Australian Consolidated Investments Limited v Rossington Holdings Pty Ltd

[1992] FCA 188

Re: AUSTRALIAN CONSOLIDATED INVESTMENTS LIMITED
And: ROSSINGTON HOLDINGS PTY. LIMITED
No. G3058 of 1992
FED No. 188
Corporations
(1992) 10 ACLC 600
(1992) 106 ALR 221
(1992) 7 ASCR 341
(1992) 35 FCR 226

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Sheppard(2), Davies(1) and Beaumont(3) JJ.

CATCHWORDS

Corporations - Takeover offers - Part A statement - cl. 8(b) and 17 of s.750 of Corporations Law - omission to refer to convertible preference shares in offer - cl. 11(b) of s.750 of Corporations Law - whether failure to disclose sufficient information about arrangements to provide cash consideration - s.743(1) of Corporations Law - whether contravention should be excused - relief.

HEARING

SYDNEY

#DATE 16:4:1992

Counsel and Solicitors T.F. Bathurst Q.C. with
for Appellant: N.C. Hutley instructed by

Freehill Hollingdale and Page

Counsel and Solicitors G.K. Downes Q.C. with
for Respondent: M.A. Pembroke instructed by

Rosemblum and Partners

ORDER

1. Appeal allowed in part.

2. Set aside orders 1 and 2 made by Lockhart J. on 30 March 1992.

In lieu thereof:

(a) Declare that the respondent's Part A statement does not set out the particulars required by cl.11 of s.750 of the Corporations Law.

(b) Order that the respondent pay one-half of the costs of the appellant at first instance.

3. Order that the matter be remitted to a single Judge of the Court for the purpose of entertaining any application by the respondent in respect of remedial action pursuant to s.739 of the Corporations Law or an application by the respondent for the excuse of a contravention pursuant to s.743 of the Law.

4. Order that, otherwise, the appeal be dismissed.

5. Order that the respondent pay one-half of the appellant's costs of the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

I agree in general with the reasons for judgment prepared by Beaumont J. but would add a few words of my own.

1. A Part A statement need not be expressed in technical terms or be excessively long but it should be sufficient to ensure that offerees receive all the information that is necessary for them to make an informed judgment on the merits of the offer. Clause 17 of s.750 of the Corporations Law requires the disclosure of "any other information material to the making of a decision by the offeree." Information which is necessary to enable an offeree to make an informed assessment of the offer is such information.

2. I agree with Beaumont J. and with the trial Judge that the failure of the offeror to disclose what it may have been considering with respect to the future of the convertible preference shares was not such information. No offer was made with respect to them. It would have been misleading not informative for the offeror to have speculated as to the future.

3. However, the offeror did not satisfy the requirements of clause 11 of s.750. The Part A statement did not state:-
   

"(i) particulars sufficient to identify the other person who is, or each of the other persons who are, to

provide, whether directly or indirectly, some or all of the cash from that person's or those persons' own funds; and

(ii) particulars of the arrangements by which that cash will be provided by that other person or those other persons."

The trial Judge, in reliance upon the decision of Kearney J. in North Sydney Brick and Tile Co. Ltd. v. Darvall (1986) 5 NSWLR 662, thought it sufficient that offerees be informed "of the person or persons who are to provide the cash to the offeror to enable the shares to be acquired by it". His Honour thought it sufficient that the offeror disclose the identity of the persons who were directly to supply the funds.

1. However, clause 11 has a wider object than that. It seeks to ensure that the offerees will obtain sufficient information so that they may make an informed judgment as to whether the necessary cash is or will be available to carry through the offer. Therefore, clause 11 uses the terms "directly or indirectly" and "own funds". The clause requires a statement of the identity of the person or persons out of whose own funds the cash will be provided to be identified.

2. The Part A statement did not do that for it referred only to anticipated borrowings by the offeror from BIL (Australia Finance) Limited and GPG plc, not to the source from which those companies would derive the cash. It appears from counsel's submissions that Brierly Investments Limited and GPG plc will fund the takeover using their own funds and without recourse to external borrowings. But the Part A statement did not say so.

3. The Part A statement did not disclose the proportions in which each of the companies would provide the cash and the description of the particulars of the arrangements was extremely brief. However, as the overall financing arrangements are unknown to the Court I express no view as to whether material information was thereby omitted.

4. I would therefore declare that the Part A statement did not comply with clause 11 of s.750 of the Corporations Law. I would remit the matter to a single Judge of the Court for the purpose of making remedial orders under ss.739 and 743 of the Corporations Law. The respondent should pay one-half of the appellant's costs of the appeal and at first instance.

