Australian Securities and Investments Commission v Yandal Gold Pty Ltd
[1999] FCA 324
•26 MARCH 1999
FEDERAL COURT OF AUSTRALIA
Australian Securities & Investments Commission v Yandal Gold Pty Ltd
[1999] FCA 324CORPORATIONS LAW – takeover - alleged contravention of section 615 – whether creation of deemed “relevant interest” is an acquisition of a “relevant interest”- whether interim relief should be granted to restrain payments to shareholders accepting takeover offer
Corporations Law – s744(4)
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v YANDAL GOLD PTY LTD
V 3094 of 1999MERKEL J
26 MARCH 1999
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V 3094 OF 1999
IN THE MATTER OF THE CORPORATIONS LAW
IN THE MATTER OF GREAT CENTRAL MNINES LIMITED (ACN 007 066 766)
BETWEEN:
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
ApplicantAND:
YANDAL GOLD HOLDINGS PTY LIMITED
(ACN 085 189 671)
First RespondentYANDAL GOLD HOLDINGS PTY LTD
(ACN 085 602 213)
Second RespondentEDENSOR NOMINEES PTY LTD
(ACN 005 168 516)
Third RespondentNORMANDY MINING LIMITED
(ACN 009 295 765)
Fourth RespondentNORMANDY MINING FINANCE LIMITED
(ACN 058 419 604)
Fifth RespondentNORMANDY CONSOLIDATED GOLD HOLDINGS PTY LTD
(ACN 008 671 252)
Sixth RespondentNORMANDY MINING HOLDINGS PTY LTD
(ACN 007 544 112)
Seventh RespondentJUDGE:
MERKEL J
DATE OF ORDER:
26 MARCH 1999
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
The applicant’s application for interim relief be refused.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V 3094 OF 1999
IN THE MATTER OF THE CORPORATIONS LAW
IN THE MATTER OF GREAT CENTRAL MINES LIMITED (ACN 007 066 766)
BETWEEN:
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
ApplicantAND:
YANDAL GOLD PTY LIMITED
(ACN 085 189 671)
First RespondentYANDAL GOLD HOLDINGS PTY LTD
(ACN 085 602 213)
Second RespondentEDENSOR NOMINEES PTY LTD
(ACN 005 268 516)
Third RespondentNORMANDY MINING LIMITED
(ACN 009 295 765)
Fourth RespondentNORMANDY MINING FINANCE LIMITED
(ACN 058 419 604)
Fifth RespondentNORMANDY CONSOLIDATED GOLD HOLDINGS PTY LTD
(ACN 008 671 252)
Sixth RespondentNORMANDY MINING HOLDINGS PTY LTD
(ACN 007 544 112)
Seventh RespondentJUDGE:
MERKEL J
DATE:
26 MARCH 1999
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
On 12 January 1999 the third respondent Edensor Nominees Pty Ltd held approximately 12.6% of the shares on issue in Great Central Mines Limited (“Great Central Mines”), a company listed on the Australian Stock Exchanges. On the same day Normandy Mining Holdings Pty Ltd (“the seventh respondent”) a company in the Normandy group, held 27.8% of the shares on issue in Great Central Mines Limited. The Normandy group and Edensor held all of the issued shares in the second respondent Yandal Gold Holdings which in turn owned all of the issued shares in the first respondent Yandal Gold Pty Ltd (“Yandal Gold”). On 12 January 1995 Yandal Gold served on Great Central Mines a Part A statement in relation to offers it proposed be made by Yandal Gold for all of the shares in Great Central Mines Limited. The offer and the Part A statement of Yandal Gold were lodged with the applicant (“ASIC”) and were deemed to be registered under s 646 of the Corporations Law on 12 January 1999. On 27 January 1999 ASIC issued an instrument under s 728 of the Corporations Law granting relief for a varied offer in respect of shareholders of Great Central Mines whose registered address is in the United States. From an early stage of the takeover, ASIC was concerned about the consequences of a Shareholders Agreement dated 11 January 1999 relating to the offer which was entered into between the respondents. ASIC carried out certain investigations concerning the Shareholders Agreement, a copy of which it has had in its possession since 2 February 1999.
The primary contention of ASIC is that as a result of the Shareholders Agreement Edensor and the Normandy group acquired relevant interests in respect of the shares each held in Great Central Mines with the consequence that upon entering into the agreement Edensor’s relevant interest in shares in Great Central Mines increased from 12.6% to 40.4% and the Normandy group’s relevant interest in shares in Great Central Mines increased from 27.8% to 40.4%. ASIC contends that the effect of the agreement was an acquisition of relevant interests by Edensor and the Normandy group of companies in contravention of s 615 of the Corporations Law. ASIC also contends that the alleged contraventions had adverse consequences for shareholders in Great Central Mines as the takeover “platform” of 40.4% deterred any rival bid and was also used in the independent expert’s report to deny the appropriate control premium.
