Case: Re Coles Group Ltd [2007] VSC 389
Outcome: discussed
In FT Eastment &amp; Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, Street CJ said: [T]he court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms, if it achieves the statutory majority at the creditor's meeting [in this case, the members' meeting] the court would be likely to approve it on the hearing of a petition which is unopposed. That passage was cited with approval by the High Court in Australian Securities Commission v Marlborough Goldmines Ltd [1993] HCA 15 ; (1993) 177 CLR 485, and has been followed in many decisions since, including recently Re Coles Group Limited [2007] VSC 389 per Robson J. 30 There may be some difference of opinion, or perhaps only of emphasis, between the views of Robson J in Re Coles Group Ltd [2007] VSC 389 and Fryberg J in Re Mincom Ltd (2007) 61 ACSR 266 as to whether it is necessary to consider s 411(17) at the first stage of the two stage process for the Court to direct the meeting and then, after the scheme is voted upon, to approve it. If that consideration is relevant at this point, that is whether there is a likelihood (or prospect) of s 411(17) being satisfied at first stage, I have the necessary level of satisfaction at this point and on the material referred to. The provisional view of ASIC referred to above indicates that there is a prospect of it producing to the Court the form of statement referred to in s 411(17)(b), although of course the Court then clearly is not obliged to approve the proposed scheme. Alternatively, on the information presently available to me, as I have indicated, I do not see a reason why, if the members of Hostworks at the proposed meeting of the scheme support the proposed scheme, I would not be satisfied that the scheme has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6. That must necessarily be only a tentative and provisional judgment. However, it is accepted, as is now commonplace, that in circumstances such as the present, an entity such as Hostworks has a choice between following the takeover procedure in Chapter 6 in conjunction with Broadcast Australia or following the scheme of arrangement procedure supported by inter partes documentary agreements as contemplated by Pt 5.1 of Chapter 5 of the Act. Consequently, the mere choice of the procedure now being adopted is not an indication that a purpose of this procedure is to enable any person to avoid the operation of any provisions of Chapter 6. There will thus need to be some identification of which provision or provisions of Chapter 6 might relevantly operate so as to produce potentially a different outcome to that which would follow from the present procedure and an exploration of why the Pt 5.1 procedure has been used having regard to that provision or those provisions if s 411(17)(a) is to be enlivened. Such consideration may also be relevant to the discretion of the Court under s 411(17) if ASIC has provided a statement under s 411(17)(b). No such provision has presently been identified. 32 The performance risk concern has been raised in previous scheme of arrangement applications. They are referred to by Lindgren J in Re APN News 62 ACSR 400 at [23]. I will not repeat them. It is necessary to consider the so called "performance risk" of shareholders being left in a position, once the scheme has become effective, of their shares having been transferred to Broadcast Australia, but then facing a delay in the provision of the scheme consideration, so that their only remedy would be to sue on the Deed Poll. That risk has been overcome here by requiring the scheme consideration to be paid to Hostworks before 12 noon on the "implementation date" to be held in trust by Hostworks for the purpose of being paid to the scheme participants, that is the shareholders of Hostworks, before they are divested of their shares in Hostworks later on in the implementation date. Broadcast Australia must provide the funds to pay for the shares it is to acquire before they are transferred. A similar arrangement was satisfactory to Robson J for the purposes of authorising or directing the calling of the proposed meeting in Re Coles Group [2007] VSC 389 ; see at [38]. The Deed Poll contains a covenant on the part of Broadcast Australia to provide the scheme consideration on the implementation date in accordance with the terms of the scheme so that it ties the settlement step of payment and transfer together. 41 Under cl 7.3(a) of the Implementation Agreement, each scheme participant is deemed to have warranted that all of its shares in Hostworks which are transferred under the scheme will be free from all mortgages and encumbrances. Fryberg J in Re Mincom Ltd (No 3) (2007) 25 ACLC 207, regarded an almost identical deemed warranty clause as onerous and unreasonable and "calculated to catapult unsuspecting shareholders who have not read the small print of the arrangement in the schedule to the explanatory statement into a state of breach of warranty": at [21]. In Re APN News &amp; Media Ltd 62 ACSR 400, Lindgren J disagreed with the approach of Fryberg J: see at [59]-[62]. I respectfully agree with and adopt the views of Lindgren J. I share the understanding of his Honour that the purpose and effect of such a clause is simply to ensure that a scheme participant whose shares are subject to an encumbrance is not unfairly advantaged. The amount of the damages payable for breach of the warranty would be equal to the amount required to discharge the encumbrance. I note that the approach of Lindgren J has been preferred in subsequent cases, including by Robson J in Re Coles Group Limited [2007] VSC 389 at [45] ; by Lander J in Re Adelaide Bank Limited [2007] FCA 1582 at [33] ; and by Gyles J in Orion Telecommunications Ltd [2007] FCA 1389 at [9] .