Case: Re ETRADE Australia Limited (1999) 30 ACSR 516
Outcome: referred to
Symbion Health also relies on the judgment of Santow J in Re ETRADE Australia Ltd (1999) 30 ACSR 516 ( ETRADE ). It refers to the statement by his Honour (at 517) to the effect that in that case a distinction was to be drawn between the reduction of capital by the allocation of cash pro rata according to a certain formula on the one hand, and the application of the shareholders' cash entitlement (by reason of a scheme of arrangement before his Honour) in the purchase of shares previously acquired by the scheme company. 84 In ETRADE 30 ACSR 516, Santow J distinguished between a resolution for the reduction of capital which provided for a distribution of cash to the shareholders, and a logically subsequent application of their cash entitlements to the acquisition of shares in another company. Under the scheme of arrangement that was before the court, the shareholders in a company were required to acquire shares in another company. His Honour said that such cases concerned the question of "the precise point at which the reduction of capital ceased its work and an associated scheme of arrangement took over" (at 516). He stated (at 517): The present proposal before me might be thought to involve a reduction of capital by way of transfer of shares owned by the company effecting the reduction. (There is also the usual provision for shareholders with foreign addresses having their pro rata allocation of shares allotted or transferred to a nominee for sale and the proceeds accounted for to the shareholder with the foreign address.) However, that characterisation would not be an accurate statement of what in fact is brought about by the reduction of capital. The reduction of capital in legal terms allocates cash pro rata according to the formula in the documentation. Only after that, and solely by force of the scheme, that cash is required to be applied in purchasing ICM shares previously acquired by the scheme company, ETRADE Australia Ltd. The two steps are telescoped, so that the shareholder never physically receives the cash, but they remain conceptually distinct. In those circumstances, there is clearly enough what s 256B(2) defines as an "equal reduction". That is to say, the reduction relates only to ordinary shares including those created by virtue of the exercise of pre-existing options, it applies in proportion to the number of ordinary shares held and the "the terms of the reduction are the same for each holder of ordinary shares". Being thus an equal reduction, it may now be effected merely by an ordinary resolution. 85 Consistently with this passage, I regard the Capital Reduction as ending with the allocation of the pro rata number of Consideration Shares provided for in the Capital Reduction Resolution to each Symbion Health shareholder as at the Record Date. The Capital Reduction Resolution gives rise to an entitlement in each such shareholder to a certain number of the Consideration Shares, even if "the shareholder never physically receives" those Consideration Shares, to adopt the words of Santow J. The entitlement to a certain number of the Consideration Shares and the ultimate receipt of cash representing the proceeds of the sale of them "remain conceptually distinct" as his Honour said of the entitlement to cash and receipt of shares in ETRADE 30 ACSR 516.