Permanent Trustee Company [2002] NSWSC 1177

Reported Decision : 43 ACSR 601 (2003) 21 ACLC 525

New South Wales Supreme Court

CITATION : Permanent Trustee Company [2002] NSWSC 1177 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 4535/02 HEARING DATE(S) : 06/12/02 JUDGMENT DATE : 6 December 2002

PARTIES : Permanent Trustee Company Limited - Plaintiff JUDGMENT OF : Barrett J

COUNSEL : Mr M B Oakes SC - Plaintiff SOLICITORS : Mallesons Stephen Jaques - Plaintiff CATCHWORDS : CORPORATIONS - Part 5.1 scheme of arrangement - nature of fairness criterion against which scheme is judged upon application for court's approval LEGISLATION CITED : Corporations Act 2001 (Cth) Re Adelaide Air Conditioning & Domestic Engineering Ltd (1972) 6 SASR 603 Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213 Re Arnotts Ltd (1997) 16 ACLC 423 CASES CITED : Re A W Allen Ltd [1930] VLR 251 Re Central Pacific Minerals NL [2002] FCA 239 Re Challenge Bank Ltd (1995) 19 ACSR 421 Re Simeon Wines Ltd (2002) 42 ACSR 454 Thomas A Edison Ltd v Bullock (1912) 15 CLR 679 DECISION : Scheme of arrangement approved

- 9 - IN THE SUPREME COURT REVISED OF NEW SOUTH WALES EQUITY DIVISION

BARRETT J

FRIDAY 6 DECEMBER 2002

4535/02 - PERMANENT TRUSTEE COMPANY LIMITED (APPLICATION OF)