In its application ASIC claims that as a consequence of the alleged contraventions of s 615 it is appropriate for the Court to make orders pursuant to s 737 or 739 of the Corporations Law:
· cancelling the offers made by Yandal Gold pursuant to the takeover scheme which commenced with its Part A statement and offer and any uncompleted contracts arising from the acceptance by shareholders of the offers made Yandal Gold pursuant to the scheme;
· requiring Yandal Gold to offer to each person from whom it acquired shares in Great Central Mines under the takeover scheme and to whom it paid the consideration for those shares, the option to cancel their acceptance of the offer and recover those shares upon repayment of the amount paid to them by Yandal Gold;
· vesting in ASIC all shares acquired by Yandal Gold pursuant to completed contracts arising from the acceptance of any of the offers made to shareholders under the takeover scheme other than shares in respect of which the option referred to above has been exercised by shareholders;
· cancelling the Shareholders Agreement.
Edensor and the Normandy group dispute ASIC’s contentions and maintain that under the Shareholders Agreement no relevant interest was acquired by any of the respondents in respect of the shares held by Edensor and the Normandy Group in Great Central Mines. They contend that the respective holdings of relevant interests by the various entities in Great Central Mines as at 12 January 1999 was not directly or indirectly affected by their entry into the agreement.
ASIC was on notice, as from the time the Part A statement was lodged with it, that the proposed takeover scheme involved the Normandy Group and Edensor joining together to make the takeover offer through Yandal Gold using their respective holdings totalling 40.4% of the shares in Great Central Mines as the “platform” for the offer. ASIC has also had in its possession a copy of the Shareholder’s Agreement between the respondents in respect of the proposed takeover since 2 February 1999. Yet ASIC desisted from commencing any proceedings in respect of the alleged breaches of s 615 until 25 March 1999. On the same day ASIC made an urgent application to the Court for interim relief restraining the respondents, but in particular Yandal Gold, from continuing to pay the consideration payable to shareholders in Great Central Mines who had accepted the Yandal Gold offer. Plainly, ASIC’s delay in issuing these proceedings and making its application for interim relief has given rise to significant practical problems concerning the grant of the relief now sought by it. The takeover offers were dated and dispatched to Great Central Mines shareholders on 8 February 1999 and have been accepted by approximately 39.1% of the holders of Great Central Mine shares on issue. In respect of the 39.1% acceptances:
· Yandal Gold has paid consideration in the sum of $109,687,593, as it was obliged to do, on 19 March 1999;
· Yandal Gold has an obligation to pay, within 5 days of each acceptance, further consideration totalling $71,535,103 in respect of the balance of Great Central Mine shares for which acceptances have been received but for which payment has not yet been made.
The takeover offer, which has been unconditional since 15 March 1999, is due to close on 6 April 1999. Thus, the effect of the relief sought by ASIC would be to prohibit payment by Yandal Gold of so much of the $71.5 million that has not been paid and any further amounts due in respect of the remaining 20% of shares in Great Central Mines which might be the subject of acceptances of Yandal Gold’s offer between now and 6 April 1999.
Irrespective of the outcome of ASIC’s application for relief under ss 737 or 739 of the Corporations Law the contracts resulting from a shareholder’s acceptance of Yandal Gold’s offer are valid and enforceable: s 615(6). Thus, ASIC is seeking an order to restrain the performance of a valid and binding legal obligation on the part of Yandal Gold to pay the consideration payable by it under its unconditional contracts to purchase shares under the takeover scheme.
In order to succeed in its claim for interim relief ASIC must satisfy the Court that there is a serious issue to be tried in respect of the contraventions of the Corporations Law, which it has alleged has occurred, and that the balance of convenience favours the grant of the relief sought.
Having regard to the view I have formed on the question of balance of convenience, this matter will come on for final hearing in the near future (irrespective of the outcome of the application for interim relief). it is unnecessary for me to consider in any detail the respective submissions of the parties on the issue of contravention of s 615. It is sufficient for present purposes for me to state that I am prepared to proceed with the present application for interim relief on the assumption that ASIC has established that there is a serious issue to be tried.
It is in the area of balance of convenience that ASIC’s claim for interim relief runs into serious difficulty. First and foremost the relief sought seeks to restrain payment of amounts due under valid contracts to innocent third parties who have acted bona fide in accepting offers made pursuant to the takeover scheme which has been the subject of both registration and variation by ASIC. Whilst I accept that the Court has power to grant such relief, in the usual course, it would require a compelling case on the balance of convenience for such relief to be granted. ASIC’s case in that regard is far from compelling. ASIC has not contended that the interim relief is necessary to ensure that the subject matter of the litigation is preserved, that the failure to grant relief will frustrate the granting of the final relief sought by ASIC or that any irreparable harm will occur if interim relief is not granted. That is a matter of some importance as ASIC has through its counsel accepted that, even if the interlocutory relief sought by it is refused, the Court will nevertheless be able at the final hearing to grant all of the final relief it seeks. The final relief sought affords an option to shareholders who have accepted the offer to disgorge the consideration paid and reacquire their shares with vesting orders in respect of the remaining shares acquired by Yandal Gold pursuant to the takeover scheme and in respect of which the option is not exercised. Thus, if the interim relief is granted, innocent shareholders who have accepted the offer and have not received the payment due will be significantly disadvantaged. Their shares will be effectively frozen until the determination of the case, and possibly appeals, and they will not be paid for them. If the relief is refused they are likely to be advantaged as they will receive the amounts due and, if ASIC succeeds in obtaining the relief sought at trial, the shareholders can exercise the option to reacquire their shares if they wish to do so.
