Reported Decision : 54 ACSR 270 New South Wales Supreme Court CITATION : Capel Finance Ltd [2005] NSWSC 522 HEARING DATE(S) : 04/04/05, 06/04/05, 31/05/05 JUDGMENT DATE : 31 May 2005 Equity Division JURISDICTION : Corporations List JUDGMENT OF : Barrett J DECISION : Scheme of arrangement approved CATCHWORDS : CORPORATIONS - scheme of arrangement - reduction of capital - application for order approving scheme - two matters of non-compliance brought to court's attention - each involving taking of step before relevant ASIC lodgment or registration which was effected soon afterwards - ASIC unwilling to issue "no action letter" before consideration by court - no appearance by ASIC - procedural irregularities - no prejudice - scheme approved LEGISLATION CITED : Corporations Act 2001 (Cth) ss.256B, 256C, 256D, 411(4)(b), 412(6) Australian Hydrocarbons NL v Green (1985) 10 ACLR 72 CASES CITED : SGIC Insurance Ltd v Insurance Australia Ltd (2004) 51 ACSR 593 Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001) 166 FLR 144 PARTIES : Capel Finance Limited - Plaintiff FILE NUMBER(S) : SC 2203/05 COUNSEL : Mr M.B. Oakes SC - Plaintiff SOLICITORS : Cowley Hearne Lawyers Pty Limited LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J TUESDAY 31 MAY 2005 2203/05 - CAPEL FINANCE LTD JUDGMENT 1 The plaintiff applies for an order under s.411(4)(b) of the Corporations Act 2001 (Cth) approving a scheme of arrangement between the plaintiff and those of its members designated "scheme members" – effectively, all members except two whose shares are not to cancelled under the reduction of capital that forms part of the scheme. 2 The evidence shows that the explanatory statement and other documents that were before the court upon the application under s.411(1) for orders for the convening of the relevant meeting were dispatched to members. The evidence also shows that the meeting was held in accordance with the directions made by the court and that, at that meeting, the scheme received approval from 96.06 per cent of the scheme members who voted in person or by proxy and that the approving members accounted for 99.6 per cent of total votes cast in person or by proxy. The condition referred to in s.411(4)(a)(ii) was thus clearly satisfied. The two special resolutions called for by s.256C(2) in relation to the reduction of capital that is central to the scheme were duly passed. 3 ASIC has provided a letter stating that it is satisfied that the scheme has not being proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6 of the Corporations Act. This is a letter pursuant to s.411(17)(b). Its issue by ASIC means that that the court need not concern itself with the Chapter 6 avoidance question. 4 There are, however, three matters that do require comment and attention upon the present application. The first two concern non-compliance with provisions of the Act as to timing. The first non-compliance was non-compliance with s.412(6) which applies to a members' scheme such as this. Section 412(6) says that an explanatory statement must not be sent to members unless it has been registered by ASIC. In the present case, the explanatory statement was sent out on 18 April 2005 but was not lodged for registration until that day. An attempt was made to halt the process of dispatch so that matters could occur in the correct order, but the process by then was beyond recall. In the result, therefore, there was non-compliance because registration had not occurred at the time of despatch although it was effected very soon afterwards. It is to be noted, however, that ASIC had previously had the time for prior consideration of the explanatory statement provided for by s.411(2). 5 The second matter involves s.256C(5) and the aspect of the scheme that involves a reduction of capital. Under that section, there is a requirement that, before the notice of meeting containing a proposed resolution for reduction of capital is sent to members, there be lodged with ASIC a copy of the notice and of any accompanying document. There was non-compliance as to timing in this respect in that the required lodgment occurred on the day after dispatch of the notice and other documents. 6 Neither of these timing anomalies can be said to be of any substantive relevance. To the extent that availability of documents for inspection through ASIC plays a part in the respective requirements, the reality is that the document was, in each case, in ASIC's hands within a very short time after the missed deadline. In relation to the s.256C(5) default, it is made clear by the decision of the Court of Appeal in Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001) 166 FLR 144 that the effect of s.256D (which, through the reference in s.256D(1) to s.256B(1), catches s.256C(5): see s.256B(1)(c)) is that the reduction of capital is valid despite non-compliance with the procedural rules. I refer, in particular, to the discussion at paragraph [47] and following of the judgment of Giles JA. 7 The plaintiff, acting responsibly, took up the matters of non-compliance with ASIC and requested a "no action letter" in accordance with ASIC's policy statements 108 and 51. ASIC's response, on 20 May 2005, was: "In relation to your client's request for a no-action letter in respect of the breaches of sections 256C(5) and 412(6), I advise that ASIC does not consider it appropriate to make a final decision on the application until after the Court hearing to approve the scheme because of the Court's powers in relation to such matters. In particular, I note the Court's power under subsection 1322(4) in relation to procedural irregularities. As the no-action letter is an enforcement matter for ASIC, it is irrelevant to the validity or otherwise of the scheme." 8 ASIC was aware that the approval application would be before the court today. The matter has been called outside court. There has been no appearance by ASIC or anyone else and it is clear therefore that ASIC, being on notice of the time and place of the hearing, has not seen any reason to view the matters of non-compliance as requiring submissions by it to the court on the question of approval of the scheme - although, of course, it is open to ASIC to act in relation to them at other levels as it thinks fit in the public interest. 9 The plaintiff takes the view that the two matters of timing non-compliance have caused no prejudice and are procedural irregularities within s.1322(2). That appears to me to be a valid assessment, with the result that any necessary validation (and I am not sure that there is any need for validation of anything, in a practical sense) arises simply by operation of s.1322(2). There has been no application under s.1322(4), that, as Mr Oakes has submitted, being something that would not have met with favour in such a case. He referred to the decision of Hodgson J in Australian Hydrocarbons NL v Green (1985) 10 ACLR 72 which was also referred to in an analogous context by Jacobson J in SGIC Insurance Ltd v Insurance Australia Ltd (2004) 51 ACSR 593. 10 The plaintiff has made a case for the making of the approving order under s.411(4)(b). There is no opposition. I will make the order. 11 There is, however, a third matter of timing to be mentioned briefly. It relates to the fact that the period of 14 days which, under s.256C(3), must be allowed to elapse from lodgment of the reduction resolutions with ASIC before the reduction can be put into effect has not yet expired. At this point, only 11 days of that period have passed and there remains the possibility that a member may seek, by appropriate injunction application, to prevent the implementation of the reduction of capital. In practical terms, that possibility must be regarded as extremely remote, in view of the fact that any member minded to intervene in that way would logically have seen today's hearing (duly advertised and otherwise brought to members' attention) as a tailor-made opportunity to put forward arguments against the implementation of the reduction of capital which is an integral part of the scheme. Nevertheless, it is desirable that the court's approving order under s.411, although made today, not be entered until the 14-day period has expired, with leave for any member to have the matter restored to the list within the balance of the 14-day period. 12 I make the orders and direction in the short minutes which I now initial and date, being the following orders and direction: 1. Order that he scheme of arrangement between the plaintiff and certain of its members which is annexed to the short minutes and marked 'A' be and is hereby approved. 2. Order that the plaintiff be exempt from compliance with s.411(11) of the Corporations Act 2001 (Cth) in relation to the said scheme of arrangement. 3. Direct that that these orders not be entered before Monday 6 June 2005. 4. I also direct that leave be reserved to any member of the plaintiff to have the matter restored to the list before Monday 6 June 2005. ********** 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.