gambotto v WCP Ltd". He observed that the argument would be that such a selective reduction of capital "amounts to expropriation without a Court fairness appraisal". In the present case his Honour answered the question in the negative. In short, he concluded that the legislature had created "its own comprehensive, protective code" and that the Gambotto principles "are left with no further work to do". 94 In my opinion, the capital reduction did not have to satisfy the Gambotto principles. My reasons are essentially the same as those given by Santow J for his conclusion. 95 So far as the Gambotto principles called for a proper purpose, the context was the taking by the majority of a power to expropriate the shares of a minority. Section 256B of the Law gave the power to make a selective capital reduction – at that level, the majority did not take the power. When the power was exercised the minority, relevantly those whose shares were to be expropriated, were not at the mercy of the majority. The legislature had sought to ensure fairness between the shareholders (s 256A(b)), and had given the minority what amounted to a veto by the requirement of a special resolution passed at a meeting of the shareholders whose shares were to be cancelled. If there were complaint about expropriation, it would not be because the majority had taken a power to aggrandize itself, but because amongst the minority there was decisive support for the cancellation of their shares. It could be said that the majority of the minority would be imposing its will on the minority of the minority. But it would be doing no more than the legislature had said it could do, it would not be taking a power to itself, and it would not be getting for itself the shares of the minority of the minority. It makes little sense, in the circumstances, to speak of the majority of the minority having the purpose of securing the company from significant detriment or harm. The reasoning of the High Court does not transpose to the exercise the power given by Pt 2J.1. 96 So far as the Gambotto principles called for procedural and substantive fairness, as well as seeking to ensure fairness between the shareholders the legislature had required disclosure of all material information (s 256A(c)); and it had required that the capital reduction be fair and reasonable to the company's shareholders as a whole (s 256B(1)(a)), thereby providing its own test of substantive fairness which looked to the whole rather than to the class selectively affected and leaving it to that class to make its decision upon fairness through the class meeting. A discontented shareholder was not without curial protection, and could apply for relief pursuant to s 1324 of the Law: s 1324(1B)(a) specifically referred to contravention of s 256B(1)(b). The approach to fairness was not identical to that which would flow from the Gambotto principles. But it was comprehensive, and superadded Gambotto principles would be conflicting and confusing. 97 Without more, in my view, this suffices for the determination of this issue. It may be added, however, and reference to it was ASIC's almost sole substantive submission on this issue, that the explanatory memorandum earlier mentioned included in para 12.25 - "The mechanism for approving a selective capital reduction by special resolution potentially gives rise to the expropriation of vested property rights, in that the shares of persons who did not vote for the resolution to approve the reduction may nonetheless be cancelled. This expropriation may only be challenged on the basis that the capital reduction was not fair and reasonable to shareholders as a whole. The statutory test may be satisfied even though the reduction is not fair and reasonable for every individual member. The appropriation may also be challenged as oppressive conduct under current section 260. However, the 'fair and reasonable' test focuses on the effect and not the purpose of the reduction. Accordingly, the principles set out in Gambotto v WCP Ltd (1994-95) 182 CLR 432 do not apply to the expropriation of rights under this mechanism." Application of the Gambotto principles? 98 The next issue, arguably the remaining part of question 2 as identified by Santow J and the subject of grounds of appeal 1 and 2, would have been whether the capital reduction was invalid because it did not satisfy the Gambotto principles. GKL submitted that the issue was not raised before Santow J in the manner Winpar sought to argue it on appeal, and that Winpar's argument should not be received. It does not matter. The issue does not arise. Failure to disclose material information? 99 The next issue, involved in question 4 as identified by Santow J and in ground of appeal 7, is whether the disclosure of material information by GKL was inadequate because a "special value" of $4,100,000 was not made known in the PWC report. Winpar's submissions on appeal did not take up all that had been in question 4, and the related question 5 was not taken up at all. Ground of appeal 7 is obscure, but no objection was taken to the submissions as going outside it. ASIC did not put submissions on this issue. 