Case: Re AMP Ltd (2003) 48 ACSR 540
Outcome: referred to
Finally, Symbion Health refers to the decision of Emmett J in Re AMP Ltd (2003) 48 ACSR 540 ( AMP ) in which his Honour appears to have had no difficulty in accepting that an equal reduction of capital was involved, even though cl 3.3 of the scheme before him was an "ineligible overseas shareholders" provision. 50 Idameneo points out that under cl 13.8 of the TID (summarised at [20] [22] above), the amount of the Symbion Health Break Fee and the Healthscope Break Fee (each $19.575 million) includes a reasonable amount of compensation in respect of costs and expenses incurred by Healthscope and Symbion Health respectively in respect of the Original Scheme. Idameneo submits that to the extent that the Symbion Health Break Fee includes compensation in respect of costs and expenses of that kind, the conduct of the Directors in causing Symbion Health to agree to pay that fee is a breach of their duties as directors either under s 181(1) of the Act or under the general law: (a) to act bona fide in the best interests of Symbion Health, and, or in the alternative, (b) for a proper purpose. 51 Idameneo submits that Symbion Health's response to a notice given to it by Idameneo to produce documents in respect of the negotiation of the contents of clauses 4.9, 13.8 and 13.9 of the TID does not disclose that the Directors gave any consideration to the issue whether the break fee to be agreed to as payable by Symbion Health should include Healthscope's costs associated with the failed Original Scheme. 86 Similarly, in AMP 48 ACSR 540, an application for orders under s 411 of the Act in respect of a scheme of arrangement, Emmett J had no difficulty in recognising the distinction between a "Capital Adjustment Resolution" which gave rise to a "Cancellation Entitlement" in the Scheme Shareholders on the one hand, and the application of that Cancellation Entitlement by the Scheme company as consideration for the issue to the Scheme Shareholders of an appropriate number of shares in a different company. While there was no argument on the question, the reduction was recognised by his Honour as an equal reduction distinct from the logically subsequent application of the Cancellation Entitlement of each Scheme Shareholder (see [6] [8]). In that case a distinction was drawn in the Scheme conditions, appropriately in my view, between the Capital Adjustment Resolution which effected the reduction of share capital on the one hand, and "Scheme mechanics" that included both the application of the Cancellation Entitlement and the treatment of ineligible overseas shareholders on the other hand. 87 A second submission made by Symbion Health, outlined above at [43], is that, independently of the formal distinctness of the two resolutions, the proposed reduction is an equal reduction. The submission is that para (c) of s 256B(2) ("the terms of the reduction are the same for each holder of ordinary shares") is to be construed in the light of the purpose of the provision. That purpose is stated in s 256A as being "to ensure fairness between a company's shareholders". Symbion Health refers to the Explanatory Memorandum to the Company Law Review Bill 1997 (Cth) which introduced s 256C. The Explanatory Memorandum explained (at 10.17): Selective reductions require a special resolution, or unanimous shareholder agreement at a general meeting, because they have the capacity to advantage some shareholders over others . Where a selective reduction is approved by a special resolution, a vote may not be cast in favour of the resolution by a person who is to receive consideration as part of the reduction, or whose liability in respect of amounts unpaid on shares is to be reduced. ... This is intended to ensure that the resolution's approval reflects the wishes of the company's disinterested shareholders and corresponds to the approach taken in section 257D of the Bill in relation to shareholder approval for a selective share buy-back. (Emphasis added.) 88 I also accept this alternative submission made by Symbion Health. I do not think that para (c) of s 256B(2) is concerned with characteristics peculiar to a particular shareholder (in this case the operation of the laws of the place of residence of a particular overseas shareholder) that have nothing to do with equality of treatment of shareholders by the resolution or by its operation on their rights under the constitution of the company. There is no suggestion that the Ineligible Overseas Shareholders provision has "the capacity to advantage some shareholders over others" in the relevant sense of "aptness to advantage some shareholders over others". 89 The law, whether Australian or foreign, may have a wide and diverse range of impacts on shareholders in an Australian company who reside overseas. Revenue laws come to mind. The effect of those laws may be that the ultimate net effect of a distribution will be different as between Australian resident shareholders and a particular overseas resident shareholder. A reduction of capital can be an equal reduction notwithstanding the operation of such laws on the special position of the overseas shareholders. Indeed, tax considerations may be seen to produce differential ultimate net effects of a capital reduction even as between particular Australian resident shareholders, but it could not be suggested that the reduction is made a selective one on that account. 90 The presently contemplated overseas laws preventing in specie distributions are also laws of general application that cause a procedural difficulty for overseas resident shareholders in realising their entitlements. I do not think that a procedure of the kind expressed in the Ineligible Overseas Shareholders Resolution is the concern of para (c) of s 256B(2): such a procedure is designed to facilitate equality of treatment of shareholders rather than to prevent it.