JUDGE2

In this matter I have had the advantage of reading the judgment to be delivered by Beaumont J. I agree that the appellant's case, insofar as it is based on clause 17 of s.750 of the Corporations Law, must fail. To me the matter is concluded by the fact that the offer is plainly one for the acquisition of the ordinary shares which had been issued up to the time of the offer. It was made clear that the offer was not for the preference shares even though they would be converted to ordinary shares on 30 April 1992 i.e. before the offer closed. I agree with Lockhart J. when he said that shareholders would know plainly from the terms of the Part A statement and the proposed form of offer that the offer was confined to the ordinary shares and did not include the preference shares.

1. It should be mentioned that, although a number of shareholders hold both ordinary and preference shares, there are numbers of shareholders who are preference shareholders only. These would not be entitled to receive the Part A statement because it deals only with an offer for the ordinary shares. If some statement were placed in the Part A statement about the intentions or absence of any intention of the offeror in relation to the preference shares, it is not unlikely that much confusion would arise. Those who held only preference shares would not receive this information, but they might hear of it indirectly from the ordinary shareholders who received the Part A statement or through the press. Not unnaturally that would be likely to trigger all sorts of anxieties on the part of preference shareholders which would not otherwise have arisen.

2. I have reluctantly come to the conclusion that, contrary to the view of the primary Judge, the Part A statement does not comply with clause 11 of s.750 of the Corporations Law. In my opinion clause 9 of the statement does not either identify the "other persons" who are to provide the cash for the offer nor sufficient particulars of the arrangements by which that cash will be provided by those other persons. It has emerged since the argument yesterday that there is apparently a third loan agreement which has not been mentioned in clause 9. It is in agreement between Brierley Investments Limited and BIL (Australia Finance) Limited. The matter was discovered after reference was made to the balance sheets of BILAF and GPG. These disclosed that there were not sufficient shareholders' funds in the two companies to provide the $107.45 million which may be required. We were then referred to the balance sheet of Brierley Investments. This disclosed funds, including cash, of substantially more than $107 million. Nevertheless, it did not emerge that there was an agreement between Brierley Investments and BILAF until further submissions were received in writing today. Even now there is no evidence of such an agreement.

3. With respect to the primary Judge, I do not think it sufficient when an offeror purports to give particulars of arrangements by which the cash is to be provided, to refer generlly to two loan agreements. I think that offerees are entitled to be told of the essential provisions of the loan agreements. The only loan agreement in evidence is that between BILAF and the offeror. A reading of it discloses that it is a facility whereby BILAF agrees to make advances to the respondent from time to time at the respondent's request. The agreement is apparently unlimited in amount but BILAF retains control of the situation because of clause 3.1 which provides that the borrower agrees to repay to the lender the total amount outstanding on demand. That would always enable BILAF to maintain control of the amount which it advanced and could lead to a situation in which, in practical terms, it was not obliged to advance anything. The terms of the GPG agreement were said to be similar. That agreement is not in evidence nor is the agreement which is said to exist between Brierley Investments and BILAF.

4. The fact that the advances may be in the discretion of the company making them does not in any way mean that the facilities to which I have referred may not properly be relied upon for the purposes of clause 11 of s.750. But offerees are entitled to know what the facts are. In one sense it might have been right to say, as clause 9 of the Part A statement said, that there were no fetters or conditions precedent to draw down. But that does not tell the whole story.

5. It is for these reasons that I consider that clause 9 of the Part A statement does not comply with clause 11 of s.750.

6. In relation to the applications which have been made for relief, it should be pointed out that this is not a case of shareholders being denied information of a kind which might have persuaded them against accepting the offer. If they had been provided with full information, as I think they should have been, they would have been the more reassured as to the source of funds. It seems most unlikely to me that knowing the facts which I think they should have been given, would have caused any of them not to accept.

7. Nevertheless, I do not think that we can deal with an application for relief under either s.739 or s.743. The respondent will need to make that application substantively to a judge of the Court basing it no doubt on such evidence as it may be advised to lead. But I would myself think, without in any way affecting the discretion which the judge will have, that this is not a case in which shareholders need to be circularised or be given the option of treating contracts into which they may have entered as avoided.

8. In the result I would agree with the orders proposed by the other members of the Court.

JUDGE3

The appellant, Australian Consolidated Investments Limited, is the target of a takeover offer ("the takeover offer") by the respondent, Rossington Holdings Pty. Limited, for all of the issued fully paid ordinary shares in the capital of the appellant at $0.23 each. Pursuant to the requirements of Chapter 6 of the Corporations Law ("the Law"), on 10 March 1992, the respondent purported to give a Part A statement (dated 6 March 1992). The appellant then instituted proceedings in this Court applying for a declaration that the Part A statement was invalid and consequential injunctive relief. Lockhart J. dismissed the application. The appellant now appeals from this order.