100 Underlying the issue was that inadequate disclosure of material invalidated the capital reduction and could now be relied on to invalidate it, or to provide a basis for challenging its validity, either because failure to disclose all information known to GKL material to the shareholders' voting as required by s 256C(4) meant that there had not been approval by shareholders under s 256C as required by s 256B(1)(c), or because the failure constituted misleading or deceptive conduct generally proscribed by the Law and by other legislation. It may be that s 256D(2) is material to the first of these alternatives, and the second of the alternatives raises further considerations which were not addressed in the submissions. In the view I take, it is not necessary to go into those matters. 101 Winpar's submissions took as their starting-point what was said in the PWC report about capitalised head office costs. I have set it out earlier in these reasons. PWC arrived at a negative value of $4,100,000 for estimated ongoing head office costs, which amount was taken into account in valuing GKL's shares in the range 45.7 cents to 46.9 cents per share. 102 The cross-examination of Mr Hugh Edwards of PWC included - "Q. In relation to your comment in your report in relation to capitalised head office costs, do you identify in your report the amount of cost saving expected as a result of the selected capital reduction being implemented? A. We identify the amount of costs saving arising following GKL becoming a wholly owned subsidiary and no longer being listed. Q. And the cost saving which you so identify has components in it which do not result from the selective reduction doesn't it? A. My recollection is that there was a very small component in relation to the closure of the Paddington mill, but that was immaterial in the content of the overall saving of costs. Q. So that the figure of $700,000 which is in paragraph 105 of your report, for practical purposes, almost entirely relates to savings as a result of the selective capital reduction? A. That's my recollection, yes. Q. And you have not shown in your report any value in a capital sense, which will accrue to GKL or its 100 per cent owner, as a result of those savings being achieved, have you? A. The value to GKL, sorry? Q. The value to GKL or its owner of those savings being achieved? A. I think it's implicit in the calculation. Our report states the current level of head office expenses, it states expenses anticipated to be the case following the selective capital reduction, and therefore the saving is calculated by the, calculable by rededuction. Q. So that if the value of head office in the company as a whole is negative 4.1 million after implementation of the selective capital r eduction, what value would you deduce as being the present value of head office? A. As stated in the report, prior to the selective capital reduction, the head office costs were running at 2 million dollars per annum, compared with a million dollars following the selective capital reduction. So therefore had the valuation been done without regard to those benefits, the deduction in the value which occurred through the capitalised corporate overheads instead would have been 4.1 million would have been double, 8.2. " (Emphasis added) 103 Winpar submitted that the special value to GKL of the reduction in head office costs from $8,200,000 to $4,100,000, as recognised by Mr Edwards, in the emphasised portion of this evidence, had not been disclosed in the PWC report, and that the disclosure of material information was therefore inadequate. 104 Santow J said this - "83. As to disclosure, here the Defendant's complaint is that the Explanatory Memorandum does not specifically state that absent allowance for synergistic benefits, the capitalised figure for head office expenses would be ($8.2m) instead of the ($4.1m) which appears in the table on page 23 of the PWC report. (The figures in brackets represent a negative figure.) 84. However, I consider that there has been no attempt to obfuscate the position. The PWC report provides sufficient information on what is after all a matter of relative detail for anyone sufficiently interested to calculate the $4.1 million saving. That emerges from the disclosure of the following matters (references to these paras being from the PWC report): (a) The current level of head office ("HO") expenses is $2 million per year - para 104. (b) The applicable tax rate is 30% - para 104. (c) The level of HO expenses will be reduced by expenses that are incurred as a result of listed status of the company and will not be incurred following the selective capital reduction ("SCR") - para 104. (d) Estimated ongoing after tax HO costs following the SCR will be $0.7 million - para 105. (e) The capitalised negative value of these costs is $4.1 million - para 106. The steps which need to be taken which are not mentioned in the PWC report are: (a) The before tax post SCR ongoing HO expense is $1 million per year ($700,000 grossed up by the 30% tax rate). (b) The estimated post SCR level of HO expenses is half the current level. (c) The amount of HO expenses saved is $1 million per year. (d) This has a capitalised value of $4.1 million. I agree with the Defendant that it is not necessary to have descended to the level of detail where the capitalised saving is actually stated. Here the information is given from whence it can be worked out by anyone sufficiently interested and the allocation has been fair and reasonable. In those circumstances actually stating the end calculation is not of material importance; compare Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 468." 