JUDGMENT

1 The plaintiff, Permanent Trustee Company Limited (which I shall call "the company"), seeks the approval of the court under s.411(4)(b) of the Corporations Act 2001 in relation to a scheme of arrangement between the company and its members. The scheme has been propounded by the company and placed before its members for approval at a meeting convened in accordance with orders previously made by the court. This has happened in a context also involving a general meeting of members and certain contractual arrangements between the company and Trust Company of Australia Limited ("Trust Company"). 2 The effect of the scheme, upon implementation of its terms and those of the relevant contracts, will be that all shares held by each member of the company will be transferred to Trust Company after payment of a special dividend of $1 per share by the company to the member, with the member receiving an allotment of Trust Company shares in return for the transfer of his or her shares in the company. The exchange ratio will be 1.1856 Trust Company shares for each share in the company. The result will therefore be that the company becomes a wholly owned subsidiary of Trust Company and each former member of the company, having received from the company the special dividend of $1 per share, will become a member of Trust Company, taking his or her place beside the existing members of Trust Company. 3 The evidence adduced this morning establishes satisfaction of all procedural requirements necessary to enable the exercise of the court's jurisdiction to grant approval under s.411(4)(b) in respect of the compromise or arrangement between the company and its members. I refer principally to the requirements with respect to the convening and holding of the necessary meeting of members and the passing of the necessary resolution by the majority referred to in s.411(4)(a)(ii). The affidavit of the secretary of the company, to which are annexed the minutes of the meeting, shows that the necessary majority was obtained in terms of both number of members and number of votes. Of the members voting in person or by proxy or representative, 97.25 per cent voted to approve the scheme. The positive votes represented 99.15 per cent of all votes cast. 4 As to s.411(17), which forbids the grant of the court's approval unless either the court is satisfied as to the matters specified in s.411(17)(a) or there is produced to the court a statement by the Australian Securities and Investments Commission as mentioned in s.411(17)(b), there has been placed before me, as an annexure to the affidavit of Mr Lang sworn 6 December 2002, a statement by ASIC of the kind contemplated by the latter provision. The statement is contained in ASIC's letter to Mallesons Stephen Jaques dated 5 December 2002. Section 411(17) therefore does not operate as an obstacle to the grant of the s.411(4)(b) approval by the court. 5 When the proceedings were before the court at the meeting convening stage, I noted that the operation of the substantive provisions of the scheme was subject to a number of preliminary conditions and that it would be necessary for the court to be informed of the status of those conditions if and when an application for the court's approval of the scheme was made. That matter has been dealt with in the evidence today by means of a certificate from both the company and Trust Company confirming the satisfaction of conditions, as well as the affidavits of Mr Oriti and Mr Sweeney, both sworn 6 December. All conditions have been satisfied. The position is, therefore, that the court is not asked to approve a scheme which is contingent or uncertain. It can proceed to grant its approval knowing that the scheme, as approved, will be self-executing in the sense that no discretions or other external acts are to play any part in its due implementation according to its terms. 6 It is also established by the evidence that this application was advertised in accordance with the rules, with the result that there has been widely disseminated notice that it would be before the court this morning. The matter was called outside court and, apart from the company as applicant, there has been no appearance, although I understand that the legal representatives of Trust Company are in attendance. 7 In a technical sense, the application proceeds ex parte, which is a common enough occurrence in cases of this kind. The fact that the application is ex parte is not without some significance. The absence of any defendant or contradictor sharpens the duty of the applicant. While a case such as the present is distinguishable from one where an interlocutory injunction is sought in the absence of the defendant (in that there is here no defendant as such) I think it is fair to say that an applicant in this kind of situation, like an applicant ex parte for an injunction, carries the responsibility of bringing to the court's attention all matters that could be considered relevant to the exercise of its discretion. The principles do not need elaboration. It is sufficient to refer to the judgment of Isaacs J in Thomas A Edison Ltd v Bullock (1912) 15 CLR 679. I am entitled to be confident that all relevant material is before the court. 8 I proceed to the central question whether the court should exercise its discretion in favour of approving the scheme. There is no exhaustive statement of the matters as to which the court must be satisfied before granting approval. Indeed, courts have been reluctant to attempt any comprehensive or compendious statement of relevant criteria. I refer to the judgment of MacFarlan J in Re A W Allen Ltd [1930] VLR 251: "In my opinion nothing can be more dangerous than to attempt to determine the conferring or withholding of the Court's sanction by the application of any formula. … The Authorities relied on are all useful as directing the attention of the Court which is asked for sanction to considerations which have occurred to, or have been brought to the minds of, other judges and which they have properly held to be of importance. Considerations which are of the greatest weight in one class of case may be outweighed by circumstances not present in the former. If the Legislature had desired to say that the Court should sanction an arrangement if the necessary majorities were obtained and the conditions of reasonableness and absence of oppression (or any others definable in advance) existed, it would have been easy to say so. It has chosen not to do so." 9 It is nevertheless clear that the court must form a favourable view as to the reasonableness of the compromise or arrangement. This was established in Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213. Fry LJ said in that case: "Under what circumstances is the Court to sanction a resolution which has been passed approving of a compromise of arrangement? I shall not attempt to define what elements may enter into the consideration of the Court beyond this, that I do not doubt for a moment that the Court is bound to ascertain that all the conditions required by the statute have been complied with; it is bound to be satisfied that the proposition was made in good faith, and, further, it must be satisfied that the proposal was at least so fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such a member, might approve of it. What other circumstances the Court may take into consideration I will not attempt to forecast". Lindley LJ said (at 238): "What the Court has to do is to see, first of all, that the provisions of that statute have been complied with; and, secondly, that the majority have been acting bona fide. The Court also has to see that the minority is not being overridden by a majority having interest of its own clashing with those of the minority whom they seek to coerce. Further than that, the Court has to look at the scheme and see whether it is one as to which persons acting honestly, and viewing the scheme laid before them in the interests of those whom they represent, take a view which can be reasonably taken by business men. The Court must look at the scheme, and see whether the Act has been complied with, whether the majority are acting bona fide, and whether they are coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and then see whether the scheme is a reasonable one or whether there is any reasonable objection to it, or such an objection to it as that any reasonable man might say that he could not approve of it."