The background facts

1. The background facts, which are not in dispute, are as follows. The respondent, which is jointly owned by Brierley Investments Limited ("BIL") and GPG plc ("GPG"), an English company associated with BIL, was formed as a vehicle to make the takeover offer. When it gave its Part A statement, the respondent was entitled to 93,858,700 fully paid ordinary shares and 9,800,882 preference shares in the capital of the appellant. The issued share capital of the appellant consists of (1) 379,256 "series B" partly paid ordinary shares paid to $0.17 each; (2) 3,907,326 "series C" partly paid ordinary shares paid to $0.17 each; (3) 553,921,713 fully paid ordinary shares of $0.50 each (the subject of the takeover offer); and (4) 53,060,000 10.5% cumulative convertible preference shares of $0.50 each (which on 30 April 1992 will automatically convert into fully paid ordinary shares and rank equally with all existing fully paid ordinary shares in the capital of the appellant).

2. On 17 February 1992, BIL wrote, on behalf of the respondent, to the appellant and to the Australian Stock Exchange foreshadowing a takeover offer in respect of the appellant's fully paid ordinary shares and indicating that preference shares "will be eligible for acceptance upon conversion to ordinaries."

3. On 24 February 1992, the solicitor for the respondent wrote to the Australian Securities Commission ("the ASC") seeking, pursuant to s.730 of the Law, modification of the application of Chapter 6 of the Law in the case of the proposed offer by, inter alia, the extension of the offer to shares issued after the date of the offer "pursuant to the conversion of convertible preference shares."

4. By letter dated 3 March 1992, the ASC informed the respondent that it would be prepared to grant the relief sought upon certain conditions. The conditions were not acceptable to the respondent. The ASC was not prepared to grant the relief sought unconditionally.

5. On 10 March 1992, the respondent gave the appellant its Part A statement. Two matters should be noted in this connection.

6. First, in describing the "takeover scheme", the statement dealt only with the fully paid ordinary shares. The preference shares were not the subject of the takeover scheme.

7. Secondly, the statement referred to the sources of cash consideration for the shares the subject of the scheme as follows:
   

"9. SOURCES OF CASH CONSIDERATION

If all of the holders of ACIL Shares to whom the Offers are made (excluding any offerees who are associated with Rossington all of which have indicated an intention not to accept the Offers) accept the Offers, the total amount that Rossington would be required to pay would not exceed $107,450,000. Rossington has access to the full amount of $107,450,000 should it be required to pay that amount. BIL (Australia Finance) Limited, the Australian finance subsidiary of BIL, and GPG plc have agreed to lend up to $107,450,000 to Rossington.

The loan agreements between BIL (Australia Finance) Limited and GPG plc, respectively, and Rossington are subject to no fetters or conditions precedent to draw down."

1. Clause 9 should be read with clause 5 of the statement as follows:
   

"PRINCIPAL ACTIVITIES OF ROSSINGTON

The principal activity of Rossington is to acquire and hold securities in ACIL. Rossington is the wholly owned subsidiary of Rossington Investments Pty. Limited. The principal activity of Rossington Investments Pty Limited is to hold shares in Rossington. Rossington Investments Pty Limited is jointly owned by Brierley Investments Limited

('BIL') and GPG plc, and is part of the BIL group of bodies corporate. The principal activities of the BIL group of bodies corporate are engineering, building and construction, horticulture, manufacturing, investment in property and securities, retailing, transport and forestry."

1. This information was purportedly given pursuant to the requirements of clause 11 of s.750 of the Law which relevantly is as follows:
   

"If the consideration for the acquisition of the shares to which the takeover offers relate...is to be satisfied in whole or in part by the payment of cash, the statement shall set out:

(a) if the offeror is to provide some or all of the cash from the offeror's own funds - particulars sufficient to identify the cash amounts held by the offeror for or in respect of payment of the consideration; and

(b) if the offeror is not to provide all of the cash, or is not to provide any of it, from the offeror's own funds:

(i) particulars sufficient to identify the other person who is, or each of the other persons who are, to provide, whether directly or indirectly, some or all of the cash from that person's or those persons' own funds; and

(ii) particulars of the arrangements by which that cash will be provided by that other person or those other persons."

1. The appellant now seeks to challenge the validity of the Part A statement in two respects. It is convenient to deal with them separately.
   The convertible preference shares - did the Part A statement comply with cl.8(b) and cl.17 of the Law?