105 An attempt to obfuscate the position is really not the issue: it is the fact, not the purpose. But it was plain from the PWC report that the level of head office costs would be less after the capital reduction. As Mr Edwards said, the PWC report stated the current level of head office costs and an estimated lesser level of head office costs following the capital reduction. It said expressly in the first dot point in para 104 that "a material portion" of the head office costs currently incurred would not be incurred following the capital reduction. The calculation could readily be made. In my opinion, there was not the asserted inadequacy. The capital reduction not fair and reasonable? 106 The last issue, involved in question 3 as identified by Santow J and the subject of ground of appeal 5, is whether the capital reduction was not fair and reasonable to GKL's shareholders as a whole, as required by s 256B(1)(a), because the special value last mentioned was allocated pro rata over all the issued shares and was not allocated solely to the shares of the shareholders whose shares were to be cancelled. Winpar contended that this meant that the benefit received by the non-Goldfields shareholders was less than the benefit received by the Goldfields shareholders, so that the capital reduction was unfair and unreasonable. Its submissions on appeal did not take up all that had been argued before Santow J under question 3, and did not take up question 6 as identified by Santow J. ASIC supported GKL's opposing contention. 107 As before, it may be that s 256D(2) is material to this aspect of the challenge to the validity of the capital reduction, but it is not necessary to go into the matter. 108 After referring to Mr Edwards' recognition of the saving of $4,100,000 in head office costs, Santow J said - "60 If one were to translate this to a per share value but attribute the per share value exclusively to the minority, that would represent a figure of $0.133. In that context it should be remembered that the reduction consideration in fact contains a premium of 8 cents per share over the PWC report value at the higher end of its range; that range was 45.7 cents to 46.9 cents. If one attributed the whole of the $0.133 to the minority shareholding that translates roughly at the higher end case to an increase of 13.3 cents per share less some 1.7 cents per share already attributed to the minority. The result of that is said by the Plaintiff to be unfair, in producing (upper range) 59.5 cents per share compared to the 55 cents in fact paid; see T, 9.10." 109 After consideration of a number of cases and learned writings, and with particular reference to s 667C of the Law setting out how fair value for securities should be determined for the purposes of compulsory acquisition and buy-outs, his Honour stated his conclusion - "77 Here, if it be the case that the special benefits are of such unique value that they should lead to the minority shareholders receiving more than a pro rata proportion, it may be that it would be fair and reasonable for a greater than pro rata proportion of that special value to be attributed to the shares of the minority. However, there is nothing in the facts before me which indicates that any special value is other than the normal advantages of having a wholly-owned subsidiary as against partial ownership. These advantages include the ability to group tax losses for tax purposes (but there are none here) and the rationalisation savings from combining head offices which clearly do exist. 78 Adopting the words of Master Adams in Re Shine Fisheries Ltd (1994) 12 ACSR 627 at 634, there is nothing in the pro rata allocation and the associated 8 cents premium that in the present circumstances would lead me to conclude that the minority have been treated in other than a "fair and equitable" manner; see generally Holt v Cox (1994-1995) 15 ACSR 313 at 323-338 where the notion of a "fair price" is discussed by reference to Australian and Canadian authorities." 110 The issue was one of fact. Nothing in the Law or elsewhere prescribed that in arriving at a fair value for the shares a pecuniary estimation of the reduction in head office costs following the capital reduction should be allocated wholly to the shares of the non-Goldfields shareholders. The statutory test threw up the question. Was the capital reduction unfair or unreasonable to GKL's shareholders as a whole if that were not done? His Honour was not satisfied that it was. 111 Winpar submitted that Santow J erroneously regarded the difference between approximately 47 cents per share and the price of 55 cents per share as an 8 cents premium which went to alleviate any unfairness or unreasonableness in the allocation of the special value from reduction in head office costs. I do not see why this was erroneous. The determination of fairness and reasonableness can, indeed should, pay regard to all relevant matters, and that the price is higher than the assessed fair value, subject to the issue of allocation of the special value, is a relevant matter. 