The case sought to be made by ASIC is that it is necessary for the Court to intervene, albeit at this late stage, as the larger the number of shares which are ultimately vested in ASIC the more unsettling it will be for the market as a result of the downward impact on price of such a large number of shares being required to be sold onto the market.
The submission by ASIC is puzzling. Firstly, it has put forward no evidence whatsoever that the consequence it foreshadows is likely to occur. Secondly, if the risk feared eventuates the Court can structure its orders to ensure an orderly, rather than a disruptive, sale of the vested shares on the market. Thirdly, ASIC is not seeking to restrain shareholders accepting the offer; rather, it is seeking to restrain payment being made to those shareholders who do accept the offer. Given the uncertainties that the proceeding will undoubtedly create in the market I am not satisfied that the grant of interim relief would necessarily deter shareholders from accepting the Yandal Gold offer. With the prospect of the offer closing on 6 April shareholders may see acceptance as a preferred option. Thus, if the injunctions do not have that deterrent effect then there is no reason to conclude that, if ASIC is ultimately successful, the number of shares that might be the subject of a vesting order will be significantly greater as a result of the refusal of the Court to grant the interim relief sought. Fourthly, it is not readily apparent why shareholders, having acted in good faith in accepting offers should be subjected to a Court order that they not receive the payment to which they are entitled. On the evidence before me I am satisfied that the orders sought would not only be unfairly prejudicial to those shareholders but would be restraining payment without any proper evidentiary basis that it is desirable or in the public interest to do so. I am not satisfied that this is a case in which the Court ought to preserve the status quo by making the orders sought by ASIC.
There are two further reasons for refusing to grant the relief sought. Although ASIC has sought to explain the reason for its delay in instituting these proceedings I am far from satisfied that the reasons proffered justify the delay that has occurred. Innocent third parties, being shareholders in Great Central Mines, have undoubtedly ordered their affairs in relation to their shareholdings on the reasonable assumption that the offer that has been made to them is lawful and in accordance with the provisions of the Corporations Law. Until these proceedings ASIC did not disabuse the shareholders of that belief. As a consequence the shareholders now fall into three distinct categories. The first is the group of shareholders who accepted the offer early enough to be paid. The second is the group of shareholders who recently accepted the offer and are due for payment within five days of the receipt of valid acceptances. The third group are the shareholders who have not yet determined to accept the offer but are entitled to do so prior to 6 April. ASIC’s delay would result in the rights of shareholders in relation to the takeover differing according to which of the groups they fall within. In my view it does not form any part of the statutory objects of the takeover provisions in the Corporations Law to make orders which have such a significantly differential and unfair impact on shareholders who, under the Law, were entitled to be treated equally in respect of the takeover offers made to them for their shares.
Finally, the real dispute in the present matter is a dispute between ASIC and the Edensor and Normandy group. It is implicit in the submissions of Edensor and Normandy that they, rather than the shareholders, ought to bear such risks as exist in relation to the outcome of the dispute. Even if that was not implicit I am clearly of the view that that is a proper outcome. If, as ASIC contends, that outcome might have a depressive effect on share prices, that affords a strong reason for allowing the shareholders to have the option to accept and be paid now with the prospect of reacquiring their shares if ASIC obtains its relief.
It seems to me that justice is achieved in the present case by the Court making appropriate directions for the early hearing of the dispute. It does not serve the public interest or the interests of justice to make orders in relation to that dispute that unfairly prejudice the interests of innocent third parties. Yet that is the effect of the orders sought by ASIC.
Accordingly, for the above reasons, the application by ASIC for interim relief pursuant to s 744(4) of the Corporations Law is refused.
I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel. Associate:
Dated: 26 March 1999
Counsel for the Applicant: Mr JH Karkar QC with
Mr RD StrongSolicitor for the Applicant: Australian Securities and Investments Commission Counsel for the First and Second Respondents: Mr A Archibald QC with
Mr L GlickSolicitor for the First and Second Respondents: Clayton Utz Counsel for the Third Respondent: Mr B Ross Solicitor for the Third Respondent: Clayton Utz Counsel for the Fourth, Fifth, Sixth and Seventh Respondents: Mr R Levy Solicitor for the Fourth, Fifth, Sixth and Seventh Respondents: Freehill Hollingdale & Page Counsel for Great Central Mines Limited: Mr N Young QC with
Mr M ConnockSolicitor for Great Central Mines Limited: Arnold Bloch Leibler Date of Hearing: 25 March 1999 Date of Judgment: 26 March 1999
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