2. As has been said, the scheme described in the Part A statement made no reference to the convertible preference shares. On behalf of the appellant, it is submitted that, by this omission, the respondent's statement failed to comply with the provisions of cl.8(b) and cl.17 of s.750 of the Law as follows:
   

"8. Where

...

(b) the offeror proposes to send, while the takeover offers remain open, offers or invitations relating to:

(i) the acquisition of shares in the target company (whether voting shares or not) of a different class from the shares to which the takeover offers relate; or

(ii) the acquisition of renounceable options or convertible notes granted or issued by the target company; the statement shall set out the terms or proposed terms of those offers or invitations. ...

17. The statement shall set out any other information material to the making of a decision by an offeree whether or not to accept an offer, being information that is known to the offeror and has not previously been disclosed to the holders of shares in the target company."

1. It is said, on behalf of the appellant, that the Part A statement does not contain information as to the respondent's intentions with respect to the convertible preference shares and that this is an omission which is "material" for the purposes of cl.17 of s.750. It is contended that, in the light of the respondent's initial announcement (in the letter dated 19 February 1992) proposing that the bid extend to the convertible preference shares, shareholders were entitled to know whether or not the respondent continues to hold that intention.

2. I have difficulty in accepting this analysis. I agree with Lockhart J. that no breach of cl.8(b) or of cl.17 of s.750 has been established. The evidence shows that the initial proposal to include the convertible preference shares in the bid was not pursued by the respondent when the ASC refused its application for relief. The evidence before the Court is consistent with the respondent's present intention not to include the convertible preference shares in the takeover scheme. In the absence of evidence that the respondent had a different intention, (and there is no such material before us), the appellant is unable to demonstrate that, for the purposes of cl.17, there has been an omission of material information. There is simply no evidence that such information exists.
   The funding of the offer - did the Part A statement comply with cl.11 of s.750?

1. It will be recalled that by cl.11(b) of s.750, if the offeror is not to provide all of the cash, or is not to provide any of it, from the offeror's own funds, the Part A statement shall set out:
   

(i) particulars sufficient to identify the other person who is, or each of the other persons who are, to provide, whether directly or indirectly, some or all of the cash from that person's or those persons' own funds; and

(ii) particulars of the arrangements by which that cash will be provided by that other person or those other persons.

1. As has been said, in the Part A statement, it is stated that "BIL (Australia Finance) Limited...and GPG...have agreed to lend up to $107,450,000 to (the respondent)" and that the "loan agreements between BIL (Australia Finance) Limited and GPG...respectively, and (the respondent) are subject to no fetters or conditions precedent to draw down."

2. It will be noted that the proportions in which the two lenders have agreed to finance the bid are not stated by the respondent. Lockhart J. was of the view that there was no obligation to do so.

3. With respect, I have difficulty in accepting this. As Lockhart J. also said:
   

"Clause 11(b) is designed to ensure that offerees know the identity of the person or persons who are to provide the cash to the offeror to enable the shares to be acquired by it, and in broad terms how the funds are to pass from that person or those persons to the offeror."

1. I agree with this statement, but it must follow that the explanation given by the respondent in the Part A statement and, in particular, in cl. 9 is insufficient for the purposes of cl. 11(b) of s.750. No distinction is made in the statement between the respective contributions of the two lenders. The respondent is a subsidiary of BIL, as is BIL (Australia Finance) Limited. But GPG is an associate of BIL and not its subsidiary. In my view, it would be material for shareholders considering the bid to know how much each of the lenders had agreed to advance. This has not been stated. That is to say, the Part A statement did not, relevantly, identify the lender qua the amount to be advanced in each case.

2. In my opinion, the Part A statement did not comply with cl.11(b).
   The application by the respondent to be excused under s.743(1) of the Law

3. On behalf of the respondent, application was made to excuse the contravention of cl. 11(b). The application was made pursuant to s.743 of the Law. Although the discretion there conferred on the Court is a wide one, I do not think that its exercise was justified here on the material before Lockhart J. The information omitted is important. There is no suggestion of inadvertence or mistake or of force majeure. This application should be refused.

4. However, during the course of argument before us, senior counsel for the respondent foreshadowed a fresh application to be excused from any contravention. The matter should be remitted to a single Judge for the purpose of entertaining this fresh application.
   Declaratory relief

5. Although the appellant seeks a declaration that the whole Part A statement is invalid, I do not think that this would be appropriate relief. Instead, I propose that there be a declaration limited to the failure of the statement to comply with cl. 11(b) of s.750.
   Costs

6. Since the appellant has had partial success in the proceedings, it is appropriate that it receive one-half of its costs at first instance and on this appeal.