112 Winpar's principal submission, however, was that Santow J erred in treating the special value as an asset of GKL in which its shareholders could have (in a non-legal sense) an aliquot interest. It submitted that the special value was not an asset of GKL, but was an ingredient in a transaction, and was to be allocated wholly to the non-Goldfields shareholders because in the transaction those shareholders would reasonably demand payment and the Goldfields shareholders would reasonably make payment of the amount of the special value. Support was found in the observation in The Commonwealth v Milledge (1953) 90 CLR 157 at 164 that - " … compensation must include not only the amount which any prudent purchaser would find it worth his while to give for the land, but also any additional amount which a prudent purchaser in the position of the owner, that is to say with a business such as the owner's already established on the land, would find it worth his while to pay sooner than fail to obtain the land." 113 I do not think that Santow J overlooked this consideration, or erred in the manner suggested: indeed, he referred to The Commonwealth v Milledge immediately before stating his conclusion in the passage earlier set out. Viewed as a transaction between a vendor and a purchaser, the allocation of the special value when assessing the fair value of the shares of the non-Goldfields shareholders remained a question of fact. But the allocation was not to be viewed solely in that manner. The statutory test was whether the capital reduction was fair and reasonable to the company's shareholders as a whole. Strictly, the PWC report did not address that test, but rather addressed whether the price of 55 cents per share was "fair and reasonable having regard to the interests of the non-Goldfields shareholders of GKL". That was part of whether the capital reduction was fair and reasonable to GKL's shareholders as a whole, and when Santow J spoke in his conclusion of fairness and reasonableness and of fair and equitable treatment of the minority he must have had the statutory test in mind. The allocation of the special value was one feature only of fairness and reasonableness between the shareholders as a whole. Taken to the full, if an acquiring majority had to pay to the last cent to an acquired minority a pecuniary value for every benefit flowing from the capital reduction, there would be no reason to make the capital reduction. The vendor-purchaser transaction approach is not determinative. 114 In Melcann Ltd v Super John Pty Ltd confirmation of the capital reduction was refused because the price to be paid for the minority's shares did not take account of "substantial financial advantages" which would be available to the majority shareholder from its ability after the cancellation of the minority shareholdings "to merge substantial elements of the company's activities with those of [the majority shareholder] itself" (at 83). It was said that 100 per cent ownership of the company had special value to the majority shareholder of very considerable financial significance, and that the valuation of the shares had not had regard to it at all. 115 That the capital reduction should not be confirmed was a decision on the facts, and the facts included that the special value had been entirely left out of account, not that it had been taken into account but allocated over all the shares. The present case is very different. 116 One of the benefits of the capital reduction was a reduction in head office costs. Receipt of that benefit, through the value of the shares or otherwise, was at least one reason why the capital reduction was proposed and no doubt one reason why Goldfields shareholders favoured the capital reduction. Absent the capital reduction, the non-Goldfields shareholders would not have received, through the value of their shares or otherwise, the benefit of the reduction in head office costs. By the capital reduction each of the Goldfields shareholders and the non-Goldfields shareholders stood to receive that benefit, something which they would not otherwise have received. It was in that sense, I believe, that Santow J described the special value as (part of) the normal advantages of having a wholly owned subsidiary as against partial ownership. The advantage is an advantage to the acquiring majority, but it is also an advantage to the acquired minority in that, on acquisition, they obtain an enhanced price for their shares. There is no necessary unfairness or unreasonableness if the advantage is shared. 117 In my opinion, it was well open to Santow J to conclude that a pro rata allocation did not mean that the capital reduction was not fair and reasonable to the shareholders as a whole. Orders 118 In my opinion the appeal should be dismissed with costs. 119 DAVIES AJA: I agree with the orders proposed by Giles JA. I also agree with his Honour's reasons for judgment, save in one respect. 120 Section 256C(2) of the Corporations Law specifies requirements with which a selective reduction of capital must comply. In my view, the failure to hold a meeting of the shareholders whose shares were to be cancelled was a substantive not a procedural irregularity. No such meeting was called or held. The only meeting called and held was a general meeting of the shareholders. I need not further discuss the operation of s 1322 of the Corporations Law as, by reason of s 256D of the Corporations Law and the implementation of the reduction, the failure to hold the meeting does not now affect the validity of the reduction or of any contract or transaction connected with it. _________________ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.